JUSTINE UNDERHILL: For Crypto Week, much of the focus has been on different trades and outlooks. But in this episode, we're going to focus on three people building businesses in the crypto space. First, I sit down with Marc Bhargava to discuss his crypto electronic trading platform.

MARC BHARGAVA: What you see today is a lot of institutional interest. But it's basically funneling through crypto funds, particularly. It's not going direct.

JUSTINE UNDERHILL: Then Real Vision's Tyler Neville talks with Yin Wu, the creator of the protocol DIRT, a blockchain based method for vetting information.

YIN WU: So I think within crypto, we have to ask the question of where are we actually in this innovation cycle.

JUSTINE UNDERHILL: And finally, I speak with Jalak Jobanputra, the founder of an early stage venture fund centered around blockchain technology.

JALAK JOBANPUTRA: Well, I view all cryptos as eventually taking some mindshare away from Fiat. And a lot of it, I think, is motivated by decreasing reliance on any one currency or any one standard. And there's going to be less reliance on the US dollar.

JUSTINE UNDERHILL: And we delve into the digital currency business that everyone's focused on-- Facebook's Libra.

Enjoy. Marc, it's great to have you here.

MARC BHARGAVA: Yeah.

JUSTINE UNDERHILL: As a co-founder of a business in the crypto space, could you take us through your background and how you even got into crypto, as well as how you got the idea for your business?

MARC BHARGAVA: Yeah, sure. So my background-- I started my career at McKinsey and then worked in private equity. So it was pretty traditional, but then dropped out of that to do a bunch of different startups and work in tech, including at Airbnb for a little bit. Got into the crypto space as an-- on the investing side-- so in 2016 and '17, I was investing in many of the early stage projects-- so early investor in Blockstack, Filecoin, Zeppelin, seed investor in Algorand.

So I was really excited by Bitcoin and Ethereum, but also asking the questions, what are the other protocols out there? Who has great tech teams? Who's building scalable tech? And so I was doing that. In 2017, I co-invested quite a lot with Jennifer, my co-founder now, who was at Union Square Ventures. So they were one of the first backers in coin-base. And she helped lead deals in companies like Numerai and Polychain and such.

And so Jennifer and I co-invested in many different companies together. And we're both hearing a lot of questions on how can we place larger trades in this space. How can we do a bigger trade in Bitcoin or in Ethereum without eating through the order book at one exchange or without having to Skype or call someone or have a dealer market? Is there an electronic agency brokerage? Is there like an Interactive Brokers or a Goldman Agency desk in crypto?

And so in 2017, both of us were looking for that answer and looking to invest in a company, not really start one. But then we met our third co-founder, Greg. So Greg in the '90s built one of the first electronic trading systems, scaled it to 70 people, and sold it. That business then got acquired by Goldman. So for 13 years, he was global head of electronic trading at Goldman and senior partner. So he's someone who had really seen, you know, the development of the equities and effects ecosystem into being agency and electronic.

And so when we sat down with him and talked about similar evolutions in crypto, we really saw the world the same way. And the three of us ended up teaming up in January of 2018. And we kind of took it from there.

JUSTINE UNDERHILL: And that's when you created Tagomi.

MARC BHARGAVA: Exactly.

JUSTINE UNDERHILL: So could you take us through an example of how Tagomi works? So let's say I'm coming to you. And I want--

MARC BHARGAVA: Totally.

JUSTINE UNDERHILL: --a million dollars of Bitcoin. So I would give you guys a million dollars. And then what happens. How does it work?

MARC BHARGAVA: Yeah, so exactly. Our clients are people placing larger trades and are more sophisticated. What does that mean? You know, example clients who are also investors in us and really believe in what we're building are folks like Peter Thiel's Founders Fund, Paradigm, Collaborative Fund, CoVentures, Galaxy, Multicoin, Morgan Creek. So a lot of the larger folks in the space, you know, use Tagomi to place trades. I guess the question is, why.

Well, first, if you give us a million dollars and you want to place that sort of a trade, we'll break it up into pieces and route it across nine different liquidity sources.

JUSTINE UNDERHILL: And you break it up into thousands of pieces or--

MARC BHARGAVA: Depends on the size-- normally at least 100 or so, you know, especially if you're doing it over a period of time, like a TWOP algorithm is one that's done over time. So if you come to us and you give us a million or $10 million, either we can do the trade instantly or we can spread it out and do it over time. And in either case, we will break it into pieces. We'll smart route it wherever the price is best. We'll take into account fees. And then we'll place that trade over multiple exchanges and with multiple market makers.

And so what that does is it lets you place larger trades, because you have more liquidity. You have aggregated pools of it. And it lets you place smarter trades, because you could do it over time. You can give certain parameters. There are specific order types. And so it's the same sort of tools that more sophisticated and larger investors use in equities and FX. Over 90% of the market in those spaces is done electronically and is done in these more advanced ways. And you know, Tagomi's really the first time you can do it in crypto.

So we spent all of 2018 building it. You know, a lot of our team is from Citadel and Two Sigma. Greg obviously has great experience at KCG and at Goldman and pioneering the space. And so we've really rebuilt that over this year and launched four or five months ago and have been able to attract many of the top crypto funds, index funds, high net worth folks.

JUSTINE UNDERHILL: Now in terms of how Tagomi makes money, you would take like 25-- 10 to 25 basis points on each trade. Is that how that works?

MARC BHARGAVA: Yeah, so we-- generally we don't have any subscription. For the first few months, people normally just trade for free. We show-- we pass along any exchange fees. And then afterwards, we give them a lot of optionality. So either they can have an all in fee or they can have a commission on top of the exchange fees. In each of those cases, what we do over the couple month period we trade together is they demonstrate and see how much we're saving them. And then we make sure Tagomi is a very affordable product for them.

JUSTINE UNDERHILL: Do you over time-- I mean, as there is more liquidity in the market, do you see those spreads coming down? And do you see that potentially affecting your business?

MARC BHARGAVA: Yeah, so we definitely see spreads coming down. I think partially it's because of entrants like Tagomi that's saying, hey, look. We can get you best execution. It's going to be lower pricing. It's hard now to charge as high spreads. Also, there are a lot of market makers who have moved in creating liquidity, bringing spreads down. I think our business is really growing in that we're using best execution as a wedge to build this larger brokerage product.

So for example, right now we're experimenting with lending out coin and being able to short, as well. You know, we're working with some of our largest clients on that. Many of them like Multicoin pioneered shorting in the space and a lot of the other crypto funds we're working with.

And so I think for us, the vision has always been we're the first electronic agency brokerage-- first to get the bit license being an electronic agency brokerage, be regulated. And so it's definitely lending, shorting, trading on margin. The settlement piece we've already built out. We've integrated custody. So the real vision is for all of your kind of digital asset trading needs, you can come to Tagomi. And we've been building that out for the last 18 months.

JUSTINE UNDERHILL: And would you say that Genesis, which is an over the counter platform-- is that a competitor, because they're also getting into the lending business and borrowing business as well?

MARC BHARGAVA: Yeah, so DCG is another investor of ours. So we work--

JUSTINE UNDERHILL: Digital Currency Group.

MARC BHARGAVA: Yeah, the-- behind Genesis-- and so in that sense, they're a partner. So for example, you know, when we think about lending, right now we have a contract with Genesis and you know, with Galaxy another investor of ours, and some of these other folks who are doing lending. So again, Tagomi is all around being agency based. And so what that means is when someone comes to us like a Paradigm or Pantera, Multicoin, or one of our other clients or investors and says, I want to lend out Bitcoin, you know, we are helping them figure out how to do that. And that means partnering with folks.

And so just like on the exchange side, we partner with seven exchanges and have liquidity across them. We are going to partner with multiple lenders as well.

JUSTINE UNDERHILL: Do you have a pretty good idea in terms of where the market's heading or what the market is most interested in just being at Tagomi and seeing where the money's flowing? Could you share some of your insights with us?

MARC BHARGAVA: Definitely. So we certainly have a unique view. You know, the market is primarily still retail. So at least our internal estimates is it's more than 80% retail. And so it's a very retail driven market. It used to be, you know, maybe 100% retail just a few years ago. So the "institutional crowd" quote unquote is smaller. It's more crypto funds, index funds, family offices-- folks like that. But it's growing. And maybe now it's about 20% of the market.

And so in terms of what moves the price, the first important thing to realize is it's very low traded volumes. It's not that hard to move the price in the space, like $100 million trade, et cetera can move it. And so in a low volume environment, it ends up being a bunch of micro narratives.

So there is kind of one micro-narrative is more retail. Are they interested? Or are they not? Do they want to trade cannabis stocks or crypto this week? And you know, that's one element. Another micro-narrative is around some of the index products and ETF funds. Another micro-narrative is just as crypto funds raise more money, they can deploy it. There's a lot of news cycles going on in Asia versus the US.

So a lot people ask us, is there a really clean story that tells you will it go up or down. And of course, some of the Quant funds that trade with us on our API or advanced product trader, you know, do that as well. But there's no clear story. It's all these micro-narratives. And on any given day, especially in this low volume market, you can see certain micro-narratives winning out and pushing the price higher or lower and a lot of self-fulfilling prophecy around things like store of value, because obviously as it goes higher, more and more people think it's credible.

So it's very hard to attribute any sort of movement to one group or one narrative. It's kind of these micro-narratives of many different players. And it honestly just depends on the day and the week.

JUSTINE UNDERHILL: Interesting. So then, do you see that shifting as more institutions come into play in this space?

MARC BHARGAVA: Yeah I do see that changing. I think volumes will increase. You know, market makers providing liquidity, but also larger funds coming in and trading-- it'll be much more liquid. And I think that will definitely be good for the ecosystem.

Today the institutions in the space are kind of indirect in some ways. So I'll give you example. Like Paradigm, one of our large investors led our last round. It was Matt Wong who led crypto at Sequoia and Fred Ehrsam, the co-founder of Coinbase. They have as their LPs-- they're getting money from Yale's endowment, Sequoia, a lot of large family offices. And so it's still very indirect that there's this exposure. Or Morgan Creek, another client-- you know, they have a couple of pension funds.

So what you see today is a lot of institutional interest. But it's basically funneling through crypto funds, particularly. It's not going direct. You don't have large endowments and asset managers really doing large volumes in the space yet. I think that changing will obviously have an impact on the price, but also more importantly, have an impact on the volume and make it a more mature market.

JUSTINE UNDERHILL: Regionally, where do you see the most growth potential for this space?

MARC BHARGAVA: Yeah, it kind of depends on the product type. So there may be 4 or 5 buckets within crypto as you get more granular. So one is sort of the store of value, which Bitcoin is the clear example over half the market. Another is all the smart contract systems. So it's not just Ethereum even though that's furthest along. But it's Definity and Algorand and Blockstack. It's different networks like EOS, et cetera. And so the smart contract systems is a different use case.

Another use case is more payments and utility tokens, things like Ripple or what Facebook is doing or folks like that. And then finally, you kind of have these sort of registered securities that are tokens representing assets, which haven't developed that far. But for each one, there's different popularity.

So like in Asia, Stablecoins are really popular. And they're kind of being used as money remittance. In the US, we see primarily Bitcoin as a store of value in a world of quantitative easing. It's an uncorrelated asset that's very attractive to certain family offices and funds. And so it really ends on the jurisdiction and the geography what people are interested in.

JUSTINE UNDERHILL: Interesting.

MARC BHARGAVA: And it varies a lot.

JUSTINE UNDERHILL: So could you go into a little bit more what you see going on in Asia? And do you see that potentially changing the crypto space itself?

MARC BHARGAVA: Yeah, so we're US based. But we have a small presence in both London and Hong Kong and have met with the regulators and have clients in both those places and around the world now, trading 24 hours a day. Asia, you have to break it down even further.

So everything ends up being really granular in the space. But in Asia, you have both Korea and Japan, which are sort of isolar. It's a bit different kind of in those jurisdictions. In Korea, it's hard for capital control reasons. In Japan, there's sort of a different regulatory mindset.

And so where we've chosen to focus the most, despite having investors, backers, and partners in Korea and Japan is really in Hong Kong and Singapore and seeing the market in Southeast Asia develop. Hong Kong particularly is where we have more of a presence. I think there the interest is somewhat similar in some cases. So Bitcoin as a store of value is very interesting to people out there. There is also then a different group of sort of ALT-Tokens. Some are more native to those regions. The Stablecoins and things like Tether play a really big part of that ecosystem in a way that people are more hesitant about here in the US. And so they're certainly nuanced.

JUSTINE UNDERHILL: Do you think that the regulatory framework is also a reason that it is growing so rapidly in Singapore, Hong Kong, elsewhere?

MARC BHARGAVA: Yeah, I think to a degree. So in the US, it's done on a state by state basis primarily. So Tagomi has a BitLicense here in New York. We have MTLs in states like Texas and elsewhere. We can operate in 20 states here in the US.

JUSTINE UNDERHILL: And you have to do that individually?

MARC BHARGAVA: Each state you have to apply. So we have two former attorneys, who both worked at the SEC as our general counsel and our CCO. We can be regulatorily compliant wherever we trade. But it's definitely a large investment here in the US, because on a state by state basis, we apply for the MTLs. We post bonds. We do all of that.

And then in other jurisdictions like in Asia and Singapore, for example, it's just much easier. And then there's also sometimes more cohesion in certain countries. But to be honest, a lot of people are looking at the US to lead. So many people are looking at the US at a federal level to see what will they do. And then the UK and Hong Kong and others will likely follow. So much of the regulatory piece is definitely still playing itself out.

JUSTINE UNDERHILL: Do you see, in some ways, crypto being a way to get the unbanked or underbanked on the banking system or in a system where they're actually able to transfer money to other people, because in some ways, it's like you have places in Africa, Latin America, China that are actually leapfrogging the US--

MARC BHARGAVA: Totally.

JUSTINE UNDERHILL: --because they went from no banking system to having access to digital currency?

MARC BHARGAVA: Yeah, and I think you see that. Like a great case example is in China, for example, mobile banking came later but took off much faster and became much more prevalent. And so it's not surprising that there is really strong crypto adoption in places like South Korea, you know, that many times is kind of even more forward than the US in terms of technology adoption.

I think that it is a use case to help the unbanked. You know, it's much cheaper obviously without having a centralized party, having to have lawyers and banks to be able to just go onto an exchange and trade digital assets. I think we haven't seen it yet fulfill that view though.

So Bitcoin started out actually more as a peer to peer payment system. But today, most of the adoption is around a store of value-- so an alternative to gold, something that's not controlled by quantitative easing or governments. And that store of value thesis, I think, is what plays out most, at least in the folks we talk to who are buying through us. Payments less so-- so there has been an increase in people using Bitcoin as payment. But the volatility of the asset has made it hard.

So one of the things is Stablecoins, projects like Facebook, what JP Morgan, what Ripple, what all these folks are trying to do certainly is to have digital payments be a larger thing. I think in the long run it certainly will be. But we haven't really seen how that's played out yet.

JUSTINE UNDERHILL: So what's your outlook for Bitcoin, for other cryptocurrencies in the next 5 to 10