Speaker1: One of these opportunities for for these products is probably $1,000,000,000 opportunity easily. But if you don’t focus in on like what your target audience is, what the tools they need are, how you can make sure that they win and succeed on your platform and create communities that are like our self helping. Right. Like I, you know, I have a developer who wants to define and then I have another developer who wants to do Defi. They’ll help each other. I got developer wants to do Defi and another developer who wants to do supply chain management is just going to continually talk past each other, right? Yeah. And you’ve got that sort of like another thing that I really like from a friend of mine he worked at McKinsey is you don’t stop. He said to me, Piers, you don’t start a fire by taking your taking your lighter and moving it between all of the logs in the fire. You start a fire by keeping the lighter underneath one log until it catches alight.
Speaker2: And that’s right. So it’s absolutely right. The importance of focus.
Speaker1: The importance of focus. Let’s let’s talk about let’s talk about the on the subject of focus, let’s talk about the other products in the Ember in the Ember group and sort of how they all come together. So like you start you said that you started in institutional I know you’re your background of many of the partners Amber group are sort of traditional finance and that was your sort of your background as well. But like what what was the what was the starting product set for for the Amber Group and who was it targeted at? And where did you guys find your first sort of like success there?
Speaker2: So initially it was quite simple. We were all ex traders and the founding team saw the room for arbitrage was immense in crypto in 2017 when I compared to today that was even the Wild West. So they were running they were already running arbitrage quant strategies on traditional equities and other asset class, but they saw the opportunity in crypto and decide to pivot full time in 2017. And because of that, we’ve spend time really.
Speaker1: Hang on just just a sec. Let me let me unpack some of that is the financial jargon sometimes is is a little bit dense. So quant meaning quantitative methods.
Speaker2: Or algo.
Speaker1: Based algo based strategies where you have a bunch of rules that you run on the market to trade in and out of positions very quickly to take often instantaneous arbitrage opportunities between markets in different jurisdictions. Say, for example, oil is priced at $30 a barrel in Japan and 31 in in America. You have a quantum strategy to be able to balance those two out and sell in sell on the expensive market by a cheap market and prop. So proprietary trading desk, meaning that you had your own book, you had your own capital and you were trading for your own profit. You weren’t. Or you may take other clients money, but you weren’t expressly going out and looking for people. You’re saying This is our capital, we’re going to go trade on this. So you started with a bunch of capital and you had an opportunity to move from a highly competitive market from the point of view of successful quant strategies to a much less competitive market in crypto, because it just hasn’t been. It’s just uncharted territory. The tools are less good, it’s harder to get like started, it’s difficult to work out the infrastructure. And so there’s a lot more alpha opportunities there. Alpha meaning high profit opportunities.
Speaker2: Yeah, exactly. And all the big guys in traditional markets, they are not even they they’re not bothering to look at crypto because the market cap was so small back then. So they took the opportunity and move into to crypto and really to, to capture a lot of the alpha that you mentioned in the market. And to do that you really need to, to build your infrastructure to connect to all the liquidity venues, be it the exchanges and all the different jurisdictions and also to different OTC trading counterparties. So we spend time and effort is really, really building that and organically grew into providing services, external services to our our LPs or our funds or other people that we know in the market, because they would come come in and say, hey, can you buy or sell this for us in large sizes? Hey, can you provide execution services since you already run algo trading? Hey, do you do borrow lending or structured products so really organically grew into serve providing all those services to the market and really grew from a small pop shop into a much bigger institutional facing crypto finance service company.
Speaker1: And right now and why and why were people coming to you like why? Why were institutions? Institutions inverted commons, i.e. professional companies that are run specifically focusing probably on the crypto markets. You have a balance sheet of crypto. Why? Why were they coming to you and going, Can you do this for me? Rather than doing.
Speaker2: A lot of a lot of our early clients are perhaps crypto VCs or crypto funds doing probably market investments. And when they need to accumulate a position or or sell out their position in the secondary market, it’s difficult for them to set up their own trading teams and set up all the access to all the exchanges, all the liquidity venues. And oftentimes there maybe there are LPs or just funds in the market and they. You know, there weren’t that many players in the market even back then. And our team, I think just from our background, because we we did come from a traditional finance background, I think people feel a lot more there is that I guess trust built in it that we’ll do things the more compliant with which we do. It’s quite obvious if you compare Amber to perhaps a lot of our competitors in the market that we do do things in a more conservative way because I think that compliance trading from Wall Street is kind of ingrained in our brains.
Speaker1: As it should be. Right? Like there’s plenty of stuff that is, is funky in crypto and how people sort of behave.
Speaker2: Yeah, it’s important to have that bottom line somewhere.
Speaker1: Right? It’s important to understand why often these lines are put in the sand because of moral hazard more than anything else. And like being able to make sure that you’re set up to to avoid that is a good way of avoiding the kind of things that we saw in the equity markets in the 1970s and 1980s. And we’re likely going to see stories emerge about the crypto markets in equally the same way. But it’s good that there’s at least a model to bring across in how you should operate in a, in a, in a, in a moral fashion while still providing a market service.
Speaker1: And just just just to just to unpack a couple of your more more of your financial jargon that so Alpay meaning limited partner in the case of a of a traditional funds not like LP in terms of like.
Speaker2: Credit yeah.
Speaker1: Liquidity provider so limited partner in a fund is someone who’s got a load of money and decides to put it into the fund so that they can invest on their behalf. It’s a tax tax efficient structuring that is very common in the sort of VC funds world. And then you said something else like what? It was that I was just like, Oh, that’s a that’s another piece of financial jargon I should unpack. Okay. So you guys had it. You guys had basically had an unfair advantage. You had a bunch of smart people who came into the market from the traditional space and created a bunch of algorithms that meant that you were able to create, you know, disproportionate alpha in crypto, which is awesome. So from there, from going from this prop desk that was sort of trading very profitably for itself to attracting institutional clients, what happened then?
Speaker2: And we slowly build up a track record and continue to broaden our business line. So in addition to just trading large block size OTC trades or offering execution style trades, people come to us for market making services on their exchange venues for maybe for their specific tokens. And then people come to us to tell us that we offer borrow lending solutions. A lot of the miners in Asia looking to borrow stablecoins against their their their tokens, their mined proceeds. So and then also in a in a derivative space, in a structured product space, we I always say that if there’s any structure you want to do, we can put a price on it. Maybe it’s not good, but we are innovative enough that we’re looking, we’re willing to, to, to look at a structure and price it up. And I don’t know if there are that many firms in the market that that would say that. So because for us, we’re just very interested in seeing the space grow, maybe empowered to leveraging what we’ve already seen in traditional markets. But I think more importantly, where these a lot of these more crypto native innovations could go. So we are always just trying to stay at the front line.
Speaker1: Interesting. And so like in terms of market making, that’s something I’d actually like to I just had a little conversation about because I think it’s really interesting and it’s often not really well understood sort of beyond the institutional markets, but like what is market making, how does it work and why is it important?
Speaker2: Right. So when we talk about market making on the trading side, that’s perhaps just very similar to the sells and trading does and investment banks where, you know, client come to us for a price and we we make them a market obviously with some surprise that with our expected profit and then clients can trade with us directly. We are the principal here and we’ll often hedge out. Can you can you.
Speaker1: Can you can you demystify that? So like, what does that mean? Like, what are you actually, we’re making a market for a client mean.
Speaker2: Yeah. So we’re just making a. Put a price on anything that our clients want. If you want to ask me for a price on 100 Bitcoin, maybe it’s difficult to execute that all at once on an exchange because you’re going to eat up the entire order book and your price slippage is going to be very high. But you can come to us and we obviously have our own liquidity and hedging venue set up and we can give you a price at all in price and you as a client can decide to take it or leave it. And you are facing us directly. So it’s not like we are. We are going to just be the middleman and then kind of row your orders through everyone and you have the face. So many different counterparties. So I think a lot of that’s why a lot of the larger clients would prefer to deal with us that way. And a market makers for us where we are market neutral, meaning when you are looking to buy 100 bitcoin from us, we sold 100 Bitcoin to you, but we’re not going to sit on that position. We will always immediately hedge it out and hoping to make a profit by having some spread in the price difference of where I sold to you and where I bought elsewhere.
Speaker1: Pretty cool. Okay, so in the last sort of section of this of the podcast, let’s, let’s sort of like zoom out a bit and talk about sort of amber group strategy, like how, how are you guys viewing the market as a whole? And obviously the market’s changed somewhat. There’s now decentralized finance as a as a whole subcategory that didn’t exist in 2017. And then there’s sort of like more institutional money thinking about coming in. But like, if you’re going to talk about the the Amber Group mission or like what drives the next set of products you’re building, how do you how do you filter what opportunities you go after and why? And like, how do you think about the next 4 to 10 years of the space?
Speaker2: Yeah, for sure. I think we can all agree that the market changes so fast it’s hard to predict what’s the new thing or the next innovation or growth curve is going to come from. But for us, what we know is that we are in this for the long run and our products are services provided to our users should be of that same ethos. We are hoping that we can help more people come into the space and stay with us for the long run, being able to grow and preserve their wealth and crypto for the long run. And maybe that comes in many different ways. Maybe it’s just buying and selling Bitcoin or Ethereum right now. Maybe it is other tokens or maybe it is NFT or other new things that will come into the space later on. But I think the guiding principle is that we are not the leveraged exchanges where the average lifetime of a user spans from 1 to 3 months. For us, we hope it’s ten years, 30 years, we hope it’s multi generations because I think crypto is only is here to stay and it’s only at the very, very beginning and we will stay vigilant and be on top of all the new trends that come out so we can better educate our clients. But whatever new service that we put out there, it wouldn’t be against our principle that it should be something that will help our clients really stay in the industry for the long run.
Speaker1: Interesting. And what are the sort of the macro trends that you see coming down the line that you think are important for the industry?
Speaker2: I think it’s always going to be short term choppy and the long term perhaps we’ll see this trend out. And, you know, we get a lot of inquiries from clients. This is the good time to buy now. I have clients who ask me that from $3,000 to 60 K and now back down to 30. And my answer has always been yes. If you don’t, it’s not a cash you need tomorrow. It was something you were willing to put away for a few years. Right. So I think people oftentimes fail to recognize the long term trend and just very focus on the short term things and crypto’s not for the faint of heart. You’ll see a retracement of 30% in an hour perhaps. So if you’re so caught up on that, maybe it’s not the right risk profile for you, but for a lot of the people who really thought about it and think the risk reward is makes does make sense to them and willing to put it away. And the best part and maybe just don’t look at it for the next few years, then I do think it is a good mackerel mackerel bed for for these type of users and I don’t know it’s interesting I joined crypto first actually in defined that’s very early stage defi back in 2018 because I do see the ability of the underlying blockchain technology that it could revolutionize traditional finance. The way that we do traditional finance from a tech perspective upgrades it. It doesn’t necessarily completely change it, but I think it’s just a better way of dealing things just like what Internet did to finance, to everything we’re doing. Now, I’m speaking to you right on the cloud. So I think crypto is so early. I know for a fact that amazing things will come out of it. Maybe. I don’t know what it is yet. I still have that passion for Defi and for a lot of the new things that will come out. So I just like I said, right, me and Amber Group, we just want more people to come in when it’s early and really be able to enjoy the full ride.
Speaker1: Interesting. There’s a there’s a wonderful saying which is like people are short term, short term, too optimistic on the impact of technology and long term too pessimistic. Yeah. And like you forget what and like you forget the power of an exponent and like an exponent always like it. The star, it’s sort of like really slow and boring and it’s only just go and then then it just sort of hockey sticks.
Speaker1: Wow. Yeah. And I think we’re for me, like, blockchain and and decentralized ledger technology is a more important innovation than, than the Internet in that it will have a longer term, larger impact on humanity in our ability to organize around finance, in our ability to organize around like create decentralized, autonomous organizations around that eventually may end up being how we run governments. And so those kind of things are really interesting, but it’s very difficult sitting here going, Yeah, this is how we’re going to run the nations of nation states. Eventually. Everyone’s like, Yeah, but like you, you can’t even like send money into it, like for like only drug dealers use it. So I think, I think that that that’s changing slowly. But it’s it’s such it’s going to such a long journey that that that sort of ten year, 20 year, 30 year multigenerational view is really the only way in which you can win in this space, because it’s only by creating those long term relationships will this space end up changing the.
Speaker2: World for sure. 100% agree.
Speaker1: Annabel, it’s been such a pleasure having you on. If people want to find out more, where should they go and where’s a good starting point?
Speaker2: Sure. I think for the most comprehensive information, you can visit our website at Amber Group Bio.
Speaker1: And do you guys have a Twitter community or a Discord community or a telegram community? Where do people hang out and chat?
Speaker2: Follow us on Twitter at Amber Group Underscore. Oh, cool.
Speaker1: Awesome. Thank you very much.
Speaker2: And have a wonderful day. You, too. Thank you.