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A crypto founder’s contrarian take on the future of money | Edul Patel @ Mudrex
184 Plays5 months ago
Edul Patel founded Mudrex with a strong belief in cryptocurrency as the future of money. For the past 7 years, he has been building the infrastructure for its mass adoption. He estimates it might take another 10 years to see widespread use. This episode dives into the concept of money and the potential future of currency, offering thought-provoking insights for those curious about how the world works.
Read more about Mudrex:-
1.Bitcoin Pizza Day today: Mudrex CEO Edul Patel explains the significance
2.Rapid fire with YS Life: Edul Patel, CEO and Co-founder, Mudrex
3.The Crypto 'Kuber': Edul Patel, CEO and Co-founder, Mudrex
4.Explore Mr.Edul Patel’s Views on Recent Crypto Market Developments and their Effect
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Transcript
Introduction to Edul Patel and Mudrex
00:00:00
Speaker
Hi folks, I am A.T. Patel. I am the founder and CEO of Mudrax. We are India's largest crypto investing platform.
00:00:18
Speaker
This episode of the founder thesis podcast should start with a content advisory. This episode is not for the faint of the heart or the casual listener. Your host Akshay Dutt goes into a deep conversation with Edul Patel, the founder of Mudrex, about what is money and what is the future of currency. Edul Patel started Mudrex with a deep conviction that the currency of the future will be cryptocurrency. And he has spent the last seven years building the rails that will make the mass adoption of cryptocurrency possible.
Cryptocurrency Adoption: Potential and Challenges
00:00:48
Speaker
And he estimates that he needs to invest at least 10 more years before we will see the inflection point of cryptocurrency adoption. If you want to be challenged in how you think about the way the world works, then this episode is made for you. Stay tuned and subscribe to the Foundathesis podcast and any audio streaming app to be challenged and get smarter.
00:01:18
Speaker
Let me first get a little bit of a backstory before we understand what is more's what led you to becoming an entrepreneur. Just take me through that journey. Got it. So the first company that I started was actually in college in my third year summers. And I can give you guys a bit of background as to what I was doing. Yeah, this is IAT Bombay. So I joined IAT Bombay in 2016 and while at IAT Bombay, so i I can tell you the story, right? So when I joined IAT Bombay, I was ranked 2543.
00:01:54
Speaker
So 2543, at that rank, I was the last engineer to get entry into IIT Bombay. I always wanted to do engineering physics, always wanted to do aerospace, um and so on. I didn't think metallurgy was a field that I wanted to pursue things in. However, having said that over time, those perceptions have changed. But when I joined IIT Bombay, the first semester was what I wanted to do, what I wanted to do and what I wanted to do. go ah odd men up cu both per and eight point five three coach cpi
00:02:26
Speaker
eight point five three to realize okay for branches youla so second seistster bikullibaana bamaigris of those storie at times friend yeah ah b eight point five four cpi this is not the like it's not It's less dependent on the input that I give, but more dependent on a wide variety of other factors. Anyways, irrespective of the intent, I will continue to do what I want to. And historically also, um even prior to this, when I was in school, when I was in 11th, 12th, I was always this kind of being, this kind of a person here. Okay. first tana a roini But you should be in the top few folks in the college, but at the same time, try and do a bunch of other things as well and try and pursue a lot of other interests, ah which is basically what I started to do ah again when I was in IT.
00:03:11
Speaker
he started pursuing a wide variety of other interests. So although aerospace, got not up aospas company nearbatoawa but the be I joined the Astronomy and the satellite club of IT Bombay where we were designing our student satellite. I joined the mechanical engineering club when we were designing the first F1 car from IT Bombay and I was taking care of the steering in brakes of that system. I was a part of the robotics club in so on and so forth. So, continue to pursue a lot of these wide variety of things in and ar around and focus on making sure my network and my learning and my growth in in in college was maximized instead of just trying to maximise for CPI and CGPA. As an outcome of that, I think
00:03:53
Speaker
created a wide wide variety of friends and a huge network, ah which I think in hindsight has probably been the most valuable thing that I got out of IITV, including the experiences that I got at IITV of building my first company over there. so Coming back to the original question that you asked, so I was a manager at this event called as Tech Fest, Tech Fest is Asia's largest technology student festival that you would organize and i was I was a part of that, the core organizing committee and as a part of that core organizing committee we had launched a innovation kind of sort of competition where people would come and do demos.
00:04:32
Speaker
ah In that competition, there was one particular person who we ah met ah who was trying to productise glow in the dark paints. It's a very interesting thing. Okay. So he was making glow in the dark paints and this is the same paint that's there in your watches through which you can see the watch car dials when it's night. Right. So. we then started working with them to figure out how we can convert that into tiles, and then figure out how do we sell those tiles in let's say parking lots or to the government for just better road safety and so on and so forth. So that was our first startup. We got incubated by sign which is the incubation network inside of IT Bombay, got some parts from the government, spent four or five months working on it, and eventually realized that things didn' weren't working out simply because we were not the right team for it.
00:05:23
Speaker
So it was me of a very close friend of mine and this third person from outside ITB and things weren't just jelling well. So what I think are my most important lesson of building companies is that you need to get the team right in the first three members of the first startup that I started. That's a good learning to have in your first startup. And I would definitely learn that later on. Yeah, yeah, absolutely. And somehow, it this these learnings keep on repeating again and again and again. It's just that the flavors change and then you realize what works and what works
Edul's Early Career and Ventures
00:06:00
Speaker
doesn't work. So, Keir anyways, graduated from IT Bombay 2011, then went to Deutsche Bank, worked at Deutsche for a couple of years. Deutsche was kind of sort of the dream job that people want to get to out of ITB.
00:06:11
Speaker
investment bank and the coveted rule. So, spent a couple of ah couple of years at Deutsche, learned a lot about finance, ah coincidentally bought my first Bitcoin also when I was at Deutsche. um ah But after doing two, three years of that, realized that it it I wasn't really happy doing that job. The money was good. The opportunities were great. I had an option to shift to New York and work at Deutsche at the core. At that point in time, Deutsche was the world's largest broker. So this was, the we were talking about 2012, 2013, before Deutsche was strapped with all the fines.
00:06:44
Speaker
What do you mean broker? Equity broker? No, FX broker. So FX is the world's largest market and Deutsche is the world's largest broker of FX for I think 10 years in a row when I was at Deutsche. And I was a part of the risk team at Deutsche who would manage risk for our internal clients doing FX trading. So all of this was very large and very, very valuable. okay So yeah, I got a lot of learnings from that journey, but I think the main learning that I got from that journey was that Duchy wasn't for me. It wasn't the rules that where I found meaning and where I found happiness, of course I found money over there, but that wasn't the motivator. and ah That stops doing the motivator after a point, right? Then you need to move on and do more meaningful things in life.
00:07:33
Speaker
oh So, left OJ in 2013 to pursue an idea that I had in college again. ah So, in college, when we were in college in 2010-2011, free charge and there were a lot of these these companies that were very popular and that would give out coupons if you do recharge. I don't i even know if your audience would remember this, but it was all in the rage where every student would ah sign up on free charge, do the recharges and get those dominoes k coupons to say, they They basically didn't do anything with it, but mala right the rewards was a very interesting our problem. And at that time there was an idea that, okay, what is it there was a way that you could offer the same kind of distribution to local stores instead of just online merchants. So you were able to recharge, but for offline stores, ah Groupon for India for all practical purposes at a time before Groupon existed.
00:08:25
Speaker
so That company we started off after Vinay left, Deutsche, Reddy13, with a few of my friends. A wave of Groupon clones in India. Both of you are so sure. This was the same. So Snapdeal was a very different proposition by then. But I think the proposition was Groupon type only, right? like That's how they group. Snapdeal was doing group buy, but for online products. Groupon was an offline product. Snapdeal for all technical purposes, an auctioning platform. form It was like a combination of Amazon and eBay and i had a bunch of those companies together.
00:09:05
Speaker
um And then they pivoted and they also had a recharge model and then they pivoted to just e-commerce once e-commerce started. It was a very interesting time. 2013 was I think the first time when smartphones became good enough for people to start using Google Maps. oh Ola and Uber had just started. like I remember this clearly, because the first website of Ola, and and again, I don't think people know this, but Ola was actually an outstation travel company, i like Savari and the Lookalikes, and the first website of Ola was designed on my laptop by my wingmate, who was a temporary designer at Ola, when Bhavish bar in the gang were living in Pavai, just outside of IIT Bombay, it's an IIT Bombay small network, right?
00:09:47
Speaker
so So, yeah this was 2013 was a time when smartphones weren't there. People didn't know um most of the things like this would exist, Ola and Huvaru didn't even existed. This was a time where Zomato was still a menu scanning company and and not ah and not the delivery, Bahimath we know it today. Suki did not exist. Tiny Owl was the largest home delivery company, right? This is this is that era. So, So as of 2013, started Niflal, the goal was to connect local stores more closely with their own audiences, ah create like a hyper-local distribution for these local stores, build that company out for a couple of years, raise a million dollars from Saif partners, which was quite a bit. What was the business model there? ah you were
00:10:37
Speaker
charging local merchants to distribute their coupons. And on the one side and on the other side, it was a recharge platform for mobile phones. that no There's nothing like that at all. So i tell you I'll tell you how this how that product also evolved. so the First version was like a Pinterest for local stores. key People will go in, people will take photos of products that are amazing. Like basically what every single store does on Instagram today. That's what we wanted to do. But Instagram didn't exist then. So we thought, okay, people will go in, they will take photos, they will create their own network and distribute it. But our first 23,000 users. Sounds like early magic pen also. Yeah, yeah. So there is a separate story about magic pen that we will get to maybe off the record at some point.
00:11:23
Speaker
but the Okay. Yeah. you find so like curiositysty Yeah. So this was that, this was that era. So Instagram didn't exist. The closest, ah there were two apps. One was called as path and the other was called as Pinterest that were popular at that point. So the idea was that ah people would go to local stores, they take photos of things they like. And the thought process was to to generate that board of mouth, right? Because the realization was that word of all is the biggest driver of user acquisition for any local store. Your friends need to know about it. And and this was like a thought. The thought was, okay, you go to a store, you love what you're eating. You take a photo, you share it to your network. When you share it to your network, you get some loyalty points.
00:12:02
Speaker
And then you can use those loyalty points across the conglomerate of stores that we had. Right. um So launch the product got like our first two, 3000 users but very well and users were using it for sharing photos, but then they were like, okay, photo share. points middleever the wartime like that So there was no engagement. So realize that one of the best ways to engage is, okay, users are coming in now. I don't think it's something to the store owner and what will the store owner do? The store owner start pushing out rewards. So when we started doing that, the most engagement that we were getting.
00:12:36
Speaker
was on offers, deals and discounts that a store owner would push to the audience. And then we realized that, oh, and that was like the epiphany and aha moment. Okay, store owners, users actually want to know when are, where are the local stores that are in sale? Then is the sale going on? Because again, this is still a problem. If today you want to know which H and&M outlet near you has a discount or an offer and you actually really don't know it. And it's a very hard problem to solve locally simply because aggregating real-time local information rapidly again was difficult. So I said, okay, this seems like a doable thing, but of course, every store owner is aligned. So when a store owner is aligned, they will collect information around which offers are going on, and then we will create a database of store owners, and then we will just call them and ask them, what are your offers?
00:13:29
Speaker
So, that's when we pivoted to that. When we pivoted to that, the store owners loved the fact that we were able to drive users to their stores, but there was an attribution problem. Store owners were saying, how do you close loop? Which is again still a problem. It is a very hard problem. that be pivoted away from the original. Correct. So to solve for that, we actually created a hardware device. um It was a small audio box, an audio box that would emit an ultrasound frequency that you would not be able to hear what your phone would be able to hear. We innovated a lot on geolocation. You know, the entire system that let's say Ola uses to identify that you're at the airport.
00:14:14
Speaker
Like no one was doing this at that point, right? And this is what we were doing. And with the combination of that audio box and the geolocation tech, we were able to pinpoint that a user was inside a store up to three meter of accuracy. So we actually did a very interesting pilot with Jack and Jones. And Jack and Jones at that point had just launched in Bombay. I still remember this very well. They're a huge store. a three store, a three storey store. And there's a lot of complications, right? From a location, identification perspective. Yeah. Hi, it has a lot of complicated, like you would know this is you take, if you take a fly over and Google maps will tell you that you're Nietzsche not over, right? Very basic problem, but a very hard problem to solve. So
00:14:54
Speaker
coupled with geolocation and our proprietary hardware technology, we would be able to tell people exactly where they were. So Jack and Joz did this pilot with us where let's say if you were standing in front of a jeans section and with our system you would be able to let you in front of jeans or you in front of t-shirts or you're in front of let's say women's or men's or whatever. They would be able to push out a very specific notification to you on your phone saying that okay, this is a very special jeans, that's our discount. You probably like it by your device. Stuff like that. ah Having said that, all of this was just way too early and it was just at the right time. Your one million fundraise from, you said from elevation.
00:15:36
Speaker
ah Yeah. Safe partners is now elevation. Yeah. This happened before the pivot, after the pivot, when did that happen? Well, I should tell people who are listening this that pivot is a part of running your business. So I don't put a pinpoint on how it happened before it happened after, because there are pivots that are always in the progress. So you really have to tell the difference. oh But yeah, so without that, that business and the offer is business continue to do great. Interestingly, what happened is that because we had a lot of this proprietary info, there were a lot of people who were willing to partner with us to get this. This data was very, very valuable. And one such partner was a company called as help chat.
00:16:19
Speaker
So help chat was this large company that was growing out of India at that point that raised $80 million from Sequoia was aiming to become like the vChat for India, solve all problems of every single user on chat. And again like, as we know today, every single consumer in India, of course, wants rewards. So the one problem that they want to do is they want to solve for offers. And they said that, okay, why don't we do it? We'll take your proprietary data. We'll give you a dashboard. Every user that chats, Every user that requests chats from us for offers, why don't you supply offers to us? So we would like a partnership integration with HelpChat. Eventually, we realized that there are actually a lot more synergies. They were offering us distribution, but we also had our own users, so we also had distribution for their product. We were very strong in Bombay and Pune. They were very strong in Delhi and Bangalore.
00:17:06
Speaker
So it, we realized that actually what would make sense was to solve this problem in a group. And the first problem, you know, the first learning from the first company that team is all that matters that actually he resonated because the team at head chap was really good and we really loved working with them. So eventually. HelpChat ended up acquiring Niffler. Niffler was the name of my first company um in 2015. That's when I moved to Bangalore, joined the HelpChat team full-time, started heading the products part over there. And and then that was renamed to Tapso. HelpChat was renamed to Tapso, joined HelpChat, and we started off this ambitious quest of solving every problem on chat. Very quickly realized that most things should not be solved on chat.
00:17:50
Speaker
but glo so yeah because people because really Why would you want to try and solve for a food ordering on chat? Why the hell would you want to spend 15 minutes explaining to someone that you want a Domino's large deep dish pizza with some specific toppings on your room? Right. So very quickly realize that chat actually sucks for most things. And that's ah that actually also why I'm very um with that learning and I'm also very dubious as to how all of these chat GBT and software products scale, because in reality, a chat interface really sucks for most things in life.
00:18:23
Speaker
Apart from some really complicated use cases where you really need a human to understand where you're coming from and understand what you're saying without saying and help you solve that problem. right That's really the place where chat helps, but otherwise chat just sucks. You should just move away from chat to just creating UI based flows. i So that's what I ended up doing over there. Very quickly came in, we realized that this won't work. So we started building a UI based profile, recharge, food ordering, laundry, urban clap, tab booking, mixing and health chat morphed into tab.
00:19:04
Speaker
The reason why we actually changed the name was because there was no longer any chat in the app. Like it was still called help chat, but no one was doing any checks. Everything was just happening via some flows and tabs was a generic enough name and the thought process that we are all in one app. The goal was still that the same be the beach out for India. but be an ordered but b and all not happy super And that means that you do everything from shopping to a mutual fund investment to cab the King through one app. So that's why the business already changed too. The business model for the company would be just a lead aggregator and a lead generation mechanism. does it so we and you know i mean Right now Tata is trying to figure that question out. No, it doesn't. um Because people don't perceive you because no one wants a super app. That's a short answer. Okay. Okay. Everyone's specific app for specific use case.
00:19:59
Speaker
Correct. So the issue is that say you will never be good enough or you will never become better than the person who is solving all that problem independently by themselves. like Imagine this, right? When we were trying to build a unified experience of both Hola and Uber on our platform, we had to build every single feature that both Hola and Uber were booking and make it better than them and solve for the aggregation problem. So it's a harder problem and it's hard to do unless you have some very clear distribution modes and then a lot of capital to solve for. So it needs to start from zero to one. It needs to start by you owning and capturing distribution. And then somehow organically those problems we've solved on your platform.
00:20:41
Speaker
not by you seeding it. So there is this very famous quote in complexity theory that says that any complex problem that starts to be solved without being solved from first simple problems never gets solved. This is like a genuine axiom inside of complexity theory where you cannot solve complex things without first solving for simpler things and then building up on top. Because it almost surely will be true sub-optimal more expensive solution. And that's what in hindsight TAPSO was. It was a sub-optimal solution for a problem that probably did not exist. Like seriously, what was the problem that we were trying to solve? your problem the That we were trying to solve was a distribution problem. And the most important problem at that time was that phones did not have memory and they did not afford they could not afford to have many apps. So having one app, everything would solve for that problem. But that's basically betting against technology, right? You're betting against the fact that phones would not have more.
00:21:35
Speaker
and it And as a result, you only have a very small window of opportunity to capture a large enough market and offer an excellent enough service at a low enough cost with large enough discounts for a wider variety of services. Too many things to go right. oh man tight hindight We did end up building a great product. I think hands-on, one of the best teams that I've ever worked with, learned a lot about the balance between execution and product sense and building a business over there, because at the end of the day, we have to build a business out, of course.
Transition from Deutsche Bank to Mudrex
00:22:10
Speaker
Uh, was very proud that we were able to scale that to many millions of users and tabs eventually got acquired by Amazon. So it ended up being good for everyone. And ah whatever we built out over there and ended up becoming Amazon pay and the seeds of what Amazon hey was. soa what that So journey still continues for a payment app. It still makes sense to have multiple things like bill payment and so on and so on. And basically the PTM and the phone piece of the world started all doing all of these integrations because actually we started it first.
00:22:45
Speaker
This is a time when Phonepay and PTF are very small. Like I still remember having a conversation in my living room with a very close friend of mine who had got an offer from Phonepay to be their first 10 employees. In hindsight, we laughed about this alert now. But he got an offer from Phonepay to be one of their first 10 employees. In 2015-2016, UPI did not exist or had just started. At that time, Phonepay was a payments company, right? And no one makes money in payments. Like no one made money in payments and no one makes money in payments now. I told him, it's a B2B business.
00:23:22
Speaker
fun enough what we one with to short and Yeah. I could not, could not imagine that a phone pay would get acquired by Flipkart again and Flipkart would give a distribution and then that distribution would give phone pay and then you would have demonetization would do it blow up UPI and then you would have UPI which would be the best payment method in the world. And then that would, that is what would lead you to capture users. but i yeah yeah Amazing times. So did that at Tabso. Tabso got acquired by Amazon. I didn't want to go to Amazon. Like the one thing I knew after my project, you had equity in Tabso, like when Tabso acquired Niflage. Okay.
00:24:05
Speaker
yeah but we are tabau coin diffle and let's say The outcome, effectively NetNet was that my opportunity cost was more than made up for. So it was a good outcome for everyone, for the investors, for the employees, for the founders. And of course, the entire experience and the journey me learning was of course great. But nevertheless, I never wanted to go to Amazon. ah Like I realized, I remembered my days at Deutsche and realized that nothing ever happened at Deutsche, even less would happen at Amazon. let's So I didn't want to join Amazon, oh left Amazon. la And before, I already of course knew that this was going to happen. So I had already started thinking of the next steps. And but and this was in 2017. And in 2017, the thought process was that we felt that
00:24:49
Speaker
India was for exploding and growing up. I haven't said that. Financial independence and financial literacy was very poor. and The problem was there and the problem still continues. It's not like things have changed, things have become better, but not changed yet. oh and This is a problem not only for folks in India, but for a lot of folks around the world. We thought that half of this problem is because of lack of education and we can't offer education alone. It's a ecosystem problem that everyone will solve for. and The other half was, that access to services do not exist in a cheap enough manner. And the reason why they don't exist in a cheap enough manner is because there are just all information is just siloed. And you don't have access to information about a user's financial, holistic well-being in one place. And that's a problem that let's say an account aggregated system is not trying to solve for in India. But this problem still exists, like right? And we realize that that was fundamentally because how money was made.
00:25:43
Speaker
bun in even today is not designed for the age of the internet. It is very private, very centralized, very siloed. Access to information is very restricted and it's very difficult to get that information available in a secure permissioned manner ah to a lot of people. And that's how somehow my first Bitcoin purchase of 2013, I rekindled some thoughts at the back of my mind that okay, actually Bitcoin is actually effectively trying to solve for all of these problems. And crypto is effectively trying to solve for all of these problems. There was also this recognition that
00:26:17
Speaker
It's ah like we are maybe 20 years away from it being mainstream, but or the the implementation or or the application of the technology to be mainstream. But if you want to solve for this problem at the core and you think that this is the pathway where the world is going to go to, and I genuinely did believe then and still do believe now, crypto will be mainstream and be a part of all of our lives because it's a fundamental technology efficiency problem that it solves for. Nothing else. like Everything else, are there are there are other factors to it, but the real reason why it works and makes sense is because it's a technology efficiency problem that it's all for and the history is the proof that if someone's also for efficiency, eventually everything moves there. Because efficiency adds value, it reduces costs, improves margins, makes the world a better place for everyone. So how is crypto solving those problems of money? You said money is not made for the digital age.
00:27:11
Speaker
yeah So so let let let me try and break a couple of mismembers. Everyone thinks that but bitcoin the bocamo to gary but bitcoin is so but i wait tell once you transfer to someone the money is lost actually Bitcoin is the most public ledger ever. Literally it has something called as a public ledger. So once you know the identity of a wallet, you can actually literally track and trace every single transaction that has happened. right So if someone gives you permission access to your wallet, you have the ability to understand what are the, let's say, the spending patterns of a user, which are the kind of things that people try and decrypt through, for example, SMSs or bank transactions. It's actually hard to do. And it's almost inaccurate, right? But this is one kind of access that it gives. ah Let's move to, let's say, Ethereum. So Bitcoin is not designed for smart contracts and so on. It's designed to be just money and a store of value.
00:28:04
Speaker
But something like an Ethereum does actually do a lot of the automation part as well. that okay If this happens, then do that. And automating a lot of that is half of the fraud problems in the world. Keep someone send money without some reason, without some knowledge, without some info, and then that money got lost somewhere in AML or lost somewhere in terrorism financing or lost somewhere in fraud. That's just some hundred other money. So, and and then that's just one part. Because the system does all of this in an automated way, you don't need the the entire thick hefty layer of of but regulators, banks, intermediaries of customer support, success to solve for these problems of users. right All of this can be pseudo automated. Again, I'm still not saying the technology is there. We're still maybe
00:28:50
Speaker
maybe five three to five years away now for the technology from being there and 10 to 15 years away from the adoption from being there. As I said, I started seven years ago thinking that it be it is two decades away.
Understanding Cryptocurrency and Blockchain
00:29:04
Speaker
I'm kind to sort of still on track. ah what is so so okay I understand these two are separate issues, adoption and technology. i was only looking at Bitcoin as a problem of adoption. But I was not aware that there is a technology problem also. What is the technology problem? Why is it like five years away?
00:29:28
Speaker
Everything is expensive to do on the blockchain. It just takes too much. so you can so Everything is solvable, but it's just too expensive. For every transaction, you do know to pay you don't want to pay a $10 fee for a $1 transaction. You want to pay zero fees for a $1 transaction and you want to enable an ecosystem that earns by itself by other means apart from just transaction fees. So we are very close to that. As I said, it's about that problem is about three to five years away from being done. oh The fees used to be astronomical just about a year ago, but there have been a lot of innovation that happened in the crypto space that has led to ah the fees being reduced transaction times being reduced transaction finality and assurance being there and all of this happening in a decentralized manner at very, very low cost now. So we're getting there.
00:30:16
Speaker
okay okay Can we take a slight digression and can you talk about the history of crypto? ah What was the original thesis and how is has the technology rolled? So you said like the thesis has become a lot lesser and it is more reliable. and So we know what has been happening for these changes, you know just for people who are not from the space, give them an understanding of the space, what always has been happening here. So the seeds of crypto were sown in the 2008 financial crisis.
00:30:47
Speaker
The, basically the thought process was that in 2008, a bunch of banks did a lot of shady business and those banks almost led to the collapse of the global economy. And they would only be saved by the US government stepping in and basically giving them ah free money, which was over time has effectively the cost of that free money has come to all of us individually in the form of inflation. That's effectively what has happened. Trillions and trillions of dollars of quantitative easing that has gone out to to make sure that the financial system stays stable. The cost of that has been borne by individuals world over in the format of inflation, in the format of the cost of everyday goods becoming more expensive.
00:31:32
Speaker
Now, this did not sit well with a lot of pro-libertarian thinking folks in the US, and and somehow some people got together, ah especially a few, to say that, okay, this system just sucks. like why should why Why should there be a government who's trying to bail out a few bad actors at the cost of everyone else in the longer run? If something has gone wrong, maybe the right thought process on a right financial system is a financial system that either discourages these actions or if these actions happen, the people who did these actions bear the brunt and the rest of the world continues to grow. So Bitcoin was this experiment to create ah for all practical purposes a store of value. I wouldn't say currency because it's not a currency. There are the very clear things that currencies are supposed to do and very clear things that things like gold and store of value are supposed to do. So the thought process of creating Bitcoin was to create the store of value that doesn't
00:32:24
Speaker
ah depreciate with time that has no central bank deciding supply, and that is no that that has very clear rules, and those rules get followed for everyone. So those are the seeds of Bitcoin being put in. um it ah The development and the public release of Bitcoin followed ah through many, many years, from 2009 to 2011. 2012, 2013 is when it started to gain some traction in the... you know the when i said blockchain as a technology existed before Bitcoin or Bitcoin and blockchain are both, like they all, they have a common origin point. No, so actually my other the at the risk of not becoming too technical, blockchain, the technology, the idea that it could string these transactions together existed. How you can use that to solve for a problem of consensus was the part that Bitcoin solved.
00:33:17
Speaker
So how do you couple blockchains with solving for the factor I can have a public ledger and only legitimate transaction get added to that ledger and not and anything added to that ledger does not go away over time, which is what is required. oh ah for for a store of value or for a currency or for a register of value to be there. Solving for that in a decentralized manner was a problem that we could solve for. It coupled two actually very existing ideas in the computer science world that had existed since the 70s into a unique solution that solves for a store of value problem. The two ideas are public ledger and blockchain.
00:33:56
Speaker
are public ledgers and a system called as proof of work, that a public-private encryption key system can be used to secure a blockchain, a chain of transactions. Okay. and What is the blockchain technology? Let's go a little bit technical. Okay. So again, um let's just break the the the words up. Blockchain literally is a chain of blocks. oh Each block has some information. Now what is the information that each block has? The information that each block has is just a list of transactions. So a blockchain is nothing but a very very very long list of transactions. It's a long ledger that just holds this information of who owns what amount of what thing.
00:34:47
Speaker
That's it. That's all it is. right Now, who owns is the person? What amount is an amount? It's a number. And the thing is what you want to track on a blockchain. So you can track oranges or rupee or shares of a company or anything for that matter on this general purpose ledger, which is called as a blockchain. i um Bitcoin specifically is a ah the Bitcoin blockchain is ah bitcoin is a is a blockchain that tracks a currency called as Bitcoin, which is a currency created by the blockchain network that is limited in supply with the thought process of being an alternative to the gold in the world. That's the thought process which Bitcoin and blockchain has been created. All blockchains have a public ledger? Yes. Okay.
00:35:35
Speaker
And that by public, it means participants of that chain ah who are hosting. Yeah, by public, it means that if you have, let's say the transaction ID, you can go to a website, search for that transaction ID and get to know which addresses move, watch out for money from where to where. The other thing is also true that if you have an address, you can go to some website, put in that address and get to know all transactions that that address is done. So the public nature of blockchains is very, very important and very much required because ah because that makes sure that enables that there is trust in the system. Because if you can't verify that whole trusting, right? ah Of course, there are private blockchains as well. So I'm not saying that there are no public, there are only public blockchains, there are private blockchains, there are only participants of the ecosystem, we get access to all of this information.
00:36:27
Speaker
Okay, understood. Okay, got it. And ah you said ah the proof of work concept. I'm still curious about proof of work. Of course, of course. and So <unk>s very let's find's fine first and understand the problem. Let's say it's you, me and Shivani. The three of us are there on an island. Now you and I did a transaction um and and let's say all of us are just using a splitwise account and you and I did a transaction that Shivani gets through because there is some money that I owe you that you need to settle with Shivani.
00:37:01
Speaker
Now, let's say you you can go and write, okay, it'll give Akshay some money. And at the same time, you can also falsely write, it'll give Shivani some money, right? Without me or Shivani knowing. If me and Shivani don't know and you write this transaction and this transaction is accepted in the letter, then basically there is some money that just went away from me to Shivani without me knowing. Now that's a problem. Right. So the first problem is that who should get the nights to enter a transaction? So let's say if you know, if you know which transaction you are going to enter, then of course you will try and game the system in a way where you can make money because that's what everyone does. like That's the history of money. That is someone gives too much power to some entity. That entity will try and give the system to get more money. Right. Yeah. Including banks, right? The entire point of quantitative is exactly this, that central banks have too much power and they will try and print money. billion you live or they
00:37:58
Speaker
So that's the first problem. that it should There should be a fair system for people to be able to enter transactions and a randomized system for people to be able to enter transactions. That's all. So that's that's one part. The second part is that, okay, if if you create this fair system and this fair system is more to everyone, then that system should not be gameable. And when I say gameable, it means that the cost of giving the system should be higher than the reward you will get by giving the system.
00:38:29
Speaker
right ah Which means that, which almost means always that either you need to put in a lot of effort to game the system, or if you game the system and you get caught, then the penalty should be large. These are the two, these are the two ways in which you can do it, right? There is a positive reinforcement, there is a negative reinforcement. So well Bitcoin follows the pathway of you needed to put in much more effort than you need to to be able to game the system. And the way it does it is that what it simply does it, it says, okay, here are all the blocks, here are all the transactions that have come in. The software will merge all of those transactions by something called as a public key encryption method. It will if we create a hash of all of those transactions.
00:39:17
Speaker
And it will say that, okay, this is the hash. Now you need to find the key, which effectively is in plain terms. It means that, okay, I have generated a PDF. I have created a password for that video. Now you figure out what the password is. Right. And there is no real way in which how you can figure out the password without you trying to just guess. So when you're trying to guess, basically you're doing some work and because you are trying to guess it's random. So you can guess it, you can guess it, I can guess it. But a lot of guesses need to go to for someone to be able to unlock it. Right. So that's basically the entire proof of work system. Bitcoin generates effectively a block. It encrypts it and says, out okay, this is a hash.
00:39:59
Speaker
Now everyone can try and guess the key to unlock that hash. And a lot of people put in the work, which is basically compute to find the key to unlock the hash. Once you find the key, you unlock the hash, you are able to then decide to which transactions going because it is random. And because it is based on the work, it almost ensures that this negative behavior of someone trying to game the system does not come in and, uh, It ensures that all the transactions that go through, go through in a fair manner and the fair manner is basically anyone who is going to put in the transactions will have to put in only those transactions that have higher fees. So the fair is economic incentive and economic alignment for everyone in the system to make sure that the transaction is secure. So this is the proof of work system that you do work to unlock a set of transactions and you do that by putting in a lot of compute.
00:40:56
Speaker
That's the Bitcoin method to do it. okay There's also something very popular called as proof of stake, which is what Ethereum and a lot of the other things follow, is the other way, which which follows the penalty round. You are going to put in some stake into the system and then if you game the system and if someone says that you did something wrong, then we will take a away our money. That's basically the other end of this spectrum. um okay Proof-of-work is very robust, very secure. Proof-of-sake also is very robust, very secure. But proof-of-work requires a lot of active work, it requires a lot of compute, requires a lot of energy, and a slower proof-of-stake is much faster. um So, some goes and gone through both systems, but both work. Okay.
00:41:34
Speaker
ah Why does, what is the incentive for the one who decrypts that has to not put in a wrong transaction? Excellent. Excellent question. So if you came to the right exact right point. <unk> is up com point i got you Why do I need to even do the work, right? You snake group of motors upon doing the work. So all Bitcoin in the world gets generated via this method. So when you do the work and secure the transaction, you get Bitcoin. and or And all new Bitcoin in the world is generated via this process, which is why this process is called as mining bit Bitcoin because you know, Bitcoin is similar to gold and all new gold in the world is generated by mining. So all new Bitcoin in the world is also generated by mining, which is this process. So, but basically there are two incentives. One is that all new Bitcoin gets generated via this. So the Bitcoin blockchain rewards you for doing the work.
00:42:30
Speaker
i'm the and any transactions that happen also get have some transaction fee. So all the transaction fees of all transactions that went into that block come to you asda as the mining incentive as the transaction incentive. So that's how we will do it. Okay. Effectively, this system is now so mature that it's very, very predictable because say random gen number generation is a probabilistic event. Because it's a probabilistic event, it's very, it's kind of sort of predictable, right? Basically all dependent on the amount of work that you do. So what what has happened is that people have started to pull together effort to get some reward and then distribute that reward amongst everyone else. So running the entire Bitcoin blockchain network has almost effectively becoming a fixed yield business.
00:43:15
Speaker
where you put in these resources, and you continue to put in these resources, and effectively, on an average, you will earn 11 to 12% yield. It might be 10% in some ways, it might be 30% in some ways, but over a three to five year period, you will earn 11 to 12% yield. How very beautifully the entire system is created always marvels me that the economic incentives for all participants are always aligned to make sure that the system always works. oh
00:43:45
Speaker
That's the beauty of off bit Bitcoin and blockchain. That's kind of sort of half of the reason why I got into all of this. It just seemed very elegant and a very, you know, the nerd inside me got into it because it just seemed like a very elegant way to solve for a very important problem in the world. um I remember reading about the consensus mechanism that if you really want to game and make a wrong entry in the ledger you need to buy consensus which is very expensive and it also destroys the reputation of the coin therefore reducing the value of what holding and... Correct.
00:44:24
Speaker
Okay. but that That's why there's a lot of economic incentives, right? no No one is incentivized to break this incentive mechanism of Bitcoin because what will they get but because first it's very expensive to do it. At this point in time, it will cost you a few billion dollars. Uh, to break, a hu to make a wrong entry, even maybe just a few hours back. So see what happens is that the more time delay comes in, the harder it becomes. So if you want to, let's say go back a day and change the transaction happened yesterday, you probably need to spend.
00:45:00
Speaker
compute resources to the order of a few a few hundred a few billion dollars. So it's very expensive to do it. So that that's one part. ah b Once you do it, everyone in the world knows that this has happened. So if it has happened, ah the And the only thing that you're going to change is change the value of Bitcoin from one person to other. The value of Bitcoin goes to zero. So even if you did it, there's no incentive for anyone else to value it. So the the implicit trust mechanism and the implicit economic alignment of all actors, good and bad, is very, very unique.
00:45:35
Speaker
oh And that's why actually it's all technology change, right? Like ah we often say that blockchain is not a technology improvement that actually their technology improvement, yes, but more so actually it's a very interesting change in social group behavior dynamics where you are willing to trust a person hundreds of miles away, that was a problem that never existed until the age of the internet came. oh and And how do you do that without trusting anyone, without even knowing who the other person is in a decentralized manner, right? and That's the real problem that Bitcoin and most blockchains solve for. That is all for the social trust problem. And which is why
00:46:19
Speaker
This entire crypto movement is as much a technology movement as it is a social movement, as it is a political movement as
Public vs. Private Blockchains
00:46:27
Speaker
well, right? Because its because when you're touching money, you're basically touching power and people who have power don't want to give away power so easily, right? And there are also a lot of reasons as to why the ah world's financial structure is evolved to the way it is. oh And that needs to change in a politically, socially driven manner only. It cannot change by some company or some person coming and taking away power. and There's another particular route that has to take over the world, but you know keeping that aside, in reality, for humans to coordinate in the age of the internet, to do financial transactions in the age of the internet in a trustless, decentralized, low-cost manner, you need ah systems like blockchain to exist.
00:47:07
Speaker
um Okay, okay. You were talking of till 2013, you were just going through that evolution. Just let's just finish that thread and then we'll talk about politics. So 2013, Kainos also saw the first usage of brit Bitcoin early early on, primarily in basically darkware. where people did not, people thought that Bitcoin was not traceable land. Okay. We could just send money to someone and no one will be able to trace who we are. In hindsight, just eight years later, that are not bound to be true where some of the largest dark web websites, all transactions over there have been now traced through and all fraudulent transactions have been caught actually much faster than a lot of other scams in the world. So, so the earliest usage is what day, but those people started to recognize okay the the reason why people
00:47:56
Speaker
I think that Bitcoin is anonymous is because the public information is just a wallet ID. It's not your name.
00:48:09
Speaker
yeah i mean i think it's i think's marketinging but
00:48:14
Speaker
it's It's just the fact that Any exchange which was to operate needs to have KYC and because they need to have KYC, so every wallet ID can be linked to a real person because most exchanges need to have KYC. That is the reason why it is not anonymous. But if you wanted to have an exchange where you don't have a KYC mechanism, you could still get anonymity. No, so I think let's, so in the decentralized world, and we'll just talk about pure blockchain models, okay? There are actually wallets and exchanges. KYC is not a wallet. The exchange is just a mechanism for you to transfer funds or convert one thing to another. That's literally what an exchange which is. where the myers and sits meet basically so right So eventually, at at least the big I can faster, I can tell you where I think the world is heading. The world is heading to a point where every wallet will be KYC.
00:49:07
Speaker
which is great. Of course, you should know where you are, who is sending money to whom. It's very important. Every wallet will be KYC. There will be a bunch of things that KYC wallets can do. And there will be a bunch of things that will still continue to happen in the non-KYC world. But when you are wanting to move anything from KYC to the non-KYC world, there will be a gateway of identification, which will eventually lead to more and more and more things being KYC. That's the right pathway in which we will move ah in this front. That's basically happening world over even today. oh There is now an FETF compliance that all wallets need to follow, which includes something called as a travel rule where you need to know who the originator is and who the end entity is. Of course, all of this is important.
00:49:52
Speaker
And of course it will happen. We are talking about money. It's the words, I think after defense and pharma, it's the world's third largest regulated
Ethereum's Expansion and Challenges
00:50:01
Speaker
industry. thank right right it Okay. Okay. So coming back. So it started with the dark web marketplaces started yeah so a lot with that. At that point in time, a lot of people also realized that the value of this is far more than just doing these rapid transactions. This is basically happening right now and everyone who thinks they won't get caught will get caught. But what you actually really need to do is the is that this is going to be a large asset and everyone is going to participate in it so people want to buy it and sell it. That's when the first exchanges started.
00:50:32
Speaker
oh Fast forward to 2015, this theme called as Ethereum started gaining the idea that why does only transactions need to be there? Why can't compute also go on the blockchain and why can't we verify things on the blockchain via this ledger? Why only transactions need to be verified also started gaining momentum, which is when Ethereum came out and in 2017, both Bitcoin and Ethereum gained a lot of traction, gained a lot of value. At that point, there were a lot of these ICOs that came in ah that said that, okay, ah yeah if Ethereum is a public ledger and it can list anything and everything, then let's start listing anything and everything. And the first wave of experiments of listing anything and everything on blockchain started that very miserably with a lot of scams happening, with a lot of people losing a lot of money. ah But what did come out of that?
00:51:21
Speaker
was that a few years later, 2019, 2020, a lot of core technology required to do all of these things became viable. And that's what I i think, that's ah that's the key part that a lot of people wish. See, this entire industry, the entire crypto industry is no different from any other startup industry, right? There will be tens of thousands of startups that will try and do something. Some of them will work, very, very few of them will work. Vast majority of them will fail. A lot of people will lose money, but the ones that will work will end up creating a lot of value for everyone else. That happens in every startup ecosystem, every asset ecosystem. It's just the same thing happening over here in crypto as well. Plus, over here, individuals get the ability to invest. So that's the part that's different. so
00:52:08
Speaker
2020, the first ah valuable things built on top of Ethereum started coming to the forefront where decentralized exchanges came in lending and borrowing marketplaces started, ah insurance products started and so on and so forth. So everything that we talk about finance started getting built on top of ethereum And apart from that, a lot of other value transfer things. For example, ah you know all these NFTs or art pieces where people want value for different, different purposes in different, different collectibles, those started getting a lot of mainstream use cases. That started happening. ah In that way, have a lot of people realized that, okay, all of this is great, but the transaction fees are too high. the Everything is just too slow. So we need to build technology again to now reduce costs and
00:52:56
Speaker
make everything much faster. So over the last two or three years, that's kind of sort of the broad technology way where things have happened. that There are now a lot of layer 2s, layer 3s, other ah competitors to Ethereum, where the fees are much lower, the time taken for confirmation of transactions is much faster. But again, we're still far away. As I said, this is Ethereum. We have also pivoted into a proof of stake from proof of work, right? Correct? Which is all motivated by the same problem statement, right? Like, see, we should think of it like it's a sequence of problems that the entire industry is trying to solve. The first problem was that can you store something valuably and meaningfully without and hand hand align everyone's incentives that things will work. Okay. Bitcoin solves for that.
00:53:40
Speaker
Then Ethereum comes along and says that, okay, can we now do transactions that are much more complex than just you sending money to me? And Ethereum solves for that. But while solving for that, it realizes that, okay, the architecture that we use cannot scale. So, okay, let's try and solve for scaling. So now Ethereum is trying to solve for scaling. Then once it's also scaling, it will try to solve for, okay, how can identity be managed? How can assets be managed? How can all of this money move more seamlessly? And it's a sequence of things that will happen over the next decade or so. like Ethereum has a very large and long public roadmap, ah which is called as a roll-up centric roadmap now, of the next five, ten years, which is like very, very long term. oh you And in an industry still so early, you know ah in an asset as important as finance, it's very, very motivating to have
00:54:27
Speaker
yeah so so so That's the problem that all of us crypto folks are trying to solve. for we try to what's our roadmap What are the next set of problems that will be solved? So primarily what Adiram tries to solve for over the next few said over the next few years is reducing cost of transactions. That's reducing cost of transactions without sacrificing security. in a way by making and they're trying to solve for it by making transaction specific um entities that's on for it. So it's going down that path and it's working really well. The transaction fees on a t effectively using on on the ETH network have become one-tenth and the transactions have scaled 100 times over the last three, four years.
00:55:14
Speaker
so The progress is there and the progress is there by orders of magnitude, but it is still it still hasn't reached this point where it's easy enough and cheap enough for everyone to start using it. see What is a transaction-specific entity? So you're saying that the blocks will become specialized. Is that what that means? The entire mechanism is changing. There is something called as, Ethereum has moved to something called as roll-ups. And there are optimistic roll-ups that aren't popular today, but we are now moving to something called as zero-knowledge roll-up. The point of roll-ups is that, Ethereum is very expensive. What is your roll-up?
00:55:52
Speaker
Yeah, yeah, that's what I'm trying to explain. So, Ethereum is, let's say, this base layer, that which is very, very secure where all transactions get added. But let's say you were to spin up a small kind of sort of ledger of your own, settle some transactions over there, and then do the net-net settling on Ethereum, then you can make things cheaper. So, this is what is called as a rollout, that you are doing some transactions separately and then rolling all of those transactions into one transaction and adding it to the Ethereum layer. So yeah basically trying to use Ethereum security, sacrificing some time-based risk of not being transaction secured, but then securing everything after some time and doing this then at much faster pace than at much cheaper cost.
00:56:33
Speaker
So, and ah this is also called a layer And then there are different kinds of layer 2s, there are optimistic roll-ups and then now there are zero-knowledge proof-based roll-ups. Both have some close icons. What does it mean optimistic roll-up, zero-knowledge? Very interesting choice of words when people decide optimistic roll-ups. so Optimistic, the word comes from the fact that we are optimistic that in this period when transactions haven't been settled to Ethereum, there will be no fault. And there is some mechanisms that have been built in over here in the optimistic rollup mechanism to avoid people from doing any malpractice in that part.
00:57:15
Speaker
So it's basically siloing away risk. You don't have the risk of the entire Ethereum blockchain. The risk is this much. The risk is time powered and still the effort that needs to be fraud over here is large enough that people are optimistic. No one will do that. Okay. hence optimistic rollr But optimistic still relies on human behavior. That's why we are moving away now to zero-knowledge based roll-ups. You don't need to be optimistic. The entire system is deterministic and you can submit proofs that you've done everything right to the blockchain at regular intervals and and that's also much faster. But right now generating those proofs is an expensive thing. So Ethereum is doing a lot of changes to reduce the cost of generating those proofs.
00:57:53
Speaker
So that proof is like a audit trail, basically like like a yes basically an the net transaction, but also an audit trail. Correct. Basically an audit trail where you can again, similar concept, you can decipher the audit trail just by knowing your information and get to know whether everything done on your behalf is right. So if everyone can verify that everything not on their behalf is right, that means it's right. This was the original problem. I said that you, I and Shivani are on the island and if you put in something and Shivani and I can't verify it, that means there is, there is some case of fraud. But over here if it's verifiable, that means that the chances of fraud.
00:58:28
Speaker
so okay okay now Speaking from a consumer perspective, you know when I have a PTM wallet, ah it it's a like you know it's it's linked to my phone and I can log into PTM and get access to my wallet and then look at my transaction history, how much money I have, do transactions, etc. How does a crypto wallet work? It's kind of sort of similar. You log in to a crypto wallet. Now there are methods with which you can log in using gesture. You will already phone number. Just like how you would send money using ah your PTM to a phone number you send or or to a bank account. You get someone's address details over here, which are the equivalent of a bank account and send money to it. And you can view your transaction history and you pay some fees to send the transactions. So for more practical purposes, it's all getting there. But these experiences right now are just not
00:59:20
Speaker
tightly knit enough, uh, for someone to love it. And because of course, why is it is onenet vote so a wallet is not yet a consumer grade product, right? From what I understand, most people don't actually use a wallet, but they just rely on the exchange, uh, to, uh, and the exchanges like is the wallet of the exchange. It's not, it's it's like a chicken and egg problem. Not everyone will use PTM until PTM is used everywhere. Okay. But but so what is the problem right now? Why is it not consumer grade? Help me understand the gap of experience here. It goes back to the original problem that fees are too high and transactions are too slow. Once you reduce fees and once you make transactions fast enough, ah there is no reason why people should not use this as their primary place of asset holding, then something else. And then it's just a matter of time that more and more and more people start having these assets on their own decentralized world.
01:00:14
Speaker
And then it's just a matter of time that more and more and more people start sending money via this because it's cheaper, faster, oh and instant. I shouldn't say faster, it's instant. It's cheaper and it's instant. And then it's a matter of time that you can convert these assets to your local fiat currencies, and we should currencies at some point as well as a currency, easily enough. where we are at a point where you will start using your wallet to buy eggs and bread at a local person. The real problem to solve for is that there is no mass adoption for any oh payment system till you can't buy it at a local person.
01:00:49
Speaker
True. to So what what you're saying is that an exchange is doing a lot of transactions within their own wallet. Like an exchange would have buyers and sellers of Bitcoin and Dogecoin and Ethereum and Solana. So therefore it is cheaper, faster for most users to not have their own wallet, but just ah use the wallet of the exchange. but but but that's my attitude Okay. Understood. So, so what's the cost and time problem is solved. Yeah. That's why they were what our bet is also. So moderics in not in exchange you are a broker we work with multiple exchanges. The reason might be more with multiple exchanges because we think that the exchange order will not exist.
01:01:32
Speaker
five years from now, simply because the center there will be no incentive to run a centralized exchange because the cost of compliance is too high. The risk of the risk of custody is too high and the the cost of you, you know, creating equity and creating a liquid in a market is also too high. So it makes zero economic sense for exchanges to exist once the decentralized world is fast enough and cheap enough. um That's already started to happen. Uniswap is the world's second largest exchange now from a liquidity perspective. Okay. After Binance and Coinbase is third. oh And it it's still not used by a lot of people because it's still more expensive and still slower. But it'll get faster in a few years. And that's why we believe that at Madryx there is no point in building an exchange. What you would rather build is you would build the infrastructure layer on top of the exchange to make it more usable for the day-to-day user. That's where we come. We are a service provider that help you access all of these things in an easy enough manner.
01:02:32
Speaker
Now, of course, today we are custodial because again, it's too expensive and too slow for everything to happen on-chain. But as time for this is really not going far. You said cost of liquidity is too high for an exchange. What does that mean? Why does liquidity cost an exchange? As in you need to do a lot of marketing to get a lot of users who want to buy and sell crypto. Is that what you mean by this? Let's take a very simple example. We will go to exchanges much later. At the end of the day, what is an exchange? It is a place where buyers and sellers come together to exchange one good for another. Good currency, et cetera, et cetera. One thing for another, right? Which is that someone is buying, which means someone is selling. Now you want to, that's what an exchange is. The best format of exchanges are called as order book exchanges, where there's something called as an order book. And let me give an example of what an order book is.
01:03:27
Speaker
Let's say you are an orange producer, you produce oranges in the world, right? And you've created, you've got a great bounty of oranges this year and now you want to go and sell oranges. Who decides the price? Let's say you say that, okay, I put in so much effort into putting these oranges and I effectively put in a hundred rupees per kg worth of effort into it. If I get 110, I'm willing to sell it. So let's say you say that you are willing to sell oranges at 110. Now, I am, and let's say, from a juice company who wants to buy a lot of oranges. ill And i I want to sell juice to people, but I know that if I buy oranges at $110, I will make a loss. I can only we buy it at $105. So I'm putting in a buy order at $105. You are putting in a sell order at $110.
01:04:13
Speaker
Now, maybe there are other participants in the ecosystem that will come in between to try and business that when some orders will get met. Let's say someone, let's say a Shivani comes in and says that I have to buy at 107 and a Rohan comes in and says that, okay, I want to sell at 107. Then, okay, these guys can. settle the orders, like exchange oranges for money and live their life. And the job of an exchange is to enable these. The job of an exchange is to create this kind of a book where transactions can be signed. Which means that ah what are great exchanges? Best exchanges are exchanges where the gap between buying and selling is low, which is what we call as the bid-ask spread. How do you reduce the bid-ask spread? By getting people to come on the exchange.
01:04:56
Speaker
So you you see where I'm going. Best exchanges are exchanges where there is low spread. Lowest spread is at places where there is lowest equity. Lowest equity is at places where there are most users and most users want to go to best exchanges. So it's a cycle. And as a result, it's it's this An exchange is the purest form of marketplace that exists, right? So imagine an Amazon. An Amazon is a marketplace that there are buyers who are listing things and there are individual sellers who are purchasing goods. But all the goods are the same. It's the same commodity. And everyone is going to buy the same thing, which means that it's an extremely competitive marketplace.
01:05:33
Speaker
And as a result, for an Amazon to get to its place, what it needs to do, it needs to cede liquidity, which means that it needs to pay someone, which means that let's say it can, and Amazon, or in this case, the exchange needs to come and pay you, Akshay, and say that, okay, you want to sell on it as 110, why don't you do this, listed at 105, where Shivani will buy it from you, but I will give you the five rupees. ah okay okay That's why there is a cost to liquidity. You need to seed liquidity. Liquidity is seeded by incentivizing market makers to incentivize the market and make money. So unless you are a very large exchange, you don't make money. That's the reality. So unless you are at the scale of finance, you don't make money because
01:06:14
Speaker
No one goes to shitty exchanges because shitty exchanges don't have equity because no one goes there, right?
FTX Collapse and Financial Impacts
01:06:20
Speaker
So in reality, most exchanges pay market makers to bring liquidity to an exchange, which brings the retail users and the market makers make money from the exchange and the retail users. And then some money is what the exchange makes on retail. Imagine you can see this from ah other global, other equity exchanges. that right What's the value of NSE? The That's showcased in its market capital. NSE might be worth a few billion dollars. But all brokers and service providers who use NSE to service their consumers together will be worth maybe tens of billions of dollars.
01:07:00
Speaker
Exchanges don't, once once an exchange is built, it's a race to the bottom. It's a race to the bottom because incentives are such where it becomes a race to the bottom and you make value on the layer on top. which is right for it exactly quantity over margin, like how much you earn per transaction doesn't matter as much as number of transactions that you enable. Yeah. And then exchange result is incentivized to offer faster access to orders and so on. So those are those are things that it's a mis-incentivized alignment of exchange.
01:07:34
Speaker
So one h again, we do the same problem that if you squeeze margins and all power is with exchanges, those exchanges will be incentivized to game the system in a way where it is not in everyone's best. Which is again, my moving in exchange to a decentralized system where everything is open, everything is transparent and everyone has the same access is required and valuable. It's valuable. And this is where the payment in for order flow comes in, ah which is a way to give the zero brokerage apps are essentially earning there. At FTX Alameda was the liquidity provider, right? The market maker. Alameda was a lot of things at FTX. So ah oh the history of Alameda is that actually Alameda is much older than FTX.
01:08:26
Speaker
Alameda was a fund that started off ah doing market making on other exchanges, because early on, there was a lot of arbitrage as well. By doing arbitrage, they got large enough where they could do market making on exchanges. And once FTX on the either once the writer and Alameda realized that they are one of the largest market makers, if they're one of the largest market makers, the best way for them to actually make the most money is through their own exchange. Don't pay any other market maker fees. Because cost of liquidity is high, as I said earlier. Don't pay any market. Do your own market making. Get retail users. Now you don't just agree to spend on acquiring a lot of users, right? So spend money acquiring users and then just make money from those users. So that's the FTX Alameda story. But where did that thesis go, Ragh? Or was the thesis right? It was just executed wrongly.
01:09:18
Speaker
No, this is the the all alright and the thesis was right, but they ended up using user money for their own for their own pocket expenses. You can't do that, right? The same issue again. Once you give someone a lot of power, it doesn't work. So, Alameda has made something... 9 billion holes, right? and There was only maybe a couple of hundred billion of misuse, but the rest was on losses. ah Why was Alameda making such losses? Was it because they were in market making and for their own exchanges or making losses? No, because they were humans and every human is susceptible to greed and fear. And they just became too greedy to customer deposits that they shouldn't have leverage those customer deposits to place orders that they shouldn't have. And then ended up losing money on the orders.
01:10:01
Speaker
That's basically what happened. It's finance 101. It's basically the 2008 financial crisis. It is every single boom and bust that has ever happened in the history of humanity. Just repeat again. People become too greedy. They think that they are too smart and they will never get caught. They take too much leverage and too much risk. That too much leverage and too much risk grows up on their face, which is why um I say the the problem with FTX is that it was run by humans. So, Alameda was betting on coins, which it thought would go up, but then the market turned against them and that caused a hole in the balance sheet. It caused a short term liquidity crisis. Basically, it was the same thing that happened with Silicon Valley Bank. What did Silicon Valley Bank do? Silicon Valley Bank bought mortgages that were too long term. The price of which turned against them once interest rate started to go up. And if they had to sell it, they had to sell it at a loss.
01:10:56
Speaker
to furnish ah users who wanted to withdraw money. The same thing happened with FTX. FTX bought tokens at a point where it was too expensive. Prices went down, which means those tokens were worthless. And when a lot of people started withdrawing, they had to sell those tokens at a loss to basically pay for the withdrawals. Right, right, right. The loss gets exacerbated because you are selling it off. Yes, the loss gets exacerbated as well as it gets booked. See, there is unrealized losses and unrealized losses. As long as there is unrealized, no one cares about it, right? Like even today, the other ticking time bomb that a lot of banks are sitting on is that a lot of banks have a lot of large unrealized losses in their portfolio. It's just that they are not marking it to market because that's not the regulatory requirement.
01:11:43
Speaker
oh unrealized losses are okay, as long as you don't need to pay, but once you need to realize them, that's when the entry comes on the balance sheet. And that's when you really owe someone money.
Global Cryptocurrency Adoption and Regulation
01:11:53
Speaker
When it goes from a fictional debt to a real debt, then everything blows up on your face. Okay. So we spoke of the technology problem. What is the adoption problem? How will it become mainstream adopted? You said it'll take three years to solve technology problem, 10 years to solve adoption problem. Correct. so As I said, right. like but how let's Let's think of it. but Why did UPI get adopted in India? UPI got adopted in India because basically on the one end, the government of India banned all cash. And then on the other end, it pushed it pushed every single bank to accept UPI. It's a political will problem to solve. like By the way, I'm not taking away anything from UPI. like In fact, when I was at TAPSO, we were one of the first
01:12:39
Speaker
digital products in the country to integrate UPI. And we were using UPI at a point when UPI had a 70% failure rate. ah but Not a success rate, a 70% failure rate. 70% of the transactions were fair on the UPI. This was back in 2016. But we've come from a long way. right UPI scaled up to be the world's largest payment network. But that was an outcome of, of course, a lot of technological work that people put did. But it was really an outcome of a lot of political will that the country showed. oh And then the central bank showed and deployed and then a lot of actual capital that companies like Google Pay, Phone Pay and PTM spent in educating and creating the market. Right? So a lot of those things need to happen. And ah without this political will, the only way it happens is if economic incentives are alive. And the greatest economic incentive is that people make money.
01:13:29
Speaker
ah And that's the economic incentive on which ah Bitcoin adoption is also going. Bitcoin adoption and reality happens because people become greedy. They think that they can make money. So they buy bit Bitcoin, hoping that they will make money in the future. Once a lot of people start buying Bitcoin, the prices inflate far away from what reality is. That reality crashes. The people who bought Bitcoin end up holding Bitcoin. And then a few years later, reality and expectation start to get realigned, and they actually make money. And that's when they realize, okay, okay, I didn't make money. And this cycle, this repeats again and again and again. And that's a laine that's the natural way in which our option will end.
01:14:06
Speaker
ah unless it's forced with quality. So if there is political value, it will happen faster because then there will be economic incentives for companies to come and capture this wallet part once the technology problem gets solved for a few years from now. um And that will happen eventually. There are jurisdictions in the world where this political will is coming together. For example, Europe. Europe is putting up a very clear, very strong regulations called as a Mika regulation, which Mudrek says, we are already a virtual asset service provider in Europe. We are an FI restaurant entity in India. ah Europe is today leading the way. this Some of these ways are also being led in let's say Australia and Canada.
01:14:43
Speaker
ah Once Europe implements it, i mean and for them actually India is also not far behind. The policy frameworks are coming along the pathway of recognizing it as an asset, recognizing it as ah as ah as a legitimate way of storing, transferring value and so on and so forth. um And once that part gets solved for, oh there are the economic incentives for private companies like Mudrax to spend and to create a market for it. And then once there is a market for it, there are individual users for it. And then it's a vicious loop. Once there are users, you can start creating oh things that users can do with it, which then drives more users and so on and so forth. And the reason why people are moving to it stops being just the value of appreciation, but the seamless lesson is of transactions.
01:15:28
Speaker
It's a classic network effects problem. have get seated and Okay. ah Okay. Interesting. So what you're saying, I'm just recapping, uh, what you're saying is that, uh, just as Google pay, but PTM, et cetera, had a whole two, three year period of cashbacks and coupons, uh, to promote UPI adoption, uh, the same thing will happen. or needs to happen in cryptocurrency of private players incentivizing users to come create wallet and spend money through the wallet through cashbacks and coupons, etc. And and will the the incentive for a private continued notice this is that
01:16:09
Speaker
ah They feel that this will become mainstream, so we should acquire more customers than our competitors. And once we acquire these customers with their wallet, then they will prefer to buy or to recharge their phone or to do other transactions also on what Patreon's theory was. Same they were same classic. Once you acquire distribution, you can make money. You can make money by 10 other things. Ah, okay. Okay. Got it. Okay. So, yeah. some peace will get for distribution But as I said, the technology is a few years away. ah yeah Actually, again, getting the distribution is the easier challenge. And I think the biggest, if you if you look back over the last couple of years, the real progress that has happened is that in the world, in the crypto world, of course, there has been a lot of technology progress and the tech has become better and faster and cheaper. But the real progress that has happened is actually on the regulatory side.
01:17:00
Speaker
Regulators now understand what crypto is. Why is it valuable? How to use it? There is a global movement to push towards assimilating it. And the reason and again, the reason why it's all happening faster is because it is a global movement. right Crypto is not an India problem. It's not a UPI thing that only works for India. It works all over. and We are fortunate enough to be in a country where the central bank is robust, where the inflation is not that high, where you actually have a payment method like UPI and that secures money quickly. A vast majority of the world doesn't have this. Like a vast majority of the world doesn't have UPI, a vast majority of the world actually is suffering from hyperinflation and their own local currency being devalued faster than they can earn.
01:17:40
Speaker
oh So, there are a lot of real problems that most of the world suffers from, that the most of the world also recognizes and also sees crypto as its alternate pathway to solve for the road to those problems. So, which is why there is global contentious, which is why there will be adoption globally and that adoption is getting fast-tracked. It took nearly 15 years for futures and options to become mainstream in India after it it became mainstream in the US. Crypto has taken less than three. i And it's actually growing faster. And this is just India. The same thing is repeating world over because it's a global movement because it's money built for the internet because it's it's all of these compounding things that are happening ah again and again and again is what is increasing.
01:18:24
Speaker
This is a global company. We are building a global product, although we've got a million users in India and we are India's largest crypto investing app. We also have a very large and growing presence in Europe. We are actually one of the largest, one of the top five players in Italy, where users are coming to Mudrax using our platform for investing, buying and selling and growing. We are one of the largest on-ramp of our providers in India and we are now growing that in 27 other countries. Crypto is a global problem to solve because you remember what I started with. the people The reason why we wanted to get it into all of this is because we said that financial services is a problem. Financial freedom and independence is a problem, and the problem, and the core is a problem of education and a problem of how internet, ah of how money works in the age today. The only way it can get solved for is if money goes, money money moves to the internet in terms of automatic money moving to the internet. The cost of accessing that information and that service basically goes to zero.
01:19:21
Speaker
And this is a global, it's a global problem that happened. Is crypto a store of value or is it a currency? And I'm just talking like even forward looking like 10 years later, what would be your answer to this week? Like today, I know your answer is crypto is a store of value, not a currency, but 10 years later, crypto is not that at all. Crypto is not a store of value, is not a currency, is not an asset, is not a commodity yet somehow it's all of these together because you can't just say crypto is a store of X, Y, Z. Let me give you an example. When someone is valuing a pharma company, do they value it in the same way they value a bank? No, right? That's not how it works. Banks are valued in a different way, IT services companies arrive in a different way, pharma companies are valued in a different way, right? So it's like basically saying all stocks are banks. That's not true. Also not banks. There are pharma companies, there are infrastructure companies and so on and so forth, right?
01:20:13
Speaker
People generalize it to, but people generate it to crypto also in the same way because we have not gone deep enough, we have not nuanced enough, it's not access isn not large enough where people are going dead. That has started to happen. Over the last few years, there are now basically companies that are doing independent research on independent individual tokens trying to say that okay the fair value of this token should be this much. or this is what the utility of this product is. This is how this product will get utilized, right? To that extent, ah this info is still very unorganized that players like Mudreks are now doing the job of aggregating this information and bringing it. You've got a product called as Mudreks Insights where we aggregate ah fundamental analysis, technical analysis, sentiment analysis all together to give investors a single kind of sort of oh oh research analyst view for all practical purposes as to where is this particular tool.
01:21:05
Speaker
So, it's all very early, it'll get there. um But that's why it's progressing. ah So, coming back to answer your question, it's not a store of value. Some part of crypto is, Bitcoin is. It's not a currency, but some currencies are USDT, USDC are. It's not a property, but some tokens are, and so on. the the there are ah Because so many of these things together, it's a movement. That's what you should really look at it as. What is currency for? ah You said you'll come to this point on what are currencies for. and let's Let's go back to currency. um Of course, there are numerous books written written on the history of money and basically there is consensus that most of money originated because barter was too hard.
01:21:57
Speaker
right oh and Barto was too hard because ah someone had grains and they wanted beans and the guy wanted beans, did not want grains, they wanted cows and the one who had cows, did not want cows, did not want beans, they wanted sheep, right? So the problem of money was said that okay, you cannot have a liquid enough marketplace of everything going to everything. All of these words are important. You cannot have a liquid enough marketplace of everything going to everything. So let's create one thing that everything goes to, that everything can be bought against for. That was basically origins of money for all practical purposes.
01:22:40
Speaker
Like in the standard unit of measurement in a way, like like everything is measured on this unit. Yeah, and there were various different intermediary things that were used for money. Gold coins got used, pebbles were used, coffee beans got used. To solve for this problem, the the problem was coin. Then this money converted to currencies, where actually there was also an initiation of large governments coming together. ah Because once society started organizing themselves into large enough entities, which could be called as nations or nation states or cities, the nations or nation state or cities actually needed a way to generate revenue. And the and and and ah generate revenue in a recognizable manner in the format of tax, like tax and death, death and taxes have been there forever. correctly
01:23:27
Speaker
This comes from this, like that money converted to currency because the state needed a way to tax so that it could spend on building infrastructure and providing a resilient and robust enough military so that the the economy and the nation could flourish. ah And that was basically for all practical purposes, origins of money. Having said that, money has a very real problem. The real problem of money is that it deflates over time. There is no value of currency because the purpose of currency is just to be an intermediary stopgap of you wanting to sell beans and someone else buying wanting to buy green. That's the only problem that it's supposed to solve. Now, all of these are real problems in an era when information is not available of who wants to buy beans and greens at free of cost.
01:24:16
Speaker
oh So a word I imagine, and so that's one problem. And and then the second problem is i you the reason why people started holding cash was because if you wanted to convert one thing to cash and then convert cash into the other thing, you would just take a lot of time. Right. So that's why people have cash, but I'm pretty sure now it is a very few people carry cash because most of their money is in, because most of the things can happen via UPI and most of that money is in a savings account that is earning some interest or for that matter, people have gone beyond a point where most of the money is actually in mutual funds. There is an asset and you're holding very limited amounts ah to just do your day to day transactions. Right.
01:24:58
Speaker
So, you see how money is evolving very very rapidly in this in this age where even 10 years ago, our parents or even us would have a lot of cash sitting around which was non-productive, which was actually reducing in value because there was inflation always and or or it would get spoiled or something like that would happen. And you could not exchange this cash easily for other things, but all of this is being solved for. And it's been solved for at a very rapid pace, where we are not at a point where very few people actually hold anything in their backgrounds, and most of the things are more and more and more becoming investments. This is where things are going. And in an era where you will be able to access more and more of your assets in a decentralized format, in a format that's available on your wallet,
01:25:43
Speaker
Why will you ever need cash apart from the original purpose that you only need it as a way of intermediary transactions? So that cash will still exist because it will stop, it will stop being the reason of barter, but actually more being the reason of still organizing humans in a society. There are central government needs to influence its power, needs to do taxation, needs to understand where money is going. That will end up being the real purpose. and dive, continue to be, and that's a great purpose to solve in itself. right For example, oh a lot of rupee in India those are going but it is that is the CPTC program that the RBI is wanting to work on, where it sees that that's going to be the next ah pathway for rupee. There was a recent paper called as Finternet that was launched by Nardan Rilagadi, where he put out this grand idea where
01:26:33
Speaker
Most of rupees should become digital, democratized, decentralized and it should just be used for the main purpose of it, which is just intermediary for facilitating transactions from one to the other. right So that's why the value of the reason for you to hold currencies should decrease over time. You should only hold currency in an intermediary very small very small enough timeframe that has to go from one to the other. And as everything has digitized as more and more and more things and move to the edge of the internet and what internet also is giving you access to information at close to zero cost. Everything will, there will be a market for everything available at close to zero cost. So that the reason for you to hold cash, uh, becomes lesser and lesser and lesser, but you can almost for our practical purposes, see it only as an intermediary for the time being.
01:27:21
Speaker
Fascinating. A digital rupee ah is essentially an efficiency move. Today if RBI wants to increase cash circulating in the in the country, then they have to actually print notes. They have to do a lot of things. They have to change the repo rate, they have to print modes, they have to incentivize banks to change their interest rates, right? You can understand there are so many of these players and let's let's ah keep that example aside. That's a more complex example what we will understand. Let's say it's the simplest example. The RBI also gives subsidy, i've not the RBI, the government also gives subsidy to a farmer to buy fertilizers.
01:28:04
Speaker
today After a lot of effort, we've got something called as a direct debit scheme, where the subsidy directly goes to the farmer's account. But the government still does not know if the farmer is using it to buy fertiliser or are they using it for their ah you know their child's wedding, or to buy jewellery, or to buy a tractor, or to basically buy alcohol and bring it off in the night. right So that's the other large problem that subsidies given do not take the impact of what subsidy should because you actually don't know where is it being used and if you want a digital digital rupee you will have that ledger and therefore yeah
01:28:42
Speaker
more data on where every rupee is being spent. Okay. Wow. Yeah, right this is, this is not rocket science. Like Sodexo has been doing this for the last 30 years in the format of coupons and Zeta does that today. right What is it? It's just a wallet that has money that you can spend only on food outlets. And it's ah like there is a network of people who've said that they are food merchants and there is an entity that is giving you money in your wallet to spend on this network. The digital rupee is the same experiment at a national wide scale. That's what it is. Okay. Amazing. So they essentially don't need for paper money to exist, like maybe even in maybe half a dozen years or so. Amazing. okay Yeah. I mean, i it always boils down to efficiency. If the costs of using paper money are higher than costs of then the effective costs of doing everything digitally, people will will stop using paper.
01:29:39
Speaker
Yeah. yeah but the way I don't know when you, I don't know when you all last use cache. I'm not used to caching like the last two months. The last time I used it was at a toll booth. Then the reason why I used it was so my fast tag recharge was not working because apparently there was no internet. That was literally the last time I i used cache. No internet is probably the last time most people would have used cash. That's so true. Yeah. Yeah. yeah it's all okay So but that's ah that's the world that we are moving. But because cash is so deeply embedded into the social structure, um into society, money is a part of society, right? Societal changes take time. They don't have an overnight. Like technology changes are faster, but distribution of technology is changes take time, especially those technology changes that are societal.
01:30:27
Speaker
Let's talk about Mudreks now. We spend a lot of time understanding the overall space. ah What did you want to build when you decided ah to build Mudreks? Correct, so recapping we said that this was 2017 and we wanted to solve for financial services and we felt that the real inhibitor was that access to information is not available at the pace at which the internet is moved and the world needs money for the internet and crypto is going to be this money for the internet, it's going to take 20 years to get there. um
01:31:02
Speaker
So the thought process, okay, this is the real solution. Now how, what can we do to get into it? Right. And the obvious, uh, step one is that either you can build on the core blockchain technology to solve for some of the problems over there. We felt that although those were real, there were real problems to solve over there, but a lot of those problems would be solved by a lot of their days and a lot of the work that was happening on the end billing sheets. And it was probably to be mature for us to tackle that problem. rather what we could focus on was to adjust in the meanwhile, get more and more and more people into crypto, because in reality, what will always be needed is that there will be a fiat world, there will be a pathway to go from fiat to crypto, and then there will be the crypto world. This will always exist, irrespective of whatever happens, at least for a large meaningful period.
01:31:52
Speaker
That was one. And the second, ah yeah the second thought process was that the way people will start coming into crypto is, as we discussed earlier, either there will be either there will be a regulatory push for this to happen, but that is unlikely because basically it it just. the Because it's literally against the core principles with how the current money is built and that core principles need to be rethought before that happens. So that regulatory push is not going to happen anytime sooner. So there's not going to be a regulatory push. that is going The only thing left is an economic push that users will participate into crypto because they just want more money. They want to invest in it. They want to participate in wealth creation over time.
01:32:32
Speaker
So if we wanted to build gateways, then we would want to lie on this reactor crypto layer and you would want to help users create wealth using crypto. So that's where, you know, all thinking narrow down says that that, okay, let's start off by building a crypto trading platform, a crypto exchange for that matter. And although even at that point, ambition's all global, but it said, there's no point in competing globally. The real largest user base in the world is India. India is going to be the largest democracy in the world. It has demographic differences that will pay off over the next 40 years. So what's the point of solving for anything like this without prior solving for that for India.
01:33:11
Speaker
We said, okay, let's try and solve for India. So we started building out cryptocurrency. exchange That's what everyone is, when you want to become a gateway. So 2017, September, if all of this was clear, okay, this was the pathway. um Then me and my four, me and my other three founders, we got together. whether We started thinking about how do we build out, what needs to we be built. um By I think December end, I had quit my job. Another one of my founder quit my job. He had to accomplish it anyways. Looking for new ideas. They were just off one startup. So, though four of us got together, January, we set up or registered the company.
01:33:50
Speaker
and the By April 6th, we had like a fully functioning beta version out. Users are using it. They were loving the product and everything was going great. And we were going to go oh full scale ah launch on April 15th, 2018.
Mudrex's Journey Amidst India's Crypto Ban
01:34:07
Speaker
And by then we would also, you know, narrow down seed investors who had agreed to give us some capital to run all of this, you know, all of that happened at very quick pace. What's supposed to happen with the startup? i But fortunately, unfortunately, 8th of April, the RBI comes in in Bancrypt. What was the nature of the ban?
01:34:24
Speaker
oh so it was our example you couldn't like Effectively what the RBI said is that you cannot use any banking channels and you cannot use anything to transact with crypto and crypto is effectively not allowed in the country. It was the first tool that effectively came out and then there were talks that all of this will translate into we will figure out how to handle crypto and then there were discussion papers and decisions and then so on and so forth that continued till
01:34:54
Speaker
2020, where effectively in that 2020 paper, the conversation that was going on was, key anyone who uses crypto, why don't we put them in jail for 10 years? So it had gone to that extent as well. yeah that was the That was the one end of the thought process. right well In the meanwhile, of course, it's another funny story. okay So I remember 4th of April, i was sitting I was sitting with one of our lead investors was leading the round. And we were having this exact conversation. He asked me, kyacha what do you think is the probability that the RBI will ban crypto altogether in the country? I said here, see, there is a real chance. There is maybe a 20% chance that the RBI banned it.
01:35:36
Speaker
But if it is going to happen, it will happen in the next few months. In which case, if it happens, you can always come back and tell me that I don't want to give you money. And ah if if it is if it doesn't happen, and if it happens right now, over time it will obviously at some point in time get overturned. Now whether the company will exist or not to last long, that long is a question. Whether we will continue to fight that battle in India or not is a question. And all of those questions will get answered later on once that event happens. So ah of course, he he He he took a lot it took a lot of courage on their part also to say yes to us. i and Even after the ban happened, he took a lot of courage from then onwards also for them to think, okay, we believe in crypto, but also we believe in you as a team. and All of this is very early. You guys have figured it out. It's always like, you okay, keep our money. We will take care of all of this much later. and Seven years later, we are still here. Anyways, so RBI bans crypto.
01:36:34
Speaker
If RBI bans crypto, we are thinking yeah the if RBI bans crypto, there is no market in the country. There is no point in continuing to operate in a shadow manner because that doesn't either that that doesn't add confidence to users oh ah to user's thought process. It doesn't build a large enough and valuable enough business and there is nothing that you can do over there. ah Globally, to compete with global exchanges, you need a lot of capital. You do not have that capital. This is okay. We will not build an exchange. And by that time, although we just spent three, four months building an exchange, we very quickly realized that exchanges are a raise to zero.
01:37:09
Speaker
Um, because of all the things that we spoke about earlier here in the the conversation the other day, that, uh, with exchanges, it's a, it's basically a race to zero. So there is no point in building an exchange. What do you really want to build these tools for people who are using exchanges and how can they, how can you make their experience better? How can you give them a much better system to solve for? And at that point, basically, that about question yeah this, uh, yeah.
01:37:40
Speaker
There is still, ah it's a winner-take-all market, right, in crypto exchange. Like, there will still be one large of liquidity and will be profitable in a big business. Correct. It's a winner-take-all market. It will be a global winner-take-all market and not a local one because at the end of the day, all crypto will go to ah that global player and locally, people will still need to do fiat and crypto. Fiat to crypto will be a local, there will be a local winner take all markets for Fiat to crypto and there will be global winner take all market for crypto group. And that's basically exactly how things um are panning out, right? Like the global winner is Binance.
01:38:20
Speaker
ah today but Binance is because it's a centralized entity it's facing a lot of scrutiny and because it does a lot of things differently it's facing a lot of scrutiny and either it will resolve all of that scrutiny and continue to be the global military call player or it will not be able to do it and that that tag will be taken by decentralized platforms like Uniswap and the hundred other exchanges that are out there. So the answer still remains the same and that is how things have panned out as well. So globally it will be that locally you will need cryptoto crypto to crypto fiat to crypto players. ah if The equivalent of you can think of it as a remittance business, right? All of those things are then basically you are going from one currency to another or one fiat to another and that will always be regulated, which is always going to be the case in which case there will be local
01:39:05
Speaker
There will be local winners. Some players will be existing in multiple geos. For example, Coinbase is in multiple geos and so on and so forth. So there be local players, but that will not necessarily be a winner-take-all market because that's a very service-driven experience. It's not a best product, best rate because rates will get commoditized and everything will rely on service. It gets us back to the. ah The original answer that I gave, that eventually it's a matter of whether you can offer a great quality of service and experience to your users because the underlying product will get commoditized. And with commoditized products, there is no margin to be made, no business to be made, eventually a monopolistic, and those are not fun businesses to run. that you you Either you are a monopoly or you are dying.
01:39:47
Speaker
ah they rather good so So you would rather build out on that service. Let's do this. and Now let me set the picture slightly more globally. okay This is April 2018. Bitcoin has peaked to 18,000 or almost 20,000. It has already fallen to 13,000. People are saying that BTC is going to go to zero for the I don't know, the fifth time that BTC will die, crypto will die, you know, all of those, we are the starting of a, we are basically the starting of a bear market. So we market. RBI has banned crypto in the country.
01:40:21
Speaker
And here we are four kids trying to figure out how do we provide access to crypto and make crypto more accessible to the rest of the world. That's where we were. So after a lot of, you know, understanding of where the market was, we realized that, okay, there are about roughly about at that point, 15 to 18 million people globally who are doing anything. in oh This is not since then things have gone grown 10 to DX, but at that point there were 15 to 18 million people doing anything in crypto. Almost all of those people who were doing anything in crypto were wanting to make money in the short term by trading.
01:40:58
Speaker
specifically either doing some kind of an automated trading or doing manual trading on exchanges or doing some kind of an arbitrage. um So we said, okay, this seems like an important and valuable problem to solve. Traders are anyways the people who make most of the money in any exchange. So why don't we build our infrastructure focused on traders and as things evolve, as the platform evolves, its all and so forth we will start doing things for retail users over time as that retail user base grows and grows and grows. i'll so So may we finalize this by June, July, we we felt that what traders needed was a platform to automate their trading. So we built out that platform, launched a new version of Mudreks, which was now a global platform to help traders place trades in a better and more faster, smarter and efficient way on exchanges. um And then started building that out. So July, suddenly Mudreks went from being a local Indian exchange to a global platform.
01:41:54
Speaker
We did significantly consider that, should we still continue to call the company, Mudreks because Mudreks is Mudra actually, it was a very local Indian ah kind of sort of context away thing that we had built. But all of us is loved the name. So we thought it's a low might as well continue it. It has a, it has a nice ring and feel to it. And we would rather just. So do you need the exchanges to play with you, for you to automate what traders do on those exchanges, like some sort of an API integration? Correct. Yes, we did. and And this is again, like people take API integrations for granted, but actually even today, API integrations and equities were is shitty. The crypto method, it is even worse off. Fortunately, some of the exchanges also realize that actually traders need this. So some exchanges started building out APIs for it, but it was horrible. It was a horrible, uh,
01:42:44
Speaker
one and a half, two years working with the exchanges with non-standard formats, of building redundancy and reliability to make sure that our users at the end of the day had a fantastic experience. But as I said, that's where the value is. that's where That's the service value that we are adding. So that's the value that we tried to capture. And I think we were pretty successful in it. To the extent that we launched in July, by December we had 1000 lot customers using our product globally. um We also wanted a Y Combinator in January 2019. So went to IC, did lag till March, ah scaled up from March, April onwards to a slightly more wider base of not only very deep traders, but surface level entry traders started building tools for them.
01:43:27
Speaker
i And fast forward to 2020. Now our product was working great. We were getting a lot of traction. But I have a question about the product here. ah There are two ways in which I am visualizing this. One way is that Mudreks is acquiring customers and then saying that connect your Binance account to Mudreks. Our second is that on Binance, there is a marketplace of apps and one of those apps is Mudreks. What was it that you built? It was a, it was a former, there was no marketplace that day. There is no marketplace that exists even today. That is a gap that exchanges have their own problems. So let's not go there.
01:44:10
Speaker
So it was the former, we were acquiring customers, asking them to connect their exchange accounts with us and help them do a lot of the automation. And how are you charging them? Like this was like a dollar fee? Subscription fee. How about like a couple of dollars? ah it was I think we launched at $19 a month and there was of course an intro subsidy which was at $9 a month. So effectively people were paying us $9.
01:44:42
Speaker
i And for a power user, it's a small amount. I mean, if you're it's like you know it's right like, this is, this is the amount of money that like one trade that we help you do, right. We'll make you more money than this. That is the no-brainer. I mean, so that'd be highly underestimated what it takes to build a, uh, an algorithmic general purpose, algorithmic trading infrastructure that scales to millions of users. It was a really, really hard problem, an incredibly hard problem. um Engineering-wise, a really hard problem, and we still managed to do it ah really well to the extent that
01:45:17
Speaker
By 2021, we were doing about $100,000 in revenue per month. We were break-even. We were profitable as a business. We had tens of thousands of users using us from all across the world. oh there was at that At any point in time, there were maybe a million trading strategies running on the platform. um There was really nothing like it that anyone had ever built, either in crypto or in equities. And there are very clear reasons why anything like that should not exist also, which is what we read it. Help me understand, what was the product offering a power user? What were the features of it? Is there a comparable in the equity space of what you built? No, there is none.
01:46:00
Speaker
ah so there are to At the core, it was a it was a visual editor using which you can create very complicated trading strategies. Let me give you an example. you can The simplest trading strategy is buy Bitcoin when price goes down 10% and sell it when it goes back up 10%. Whatever. This is the simplest trading strategy. But for a lot of technical traders, they use something called as indicators. Indicators are basically just more complex combinations of price action and volume that gives you some sense of where the market is heading.
01:46:33
Speaker
and and And the largest such platform was trading view, which was hosting indicators and so on and so forth. So i'll we had one point supported 10,000 trading indicators, which are basically 10,000 specialized math functions that users can use. And then you can do all a wide variety of combinations. So for example, ah let's say there is an indicator called as the ah RSI. It's a very popular indicator. of ah It's popular among traders, of course, not popular amongst the rest of the world. So, RSI is an indicator that says that if RSI goes below 30,
01:47:08
Speaker
then buy, but if RSI goes above 70, then sell. Okay, whatever. It's some some magic rule that people have come up with over time. So, now what you could do is with Mudarix, you could say that if price dropped by 10 percent in the last week and RSI is below 30, you buy it. But you could just not do it. You could use any number of of combinations of these, and then you try and then it becomes really, really powerful. And then you can run this at every second, and you can run this on historical data to see how it works. You don't do all the back testing. You can run this in real time doing paper trading. You can, of course, deploy your own capital and run this. ah and And at one point in time, we were actually, because it was all algorithmic, right? so
01:47:50
Speaker
the The core offering for core traders was that you can build this algorithm. But then what we had also created was a marketplace, because what we really realized is that actually 97% of traders fail. They really don't know anything. Having said that, what there is really looking what everyone is looking for is to make money. And the top 2-3% traders who make money, they just want to they just want leverage to be able to use ah the cap to be able to do the best from their strategy till whatever period the strategy lasts. So what we did is we created a marketplace. where top trainers could publish strategies. We would do the rating curation, assign like a score to it, whether what strategy is useful for what, and then individual traders could just go out and pick a strategy, deploy capital, pay a monthly subscription fee to the strategy provider, which was basically 1%, 2% of the AUM per month. And we would take a commission out of that. It was a system where there were pro traders, there were users who were trying to build it and so on and so forth.
01:48:48
Speaker
So interesting by and yeah so by more late you one maybe small caps, ah small case, sorry some something like small case, something like small case, but small cases and basically mutual funds and those don't trade every day. In fact, those small cases are supposed to be balanced once in three months. Here, there are strategies that are doing hundreds of orders per day. So there was a point in time when in some of our largest strategies, there were so many people investing that when an order would come in, an order would trigger on thousands of accounts at the same point.
01:49:24
Speaker
And at that point, the orders are so large that we would move the market on Binance, like private or whatever. You could one-to-one match and say, okay, an order hit on Mudrex, and then on Binance, suddenly the prices drop or the prices went up. And then over time, they just reconcile back to a mean price. And all of these are real problems, right? Because then it meant that your users are single page and they're not getting the real price that's supposed to be gotten. It's a critique, a critique. Which is, how do we do all so problem like no so there are there aren't some problems that are solvable, ah which are infrastructure, reliability, and service which is what we were able to solve. But then there are some problems that you just cannot solve because of of how the system is built. If it is an order book exchange, the person who goes first and the person who goes last will of course see different prices.
01:50:16
Speaker
when they try to disorder at the same time. Right. And that is a cause of concern. The only way you can stop for doing, stop for that is by either ah making it random across everyone so that there is no preference.
Focus Shift to Retail Users and Product Innovation
01:50:30
Speaker
So it's basically random is fair. That was the argument that random is fair. Going back to Bitcoin, random is fair. So if it's fair, people care about it. Yes. And then we started putting caps. So but Basically, you can't invest more than a certain amount or more than a certain number of people can't participate in a trading strategy and so on and so forth. Those are ways in which you try to solve for it. But in reality, these are systemic problems, which is why I said earlier that but something like this should not exist also.
01:51:00
Speaker
ah ah for Because there are some of these systemic problems that just will always create some error. There is an inherent error in the system and it should just cause things like this to be delayed. Now, if it is a liquid enough market, it doesn't really matter. But if it is if the market is not liquid and everything is having very fast, then it doesn't work. And which is why Which is which again, why we zoomed into the factor. Although we had built an infrastructure that something like a Goldman Sachs would build to do in-house trading and ours was just much more wider and much more usable simply because it was being used by millions of these users. Really there is no use case for it.
01:51:39
Speaker
oh and Because it it can only scale to a certain level. right click ah We could have still continue to build that business out. we could have As I said, we were break even profitable. We were doing about $100,000 of revenue per month. And by our estimates, then we felt that, okay, maybe the market continues to grow and this business continues to grow. oh But you will never be able to make a very large business out of it. your business will get capped at 50, 60 million dollars oh that valuation. So, 50 to 100 million dollar valuation. I'm saying that that's coming in from maybe because your yearly revenue will get capped at six, seven million dollars. ah That is one and then your cost of user acquisition will always always just continue to be higher because the churn will always be very high because at some point some user might be dissatisfied.
01:52:26
Speaker
Because of these inherent system market, because of market structure problems at some point in time, some users will get dissatisfied. They will churn out. You will continue to invest in CAC. that cac will At the one point in time, you will even if you were able to reach out to all traders, all investors, there was a ceiling to that business. And again, businesses with ceilings are not fun. So that's not something thought that one. And I me realize this at that moment, we also raised our like a seed round with from next essential partners. It is about two and a half million in 2021. In between this water also happened is that in 2020, the Supreme Court issued an order ah saying that whatever the RBI had done is nullified. Basically, you cannot stop people from doing business if you want to do it, do it in a regulated format and do it in a structured manner.
01:53:16
Speaker
So that opened up India again. So we started going back to thinking about, okay, India is a large market. What can we do over here? ah There was this other realization that but And by this time, 2021, we were starting to see another bull cycle emerge um from in crypto that we were starting to see that, okay, newer people are coming in once again. um And