The Breakdown - Nexo’s Antoni Trenchev on the Stories That Shaped Crypto in 2021

Episode Date: December 23, 2021

This episode is sponsored by NYDIG. Today on “The Breakdown’s” “End of Year Extravaganza,” NLW is joined by the co-founder and managing partner of Nexo.  Find our guest on Twitter: @AntoniNexo Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our holiday theme music is “Spike The Eggnog” by Two Dudes. The music you heard today behind our sponsor is “Dark Crazed Cap” by Isaac Joel. Image credit: BlackJack3D/iStock/Getty Images Plus, modified by CoinDesk.

From an overall market structure perspective, I think that the single most important player is the Federal Reserve in the ECB and some of the central banks. And as long as they're doing what they're doing will be in a super gigatera cycle. This is my personal feeling. It's going to be choppy. And every time I own Bloomberg on CNBC and they're all, but it's so volatile. Well, volatility is a blessing and a curse. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world.

The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, December 23rd, and we are continuing our breakdown end-of-year extravaganza. Today's guest is Antony Trenshiv, the co-founder and managing partner of Nexo. Nexo is one of the leaders in the crypto lending space, which is obviously a huge part of what makes this industry interesting. The ability to huddle for the long term while still having your assets working for you and getting the liquidity you need is something that's always fascinated me. So I'm excited to have Antony on. I've known Antony for a long time. I know he has a really broad array of perspectives on a bunch of issues within crypto and the larger macro economy.

So I am excited to share this conversation. Let's dive in. All right. Anthony, welcome to The Breakdown. How are you? Oh, Nathaniel, very well. Thank you so much for having me. You know, I'm a huge fan of yours and of the show.

There's rarely a day I walk to the office without listening to the breakdown. Well, so glad to have you here. So as we were just saying, these episodes are a really fun way to look back at the year that was, think about the year that came. And obviously, you have a lot of context to think about. many different parts of this industry. So let's dive in right away and let's just start with, what was the most important event or story in crypto in 2021? There's so many to pick from. Yeah, that's a tough one. A single story, I don't know,

it's, I think, the overarching team of Bitcoin's resilience, which has been put to the test on a number of different occasions throughout the year, you know, China ban, the SEC coming in and labeling just about anything, including stable coins or security. So I think this was like the most important economic story, given the overall macro view and where the world is headed that crypto is here to stay, Bitcoin is here to stay. There is no slowing down to the processes that we're seeing. and regardless of what happens, this thing is anti-fragile. It keeps on bouncing and coming out of the ashes like a phoenix.

And this to me has been the most important story. Let's talk now about a couple kind of other pieces. What happened this year that surprised you? What's something that happened that you wouldn't have predicted? Oh, NFTs and the metaverse hints. down. You know, when people started talking about the NFTs early 2021, I, you know, quite frankly, had felt old and out of touch with my own generation. And, you know, I totally didn't get it. You know, pictures of questionable aesthetics suddenly being auctioned, bought and paid for

in millions of dollars. This was mind-boggling to me. And then I started. it diving a little deeper and it started to make sense in the you know when you put things in the perspective and come to terms with the fact that we all most of us are at least halfway there in terms of living at least a portion or even half their lives you know submerged into virtual realities you know you can check the screen time on your iPhone it has this nasty little feature that tells you how many hours you have been glued to your phone. So we're almost there in the metaverse already. And, you know, NFTs being the tokens, the status symbols, the totems, the deeds of our,

you know, metaverse properties and also the intellectual property. I think that, you know, the potential there is Gergachuan. Speaking of NFTs, I noticed that you guys just introduced a bit. basically an NFT lending desk where people can get value in the same way that they would put up crypto for collateral, they can now put up NFTs. Do you think part of what makes them such an interesting entry point into the Metaverse is that they're ultimately still a digital asset that can be financialized in interesting ways? Oh, absolutely. I mean, you know, it's a great thing that we've done with three arrows capital here whereby you can take out the loan against your NFTs. but this is early days.

So it's a little bit of uncharted territory. We see how exactly it plays out. This is just for now, for the OTC desk and for, you know, institutional and larger clients before we bring it to the retail, just as a disclaimer up front. But, I mean, that has got us, you know, terribly excited because this is the first of its kind mechanism whereby you can unlock some of the liquidity. in NFTs and, you know, not to own horn too much here, but, you know, I think institutions such as NXO that gave the instruments for people to tap into their crypto wealth without having to sell,

did play a role in the adoption, the proliferation of digital assets, and ultimately for people being able to hold on for longer periods, and without worrying about short. short-term liquidity needs. And I think, you know, if NFTs take off the way I am hopeful they will, this will be, you know, a huge total addressable market has got us really excited because we think we here are helping with the infrastructure, which needs to be in place for this to happen. Amazing. We'll come back to some of that stuff in just a minute.

but I wanted to actually zoom out to the macro now a little bit. What do you think the most important economic trend or story was of 2021, even outside of the digital asset space? I think that's a trend that we have been observing for a couple of years. And it showcased in 2021 rather nicely, you know, on multiple occasions. and this is the politicization of central bank politics. I know that's not super popular and not something that a lot of people spend their time thinking about, but essentially the Fed and the ECB becoming a politician's tool,

which has never been the mandate or the idea has some ramifications, are still playing out and will still play out some more going forward. I think that everybody is quite positive that there will be tempering, you know, ease of the quantitative easing, a reduction of purchases, maybe rate hikes. I beg to differ. I think that cheap money is here to stay. So to me, this has been the more most economic trend. not quite the trend, but something that I think I am feeling out and grasping correctly,

and not everybody is. And this has some implication on its own, last but not least for crypto. So cheap money for me is here to stay, you know, early 2021 when the bond market dried up. There was such a huge push for the Fed to come in. You know, I can imagine only what would happen if equity. take just a tiny correction of 10 to 20 percent and the more market follow suits. You know, we'll be back into print the gold burr for the foreseeable future. And as much as this is bad for, you know, the real economy and people outside for crypto,

not the worst thing for us crypto natives. It's interesting. So we're recording this, the, you know, the week of the FOMC meeting. And one of the things that was fascinating that happened is when the initial report came back that the Fed was going to double its asset or double the speed of the taper of asset purchases and was anticipating three rate hikes next year, inflation expectations went way down, right? They cratered. But then when Jerome Powell held his press conference, they actually went right back up and, in fact,

exceeded the five-year inflation expectation went up from. where it was before the press conference. And a lot of people's interpretation was Jerome Powell was, and the Fed were basically making a nod to inflation fighting with this expectation of raised rates, but were very clearly not having some Paul Volcker moment where they were going to be willing to plunge the, you know, the world into recession in order to fight it. And I think it's sort of testament to what you say or evidence of your suggestion that even in a period of heightened inflation, you know, this sort of cheap money is here to stay. And, you know, to give Paul Volcker some credit, you know, this man, he, you know, bit his teeth and just persevered with his views and

policies despite the challenges that he was facing. And quite frankly, I haven't had the chance to see in our lifetime. Well, I was around back then, but still very young. So, It's interesting. It does take some political wheel and just don't see this on the horizon right now. Yeah. Let's go back to the crypto space. I want to kind of get your view zooming forward and looking back. When the future looks back on 2021, so NFTs you kind of already mentioned, but just to sum it up in a bow, when the future looks back on 2021 NFTs, what will it think? It would think that we are moving away from the early days, much like the dot com. We had pets.com and a bunch of interesting experimental stuff where it's a beautiful mess, but it's a little bit of a mess.

And now it crystallizes into something more useful, you know, just like out of the dot com mania. You had the Googles and the Amazon's and the PayPal's. I think this is what is slowly but surely emerging with non-fundurable tokens, you know, being more than just pictures. And I really am excited because, you know, everybody is now talking about the metaverse and Facebook changed their name. But nobody has even a clear definition of what the metaverse is. Yes, some 3D virtual reality or augmented reality, but how exactly it unfolds remains unclear. and I think a great focus of cryptospace and generally of technological companies, you know, just the other day I was watching Bloomberg and there was a senior executive of Google talking about

the metaverse trying to make a point not to say the words meta and describing around it. So, you know, it is again a beautiful mess and it's a lot of potential, but I think this will be one of the overarching teams of next year, the metaverse. the infrastructure building and then the NFTs that will make a part of the economy there. NIDIG sponsors this podcast and they are helping banks, corporate treasuries and fintechs integrate Bitcoin into their products and balance sheets. See why Bitcoin means business at nidig.com slash NLW. That's nydig.com slash NLW.

In the future world looks back on 2021, Dow's. What will it think? I would obviously think about the attempt to purchase the Constitution, which unfortunately did not come to fruition. You know, Citadel and Ken Griffin came in and they had their say and they won. But this is a temporary thing. I think that was super exciting in terms of how crowdfunding will function going forward. You know, it had its shortcomings. if you give up front the total amount that you're willing to pay,

it gets very inefficient in an auction to then be below that and tips off the other person where your limit is. But the potential here is enormous, you know, just for fundraising, but also for the ways that decisions are made. And this ultimately can have an effect upon the democratic process somewhere down the line because democracy, as we have it today, you know, has been rather slow to come to terms with the new technological realities. Yes, we have, you know, machine voting and e-voting in some countries, but for the very large part, it remains the same that they had in Athens 3,000 years ago. So it is interesting with this sort of trustless smart contracts and the possibilities that they open.

and now they're actually being stress test in real environments, how would that be play out in the democratic process five to ten years from them? Yeah, it's fascinating. I think it feels to me something that's very, very nascent. And I wonder to what extent we'll look back as this year where it started to become a thing, but it was really just very incremental relative to where we go next. Another key theme of the last year in the crypto industry specifically has been the sort of layer one smart contract platform battles. Obviously, platforms like Solana and Avalanche have had huge

hype as new players actually coming to market. But what has been your perception of those battles? What is their significance or is it just sort of the crypto industry evolving? Well, I think it goes in two directions. You know, there's the financial speculation element which draws people in and they pretend to be in it for the technology and quite frankly they're not. And I'm saying that as a person who is jealous of that, my man. Just the other day, I met this person who had purchased Solana at six cents. And because of his SPV, which is very tax inefficient, he's now sitting on 5,000 X, which is great. And I envy him for that.

But kidding aside, you know, I think that all the layer one solutions and they're a little bit of arrogant attitudes, towards older protocols such as Ethereum will face some of the same challenges that Ethereum has been facing once it scales, you know, apart from the financial speculation and the asset appreciation, but in terms of transaction numbers, blocks or whatever the technology they're using, they will face some of the same challenges. So I wouldn't write off Ethereum just quite yet. but it is exciting to see competition and, you know, just this inspiration of great minds coming into the space that were previously totally outside of it. I spoke to some developers in Switzerland and they're like, you know, we ran out of blockchain developers.

So what we're doing now, we're essentially stealing people from Google and Amazon and giving them a crash course in blockchain language, engineer language. development and they're starting to write code for us. And this speaks volumes to how far the industry has come. And it opens up a lot of potential to all the layer one protocols because this is what ultimately drives any space forward is the accumulation of brain power. Speaking of moving a space forward, what was your perception of the significance of El Salvador adopting Bitcoin as legal tender? I think it's huge as a real-life test of whether such a thing was possible at all. And yeah, there were technical glitches, but nowhere near as bad as some of the people predicted.

So it was a successful test in my eyes, in my perception. I think some countries in Latin America are going to follow suit. obviously the more developed Western, it's debatable whether they're anywhere near such a bold step. But, you know, it shows you that Bitcoin is succeeding on multiple fronts. It is succeeding as a store of value, but now it is also, thanks to second-layer protocols, useful as a currency. You know, early on, where everybody was thinking we're going to buy. our coffees with Bitcoin. Turned out this thing is far too valuable. But, you know, with now

some of the protocol, a second layer protocols tapping into that and providing solutions. And again, here's a little self-promotion company such as ours, which allow you to take out a loan against this great asset. You know, it can also be a transactional thing, which is another use case and is great. Al Salvador, kudos to the president there. It does take some balls to do that. Can we say balls on the show? I hope we can say this on the show. We definitely can say it. But, you know, the IMF and the World Central Bank, they weren't super happy about it and, you know, it turned out all right. So, you know, excited to see who will follow next. Love it. Let's go to another aspect of Bitcoin. Lots of debate this year around

whether the four-year-having-based cycle is intact or whether we've moved into a super cycle or just shorter cycles or something different. What's your perception on that from kind of an overall market structure perspective? Well, from an overall market structure perspective, I think that the single most important player is the Federal Reserve in the ECB

and some of the central banks, and as long as they're doing what they're doing, will be in a super gigatara cycle. This is my personal feeling. It's going to be choppy. Every time I'm on Bloomberg on CNBC and they're, oh, but it's so volatile. Volatility is a blessing and a curse, you know. But if it wasn't for the volatility, you know, arguably they wouldn't even have me on the television shows.

So it's about managing this correctly. I do think that, you know, the halving in the last one in 2020, just before COVID, right, did start this super cycle. It was a perfect storm on a different variety of fronts. But, you know, with every halving, there's so many new things to consider that you've got to be cautious as to how much you can rely on history. But just from an overall macro perspective, from an infrastructure, from building out, from institutional adoption, which is an... another very important thing that has happened in 2021. It's going to continue in 2022. Bitcoin and crypto is in a very good position.

Just want to say a big thank you to Antony again. I think it's going to be interesting and important to see how this prediction of the politicization of central banks plays out, the continuation of cheap central bank money driven by political reality and the lack of political independence on the part of central banks. That will obviously have to be. have a pretty deterministic impact on the shape of market structures and certainly the context into which crypto comes. Chancellor on the brink of a perpetual bailout for the banks. Anyways, guys, I appreciate you listening. And until tomorrow, be safe and take care of each other. Peace.