Accessible wealth management solutions for everyone
For the eighth edition of the FinTech Chain Mail, our MBA team met with Cyrus Fazel, Founder and CEO at SwissBorg. SwissBorg is a wealth management company which provides fair, safe and accessible applications to facilitate investment in crypto assets.
What differentiates SwissBorg from other major cryptocurrency trading platforms? Why do you define your products as Wealth and Community Apps?
Although crypto has been around for a while it had a rocky start with scandals and hacks occurring on key crypto exchanges. Coinbase really gained traction around 2015, which paved the way for increased adoption of cryptos. Today there are a hundred million crypto owners engaging in speculation or payments, and we expect there to be 3 billion crypto users by 2023 – it is a bold statement but great technology can scale very fast.
As for SwissBorg, we aim to offer accessible wealth management solutions for people without investment experience. SwissBorg is not merely a ‘do-it-yourself’ trading platform, it provides wealth management services through crypto. SwissBorg is different from other players because it is an exchange of exchanges.
Like NASDAQ, which brings together different brokers and dealers to buy and sell securities, SwissBorg connects users to multiple exchanges to make the best trade. If you are buying or selling digital assets, SwissBorg ensures that you get the best price and execution by aggregating various order books. We are like Skyscanner, but better, because you actually get the best option, not only the red-eye flights that nobody wants. We support a wide range of digital assets and users can buy any assets across trading pairs that do not exist.
Our goal at SwissBorg is to be transparent and to make trading as fair as possible, with no hidden fees. From a wealth management perspective, our trading assistant algorithms enable users to determine whether it is a good or bad time to trade based on different indicators.
These indicators include Artificial Intelligence-based recommendations, technical and market sentiment analysis. For example, our ‘CyBorg’ Predictor provides tactical recommendations by looking at historical technical trading data on specific cryptos. SwissBorg also provides investor education through various videos and articles. We are adding our first investment feature soon, where users will be able to deposit cryptos and earn returns (yield). It's a bit like an interest-bearing deposit account where you deposit money in bank and earn interest.
In the future SwissBorg will provide an investment universe, enabling users to trade digital assets, hold tokenised funds, play video games, hold collectibles, and make theme-based investments in real estate or stocks. Think about us like a private bank with really cool people and great technology.
The first wave of blockchain networks relied on Proof of Work, which required a lot of electricity. The second wave seems to be moving towards Proof of Stake, with Ethereum going live with their Ethereum 2. Can you tell us about the difference between the two and highlight the main advantages and disadvantages?
The short explanation is that with Proof of Work, mining is hardware-centric and requires the most advanced machines in highest gear possible with all the machines trying to connect in order to mine. Bitcoin mining for example requires a lot of CPUs operating in a temperature-controlled environment etc. Proof of Stake has lower barriers to entry because it is more software-driven and does not require significant mining capabilities.
However, a minimum number of tokens (and thus value invested) is often required to participate actively. Proof of Stake systems are smaller, have fewer players and can be less secure (higher chance of hacks and forking). The model is quite new and hasn’t been tested extensively.
Under Proof of Stake, you mentioned that minimum amounts need to be staked (e.g. 32 ETH for Ethereum 2), does this lead the system to become centralized and undemocratic?
Yes, to an extent but it is the same for Bitcoin which is costly to mine. In addition, mining pools exist in Bitcoin – for instance, Bitmain, which is one of the largest crypto companies in the world, most likely accounts for up to 55% of all Bitcoin mining and could therefore kill Bitcoin it if was in their interest. Some Proof of Stake blockchains put in place mechanisms to avoid centralisation.
For example, Cardano reduces the reward for staking and for being a validator after a certain size. If a mining pool grows, this will reduce the financial incentives for miner concentration. Under Proof of Work, SwissBorg pays commissions across to supporters of the Ethereum network. However, with Proof of Stake, commissions would go to SwissBorg, with which we would be able to reward token holders.
How do you think the crypto space is going to be impacted with the launch of Central Bank Digital Currencies (CBDC)?
I believe CBDCs will be very positive for cryptos generally and SwissBorg as a company given their potential to drive a mass adoption of crypto. For instance, when the digital Yuan was rolled out in Shenzhen, there were 500 million transactions within the first two or three weeks. Libra / Diem is expected soon. Facebook has 2 billion users connected to their platform and having crypto as a payment method on their marketplace would be huge.
As an example of how fast technology can scale in emerging markets, there are places in China where you cannot do anything without Alipay or WeChat as credit cards are just not in use. There are many countries that could go straight from fiat to a digital system. Central Banks are probably going to create private blockchains, as China has done with the Digital Yuan, and maintain complete control and transparency. Central Banks will mint and burn the currencies, while the validators will be Central Banks and other financial authorities such as the SEC.
How will Decentralized Finance (‘DeFi’) impact financial systems and economies?
This year, the world of DeFi has grown from a few million US$ to US$13bn. DeFi applications allow people to borrow, lend, build, leverage, pay, hedge and exchange tokens without intermediaries. With DeFi, a company in an emerging market can deposit US$10,000 worth of Bitcoin as collateral and borrow US$5,000. A Nigerian petrol producer which owns of US$1bn of oil can tokenize that oil and post the token as collateral, dealing directly with Total.
With Smart Yields at SwissBorg, users will be able to tap into DeFi markets by depositing US$20 or US$50 or US$10,000, which is lent into different programs in the smartest way. Users get great interest rates because there are no intermediaries.
What has your experience been in dealing with regulators in setting up SwissBorg?
We have various licenses and we have seen that some regulators are quite advanced on these topics, including in Switzerland, Hong Kong, Singapore, and Estonia where we are based. In other countries it is more complicated.
However, we are seeing progress in that the US has just announced that banks and security brokers are entitled to be custodians of digital assets. France and Germany have followed Switzerland in allowing the tokenisation of shares. Regulators are concerned about money laundering and people using crypto to buy drugs on the dark net.
This is not often the case – using crypto for illicit activity is probably the worst thing to do because your transaction will be recorded on the chain forever as public proof of your involvement. Regulators are starting to appreciate this and see to the value of legitimising the use of crypto by providing licenses and frameworks.
We saw a strong increase in the price of Bitcoin since March which coincided with the halving of supply. Will we have to wait another four years for this to happen again?
The price increase has been driven by multiple factors, including accommodative monetary policies from central banks, particularly as the FED has driven up inflation expectations for fiat money. People are starting to look for alternative asset classes, given poor performance in stock markets and inactive credit markets.
Paul Tudor Jones, one of the big biggest hedge fund managers of all time said, “I like Bitcoin even more now than I did then… [because] Bitcoin has this enormous contingence of really, really smart and sophisticated people who believe in it.” He also recognised crypto as the best hedge against inflation, not only because it has a low correlation with stock markets, but because you are investing in human capital.
Alternative hedges such as gold or shorting markets are destructive to financial markets and human capital. I would advocate against putting all your eggs in one basket. It is important to diversify your portfolio and understand your investments. Gold will probably retain its status as a safe haven for some time, but Bitcoin will join it. Bitcoin is likely to remain more volatile than gold, but the former is also likely to provide more upside.
Crypto investments remain a fraction of what is invested in gold today amounting to about US$7.5trn, so there is room for much greater penetration. Will one Bitcoin be worth US$1 million one day? Probably not, but I suspect it will be worth more than the US$20,000 barrier it has surpassed recently. If you are looking to time the market, look at the CyberPredictor.
Interview conducted by Stephanie Hurry, Olabisi Ayodeji, Matteo Conti, Emon Goswami