The CryptoMarketsWiki Podcast Episode 14: The 80/20 Split

crypto, markets, wiki, cryptomarketswiki, jason urban, drawbridge, lending, cryptocurrency, digital assets,
Matt Raebel

Matt Raebel

Editor

DrawBridge Lending LLC sees itself as the “bridge” between the cryptocurrency world and the world of institutional trading. Jason Urban, the company’s founder and CEO, had over 20 years of experience working in the financial markets before starting DrawBridge with his partners, working at firms like Goldman Sachs and DRW. In this episode, Urban discusses the finer points of running a business based around lending against cryptocurrency, the state of institutional demand for digital asset products, how to work with regulators, and more.

Topics:

00:57 – What does DrawBridge do?
02:27 – What was your experience with cryptocurrency and blockchain technology prior to 2018?
05:04 – What did you learn from working at Goldman Sachs and DRW that helped you run DrawBridge?
07:12 – What is your approach to staying compliant?
08:14 – How did you and your company manage to reach $125 million AUM in two years?
10:32 – How has business been with all the volatility in the markets for the past 4 or 5 months?
11:39 – What types of clients do you work with?
13:03 – Do digital assets have flaws that make them less attractive for investors, or benefits that other assets don’t have that make them more attractive?
16:18 – Which are you more interested in – DeFi or Central Bank Digital Currencies (CBDCs)?
20:32 – What has been the most surprising thing about running a company like DrawBridge?
24:34 – What are you most looking forward to in the next year?

 

Transcript: 

You’re listening to the Cryptomarkets Wiki Podcast brought to you by John Lothian News. 

Matt Raebel 

Jason urban has over 20 years of experience working in the financial markets. Urban got his start at Goldman Sachs, later working at DRW before founding drawbridge lending LLC with his partners in 2018. Drawbridge lending sees itself as the bridge, hence the name. Between the cryptocurrency world and the world of institutional trading. Once again I. I appreciate you taking the time to speak with me today. How you doing? 

Jason Urban 

I’m doing great. I really appreciate you inviting me out. This is a this is quite an honor for for what you’ve built here in this podcast, so I’m happy to be here today. 

Matt Raebel 

Thank you so much. I really appreciate that. So to get things started and you are the CEO and one of the founders of drawbridge lending LLC, So what exactly does drawbridge lending do for its clients in your words. 

Jason Urban 

I think the best way to think about drawbridge is that we’re a structured product business. So what we do and how we started is by giving people the opportunity to monetize their crypto without giving up control, hence lending against that and where we differ from other lenders in the space is we use our experience in the derivatives markets to create structures that quite honestly give a better end result to the client and so from that standpoint that that business that original Fiat lending business has grown and developed and morphed into a lot of other product lines so we can produce yield we can. We can lend your coin out if that’s something you’d like in a responsible way. We can lend against coins held digital assets held in IRA’s. And so at the end of the day, if you think about what drawbridge lending does DBL digital does is we’re here to create tailored solutions for a client who has Crypto who’s looking to get more out of it than just the dead asset that can’t do anything. 

Matt Raebel 

What was your experience with cryptocurrency and blockchain technology prior to 2018? 

Jason Urban 

Well, you know it. It’s funny we were, you know so so my my careers I’ve really only worked at two places, Goldman and then you know, for a decade and then DRW for a decade. And at DRW they were one of the first trading groups to really embrace crypto with Cumberland, with their, with their wholly owned sub Cumberland. And in doing so, you talked to people and you talk to people within the firm who were active in that involved in that, and I remember having a conversation one day. And a friend of mine was talking to another buddy and said, Hey, I just bought 200,000 eat for 1/4 and I was like, well you ever hear you hear a trader. So I bought 200,000 of anything. You just say, hey, what was that? You know, it kind of catches your catches, your ear. And that’s also kind of dates. The timeline of when Ethereum was trading for a quarter and when he said that I said You bought 200,000. What he said ether and I said, are you a dentist? And you know, jokingly, you know he said no. It’s ethereum cryptocurrency, and. And at first I kind of, you know I I kind of turned my nose a little bit to it if you will. I was like you know, yeah, this is great. But there’s so many other vehicles that can do similar things. But I didn’t want to be closed minded to it. And so I went out and I learned about it and in learning about it, I really started to see the ability for blockchain and. And digital assets, cryptocurrencies to Revolutionize a lot of the things that we currently know in the traditional finance world, as well as other avenues. And I thought that this was a great way to you know that this was a great thing that was going to happen. With the economy moving forward and I really wanted to find a way to become involved. And that was really the first step into that. Obviously you buy some and you learn and you. You learn the different protocols and what they do and why they were created. But as you looked at a way to step out into the business.I think a big thing was you know the trading groups who are very good at this and there are there are a number of them here in Chicago, but globally it’s not that difficult for them to take their tech and just turn it into the Crypto. Yes, there’s a little bit different. You know there’s some different things, but for the most part it you know the underlying engine is there. So we wanted to find a way to be involved in the industry, but be involved in the industry in a responsible fashion and in a way that we thought could be successful and lending was the natural, the natural step forward because of the things that we could do. Our value add in the derivative space.  

Matt Raebel  

So before you started Drawbridge with you and your partners. You managed a volatility market making index at Goldman an, then later went to DRW to fill a similar role. What did you learn during that time? That’s helped you get the ball rolling and drawbridge and then keep it rolling? 

Jason Urban 

I, I think the most important thing that you you learn, especially in a volatility spaces risk management. You know, I often kind of tongue in cheek. Say that if you want to trade underlying or you know 1Delta, you know that’s kind of like playing Checkers. If you really want to exercise your mind trade volatility, it’s a little bit more like chess. It’s a. It’s more of a 3-dimensional approach and so from that you know, I think that learning the basic tenants of risk management .Understanding when you’re dealing with highly volatile assets, which you know up until you know II think you could still say that most digital assets fall into that into that category. Understanding one how to price risk to how to think about risk and the risk that you have as a business. That your client has as, say, a borrower or a structurer, and that your counterparty has, because quite honestly in in a in a world that’s just growing, you need to make sure that you know what your what risks your counterparty has, either on the individual transaction or as a business as a whole, and making sure that you’re interacting with people who are thinking about risk responsibly is always important. And so from our standpoint, I think the biggest thing that you know has followed not only me but the but the majority of the team with similar backgrounds is a view of risk and then obviously within that you could. You could carve out a subsection of compliance because compliance and regulation are very important as well. Because ultimately that is your biggest risk if you do something wrong or do something you know, even if you don’t think you’re doing something wrong. If you haven’t put in place proper controls and policies and procedures, you can end up running afoul of a regulator, and that can be just as detrimental as having a bad trade on or a bad position.  

Matt Raebel 

I understand that compliance is rather a big part of your overall strategy. What has your approach to digital asset compliance been like?  

Jason Urban 

It’s been an adventure and it it’s been an expensive adventure in that we do retain quite a few different law firms and legal counsel because of that. Obviously, as an organization it’s paramount for us to make sure that we’re doing things in the right way. Uh, sometimes it can be frustrating if you see people who are who are making headway and not doing it the right way. But ultimately, the you know the wheels have just described very slowly, but they grind very, very fine and so from that standpoint as you know a little saying my mother used to say to me when I was a kid, but you know from that standpoint what we do from a compliance perspective is we engage regulators. We certainly ask, ask permission more often than we do. Ask for forgiveness type of scenario. We definitely seek out their counsel. Their advice to the extent they’re willing to give it law firms. But then using models that we see in the traditional finance world and applying them where there isn’t necessarily a rule yet in Crypto, but using a best practice of saying there’s no defined rule. But this kind of an attitude or this kind of a of a policy or procedure will allow us to navigate those waters so that one regulation does address this week and be thoughtful as to why we did what we did. 

Matt Raebel 

You recently hit a, uh, a bit of a milestone by which, of course I mean your company recently announced that it now manages 100 and $25,000,000 worth of assets for its clients. How did you and your company manage to get to that point in two years? 

Jason Urban 

I think the biggest thing is it’s putting the client 1st at the end of the day. You know one of the things that I took from my Goldman times and there were certain things that were indoctrinated into you. An early age in your career and one of those sayings that still sticks with me to this day is there are three things that you have in this world. You have your clients, you have your capital and you have your reputation and you can lose any one of those. But the hardest to prepare is your reputation, and so we’ve taken the standpoint of doing things correctly, putting the client 1st and building a solid reputation in the space so that people say, Hey, when I want to deal with people who are professional. The guys who drawbridge really, really are embodying that, and so as there have been hiccups along the way in a very volatile asset, I think about March 12th and the and the massive sell off and all assets for Crypto got hit particularly hard. Our clients did not have margin calls. Our clients that faced no forced liquidations. A matter of fact, they all did very well and I think that that the reason that we’ve taken a responsible view to risk as well as providing proper counsel to our clients as to the risk that they want to take. People are starting to recognize that and II think that manifests itself in the numbers that you see with  AUM. Also, with more importantly, I think our reputation and how people view us on the street and so taking that into account is really what’s been. What’s allowed us to be successful in in how we press forward. 

Matt Raebel 

So recently how has business been with all of the with all the volatility in the markets over the past four or five months? 

Jason Urban 

You know business has been great for us. I think that we build products that can that we build solutions for clients that. Can address either a very volatile market and take advantage of that or can take advantage of a very quiet market and as long as you are thoughtful about your approach, you can position yourself in in a good way. I always say that volatility is kind of like nuclear energy people look at it in a traditional with all the markets were volatile today. And that has a negative connotation, but nuclear energy. Yes, a nuclear bomb is negative, but harnessed correctly it can power can power an entire country, and so looking at volatility with a similar mindset and saying This is just a function or a factor of the market and positioning yourself to take advantage of it in a good way. Or to avoid it, if it’s something that’s negative, is very important, and I think that that’s something that we do very well. 

Matt Raebel 

Speaking of your clients, what kind of clients do you typically get for digital asset lending? How much demand comes from institutions versus retail well? 

Jason Urban 

For our product, the way we’ve built it and building it within that regulatory framework that we previously discussed is all of our products are geared towards institutional, accredited plus an ECP type of investors. So we’re solely dealing with more institutional players or high net worth players. That doesn’t mean that I wouldn’t love to be able to roll this out to retail people, but rules and regs preclude us from doing that. So you know, in the inside of that institutional universe, I think you can break it down as truly a wide variety of people. There are Crypto enthusiasts who have held coins since the early days and want to monetize, but don’t want to tax a tax event. There are miners who are very important too. What we roll out and how we constantly think about products in the marketplace. Obviously hedge funds and institutional players like that are important. A big part of our business. And then you know. Lastly, you can think about trading companies in groups like that who may, at certain points want to utilized some of our expertise too. Help mitigate a certain situation that they have on the books at at a time and place.  

Matt Raebel 

So I want to ask you about your thoughts on digital assets. Kind of more generally, do you think the digital assets have any functional flaws that might make them, in your opinion, less attractive for investment or custody than traditional assets? Or do they have advantages that traditional assets typically don’t have? 

Jason Urban 

I think that there the answer is yes to both and I know that that’s a typical fence sitting answer, but there are understanding that each digital asset, each coin, each public blockchain, and that’s when you talk about Crypto currencies and their public blockchains, right? That’s really the best way to think about them. There’s private blockchains that medical, you know medical groups used to monitor prescriptions or patient records, and you know blockchain is just changing the way business is done in every in every Ave we see blockchain being used for Crypto currencies, but those currencies certainly have different uses and they have different advantages and different limitations. Bitcoin, for instance, which is the most widely held and widely known is, is awfully slow and clunky, but you get that high level of security, but the most they can do is 7 transactions per second. That’s certainly not visa. Ask other currencies can be very, you know, can handle vast amounts of information in. In a very quick time, but there they may. They may sacrifice some of that security that you get with Bitcoin for something else, and so understanding what each currency does and why it’s important and why the protocol that it is and what problem it’s solving is very important to think about thinking about digital assets. I think as you look through the lens of what the traditional world is going to be in the future, the Blockchain solves a lot of issues that are inherent in what we’ve all done in finance for the last number of years. 20 years, 30 years. However, you want to think about it. Everything from reconciliation to permissioning people to see certain things. When you think about transactions, those things are important, especially higher order transactions. And then I think if you take this and extrapolate it to tokenization of things, imagine tokenizing a building. Or your favorite sports team. I remember when the when the much maligned Green Bay Packers were both here in Chicago right now. You know, sold shares of their team. Imagine doing that with the digital asset and now everybody who’s on their phone can own a piece of their favorite baseball, football, soccer, hockey, you name it. Um, their team or artwork or things like that. And I think that that’s where you’re going to see the world start to move, and it’s really a demographic shift as well. When you look at the Millennials and the Robin Hood traders of today versus how you know my parents were, you know, investing in the stock market and so on and so forth so. It’s just evolution and I think Blockchain allows for that evolution to happen in a in a very manageable way. 

Matt Raebel 

So Speaking of Blockchain and newer technology, we there’s been a lot of talk recently about two subjects. I would say in particular in the digital asset space, and of course I’m talking about D5, which is short for decentralized finance, specially centralized finance platforms like Kobe. Recently announced that they’re working on one. There have been another of other cryptocurrency companies, exchanges and such that are working on similar products. And then of course there’s central bank digital currencies on which the Chinese government recently well not recently anymore. I guess time works weird and in quarantine some months ago announced that. They are working on their own sort of central bank, digital currency or the Chinese central bank. Which are you more interested in, defy platforms or in a D5 Technology in general or central bank digital currencies? Which do you think have the greatest potential to disrupt financial technology? Or which one do you see the most opportunity in? 

Jason Urban 

Well, I certainly think that Central Bank I I have strong opinions on just to just to level set, but I think that the central bank initiatives are really going to just completely revolutionize the way Crypto works and the reason is  because they’re going to create rails for people to Transact. And whether it’s a digital dollar for their to digital you one, I think that every central bank will ultimately have a digital currency, their digital currency, and so from that standpoint that’s only going to make it easier. Now your phone is your wallet and you show up, and you say I’m not going to buy this in dollars. Am I gonna buy this and Bitcoin Ethereum? You know what am I going to use to make my purchase? Or am I going to use the my shares of the Cubs or whatever to Transact because there may be an instantaneous mechanism for that done? You know another app on your phone, another opportunity for an entrepreneur to create something where you can do that. So I think that that truly is going to change the way money is thought of and used in this country. I think that the Quarantine the Kovid Crisis here, you know, I thought about it in the early days. You know I used to carry quite a bit of cash in general like I would have, you know, $100 in my pocket type thing. And now I never carry cash. Did not want to touch cash and not because I was afraid of it, but just because there was no need for it and nobody really wanted to take it. Every store said use your card etc. So I think that that digital concept is going to continue to push forward central banks doing it. There’s obviously geopolitical reasons. I think the Chinese are doing it in a way to overcome the dollar. The dollar supremacy. I think that it will be a national security issue to create a digital dollar and so, and even if you think about it politically, when they the first 2 iterations of the cares act I believe, had cryptocurrency language and an it’s the easiest way to circumvent or bypass the traditional banking system. Getting money to the unbanked. Getting money to everybody simultaneously in a situation like we’re currently having. So I do think that that’s going to that that is the bigger of the two issues, but in the D5 world I think the defi is very similar to what we saw in the early days of Lending Club and prosper, and this peer to peer model. My concern with it or my thought on it is anytime you programmatically try to force a transaction to happen and selling into a bid a bit less market can cause for fluctuations and so I think that it’s going to revolutionize the way the average person. Maybe lends or borrows, but I think that on a broader scale, institutions still need to be, you know, first and foremost, and I think of Lending Club specifically is, you know they were very much peer to peer earlier. Now they’re one of the largest issuers of Ceelo’s on the street because they just you need to get that. Institutional money, two people and deep pools of money or how that happens. 

Matt Raebel 

In your experience, what’s been the most what’s been the most surprising thing about running a company like drawbridge? 

Jason Urban 

Oh, there’s a lot of there’s a lot of surprising things every day. It’s Crypto, so there’s so many so many new little things that pop up. I think the thing that surprises me the most is you see, in traditional circles people are skeptical of Crypto, at least publicly skeptical of Crypto. But behind the scenes as you talk to these large institutional players, you see that they’re actually really moving in that direction, and so maybe they’re hung up waiting for some clarity from a regulator. Or they’re looking for they’re looking for some. They’re looking for somebody to come in and say Hey, it’s OK, or a great business opportunity, but a lot of these large institutions are looking at people that you would traditionally say they’re not going to be Crypto guys. I think they are, and you know, part of when we built this business. Or we started this business we looked at it and said all businesses are 80/20 in traditional finance, 80% institutional, 20% retail. I think the opposite holds true. Currently in in Crypto and digital assets where it’s 8020 and it’s 80% retail, 20% institutional, I think that pendulum is swinging. And so when we established the business, we kind of used to use another sports analogy. Said We want to skate to where the puck’s going to be, not where the puck is. And so I think the thing that that’s surprising to me is these guys haven’t full on come out. I think that you’re starting to see some of that happen. I think you’ll see more of it in the in the coming weeks and months, and I do think that now you’ve got the US government obviously discussing this as a digital dollar initiative. So that was the thing I think that was the most surprise from my standpoint when I first entered into the space. 

Matt Raebel 

Do you think it’s the type of thing where they just, because of all the stigma surrounding cryptocurrency, they just don’t want to be associated with it. Or do you think it’s more of like a strategic thing where they don’t want to tip off potential business rivals that they’re going to sort of work in this new direction? 

Jason Urban 

Well, I I think it’s a little bit of both. I think in the early days it was something that it was something that crypto had definitely had a stigma to it right? Everybody remembered Mount Guoxin. You know the dark web and all these different things and there was a there was a fear around that I think is more and more people such as the drawbridge team where we all come from very traditional Big Bang, a stab Liszt organizations to go and do this, start to enter the space. People see that and they say, Oh, there’s legitimacy to that. There are people that are doing this the right way. A way that comports with what we know and have seen in our traditional lives, and then there is that strategic part of it. But you know, you’ve seen Fidelity get into the into the business you’ve seen. JPMorgan is has said things along the way, so you know as you look at that people are, you know, these large organizations are going to step forward and there’s no hiding it there. There’s no hiding it when there’s a large initiative. So yes, there is a a little bit of a strategic view to that, but nobody wants to lose business, and they know that at the end of the day, if their clients want this, they’re going to move towards it, and I think that what you’re seeing currently with governmental responses to Kovid and the quarantine people have varying views on what the with, what the impact is going to be, but you also see people looking at I. I think it’s no secret to see the record price of gold. Bitcoin is definitely had a an all digital assets have definitely had a nice tailwind. So people I think are starting to embrace it a little bit more. Well, I’ve had a great time talking to you here today. Jason, we’re almost at the end here, but I wanted to ask you what are you? 

Matt Raebel 

What are you most looking forward? I mean, there might be a couple obvious answers right? We are recording this in August of 2020, but what? What are you looking forward to in the next 12 months? 

Jason Urban 

Well, you know I. I think that on the on the on, the more on the broader scale. I’d love to have some clarity with what’s going on with quarantine and Covid. A vaccine, some normalcy, or at least whatever the new normalcy is going to be. Some certainty, uh, and I think that that does bleed into drawbridge. And what we what. We are looking forward to. I think that what we spoke about previously in terms of more institutions coming into the space is certainly exciting. To see Real money or managers of real money, step into the space in a meaningful way. Is really encouraging it? It adds a sense of acceptance or normalcy to what. What Crypto is or what Crypto was versus what Crypto is when the loudest voices in the room or not? Fringe players, but more established players that always helps. That helps put the average investor at ease and so I’m encouraged by that. I’m encouraged by the initiatives or the things I’m looking forward to. The initiatives with the digital dollar as well as some of the other central bank currencies. I think that that will create the rails that will make it easier for people to do business the way they want to, or the way they need to. And quite honestly, I think that this is going to change the way there are things that haven’t even been invented yet or developed yet, and to see that innovation that constantly emerges, I think the other thing that. In the next 12 months, I’m pretty excited about is. I do think that North America will continue to become a mining Center for digital assets globally because of cheap feedstock electricity, or, you know energy or whether it’s from Nat gas or renewables. Or just pulling off the grid as well as a positive. Or a warming regulatory framework here, and so those are the things that kind of excite me as I look forward to what the next 12 months for drawbridge have an order. 

Matt Raebel 

But once again, Jason, thank you so much for joining spend more than a pleasure having you on the show. 

Jason Urban 

I was met. Thanks for having me. This is great. Anytime you want to a Chicago guy to come on and spout about things I’m more than happy to. I’m more than happy to come in and throw my barbs at the Packers and pull for the Cubs in the Sox and the Bears and everyone else here.  

Matt Raebel 

Terrific. 

For more news, videos and podcasts like this, head over to johnlothiannews.com. 

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