Radical Change Happens Much Slower Than We Expect

Our Co-founder and Managing Partner Antoni Trenchev’s interview with entrepreneur, Bitcoin advocate and Untold Stories host Charlie Shrem is now live!

Antoni and Charlie’s hour-long discussion covers the future of the crypto industry, governments, regulation, markets, and loads more.

Watch a video of the interview below or listen to the podcast episode on Apple Podcasts and other providers. A summary and complete transcript of the Antoni and Charlie’s talk are available below.

Highlights of the interview:

• Radical change, such as the one we want to see in finance, happens much slower than crypto enthusiasts and entrepreneurs expect.
• In order for crypto to become mainstream and companies like Nexo to become banks, we need to change our base currency from US dollars to Bitcoin.
• Companies like Nexo are the compliance army for the rest of the crypto world, acting as the link between regulators and crypto users.
• Today, people need to not only earn money but must also maintain its purchasing power, a tendency which could lead to a rush for hard assets like gold or BTC.
• Crypto has a long way to go in terms of UX; this is why customer-centric services like Nexo are so popular: we are a bridge between traditional systems and crypto.
• Similarly to the .com bubble, few blockchain companies will survive in the longer-term; those that do will change our lives.
• Many companies like Nexo, are engaging in regulatory jurisdictional arbitrage by operating in jurisdictions whose crypto regulations enable them to conduct business on a broader scale.
• Nexo is working increasingly on an institutional level providing prime brokerage and products tailored to miners via our dedicated sales and support teams for B2B services.
• Nexo is also set to launch its very own crypto exchange by the end of 2020.

Bonus: Did you know that when Antoni was young, he wanted to be Chancellor of Germany?

Transcript

Charlie Shrem (00:00):

This episode of Untold Stories is sponsored by BitPay and Electronium. Stay tuned for more about them, later on in the episode. What's up, everyone, you know who I am, but if not, I am Charlie Shrem and this is Untold Stories where twice a week, we dive deep with crypto's, most influential leaders to find out how this movement truly came to be. This show is powered by the block works group, a media production company with over 20 podcasts in their network. Check them out at blockworksgroup.io. With that, today's guest is my good friend, Antoni Trenchev the Co-founder and Managing Partner of Nexo. For those who don't know Nexo is such a cool company because they offer the ability to borrow against your cryptocurrency. So the ability to get instant credit lines against your Bitcoin against your USDC or any other type of cryptocurrency, but at the same time, they also offer the ability to earn interest and to earn a yield. And as we all know, we're now in the year of the yield with DeFi and yield farming and craziness, craziness. How are we able to offer percentages that the traditional financial industry is never and has never been able to offer? That answer and more - I sound like I'm doing a commercial - tune in now to Untold Stories. Antoni, thank you so much for taking the time and coming on Untold Stories today. Good morning or good afternoon. Good evening. Wherever you are.

Antoni Trenchev (01:21):

Depends on where in the world we are. Well, thank you so much for having me, Charlie.

Charlie Shrem (01:28):

It's funny cause I used to have to ask, I don't do it anymore, but I used to ask the guests, do you want me to tell people where you are? Do you want me to, one guest said, "Tell everyone I'm in Alaska", as opposed to where he really was. Yeah. I don't know. Everyone has a different choice of where they want to be or what they want to say.

Antoni Trenchev (01:47):

But we are a really decentralized team. Like we have always been like that, but with the COVID-19 situation even more so. Right now I am in the basement of my mother's house where I actually grew up and you can see some regalia, some nostalgic stuff from the old days, like we have here the earlier versions of cryptocurrency.

Charlie Shrem (02:15):

What's behind you, can you show us?

Antoni Trenchev (02:16):

These are like old bonds. This one is from the Kingdom of Bulgaria. I'm of Bulgarian descent. Then further up, there's like a bond from one of the German kingdoms. So surround them…I'm a child of the market. So you could say that.

Charlie Shrem (02:37):

Well, I want to go back to your early history and your growing up and things that you remember from your childhood that still kind of help you go through your path of life today. But really the first question I had, or the only question is what is a former member of parliament doing, working in crypto?

Antoni Trenchev (02:56):

That's a good question, obviously. Мy theory has always been that you should try and do something for the society, for the country, for the community you live in. And earlier on in my life, I had the opportunity to be part of a movement, which gathered a lot of momentum out of protests in the country. People were dissatisfied with the status quo and there were early elections and I sort of got sucked into this. Then I got elected in parliament. But I don't believe in professional politicians, we have too many of those. And I think once you get voted out, your place is in the private sector because there you gather the valuable experience of running a company, how corporations are structured and this is essential to you being effective once you have an elected position. And so many of the people they have zero touch with reality, with real jobs, real concerns of the citizens and they can't get their own life in check and they want to govern how everyone else is supposed to do, where we live, or write the rules. So I had always this in my background. I'm born in Germany by the way. And my mom reminded me that very early on when people would ask me what do you want to be when you grow up, I used to say "the chancellor of Germany." So, it's a funny story but true one nevertheless. And I always found this intertwined between the public life politics and business on the other side quite fascinating.

Charlie Shrem (04:45):

I also grew up in my mother's basement and that's where I got my crypto start too. And I wish I could go back and turn it into a museum because I feel like all of our mother's basements are going to be like museums down the road because all of the crypto people. Going back to what you said though, I remember 10 years ago when president Obama ran for president here in the U S, wow it's the first time I actually used, in 120 episodes, used president Obama in an analogy. It took that long, but when he was running for president, I remember a lot of people saying, here's a guy who is an academic and how is he going to be president? He's never really held a job. He's always just went from academia and then he's going to be the president. And for better or for worse, you saw, we saw what happened with his presidency. So the question I have for you is do you think that people in government should have a business background before coming into government and trying to tell us how to run our own businesses?

Antoni Trenchev (05:46):

Well, there's multiple roads that lead to Rome. Ultimately, from my experience, we are a fairly young democracy, just barely 30 years old. And prior to that, in Bulgaria where I was a member of parliament, we had socialism. So you had this stigma of people having zero capital market exposure, that's for sure, but any sort of organizing themselves differently, apart from a government telling them what to do. So I have this in the back of my head, now in the US it's obviously much more different, you could have a businessman via president, not turning out so great. You could have an academic, doing a finer job. I think it ultimately comes down to that specifically in the US. It's not a single person, the president, determining all the processes that are undergoing and in such a vast economy, that couldn't be the case. So there, you can have more diversity for a small country where power is concentrated towards one person. So gradually I think that business experience is quite helpful.

Charlie Shrem (07:04):

Yeah, it's important. And maybe at the same time having a good balance, right? Like you're saying, because sometimes it's important to have people who are not involved in business being in government too, because sometimes our financial greed makes us forget that we're humans at the end of the day and we should be helping our fellow man or woman or whatever. Do you think we'll see a world like with COVID-19 and we will talk a lot about Nexo, but, half the show is me, I'm just curious, and I have so many questions for people. Do you think, we'll see, and these are things that I just think about when I lay up at night, cause who's been sleeping in the past year, right? But, do you think we'll see a world of jurisdictional shopping? You have countries like Bulgaria and so many others. I don't wanna start naming them, but I'm very fortunate in the space to be friends with people like yourself or current or former members of parliament, current and former heads of state. In fact, one of my guests last week was just on his way. He had to cancel because he was being appointed an ambassador in Dubai.

Antoni Trenchev (08:13):

Yeah, I read that.

Charlie Shrem (08:14):

It's a true story. He's one of my best friends actually. Well, not best friends, but very close friends. He's an amazing guy. So, with the jurisdictional shopping, do you see people leaving these like larger countries that have their presidents 75 years old and over, to smaller countries where they're a lot more flexible where the government and the people are just a little bit more organic, willing to open up the world? I can't explain it, my question.

Antoni Trenchev (08:46):

Yeah, that goes back to an idea that I really like, I first encountered it was either the Black Swan. No, it was Antifragile, the book by Nassim Taleb. I'm a huge follower of Taleb's. And there, he made the case of antifragility -something that gets better under stress circumstances, not only is resilient, but it gets better. And he gives the example of Switzerland where you have this tiny little country surrounded by picturesque mountains. And they have the cantons, the different mini States, which are very decentralized. And they govern themselves really well and in a very sovereign way. And he argued that Switzerland is one of those countries, like the worse it gets throughout the world, the better it gets there. So this is exactly what you described and this was like, he coined this term, decentralized government. I'm not sure he coined it, but he definitely used it prior to decentralization in the context of crypto becoming cool at all. So I think there is nice parallels between the way that blockchain is governed in a decentralized manner. It also entire countries. But to your question, I do think we're going to see a couple of larger trends. One would be regulatory jurisdictional arbitrage. And there are a lot of companies doing that, including Nexo. If we like the way a certain jurisdiction treats crypto more likely than not, we're going to set up shop there and have the infrastructure and see which parts of the world we can serve most efficiently from there. And then just like by COVID-19 exacerbating the whole process, we're going to see people working from just about anywhere in the world, like what's stopping you? You need a laptop, you need internet connection. You got that even in third world countries nowadays. Then again, now you can't really turn off. It's like constantly notifications, Slack, Zoom, it's horrendous. So it's got its ups and downs and it's really about striking a balance here.

Charlie Shrem (11:14):

I think I agree with you on that. And at the end of the day, really, everything does come down to a balance. Do you see, so you studied economics, you worked in finance.

Antoni Trenchev (11:31):

I studied law, curiously enough.

Charlie Shrem (11:33):

Oh, you studied law, even better.

Antoni Trenchev (11:34):

I studied law. Right. I didn't know what I wanted to do with my life. So my parents, being both lawyers by education, said, study law, you can figure it out afterwards. So I studied law, but I found the stock market in between. So my law studies got left behind a little.

Charlie Shrem (11:55):

I feel like so many people in crypto, my business partner is actually a former lawyer and he just left. He's never kept up his law license because when you're trading crypto, you don't really have to practice law anymore. Well, you do. It's good to know things. But I guess my question is as the natural progression of your life, if you read your LinkedIn or your Google you or anyone, really, a lot of my guests too, it's the natural progression of their life. Like it almost looks like it led you to here, where you are now, everything you've done up until this point has led you to put you in the position to be where you are today with Nexo, can connect. So the other companies in the space that act as this financial backend infrastructure, can these be the end, all be alls for us in terms of finally leaving the traditional financial system? Because at the end of the day, we still rely on banks. We still rely on the traditional, even ATM machines to make that connection, the toll booth between the world we live in versus the world we want to live in. I've been using Nexo a lot lately because I'd like to understand the products and I've been saying to myself, wow, eventually I don't see a reason for banks or even it's not just banks, it's credit and capital markets in general. Is this the end all be all for that?

Antoni Trenchev (13:25):

Well, a lot to unpack in that question. There's so many topics and so many intertwined thoughts there that, we need to get our heads around, whether Nexo and companies of the like are destined to replace banks. I don't know. It really depends. Good question. First of all, I don't think that all of the companies that we have in the space…I think that we're very close to the .com and post.com bubbles where you have this plethora of thousands of companies, and then very few of them are still around and they got into a place to be the Amazons, the Googles, the PayPals, the Ebays, all of this, the Apples, the really gargantuan type of companies, which ultimately have changed our life for better or worse, but quite dramatically. So this is number one. I don't think all of the companies are going to make it.

Charlie Shrem (14:33):

But when you were using those like PayPal's and everything. Even 10 years ago, you never said to yourself, this is going to replace the financial infrastructure that we use today. No one ever said, I'm not going to use banks. I'm going to use PayPal exclusively, but people are saying, I'm going to use, whether it's Nexo BlockFi, or whoever, I'm going to use those exclusively, I'm going to be on Binance. Between the crypto ATM companies, people are exclusively moving into, I bet you, the next company in your industry is going to offer crypto-backed mortgages or, you'll be able to borrow against real estate and borrow crypto against real estate. You'll see things like that. It's going to be intense.

Antoni Trenchev (15:13):

Yeah, absolutely. But then again, like people said: "Oh, retail, physical brick and mortar shopping is dead," now that we have Amazon and then, full circle coming in Amazon building like physical stores. So, change in my experience, and it's not the longest experience in the history of the world, I'm 33 right now.

Charlie Shrem (15:39):

We're the same age.

Antoni Trenchev (15:39):

Yeah. Okay, cool.

Charlie Shrem (15:40):

I'm 30. Yeah.

Antoni Trenchev (15:42):

My experience is that radical change happens much slower than people expect it to, you know, especially us, the people that are inside our bubbles and we see crypto and we love it. And we want everyone to see its merits and instantly jump on the bandwagon but first of all, I think just from a user experience, UX-wise, simplicity of use, we have a long way to go in the blockchain space. Now this is one of the reasons why products like Nexo are popular is because right now we are positioned as sort of a bridge between the traditional and the very new, exciting prospects of the brave new world of digital currencies. But they still want to have the MasterCard and swipe it and pay in an instant. They don't want to have a PhD on Metamasks just to see their outstanding balance. So it's going to take much longer, in my opinion, there's definitely the fundamentals to build things better, but I don't think it will make instantly obsolete the legacy structures that we had partially because even our new solutions, they rely upon the traditional infrastructure and are interconnected in some way. Last but not least, you have regulations to consider. It is very unlikely that you can have a large scale operation of issuing mortgages as you pointed out or paying interest on U S dollars in the U S for this, as soon as you grow in size, you'll have the regulators all over the space or the place. You can't escape that even with DeFi solutions, which are decentralized and there's not single company that you can send a subpoena to. I don't think they're immune, especially if they grow significantly in size and regulators see a large concentration of money, and they view that as dangerous. They will put the companies in a certain railroad, akin to, the early 20th century and their toil and, you know, the railroad companies and banks being broken up by antitrust and regulation.

Charlie Shrem (18:19):

Your company's are the ones that are like the compliance army for the rest of us, because the DeFi, the centralized coins, the decentralized ones, the securities, the utilities, the yield farming, everything at the end of the day, people are getting in and out of crypto. They're buying and selling in and out from their traditional. But they're only doing it at these toll booths, whether it's the Bitcoin ATM machines or it's companies like Nexo, or it's companies like Coinbase, you guys are the toll booth. How have those regulations involved? You, like you said, you studied law and you understand regulations. You are actually certified in anti money laundering. I am also an anti money laundering specialist because I went to prison for it. Let's talk about…No, I actually didn't go, well, that's another conversation, but, I did. I'm a funny guy, sometimes.

Antoni Trenchev (19:17):

You have a very interesting history.

Charlie Shrem (19:20):

Well, it's funny. Cause I remember sitting, I remember sitting, uh, with my lawyer. My lawyer said, you know, Charlie, you shouldn't have been the compliance officer. And I said, I was the only employee. I cleaned the toilets. I did customer support. I did everything. I don't even know what compliance officer meant. I just clicked the check box. So when I filed for FinCEN and I filed for FinCEN in my mom's basement, which was probably a very bad idea, but anyways, I was young and stupid and we all make mistakes. But going back to that, so how are those regulations changed in terms of how the regulators look at us? And I don't want to hear like a US answer because I hear enough of that. Tell me what Europe is like. Tell me why Europe is really gonna be at the forefront with Asia in crypto adoption and not the US.

Antoni Trenchev (20:13):

Well, I'm not sure whether I agree with that. It's up for debate. There are arguments on both sides, right? Well, Nexo, we operate in 200 jurisdictions, which means we have more than a dozen different legal entities servicing different parts of the world. Now me being a law student and a lawyer by education, I'm overseeing the legal department and the compliance. So I hope I never face the predicament that you have faced in your life.

Charlie Shrem (20:47):

And you shouldn't. And you won't.

Antoni Trenchev (20:50):

No, but we have a very capable team. It's a good moment to thank the team, the legal team. They're really incredible. And they're working around the clock with law firms in the respective jurisdictions, just to make sure that our models, as we devise them, either do not require direct licensing for whatever reason. Partially when you issue loans, for instance you have Bitcoin as collateral, when you have the payout option as Tether, there are certain jurisdictions where they say, "well, this is cryptocurrency, we don't view that as money and you don't need a license." Obviously in the US it's slightly more complicated than that, but you have jurisdictions where they have taken a very, laissez faire type of approach, where they say, "well, this is no different than you trading oranges, and why should you require a license for that?" Then obviously these are the jurisdictions that you can get going very quickly, at a very low cost barrier, for you to set up shop. And then obviously once you conquer those, you have more, you have sandbox regulations, in Switzerland, in Malta, different things that make it possible for a swift development of your business goals. But essentially at some point you sooner, rather than later find yourself wanting to be active in the US market. And because it's such a large country, wealthier than like pretty much all the countries in the world. So there's a lot of business and you want to be in that market. And I don't know the system you have over in the US is just so terribly complicated. I think it's a lawyers world. I don't know. Can you file an IRS return without a lawyer? I don't think you can.

Charlie Shrem (22:50):

I don't think I've ever done my taxes without an accountant or a lawyer.

Antoni Trenchev (22:54):

Well, then you can imagine what online credit facilitation looks like from a legal standpoint, and like just the sheer cost of making sure you have a compliant enterprise is just mind boggling.

Charlie Shrem (23:14):

That's one of the hardest things to do. But it is governed by the same laws that govern money in terms of, in the US every state is its own country. Basically, every state has its own financial services law that you need your own license. It's all its own. Every state has its own. And I'm an investor in a Bitcoin ATM company ByteFederal, we have 150 machines, but mostly our machines are in Florida, Alabama, South, like South East US. And that is because every state we have to…The cost to approach the regulator there to get the license is so high in every state. So you're literally state by state. So if you look at the top 10 producers and top 10 Bitcoin ATM manufacturers or operators where a lot of people in the US, North America has a huge amount of crypto ATMs, people buying and selling within those kiosks there. They want to do things like buy and sell crypto, but also take out loans or have a crypto debit card. These machines are becoming the next banks and the companies that are rapidly putting 20 or 30 machines a month are going to be the next infrastructure plays because every company like Coinbase that rely on the banks, right? When you have crypto ATM machines, you are your own bank, you start the end to end point. So that's why I invested in those companies back in 2017, I realized that because that's how you'll get the next infrastructure. But even the regulations on that are so high and intense. The cost is triple of compliance of whatever you pay to do compliance on those types of companies. What do you think is the challenge for any crypto company replacing a bank?

Charlie Shrem (25:06):

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Antoni Trenchev (28:45):

What do you think is the challenge for any crypto company replacing a bank and I'm going to give you my answer after.

Charlie Shrem (28:56):

The challenge of any crypto company becoming a bank is you have to offer every single service that a bank offers end to end. And that is because you need to…Because a person doesn't use a bank for depositing their paycheck and spending, and then paying their credit card bills. Most people use banks for a lot of different reasons from if you're a vacation rental company and you need to issue checks to your housekeepers or to the handyman, you need to have physical checks, handwritten checks. That still is in very high demand. You need banks, you need the ability to go cash in and cash out like physical cash, still very high in demand around the world, especially in the US it's growing in demand. So you need to offer those credit and capital markets. My listeners know that over the past few months, I've been talking about this a lot. I always believed that crypto wouldn't be mainstream until we've had our own credit and capital markets that have the ability to loan against, to borrow against derivatives, short, to be able to do things like that. Now that we can do all these things, we're slowly checking off the check marks of eventually taking over the whole end to end financial infrastructure. The only thing we don't do is print our own money, but with DeFi, we're doing that now so…

Antoni Trenchev (30:09):

Yeah. Well, I totally agree with that. I think there's a step before that and it's something that I've been thinking about recently, a lot. I find for this radical change to happen as we discussed it, you need to change your unit of account and what your base currency is because, even a lot of the crypto folks, they tend to calculate everything still in dollars, which is very important because we have got to start thinking in Bitcoin and I'm slowly getting there. One of my partners, he was very early on that then. I should give him credit for that. He was like, "you know, Antoni, you should stop thinking in dollar terms." It's hard to do it. It is hard to do, but especially now since the COVID-19 situation, you know, prior to parliament, I was in the hedge fund industry and I've traded like absolutely everything. But the thing is I, since the financial crisis, like 2018, 2019, I've been waiting for the next large downturn and it never comes. So now I'm starting to think that this will perhaps never come. There's always going to be perpetual bull market inequities, but that doesn't mean a thing. And it doesn't mean a thing because just since COVID-19, we have 8 trillion, more dollars competing with your dollars for the finite amount of hard assets that we have around the world. So I'm thinking that perhaps this will be really the…You know, we're never going to experience large… The ECB won't have our back. It's just going to print more and more money, but then you gotta stop thinking of the nominal value of the dollar. Because like a few years ago you could buy something with a dollar. And nowadays it is really, really hard to do that. So I'm tying this together with this notion that perhaps we should start viewing our base currency as fiat, but slowly and surely adjusting to those that have proven scarcity gold, Bitcoin.

Charlie Shrem (32:39):

I want to push back a little bit. I agreed with everything you said until you mentioned gold, because if I were to agree with you, then I don't count gold as that example, because, I hate to say it, but in the end of days, I don't see gold as being a scarce commodity that's going to be high in demand other than being a unit of account. But in the end of days, a currency won't be realized for hundreds or dozens of years, because, in the end of days or whatever, that'll just be craziness and havoc. So what scarce assets can we start thinking of now? And not just like here in the US. I can say the Florida real estate market has been going great now because of COVID and the New York real estate market has been going shit because of people leaving New York. Yeah. So those are very short term type of events. How could I protect myself? Like, okay. Crypto, crypto is a huge factor.

Charlie Shrem (33:54):

Well, we can talk about my maximalism because it's like a chart. Like it goes up and down. For those who don't know, I do video episodes now. So I'm literally drawing a chart. Can you hear the microphone?

Antoni Trenchev (34:06):

Okay, guys, you should know there is video. I didn't know it. So perhaps there are other people as uninformed as myself.

Charlie Shrem (34:16):

What type of scarce commodities…should I go out and buy a farm to start producing my own food?

Antoni Trenchev (34:22):

Well, I don't know. What type of person you are. You strike me more as an urban type of a guy?

Charlie Shrem (34:27):

I left the city.

Antoni Trenchev (34:29):

No, the thing is, gold has its value like a store of value, unit of account. It has been awhile. So people have this instant affection for it. I would argue that Bitcoin is even better. But the trend is there. Part of my studies in law took me to London and I remember I loved eating seafood, and I would go once a month on the money that my parents essentially gave me, I would once a month go to a restaurant called Caviar House and have this seafood where you had this tiny shrimp and a little bit of an oyster and this and that. And that used to cost 26 pounds. Last year, I found myself in the exact same spot, the exact restaurant, it had not been renovated. It had not been enhanced. The portion will stay exactly the same and the same thing, the exact same thing that used to cost 26 pounds now costs 48 pounds, right? So fiat currencies are losing their purchasing power. It's hard enough for you to earn money and now you have to think of ways of actually maintaining their purchasing power. So I think it's going to be a rush for hard assets, whether they will be prime real estate, gold Bitcoin, whatever. As soon as people realize that the Fed and the central banks are never going to stop the pumping machine, or…that's how they fixed it in the thirties.

Charlie Shrem (36:14):

I've been thinking about this a lot and that's why I've been pushing a little bit with you on this, because I have been thinking about this a lot. And my best solution I could think of now is how to protect yourself against a coming of end of days or whatever is rental real estate, because at the end of the day, people need to eat, live and drink water. While, the water and the food part, I don't really know, but I do know real estate a little bit. So what I've been doing, and a lot of people have been hearing me do this, and they've been doing the same thing as I buy very old houses, hundred-year-old houses that are going to be condemned, and we just fix them up and put them on Airbnb. And my goal is down the road, that if there was ever a shortage of the ability to earn income or a shortage of… The world falls apart at the end of the day, someone's gonna be living in that house. And if they want to stay there, they're going to have to give me something in return. So now it's onto that person to find food, to give to me, to live in the house. That's how I kind of look at it.

Antoni Trenchev (37:19):

What's the annual yield on an investment like that?

Charlie Shrem (37:23):

It depends on…That's a great question. It depends on how you view it. So if you look at, let's just say, we say a hundred thousand dollars, right? If you put a hundred thousand dollars on Nexo and you're not living off of that, and you keep 10% of your savings wallet in NEXO Tokens, you earn 10% of that USDC or whatever. I know I'm talking about your company. Now.

Antoni Trenchev (37:47):

I love the fact that you talk about it and I don't have to myself.

Charlie Shrem (37:51):

I need to make sure I understand the products of the companies and the people that I talk to. And I've been using it cause I love it. So now at the end of the year, theoretically, if you didn't spend that interest, you'd have $110,000 at the end of the day, and then you keep compounding that interest. That's great for some people, it really it's a…

Antoni Trenchev (38:14):

Better than what you get on your Bank of America account, that's for sure.

Charlie Shrem (38:17):

But I still see that as a temporary thing, because I think I like the idea of owning assets that earn you income. So you asked what the return is if I buy a hundred thousand dollar property and I need to spend 30 on making it up to speed the first two years. If I can earn at least 8% return before like taxes and insurance, that's good because the value of that property now is going to go up to 3% every year. And then the amount I could charge interest goes up every year at the same time, but my costs never really changed. Yeah. So that's how I kind of look at it.

Antoni Trenchev (38:56):

No, I love the idea. I love the concept, maybe riots and COVID-19 are not very supportive right now, but it totally makes sense much better than holding fiat currencies on the 0-1% interest rate, earning accounts somewhere. The thing is it's very capital intense.

Charlie Shrem (39:21):

It's very capital intensive. And so I was actually talking to a friend of mine here, owns a company, amilocals.com. And he has 170 vacation rental houses that he owns. Like, these are very high quality. You know, his cashflow is insane. So I talked to him and I said, you should securitize and issue a token. And there's a lot of legalities behind it, but you can offer kind of like what INX is doing and offer a cash flow token. It's not a security token, but you can offer people 13, 14% a year. And because he borrows at 17%, he would rather do this. So that's why I see…We talked about earlier with credit and capital markets, if you have someone who can go develop a house now, and he doesn't need to go to a bank and he can go to the crypto industry to borrow that money, go to you, Nexo, people building hotels. Hell dude, I'm telling you, you're going to see this one day. Someone's going to come to you and they're going to say, "hey, we are a country or we are a native American tribe and we want to borrow money to build out this infrastructure." Now you're funding cities. Now the crypto industry is funding cities. How crazy is that?

Antoni Trenchev (40:31):

Well, we had something on a smaller scale admittedly. We had Brock Pierce, I presume, you know, Brock.

Charlie Shrem (40:39):

Oh yeah, running for president.

Antoni Trenchev (40:40):

And he was like, "I have this bunch of Bitcoin." Bitcoin was trading at around 3000. It was the beginning of last year. And he said, "I have this amazing chapel, a building that is up for sale in central Amsterdam in the Netherlands.

Charlie Shrem (40:58):

Oh yeah, his church, his church vacation rental.

Antoni Trenchev (41:00):

Exactly. Well, he borrowed against his Bitcoin and we did a trilateral deal where he staked his Bitcoin. We got him a loan and sent the funds directly to the notary. And it was a thing of beauty, the building itself and the deal itself because like, maybe four months later Bitcoin was at 6,000. So basically this deal financed itself.

Charlie Shrem (41:27):

So what was the interest rate range for this and what it a mortgage or just a loan against crypto?

Antoni Trenchev (41:37):

Well, we call it the first crypto mortgage. It's not technically a crypto mortgage. Well, it's, well, we can make a case that it's a crypto mortgage or crypto-backed loan with the idea of purchasing the real estate, but we don't have any sort of interest or security, the house as a security. If you look at it from the rise of Bitcoin, it was essentially a free deal for him. He got his Bitcoin, which doubled in size.

Charlie Shrem (42:08):

He's got it worked out, right. Is that a model that you could do? Is that business model that you could do down the road? Other people saying that they want to buy?

Antoni Trenchev (42:15):

Yeah we are definitely considering that we have had many people follow his lead and do deals like that, whether this can become full blown, I don't know. The thing with Nexo is we like liquid collateral. And as soon as more people tokenize real estate this could develop into a business. Otherwise we will have to tokenize it ourselves. And then I don't know, it's a little bit hard because then, you don't have the liquid market where you can sell the collateral.

Charlie Shrem (42:53):

No, I see what you're saying, that the business model is based on the fact that the collateral's liquid and if need be, you could do that. That's why people borrow money against stocks all the time, because of that same reason, the interest rate's lower, because your risk is less. What are you going to do with the property? That's why these economies of scale, it's kind of crazy. But let's talk about Nexo. Every email that someone gets from Nexo whether it's a withdrawal request or a deposit, or it's a welcome email, you mention a few things that you take pride on, and the fact that you're a regulated digital assets institution and that everything is insured and up to a hundred million dollars, and that you work with BitGo as your custodian. And one of my favorite things too, is that you do almost instant withdrawals. So it feels like it's a non-custodial wallet. Why do you feel that these things need to be said on every page, on the emails, on the website?

Antoni Trenchev (43:53):

Oh, that's a very good question because we occasionally have debates on whether we should say that everywhere. And one of the partners who is very, very vocal and has some strong feelings about it, I'm generally a more flexible type of person. But there is a couple of different customers that we have now. First of all, why the emails are so detailed and they have a lot of information, a lot more information that you use or need for a withdrawal. You never know where this email is going to end up. Might be with someone who hears of Nexo for the first time. And if those four lines help him convert and trust us, they would have been worth it. But we have like the retail, the smaller clients, which, you know, for them a couple of hundred bucks or a couple of thousand bucks might be a lot of money. So they need to know that those funds are in a secure space and place. So that's why we always put emphasis on that. And this is even true for larger entities, institutions, where they need a certain level of trust or signs a sector and space in order to make the step, not only towards you, but towards crypto. Knowing that there is a regulator overseeing creates a certain level of trust in some people and perhaps rightly so. The other way is to go, you know, fully non-custodial, but with the way that we have structured the business and the solution that we are providing, this bridge between traditional financing crypto, there are some things that are inherently off chain and that are not yet on chain. And I don't know when they're going to be. So you have this trade off between the service as it is, the usability, and you have all the security and we're trying to make the best stuff, the mixture in the best possible manner,

Charlie Shrem (46:19):

In the best possible way. Like, cause if you talk about it too much, then people are wondering why are they talking about it too much? And there's like a perfect balance, like you said, with everything. So your model right now, who are you? Who is the…What are the demographics of your type of clients? Are people mostly using the credit line option? Are they using it to earn interest on an already asset that they see appreciating borrowing against those assets? Do you see a change in your type of customer?

Antoni Trenchev (46:52):

I don't think we see a change. It has been very consistent from the onset. We have like people literally from everywhere, apart from the sanctioned countries lately, I don't think there's a single jurisdiction we don't have a customer from. It's really mind boggling. You can have what's considered a whale from a country that you never even expect like three years ago to know what even Bitcoin is. I found this very fascinating. So when people ask me where are the customers from? - All over the place, like truly, exactly as Bitcoin was envisioned, it's truly global, borderless. There's people from absolutely everywhere. Obviously in terms of number of people, we tend to have younger people like I can't share the number of users. But then when you balance that with the average account, you get to the older folks having more funds. Naturally people who have been around longer usually have more money. So it balances out. I couldn't tell you who has in a nominal value, more funds with us, the younger people or the older. Then in terms of the project, the products, we have two main lines of products. One's the instant crypto backed loans, like where you take something like Bitcoin and get something like the US dollar. For this, to be interested in that, you gotta already be converted into crypto, unless you have crypto, you cannot be a client of that product. Now, the other spectrum where you have people earning interest on their crypto, but also on their fiat currencies, we have a more versatile crowd. Like we have had whole different ranges of people. We've had this mayor of a town in Germany, which I was like, "wow." You know, because he was flagged as a politically exposed person and got dragged to my attention. And he's a client of Nexo, the mayor. You know, we did due diligence, source of funds, et cetera. It turns out everything's fine. The money, the amounts were covered even by his salary. So there was no concerns. But how crazy is this? You have a mayor of a German town being a client earning interest.

Charlie Shrem (49:29):

How funny is that? That's so crazy. And you probably get a lot of politically exposed persons and it'll increase. And it has been increasing. You probably do have even US congressmen, congresswoman that are users of crypto. And also Nexo, it's so interesting. And I just found out, interestingly enough, the reason that I get flagged all the time is that there's a very small company called Lexus Nexus that like every financial service company in the world uses and I get flagged in them. So right now I know, I finally know, after nine years, someone finally told me that it's Lexus Nexus that's flagging me.

Antoni Trenchev (50:13):

Well, it's a curious case. I mean, like…

Charlie Shrem (50:15):

No, it's okay. It's fine. I've made my mistakes and I lived through it. I'm just, I never knew. I was like, no one was telling me what's the software. Why am I being flagged? What is going on here? But it's all resolved and it's good now.

Antoni Trenchev (50:28):

You have paid you debt to society.

Charlie Shrem (50:31):

Yeah, I did. I did financially. And in prison in terms of going to prison. But if my case was a lesson for anyone then it was worth going to prison, because if I could have prevented other people from making the same mistakes I did then, so be it. If I needed to be the martyr or if I needed to be the one in this industry that went to prison, so everyone else isn't stupid enough to do the same thing then so be it, then it is what it is. And I'm okay with it.

Antoni Trenchev (51:06):

I'm fairly certain, that's easier said than having to live through.

Charlie Shrem (51:12):

It does suck to live through it, but I've learned that my difficult times is nothing compared to some of the difficult times that other people have gone through the stories that I hear. It's just, I would never…it's insane. What's the future of Nexo? When are you launching a debit card? Because I need that. And when are you going to have the ability to trade within Nexo itself? Then I want to talk to you about something else.

Antoni Trenchev (51:36):

Okay. First with the currency functionalities. This is something that the dev team, we have an incredible dev team, the dev team is close to 40 people. Wow. Like I remember we had this conversation where we rented our first office and the three co-founders were like, "we don't envision next to ever surpass 20, 24 people." We have 110 in one of the Slack channels. So slightly above that, I have to see the exact figure. But a cryptocurrency exchange! They're working and those functionalities should be alive by the end of this year. Now, it's always tricky with deadlines, especially if they're software. But I definitely think within this year, because when we do surveys of the communities like cryptocurrency exchange is one of the highest ranked. Now, the MasterCard that we have. Unfortunately in the US it's going to be delayed because of…

Charlie Shrem (52:44):

We have enough Bitcoin debit cards anyway.

Antoni Trenchev (52:46):

It's curious how the credit cards, they split the world. You have Southeast Asia, you have Europe, and then you have the States and it's three different procedures you go through. We have a very capable team working in the US but Charlie, I will have to disappoint you. You have to wait in line.

Charlie Shrem (53:05):

It's fine. We have enough.. I have been using the BitPay debit card since 2016. And it does a few things very, very well. Unfortunately, most of the other cards that come out today just do a lot of things, very shitty. So I'm pretty happy with my life.

Antoni Trenchev (53:19):

Why it takes us so long is because MasterCard with whom work, is uncharted territory for… They had the debit cards where they instantly sell your Bitcoin for fiat, and you spend the fiat. But there's a couple of considerations here. First, you obviously don't have your Bitcoin anymore. Secondly, which a lot of people don't pay attention to, but I think the IRS essentially will, is the fact that this is a tax event. You've sold your Bitcoin. If this is at a profit, you've got to pay tax on it. And I don't know what the taxes are in Florida, but then you're…

Charlie Shrem (54:01):

Right. It's complicated. I see what you mean.

Antoni Trenchev (54:03):

Now if I go for a cup in Starbucks, it’s like seven or $8. So there's something that people don't necessarily have in the back of their head. And with our card is very difficult. As soon as you swipe it, we extend you an instant credit line. So it's quite complicated on their end, and that's why it's taking so long.

Charlie Shrem (54:21):

Tax write off! The interest is a tax write off. So all my interest to you is a write off. So if anything, it's not, it's an opposite. If I would swipe the card, a Nexo Card, it would be the opposite taxable event. It would be that the government owes me money now.

Antoni Trenchev (54:37):

Yeah, exactly.

Charlie Shrem (54:39):

Cause it's a loan against, it's interest that I'm now paying you automatically.

Antoni Trenchev (54:41):

When you pay interest you can deduct that, yeah.

Charlie Shrem (54:44):

Yeah. There you go. That's so funny actually. Here's the debit card where the government pays you when you swipe it. That's a unique selling point. No, your lawyers they're going to be…

Antoni Trenchev (54:55):

They're going to love it, I'm definitely sure about that.

Charlie Shrem (54:59):

How are you supporting other companies in this space? Have you been doing a lot of B2B?

Antoni Trenchev (55:08):

Yes, increasingly. So when we came out, we wanted to focus on the retail and I think we've done a finer job, like securing a good position with regards to the retail. Now we want to do even more for the institutional level, you know, anything from providing prime mortgage, uh, prime brokerage solutions, uh, products, which are bespoke to miners, you know, the whole nine yards. But also we are seeing an influx of companies which are, you know, accepting payments in Bitcoin. They have Bitcoin for whatever reason, just as an investment or somehow tied interestingly to their business model, a whole bunch of different companies coming. And we have now a dedicated sales and support team for the institutional clients separate from the retail.

Charlie Shrem (56:06):

I guess. How do you differentiate between risk of retail versus institutional? Is there a different type? Well, like when you're lending to a retail person, you're making a lot of little loans. So the risk portfolio, the risk perspective is a little bit different. You know, you're willing to let a lot more people in. So in this situation, when you're lending to institutions, I guess if you're lending to an institution, the risk can be a little bit greater or lower, but you're not really doing business loans. So it's a stupid question. Um, moving on.

Antoni Trenchev (56:44):

There's some very good aspects, I could briefly address that. Now, first of all, everything we do is collateralized. So for us, we don't do credit checks, right, because we have the collateral. And it's a liquid one and our algorithms for managing the collateral, they've been stress tested. It's like in 2018, when we launched, Bitcoin lost 86%. We had a 49% drop just in March and we didn't lose a single dollar. And when we work with institutions, the reason why there's less demand for our product is the fact that we require collateral regardless of this being a trustworthy institution, which might have audited financials or whatever. This is not true of all lenders in the space. And it's a very important differentiator here because like some other companies, I don't want to point names, but it's obvious who they are, they say we can have 0-50% collateral and we're fine with that. At Nexo, we were never very big on that because, first of all, there are funds in the industry. There are very few true funds. And then you have glorified prop shops out of a basement. So this is, it is quite tricky. And it's never been a model that we were comfortable with. This is one of the reasons why the Earn on Crypto was only developed this year. We wanted to figure out a sustainable business model. So in terms of differentiating risk, we don't really have to do that because everything's collateralized with us.

Charlie Shrem (58:26):

For my listeners who want to get involved in Nexo and who want to learn a little bit more and to start using it or to follow you, what are the best places that they can do that? Should they follow you? Should they go to nexo.com? What are the first places they can look?

Antoni Trenchev (58:37):

Nexo.com, this is the beautiful site that we have on the web. Do you like the new design of the website?

Charlie Shrem (58:48):

Of the website?

Antoni Trenchev (58:49):

Of the website, not of the platform?

Charlie Shrem (58:51):

I don't know if it changed.

Antoni Trenchev (58:53):

Well, while Charlie checks it out…

Charlie Shrem (58:56):

Oh yeah. I do like it, this is nice.

Antoni Trenchev (58:58):

We did a lot of work, shout out to the dev team. And also the designers. We have an incredible…

Charlie Shrem (59:06):

I like stats like this. I like when you go to a website and they tell you the numbers, right. They're like, "this is how many years, this is what we're doing, this is who we are." I like that.

Antoni Trenchev (59:15):

I really am proud of the design. So, nexo.com. It is the home of Nexo. I am on Twitter quite frequently. My handle is AntoniNexo, all in one word and then NexoFinance is the Nexo Twitter. Like, subscribe to that. You get all the important things around.

Charlie Shrem (59:37):

Yeah. Antoni, thank you so much for taking the time and coming on Untold Stories today.

Antoni Trenchev (59:43):

Thank you.

Charlie Shrem (59:43):

I hope to see you soon.

Antoni Trenchev (59:45):

Same here.