Johny Fernandez: So for years, crypto has tried to win over Wall Street, and now some of that movement is going the other way. Traders outside the U.S. can now bet on stocks in major indexes on crypto platforms around the clock, through contracts called perpetual futures. Meanwhile, stablecoins, which are digital tokens usually tied to the US dollar, are catching on across Asia, and the Gulf is now competing to become one of the world’s biggest crypto hubs. So joining us to break it down is Augie Ilag. He’s a partner and head of Asia at CMT Digital. Augie, great to have you with us.
Augie Ilag: Hey, Johny. Great to be here. Thank you so much for having me.
Johny Fernandez: No, thank you for joining us. So for years, the story has been that crypto is trying to break into traditional finance, and you say that the bridge now runs the other way. These contracts let traders bet on a stock price without even owning the shares, often with borrowed money. So why are many traders doing that on crypto platforms instead of traditional brokers?
Augie Ilag: Yeah, it’s a great question. First, maybe just to align on the numbers, right? Tokenized stock perps, the assets that we’re discussing, grew from over $800 million in trading volume last year to $34 billion earlier this year on a monthly basis. So it’s very real. It’s growing. It’s here to stay. And to answer your question, I think the main value proposition, at least for retail traders, is access. Especially what we’re seeing out here in Asia is that many people want to trade U.S. equities, and they just don’t have access through their local licensed exchange. So the tokenized version of that is one way that these folks get access to the assets they actually want, right? The way to think about it is, for a lot of these emerging markets, there’s maybe 20 publicly traded companies, and all of them are oil and gas, banks, telco. They don’t want that, right? They want to trade Tesla. They want to trade SpaceX. And this helps them do that.
Johny Fernandez: That’s definitely interesting. So the other thing is that you argue that the real advantage isn’t the assets. It’s how the markets themselves are being built. I’m standing here on the floor of the New York Stock Exchange, so make the case. What do these onchain markets do that traditional exchanges can’t?
Augie Ilag: Yeah, no, I mean, part of the support for your question is the fact that a lot of the traction that we’re seeing is in tokenized versions of existing assets, right? It isn’t necessarily a new asset, though there’s a lot of exciting stuff happening there as well in terms of the onchain economy. But the fact that we’re tokenizing existing assets, I think, speaks to the fact that there’s value in the underlying technology itself. We’ve spoken about the access piece, but I think for institutions and more sophisticated traders, the advantage is in the market structure that, you know, [unclear: “not tokenization technology”] provides: settling cash and assets at the same time on one ledger helps to remove counterparty risk. It also frees up collateral trapped in the correspondent banking system, which takes days to settle and often involves several layers of coordination and intermediation. So with tokenization and stablecoins, I think the underlying technology helps to provide faster, cheaper, better rails for both assets and payments.
Johny Fernandez: So I also want to talk about Asia, because obviously there’s a lot of movement in Asia at the moment. Where in Asia are stablecoins growing fast, and who’s using them? Is it everyday people? Is it businesses sending payments? Or is it mostly traders at the moment?
Augie Ilag: Yeah, that’s a great question, Johny. One very exciting thing about Asia when it comes to overall adoption is that if you look at any of your favorite adoption statistics, many of the top ten countries will oftentimes be in Asia, right? So Vietnam, Indonesia, the Philippines. These markets will show up in terms of overall retail user adoption. The use cases that we are seeing, I’ll give you two examples that are very exciting, one on the B2B side and one on the B2C side. On the B2B side, it’s very much what you described, which is cross-border B2B payments with stablecoins as the back end. [unclear: “Tossup”], for example, is a portfolio company of ours based in Singapore. They are a global payment service provider that uses stablecoins to capture efficiency benefits through instantaneous settlement, like we just discussed. That’s one very interesting use case. The other, on the B2C side, is folks leveraging stablecoins as an inflation hedge relative to their local domestic currency. You can think about it almost as a new type of bank. Many of these people are holding a stablecoin balance in order to save and protect against inflation, and spending directly from that stablecoin balance, almost like a checking account or a savings account. So it seems like a simple product, but the value proposition for users is a new type of bank.
Johny Fernandez: That’s definitely interesting. And I want to get over and talk about the Middle East now. So we’re going from Asia to the UAE. We know that Dubai and Abu Dhabi have built some of the clearest crypto rules in the world. So how does the Gulf compare to Asian hubs like Singapore and Hong Kong when it comes to winning over crypto companies?
Augie Ilag: Yeah, it’s great. I mean, we’re super excited about what’s happening in the region. Johny, candidly, as you rightly pointed out, one of the things that’s exciting about the UAE and other MENA markets is that they are speeding ahead when it comes to clear crypto regulation, and they have a super friendly regulator. For example, in Dubai, there’s obviously the dedicated crypto regulator, VARA, and a bunch of different special economic zones that offer quicker setup times, an easier path to licensure, maybe quicker visas for your employees if you decide to set up headquarters here. And the result of that is you’re seeing many trading firms that have set up offices in the region: Brevan Howard, Coinbase, [unclear: “Dara Bet”], and even some exchanges that have decided to move their global headquarters from other places in Asia or the US to the Middle East. Bybit and Binance come to mind. So I think there’s a lot that the region is getting right.
Johny Fernandez: That’s interesting. So we also know that Gulf sovereign wealth funds and family offices are among the most active tech investors anywhere. How are they approaching digital assets, and how does it compare with the big institutional money that you’re seeing in Asia?
Augie Ilag: Yeah, it’s a good question. I would say it’s relatively early days, and there are maybe two different approaches. One is they’re starting to look at indirect strategies through managers. For example, the third largest sovereign wealth fund, ADQ, which manages about $30 billion, recently spun off a crypto and fintech focused fund called Further Ventures. They do great work. We collaborate with them quite closely. So that’s one strategy, more of an indirect strategy through focused managers like Further Ventures or ourselves. The other is sovereign wealth funds that are deciding to enter through more basic regulated products, right? Like spot Bitcoin ETFs. One example there would be Mubadala, which I think has around $500 million in BlackRock’s Bitcoin ETF, at least as of the last public filings. So I think this is how it will start, with more basic, straightforward, familiar options, but it will progress. It’s sort of like, if you decided to start collecting wines, you wouldn’t necessarily buy a bunch of rare bottles at auction to start. You would start with a few well-known wines. [unclear: “Look.”] It’ll go something like that.
Johny Fernandez: No, it’s definitely going to be interesting. And I do like the analogy of wine. But listen, we have to wrap up. I want to thank you so much for joining us today here on Capital Markets. Augie, thank you for your time and your input on what’s going on in this space. I appreciate you.
Augie Ilag: Thanks for having me, Johny. Cheers.
