Jeff Handler: 0:00

But we've packaged up is basically a way for anyone to get exposure to the upside of soul price movement and soul staking rewards while mitigating and eliminating the risk of extreme downward price volatility.

Joeri Billast: 0:19

Hello everyone and welcome to the Web3 CMO Stories Podcast. My name is Joeri Billast. I'm your podcast host, and today I'm joined by Jeff Handler. Hi Jeff, how are you? Joeri, all good over here. Happy to be here. Happy to have you, Jeff. Guys, if you don't know Jeff, he's the co-founder and the CCO at OpenTrade. Jeff, for my listeners, can you explain a bit more about your background and tell me what OpenTrade actually does?

Jeff Handler: 0:51

Yeah, definitely. So my background, I've been working in financial technology, let's call it, for my entire career. And so that span from one of the first Bitcoin wallets on iPhone back in the very early days to trade and supply chain finance. Then most recently, prior to founding Open Trade, working at Circle and at Center, the joint venture between Coinbase and Circle that launched and initially governed USDC. And it was really there that we'd always been interested in stable coins from a conceptual level before they even existed, to, of course, the implementation of USDC and the growth of that ecosystem. And that was really where we saw that there was a lot of infrastructure surrounding stablecoin-based products that would really prime them to continue to be what we really see them as the killer application for blockchains and these decentralized networks. So that one of the first things we saw with that was yield, as we call in the industry. So ways for folks to generate stable, predictable returns on stable coin balances without having to off-ramp back into US dollars or go use some different financial institution than what they're operating in on-chain. And so that was the idea behind open trade. And ultimately, what we've created is a platform that allows the companies who are building on stable coins, so fintech, centralized exchanges, neo banks, to easily and securely generate real-world asset back returns on their stablecoin balances. That's um that's open trade. We've been around for um around three years now. We have clients all over the world. And yeah, I'll probably leave it at that.

Joeri Billast: 2:48

Thanks for the introduction. Actually, I had already people from Circle joining my podcast too. Stablecoin is a real hot topic. Now, when you look at let's say the last 12, 18 months, is there something that has changed? What finally made institutional stablecoin yield viable at scale?

Jeff Handler: 3:07

Yeah, I think well, one thing I would I would say is that stable coins have been seeing massive adoption for I'd say beyond just the last 18 months, really the last three to four years, where I don't have the figures right in front of me, but when you look at some of the volume figures that have come out in reports of stablecoin adoption for the last four years compared to well-established networks like Visa, for example, the scale of that adoption in that short amount of time is is frankly just remarkable. And I think that um a lot of that had been primarily driven in DeFi use cases, which makes a lot of sense, right? One of the first core use cases for stable coins was how can I hold value on-chain that's linked to US dollars without having to actually go off-chain and ramp into US dollars. And so that use case drove a ton of volume. And now it's hard to find an exchange or DeFi venue that doesn't have some sort of stable coin that users can access. And so I think all of that combined with a number of non-crypto native use cases. So, for example, what a number of our clients do, which is really using stablecoins a way to offer users US dollar accounts within a more traditional neobank fintech experience versus an exchange or a DEX. And so I think that's not I think I know that's led to a huge increase in volume from a market that's outside of the pure crypto native side. And when you bring those both together, combined with a lot of investment in the products in the space, that's where, in particular, over the last 12 to 18 months, it's now clear for everyone that this has been happening and that this is uh yeah, a big deal.

Joeri Billast: 4:57

Yeah, absolutely. It's one of the hot topics, certainly also this year. On my podcast too. Many founders also uh speak about tokenization as the future of finance. From your perspective, where does tokenization end and where does real stable coin yield infrastructure actually begin?

Jeff Handler: 5:16

Yeah, I think that um well one as a as a vocabulary term. I think people have different definitions of of tokenization, but from our point of view, what we've really landed on is making financial assets and investment strategies easily accessible on chain. That's really kind of where we fit into tokenization. And from our perspective, a number of companies are making this a reality today. Um, there's large amounts of volumes that are moving today and have been over the course of this last year from someone holding a stable coin balance and then somebody on-chain accessing returns linked to money market fund investments that are made off-chain through this kind of tokenized model or structure. I think that the most important thing is to always look at these solutions through the lens of the actual use cases and applications, right? I think that tokenizing something just for the sake of having a token on a blockchain is largely at best an academic exercise in a number of regards. And so I don't find that quite as interesting. And frankly, I think that some of that can be a bit sensationalized. But where the rubber is hitting the road is when these products, these solutions are actually being used within real use cases and driving real adoption.

Joeri Billast: 6:54

Yeah, that's the main thing. And it's not about the technology, but about the real use cases. It's a mistake that a lot of tech founders make that they talk about how beautiful a technology is, but not what it's in for the people themselves. Now, you only mentioned a bit that OpenTrade positions itself as an enterprise grade rather than DeFi native. In simple terms, what mental model should marketers' founders use to explain the difference without losing credibility?

Jeff Handler: 7:25

I think on our side, the way we categorize ourselves is that we're a lot more like a SaaS company than we are a decentralized protocol where clients that use open trade as stablecoin yield infrastructure, they're getting a great technology platform. And our yield products exist as smart contract faults on Ethereum, Avalanche, Plume, and increasingly more blockchains. But under the hood, there's a professional bank grade asset management operations team that is onboarded to 40 financial institutions and manages all of the reporting and critical day-to-day operations of handling the amount of volume and investments that we do at scale. And in addition to that, there are full institutional legal protections that our clients are afforded. Another critical element when folks are using this for treasury management, as opposed to a DeFi decentralized lending marketplace, it's decentralized, right? There are mechanisms, both economic and technological, that can protect lenders and even the stakes. But yeah, from our side, we find that there's people that need and desire that additional legal protection that you would see in traditional financial services. Those are the core distinctions that we probably draw. But at the same time, we have products that we're just launching now that are used in DeFi. We are increasing and broke rolling out products that are not purely real-world asset yield generation strategies, but actually some crypto native yield generation strategies. So there's distinctions, but we're by no means drawing a line that one is good or bad or better than the other. They're just different models for different users at the end of the day.

Joeri Billast: 9:18

Now let's talk about price noodle staking. It sounds almost counterintuitive in a market driven by volatility. What assumptions do most people get wrong when they first hear about it, Jeff?

Jeff Handler: 9:33

Yeah, I think that as you say, it is a bit counterintuitive, and a number of these kind of like trading terms can be a bit more confusing than they are, clarifying in some ways. But essentially, this is the what I just mentioned, yield products backed by crypto native strategies. This is the first product that we've rolled out in this regard. So we partnered with Figment to develop a solution that allows people to generate yield on USDC that is deployed into, as we have here, the delta neutral Solana staking strategy. Sounds counterintuitive. So what's actually going on under the hood and where do people get confused? So it is a volatile asset, right? As any of any of these crypto tokens are. Staking rates, however, are fairly consistent, around six to eight percent that you earn on Solana. The reason, though, that for example, if you have a large balance of stable coins in your treasury, you likely have them in stable coins versus sole or ETH or BTC or something else because you don't want to be exposed to the volatility, right? Even if you're staking it and getting rewards, the price of soul goes down by X percent in a given day. That's that's why you would be in stable coins versus just buying soul and staking it yourself. Is a way to hedge against this volatility by effectively taking a short position by trading something called a perpetual future. So basically taking the equal and opposite short position on what you have in staked soul. Now managing that effectively so that it remains delta neutral, i.e., you're not um as exposed to the downward volatility price of Solana is a full-time job, right? That's a you need an algorithmic trading strategy and tools effectively to to run that at scale and to and to mitigate against risk that comes in a variety of different vectors. And so that's what we've packaged up, is basically a way for anyone to get exposure to the upside of sole price movement and soul staking rewards while mitigating and eliminating the risk of extreme downward price volatility. And where effectively, for them, stable coins in, stable coins out, and everything is managed through uh a combination of open trade, big men, and and other partners. Yeah, hope hopefully that helps demystify it.

Joeri Billast: 12:22

It helps to shine a light on these things. Of course, for you it's very logical matter for people listening.

Jeff Handler: 12:27

It wasn't logical for me at first. I'll tell you what, if you're not familiar with this stuff and you haven't been exposed to it, yeah, totally get it.

Joeri Billast: 12:34

I always have show notes linked to this podcast episode. If people are now listening to this and they want to read it again, be sure to check out the show notes. All the explanation will be in there. Now, Jeff, you've worked closely with banks, new banks, large corporates. I'm curious what is the real buying trigger today for these institutions when they evaluate stablecoin yield products?

Jeff Handler: 13:00

Yeah. No, it's a good question. I think that working with banks and larger financial institutions, it's always going to take an extremely long amount of time. These are extremely large, complex organizations with a variety of different stakeholders and risk management principles and basically a number of different elements that just make it inevitably challenging to new technologies, especially things in, you know, kind of stable coins or crypto at any sort of short time horizon. And so with open trade, we don't really focus on selling products to some of these larger financial institutions. We work with them as effectively financial counterparties for executing our various real-world asset-backed yield operations. But yeah, overall, the buying trigger is a bit hard to find with them because you have to distinguish first are they actually buying or are they experimenting? But then for you know, I'd say the NeoBanks and FinTech exchanges and the others, for them it's it's really the opposite, right? Where their unique position and how they compete against established institutions is by being nimble and agile and being able to roll out new products and features and quickly to respond to their user needs and what their growth drivers are. And so for them, what we've seen is the buying trigger is one at the first and foremost is always trust, right? Ultimately, these are financial services products that used at scale. There's a lot of value going around, right? A lot of a lot of money going around. And so it's it's quite a serious decision to align on a specific vendor that you're gonna trust to carry that out. So I think that's first and foremost. And then from there, it's product market fit, is the kind of like age-old term for this. But I think it's very applicable, which is if your product has a specific fit, spits a fits a specific need, not a nice to have, but a need for these companies. And it's simple was probably a bit too loose of a term, but not overly complex and expensive to implement. That's the recipe for that kind of buying trigger.

Joeri Billast: 15:18

But you mentioned trust. Of course, trust is a recurring theme in financial adoption. Looking back at projects like USDC and now open trade, what specific trust signals actually move decision makers from interest uh to commitment?

Jeff Handler: 15:37

I think there's it's a combination of signals, but then the actual belts and braces and real infrastructure, for lack of a better term, that cement that trust. So on the signaling side, I think that first and foremost, people want to see who you work with today, your investors, your existing clients, all of that. And so I think for us, what's been really key is we have a great group of venture capital investors that have backed us and a number of different established counterparties, so traditional financial institutions that kind of give that signal right off the bat that there's people that they would know and respect for who have trusted us in in some regard. And then in terms of the belts and braces, it's for example, on the legal side, having robust, real legal contracts and protections that someone can not only just see on a PowerPoint and a website in terms of you're fully protected, but have a lawyer review and be able to assert in jurisdiction A or B that they are fully legally protected in a certain way. And that's also where the finer details on structuring. So where are the accounts that this money is being moved into, who has access to those accounts, how are they controlled, what is what happens in a bankruptcy, what happens in the worst-case scenarios. And so ultimately you you really need a combination of both, where you need to have the ability to effectively signal and position yourself as a company that operates on those principles, but ultimately it's not going to be worth anything unless you have the true belts and braces under the hood that can allow for objectively secure trustworthy structures.

Joeri Billast: 17:31

Yeah. That makes sense. Another question I have is if now people that are listening are founders building fintech or web three infrastructure. What is the hardest lesson that you've learned about selling complex systems to conservative?

Jeff Handler: 17:49

Yeah. No, I think the biggest lesson one is especially at the start, I think people can get really hung up on tracking numbers and statistics, right? I mean the way you measure a car's performance is, you know, or speed is miles per hour. A lot of times in our industry, TVL and you know, trans action volume, they're just naturally these metrics that are assigned to how well a company's performing. But as a founder, especially in the early days, that actually tends not to be the best signal of how you're performing. Of course, if you're building a product that you want to have people using it, that first and foremost. So I'm not saying that you completely ignore that side of it, but a lot of times the numbers can be inflated. So don't get too hung up on what you see out there and you know, thinking that that's the standard that everyone should be operating at. And two, takes time for new ideas to become usable products that will drive meaningful volume. And uh, and that's okay, and that's normal. And then I'd say the last piece from that is really just focusing on product market fit. Product market fit, because a lot of times it's genuinely very hard to bring that together where it'll feel sometimes that you're laser focused on just the product side and you kind of forgot about who's gonna be buying or using it, or then the opposite, where you're so focused on getting market feedback and seeing what's on Twitter and trying to adapt everything to what the market wants, but you've lost touch with what the actual product underneath that is gonna need to be and uh the state that's at. So I'd say that's you know, in summary, get too hung up on numbers and stats at the beginning and always just you know, everything you're doing, product market fit. It's real estate, they say location, location, location. It's for us. Absolutely.

Joeri Billast: 19:49

Now, a challenge that everyone has is regulations. From a commercial lens, how do you balance speeds and compliance when the market is moving fast, but regulation is still uneven across regions?

Jeff Handler: 20:06

Yeah, it's no, it's a really good point. This topic comes up. What I always like to bring up is the bit of a history lesson almost on thinking about like Coinbase and Circle, I think are great examples. Where Coinbase, I believe, launched their exchange in 2013 or 2014. So right around there was I yeah, pretty sure 2013, but maybe 2014. Um, that was over 12 years ago now at this point. And during that entire time, I think what they did really well was there was not a comprehensive crypto regulation for a lot of the years that they were operating. Things like the BitLicense, others have come in, but I think what they did really well is that they they were always surveying and engaged in the forums where regulation was being discussed and was being thought about and evolved. But that didn't stop them from rolling out a product in the meantime. What they did instead was looked at what were the regulations and laws that were out there today and how could they be applied and interpreted in our context. In that setting, we're gonna gear our business to comply in that regard, but we're not gonna wait for a specific regulation in order to operate this new business. And and when you look at other industries and other tech industries, this is basically the tried and true formula. PayPal, for example, before crypto, that was a new form factor of money and value. They didn't pause everything and spend all their time thinking about a specific regulation that would apply to PayPal. They instead fit their system within the existing regulatory, legal, and and compliance regimes while again, still engaging on and Circle the same way. USDC has been out there and before the Genius Act. Circle obviously, again, similar to Coinbase, was looking at regulation and very involved in the evolution of this, but it didn't stop them from rolling out USDC in a secure, compliant way with, again, just what the laws were that were available there. So I do think sometimes in our industry that there's a bit of almost fetidization of regulation and what that means and doesn't mean for the trajectory of the space where everyone approached it differently. I'm not a lawyer, I'm not uh an expert in this regard. But yeah, I would encourage folks to think less about the potential impact or lack of impact of a future potential bill in whatever jurisdiction and more on what are the law today, how do those apply to my business, how do I ensure that I can meet those requirements while also to your point having a viable commercial product. So yeah, you can publish articles and papers about potential regulatory positions, but doesn't sell software.

Joeri Billast: 23:19

We are coming uh towards the end of the podcast episode, but I have a final question for you. With open trades now, you enable wallets, exchanges, neobanks to embed yield directly into their products. How does it change the compet competitive landscape for user retention over the next two years?

Jeff Handler: 23:40

Yeah, I mean, so on our side, the one of the benefits of open trade for our clients is that our clients own the entirety of the experience for their end users. They, yeah, every aspect from the user experience to the rates they offer them, everything they're under the hood. But we've seen some really great case studies with our clients where being able to use the breadth of open trade products which have different risk return profiles, different characteristics in terms of how frequently you can move money in and out. That then allows them to be really flexible in terms of what they package for their end users. And so to give you some examples, these companies can have different value drivers at different points in their company's evolution. So, for example, let's say that one of the KPIs for a company is user retention, right? They want to keep users in for as long as possible and as little churn as possible. They can create their own earn products which have different returns tied to different terms. So, for example, you earn 2% if you subscribe for one week, but you earn 5% if you subscribe for two months. Others could have value KPIs that are linked to a growth, right? So just growing the amount of money that's in the app and the amount of money that users are bringing. In those cases, you can not have that kind of tiered or term model, but just have a single high rate that is linked to a minimum subscription amount. So you get X percent, but in order to get that, you must subscribe at least this amount. There's um basically it gives these companies the flexibility to a kind of tinker and test out a number of different product offerings that they control linked to yeah, specific uh thank you, Jeff.

Joeri Billast: 25:37

I think I got a lot wiser today, and I think my audience too. If now people they want to know more about open trade, about you, where would you like me to send them?

Jeff Handler: 25:49

Yeah, I think probably the best place is our website, opentrade.io, and then we're also on Twitter, LinkedIn. Yeah, those are probably the best spots.

Joeri Billast: 26:02

Yes, I'll put the links in the show notes like I do for every podcast episode. Well, Jeff, it was really a pleasure to have you on the show. Thanks so much. Pleasure to be here. Thanks very much. Guys, again, a really insightful episode. I'm sure you know people around you that can benefit from this episode, so be sure to share this episode with them. If you are not yet following the show, this is a really good moment to do this to hit the subscribe button. If you haven't given me a review yet, if you give me this 5 stars, this really helps me go a long way. And of course, I would love to see you back next time. Take care.