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Hello, everyone. This is Takatoshi Shibayama, the head of revenue for APAC for Copper. Back again on BlockCast. Today, I'll be speaking to Mr. Augustine Fan from Sofa.org. Thank you for coming on.

Thank you very much, Taka-san. Hello, everyone. My name is Augustine Fan, co-founder of Sofa.org. We are an on-chain yield protocol, which gives sustainable yields via structured products, as well as building out a comprehensive on-chain settlement solution on the tech layer.

Great. And we'll dive into all the kind of stuff later. But I do want to talk about your personal story into crypto, Augustine. I know that you were working as a macro trader at Goldman Sachs, and then you moved on to family offices. I mean, tell us about your journey throughout those years.

Like most people in finance, you go there for a while, about 10 years on the interest rate side. So initially, it actually really resonated with me when people were kind of complaining about the Fed, because I used to trade US interest rates, I did mortgage, I did bonds, etc. So I pretty much had a first row seat on how monetary policy was done i interacted with policymakers on a regular basis and you know you come over a certain view of how money printing works how qe works and all that kind of stuff so after about a decade or so actually i was hired by a client of the firm to actually go run money for them and actually i was introduced to i guess how real asset holders really manage their wealth you know bankers and finance is one thing but when you actually go to a person who is not an agent but an actual principal the way They look at how macro factors work and how deal making works in private markets, etc. It was a real eye-opening experience. And it was actually in that journey that I learned a couple of things. One is which all these guys are first-generational wealth builders. They didn't get it from their parents. They made it themselves. So they're always telling me that if you wanted to go somewhere in life, whether it's to move up in ranks or get wealthy, whatever it might be, you kind of have to get your hands dirty and actually understand how things work and actually build something for someone. And the second one would be a lot of it is actually exposure and privileged access when you were in markets the one thing that always stuck with me was we always tend to focus on buying things cheap getting in a good level hoping for the best whereas a lot of the deal makers do it the other way they don't really care if they're buying rich or expensive because they work backwards they think where is my exit what is the journey for this person to get to the exit because if I can control the exit I can kind of backward manufacture the whole way to make sure that there is a path to profitability so that was a very different way of doing it and I realized A lot of the alpha, if you will, in that creation cycle comes from access, knowing people, networking. And people had evolved to a point where they made it very difficult for young folks to get into these type of things, which is why most young kids you see go into trading or markets because it's low threshold. People can get in. If you're smart, you can make some good money, which is what happens in crypto early on, right? But if you want to do private equity venture, these are very gated societies that you need a prior record or obviously good networks to get started. So then when crypto came around you know i was less interested in the various meme coins but i was actually quite attracted by the fact that you're supposed to be able to get equal access and participation from people who are willing to participate in say community work writing code marketing whatever it might be to actually sort of have young people be part of the inner circle if you will and actually have a chance at making something out of it in an early age

yeah i spent about 20 years in trad fight right i mean the last days i will be working for a hedge fund and if you go to these conferences, generally everybody has similar backgrounds. They come from a decently wealthy family or some definitely well-educated family, and then they go to a good university, and then they go into investment banking, and then further on they go into private equity or hedge funds. And basically you're just mingling with a similar type of people that have privileged access to enter into these industries. But when I started going into these crypto conferences back in 2016, you met all sorts of people, right? I mean, they could be real estate brokers or they could be students and people like me or whatever. I mean, it was really open access. And that's kind of what I thought, you know, finance should be. You know, it should be open, right? Not just the technology, you know, obviously open source, but even finance should be open for everybody. But, you know, regulators put all these, you know, bars so that they don't have access, thinking that these people don't have the financial literacy to get into it. They get smoked. Obviously, in crypto scene, that over and over again. But people can learn, right? You have to let people learn how to manage their money through trial and error. And I think that there's too much of this regulation going on, in my view, personal view, that the crypto market was supposed to grow a lot more until regulations come in. But I think because of various scams and all that stuff, it really made regulators step in and just close or put down the veil on crypto Which I think is really detrimental to the industry. And I think that then becomes a conversation of like, okay, which is better, CeFi or DeFi? And then, you know, I still think that DeFi is definitely kind of the way that, you know, you have open access into finance. And I think that's kind of what you're also trying to build out. But, you know, I think maybe we can pin that for now and then talk about a little bit about, you know, macro stuff, because obviously you've been in macro for a long time and I've been kind of looking at it. looking at the macro, you know, I think it's a turning point, right? I mean, obviously we've seen balance sheet recession happen in Japan, and it's, you know, going on into China right now, and the US is, you know, kind of raised the interest rate, but then they couldn't fight inflation, so then they had to lower it down again, and recently they lowered it to 50 bps again. You know, there's just so much macro overhang that crypto trading also is being affected. You've been trading macro for a long time. I mean, what do you think about how the US macro environment is going to look like further on and how that would affect the crypto industry?

Sure. That's a lot of questions. I'll spend some time on it. So before I usually begin most, I guess, macro discussions when I had interns or people I used to train is when people get into interest rates, I feel that a lot of people actually don't quite understand what interest rate are and what actually it represents in the economy. Best way, and I then coined it, someone else taught me this when I was younger, to explain what interest rates are, it's the price of money. Money itself actually is not the base unit. It's the value of money itself moves based on interest rate, which makes it much easier to understand, right? When rates are zero, your money is worthless, you go buy something else and vice versa. And along the same veins, inflation is effectively a tax on savers because the government power is effectively is taxation, as we all know, depending on income, mortgages, etc. And if they could tax your savings behavior by inflation, that also means your propensity to spend on new iPhones or new cars or whatever it might be will be affected by interest rates or inflation, I'm sorry. So when you combine those two, these are very powerful incentive tools, which crypto likes, to compel people to do something on their own without them actually doing anything. All you have to do is set an interest rate target at a certain level, which indirectly leads to an inflation, and then people will start spending or not spending based on that. So I think everything starts from that level. So just because rates are high or it's low, if we use the liquidity flow of funds argument, it doesn't necessarily just mean, hey, raise low, crypto high, and vice versa. Generally, maybe yes, but it also depends... on how the economy itself is actually doing. I know, look, I have very strong feelings about when Mr. Bernanke was still running the show and how QE started and QQE and all this kind of alphabet soup of stuff that came during the post-Lehman era. I think the Fed themselves also realize it's probably not something they'll repeat going forward because it was an experiment, there were some benefits, but definitely could be conducted better. So as much as we like to bash the Fed or whatever it might be, we kind of have to accept that that era is probably bygone anyway. I think going forward, we're going to work off a slightly different model than just, you know, bad things, let's print money. I don't think that's really the case anymore. And again, definitely not a cheerleader or anything, but you have to kind of give them credit where they took rates from zero to five mortgages up to eight in the US and nothing crashed and things are still quite high. So they did sort of do their job and inflation is coming lower. So with that being said, I think the key now is obviously we are all here because we are very bullish on Bitcoin and gold and fixed assets in the long run because they are printing more fiat and not less. That's how the game works. But we kind of have to really, I guess, focus on what the economy is doing. I think what the Fed did, I guess, two days ago or yesterday, whatever it was, they're doing a 50 basis point cut, which is a large cut in the face of an economy that is still doing well in their own words. So subsequently, we're seeing big rallies in the NASDAQ, in Bitcoin, in risk assets in general, because effectively they're easing into a decent economy. And in situations like that, yes, you should probably buy risk assets. On crypto specifically, I think pre ETFs, we still had this narrative where perhaps we're like a gold hedge or kind of like an anti macro asset hedge or some sort of an idiosyncratic sound, you know, Ethereum sound money, whatever it might be. But ever since the ETFs kind of got approved and I think it's just a factor of how big the different wallets are. Well, crypto is still a couple trillion in market cap. That's nothing in macro assets. A single equity has a market cap like that. So once you kind of invite traditional finance in, one of the things we have to accept this. While we might get very excited about new projects, DeFi, altcoins, 99% of them probably don't care. They probably know two tickers. BTC and ETH. They don't probably even care about Solana. So they're just going to, the allocators there will move their money in and out based on factors that they're comfortable with, which currently they'll see it as a frontier risk asset, which is why it moves very much like a leveraged NASDAQ index. We can argue until we're blue in the face, but until we get more mainstream adoption and the average person sees how this asset holds its own value or kind of moves more idiosyncratically with other parts of the economy, we're just going to have to accept in the short run that it's probably going to move like a risk asset, which means in the short run, or I guess the next few months into the elections anyway, as long as risk assets hold up, the economy does not crash, probably will move in the same direction of where bond prices go, as well as NASDAQ goes. For a bigger, I think, thematic theme to come out, you probably do need to wait until the post-US elections to see actually what the incoming administration will actually do. There's a lot of promises. I think it's more of a 2025 story because at the end of the day, We haven't had a lot of VC money come in this cycle. Everybody knows that this crypto cycle is very different than previous one because it is driven by external factors, not from native ones. But hopefully in 2025, if we get more regulatory clarity out from U.S. and also other regions, you've got some of the longer term VCs investors coming back in, which will spur more innovations because rising tide lifts all boats. That's just reality. We can then hopefully find the next, I guess, identity or our next narrative to continue sort of this DeFi Web3 crypto journey.

Yeah. One takeaway I had from this year, especially, not just at Token 2049, is that this year was all about institutional adoption of crypto. And obviously, we have seen a lot of traditional hedge funds come into this space, family offices taking part in investing in ETFs and all that, which I think is a very healthy thing. We can't have just a market with only retail. But at the same time, it feels like this year, the retail story is not really there. And I haven't seen a meaningful return of that. I've been speaking to several crypto exchanges that I have relationships and a lot of them actually have turned to institutional sales or adding more people to institutional sales so they can get the institutional investors because they lack the retail access. And I feel like, you know, and going back into that open access of finance, we don't have the retail coming back. You know, there's no point of open finance because, you to whatever market they please. So what do you think is necessary to get that retail money back into this? Is it just having more interesting crypto projects or is it about more regulation? What do you think we need to get that retail market back?

I think probably definitely not regulation. I've got a lot of regulator friends and people that I speak with, but to be fair, I think people think of retail and institutional breakdown almost as a difference in knowledge or skill or understanding. I think that's kind of a very old school kind of patriarch outdated way of thinking of stuff people these days have access to information people can do their homework relatively quickly so i actually see retail and institutional differences as being your return profile institutions keep our jobs you know we were we were traders and stuff once by return of capital we want you know we get a bonus paid depending how well you do but ultimately you need to return the principal back because you're effectively playing a compounding game a five percent compounding in perpetuity it's basically basically what gets pension allocators paid and keeps their jobs and kind of keeps the cycle going. But we talked about privileged access before. The young person coming up who is trying to break into the ranks, I'm sorry, he's not trying to make 5% a year because he's not going to catch up to the true rate of inflation. And I'm not even talking about asset price inflation. If somebody who's hardworking, who's not from a privileged family and they want to move up in the society ranks, they need to take some risk and make multiple returns, right? Which is why we're seeing a massive jump in entrepreneurship in the US. starting their own startups, you know, AIs, empowering, you know, a few people. MidJourney has, what, how many employees and how much do they bring in? 100 million in sales. But for investments, retail wants a way where they can make, I think, outsized return. And they're okay with losing, I think, some of their principal because it's just, to be honest, a small number they can afford to. But you kind of have to roll the ticket a little bit. It's just an unfortunate fact of life. It's what you have to do. It's mathematics, right? It's how you got to get that first bucket of gold before you kind of move forward. So if we're going to de-jet back into a game where you're not, because somebody upstairs has told you that you're not supposed to buy this or that because you can't afford to lose your own money or it's too volatile or it's not right for you and that closes your access, then that kind of defeats the whole purpose, right? How is that different than just every other single asset class? So probably the thing that will get the retail energy back is, I guess like AI, everyone talks about killer apps and all this kind of stuff, and I think that's staying the obvious, but like most other industries, whether it's FOMO Energy or YOLO energy or bubble energy, whatever you want to call it. But humans do work off these kind of emotions. People want to believe in things that are bigger than they are. People talk about the tulip crisis and all that kind of stuff. But I mean, open AI and a lot of AI and even the old Amazon rise to fame, a lot of that came on the back of a bubble era where there was a lot of money that went in that allowed, in a zero interest rate environment, that allowed these places to kind of take their time to kind of to bootstrap their initial progress to grow into where they are. So going back to the point I made about whether it's venture capital money coming back in or or investment money coming back in, you need some, I guess, liquidity floating into the space where people encourage you to say like, hey, instead of just building the next thing to satisfy the institutions to make another 5% on top of what they make, here's something that's really kind of groundbreaking and high risk. You probably will lose a lot, just like probably 95% of AI projects. But it's through that kind of creative destruction environment that you sort of, I guess, get the next multiple return. That's what the young people need to say like, hey, you know, I like this. I can contribute in this. I can spend time I can put in the energy the initiative that probably you and I don't have time to do anymore but you know as a young kid you could they could make I guess a substantial upside or something that actually moves the needle for them and they feel compelled so I think we need really that energy that innovation to come back and in some way I want to say bubble but some of the liquidity to lift our boats

and also I think the financial literacy is also very important right so I think a lot of people throughout their crypto journey trading they've probably noticed that there are multiple ways to trade crypto it's not just buying one token and shoot for the moon. You know, if you started to see different types of structured products that are out in the market and said, oh, actually, I don't have to risk that much assets to get, you know, 20% return. I could just park my money in this kind of specific strategy and then leave it there. And then maybe in 30 days, I could get 20% return. I think there are safer products out there than just buying some shit coin, you know, hoping that they could make their money. You know, these days, what you guys are doing, you know, you're starting to roll out these a little bit more sophisticated products out in the market where people who never had access to finance or even financial literacy are starting to kind of understand and say, hey, you know, I could do this, you know, and that is what open finance to me is about and just getting them exposure to it, right?

Absolutely. In going back on kind of making those high returns, I mean, the way I think about it anyway, there are only so many ways you can get sustainable yields in the real world. One is the Fed. They print out a thin air, but they're the Fed. They are given that privilege. Nobody else is. So, So that's one. The second one would be taking credit risks. We've seen how that works with three arrows and all the others before. So, you know, it comes with own risks. Third one is obviously kind of, I don't want to say Ponzi's, but some sort of these looping tokenomics where your yields come from the next person paying a higher price. But in the real world, I think the most sustainable way people generally earn extra income or yield is through some sort of an insurance type plan, right? You know, insurers tend to make money because humans are generally risk averse. We generally pay up for a against our health, against our financial well-being, against collision insurance, whatever it might be. In fancy terms, we call that volatility monetization. Effectively, people overpay for things that might happen. So in traditional finance, all the lifers, pensioners, et cetera, once you hit the retirement accounts, they want to make extra carry on top of what they're making on a base year basis, they'll generally sell options or they'll generally sell risk because it is also the central banks and policymakers incentives to have low volatility, effectively by... managing the economy the way central bankers do, they're effectively selling volatility on economic performance, right? Because they don't want things to go up and down too much. You want stage GDP, you don't want 8% one quarter, and then minus five the other way. So if the authorities are selling volatility, and it makes sense that asset price volatility comes down, which is why you see that in the VIX, you see that people always complain about volatility coming down forever, but that's kind of the way, because humans like things to be steady. But once you become too steady, then it gets back to the gated problem that we have, right? So crypto is still, I think, in the sort of sweet spot, where because of the nature of the asset and also the lack of understanding, you do have higher volatility, which can be effectively, and again, this is not some black magic. This is what people do in finance all day long. There are ways to basically effectively monetize this, to convert this into yield income. That can benefit the buy and hold investors who are in it for the wrong run. Look, I don't want to stand at screens all day. I want some downside protected structures where I could make comfortable yield while I wait this out. If I want to increase my risk profile a little bit, I can pick on particular structures or particular outcomes. But the idea is the same. Basically, look, I don't mind the volatility, but instead of just sitting it, buy and hold, why don't I sell it, get some extra income? Because in the long run, that generally works out so you effectively compound your wealth a little bit faster. And again, going back to the education, none of this is a black box. These things are well published on your YouTubes, on your Reddits, wherever you might be. Thankfully, in crypto, we now have a lot of tools, APIs, and all these things that used to be gate it for professional investors only that are now made available to anyone as a chrome applet or as a software or anything that it's honestly not that hard to pick up compared to i guess i guess when you and i started

yeah absolutely i mean i think what you've been creating is more of an institutional grade thing that you just put it put on defy and then made it accessible for everybody and i think that's the beauty of the crypto industry right and everybody wants to democratize finance and you're actually doing that i mean take us through how you got Sofa off the ground and then what is available for everybody.

Sure. So I'll take in a couple of parts. I guess the first part, which we'll focus on first is the yield generation part. Then we talk about settlements part a little bit later is as crypto was maturing, we thought that we realized that a lot of people wanted to basically just compound yields no more. They made their 10X or 50X, whatever it might be. They just want to kind of roll it and chill and hang out kind of stuff. But then, you know, looping it in various points, say king or farming system works, but it may not in might not be for everyone. So then we basically kind of went down the path that I described earlier, which is can we open up yield monetization strategies that are accessible to everyone, but without them having to worry and kind of build all the stuff themselves. There are professional market makers which do this for a living. So we thought, why don't we just connect them? And since we're very good at understanding how these products work, we've got a very strong tech team to build the underlying infrastructure and we have very good connections with different participants. We thought it made sense to allow users the complete freedom to have access to the structured products, but to customize it and do whatever payoff they want, have the price be quoted by a market maker, which is not us. We're the platform. We're not the market maker. So we don't have vested interest in this. They go on, they find a structure, they get a price. And if the payout is what they desire, you utilize the benefits of the blockchain, which is on-chain custody. So basically, honestly, you couldn't care less if your market maker was three arrows for the left a better comparison because as long as they have the assets that go into the vault why do you care and it's very similar to what traditional finance wants to do anyway with kind of settlement houses where you can trade with any broker you want but as long as it settles in one place it's fine and in our case we've got the best custodian in the form of a blockchain right so we thought why don't we try to democratize and make this more accessible and tell people that hey you know points looping and all that is fine too but if you didn't want to there are ways for people to earn years like wealthy family offices as would do in the traffic space, but have no humans be involved, everything be on smart contract. Basically execute when you want to, not based on some auctions or some ad box, but basically have full control back of what you want to do with your own savings. Yeah, so

generally, if you're connecting with professional market makers and then you're showing prices real time to retail users, I mean, this is like them being in a seat of Goldman Sachs or something as a trader and then being able to kind of access this yield, or you could almost pretend that you're like a family office and be able to get that type of structured product that you never really had access to. But could you tell me the types of structured products that you offer? You mentioned about options, but for a lot of people, combining options is not something that they usually think about in a day-to-day life, right? So what types of products are there and what are the risks associated to them?

Sure. I like to generally run some analogies. It's sort of like, I guess, when you buy in a healthcare plan or some sort of insurance plan, they're all different insurance products, but the payoffs or payouts are different depending on what happens, right? You know, in case you get hurt here or you get into a collision, an accident, that's effectively what structured products are, right? Sometimes I don't like that term. I think it makes it a little bit too complicated when it's not. Effectively is if you as a person has imaginations of what certain outcomes tend to be and you want to be rewarded based on being accurate in those outcomes, you ask somebody to say, like, if this happens, I want this. If B happens, I want that. What can I get for it? That's effectively what it is. But you can leave all the engineering and the compositions to the professionals because with enough market makers you get a fair price that's really how it is so generally people would like the form where we call it I guess deposit protected basically like the worst case is you get your money back which it's a good starting point for most people right and because a lot of tokens do naturally have kind of yield generation components basically we just basically take those parts and talk to market makers and say like hey if I'm playing with money I can afford to lose so to speak what can you offer me and it more forms, does it pay off optimally? For example, if I think market's not going to move, or actually maybe you're using that, right now the Fed's already cut 50, I think market's going to move a lot, but I don't think it's going to go to 100K, I think it's going to maybe go from, say, between 60 to 70, for example, then you can consider buying what we call bolo structures, or bolo spreads, where you would benefit if the market rallies from here, but then not anymore if it goes beyond a certain level. But by basically taking away that upside, you also protect your downside. So you can In the worst case, you get money back. If the market moves out in your favor, you get a nice return. Obviously, that's also true. And in the bear case, it's basically the mirror of each other. The other one that I think is quite interesting, which aren't available in, say, just pure perpetuals, would be kind of range-bound structures. Effectively, you think nothing's going to happen, or to be honest, Bitcoin's been stuck between, what, 55K and 68K for I don't know how long. You could do structures based on perhaps not a range.y, but based on some range in the short term, okay, we're on Friday now, or like next week if nothing's happening until NFP You think we're going to be between 60 and 65 or 67, whatever. You could consider looking at those kind of structures and see if you're right, you get a nice healthy carry on it. And by the way, the payouts, unlike most structures, we don't just pay you an, I guess, funny money. We pay you a base interest back in your... So it's real return. We do give you airdrops on top of it, but that's a bonus. That's not the base. So this isn't some funky, again, black box magic where yields are generated from nothing. The yield is generated from real market factors, in this case, volatility, and based on what kind of things you sell. But again, we take the complexity out of it. You just have a view on what happens. And at the price, there's some market makers determine what the payouts are.

Yeah, I've seen a lot of option vaults probably towards the end of last bull market cycle and then during the bear market cycle And I looked at your product. You showed me yesterday and we went through it and it looks super professional. And also you just mentioned that you pay out in their own currency that they're actually putting their collateral with. So what are other differences that you see in your product versus the other

DigiOption vaults out there? A few things. So I think the most important part is user experience. Everything on this protocol is on-chain and we mean it. Our code is open source. We invite people to look at it. The only part that's not recorded on-chain is literally the initial part when you request for a price because for us we made a decision because of the user experience we want users to execute when they want and on whatever structure they want rather than us just recommending a structure that We think it's good. And then wait until a certain time for strike. And that's not very defined in that sense. I mean, yes, you own your own cloud, but you sort of want to trade when you want to trade, right? Not when the timing works. So we built in a lot of flexibility in terms of parameter control, whatever strikes you want, whatever underlying, whatever expiry. And we make the market makers service the client, not the other way. So if the client or the user, the user actually traits the market maker quotes not The users subscribe, wait for the market makers to come when they're ready and give a price. It should be the other way, right? You know, the users should be on demand. So I think that that level of flexibility might not always be appreciated, but it's definitely something we're very proud of. That separates us, that's number one. Number two is we're probably a little bit too transparent because for us, it really is about DeFi. It's not as transparent. What are we doing in the first place? So we make a lot of effort to explain things even the formulas of how the yields are calculated. We outlay them, we lay them on the, on a spreadsheet format on the website. It goes down to like the fourth decimal. You can just click into how it works. We've got very long written documents that are, that explain everything from security to tokenomics to our thinking of the workflow design. So I think in terms of transparency and sort of, I guess, define nature of things also separates us. Third is most of us, API is open. People can kind of, market makers can plug into it, design the underlying structure to support other products in the future. So people talk about RWAs, these type of things we should get into. But the idea is we're trying to set a standard of how things should be priced, settled, and quoted. But the same underlying framework can be extended to other protocols. They can put leverage on it. They can put lending on it. They can put other stuff on it. It's totally open. So it's meant to connect with the rest of the ecosystem. So STTH is now a token that's on ours. We could feasibly support many more other ones as we keep growing. So that, I think, extensibility is something that we're also very proud of and lastly but probably the most importantly too is maybe more boring to the DeFi users but I think to more traditional players is this issue of settlement so if I can spend a little bit of time talking about this one is generally I like to call asset settlement as sort of like the plumbing in your is in your house do you really care how the plums are built no you just kind of care okay the thing works the water flows away and that's not my problem same with when you buy let's say an equity you buy an Apple share do you really care how it settles no you click a button someone buys for you and you're done right but as we all know if you don't have a good sewage system things get bad very very very quickly as we learned in Lehman and ironically blockchain was supposed to fix all of that because it is a proof of stake in Ethereum's case a validation node which does atomic kind of calculation settlements on the fly but somehow with I guess decentralization and protocols the benefits of doing things yourself means fragmentation I don't mean we have a centralized person telling everyone what to do but there should be I think industry groups or best practice of standards, right? No different than say ISOs for day-to-day goods, for ISTAs, for financial derivative regulations, all these infinite kind of standards, TCP IP for internet. We can kind of get together and say like, hey, this is sort of the best way to do things. We have ERC-20 for tokens, 721 for NFTs. But in terms of how we should actually digitally settle an asset on a smart contract vault, that's not really well written. What should you actually store? Because if we really are to expand into traditional finance, even if you send a SWIFT instruction, you have to spend very specific fields, right? Otherwise they won't understand. Why can't we define those fields basically in a blockchain so that when one exchange or one protocol or one project, their tokens or their assets or their perpetuals, they should actually be able to pass that asset to another protocol, not through an LP token, but the actual token itself, because if it follows the same standard, why do you have to create layers and layers and OP tokens, and if you have fragmented liquidity, and also you end up running into issues where I trade one exchange, It doesn't settle on the other exchange. I got to split my capital two ways and kind of, you know, move things back and forth. I like the chemistry premium, all that stuff, right? But if you had a central, I know I say centralized, I don't mean central control, but like a base layer where all the participants can agree that, okay, we're going to settle on this standard. It's all going to go on chain. We can net against each other. It makes everybody's lives a lot easier, right? It takes away all, makes the arbitrage easier. It makes the protocols talk to each other easier. As a user, you care less about who you trade with, but as long as you know the asset is safe, but you kind of compete on, I guess, product, on pricing, on things that we should be competing about rather than, oh, okay, this particular token does not talk to this other one unless you bridge it or unless you create some stuff, which I think is unnecessarily difficult and that could actually be easily solved on the blockchain once the industry kind of sets a standard of how these things should be talking to each other.

Yeah, absolutely. I mean, we talk about bringing finance on chain, but most of the stuff that we see today, whether you're trading on centralized exchanges or not, everything is off-chain. Even copper, I don't want to say bad things about what we're doing, obviously. I think we're doing innovative things, but we do settlements with our clients and exchanges, but that's also off-chain as well. And if we want the financial world to go more and more on-chain, we need to have these standards built out by industry practitioners. And we're all professional at this point, right? We all worked in traditional finance. We worked at option traders and whatnot, prime brokers. We can set these type of standards and we can bring more and more of this on-chain. So what do you think is necessary to get the industry participants to agree on a get this going?

I think really the technology is actually already ready. It's on the chain. It's more just really education and understanding. But kind of going back to your point about the off-chain part, you know, when we first got into crypto, our whole team were kind of more naive, bright-eyed a few years ago. You know, we hear about DeFi and on-chain stuff. We really thought everything was on-chain. We actually made Sofa into a much more complex product. It was a whole kind of full of margin, prime clearinghouse. So we thought we could put it on-chain. We did all the models, did all the math, but we realized, oh, actually, you can't do it on layer one. And the folks who say they are doing it, it's not on-chain. It's actually through off-chain computations. And I won't name projects. We're friends with a lot of them, but a lot of the RWAs and on-chain projects are effectively very expensive legal structures where you've created a physical asset, you put it into some legal escrow, SPV somewhere with very expensive legal documents, very expensive lawyers to map that access back on-chain on some smart contract address. So isn't that just a lookup? That's just a, instead of a digital, sorry, instead of an electronic registry on an Amazon AWS server, you have an on-chain registry of some physical asset that the actual physical legal document still takes precedence over the actual smart contract. So if you read a lot of these RWAs, in any sort of disputes, the actual physical off-chain document takes precedence because that's how the court of law does it. So is that really on-chain or we just kind of a common complaint we have is crypto mix things for the sake of making it because of technology and we're actually not really solving a problem. So if We're actually going to have to solve it just as say 721 puts your NFT address on the smart contract. They are Ethereum standards. We're using 155 to basically put hours where you can actually put the contract parameters directly on chain so that when... another person takes hold of the smart contract, they don't need to refer to an off-chain document. They don't need to refer to any PDFs or anything. You can just extract contraparameters, put it on your own pricing source or whatever it might be and actually process it and give it a value and do what you do. So obviously we are not doing housing deeds or mortgages or anything like that, but you could technically put, I don't know, your house contract on these kind of things where you get true RWAs, right? It records your plots, it records all the stuff you will see on your document. Again, without relying on an off-chain document, It stays on the contract as long as people kind of understand how you read those fields and how it comes back out. And again, these are not difficult engineering problems. These are just really just identification alignment. It's more like data set issues, right? It's relatively mundane. But I think some of that is also probably kind of lack of knowledge as well for let's forget, for policymakers who are barely sort of in tunes with how on-chain settlements actually work, or even the blockchain itself, to get them to kind of stand behind an industry group to push this forward, it's probably a big ask. So I think some of the, I guess, more prominent leaders in leading protocols either can get together and do it, or what we try to do is make a project-ready protocol ourselves. So the best way we can do is, look, we've done it for structured products, we've defined the necessary fields we think make sense for settling stuff like this, based on our own knowledge from 20 plus years in finance. And we chose structured products first because it is the most complex, right? If you can solve the whole hard problem, surely you can do perps and FX and rates, everything else. So we're hoping that by doing it product first. People who find out more about us can actually look into kind of details and actually get into meaningful discussions of say like, hey, does this make sense? Do we miss anything? Could we improve on it? Can we extend this and this and another stuff to really kind of get the whole industry effort going?

Yeah, it's usually not a technology problem, but a human problem, right? So that's why I think we really need to get these settlements on chain. And also you mentioned about we can avoid something like a Lehman crisis or a Chago kind of incident, because if it was on chain, it would be a lot more traceable. I mean, can you explain to us a little bit more in layman terms how that could have been prevented?

Without getting too fancy, basically most trades in the old days were called bilateral. It's basically person A trades against person B, which means that if person B goes away, you're kind of in trouble, right? We saw that with the pre-FTX kind of credit crisis in crypto. So post Lehman, or actually during Lehman, some funny story was because I was doing interest rate swaps and people might remember, or the young ones might not, but the other ones will libel and all the fun stuff so we obviously had a lot of bilateral exposures to Lehman and other banks so we were literally sitting there by hand picking out exposures we had to Lehman and calling out the banks and saying hey do you happen to have the offsetting structure because they might not pay us but if we net against each other that will actually work out right so it was funny there was hundreds of thousands of things we were going through which the industry has now solved by basically requiring a lot of these derivatives to be cleared so into the non-natives. Clearing just sort of means you deposit something into a centralized place where everybody agrees. It's almost like a gold vault. That's where it all sits. We all agree that's the place. That's fine. It has a lot of benefits from a netting perspective because one person might be long against this particular counterparty. The other person might be short. Instead of every person buying insurance against this one person, if you just put them on the same place, then it clears. There's nothing you need to do. And it's actually better for the entire system everything gets cleaned up much better. Now, in DeFi, we don't want a central counterparty kind of determining who can come in, who doesn't come in, because in clearinghouses, you have clearing members, you need, again, to go through a key to access. But that's the beauty of blockchain, right? It's crypto. Smart contract vaults are, by definition, kind of a custodian, a clearinghouse. So as long as you can have a standard, anybody can clear on the Ethereum, pay the gas fees, and off you go. So if we can get to that standard, then every time... You and I trade, for example. To be honest, I couldn't care less, and you can care less about what happens to me. So even if one of us went under, as long as the smart contract, my keys are still there, the payoffs unlock and off I go. Now, if you apply leverage on it, that's a different thing. You have to consider margin models and stuff. But at the very, very basic, on a simple one-to-one mapping, having an open, accessible vault where people can agree that this is where we're going to leave in a poker analogy. If we're going to put ante on the table, this is the pot. We're going to put the pot right here. Nobody else can take this pot. And we just happen to have an open access pot in the formal blockchain that can prevent stuff like Lehman or even like Celsius and all this stuff happening, we used a, I guess, decentralized, agreed base settlement destination amazing

amazing i think this is kind of where the industry should be heading and it's not just about d5 but even banks traditional banks can actually learn from all these technologies because there's so much inefficiencies and capital inefficiencies i think that's the kind of like the next gen stuff that you're actually building which really amazes me

so on that one coin just really quickly i think you know that people keep complaining about blockchain having no use case and we we have no efficiency well to be to be honest and I have a lot of friends in operations as well. But if this was to work the way it should work, then you basically eliminate the need for a lot of these matching operation services, which effectively does the work of atomic validation that the blockchain does with thousands and thousands of people, right? So that actually would be a legitimate efficiency gains that would help banks in similar places. Again, it's actually already there. It's just... kind of making it happen and then actually showing to the people and say like, this is sort of what we promised and this is what it can actually do. As a first step back to the traditional incumbents and say like, hey, we're not just doing technology for the sake of doing it. This actually works when it's done properly.

Yeah, I feel like Sofa is paving the way for the financial infrastructure. Is there anything else that you want to tell the audience about? Where can people follow you? Where can people learn

more about your product? So we're on Twitter, we're on TG, we're on Discord. We're not your usual DeFi sort of meme calling type activity. We're a little bit more mature, a little bit longer term. But with that being said, we're very transparent. We're very engaging. We hold regular AMAs. We write articles. We have a lot of thoughts on markets. So we're hoping that we can set it example of, I guess, what, I guess, the new DeFi way for builders will look like, because we are serious when we say that we do want this technology to at least be a viable alternative to the existing ones. You know, it's not just complete anarchy that we're going to, you know, not follow in their footsteps. But I think to kind of be able to stand up and say, like, look, crypto is here to stay, blockchain is valuable, alternative to digital finance, we kind of need these longer term, more forward thinking type of initiatives. I mean, auto economics are fair launch, none of the team actually got any tokens up front as a way to show that this is a longer term project. So we're hoping that the folks who follow us can be also patient with us as well because we do have a longer term mission and things take time as we all know. We are doing our best to educate, help and demonstrate to the incumbents that we are a functional alternative. So support us, come engage with us, give us a bit of patience. We're hoping that we'll set the benchmark of the type of projects that will come along with us and as well as after us.

Thank you so much for being on broadcast today Augustine. Thank you

very

much, Takasan. I will see you next week.

Take

care.