Samantha Yap [00:03]: Hi! I’m Samantha Yap. Welcome to The Story of Money by YAP Cast where we talk about where money is heading. Join me and Ambre Soubiran on this episode of The Story of Money by YAP Cast. Hi, I’m talking to Ambre Soubiran, CEO of Kaiko, who last episode shared her vision of how data is as central to DeFi as it has been to traditional finance. We can easily forget that financial markets are underpinned by several giant data companies which feed all market participants with up to the millisecond price information. DeFi too, though we’re still at the early stages, and the principles of on-chain data transparency, immutability and anonymity mean that the TradFi model cannot be simply ported across. I’m curious about Kaiko’s mission to be the foundation of the digital finance economy and what that actually looks like, so let’s get back to my conversation with Ambre and see what she has to say. Gap between TradFi, DeFi, and CeFi Samantha Yap [01:08]: Moving on to talking about the bridge between TradFi, CeFi and DeFi. What do you make of the gap, the understanding gap between TradFi, CeFi and DeFi right now? Ambre Soubiran [01:20]: Aabsolutely. So, TradFi, I think everybody knows - TradFi is the existing financial system. And by the way, I think there are lots of incredible things with the existing financial systems. This is finance that has been evolving and kind of being perfected over hundreds of years. And so, we shouldn't just trash everything and start anew. I think, sometimes in the pure kind of short DeFi, Web 3.0 community, you kind of hear a little bit of a revolutionary dialogue. And I think that it's important to acknowledge the fact that a lot of great things exist in finance and a lot of good financial products and, you know, there's many great things. But it is today run by what we call centralized, obviously, institutions that are regulated. So, the regulation makes sure that there are some specific liquidity ratios that are responsive to peak rules that you cannot do anything with customer funds, etc. So, the regulated traditional financial institutions is the traditional world. Then on the other side of the spectrum, you have DeFi and DeFi is entirely public protocol based, blockchain based financial applications such as decentralized exchanges, lending and borrowing protocols, tokenization platform, you have a lot of different applications that leverage the blockchain technology. And then they build protocols that mimics financial contracts in order to enable participants to interact with each other and an exchange value and then kind of program this exchange of value depending on specific guidelines. This is unregulated, but it is also entirely public, transparent, open source, you can read the code, you can see where funds go, etc. Then you have in the middle CeFi, and CeFi serves a very important purpose, which is it serves as a bridge to DeFi, in order to interact with DeFi, you need to own crypto assets. And the only way to go from Euros to Eth is to have a place where you can buy Eth. So, CeFi basically creates financial applications that has very much to do with crypto assets. And that they enable and they onboard and they do this kind of on ramping, off ramping for a lot of users to bridge the TradFi world and the DeFi world. However, I think where it's been a little bit misused, is it's not supposed to be this new unregulated bank that you use as a sort of, you know, to store your value. And unfortunately, the problem here is that either you have good unregulated, centralized exchanges and kind of offerings. And I'm not going to give names, that’s not the point, or you have some that are more dodgy and do whatever they want with customer funds. But the problem is because they're unregulated, but still centralized, well, then you just don't know what's going on, you don't know what happens. And every time in the history of crypto, that something happened, that was dodgy it was because it was opacity plus unregulated companies. However, centralized exchanges serve a very important purpose, which is making the user experience more seamless. And obviously, crypto is an industry where honestly, interacting with DeFi protocols is still hard. It's not very intuitive. And so, the centralized exchanges and centralized finance today is making crypto easier, and it's creating that on ramp. So, you know, it's really not entirely bad. I think none of those three are bad or right or wrong, I think it's important for people to realize that the power of crypto and blockchain is a lot into being in control of your funds. So, there's this old saying, not your keys, not your funds, it's important, you have the power to hold your crypto, you have the power to not trust an intermediary to manage your funds. So why would you? Right. In some way. And so, this this situation that we're currently in, really puts the spotlight on the fact that it is extremely important to be self-custody of your funds to understand what blockchain means and and to build on the blockchain narrative rather than recreate the TradFi industry on a emerging volatile asset class. What is Kaiko building? Samantha Yap [05:27]: Thanks for that overview and that grounded perspective, because I think there are as you highlighted, you know, good things about all different aspects. It's just the we haven't quite seen the best use of it all but where does Kaiko fit in this spectrum? And yeah, what’s some of the work you guys are focusing on or want to see happen being this place where you're providing market data for different players. Ambre Soubiran [05:53]: So data, data, data, it's really about transparency, price, order book volume, we're connected to all exchanges regardless if they are CeFi or DeFi. We gather all the trading activity on all crypto pairs as they are traded everywhere pretty much. We cover 200,000 instruments. An instrument is a pair of assets. So, it can be Bitcoin-Euro, it can be Eth-Dollar, it can be Bitcoin-Eth, whatever crypto against whatever other base assets and what we provide is transparency and visibility for anyone who is interacting with the crypto markets on the market structure and the price of those assets. And that is extremely important. I mean, that industry, the Financial Data Industry and TradFi is a $40 billion industry every year. It is huge. And it is huge because people need access to information, it is essential the information that we're providing. Proof of reserves Samantha Yap [06:48]: Speaking of data, there's this conversation about exchanges needing to provide proof of reserves. Now, so as a result of what's happened at the time of speaking with the FTX collapse? It's expecting the centralized exchanges to prove that they have reserves. What's your thoughts on that? Is there a way Kaiko can get that data as well and ensure that it's trusted data from the different exchanges that you work with? Ambre Soubiran [07:14]: Absolutely, I think that's great. And I also, so the great thing is, Kaiko can get that data, but anyone can get the data. That's the whole point, is that once they publish the list of their wallets, where they hold their reserves, everybody can take a look at it. What you see, however, on-chain is a number of Bitcoins, a number of Eth, a number of whatever token. And so, what we will be able to see on chain publicly is the number of each token as they're held by exchanges. Where Kaiko comes in is by providing a reliable price rate that can be used in order to calculate what is the dollar counter value of all of these assets, and in a fair, transparent way. So yes, absolutely - I think this is great. I think it goes in the right direction of kind of self-regulation, even though I think regulation will help as long as customer funds are involved. I think it does make sense that there are some obligations in terms of reporting of that nature. And then making that publicly available and publicly observable on chain is great. It's going to create some operational difficulties for exchanges. As you know, everything is under scrutiny. But still very much a good move for the ecosystem. Transparency might make it hard for some but it’s good for the industry Samantha Yap [08:19]: I guess the follow up question to that is, how can customers trust that data? How do we know that the data that exchanges like Binance or Kraken are giving us are, you know, is the accurate data because they are still centralized exchanges? Ambre Soubiran [08:36]: So yes, but what we cannot verify is how much do they have in Fiat on a bank account unless they actually publish bank statements. However, for anything that is on-chain, I mean, anyone can take the list of the public addresses that Binance gave as being their cold wallets. And anyone can just put that in Etherscan and Ether Scan and kind of check the balances, check with transfers and check everything. That's why I was saying it's going to make their operational life a little bit more difficult. Because everything is so public. And so anytime they move something - sometime for just storage purpose, or like, you know, housekeeping, kind of making sure that the assets are segregated here and there, etc., is going to trigger some kind of industry questioning on why are they moving so much money here and there, what are they doing with the funds, but now that they've announced once that they've tied a blockchain wallet to their identity, which is this is our Binance hot wallet or cold wallet, whatever. Well, it's there, it's known and now we can track every single thing that you do, that's public. So, it's not because they're a centralized exchange, that their on-chain activity doesn't show on chain, the on-chain activity is there and now that they shared their wallets, it's possible for anyone to access that and to see which were the different inflows outflows of each wallet and which other wallet they interacted with. This is not data that we do at Kaiko. This is the you know, guys like Chainalysis are experts in doing these kinds of things or Elliptic in the UK. But I think, it's a good move for the industry. Should DeFi follow TradFi applications Samantha Yap [09:58]: When you were explaining about DeFi, the benefits of DeFi is that it’s transparent and that people can track everything on-chain, however, it's still kind of this innovative, unregulated space. Do you think DeFi should mimic the traditional financial applications? And would that be the ideal future financial system or is there more to it? Ambre Soubiran [10:21]: So, there's more to it right? Because the only thing you need to participate in DeFi is an internet connection first of all. So, I think that by itself is important to mention, I'm pretty sure that most and some of the flaws and craziness and speculation of the existing financial system will be replicated in some form of shape on chain. But where it actually does serve a very important purpose is in bringing transparency into the things where customers do not have access, right. If I want to enter a super leverage trade, I can do that on traditional finance, I can do that on DeFi, that's no problem. But if I want access to lending services, if I want access to just a, you know, buy-hold-sell banking system, all of the basic functions of the financial system are going to be enabled in a much more transparent, decentralized way than they are today in the financial system. The amount of fees that banks are taking in every single possible direction today is crazy and this is something that we can change with DeFi. Now, if people do want to start creating exotic protocols and contract and miss-sell them, unfortunately, you know, that's also a part of the human nature but basically, I don't think it can get worse. It can only get better, and it will improve on all of the basic services of what finance should be about. Samantha Yap [11:37]: Cool. And I guess the ones that are doing things right will eventually grow. But I think right now DeFi doesn't necessarily have the volumes that traditional financial space has. Ambre Soubiran [11:46]: There's now solid amounts of liquidity on-chain, right?. What does the digital finance economy look like? Samantha Yap [11:50]: Yes, for sure. Looking ahead, the Kaiko mission on your website says that - Kaiko hopes to be the foundation of the digital finance economy. What are the ingredients to that? And what does that look like? Ambre Soubiran [12:02]: I think solid, transparent, reliable tech, I think is number one. I mean, our focus is institutions and enterprises, right? So, we have to build systems and networks that are at the level of the existing financial market data feeds. And these are like giant companies out there. So, the first thing is obviously we're trying to do, and that's why I say there is amazing things already and TradFi is we are taking leafs and lessons from large traditional financial data company, we are regulated ourselves under a data regulatory framework around what you can and cannot do with the data as you're going to be able to serve as a source of truth for an industry. So, when we say we want to enable the new digital economy is I believe that blockchain will be the underlying tech to many industrial applications in the future. And for that to happen you need reliable code auditable transparent, solid code, and then you need reliable trusted third-party data provider that is going to feed data to that code. And that is really how we're approaching the question and Kaiko is here to solve the quality data components of enabling a blockchain economy. Where is crypto going to be in five years’ time? Samantha Yap [13:12]: And looking ahead, let's say five years ahead, where do you see crypto growing and evolving and yeah, addressing kind of what's happened as we're speaking in the last week? Where do you see crypto heading? Ambre Soubiran [13:26]: So, I think it's going to reinforce the actual blockchain narrative, and the fact that we need to, you know, I think it's going to empower a lot of DeFi application and it's going to put more emphasis on on what was the original ethos of blockchain and a bit less about synthetic centralized financial products and applications on top. So, I think that is for the better, I think the next step to start seeing proper blockchain application is asset tokenization. And that will be the next natural key, I think, let's say that there's a succession of bottlenecks here. And that asset tokenization is key to enabling proper real-life applications of blockchain tech. We need to get back to basics Samantha Yap [14:00]: Anything else you'd like to add? I think we've covered a lot of ground. Ambre Soubiran [14:04]: Thanks for asking all those questions. As you say, it's our role as an industry to be more clear and more maybe, pedagogic, I guess about, you know, what does blockchain mean? I mean, Blockchain is a revolutionary technology, but it is just a technology. It's a means it's a different way of executing contracts. The contracts are not going to change. It's just how do we run them? How do we create trust? How do we execute them? And I think that's it's important really to get back to the basics. And I think that's a good opportunity for people right now in this kind of trust crisis, because of FTX, to go back to the fact that blockchain is really a ledger that is maintained by a network that is incentivized by a unit of account. And that is the triptych that basically creates a blockchain, you need a network, you need the crypto elements that is used to incentivize the network so that they would maintain the ledger. And I think those elements are very important to just go back to the basics. So, you know, you did the University of Nicosia, I have a few colleagues who did it too and it was great. The Princeton degree is great, read books, you know. People should just get back to like, what is the essence of blockchain and what it means to have a network that basically, processes transactions and contracts? Samantha Yap [15:14]: Yes. And ultimately, the angle of this kind of podcast is The Story of Money and the future of money. And I think we're seeing money evolve - the trust system of money. So ultimately, yes, blockchain technology is just the foundation of it. And it's like what will come up - the applications built on that. So yes, I think that's interesting. And yes, keep up the work that you do with Kaiko because I think it's very much needed and I appreciate the grounded perspective that you brought between to TradFi, CeFi and DeFi because I work with a lot of DeFi - yes, DAOs and they're very quick to discount sometimes with the TradFi world do but as you said, there's been applications that have been tried and tested for years. There's a reason why it's still around, so we need to recognize that too. Ambre Soubiran [15:54]: Yes. Thank you so much for having me on the podcast. Samantha Yap [15:56]: Thanks so much Ambre. That was Ambre Soubiran, CEO of Kaiko, a company that is providing data on 200,000 different financial instruments, making digital asset transactions possible. A key takeaway for me is this: while she clearly believes that TradFi provides important guides for DeFi, its exorbitant fees and slow innovation make it ripe for disruption; but that disruption is not assured, as recent events have shown us. There’s plenty more that needs to be done in DeFi to build the credibility and infrastructure necessary for long-term success. And Ambre believes that to get there we need to get back to basics, understanding what makes blockchain such a compelling technology, and building out from that. While the collapse of FTX has reminded us that centralised finance is not the way forward, it is also a lesson in building tools that reflect the core advantages of blockchain, to build real use-cases. If this particular story of money is to have a happy ending, then we need to listen to voices like hers. Thanks for tuning into the second season of The Story of Money by YAP Cast. I’m Samantha Yap. For the new season, follow The Story of Money by YAP Cast.