Episode 11: The Data of Money Episode Transcript (website) 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. This week I’m taking a behind-the-scenes look at the data that makes financial transactions possible. In any exchange, the value of the assets being traded needs to be known and agreed by both parties, whether it’s two currencies being traded or a second-hand car being sold in exchange for lots of candy We need to know what these things are currently worth so the two sides can reach a deal, and that means data. Like pricing data, which changes all the time. It’s less glamorous but it’s a vital part of the story of money. To help me understand the evolution of this world is someone better placed than most — Ambre Soubiran, worked at the highest levels of traditional finance, until she caught the DeFi bug, became the CEO a crypto data company and turned it into a key player in the digital asset market industry. Ambre, thank you so much for joining me on YAP Cast, very excited to have you on the show today. Ambre Soubiran [01:17]: Thanks for having me. Background Samantha Yap [01:19]: So, tell us a little bit about your background in traditional finance? Because I understand you used to work at HSBC. Could you just share a little bit about your background before delving into this digital asset industry? Ambre Soubiran [01:30]: Yes, absolutely. So, I'm a mathematician by training. And quite naturally, like most French people who study math, I jumped right into the trading floor environment and I was in equity derivatives structure for about 10 years, first in Paris, and then in London, where I stayed all the way up to 2016. After a few years of being a banker, and a crypto convinced, it took me a few years to manage to actually take the decision and make the move towards full-time Blockchain. Samantha Yap [02:01]: Cool! Could you expand a little bit on your role in terms of structuring derivatives? And what does that all mean? And what did your like role entail? Ambre Soubiran [02:10]: So, equity derivatives are a type of financial instrument that basically enables people to have a predetermined exposure to the price of underlying assets. The most common equity derivatives are options such as call or puts, which is purchase options or sell options. And these basically enable you to pay a small premium for the right to purchase or to sell a security at a given price. So, it serves two purposes: The original one is that it's used as a hedging instrument. So, if you have an exposure to a specific equity, you could buy downside protection, you can buy the rights to sell at a specific price, which protects you in the case of a market downturn, if prices fall, you're still allowed to sell at that predetermined price, which means that you're essentially hedging the downside. On the other side, you can purchase call options, which gives you the right to buy. And this is in a context where you would like to have actually upside exposure to the price of a security, then you would buy that option, which enables you to buy at a predetermined price at a moment in time, so that if price goes up, you could still buy at a relatively lower price and then make an instant profit. So, these derivatives are used for a myriad of use cases. But what I was doing at HSBC was focusing on large corporate clients, large blue-chip companies that needed equity derivatives for financing or hedging considerations. Interest in Bitcoin Samantha Yap [03:41]: So, I read somewhere that you were known as the Bitcoin or Blockchain person in HSBC, because of your interest in the technology. When did you first learn about Crypto and blockchain technology and what interested you about it? Ambre Soubiran [03:57]: So, the first time I ran into Bitcoin was I was just reading a random math blog, and I stumbled upon the white paper. And that was in, I think, October 2012, I realized that it was just 10 years ao. And luckily, there was a meetup organized in London a couple of weeks later, so I just decided to show up. And by the time it was probably like, 40 people in a garage in bricklay, it was still very, very underground. People had flown over from Canada to talk about bitcoin and how it would change the world. It was really interesting. And so that was my first foray into Blockchain. And what I thought was really interesting was the fact that for the first time ever, we had this unit of account that was internet native, and that enabled a form of digital scarcity. It was for the first time something that you had that was a digitally native asset that you could transfer to someone else while just relying on the power of the network and internet. So, I thought that was very interesting. And that's how I started getting into the Bitcoin rabbit hole. I took a couple of online courses, I'd like to say which one because I thought it was really, really interesting and very well done, and it's not new, but it was the Bitcoin computer science course on Bitcoin and cryptocurrency technologies. I think it was a great way to learn. And I still encourage people today to do it. The other book that I love was Digital Gold that I read at this time, and that really explains the beginning of blockchain. Then I got into Ethereum when Ethereum came along and I think Ethereum was a real revolution in terms of what it meant for my own industry, which was Capital Markets. Equity derivatives, as I mentioned, is very much based on the execution of very standardized financial contracts. And something that can be transformed into code relatively easily because it's generally relatively basic mathematical formulas. And the way Ethereum presented itself by saying we can now not just send transaction, not just send and receive money, but we can actually send and receive code, we can actually execute contracts directly on chain using the same technology that blockchain is, I thought was game changer and it had the opportunity to transform in the way we process code and contracts. A lot of industry is starting with finance and that's what we're seeing today with DeFi - I think, DeFi proves the fact that blockchain is a great technology for enabling financial contracts on chain. Samantha Yap [06:24]: Just before we move on, who taught the course that you did and who wrote that book? Just so our listeners can reference that. Ambre Soubiran [06:31]: So, the book is Nathaniel Popper. And the Bitcoin course, is called "Bitcoin and Cryptocurrency Technologies" and it is by Arvind Narayanan. You can put it in the link notes, I can send you the link. It's online, it's a free course that is available on Coursera and on the Princeton website directly. Samantha Yap [06:48]: Yes, awesome. I actually learned through the University of Nicosia, which I also recommend they're masters of digital currency and there's that free online course. So that's really cool that you have a course to reference of what led you into this. Really interesting that you come from this traditional finance background, yet you've seen the potential of blockchain technology, just taking a few steps back in 2012, or when you started sharing this stuff with potentially your colleagues at HSBC. What was the stigma of crypto back then? Were there open minds? Or what was it back then when you're trying to evangelize for this tech? Ambre Soubiran [07:29]: Not so open. Clearly, it was a bit early. Back then it was the whole, you know, MtGox, SilkRoad, the narrative in the early years around crypto was not so great. Because Bitcoin was a bit of an alternative means of payment on the internet, it became used by people that couldn't go through the more traditional banking system. So that I think didn't put Bitcoin in the best light in its early years. And I think it only took a couple more years for people to understand the power of blockchain as a technology and the fact that disintermediating the way we run contracts is a way to create trust between people who don't have inherent trust and in systems that increasingly lack trust. And back in the days, it was rare to find people that were extremely excited and convinced that this would change the world one day. Current crisis - same as before? Samantha Yap [08:20]: Yes. It is interesting you referenced the MtGox. situation that led to-- Yes, just the negative stigma around crypto. We're speaking at a time right now after FTX, one of the fastest growing exchanges in the last two years, has just filed for bankruptcy? Do you see any parallels here to what you saw back then? Ambre Soubiran [08:42]: Absolutely, I mean, the in some way, it's terrible for the crypto ecosystem that we have such a breach of values and trust. And I mean, it's almost morals and ethics at this point to have somebody lie so much about everything and misuse customer funds, etc. That being said, that proves also the point that blockchain is about transparency, decentralization and it's not about building centralized giants on top of blockchain. So, everything that has gone wrong with blockchain since the invention of Bitcoin has been whenever we've tried to centralize value and power and information in one place. And so, in some way, even though the FTX crisis does not put the general broader crypto ecosystem in a great light, it also shows why blockchain is actually so important, and I think you have some very good by the way reputable exchanges, centralized exchanges, doing a great thing and then having the right attitude toward customer funds, etc. But the truth is when you're unregulated, you're unregulated, right? So, you can do a lot of things that are forbidden by regulation, and that is where things fail. And it's fine to be unregulated if you're a transparent, decentralized protocol that everybody can observe on the internet, what is not fine is when you are both centralized and unregulated. So, I think FTX proves the points and the importance of transparency and blockchain based systems. What made you leave TradFi? Samantha Yap [10:07]: Yes, cool. Thank you. I'm going to get you to expand on the differences between traditional finance, centralized finance in a little bit. But before that, what led you or motivated you to leave your traditional financial role at HSBC and what were some of your convictions at the time when you left? Ambre Soubiran [10:26]: It's still the same conviction today. It's really, I believe that blockchain is an incredible underlying technology for financial services and the general financial industry to base its operations on. I think blockchain is a technology, that technology requires crypto, crypto is the unit of account that incentivizes a network to maintain a ledger to process transactions, to process code. So obviously, crypto network, blockchain, all of these are intrinsically kind of intertwined. However, I think that blockchain is the technology that enables the execution of, in the context of finance, because this is where I come from, that's my DNA, the execution of financial contracts in a way that is much more streamlined. I think, where I got slightly frustrated is I believe that the capital markets industry has decades of iterating on financial engineering and improving and making processes more smooth. But still, what we've done is that we've digitized the old finance, rather than reinventing the workflow and the processes. And so today, even to execute a relatively simple call option agreement between a bank and a client, we have to rely on the whole kind of cycle of front to middle to back office, settlement agencies, clearing date agencies, etc. And that could be executed on chain with the entire value chain kind of being disintermediated, and bringing trust and security and auditability. So, I was really driven by that conviction that blockchain will serve as an underlying technology and underlying IT system on which industries could be able to function and to run code. And by code, obviously, I mean contract and almost everything we do in life is contracting with one another. The second thing that derives from that to explain why Kaiko is in a blockchain enabled world, in blockchain enabled industries, one where we execute contracts under the phone form of code that is executed on chain, two things become really, really important: The first one is the quality of the code. And the second one is the quality of the data that you feed to the code, because the code is blind in some way, it can be a perfectly drafted code that lives on a blockchain, it needs to have external information in order to execute. Again, I take the example of a call option, which is the right to buy at a certain price. For the call option to basically execute to payout of the call option it needs a price and maturity of a security. So, you need that oracle component to bring data to blockchains in order to trigger the execution of the contracts. So, I was driven by the one fundamental conviction that blockchain would be a transformative technology. And second, that two critical pieces for that to happen are going to be quality code and quality data. And that's how I ended up running Kaiko. What is Kaiko? Samantha Yap [13:22]: Thanks for explaining that as much as more about Kaiko. How did you get involved with Kaiko? And yeah, if you could expand more on the data tracking aspect of crypto behind that? Ambre Soubiran [13:33]: Yep. So, Kaiko, was founded in 2014. I left in 2016. And I took over from its original founder and Kaiko does market data on crypto assets for financial institutions and large corporates in the crypto world. So, what we do is that we're connected to all of the different trading venues that can allow users to buy and sell crypto, so all of the centralized exchanges - the Coinbase, Binance, Kraken, Bitstamp all of the large crypto exchanges that we know today, including FTX, by the way, was one of those venues from which we collected data. And then we also run our own blockchain infrastructure in order to gather data from the blockchain directly, and to extract decentralized finance protocol data from there. So, we gather a lot of different financial data points, which we then standardize and then from that standardized raw data, we create data products that are either data, analytics or indices. So those are the three pillars of what Kaiko does. And this is actually not a new business. Financial Data is as old as finance, it's a kind of collateral of the trading activity, there is data that is generated. The large financial data companies in the traditional space are companies like Bloomberg, like Refinitiv, like IHS markets, and we do something very similar for everything that is blockchain related. What is an oracle? Samantha Yap [14:55]: Could you expand on what an oracle is? Would you say Kaiko has created an oracle or is an oracle for crypto data. Ambre Soubiran [15:05]: So, we are a data provider to oracles and we also sometime write data directly to blockchains. But you know, the oracle is really the technology component that provides data on chain and that is a piece of tech. It needs to be funneled data through. So, one of the large known oracles is Chainlink, you have Umbrella Network, Super Oracles, 5th.network, there are a bunch of companies that are building oracles and they then go and feed from data providers and then write it on chain. So, Kaiko serves both of the data provider to oracles and in some cases, we interact directly with blockchains. We're not an oracle, because we don't take any kind of external datasets, but sometimes we ourselves go and write Kaiko's data directly on chain. Samantha Yap [15:48]: In terms of the people or the institutions that use Kaiko or would be interested in using Kaiko who would they be - who are your target clients? Ambre Soubiran [16:01]: So, we have three types of clients. One is financial institutions that are acting in the crypto assets markets, people that are trading, investing, building financial products, etc. So here, it's people who need real time and historical data on crypto for being able to engage with the industry from a financial standpoint. Second type of clients are financial terminals and research and media. So, people that are not themselves trading, but they need to embed data into their product, platform, website, research, etc. So here, it's really people that are then building UIs, and customer facing front end to more on a B2B2C kind of business model. And then the third type of clients are large crypto native enterprises, and just like corporates that need data for evaluation, reporting, audit tax consideration, any kind of more FPNA accounting, controlling use cases, that's the third buckets of our clients. And then we also work with academia and researchers, but 90% of our clients fall within one of those three categories, financial institutions, financial terminals, or large crypto corporates. Evolution of the market for data Samantha Yap [17:05]: So, over the last two years, what has been the sentiment check of crypto to the traditional financial world, you know, like, what have you seen and how receptive have they been to being interested in this data interested in the digital asset space? Ambre Soubiran [17:21]: So clearly, the market sentiment from the institutional players have evolved over the past couple of years. I think today there is not a single leading financial institution that does not have a digital asset team. And I think that's for the better. I think it's interesting because we started from really far away which was like, we will never touch crypto, crypto is terrorists’ money, etc. This narrative is completely dead. There's not a single person today that still thinks that crypto is drug money. But then what is interesting is financial institutions were pushed by their own clients to look at crypto, because crypto was an asset class and that the asset class was growing and, and there was some investment opportunities. And so, they were a little bit pushed by their own investors, their own clients to spend more time looking at the space. The first forays for institutions into crypto was really crypto was trying to figure out what is this asset class? Let's buy historical data. Let's see how this asset class behaves. Let's take a bit of a quantitative approach to it. And I think we're also moving away from the pure crypto thesis and more into a blockchain tech thesis. How can that technology serves us as an industry? How can we use blockchain? And now when we interact with banks, we don't see banks, obviously, especially the regulated institutions, we don't see them trading crypto, however, we do see them spin up entire digital asset teams in order to understand how can we leverage that new technology? So, it's less about the crypto asset class and more about how can blockchain serve us. And I think that is really the right path towards starting proof of concept starting building on blockchains. You know, for exchanges, for example, traditional financial exchanges, looking at how DEXs function is extremely interesting. For a bank, understanding DeFi protocols is extremely interesting. I think everything that touches around tokenization of assets, so that then you can create new ways for SMEs to access private debt markets, there's so many things that is interesting in the disintermediation and openness of that technology. And the financial applications are the most straightforward because it is already live and you already have proof of concepts. So, what I think is today, the two major areas that benefit from the enablement of blockchain is finance and gaming, right? It's really two industries where blockchain does add value. And so financial institutions have looked at that, have spent some time unfortunately, what happened last week may cause a little bit of a quake in the space, and maybe it's going to set us back a couple of years. But I think at least now we're on the right path, which is understanding the technology and understanding how it can help the industry. Samantha Yap [19:52]: That was Ambre Soubiran, CEO of Kaiko, explaining the evolution of the market for data, and how its key role in traditional finance must be adapted to crypto, how the importance of good code in crpyto is matched only by the importance of good data. Both are vital if DeFi is going to succeed in its quest to become truly decentralised, transparent and credible. Next time we’re going to pick up the conversation and hear Ambre talk about how DeFi needs to go back to basics if it is truly going to overthrow TradFi. Thanks for tuning in to another episode of YAP Cast. I’m Samantha Yap. For new episodes follow The Story of Money by YAP Cast.