Wall Street Strategies Are Coming Onchain

Hodl Up: Hello guys and welcome back to the show. Right now we have Jesus with us. Jesus, welcome, and thank you for joining us.

Jesus: Thank you for the invite.

Hodl Up: Before we get into anything too complicated or too crypto-savvy, I really want to know your backstory. We did some research, and I know you pivoted from TradFi to crypto, into this whole DeFi sector. I want to know how that happened and why you made the pivot.

Jesus: Sure. I'm originally from Venezuela, but I've been living in London for more than 10 years. In TradFi I was working on what are called structured products. Basically, we built very complex financial solutions, different types of financing, for very large companies in Europe and outside Europe. I did that for 10 or 11 years, and I also built a business within structured products inside one of the banks where I worked. Then, after COVID, while I was at home one day with nothing else to do, I started thinking about my life: do you want to keep doing this forever? One thing led to another, and I found out about Bitcoin, then Ethereum. I started learning more about the assets, about crypto, the industry, the protocols and the technology, and thinking: how can I use this new technology to somehow reinvent the products I've been working on for so many years? At the same time, I noticed such a big, enthusiastic community of builders all across the world, and that really attracted me, because it was a big change from the very strict corporate world I had been living in for more than 10 years.

Hodl Up: Suddenly building something from scratch.

Jesus: Exactly. It's an opportunity. It's also a risk, of course, a career risk. But look: no risk, no reward.

Hodl Up: No pain, no gain.

Jesus: Correct. Eventually, after I got to director level at the banks, I felt it was more a game of politics than building products, and I decided it was the right time to make the jump, come here and start building in blockchain.

Hodl Up: That's the reality of things in crypto. No matter how good your product is, you have to be in the right room at the right time, meeting the right people and saying the right things.

Jesus: That is correct. That sounded very eloquent. I love that.

Hodl Up: It goes with the outfit. Thank you. You learn a lot of things in TradFi that you can use in crypto, but crypto is the most chaotic industry in the world, an industry we love and hate at the same time, so you also have to unlearn a lot of things. What are some things you realized just don't work in this industry that never sleeps, the way they do in TradFi?

Jesus: Ever since I started working in blockchain, I've come from the point of view that blockchain needed more order. It needed something called risk management. We all know what happened back then; actually, 2022 was the bad year. I always had the view that it needed more order, because there were a lot of builders and a lot of great ideas being built very fast. But when I started doing some due diligence, which was basic by my TradFi standards, I realized that many of these protocols had very basic engineering issues, in my view. For example, I never bought LUNA. I was one of those who thought that in a cascading liquidation, it would just be completely the end.

Hodl Up: So you predicted this.

Jesus: I was expecting something like that to happen. But in life, predicting something is one thing and actually living it is another, because I have many friends who lost their savings. I didn't want that to happen. Crypto was growing very quickly in those days, and people were so enthusiastic about these protocols that they saw me as a conservative guy who doesn't really understand the technology. So I always thought about bringing more order, more risk management standards, into crypto, and that's what I've been doing for the last couple of years since I moved here full-time. At the same time, I had to unlearn a few things, mainly making sure I had everything solved and figured out before I went to speak to a client. When you build a new company or a new product and advise someone on it, you need to get comfortable with the fact that you don't know all the answers.

Hodl Up: Exactly.

Jesus: When is the right moment to launch? What do you need? Is it too early, is it too late? It's complicated, right? So you have to get comfortable with more uncertainty and with not having all the information, because in TradFi they train you to make sure you know and understand everything before you speak to clients. That was one of the biggest things for me: learning to be comfortable with that.

Hodl Up: You mentioned risk management in crypto, and yes, it doesn't exist. In our industry we know all about risk; we just don't know what management is. We don't manage it. Do you think users, retail and companies in an industry like crypto will focus on risk management, considering how chaotic it is? I think crypto is still the Wild West. Even with regulation, new investment and the merge between TradFi and crypto, I still think it will be way more chaotic than traditional finance, because it's accessible to everyone and it's a 24/7 market. What's your take?

Jesus: It depends who the users are. Let me explain. If you look at the history of crypto, the first real product-market fit, the first enthusiasts, were developers who loved the technology and thought, "Okay, there's something here." But after the price of Bitcoin went up, the next real product-market fit for crypto was gamblers, to be honest. That's changing now, and that's why the prices of everything are going down: the gamblers aren't here anymore. But from, say, 2015, gamblers were the main reason crypto was growing. Of course you still had the enthusiasts who supported the technology and Bitcoin as a new form of money. Many narratives and use cases came about, but the main driver of growth, especially from 2017 until 2021-22, was people who came here to gamble.

Hodl Up: Right.

Jesus: And I was doing some of that too, I have to acknowledge. We're all sinners. Even though I'm Jesus, I still sin. Now, what's happened after the constant bear market we've had, to some extent, in the altcoin market since 2022 is that the gamblers lost their money. So who else is here to buy the tokens?

Hodl Up: Exactly.

Jesus: The industry hasn't yet found a use case where all these alternative tokens have a proper use that makes people buy them beyond expecting a 100x. Right now you see use cases for stablecoins and for blockchain technology itself, for settlement and so on. Institutions are here, and we're at a conference with some of the biggest banks in the world, but the fact that institutions are here isn't reflected in the price.

Hodl Up: Exactly.

Jesus: Which means there's a mismatch between how the economics of these tokens were designed and institutional adoption of blockchain technology. That's a completely separate conversation, I would say.

Hodl Up: It is. But for institutions a 0.1% increase does make a difference, whereas for retail users it doesn't.

Jesus: Correct, because they have different use cases, as I said. If you're expecting to grow with more retail: crypto already took the whole global gambling market, and that market of global gamblers doesn't have any more money.

Hodl Up: Actually, I'm kind of glad we're moving a bit away from this gambling epidemic, especially in crypto. I joined crypto myself with the idea that I would make gains overnight. Obviously that wasn't the case, and we've lost money on memes as well. But given that crypto is becoming institutional, and even utility projects are now more B2B than B2C, where does that leave the retail user? The retail users who joined crypto to use a DeFi platform because it offered a higher yield than their banks did? Even yields are normalizing now. DeFi is competing with banks, and the yields converge more every day. So where does that leave the retail user?

Jesus: It depends what kind of retail user we're talking about. The retail user who expects a 100x? Go gamble, go to prediction markets. Honestly, this isn't the market for them anymore. But then there are users who have savings and no access. I'm from Venezuela; you might be in Bolivia, Colombia or Venezuela and not have access to a product that gives you 5 or 10% in dollars. Then maybe this is the market for you. What you're seeing is an evolution of the ecosystem, from a market building products for gamblers into a market building more scalable products for the global financial system. Because the global financial system can't really support an ecosystem where everyone is making 100x. Then everyone is rich and no one is, because it's literally just paper money, or digital money that doesn't really serve you. So we've seen an evolution of the markets and the users. Again, if you're a retail user who doesn't have access in your country to products that yield 10 or 15% in dollars, maybe there's something for you now. But not for the gamblers.

Hodl Up: That's true. Now, you've also dealt with on-chain hedge funds, is that correct?

Jesus: Correct. And off-chain too.

Hodl Up: The whole point of on-chain is that it's transparent to everyone. So what gives you the advantage, if everyone can see what you're doing and copy your strategy? How do you keep the edge?

Jesus: That's a pretty good question. Let me take a few steps back to give some background. Because I was in the financial industry for many years, one of my first interactions with crypto was actually with hedge funds. A hedge fund has certain strategies, and the people who make the decisions about those strategies, what to buy, when to sell, where and how to move the money, have been doing it for years. So they have a better chance than a normal person of making money consistently. That's what the theory says. These hedge funds trade different products in different ways in different markets. Some trade on-chain, some trade off-chain. So you can still protect what's called the managers' intellectual property, a lot of which is how they make their buying and selling decisions, for example by trading on centralized exchanges or by using privacy technology, where you see the final result, the P&L, how much they're making or losing, but you don't see how the decisions are made. What we've managed to do is use different technologies so that managers keep their privacy and retain their intellectual property, which is very important to them, while certain users in certain jurisdictions get access to the yields and strategies of these experienced managers.

Hodl Up: It makes sense. Since TradFi and DeFi are converging, it makes sense for both user bases to converge as well, so even retail users can use the strategies that professional geniuses use.

Jesus: That's correct.

Hodl Up: I'd love for this episode to go longer, but it started to rain, so I'd love to close with one specific question. When do you see the final merge, or maybe the beginning of the real merge, between crypto and TradFi? We know institutions are coming in, but when does it become the normal thing?

Jesus: Well, look at us. I never thought I'd be in a suit at a crypto conference, but here I am. We're all converging into suits in some sense.

Hodl Up: Now we need a tie next year.

Jesus: It's a pretty good question, and I need to go back for a second to why we're doing what we do with hedge funds. They're converging right now, but it's happening slowly, until one day you wake up and realize, "Oh my god, everything is here." It goes slowly until suddenly it goes exponential. What you saw with the gamblers a few years ago was promises of 100x, 10x, then 5x, then 3x, now 2x. Right now a 10% gain is a big deal. That's my point. Now that 10% is more normal in blockchain, my question is: how do I put all the pieces of blockchain technology together to help democratize yields or returns that in TradFi are often more than 10% but have been gated for operational or legal reasons? Through my work, we've found a structure where we put the pieces together in a way that helps democratize access to returns that could be 5%, 10%, 15% or more, depending on your risk profile. We give users who don't have any access to these managers and strategies a way in, and they can raise their expectations from 5 or 7% to maybe a bit more. It will never be 2x. That's not sustainable, not even in TradFi.

Hodl Up: The irony is that stocks are outperforming crypto. If you look at AI stocks...

Jesus: Correct. But again, with returns like Nvidia's, who knows how long they'll keep running. A bubble here, a bubble there: you'll always have a bubble somewhere, and right now the bubble is in equities. Now that crypto is a more boring market, it's an opportunity for people like us to build products that improve on what we already see in traditional finance and in crypto. You can converge those technologies, the traditional rails and traditional managers with blockchain, and build new products that give access to things that aren't that exciting to gamblers, but are exciting to the person who's trying to grow their savings.

Hodl Up: Exactly. The person who would eventually like their 5x in 20 years.

Jesus: At least beat inflation.

Hodl Up: At least beat inflation. It's another way to fight inflation, especially in countries like Venezuela, as you mentioned, or countries that have their own currency but want to save in USD, euros or another stronger currency. Everything that's happening makes sense. We joined with the gambler mentality, because who doesn't want a 1,000x on their investment in one day, but we're still here.

Jesus: You guys are obviously doing great work with all the media and all these interviews. I think the people who stick around are the ones... Obviously we all got disappointed at some point. But we're also realistic. We want to stick around, we want to keep building, and we want to be consistent, because with consistency we iterate. We'll learn from the mistakes, and eventually we'll get there.

Hodl Up: We keep learning. Until we die, we're going to keep learning. That's how it works. Okay, Jesus, thank you very much again for your time.

Jesus: Thank you for inviting me.

Hodl Up: A huge pleasure. Thank you very much.