Johny Fernandez: So the UAE is expanding its digital asset industry, and that could make the Middle East a key player in the next wave of big investors moving into Bitcoin. For years, most people have bought Bitcoin and simply held on to it. And now new tools are letting investors put that Bitcoin to work, earning rewards or borrowing against it without handing it over to someone else.
Joining us now is Fisher Yu, co-founder of Babylon. It runs the largest platform that lets investors earn rewards on their Bitcoin, all while keeping control of it themselves. So, Fisher, thanks for being here.
Fisher Yu: Hello. Hello.
Johny Fernandez: So, Fisher, for those that don’t know the company, go ahead and walk us through what Babylon does and how you guys function.
Fisher Yu: Yeah. So, Babylon is [unclear: “a big client project”]. Our goal is to make Bitcoin not just a store of value, but a productive asset, by allowing it to be collateral that can be used for alternative financing, like for borrowing, for yield, for [unclear: “selling core options”] and anything related to credit.
Johny Fernandez: Most people think of Bitcoin as something that you buy and hold. So walk us through what it means to put Bitcoin to work. How does that work?
Fisher Yu: Yeah, right. People call Bitcoin digital gold, right? When you purchase gold, you just hold on to it and do nothing with it. It doesn’t give you capital efficiency, it doesn’t give you any liquidity. But with Bitcoin, we are able to allow it to have capital efficiency and liquidity by collateralizing it to borrow stablecoin or fiat, so that you can still keep your Bitcoin but have enough cash to do other things that you want. So that’s the definition of productivity.
Johny Fernandez: I also want to talk about Bitcoin staking. In simple terms, how do investors earn rewards from it?
Fisher Yu: Yeah. Staking refers to staking Bitcoin: it provides security to a network and earns staking rewards from the emission of the token. It’s like your Bitcoin acts as a security guard of a company, and it’s paid a security fee.
Johny Fernandez: And I also want to talk about your product and Bitcoin’s role, how it’s changing Middle Eastern financial markets. Let’s talk a little bit more about that.
Fisher Yu: Yeah, sure. So I think in the past [unclear: “three, four, three, five”] years, the UAE and the Middle East invested a lot in Bitcoin mining. And at that time Bitcoin was viewed as a store of value. But now I think the store-of-value part is already a consensus over there, and mining itself has already reached peak productivity. Now the Middle East is asking the question, hey, what do I do with the Bitcoin that I mine? So naturally, the next chapter for Middle East Bitcoin is making it productive rather than just a digital pile of gold sitting there doing nothing.
Johny Fernandez: All right, so let’s talk about the UAE, because as it grows its digital asset industry, what role can the region play in bringing more big investors into Bitcoin?
Fisher Yu: Yeah. So the UAE, both the Dubai government and the Abu Dhabi government, are very friendly towards digital assets and provide very clear guidance and licensing to allow businesses to operate around digital assets, like the VARA license and all the pilot programs that the UAE government and banks are running, which are very good also. The UAE provides very good tax treatment. So all of this together, with its new financial hub in the Asia-Pacific area, makes this a very attractive place for any large institutions that want to get into the digital asset industry.
Johny Fernandez: And I think the other question is, why would big banks, asset managers and large investors in the Middle East be interested in earning rewards or borrowing against their Bitcoin? What makes it more attractive in the Middle East?
Fisher Yu: Yeah, right. It is because the exposure of the Middle East to Bitcoin is increasing, with family offices, mining companies, wealthy individuals. So the traditional financial services providers, like banks and asset managers, are facing more customers with digital asset exposure and holdings. And for these customers, their goal is to accumulate wealth, not just to achieve capital efficiency by waiting for the digital asset price to go up, but also to have daily liquidity, to have productivity. So with the customers pushing the banks and asset managers to look into Bitcoin productivity.
Johny Fernandez: And I think the other question is, what would it take for these types of institutions, and bigger institutions, to start using tools like yours?
Fisher Yu: Yeah. So one is the regulation and compliance, because our solution allows Bitcoin to become productive without the Bitcoin holder losing custody or title of it, which is very attractive and makes the compliance and investment managers’ jobs much, much easier. So that’s one advantage.
And second, it allows Bitcoin to become collateral that can be used on chain. That means Bitcoin can be exposed to the most efficient financial market in the world, which is Ethereum, so that you can borrow money at one of the lowest, cheapest rates in the world, and you can settle payments and so on, also on the scale of seconds, which is not possible in the off-chain world.
Johny Fernandez: No, it’s definitely interesting. And I think the other question I have for you is, moving forward, obviously there are a lot of different regulations with Bitcoin and with crypto here in the States. So what does it look like moving forward in the next 3 to 5 years? What do you guys have planned?
Fisher Yu: Yeah. So I can give you a very interesting number. Bitcoin is called digital gold, okay? Gold itself is about 10% collateralized. The second largest digital asset is about 20% plus collateralized. Bitcoin, digital gold, on chain plus off chain, in total is only 3% collateralized. So that’s a huge gap in terms of Bitcoin’s productivity through collateralization, like 3% to 10% to 20%. So our goal and [unclear: “our region”] is that the productivity of Bitcoin through collateralization will grow very fast, in, say, three years to reach the gold level, and then in five years, the Ethereum level.
Johny Fernandez: It’s definitely going to be interesting to see how Babylon plays a role in this, but I definitely want to thank you for joining us this morning here on Capital Markets, Wall Street to MENA. Thank you for your time.
Fisher Yu: Yeah. Thanks so much.
