Bill Hortz's picture

"Expanded possibilities come into play when you start to digitize things and put it up into a global transport layer, what we refer to an internet of money." JP Thieriot, CEO, UPHOLD

[There is a great deal of sound and fury around the topics of cryptocurrencies and blockchain which unfortunately many in financial services drown out or dismiss as confusing noise and wild speculation.  In our opinion, it would be a mistake not to see all this activity and debate as signifying something… something radically groundbreaking for financial services industry and the rapidly coming future.

To better understand what truly is happening in this area of accelerating innovation, we reached out to JP Thieriot, Co-Founder and CEO of UPHOLD, a leading global digital money platform that serves 184+ countries across 30 currencies (fiat and crypto), as well as, commodities and creating new innovative universal  lending and earning products.]

Hortz:  I see how you are characterizing what your firm is doing as changing the way people access their money describing it as the “Internet of Money”. Why are you so passionate about this mission? Why is this so important?

JP: The internet has profoundly changed every single industry from transportation to entertainment to hospitality to communication, except for finance. Financial services has not been torn down to the studs and rebuilt in the internet’s image process as most other industries has undergone. Largely, that is due to a couple of issues that the advent of bitcoin ten years ago started to resolve.

Predominantly, all the characteristics of protected industries have run rampant in finance. You have had banks having a monopoly, on the whole, of the holding of this type of information that we call “money” and it has been sheltered away from the reaches of innovation and access that the internet has wrought on everything else. For us a key missing piece is a lack of transparency in the industry – the kind of transparency that presumably you wouldn’t have gotten to the savings & loan crisis or a 2008 meltdown. Everybody would have been operating off of the nature of information that those kind of systemic issues could have been prevented. There was no obligation to be fully transparent and with banks being competitive with one another, they have a motive to misprice risk, with the US taxpayer footing the bill when things go wrong.

So you have those aspects and then you have other ones that are more optimistic in the sense that they deal less with correcting some of the really bad stuff about the banking industry and are more about creating access to things people haven’t had access to, like venture capital or real estate or other elite asset classes that only upper middle-class on up in northern hemisphere have access to versus a 20-year-old in India or everywhere else. All these expanded possibilities come into play when you start to digitize things and put it up into a global transport layer, what we refer to an internet of money.

So full circle, our view is that money is 1’s or 0’s, just like pictures or words over Skype or email, thanks to bitcoin solving some computer science and cryptography issues. There is no longer a need for those things to be siloed in banks. So, at the most philosophical level, if we are able to take those 1’s and 0’s and put them up into a global transport layer and have them fully exposed to innovation, then you will finally allow the forces of the internet to incorporate money, alongside pictures and words and everything else, and that should accrue to the benefit of everybody. It’s a financial democratization process attempting to level the playing field for everybody, everywhere.                  

Hortz: You state that you designed your firm to be a platform app model with payment connectivity? Why did you choose that business model?

JP: From the get go we were focused on open API for third party digital money applications. We strongly feel it is not up to us to come up with every innovation that may be meaningful to some real market.  So what we try to take care of underneath the API is regulatory coverage, connections to legacy money networks like US banking through ACH, European banking through CIPA, but at the same time we are trying to add to the breath of what we refer to as “financial content” to the platform. That said we are now able to try to create an out-of-the-box offering where people can innovate and benefit from what they are getting from us which is support of all these different types of unit of accounts, some of the requisite regulatory coverage and the very necessary connection to legacy money networks across the world.

We started with 30 fiat currencies and major cryptocurrencies, 4 precious metals and started a broker/dealer and hope to roll out fractional US equities in the first quarter of next year and  it would be great to add private equity and real estate and other assets that can be denominated in $1 or less increments so anybody can participate.

As for some examples of other financial content we are incorporating, a little over a few years ago two young quant guys with a lot of trading experience contacted us saying that they had these great algorithms that they wanted to put to work trading among currencies that we support on UPHOLD. We see that as the Burger King in our food court. And we are busy now trying to roll out the Shake Shack and Starbucks and everything else. We have this Russian econo-physicist who has this set of herd behavior algorithms that back test wonderfully and we are rolling that product out in 3-4 weeks. We have also been in discussions with an Israeli economist who similarly has some excellent trading strategies. These experiences really hit home for me that no human being can possibly keep track of the interplay between 40 currencies and other financial instruments. It is by necessity a computer exercise. And so what I forsee in the future is not this high bound world of managers that compete in the traditional way where you need a big LP structure to be able to participate. It’s going to be endless apps with clever people coming up with clever algorithms that will again narrow the access gap.

So to bring this back to your question of why a platform app model, it’s not just us, it is other folks that are using the platform to roll out their products, new strategies, new innovations. Our platform is a kind of seemless, digital place to move between these different units of account. So the more content we add, the more we expand the geography, I think the more useful we are to a even broader breadth of  companies that today find the legacy industry very difficult to deal with so far as international money transmission, foreign exchange, and product innovation and access.

Hortz: Tell us about your new products Earn and Borrow?  

JP: This is another attempt to taking this industry from being relevant to millions of people who are exposed to it today and try to make it relevant to billions of people beyond them. In our new Earn product, it is the interplay of 3 things that we are able to bring together that no bank can do, what no crypto-competitor can currently do, and that is putting together a consumer  facing platform like UPHOLD,  with the capabilities of a pure play credit specialist like CRED and the 3rd part of the triangle  is basically adding an engine of token creation from the UPP alliance, which we are integrally part of.  By bringing those three things together, out of the gates, you do not have any of the structural baggage that banks have and then, if you add the interplay of a token that could appreciate and further mitigate the need for margin between what you are paying out in yield and what you are getting in interest, it’s a cool idea. So what we configured and put out in the world, without knowing how a token is going to perform in the aftermarket, is an earning product that can start off with being able to pay 5% yield and possibly do secured interest up to 9% - pretty eye-catching figures. It’s a significant improvement for the 2.5 billion under-banked globally on how their money is working for them.

On the credit side, when you think of the friendliest line of credit, it would be the U.S. home line of credit (HLOC). Launching the Borrow product, our crypto line of credit, the significance is that today to get the benefits of a HLOC you need to be rich enough to have a home in US. If you are in Argentina and need to borrow dollars today, even if was even possible to find, it would have an interest rate above 40% since their currency has been devaluing in 20-30% range. For an Argentine, without a US credit rating, without owning a house in Miami, Borrow can offer a 50% LTV loan at a 9% interest rate - that’s beyond competitive. The way we phrase it is the Borrow product is nominally interesting for Americans who do have access, eye-opening for Europeans, but potentially life changing to folks in Argentina, Venezuela, Brazil, Turkey, Cyprus, places outside the Eurozone and the US.

Hortz: We keep hearing so much hype about blockchain. How important is blockchain technology in the overall mix?

JP: Blockchain is a core fundamental technology to all this because, at the end of the day, there is no exchange of value without a legacy intermediary that doesn’t involve blockchain, other than cash. The problem is that there is no dominant blockchain so it is going to be interoperability that kind of lays the foundation again for a true internet of money.  Uphold has started an alliance with a company called CRED which is a bunch of ex-PayPal guys; Blockchain at Berkeley which is the largest university blockchain group; Brendan Eich Founder of BRAVE, inventor of Javascript and one of top handful of technologists in the word; and a group called FEG which focuses on trading and markets where liquidity is central issue.

The purpose of this alliance is to move the distributed ledger or blockchain industry into the mainstream by addressing what we collectively perceive to be some of the foremost issues holding it back. One of them is this current primordial soup of competing protocols. Even if you are a small business or individual that recognizes that WOW, this is going to dramatically change my life or my business’ activities, you still have an entry point conundrum because you don’t know what you are reprogramming your business logic to or what type of talent you need to hire or exactly what it is going to end up being. Ethereum has some degree of critical mass. It’s where the preponderance of smart contracts logic resides. It’s where all the decentralized exchanges have set up.

So by putting forward this alliance, and its platform that wraps other blockchains in Ethereum basically, you start to create the beginnings of a common language, somewhat akin to if you think of the internet in 1988 or 1989, where you had AOL, Prodigy, Compuserve. Probably a lot fewer people then were aware that this “internet thing” is important than there are people now who think blockchain is important today. But it wasn’t until the fusion of certain technologies and applications that you had the conditions for mass consumer uptake. So that’s what we are trying to push along. So to go back to your question, without an immutable public ledger that no one group can control, you don’t have the foundational DNA for anything. But, like pointing to low bandwidth in 1996, these current issues will get resolved.

Hortz: It seems to many that blockchain technology is still so far removed from their practical usage and still far down the road as to tangible applications for them. From your perspective, when and how do you see blockchain being a more mainstream technology in financial services?

JP:  This truly is the second coming of the internet. In the same measure that in early internet days Bill Gates said he didn’t get what the fuss was all about; the Microsoft network was more interesting. It is almost axiomatic that the incumbents never see, or even if they did, are somehow prevented from being participative in that thing that is eventually going to consume them.  But really, the phenomena is going to be more of an internet phenomena which is to say that it will pervade far beyond the scope of financial traders and their day-to-day stuff.  It isn’t the actual utility of this new technology that will sustain the industry and deliver the bigger rewards. That will come when it becomes relevant to a greatly expanded universe of clients, the rank and file, everybody, and when it does, the effects will be dramatic.

 Retail investors reach is going to expand a lot and, depending on where you sit on the industry today, all that changes is rather than getting your money from traditional structures like LPs and servicing LPs you are going to be able to add this digitized, tokenized, fractionalized,  crowdfunding components to your offering.  It actually changes the nature of  how your asset is held, who can buy and at what increments, but I  don’t think it changes the nature of what these people’s value add is in the first place to be able to amass great investment options and assets

Hortz: What best advice can you offer financial advisors and industry leaders about this emerging internet of money?

JP:  Best way I think I can answer this is with a personal reflection. I remember my first exposure to a static yahoo webpage in 1992, thinking what a slow dial up process, maybe this is as interesting as the front page of my local newspaper. I kind of got it, but it took me awhile and even the most imaginative of us in 1992 could not have drawn any kind of line out to Uber or AirBNB or any other innovative business applications from that emerging technology.

 At the introductions of exponential technologies like this, it’s hard to have seen how is this going to be relevant to my industry or personally to me. I can’t predict how it’s going to affect specific constituents in the investment world but I think it would be foolish to think that it isn’t going to be profound. So my best advice is to be aware and continue to follow what technologists, like ourselves, are doing in this space of the internet of money because it can and will be truly transformative for the financial services industry.

 

Written by Bill Hortz, Founder & Dean, Institute for Innovation Development

The Institute for Innovation Development   is an educational and business development catalyst for growth-oriented financial advisors and financial services firms   determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here .

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