Taking Over the World in a Compliant Manner

Yesterday Bitcoin pierced through $50K – just two months after our Co-founder, Antoni Trenchev had predicted it would in January 2020. As the world watched BTC hit this latest milestone, Antoni joined Untold Stories’ Charlie Shrem to discuss Bitcoin and Nexo’s past, present and future.

Watch the full interview or read the summary below:

• Bitcoin and Ethereum’s current bull run is fueled by the rest of the industry’s innovations such as decentralized apps, and an array of blockchain-based products and services.
• With a majority of investors having missed out on the BTC rally this past decade, there is pressure on investment funds to get in on the opportunity now.
• Irrational exuberance and short-term volatility may make Bitcoin’s climb to $100K less than smooth, but Antoni remains bullish on BTC.
• Nexo aims to offer $1 billion in insurance by the end of 2021 as it acknowledges the risks inherent in working with crypto and looks to offset them.
• Through the NEXO Token’s new governance vote, Nexo ensures clients have the final say in decisions about the platform’s development and management of their finances.
• Nexo is ready to take over the world in a sustainable and compliant manner.

We’re thrilled to be sharing yet another great crypto milestone with you and look forward to the next one.

Transcript

Charlie Shrem (00:04):

What is up everyone. I am Charlie Shrem. And you are all so lucky because it's Tuesday morning and we're here with the Co-founder and CEO of Nexo Antoni Trenchev. Tony, thank you so much for coming on the show today.

Antoni Trenchev (00:19):

Charlie. Thank you so much for having me.

Charlie Shrem (00:21):

That's not really why I was saying that they're lucky. They're lucky because it's beautiful. Tuesday morning, I woke up this morning, so I couldn't sleep last night. I woke up this morning and I kept seeing Bitcoin $48K, $49K, and then it was like $49.5K. And then I went back to sleep and then, I kid you not, I woke back up maybe 40 minutes later and I saw the tweets. Yeah, it hit $50K and I saw the chart go up and then back down, I'm like, no, I missed it. I just wanted to see it live. I just wanted to see it live.

Antoni Trenchev (00:52):

Well, I had this suspicion that this has been a diversion tactic, a new all-time high, the day we are recording and streaming so that this distracts people from our session is what it is. It's a distraction.

Charlie Shrem (01:06):

Nexo Finance and you have been on the forefront of this industry for so long. And I'm going to make a statement that you and I are gonna agree with, but a lot of people aren't and I, you know, I can give my opinion, but you'll give yours too. But just before I say that to give everyone a bit of background of you. Prior to starting Nexo you were the chief legal officer at MDL. One of the leading, I didn't know this, one of the leading fashion companies in Bulgaria. And you were a member of Bulgarian parliament. We've talked about that before. And if any listeners want to hear an expanded talk with Tony, we did one on Untold Stories .com and you could listen to it, but since then it's been a wild ride for Nexo. Super, super wild. But before that, I want to say one thing, and this is what's a little controversial. Um, all the other Bitcoin bull markets that I've been through, I've always felt that Bitcoin has led it and everything else has followed this one. I truly truly believe that one of the reasons that Bitcoin and Ethereum are rising because they've been around for so long is because the rest of the industry for the first time is pushing it forward. And now we have an industry with killer apps. You look at decentralized finance and every single product and service you're essentially, if you just look at next, so that, and not the rest of the industry, just Nexo, I mean, it's a whole rebuilding of the whole financial world.

Antoni Trenchev (02:30):

That's what we like to think of ourselves, but much appreciated coming from you who has been like in Bitcoin from the very, very start and you've seen it or you survived it all. So it's truly humbling to hear that from you.

Charlie Shrem (02:48):

So what have you been working on in the past three months? I know that since we last talked, one of the things that we talked about doing was having an internal exchange inside of Nexo. You launched that, but before we get into that, what were the humble beginnings of Nexo and what can all its users and all customers do now within the app that they really couldn't do with their traditional banking world before?

Antoni Trenchev (03:15):

Well, first of all, they couldn't take out a loan against their crypto, which was a no brainer. And like, this was the inception of Nexo. It is actually one of the other Co-founders Kosta Kantchev who came up with this idea because he himself was looking to borrow against his Bitcoin in 2014, 2015-ish, around that time. And he told me the story, there were all these crazy folders, Bitcoin talk, subtopics, subreddits, but the concept is the same of people exchanging without any sort of custody and without being ever sure, they're going to see their Bitcoin. And they were essentially transacting in a peer to peer fashion, getting out loans against their Bitcoin. And we figured out there's certainly a better way to do it in an institutionalized manner so that you can be fairly confident. You're getting your Bitcoin back regardless of what the market is doing. And this was the very, very humble beginning of Nexo and this is what our main product to this day is, you know, being able to give our customers access to their tied up liquidity in crypto without actually having to sell it a great proposition. If you look, the price action these past few years and obviously the Earn product, which came as an auxiliary to that product, these are like the fundamentals and we have been building on top of that. As you mentioned, the exchange just got released in less than a month. So we actually held our promise in terms of timeline. And this has been appreciated by the market and by the public.

Charlie Shrem (05:08):

Why has it taken the credit and capital markets of the world so long to figure out that people, retail users, not just institutions want the ability to securitize an asset, borrow against it, because most of the time, you don't want to sell that asset for various reasons, whether you think that asset is going to keep going up or you don't want to have to deal. And this is one of the biggest things for me, one of the reasons that Nexo helped me a lot is that when you're borrowing against your, your Bitcoin, as opposed to selling it, or you're borrowing against any crypto, and this is the biggest thing, and thank you, you helped me out so much in the past tax year, was that when you're borrowing against your crypto, it's a whole different tax strategy, especially in the US, than it is when you're selling it. But really what doesn't answer the question. So I'm like a little bit of like lending and capital markets geek and I like to see how loans are taken out and how people can get mortgages. And I remember before rocket mortgage came out, I had a friend trying to explain to me that having a simple way to get a mortgage easily doesn't exist yet. And I said, how could that not exist? So when I first took out a loan on Nexo against my Bitcoin, I had never actually taken out a loan against anything ever before. So you set the standard of like, this is how all loans should be. It should be seconds. Why, why isn't that still the case in the rest of the world?

Antoni Trenchev (06:35):

Well, you know, revolutions actually take longer than revolutionaries expected it to. One of the things that we had to learn in the past three years is really revolutions take longer. Especially when you are engaged, then you're in this micro universe and you see everyone around you using Bitcoin. And you're like, why isn't the rest of the world doing that? So it's a couple of challenges. First of all, like it took a while until the general public and institutions finally started thinking of Bitcoin and accepting it as an asset class that is here to stay. I think that's arguably a done deal by now with Elon Musk, Microstrategy and PayPal and Paul Tudor Jones, and just about anyone dipping their toes in to crypto. That was one of the obstacles. And then the second is just building the infrastructure around it. I remember like when we started out, there were a couple of guys looking to pretty much do the same thing that we did and they thought: "Oh, it's the easiest thing in the world." You know, just because the business case is very simple, when you can explain it and it actually makes sense, which is a rarity in this world where not every business case and not every company that raises money actually has a business case that makes sense. That, to go from there to the execution, to actually, you being able to come on a self-serving platform and get your loan in a matter of, if not seconds, then definitely minutes, it takes quite a bit of engineering ingenuity. So shout out to the dev team.

Charlie Shrem (08:22):

This is called the engineering and ingenuity office, the internal economics team.

Antoni Trenchev (08:27):

Right. Yeah, something like that. So I wanted to, just to give props to our wonderful dev team. We've got about 60 people. Now, we have an amazing CTO, Vasil Petrov, he's really terrific guy. Couldn't have done it without him, just like from the architectural perspective of visualizing everything and then putting this into code which actually works and God forbid, but until now, at least has never been hacked. It is quite an endeavor. So it's a whole compound of different things that make it not so easy for anyone to really replicate the model.

Charlie Shrem (09:09):

Not only that, but you've figured out a way to de-risk. So it's always been about custodial and non-custodial, and I've always been a diehard of like your own keys to your own crypto, but I also understand the world that we live in and there's a risk and you also want to borrow against, but you've taken a whole other approach. You've said: "Hey, we understand there's custodial risk here. So we're going to really push for, and you've said, you're trying to get a billion dollars in covered insurance." I think you're at like $400 million in insurance now, because you're not saying that we're unhackable, you're saying there's risk. And we're just going to make sure that we're not the ones holding those bags.

Antoni Trenchev (09:52):

Well, everything has its risks and things that are better and worse in both custodial and non-custodial, you know, if you forget your keys, so you lose them, or you have an accident and you haven't really figured out the plan for posterity and the people around you to have access to that. You could be actually much worse. So you've got trade offs and you got to live with them. On the other hand with non-custodial you get interest on it up to eight percent in Bitcoin, up to 12% for fiat currencies. We are trying to actually find a middle way where yes, it's not going to be non-custodial for the foreseeable future until we have the necessary means which last but not least are the necessary code and bulletproof code, which some of the DeFi's, a lot of the DeFi guys have been hacked in a massive way. So we've opted for another way, which is this bridge between traditional finance and the crypto world, and to balance that off with the insurance. It's currently at $375 million, the custodial insurance that we have in place, or just under $400 million. We are looking to bump it up to a billion and this goes a long way to ensure peace of mind to everyone. This is something that has changed. We had a hundred million last time. We talked a few months later. Yeah, exactly. So, you know, we are a good path here.

Charlie Shrem (11:36):

That's, that's a really, really amazing thing. I'm looking at the Nexo app and I see that your teams are hard at work. Your token economics teams are hard at work and the price has definitely shown it. But I got an email last week talking about the governance vote. That's exciting. Everyone's talking about decentralized finance, but they're forgetting the whole governance part of it, which was the whole reason that we got into this thing in the first place. So tell me about that email with what can I expect, what type of governance votes are there? The community's involved, everyone got so excited, I saw that on Twitter.

Antoni Trenchev (12:10):

I am not positioned to disclose like super details around it because like we are at a concept level where we are figuring out the exact details, but the goal is to have exactly this, what Bitcoin's promise and decentralized's promise and blockchain's promise has been: a new way to make decisions for us as individuals, with regards to our finance. And then as a company with regards to the corporate decisions, if you will, which will go a long way in getting back our sovereignty over our finances. And we want to be pioneers so that as well. Just like we are looking to have some defined aspects to the Nexo business so we will have an incorporation of the governance token which will give a better say of our customers. I think we've done one of the finer jobs of listening to the community and actually implementing what they want, but this will be another step in that direction, which will further cement that path.

Charlie Shrem (13:29):

What do you think of all these companies putting Bitcoin, and some other cryptos too, on their, on their balance sheets? Like, what's the strategy there? These companies are companies that are sitting on hundreds of millions of dollars in cash, let's just say, or euros or whatever it is. And now they're buying into Bitcoin or Ethereum or whatever. So now it's like it's a different type of asset what's, and you could say that they're all cuckoo and that we all love crypto, and we're all religious crazies and stuff like that, but at the end of the day, there's a risk officer. there's a compliance officer. There's someone in there saying, what are we doing here? So, like Elon Musk buying a billion and a half worth of Bitcoin, what's the strategy for him? Is he looking at Bitcoin to just be an appreciation over a long term, but if you, being the executive of these major companies before, what's that strategy? Can you give us a little bit of insight?

Antoni Trenchev (14:25):

Well, I can give you my two cents on it and we'll tweet out to Elon and see whether he agrees with me.

Charlie Shrem (14:31):

I'm genuinely curious.

Antoni Trenchev (14:32):

Yeah, I'm the same here. Like his mind has been a hard one to crack. It's easier to figure what other people are up to, but definitely not Elon. I think there's been a lot of pressure internally from the members of…If it's an investment fund, the investment fund is an LP by the limited partners company from the shareholders, that the vast majority of the investors have almost entirely missed out on the Bitcoin rally this past decade. And as we know, and I have been repeating that until I got hoarse. It has been the best performing asset of the past decade. So there's a lot of pressure of how could you possibly miss that, you're supposed to be the smartest guys in the room. So this is a lot of pressure, which just comes from the headlines. That's what I think. But then again, fundamentally I do think that Bitcoin's fundamentals are very, very strong given that it is one of two truly scarce assets while the other one being gold, but Bitcoin being perhaps a better version of it. So in a situation where you have trillions and trillions of dollars being put out and constantly printed by the central banks, it's a no brainer that a company like Tesla which has $165 billion of excess cash, if I got my figures right, allocates a portion of it to Bitcoin and a single percentage digit, even if it goes to zero, you know, they will issue a few more shares. There is definitely a risk worth taking because the risk is to the upside. Now, am I certain we're going to pierce through here and go to a hundred K in a straight line? No, I'm not. I mean, I, like you, worry over short-term volatility of excesses of irrational exuberance to borrow from Greenspan here this expression. Ultimately down the line, I'm a Bitcoin bull, but this is going to be an unsmooth road ahead.

Charlie Shrem (16:58):

We're going to see some, some crazy volatility. The higher these things go, the bigger the market gets, the more efficient it needs to create itself. It's like, okay, so you ever take like one of those bouncy balls, and you're like, when you were a child, you have those little balls. You put it in a box, it bounces for a while, but eventually it settles itself. That's the market. If we let markets be efficient, they will eventually become efficient. But obviously not in the timeframe that we need, because they need to figure themselves out stress testing, things like that. When that box gets bigger very quickly that ball's going to be bouncing around a lot. And that's what you're going to see, that crazy volatility. But these companies that are putting like, okay, so then all of a sudden, like he has a billion and a half on his balance sheet, you could see an easily, like, you can see a correction in 30 thousands right now. Now I wouldn't blink an eye because it's normal. You wouldn't, but would they, would their accountants be like, we just lost hundreds of millions of dollars overnight because China tried to ban Bitcoin again.

Antoni Trenchev (18:00):

Yeah. Well, most likely, but then specifically Tesla, they have the right CEO for that who'll say, don't you worry, guys, I know what I'm doing. Just trust me on this one. And they ride it out. But also, just to build upon what you said about the market volatility and this analogy with the boxes, which I really liked, and I'm going to use from henceforth, just giving you the heads up. Consider also that crypto is the only truly free market right now where the forces of supply and demand and market corrections can actually play out because we do not have a Fed. Well, unless you count the Tether guys, you know some times. Just kidding here, but every now and then they appear to be having our back, just kidding here. But it truly is fascinating because like in the stock markets, I really think and in dollar terms they will not let the equity markets fall too much. 3000 points in the S&P 500 means one thing now and five years from now, but in dollar terms, I don't think we're going to see huge crashes. That's not true for Bitcoin because, and crypto in general, because you don't have this buyer of last resort who comes in and starts pumping money. That's not the way it works. So I get a lot of calls from friends who were finally…You know even the bigger doubters are finally saying I'm going to buy some Bitcoin. So this does make me nervous now, not as nervous as if we had someone like Roubini coming on TV and saying he's long Bitcoin. But there are some signs on the wall that this rally might slowly be overheating a little bit.

Charlie Shrem (19:56):

What if those market forces could be smart, contracted.?Well, it's a stupid question. What if like, okay, I forget who said it, it may have been Kings himself, but I forget who said that during the good times, you're supposed to save in the bad times you're supposed to spend. So like, we're printing money now, but the idea behind the economic theory is that during the times that you're doing really well and there's excess and everything, you're supposed to pull money back out of circuit. We don't do that. Obviously we just go the one way. And then there's also, we can't audit this situation. We don't know who the federal reserve is. There's all these negatives, but like over time, I'm always thinking these ideas, though, what if there was a way that a blockchain could actually come out with, and obviously not on the Bitcoin blockchain, but on a different test blockchain somewhere, maybe Litecoin or whatever, where if the price goes up a certain point, it pulls money out. It does like a stock merger or something like a coin merger. And then if the price is going down too much, it does the opposite effect, kind of like a decentralized central bank built on top of the chain itself. Would that be an antithesis to anarcocapitalism and crypto in general? Or are we opposed to like central banking because they're central? I kind of find myself–

Antoni Trenchev (21:24):

Yeah, but who would be taking the decision. Like, I don't know, pre-programed and somebody takes a vote on it, or?

Charlie Shrem (21:29):

I don't know. Maybe the whole community, the whole chain itself. If like 51% of the chain agrees on something, but then you're getting into like our miners and our nodes. We're not economists so why are we making decisions that should just be no market forces. So I guess I answered my own question now.

Antoni Trenchev (21:45):

Yeah that happens every now and then. It's a good question. It's a hard one. I like even now, theoretically if there's consensus among the miners, we could expand the total supply of Bitcoin if above 51% agree to that. But I think that's precisely the charm of Bitcoin and crypto that we have this concept of built-in deflationary forces, hard-coded into the code, and you rely on that remaining permanent. And that's why we saw this price appreciation. For me this is where the value proposition is, because it is finite. And that's why you see people…But truth to the matter is, there is some, like this withdrawal by the whales, it sort of serves like–

Charlie Shrem (22:41):

Well, a lot of companies are taking Bitcoin off exchanges. Like there aren't a lot of Bitcoin on exchanges anymore because of that. So it kind of does it on its own.

Antoni Trenchev (22:49):

The other thing that I'm a little bit concerned with recently is fractional reserve banking, because like something some of the guys who do some sort of lending have engaged in unsecured lending. And we don't do that because it brings back the issue of fractional reserve banking. You know, there is a bunch of Bitcoin and it's simultaneously at the balance sheet of several companies. And then we're sort of back to square one. And I don't really know what the–

Charlie Shrem (23:24):

This is what's going to…I think that that, what you just said, and I didn't say it, is going to cause, and I've been saying it so much, it's going to cause a huge liquidity squeeze. And that's something that's going to push Bitcoin way into the six figures and maybe some other coins too, because exactly what you said, there are probably hundreds of thousands, okay, hundreds of thousands of Bitcoin IOUs out there. And then are not Bitcoin, actually Bitcoin, like the asset itself. And now you have an asset that you can actually audit, do proof of keys. With gold you can't do that. I don't know how much does it cost to mine gold. How much gold is there? How much gold is coming out right now? How much gold will there ever be? I don't know. And I'll never know. No one knows.

Antoni Trenchev (24:06):

Yeah. And consider the fact that there's gold on Mars. And when Elon Musk ultimately gets us there is going to be like a whole bunch of supply of gold. So that's something to consider as well.

Charlie Shrem (24:20):

Nexo is one of the only companies and it's one of the reasons that we're doing this AMA is that you're very close with your community. Tell me about the community. So I understand the larger institutions, what they're doing in the lending markets, but kind of like normies, like me and you, what are we doing? Are we like putting a hundred thousand dollars worth of Bitcoin to then borrow for a house? Do you think you'll ever do type of principal and interest loans together down the road that you can do stuff like this?

Antoni Trenchev (24:57):

They're down the road. Right now we're very happy with the type of products that we have and people borrow for all sorts of reason, for many things: to go on a vacation, to buy a Tesla. We had a very nice thread on Twitter by a person who took out a loan to buy a Tesla. He gave his story. It was very interesting. We had Brock Pierce borrow against his Bitcoin very, very early. Bitcoin was trading at around $3000. He took out a loan, bought a property in central Amsterdam, an amazing flat, which used to be a Catholic chuch.

Charlie Shrem (25:41):

I stayed at that property. Thank you. It's beautiful.

Antoni Trenchev (25:43):

It's great. Isn't it?

Charlie Shrem (25:44):

Yeah, it's gorgeous.

Antoni Trenchev (25:46):

And he bought that property taking out a loan and Bitcoin was $3000. Had he sold it, it would have been such a disaster. And now he has both. He has the property, he has his Bitcoin. It has more than 10X-ed. So it has financed itself and it is an incredible proposition which more and more people come to realize.

Charlie Shrem (26:10):

What's the future? What's the future?

Antoni Trenchev (26:14):

The future is unpredictable. It is going to be volatile, but Nexo is here and has got your back. We're going to keep on building. We're very solid as a company. We are about to hit the 200 mark in terms of employees. We got $5 billion under management right now. We are working on some very interesting products: term deposits for a whole bunch of different assets so that you can get out even more of your assets. We are looking and hopefully will be in a position to roll out the Nexo credit card to the US. And you will be a direct beneficiary of that. We're working on a bank acquisition in Europe for a larger stake. And also we're working with a FinTech bank in the US for a smaller stake there, which will–

Charlie Shrem (27:15):

This is how we take over the world!

Antoni Trenchev (27:19):

Yeah, exactly. That's how we take over the world in a compliant manner. Charlie you'll know this better than anyone else, that you have to take over the world in a compliant manner.

Charlie Shrem (27:30):

That needs to be a t-shirt “Take over the world.”

Antoni Trenchev (27:33):

Compliantly.

Charlie Shrem (27:33):

Compliantly, yeah, we will do that. Antoni, thank you so much for coming on this show. What were you gonna say?

Antoni Trenchev (27:39):

I forgot what I was going to say. But it probably had to do something with compliance. So not the best way to end the show, but buy more Bitcoin. Ultimately, it's going to be good for you.

Charlie Shrem (27:51):

Thank you so much for everything that you're doing. Thank you for hiring 200. I mean, that's like 200 people get to wake up and go to sleep every day saying "I work in this amazing, amazing industry." That to me is like the metric. I wish there was a way that we can see how many jobs we've created over the course of the year. No one over the course of 10 years, no one has ever–

Antoni Trenchev (28:11):

That should be on CoinMarketCap. Like the very first one above Tesla.

Charlie Shrem (28:16):

No, I'm serious. Like, cause we are a voting block. We can be a lobby group. We are an army. We are everything. We just, the jobs that we’ve have created. This job, like it's our whole economy. It's beautiful. Thank you.

Antoni Trenchev (28:30):

Anytime again, Charlie.

Charlie Shrem (28:33):

Awesome. Perfect. Yeah, we're good. That was great show. Thanks.

Antoni Trenchev (28:40):

Oh, thanks Charlie. And yeah. When do you think it's going to be ready?

Charlie Shrem (28:45):

Well, they went live. Oh, yo right? Yeah, we were alive.

Antoni Trenchev (28:49):

I forgot we were alive. Yeah. All right. Well thank you so much. And be in touch soon.