Taylor Zork, CPA [00:00:10]:
Hello and welcome to Niche. To Necessity. My name is Taylor Zork, and today we have a very special guest, Anton Golub. He is the strategic advisor for Pazar and also recently took on a new role with Swiss asset Dow, which we'll get to at the end. He is also a founder and has served as CEO of Blovtech, a Swiss market maker providing liquidity solutions to digital assets, exchanges, token, issuers and protocols. So welcome Anton, thanks for joining us.
Anton Golub [00:00:46]:
Awesome. Yeah, great to be here and thanks for having me. I'm looking forward to an awesome discussion. Exciting one as well.
Taylor Zork, CPA [00:00:52]:
Yeah, great. So I would love to just have you start off by giving us a bit of detail on your background and how you came to be involved in the Web Three space.
Anton Golub [00:01:02]:
Yeah, so happy to share that. Interesting story. So just to say, my background actually is from traditional finance. I actually worked, or I say in my previous life, I worked at a fairly big hedge fund in Switzerland as a high frequency trader. It was an amazing experience at that times. It was kind of like a very admirable to work at a hedge fund, be a trader. And I also kind of felt was very passionate about it, this intersection, technology, finance, markets, coding, it was a great experience. And I worked with a very visionary person who ran the hedge fund, richard Olsen. He was a pioneer in finance on many occasions, and just to illustrate when I say pioneer, so he launched his first asset management company where he traded in a fully automated manner back in 1985, before I was even born. So they traded through mainframes. So really like a person that was always kind of at the edge of innovation. And then how I got into the crypto industry is that Richard was always telling me about there is this new thing coming, it's called the blockchain. How about you read about it? And then I still remember the day very well today. I was in Geneva, he was in Surf back in 2013, he called me one day and he said, anton, I'm shutting down the hedge fund, everybody's getting fired. And my first thought was like, wow, this is a really horrible start of the day. But then he said, hey, I've been telling you about this, about blockchain, about cryptocurrencies, about the crypto industry. This is the new thing, so let's focus on that and let's build a startup in that. So that was back in 2013. We co founded literally the second ever crypto company in Switzerland called Lika with a vision to build a digital asset exchange. So we understood kind of blockchain is a settlement layer. You can trade many different things. Crypto are going to be a very important part, but you can trade a lot of other stuff, a lot of other tokens. And we launched back in 2013, worst possible timing ever. We launched a few months later, Mount Gogs blew up for those who remember and it was brutal. So basically for a year, very similar like today. So kind of like Mount Gox was biggest exchange, 90% of the volume turns out it was a scam in the back. So for a year it was basically like discussions were very nonproductive meaning people would ask you what is Mount Gox and what is Silk Road? I don't know if it remembers Silk Road anymore, but I have to say that was a great experience. I was co leading the company for almost five years. So it was a massive success story back then. Build the company from two to 200 people. So me and Richard at the beginning. Later more than 200 people office over the world, many different verticals within the company. One of the oldest biggest exchanges in Europe. It's kind of like a really great experience. I had a fairly good idea for timing, but I was very lucky. So I did an exit in January 2018. So literally at the peak. And then I launched a market making company where a market maker very simple, when you run an exchange, you learn the first day how important liquidity is. For me it was like a no brainer business model saying every exchange, every token with liquidity market makers company will solve that problem. No brainer. And launched a company called Fluff Technologies. So a market maker for digital assets. We were market making all of your top tier exchanges that I'm sure you and your listeners and viewers know about but also for a lot of projects. So when they issue their own token did the market maker. So some were market making, some really famous huge projects but also a lot of early stages. So also then also had a fairly good idea for timing but not perfect like in 2018. So did an exit in summer of last year and now what I'm doing now is more on the advisory side, consulting side. So working with family offices as you mentioned, I'm advisor also to Bazaar. I recently launched an initiative called Swissada Sadao how to enable DAOs to actually provide legal framework, legal grounding starting in Switzerland and also advise a couple of crypto startups. So this is in a long story, ten years. Impressed? A couple of minutes.
Taylor Zork, CPA [00:05:05]:
I mean, it feels like bad timing when you enter the market in a bear market, but ultimately, I feel like building in the bear market. You have such an advantage because you're showing that you're committed to the industry. And I think that ultimately, then when the next bull run comes, you've built this thing over a few years and now you can kind of burst onto this scene looking like you're well established, because you have been right. You've been working in the trenches when no one's talking about crypto or when people are saying it's dead. Right. So I feel like it's a blessing and a curse. Right. It sucks because you can't really talk to people about it. In that moment, everyone's like, isn't this just a scam? But then you can build your foothold. So very cool. So you spoke a little bit about Pazar, and I would like to kind of get a little bit of a better sense of what, like, a decentralized OTC marketplace is. Right? Because I'm familiar with DEXes, right. Decentralized exchanges. How does a decentralized OTC marketplace zork? And who are the primary users of this tool?
Anton Golub [00:06:17]:
Yeah, so just to explain, in the context of over the counter trades, actually, first it mentioned actually highly relevant in the crypto industry, if I would have to give a rough estimates, around half. Half is on exchanges and half of half is actually bilaterally negotiated over a counter trade. So it's highly relevant and also a big part of our industry. What you find out very quickly is if you want to do a big trade over the counter, so negotiate with someone, is that for some weird reason you always have an intermediary in between? A few months ago, or a year ago, it was Alameda, one of the biggest market makers, was also the counter trader. Today you have many other ones, but it's kind of a bit unusual, or when you think about it closely, it's a bit unusual that in a pure example where you actually can have a peer to peer transaction, which is what I know where the counter transaction is, you have an intermediary. So there was a group of passionate crypto individuals in Croatia, where I come from, and in Switzerland we was to discuss this a lot and we said, this absolutely makes no sense. All the over the counter trades should be peer to peer done through smart contracts. There should be no intermediary and no risk associated with the intermediaries. So this was actually kind of the birth of pizza was when we said, what is the vision of the crypto industry? It seems like over the counter transactions are a perfect definition that can fit into the values of our industry. But for some weird reason, we always have these intermediaries. So let's kick them out. Namely, we said, let's put together a platform, basic design on Ethereum, a platform where you have counterparties that can come to this platform, find each other, meaning kind of you say, hey, I would like to do a big trade and announce it. And then people who are listening could say, hey, I would like to be on the other side. And then you can basically execute that transaction exaction in a trustless manner without any intermediaries. So this is, in a nutshell, the story about Bazaar, which is still an early stage projects, to be honest. But it's a one that I feel is perfectly in line with the values.
Taylor Zork, CPA [00:08:23]:
Yeah, I mean, it's so funny to have it's directly counter to the ethos of the industry. Like you're talking about it's peer to peer, but then you have these intermediaries, but people still want to have the trust. So I'm assuming you guys created some sort of audited smart contract that has a UI on the platform that then customers interact with. And I would have to say, hey, I want to sell 1000 bitcoin. Does someone want to fill that order? Does someone have to fill that exact order or can they partially fill it?
Anton Golub [00:08:54]:
Yeah, so, I mean, I'm definitely happy to provide access to people who would like to try it because it's a live platform, but literally it works exactly kind of as you mentioned. You literally go and you hook up your wallet, MetaMask wallet, and then you communicate interest. Either you want to buy or you sell. And then you communicate that interest in an anonymous manner. And then people who are viewing the platform can see, okay, somebody wants to sell 1000 bitcoins or even buy 1000 bitcoins. Right. And then they can actually submit that they want to actually match that order. And then you kind of have a call of interest. And then when that call basically ends, then whatever is filled gets matched and executed. And if there's something remaining, then obviously it's remaining, but if it's fully, then the transaction is fully done. Cool.
Taylor Zork, CPA [00:09:40]:
So my next question was going to be about market making and kind of you breaking down the function that it serves and you've touched on it already. Obviously, liquidity is a huge issue in the market, so we want to make sure that this is. But could you go into a little bit more detail as to what market making is and what the role it serves in the industry?
Anton Golub [00:10:01]:
Yeah, so just to mention that market makers and market making are crucial for our ecosystem because they're the ones who solve the problem or the puzzle of liquidity. And now when people ask me, okay, what does market making look like, what do you actually do? First, they mentioned that you have to separate or kind of differentiate a bit, the market making, when you do it for an exchange, or when you do it for a specific token of a project, which is that token, when you actually market make for an exchange, literally what happens? These are usually centralized exchanges on very few rare occasions, decentralized exchange. But literally what you do is you approach them or they approach you, and they will tell you, hey, we need to have liquid books for bitcoin against dollars. Meaning actually, if people want to come and execute a trade, there should be a fairly tight spread. So difference between the buying and the spreading price, they should be fairly tight. If they want to do a bigger trade, they should do that easily, not that they move the price a lot. So kind of deep order book. And you should do this service at all times. So 24/7. So this is exactly what a market maker does actually. So he literally, let's say if you're market making for bitcoin against dollar, it's a very well traded pair. So you can source your pricing from finance or Coinbase or whatever is your favorite exchange. You can create that fair price and then you quote a deep order book around that fair price. And then when people trade against you, you can hedge that exposure somewhere else, kind of offloaded. You want to take risk or you can hold risk if you want. But this is in a nutshell kind of what it works, and this is what I describe, is usually market making for highly liquid tokens. So you work with exchanges around that when you market make for a project. This is very different than when you work together with an exchange, because a project usually gets told upfront by an exchange that they will not list them unless they have a market maker. So if you're a project, you issue your own token, you approach finance, they will tell you, let's say in a dream scenario, they say, yes, we will list you, but they will tell you, but we are not listing you unless you have a market maker who provides liquidity for your token. Because if there's no liquidity token is dead. Usually there's a price drop associated with that. And then we don't want this nonsense on our exchange. You need to have liquidity for your token, get yourself a market maker. And then the principle is also the same here. You want to enable that. The community who trades the token of that project so has a tight spread, but obviously not as tight for bitcoin against dollar, but maybe kind of still tight deep order books so people can trade. And likewise you should do that at all time. Now, the difference here is obviously that you cannot source a price for the token because it's not like a well known trader token. So you kind of know what the price is, but kind of the market maker has to discover that price. And that price usually moves based on the supply and demand change. So if more people buy, kind of the price rises up. If more people sell, kind of the price loan goes down. So this is in a nutshell kind of how market making is done and it revolves around this so called liquidity KPIs. So literally, when you work with someone, be that an exchange or a token issue, literally, it will be like we need to keep the spread within a certain amount. So let's say less than 0.5%. You should quote $100,000 on both sides of the order book and please do that 24/7 or 99% of the time throughout the week. So this is how market making works, okay?
Taylor Zork, CPA [00:13:24]:
So when I look on Coin Gecko, for example, and I look at the markets that it's on, if I look at the 2%, depth is that where what it's going to take to move the price either 2% up or 2% down on any given exchange? Is that kind of like the depth that you're talking about?
Anton Golub [00:13:44]:
Yes, exactly. And I think you mentioned something very important here is that even the data aggregators are aware of importance of liquidity, that they even quantify it for you. Imagine that you are a retail investor. You can go on Coin Market Cap and see this liquidity score. How amazing is that? The people even tell you how good liquidity is. And you mentioned that usually they report what's the depth or the volume within liquidity within a certain price band. So that means like, if I want to buy $10,000 worth of tokens, will I move it or not? How much liquidity there is. And also they provide this liquidity score, confidence score which also tells you how real the liquidity is.
Taylor Zork, CPA [00:14:28]:
Right.
Anton Golub [00:14:28]:
Because obviously our industry has a problem with wash trading with a lot of nonsense. So this confidence score also tells you, is this volume, is this liquidity real or is this nonsense? Obviously as a project you don't want to have horrible liquidity within this price band and also you don't want to have low confidence score that everybody says, look, this is wash trading, this is nonsense, don't touch the token.
Taylor Zork, CPA [00:14:50]:
Right. Because as an accountant, specifically, we have issues with if I'm working with a project that takes token, like a percentage of a token for incubating that project and now I need to move a large, let's say it's 1%, it doesn't sound significant, but when it comes to liquidity, that is a very significant portion of the supply. And so it's important to understand those liquidity differences. So you can put liquidity discounts on what you have on your balance sheet because ultimately if I try to move 1% of the supply of a token that's on a Dex and they only have 1% of the supply as liquidity pool, I'm going to basically crash that price close to zero. Right. So, yeah, it's really important to understand that. And I don't think enough people understand that they have the tools available to them to look in depth at this on the different data aggregators. So it's really cool that you highlight that. So great. So another question I had for you was with your background in high frequency trading and market microstructure, how do you see these elements influencing the crypto industry, particularly in terms of accounting and tax considerations?
Anton Golub [00:16:03]:
Yeah, so what I want to say is that my experience how liquidity market making and market microstructure impacts crypto company is actually especially related to audits and also accounting on a month to month basis. You actually touched upon something very, very important is that today actually crypto companies have such large treasuries, either be that of their own token or treasuries just because they accumulated assets. I mean, I can tell you, for instance, MakerDAO has a huge, huge balance sheet, it's a huge treasury, and they have to understand how realistic this treasury is and how they need to manage risks. According to that. You mentioned this very correctly. I mean, a lot of projects, they have a large amount of their own token. For instance, Uniswap is really well known that they have actually massive position in their own token. And then they say, yeah, treasury is as an example, over 1 billion. Yeah, but my friend, if you try to sell those 1 billion into the market, you're going to crash it to zero. So it's not 1 billion.
Taylor Zork, CPA [00:17:07]:
Well, that was the same with FTX, right? They were inflating their balance sheet with their own FTT token, but realistically they had a bunch of it out of circulating supply. So if that circulating supply comes into supply sorry to cut you off, but that was a huge reason why FTX had such a big gap in their balance sheet as well.
Anton Golub [00:17:28]:
Yes, absolutely. And this is a very specific scenario that you described here, is that Alameda Research actually took leverage based on that collateral, actually, of FTX tokens, FTT tokens, which were actually highly illiquid for the size of the leverage position. And now when you kind of reflect around that, you realize that accounting and your financial position is so important, but it's very much driven by liquidity. And that's why CFOs and people who kind of manage that also have to have a very good understanding of the markets, of the market structure actually, and how liquidity or illiquidity can very severely impact their business and increase risks.
Taylor Zork, CPA [00:18:11]:
Yeah, very nice point.
Anton Golub [00:18:12]:
Yeah.
Taylor Zork, CPA [00:18:13]:
And I mean, I think another challenge that this stuff poses is that when you have these massive micro transactions, people don't really realize the strain that this puts on the accounting function because you have so many transactions that you need to reconcile. So it highlights the importance of a subledger and things like that, where you can't be reactive to this stuff. You need to be proactive in getting your data cleaned up because ultimately, when you have these hundreds of thousands of transactions, because you are doing market making in this case, you need to make sure you're tracking that as well.
Anton Golub [00:18:53]:
Absolutely. And just to say what you perfectly explain is actually a challenge of crypto companies who do transactions as a normal course of their business is actually, you know this very well, that at the end of the month you need to close the books. Meaning if you say to your accounting partner, you have an internally an accountant, you say, this is our balance sheet, at the end of the month you have to demonstrate how you ended up there. And that means reconciliation of all of these trades and showing actually that your balance sheet actually is in line. What you actually claim is so important because as you know, in the end of the calendar year, or financial year, you have an audit where everything has to match up. So you have to kind of all those months when you were closing your books, at the end the auditor has to sign it off and says yes, everything is in line because if the books are off then you have I mean, I'm sure you know, these are huge to close the books.
Taylor Zork, CPA [00:19:45]:
It can be a nightmare. Yeah, I'm working with a project right now with reflection tokens and that's like a whole nother can of worms. But anyways, so given your involvement in various research projects backed by the EU and your participation in the Foresight project, how do you perceive the current regulatory landscape for crypto businesses, particularly in terms of the accounting and tax compliance function?
Anton Golub [00:20:12]:
Yeah, so in context of the current challenges that our industry has, I think they're very much reflective of a fairly challenging situation with the US regulator, especially around what classifies as a security or a non security. There's extremely actually importance of that for our industries because I'm sure you know this very well that from a tax perspective it's highly different treated if you are selling or trading securities and the tax consideration than if you're not. For instance. So to give you like a clear example actually in Switzerland where I come from, if you're trading securities, you actually have to pay stamp duty on each transaction actually. And imagine how different crypto market maker would have to operate and how different the business model would be if you would have to actually pay tax on each of the transaction he executes, which by the way market makers execute thousands and millions of transactions actually. So really important consequences actually that for the crypto industry in my view is that we stay within the domain of non securities so that we are actually issuing and trading and managing utility or payment tokens and especially around due to the challenges around tax issues or tax challenges or tax payments for that. And likewise also from my experiences actually of working with auditors who are licensed by or authorized by a regulator. Also the accounting considerations are much different because the reporting that you have to do and the details of the analysis that you have to do to close your books are actually highly different if you're trading securities. So I think though this is something that people kind of don't consider immediately because it's maybe not in the spotlight of these challenges, but the consequences of a regulator that create everything security token could be massive, especially in a huge impact on the CFOs and the accounting departments.
Taylor Zork, CPA [00:22:12]:
Yeah, I think that there needs to be kind of like a better I mean we've heard of whether something is sufficiently decentralized or whatever, but I think obviously we need a new set of rules because it's a completely new financial asset hype right. And it's not just one as you highlight there's utility tokens, there's security tokens which I think the obvious answer is there we have stablecoins, we have NFTs and NFTs have their own multiple distinctions, we have single use NFTs, we have perpetual NFTs, we have NFTs that represent real assets. So we can't just have one set of rules that blanketly try to get applied to this industry because ultimately as you allude to there's nuance here and it really changes the way that business have to operate. And so when we operate in a mucky not clear regulatory environment, it provides a lot of uncertainty and markets as we know don't really like that. So when I think about the SEC, I'm always like you're literally providing less certainty in a market and how is that protecting investors? By not providing clear rules. So hopefully, with finance and Coinbase going up against the SEC right now, I'm hoping that we get a little more clarity in the future. Because while the US isn't everything and it's becoming less of a voice in the financial markets just simply because of our lack of movement on this, I think that hopefully we get more clarity in the next couple of years here. So we'll see.
Anton Golub [00:23:57]:
We'll see and we're all positive. Yeah.
Taylor Zork, CPA [00:24:00]:
Okay. One of my last questions here is looking ahead, how do you see the crypto industry evolving especially in relation to accounting and finance and what advice would you give businesses to prepare for these changes?
Anton Golub [00:24:15]:
So I would have to say that what I first feel a trend actually is actually adopting all the benefits of the crypto industry when it comes to efficiencies around payments. So to give a very concrete example, most of the crypto companies have actually fully adopted the solutions within the crypto industry and I think like to illustrate that, I think going forward, if you have clients in the crypto industry, maybe 99% of them will actually pay for your services in crypto. Meaning actually then also for your accounting and finance considerations you should also adopt the tools and methodologies that can easily reconcile and actually provide you a clear picture actually how your balance sheet looks like. So if I would have to kind of tell to the crypto community kind of which direction to focus on is actually on really leveraging the benefits of what the crypto as an industry can offer. But having said that, I also say this with a disclaimer. I think the regulation is going to become more stricter going forward for specific parts of our industry. And there the tendency of the regulator would be to go centralized which maybe will kind of push us more towards the direction of traditional finance industry where again the tools are there developed. But the question is are they the right fit for the crypto industry? You know this very well that actually there are accounting and finance software actually in the traditional finance industry but do they actually understand the nuances that you just mentioned a few minutes ago around the tokens, around how the payments works around the settlement, even many times do they don't even assume immediate settlement. But I think this will be a really a challenge of the regulated companies in the crypto industry less of our pure crypto players and what. I think some of the learning lessons from the blow ups of Celsius Blockfire and so on, when you realize that they many times didn't even know how their balance sheet looks like, how much they have borrowed, how much they have lent out. I think having a clear book actually for yourself, for your CFO or for the management and for the whole board, then on a month to month basis, you know how you look like, what are your risks and how you manage them. I think this will be a huge challenge at the moment, but huge opportunity for somebody to take on that challenge.
Taylor Zork, CPA [00:26:35]:
Yeah, I remember hearing that or reading that SBF was saying like, oh yeah, we would find $50 million here and there. Such is life. And it's like they didn't have an accounting department and they didn't have any grasp on it at all at a time they were making so much money that it didn't matter. But eventually it matters, especially when there's some other dominoes that fall in the industry as did happen in 2022. Great. So the last question I kind of had for you is we talked a little bit before we started recording about your new project with Swiss Asset Dow. I just wanted to give you a little bit of platform there to talk a little bit more about that project and kind of what it's looking to do in the industry as well.
Anton Golub [00:27:26]:
Yeah, thanks very much for doing that. Really appreciate it. And just to mention that Swiss Assets Dow is a community initiative here in Switzerland to enable Dows to have legal certainty. So what we actually realized today that Dows are actually such huge stakeholders in our industry today. For instance, MakerDAO is such an important player as a protocol, but also such an important player because of their treasury. But what you find out very quickly is that even though you have these entities that are shaped in line with the values of decentralization, when you need to touch the real world, then you realize all of a sudden, actually, that what you have in mind as a crypto industry player doesn't really fit the real world and the laws and the regulation that fit there. So what the Swiss Assets Dow initiative? Actually what we want to do is create a template smart contract for projects to come to Switzerland. Say we want to create a Dow, and that they have these templates smart contracts that they enable you governance and operations in line with the value of decentralization, but also give you the protection that you would get from entity like a foundation or an association and. Give you legal certainty that you're doing everything in the right way. So I couldn't be more excited about this. Dows are still in the early days, but I feel this will give them an opportunity to kind of rise up again, kind of catch a bit more attention. And my anticipation is in the future we're going to have hundreds of thousands of dollars and it's our duty as a community to kind of be a bit of forward looking and start building on top of that and then enable first in Switzerland, but also soon across the whole globe, for people to be able to set up dows and operate in a fully compliant, legal and certain way.
Taylor Zork, CPA [00:29:18]:
That's amazing because as you highlight right now, there is a lot of uncertainty around dows. And I feel like people spin up what they call dows, but they're not really dows because they're not either decentralized or whatever. And it's great that you guys are providing the tools for more companies to be able to do that and to have a haven within Switzerland where people can know that they have a little bit more certainty and can roll these out in a more cost effective way as well, because you're standardizing those contracts. That's really cool. I'm glad you guys are working on that. So thank you so much for joining us today, Anton, and really great to have you. Thank you again.
Anton Golub [00:30:02]:
Awesome. Thanks a lot. And really cool discussion. I'm glad we made accounting and finance very sexy topic for discussion. Thank you.
Taylor Zork, CPA [00:30:09]:
That's what we try to do here. So thanks again and we'll chat soon.
Anton Golub [00:30:13]:
Awesome. Yeah. Thank you.
Taylor Zork, CPA [00:30:14]:
All right, take care. Bye.
