FTX and its aftermath is an ongoing conversation and we want to continue to be a part of it.
Asia Tech Podcast invited one of the region’s most thoughtful investors, Rajive Keshup, to come to the show and give some of his insights into how we got here and where we are going.
Some of the topics that Rajive discussed:
  • In-depth detail of the FTX situation and what the potential outcomes are
  • The impact of the Federal Reserve on all financial markets
  • The implications of the changing macro environment
  • The Binance and FTX rivalry
  • Putting the economics of FTX into context
  • The necessity for and the inevitability of regulation
  • Just how small the circle of players is
  • The impact on the VC world
Some other titles we considered for this episode:
  1. I Think Every Year Will Have Something
  2. Everybody Knew Something Was Going On
  3. The Circles Trading Against You Are a Lot Tighter
  4. They Sponsored Stadiums
  5. Season 4: The Run to Dubai

Read the best-effort transcript below (This technology is still not as good as they say it is…):

Michael Waitze 0:00
Hi, this is Michael Waitze. And welcome back to the Asia Tech Podcast. It’s been just another slow and dreary nothing’s going on. And to kind of cover some of the nothingness that’s been going on, we have Rajiv Keshup, a Director and investor at Cathay Innovation. How are you doing?

Rajive Keshup 0:19
I’m doing good. You know, completely uneventful weeks, I’ve been bored out of my mind just sleeping. twiddling my thumbs. I’ve been sleeping on the couch behind me. So you know, it is what it is.

Michael Waitze 0:31
But you know, we were saying this before, but I want to, I just want to reiterate this 2022 has been just an incredible year, I think a lot of it has has been because of we came out of the pandemic, and there was all this pent up demand for something in a way of almost pent up demand for anything.

Rajive Keshup 0:48
We got something

Michael Waitze 0:50
we did, we got kind of an October surprise, but not in the way we normally do. Yeah. What do you think is gonna happen going into 2023? You don’t think there’s going to be another crypto scandal, we can talk about the one that just happened in a second. But you don’t think there’s gonna be another one? Like I think every year is going to be another scandal? Yeah, because historically, that’s just what happens anyway, go ahead. What do you think? Yes,

Rajive Keshup 1:11
yes. So my views are my own, they’re not Cathay and as far as crypto is concerned, just a full disclosure. We we Ledger’s is a portfolio company. So I may be slightly biased but for good reason. And then we also have a fund with ledger. So I just wanted to put that out there. In terms of in terms of scandals. As far as crypto crypto goes, I think every year we’ll have something and I think it’s a really good thing. Because, you know, short term, it creates a lot of pain, but long term, it creates a lot of infrastructure into what you know, could be could be the building blocks of a really dynamic sector and a really dynamic industry, and a cause for change. And so I do think all of this stuff, poses a number of key questions. And all of those questions are very fundamental, important questions to ask. And so I, you know, we welcome all of this, I welcome all of this, I think this is great for the sector. That being said, a number of the big blocks that have had to fall, I feel like all in a number of the shoes that needed to drop have already dropped, we’re going to see a lot of additional or extended effects as a result of this. But I think that’s just going to be the unraveling of a lot of residual stuff, funds that were invested into, you know, Genesis or FTX, or whatever. And, and a lot of that stuff will sort of unwind. But once the unwinding is done, sort of what I believe will happen is,

Michael Waitze 2:49
let’s back up, because I want to get a better understanding about what you think happened. Yeah, and then talk about what’s going to come next, right, because I want to go through that a little bit just to make sure that I and the listeners understand what happened. There’s a whole bunch of stuff being thrown around. You’re pretty you’re pretty methodical about this. And your job is understanding stuff like this. So I’m just curious what you think is going has happened, and then we’ll get into what you think is going to happen. And that have dropped in the key questions that were answered. Yeah.

Rajive Keshup 3:17
Got it. Okay. So there’s a lot that’s happened. In sort of rewinding the clock a bit. I think when when I’ll make Alameda and FTX. As businesses were founded, they were founded on on their set of principles and tenants that I believe, at least in the interim, were well intended. And what happened a lot along the way was was a couple of things. And I’m going to skip over some some some key details. But essentially, there was a pretty substantial backdoor that was created with because this entire thing was not regulated and not not thoroughly due diligence, there was a pretty substantial backdoor, and there was not governance very well. And the backdoor allowed for a lot of leverage, unchecked leverage to be built up built up by the moneymakers, Almeida, which then what had to be covered by FTX customer deposits. And it didn’t have to be, but it was

Michael Waitze 4:20
okay. I just want to be clear, so people know, like, there wasn’t some agreement presented on the

Rajive Keshup 4:26
agreement, but it was a single party owner, right. Which did happen. And the other thing that I want to clarify because I’ve had this conversation 20 times this week, is just because you read the word exchange isn’t exactly an exchange, there’s no there’s no exchange. The definition of an exchange is you know, you give something you get something and then but but the accounts are held in separate places and you go to this point to exchange and exchange in in this traditional sense is somebody’s actually holding your cash in the in the same way coin basis is is an exchange. And so we had, like over levered over levered. Almeida on sort of one side, and then FTX deposits on the other side, and one was sort of fixing the other or fixing the hole, trying to fix the other. And then we had two other really interesting stimulus and questionable timing on these. One was the Fed increasing interest rates as they were for the $80 trillion macro economy. And there’s all sorts of effects there. But then binance, deciding that they’re holding a bunch of FTT tokens, my view is that they had an AI.

Michael Waitze 5:37
What is the implication? Do you think of short term rates being raised by the Fed nominally to protect against inflation? What’s the impact on like, what does that have to do with what was happening in the crypto world? And what FTX and Alameda were doing? Because this gets really complicated, right? Like a lot of people don’t even understand like what short term interest rates do, but I want understand what the impact is on the crypto thing. And then this rivalry between what’s happening with finance and their holding of the FTT? Token? Yeah, and Alameda and FTX. Sorry, go ahead. Yeah.

Rajive Keshup 6:10
Okay. So in terms of short term interest rates, right, so every time short term interest rates rise, it pulls down growth Levers as as a portion of it, and that pulls down leverage that you can then go out to use to essentially acquire more of an a specific asset. So any asset right, and so you raise interest rates, and then all of a sudden, real estate should should essentially cool down, you raise interest rates, startup, startup funding should pull down. And so in the same way, if you raise interest rates, people’s ability to buy crypto and sort of invest into crypto assets suddenly declines, right. So in a free interest rate module, or a 0%, interest rate environment, your ability to borrow money to then go put into crypto, which was at that point ever rising was really high. And then all of a sudden, in 2022, you have the inverse of that. So all of a sudden, you have to borrow money at exceptionally high cost of capital. And then you’re going to buy an asset that is volatile, and then continuously declining. And so it’s almost this perfect storm. That sort of unleashes, starting in April, March, April of this year, and sort of working with Luna and Tara and working its way down, that’s sort of had the entire crypto bubble or the entire crypto value sort of start to to shrink and effectively. And so that’s exactly what’s happening here where interest rates are going up, people’s ability to invest in crypto is coming down. The returns in crypto are inverse or negative. And so all of a sudden, you’re starting to have the initial semblances of what could be construed as a bank run on potential crypto right. Then you have this catalyst in binance. Who says, and maybe we should before we go into finance. The other thing that was very interesting with FTX, is that they were essentially printing their own money through FTT tokens,

Michael Waitze 8:17
right? Which sounds very familiar, right? Because in a way, this was part of the problem. I don’t want to be sort of what’s the right word really pedantic about this was the one problem or these are the only problems because it’s so complicated. Yes, it’s part of the Prophet Luna terror as well as at the further lower down it went, the more they started printing it, and then the less value it had, and it just was this vicious.

Rajive Keshup 8:38
So that’s exactly, yeah, exactly the exact same things happening with FTT. And the problem with that is they’ve levered it, or I’ll meet as also levered it with real US dollars. So from real actual currency that sort of sits, sits behind it. And I mean that in a completely facetious way.

Michael Waitze 9:00
But isn’t this part of the problem, too? Sorry? I mean, is this part of the problem, too? Let’s go back to 1933. Right. So in 1933, the Glass Steagall Act was formed so that banks could not speculate this was an outgrowth. I’m talking too fast, because I’m excited. Sorry, this was an outgrowth of the stock market crash and the depression in the United States. They said, Okay, look, if we’re going to take deposits, we’re not going to be able to speculate with that money. And then this was taken away by the Clinton administration. I can’t remember when, but like in the 1990s. Yeah. But the idea was, Don’t speculate with deposits. And you’re right, you make a really good point and not a lot of people are talking about this. So kudos to you by Nance and FTX, as exchanges and I’m putting it in quotes, like you did, we’re not exchanges in the traditional sense besides the crypto part, like the New York Stock Exchange. Yep. Where like the NYSC, the NASDAQ whatever, pick any exchange you want. They don’t take any risks. They don’t have a methodology to take risks. They can’t get access to your money to do other things with it. They really just say, Rajiv is a seller of a million shares of Apple. Who doesn’t know who the. He’s applier. He doesn’t know who he doesn’t know who the buyers are. Yeah, vice versa. And they just match on the other side. And they guarantee settlement. Right? But they’re not taking any risk per se. They’re just saying, the person on the other side has told us they’re selling. You said, you’re buying, we match you. We’re done. We take a commission, we’re out, right, and then their membership fees as well, where they make money. Yeah, but this is completely different than what FTX was doing. Right. And part of the reason why is because they can then intermingle what’s happening in FTX, with Alameda, maybe? Yeah. And it creates a whole bunch of problems there. Sorry, go

Rajive Keshup 10:39
ahead. The closest example I could think of is your Bank of America and Merrill Lynch. So Merrill Lynch is your trading on Bank of America is your way through your customer deposits your bank, as a traditional definition goes, and Merrill Lynch is making a bunch of speculative bets on behalf of Bank of America using Bank of America as customer deposits. And in this free flow trade between Merrill Lynch and Bank of America which are settling every day, and we learned recently that there’s no accountant and no governance and, and nothing. And so all of a sudden for our customer, if you put your money in bank of America, and then you go out to withdraw your money, and Bank of America says, Oops, sorry, we don’t know where it is. Right? That’s basically what is happening in its most simplistic what happened? And its most simplistic.

Michael Waitze 11:27
Yeah, no, there’s no FDIC to protect your there’s no 250 k

Rajive Keshup 11:31
up to 250 K FDIC deposit deposit covered, right, there’s no with you know, withdrawal coverage. And oh, by the way, Bank of Maryland have a single single owner, and they’re run by, you know, 10 people in the OnStar sensationalized run by 1010 10 people in the Bahamas. And in many cases, this is their first, this is their first job. And oh, by the way, they’ve raised hundreds of millions of dollars of of capital. And they don’t have a single board meeting and a single CFO or an accounting firm that’s auditing any of any of this, and I can see how this can be a problem.

Michael Waitze 12:16
And James Street isn’t Wall Street. But the reason why I said that, right? You know, this is not against anything about James Street itself. As a firm, it’s a great firm. But two years working at Jane Street capital is nothing like having a 25 year Wall Street career and understanding actually how trading works. So to me, it’s like, it’s a red herring to say a former Wall Street trader is now running this company. It’s ridiculous in my mind, right. That’s just my feeling on this. So it was no disparaging comments about the firm. It was about the street. That was the whole point, right? Yeah. Anyway, and you’re right. It was literally a bunch of people with very little experience making massively leveraged bets, maybe for the first time in their lives. And, and I agree with you in a way and tell me where I’m wrong here. I don’t think that Alameda FTX went out and said, You know what, let’s just steal a billion bucks and see what we can get from it. I don’t think that this is what happened. I don’t know that because I don’t know the players. Yeah, but they don’t seem like that type of group. But I do feel like what happens in almost all cases, because we see this as far back as the early 90s, in my mind, but even further back, you make a trade that goes wrong. You’re like, don’t worry about it, I’ll trade out of it. I’ll trade out of it. I’ll put a ticket in the drawer, I’ll trade out of it. And by the time you do that you’re you’re you’re a metal straight or die when you’ve lost a billion dollars.

Rajive Keshup 13:34
Yep. You see, I would agree with you, I would agree with you to like 99%… But you know, I was I was down with the same sentiment until like, two days ago. So So up until two days ago, I was like, and this is all developing in real time. And who knows, you know, season four of this episode, this, this. This will be will be out next week. But um, up until season two, I was I was there to season one is the news break season two is you know, the 30s tweetstorm. Season Three is the Vox article and Twitter leak from yesterday. And who knows where Season Four is going to be the run to Dubai or something I don’t know. But like, up until season two, I was there. So I was like, okay, they made a bunch of trades. They over levered. They tried to cover up their tracks. And and then, you know, they were trying to make customers whole by covering their tracks. And it just got worse and worse because they all of a sudden realized that there was a whole macro thing that was totally out of their control and they couldn’t get good. And it was only exacerbated, exacerbated by the fact that they didn’t have a CFO, they didn’t have an accounting firm. They didn’t have you know, outside counsel. They didn’t have a connection to investors blah, blah, blah, blah, blah, whatever. Right? So up until this point as like, this was not malicious. This was just complete in common to the highest level, and with billions of dollars at stake, okay. Then I read the Vox article and the tweets. And I’m like, Okay, well, then how does this explain while you know, the ship is the ship didn’t sink? You know? Yes, this past week, it’s been gradually thinking over the last three or four months. But at the same time, you’ve been putting out Forbes articles, and you’ve had puff pieces written about you and you’ve been interviewed about giving your all your money away, which you eventually did. Not on purpose, but go ahead. Purpose. And so like you, you, you’ve had all of this stuff in but in the back of your mind, knowing that there’s this massive hole, unless you didn’t know that there was this massive hole?

Michael Waitze 15:49
Definitely. But to me, that’s the same thing. Like that’s hubris, right? That’s, I still stay where I am on this. Like, even after reading the Vox article in these tweets, I’m thinking, you’re 30 years old. And you’ve never been through a cycle like you don’t know anything. And that’s the biggest problem with being 30 is that you feel like you know, everything. But you haven’t had enough experience to know, oh, this is just like that thing before. And if I try to trade out of it, I’m gonna get killed. Yep. That’s what I think. But anyway, go ahead.

Rajive Keshup 16:16
Yeah. So So you know, the the Vox article and the Twitter exchange showed that you didn’t have any remorse for a lot of this, then that and that the feeling was, was oh, I made a couple of misses. I made a couple of accounting and math mistakes.

Michael Waitze 16:32
And oh, I’m sorry. I love that tweet. Like, yes. Sorry about that, guys. Yeah, really?

Rajive Keshup 16:37
It was a couple of billion off. No, I was like, 1,000,000,010 billion off my, my, my math on my calculation.

Michael Waitze 16:43
Go ahead. Yeah. So So what are these key questions that come out of this? And then what are some of the shoes that have dropped that we need to think about?

Rajive Keshup 16:50
So look, I think the you know, I think the world so the first thing is, this has been headlines, for the last couple of weeks. Cut last week, at least. And, and it’s been front and center, almost every conversation I’ve had, you know, we’ve everyone’s had that, oh, if you’re at FTX, big guy, lol. But we kind of have to like contextualize what this actually means, right? So like the crypto sector value was, in the summer of this year, about $2 trillion, down 3 trillion. And it has come down further from that the macro economy is like at $1 trillion. And so as a result, it’s a big deal. But it’s actually a very small deal in the grand scheme of grand scheme of things and just say, you know, Temasek sort of held similar line of thinking so of course, I loved it. So it’s, it was a mistake. And you know, we made a bunch of errors, blah, blah, blah. But in the grand scheme of things, it’s very small. That being said, there’s never been a clear need for regulation in the sector. Actually, I put a tweet a few a few days ago, I was like, Hey, Guys, wake me up when the sector is regulated. I was otherwise just

Michael Waitze 18:01
don’t don’t. I like it. I liked it. I liked it. And so I was like,

Rajive Keshup 18:05
Look, you know, everything else we do is is completely regulated from, you know, the food you eat to the house, you stay in to

Michael Waitze 18:14
delta, where in your car for god sakes. And it’s got

Rajive Keshup 18:17
to be and you know, regulation could sometimes be construed as overreach, especially for things that are new and things that are groundbreaking. And so I think I think there’s a debate there in terms of what’s overreach versus versus what, you know, what’s progressive and have that debate. But regulation needs to exist in the sector. And so I think, what I don’t want to see is because we’ve, you know, the pendulum has swung so far in, in one direction, right, that regulation goes and does, you know, an equal swing in the other and it completely slows all of the progress that’s made in the past four or five years. Unfortunately, I think that’s going to happen. So there’s going to be a lot of extremist regulation around consumer protection. And then I think from there, we’re going to work our way backwards to be like, Okay, we can’t function like this. We can’t function like this. Okay, we can do this. And then it goes somewhere to what’s reasonable.

Michael Waitze 19:14
Can you make the case though, that this is not abnormal behavior that this is typical human behavior, particularly at the beginning of any new technology or paradigm? 100%, right, is this normal? Like this is almost to be expected, like, okay, that thing happened, the pendulum is gonna swing all the way over to one side, and then it’s slowly but surely going to come back. And if we’re smart, we’ll kind of cushion it’s fall as close to the middle as it kind of needs to be. Yep, yeah.

Rajive Keshup 19:39
100%. And, you know, some some countries have been harder, harder than others. And some countries have been open, more more open than others. I think. I think there’s going to, everyone’s going to need to find a happy, a happy medium. As a result of that we’re not going to see we’re going to see crip So as it as it stands never never be the same again as a result of this. What that means going forward is going to be is going to be quite interesting.

Michael Waitze 20:08
What do you think that means? Because here’s here’s my theory on this too, is that at the beginning of every technological change, right, or technological paradigm change, there’s always this like Sturm and Drang about like, where we’re gonna go. And I think this is one of the first times where we’re at a point where media is so pervasive that we’re actually talking about something in real time that maybe would have taken months to digest even just five or 10 years ago, if that makes sense. Right. So it feels more immediate, it feels more intense, and yet, I don’t think it’s any different. And maybe I always say like, it may be faster today, because the information flows faster. But the reactions are exactly the same as they’ve been historically. Yeah,

Rajive Keshup 20:52
I think so. We like we haven’t even seen anybody, major come out with a, hey, we need, you know, a large call for regular regulatory change. In any jurisdiction. I haven’t seen in Singapore, I haven’t seen it. In the UAE. I haven’t seen it in the US. And they’ve been too busy with the midterms, which is happening at the exact same time and Trump’s election. So but it has to it has to it has to happen. And I do know that there’s stuff being drafted. And I do know that, you know, folks are going to make this a political issue, but it has to happen. And so we’re going to sit up, sit on the sidelines, and wait and see how this plays out. But it’s it’s a completely industry, industry changing moment. And all of the folks that have sort of stumbled in wake of this. Just continue to continue to add to the to the chaos.

Michael Waitze 21:48
Do you think there’s a component here of a rivalry between Chang SAO and Sam bank been fried? And the idea that finance was holding? Right, again, just based on what I read a certain amount of FTT? And because of that had leveraged for lack of a better term on what was happening and the view on what was happening in Alameda? And that they could actually force the hand of one of their competitors into bankruptcy, because they’ve been competing verbally for years. Yeah. Yeah.

Rajive Keshup 22:15
So I think there was, there was definitely a if you look at sort of track the timeline, there’s a lot of build up between between both of those guys kind of leading. So it’s not like, oh, we realized we had, you know, 2 billion in or whatever. And FTP from our transaction a couple of years ago, we decided that, you know, now’s a great time to sell it. Because somebody I don’t think it was I don’t think it was, I don’t think it was as clean as is that. And I don’t think that’s the full story. I don’t know, either, either of the parties. Well, so So can’t comment on sort of the mindset or the disposition there. But I’ve got to believe that the industry is superduper small, you had Hayden on an episode a few a few days ago. And Hayden’s my sort of go to guy for anything that’s happening in the sector. And every time I talked to them, he’ll be like, Oh, by the way, you know, stay clear of this, or, you know, this is happening, you know, that’s happening. And, and he’s, he’s such a great resource. And so through that my window into into web three is one where I know it’s small. I know, everybody talks to everybody. And so you’ve got to believe that insiders already knew that there’s a lot of craziness happening. I recently saw coin desk, the coin desk CEO on one of the podcasts this week, come out and say, you know, we had no idea how they grew so fast. We had no idea how their ventures fund was funded. So so so well, we could kind of work out revenues based off deposits, but their revenues were like, off the charts. And so something weird was happening there. We couldn’t quite put our finger on it. This is what he says publicly. So privately, it could be a little different. But the bottom line is everybody knew something was going on. Nobody knew the extent of how much I think that’s what surprised a lot of people the amount of leverage. And in sort of the this perfect storm of, of inputs that created this gigantic output.

Michael Waitze 24:31
Do you think that the existence of it manifests itself in some companies but you don’t need the companies to do this, but firms like chainalysis right firms like Michael Simon said, Go and can track because of the transparency of the chains that are out there, right. The distributed Ledger’s that are out there, they can see stuff moving around, they don’t know who’s moving in, right but they can see literally $500 million of FTT move or get sold right publicly in a way where in the stock market you can see But you see, it’s kind of after, like, long after what happens even though everybody has access to information. Here’s this. Let me let me just posit something for you here. Because I’ll tell you, from my own experience, something that we we’ve seen happen, let’s say, a hedge fund, right calls a prime broker and stop me when you don’t when you don’t get this, I’m sure you will. But let’s say a hedge fund calls a prime broker and says, I want to buy this stock. But I want to fund the purchase of that stock by selling this thing short against it, and that those two companies are related to each other. Right. It’s called a stub trade anyway, yeah, yeah. So I sell, I sell this, I sell the part of the company that I think is gonna go down, and I buy the publicly listed stock of the company that I think is gonna go up. And because I sit on the prime brokerage desk, I’m not part of the trading desk. But you know, I could whisper to the trading desk what I’ve seen this trade, and I could whisper it to a trading desk at some other firm that I’ve seen in the street. And then I could, then I could corroborate this with some other prime brokerage companies. They’ve seen the same trade the same stock bar and the same stock loan. And then people start trading against you. And you don’t understand why because no one’s telling you that they’re sharing this information. And then you see your trade, like just move one standard deviation, two standard deviations away, and you’re thinking it was a good trade a month ago, it’s a killer trade today. I’m going to do more of this. Yeah. The more you do, the more the market trades against you to the point where you just can’t take any more pain, and then you go bankrupt. Yeah, I’m not making this story up. No, I know. So what’s, so what’s preventing the same thing from happening? And remember, I worked in a completely regulated environment. I did not do that. But I’m just saying, I know that that happened. So what needs to get done? And can we imagine that the same thing happened in the crypto space as well, the people

Rajive Keshup 26:49
already occurring and 1,000%. And, and I think it’s occurring in a way where the circles that are trading against you are a lot tighter. Yeah,

Michael Waitze 26:59
we tighter and and sorry, again, sorry to interrupt you. But you made this point before, but I want to make it in a different way to the amount of money sounds like it’s really large to people that aren’t in the financial markets. Right. But like you said, the total valuation in the crypto market was what you say 2 trillion? Let’s see. What we can even say two and a half doesn’t matter. Yeah, the total amount of money that trades in the foreign exchange markets every day is $6 trillion. Yep. So as a market capitalization of 2 trillion, you’re right. It’s actually kind of small. Yeah. Right. And the people that are training it are small, and the level of concentration in the trading in those instruments is even smaller. Yeah. Go ahead.

Rajive Keshup 27:42
Yeah, I was just gonna, I completely agree with you. And I think that’s the portion where even if you try and regulate the space, because of the decentralized nature of it, it’s going to be really, it’s going to be really hard. I don’t know if you remember. So I was watching this happen real time on Saturday morning, Singapore time, which is Friday, Friday night, Bahamas, the amount of money that was being taken out of those, those the the FTX accounts and and put into doubt, was absolutely nuts. And so the first question I got asked is, hey, can can they stop this? Can’t they regulate this? And I was like, no, no, this is this is it’s untouchable. It is completely decentralized. It’s decentralized comms. And now Now this is gone. This is this is this is effectively gone. And so as a we have a team chat, and as a team chatter, sort of going back and forth on this was a very exciting Saturday morning, but none of us have our sort of deal with FTX. And so as a result, that was exciting. I can imagine if you were a customer of FTX, is probably not. It was just, it was like it was like watching a bank robbery or money heist happened in real time. My point is, you could do nothing about it. And even if it was regulated, just the way the frameworks built currently today, you could still do nothing about it, the only thing that you could do is put in the controls. So it never gets to this to this point. And so, to your earlier point, I we I completely agree that this already happens. And the markets are being moved in a way that is is somewhat lopsided is one way to predict corrupt is is potentially another but yeah, it’s that’s that that is part of the problem. So when you when you when you play here, it is speculation as speculation goes and you know, you could very easily find yourself on the wrong side of things.

Michael Waitze 29:48
What is and again, I know these are your personal opinions, right? And that’s all I’m asking you about but what are the conversations like in the world in which you exist where people are because to me, I kind of agree with you If you can sit on the sidelines and just be like, yep, well this is the end of the fever dream of decentralization in cryptocurrency it is over. But but that’s not true. And we know that’s not true. This is just the beginning. This is like ending number one in an overtime baseball game in a baseball game with with extra innings. Yeah. Yeah. And that is really does is it says, okay, no idiots allowed. We know what you’re gonna try to do? And how do we like build an infrastructure around this thing that we know, as a transformational technology to make it more useful for everybody? I think that’s the beginning of this. No.

Rajive Keshup 30:31
Yeah, I think so. I mean, you know, on blockchain, which sort of goes back to the principles of the technology, we still haven’t found a whole host of truly, truly killer use cases that are ubiquitous within our society where I think we’re getting close to a number of them. But But we haven’t found truly killer. Killer use cases yet. Right. So the technology, as far as technology goes, is still in its primitive early days and early, early adoption pace. And so you know, the conversations that that we have are never around Kryptos dad or Dad, it’s just we need to put in the guardrails, like we would put in the guardrails anywhere, whether it’s ecommerce, whether it’s logistics, whether it’s any form of FinTech, whether it’s digital payments, digital banking, whatever, right, and the variation of those guardrails are going to depend on a couple of key inputs. One is to restrictions. Second is types of players that are involved. And then three is the use case applications for the vast majority are the most common set of use case applications. And so until that doesn’t happen, I think where you know, where we sit, or where the investor community sits, is investor confidence is pretty low or lower than it was a week ago, and sort of reeling in some cases, there’s a lot of funds that are, you know, completely out of business, or were significantly impacted. Some, some point, you know, some some I really feel sad about because the good people in good funds, by no means is this the end of Is This the End of crypto or the end of web three, or it’s just going we’re just going to have to be a lot more prudent and careful and make sure that we’ve got the proper guardrails in place, there are

Michael Waitze 32:33
some other unique issues here that need to get solved as well, right. Like in the old days, if the and I’m talking about like pre 1990, or pre 2000, like if the US banking system where the savings and loan system in the United States had a problem like if the SNL ‘s went down all of them and a lot of them did, the world economy wasn’t going to be destroyed. And it was a uniquely American event. And this happens in other countries as well, where like the US regulators had to get together and decide what the outcome was going to be. But in the crypto world, it’s not attached to any country or any particular regulator, right? Yeah, that’s the thing. How does that because the real thing I’m thinking about here, and I asked this all the time in a bunch of different venues, and that is, how do you get the regulator’s that have different agendas, and different outputs and inputs and stuff to then coalesce around this thing and say, as a universe, we have to get together and do these three things, whatever they are. Yeah.

Rajive Keshup 33:25
And because it’s tied to no jurisdiction, jurisdiction, it makes makes it

Michael Waitze 33:31
when forcement is important as well,

Rajive Keshup 33:33
right. And and then, you know, you’ve got all sorts of treaties or non treaties and things like that. And so, in the tweet storm, there was some there’s some chatter about the SSVF tweetstorm. There’s some chatter about regulators. And I don’t agree with a lot of it, but I do agree that it’s it’s not going to be easy. No. And it needs to be a more macro global view than a specific country view. Right. I do think, though, that if there’s one or two countries that sort of lead lead the front in terms of philon regulation, that it will have a trickle down effect on everywhere else. But but something something needs to happen there. I’m pretty I’m pretty certain something something happens there. Because there’s quite a there’s quite a bit of pain as a result of the last couple of weeks. Well, yeah, and

Michael Waitze 34:21
money was lost everywhere. Look, I think if the Japanese, European, British, us, Korean and Singaporean regulators get together, they could probably solve 80% of this problem.

Rajive Keshup 34:32
I don’t think so. Yeah. Yeah. I think the one difference it’s been surprising, so, so caveat, Dubai is my hometown. And they’ve sort of been positioning themselves as the crypto. One of the crypto destinations of the future the walk through destination of the future. And so they’ve been very progressive with sort of who they let in this, these events have been an eye opening experience. For for them and sort of a learning experience for them as with everybody else. So I spoke to a friend of mine that that’s pretty, pretty high up in the prime minister’s office and we went to school together. And so I was like, Look, you know, I was making a joke. I was like, hey, you know, all of a sudden, you’re going to find all of these crypto bros, you know, run, run run to Dubai to see coverage. And he’s like, honestly, Dubai wants to have nothing to do with it. Nothing. Yeah, nothing. He said, we’ve, we’ve curated our image. And we’ve worked so hard to build the image of progression. And we’re only sort of now coming into our interim moment of really being taken seriously. on the global stage. He said, if somebody decides to harbor over here, we will send them right right back to wherever they need to be, you know, whether we have a treaty or not where we want to be on the on the up and up and clean and clean, in terms of in terms of regulation, and we’re happy to adopt others will will try and be progressive on our own. But, but we want to have nothing to do with any of the mess that sort of comes from some on the back of this. Yeah, I

Michael Waitze 36:13
just want to commiserate with you. So in in 1971, when the UAE was formed, so a little bit more than 50 years ago, right. 2022 is the 50th anniversary of the founding of the UAE. There was nothing there except for oil. And they’ve spent the last 50 years like just methodically trying to build his reputation as a nation of stability of sensibility. And in the region. Yeah, and a financier, stuff like that. And they’ve worked super hard to do that. And you know, again, like my grandfather said, it takes a lifetime to build a relation, I mean, a reputation and just a picosecond to lose it. And there’s no way those guys are gonna let criminals start living. There’s just no way it’s not gonna happen. But here’s the other question. You know, when I was a lot younger, there was a speculator, I can’t even remember the details around this guy, Mark rich, but he just up and left the United States and went to Switzerland and just live there for decades. Until he was pardoned, I believe by the Clinton administration, but he had to live outside the country. They couldn’t go get him and they couldn’t extradite him. But are we in a world that’s so much more connected today that like, I don’t even know, is extradition a thing? Like, can’t you just go down to the Bahamas and get sandbank been free to whoever’s involved in this? Like, is that hard to do today? I don’t even know the answer.

Rajive Keshup 37:26
I think so. I think I think I think I think the world is way more interconnected than it was before and way more dependent on each other than it was before. So I think that’s one one big piece. I think the other big piece is the court of public opinion. Is is way, way more painful. And so I think there’s a lot of there’s a, there’s a lot of hate on on Twitter around this topic at this moment, not so much for the money lost and more because of the credibility that the sector is lost. And so the court of public opinion has is a heavyweight in this specific sphere. And I think there’s a lot of single justice and so unless you’re prepared to live off the grid, permanently, I wouldn’t think that, you know, extradition would would even matter. I’m not

Michael Waitze 38:15
I don’t think so either. Here’s the thing, too, though, do you think that and I don’t know the answer to this. But do you think that sandbank been freed and people like he is end up being kind of like anti heroes in the crypto world? Are they or is crypto, we’re looking at just going for God’s sakes, we’ve been trying for so long to get some credibility? Why are you trying to ruin it? Do you know what I mean?

Rajive Keshup 38:35
I think there’s more there’s more pain to the to the ladder. And I think, you know, not necessarily crypto folks. But more. Let’s let’s put it this way If FTX good or bad, played a pretty large part in catalyzing the sector forward. And so you know, whether we like it or not, we can’t take away that specific, specific aspect of things. They built awareness about crypto in general, they they sponsored stadiums, and whatever all with your customers money.

Michael Waitze 39:08
Thank you very little. Go ahead.

Rajive Keshup 39:12
And so as a result of that, I don’t think there’s so much heat around the specific character. On the inside circles. It’s more around the oh, why didn’t you know this? This This really sucks from a progressive standpoint now, in mainstream media, though. Sure. Sure. He’s, he’s been he’s been decimated. And for folks, you know, regular folks on the street, myself included. He’s being portrayed as, as absolutely villainous, and, you know, has no idea what he’s doing and you know, 30 years old and all the stuff that comes with that. So, yeah, it’s tough. It’s been a tough, tough few weeks for the space sector.

Michael Waitze 39:55
Is there a ripple into other sectors? Does this affect the rest of the FinTech world? Like what’s going on?

Rajive Keshup 40:01
100%. So, coincidentally, and and you know, rightfully or wrongfully the rest of the tech sector has, has had massive corrections, right? So you have a bunch of folks that have lost 5060 70% of their value roughly around the same time is this happening? Again, it goes back to this whole thing around interest rates. And you know, the macro changes, the macro change, right? And so, and folks are really just swapping out growth stocks for T bonds, right, and T bills. So that’s essentially what’s what’s, what’s happening here in a nutshell. And so would there be a ripple effect on this specific issue? No, because if the tech market was high, and then this was low, and then all of a sudden, as a result of pulled out, I would have said, Yes, but we’re both low together. So it doesn’t really make a difference. We’re, we’re all drinking at the bar, but for different reasons. But, but what I will say, though, is it the VC aspect of this and the level of rigor and the level of diligence and all of that, those conversations sort of rear up and come up again. And it’s just sort of a reminder of all of the debauchery from 2021, kind of now having the After Effects and this was just another after effects in our unchecked growth or growth without, you know, at any costs, in this case, sort of sort of showing up as a as a as a negative, right. And so I think, for us, for me, my big takeaway is, you know, diligence. For us. It always mattered, but it matters more so than ever. And then there are a lot of, you know, red signals that happen in 2021, where they’re, you know, founders were like, hey, look, we want light diligence, we want to close quickly, you have, you know, 24 hours to put term sheet love of all of these behaviors, right? That are no longer a thing anymore. There are no more fast rounds. There’s, there’s no more quick, you know, quick diligence. There’s no more like diligence. And I saw, I think it’s from an investing standpoint, we’re going back to a cadence that is perfect is what it should be. But there’s just another reminder of some of the effects of turning 21 Perfect.

Michael Waitze 42:23
Is there anything else you want to cover on this conversation? No, perfect. I was. I was I want to show you a comic strip which I’m going to attach this when we’re done, but I’ll show it to you when we hang this up. I want to thank you Rajive Keshup, a Director and investor Cathay Innovation, as I always say to you, you got to come back whenever there’s something like this that’s going on, I’d love to be able to come to you to get your take on this.

Rajive Keshup 42:44
I’m very old school and pragmatic. I was just having this conversation afternoon with with the founder and we were talking about pre-revenue and if that’s still you know, that backing down is still a thing you know, what valuation and the world has completely changed for the better but it also means it makes investing a lot harder because until we figure out, you know, volatility and where the bottom is and all that there’s all sorts of inputs into opaqueness in in the spaces and so, yes, the best vintages of investing are going to happen over the next 12 to 24 months, but it’s not going to be easy. When that makes that makes job and in life a lot a lot more interesting. So always happy to always happy to have a chat.


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