Unqualified Opinions: Dave Weisberger on Digital Asset Infrastructure

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Ryan Selkis
All right everyone. Welcome back. This is Messari's Unqualified Opinions. I am your host @twobitidiot, and we've got another exciting conversation today with Dave Weisberger, who's the co-founder and CEO of Coin Routes. We're going to talk about smart order routing, institutional interest and entrance into crypto. We might even get into some schadenfreude with respect to regulatory overreach, or a lack of creativity along with a side of Libra perhaps. Lots of talk about, I want to let Dave introduce himself, but he has a career in the traditional markets, and knows quite a bit about market infrastructure, and I think going to be a good conversation.

Ryan Selkis
As we think about these next 18 months and more enterprises truly coming in, dipping their toes in the water and then becoming more actively invested in crypto. So without further ado, Dave, thank you so much for joining us, and we'll try to make this interactive. As I know the last couple episodes we've done, we've had people chime in on Twitter. But for starters, why don't we cover the basics here? So talk a little bit about your background and and Coin Routes and what led you into crypto full time.

Dave Weisberger
Kind of a cool story. I mean, first of all, thank you for having me. Always a pleasure to talk to audiences about the crypto space. The interesting thing is Coin Routes comes from a symbiosis of my background and my co founder, my son, whose idea it was, Ian Weisberger. In many respects I feel like Deja Vu. Because my career has been 30 plus years focused exclusively on automation and quantitative trading, mostly inequities. So I started at Morgan Stanley, and built program trading systems and technology.

Dave Weisberger
I wouldn't trust my code anymore, but I wrote the first program trading system on Wall Street. So it was kind of fun. Moved to the front office and built the Global Program Desk at Solomon Brothers, and through corporate Pacman that ultimately became city groups. So I was there for 14 years, and along the way did things as diverse as architected market-making electronically, and built their systems, but also ran statistical arbitrage and quantitative trading, built their very first blade servers, so that you could actually do big data and analyze it. Before machine learning existed, we did very similar stuff, just more by brute force.

Dave Weisberger
Left there after spending a year and a half running a company called Lava, which was a smart routing and algorithmic trading company. That was the first company to do smart routing and equities, and Lava is actually interesting and instructive for Coin Routes, because it was founded on the notion that smart routing meant finding the best price, i.e. seeking liquidity and finding the best price. Now in crypto, because the market structure is different, that's actually dumb routing. So what most people do that they call smart, really all that smart. It's not different than smart Beta. You hear that term in investment management a lot. But really if you talk to the practitioners, most smart Beta strategies are really pretty dumb. They're just, oh, I just want exposure to this asset or that asset. So there is nothing particularly intelligent about it.

Dave Weisberger
True smart routing really has to dig deep into the market structure. But to understand the rest of it is after I left City, I went to a company called Two Sigma. I was an early employee, 240. It's close to 2000 now, and ended up building their wholesale market making business, and ran their broker dealer. So along the way as you can imagine, I've had a lot to do with regulators and running broker dealers and all this stuff. But I've always been in the position of automating trading. So going from humans to whatever. What's really fascinating about Crypto, and I did a talk a year ago, and people ask me about this all the time, is crypto today, the way people trade Bitcoin, I view it as incredibly ironic that an asset that is supposed to take intermediaries out of the system, has more intermediation than equities or FX, or options or futures.

Dave Weisberger
So clearly there's something weird going on. And what's actually happening is people trade Bitcoin pretty much the same way they traded European equities in the 90s. So in 1995 I was sitting in Victoria Plaza in London, building a global program desk for Solomon Brothers, and whenever we want him to trade something, we'd walk over to our market makers. The market makers were basically people who would put really wide quotes out into the market on a billboard system called CIAK International. The asset managers, the big…of the day would call them up, trade, get one price, do their whole block, and then go to the pub for the rest of the day because their work was done.

Dave Weisberger
That's sort of how things were done in their early to mid-nineties in the city of London. But what's interesting about it is about 80% of the volume traded that way. Yet in Germany, in Italy at that point, France for sure, Sweden, Norway, etc. They all had electronic markets. So there were prices being displayed that were being ignored or loosely followed by the big market makers. That is exactly what's happening in crypto today. So it's really interesting for me. Now here's the funny part, 10 years later…volume move. So yeah, that gives the background.

Ryan Selkis
This question has come up before. We've had folks like…from Cumberland, and Mark from Tagomi. Just give us your sense for where price discovery happens today in crypto. Because it kind of feels like it's 50/50 between OTC and what's flowing through to the exchanges. Although exchanges now for Bitcoin and Ether at the very least have quite a bit of liquidity. Those orders ultimately do hit the books of these exchanges at some point. So it's a little bit less wild west and dark pool driven than it was even a few years ago. But where are we now? If it still is mostly as you said with European equities, the prices are loosely followed. Is that still the case?

Dave Weisberger
There's basically three cross currents that are going on. There are large OTC trades that happen. Much less frequent now, much more likely to be more smaller pieces relatively speaking. Even though, well when I say less frequent, less frequent to have big OTC trades moving the market coming out of left field, although it still does happen. Effectively, the other two big crosscurrents are the liquidity that trades on Bitmex and other futures exchanges, and the spot markets. I think that a generalization that we see in the data, is that large moves tend to show up on the exchanges, deepen the order book before anything else.

Dave Weisberger
Smaller moves tend to originate in the futures markets and drive into the cash markets, or into the spot market.

Ryan Selkis
Interesting.

Dave Weisberger
And it's not always the case because I hate making gross generalizations as someone who spent 10 years running quant desks. I'll tell you, if you get forwarded correlations, if you're right 55% of the time, you're a hero as long as you can manage your money really well. So the reality is that's a generalization, but it does tend to be the case. Clearly there still are situations where people are dumb enough to call four or five OTC guys, and move the market. There's clearly still situations where large sellers are dumb and call intermediaries. But that business is faded, or is fading. There's still a lot of OTC desks out there that don't have tools to trade in the market very well. Those businesses, they will all be out of business within a year or two. I've been saying this for awhile. At consensus, there were at least three panels I saw, where sentiments like that got made. And they are definitely faded.

Dave Weisberger
The ability to trade instantaneously without committing your own capital by calling two or three of the other guys, it's a pure middleman function and that will eventually disappear. So my answer to the question is, is we see it all the time. The last three weeks has been very interesting. If you go back to before today where we saw some volatility, every time you have a period of calm that starts with establish itself in the market, you could trade 10 or 15 million dollars of Bitcoins, less than a percent all the time. When the market gets a big spike, of course that could go up to 1.5% or even 2%. So the reality is, is the liquidity that's on the exchange is definitely representative of the same market makers that you're calling on the phone, the real ones. As well as smaller quasi institutional approach trader types and then some retail.

Ryan Selkis
So tell us a little bit about Coin Routes, and the system you've built and exactly who it's geared towards. Because you and I did a demo a couple months ago. I'm sure it's evolved even since then, but it was pretty slick in terms of identifying the size of a trade, what type of slippage you would experience across different venues. I think you also have toggles or at least the ability-

Dave Weisberger
We have a lot of toggles.

Ryan Selkis
For folks that may be in the US, or in in New York state in particular, like which venues they can actually trade on, even if there are less liquid than…

Dave Weisberger
Yeah. Coin Routes Is based on three patents, and then we've taken it from there. So the first thing that's important about Coin Routes is, we filed for a distributed smart order routing complex, or a distributed trading engine. What that means is we process about eight terabytes of market data a day in..Right now we have one node which is at Amazon. We will, by the end of the year, have nodes in Asia and in Europe. So those central market data nodes are doing a lot of heavy lifting. They're processing streams of data, the full book view of all the big exchanges, we're adding the ones that need to be added etc. Now the customers on the other hand, get a client that deployed, a local deployed instance of their router, and that gives them all the functionality. All the views, all the reporting, the ability to send the orders, etc.

Dave Weisberger
It works interactively with the market data. Now why does this matter? It means we never see wallets or keys. So you mentioned Mark from Tagomi, I've known Greg Tusar for 20 years, and he's an awesome dude. We come at that market and cut it almost at half. Clients who want cradle to grave service, who want to custody, account, report, trade through one firm, that's Tagomi. Customers who want to trade through one firm but have their own accounts and be able to custody what they want, be able to do their own reporting and all that stuff, that's Coin Route. So we're coming at it a different way. But the reason that's important is because our clients don't have to trust us. Their wallets are keys, and that is a very important selling point. So that's patent number one. Patent number two is for a filtered, consolidated best bid and offer.

Dave Weisberger
So if you want to know what's the best price of Bitcoin, there are two things you have to decide. It's which exchanges do I believe in or am I eligible to trade on? So Bittrex for example was in one group, and got left out of that group because you can't be in New York anymore. So you have to have a new non-New York group, you have the people who will take New York accounts. So you can filter in the Coin Route system by API or on our screen. You can literally pick up the 40 exchanges or so that we have, which ones you want to consider. We also have filtering based on size, because in Bitcoin what's the best bid? Well the best bid is 0.001 Bitcoin, on Bit Flyer USA, which by the way happens quite a bit. Maybe you want us to look at Bit Flyer USA if they have something meaningful, but do you really want to consider a quote for 0.001 Bitcoins?

Dave Weisberger
We have the ability to filter based off of that. So that's patent two. Patent three takes into account the fact that fees matter. The, fee differential between, for an individual client could be as much as 20 or 30 basis points. Which on a $10,000 or $11,000 or $12,000 instrument, is very large, hundreds of times the bid offer spread. So we have a fee sensitive benchmark we call Real Price, and what Real Price does is it takes a discrete quantity. So it says, let's say you want to know, you're the SEC, and you want to know a….could be traded. So you could look at in real time, 250 Bitcoin, what does it cost to buy it? What does it cost to sell it? At retail fees and institutional fees, etc.

Dave Weisberger
It can give you that stream. We have a display that looks at it for the futures contracts. So we look at 5 Bitcoin with retail fees. We can show you what the real fee adjusted bid offer spread is. That's what we use for pre-trade, Because that's a reasonable pre-trade benchmark. What you'll find is that compared to where the OTC dealers quotes, is quite competitive. Sometimes the OTC dealers are well inside, because they may have for example, if they're short and they were trying to buy and you want to sell, maybe they're the best place to go. But if they have no position, quite often it's very competitive with the OTC guys, because it's basically a risk free price, and mid point of that is a very, very good price for understanding what the price of the asset is. So that that gives you an idea of what Coin Routes is based on.

Dave Weisberger
Then what we did is we said, "Okay, what's the market structure and how should you trade?" So we've developed a parameterized system, Doesn't have to be that complicated. You can just hit any easy button and say, "Okay, I want to buy it now. I want to buy it on a schedule, I want to buy it stretched out over the next few hours." But we have 14 different parameters to adjust how that will work. We obviously supply defaults for people who don't want to actually think about these things. But we have lots of different dots of differentiation in terms of levels of aggression, and how you actually do all of this stuff.

Ryan Selkis
So because you guys aren't taking custody, is this just kind of software as a service?

Ryan Selkis
Are you taking a percentage, is it a fee model?

Dave Weisberger
Well, it's software as a service, with a fee model.

Ryan Selkis
With a fee model, okay.

Dave Weisberger
Yeah, and the reason for that is we want to make it very low risk. So if a fund wants to use Coin Routes, and we've done studies. So we did a study for one of our customers where we saved them, compared to optimal routing, IE the so-called dumb routing, get the whatever you can get based on what you see. We saved them about 29 basis points. About almost half a million bucks on about 160 million dollars worth of trading. So our target is, we charged five basis points and my theory is simple. If we're saving people 10, 20, 30 basis points and we charge five they're to the good. We don't put any other fees in there, and as a result it's a very low risk thing for people to try. Of course it does require you to set up software and run it, but it makes sense to do that. That would align with our customers.

Ryan Selkis
So help us understand, you mentioned the dividing line between where you guys are and Tagomi, definitely complimentary services and maybe some overlap. But generally speaking, is it going to be the large asset managers, the large funds that start to earmark some of their AUM for crypto trading?

Dave Weisberger
Maybe.

Ryan Selkis
They come to you because hypothetically, those groups would probably not want to outsource for a much higher fee all of those core capabilities…

Dave Weisberger
I think that that's probably true, but our target audience is frankly the active traders. Anyone who's trading more than a million dollars worth of crypto a month will save money net after paying us, and have significantly more information. I mean we see things that other people don't see, because one of the big differences between crypto and FX for example, or equities, is in both of those two asset classes if you are looking at 10 price levels on the bid, and 10 price levels on the offer, you see the market. You know which way the book is leading. If you're in crypto, you need to look quite literally a thousand price levels on each side. Which we are capturing. So we have what I call a pressure indicator that people can build out of our software that says, "Okay, well where is the imbalance in the book?" Everyone's seen a Coinbase Pro GX before them, put their book shaped thing. Which is cool, but it's sort of like looking at driving down the road, we're looking through 20% of your windshield.

Dave Weisberger
Because their book might not be anything to do with where the overall imbalance is. You need to aggregate all the books, and so we have the ability to do that. So we have a lot of data which is useful for people as well. But yeah, you're right. We think that people who are actively trading, it's a pretty good solution because it allows them to trust it. I think the bulge bracket firms when they get into this, are not going to want to trust their assets to a firm that isn't capitalized with a B, as in billions of dollars in front of their name. So for us as a startup, it was absolutely vital for us to build a model where people didn't have to trust us with their assets.

Ryan Selkis
Yep, makes a ton of sense. So where are you right now? How many clients are using this, where are you in the…

Dave Weisberger
We're in the beginnings of the hockey stick. So we have on a given day, anywhere from four to six clients using the system. On a given day, we've traded as much as 30 million dollars through the system in one day. We traded obviously as little as zero, some Sundays, no one trades. Average probably is around four or five, six million dollars of value through the system. On average any given day, it's trading anywhere from 12 to 20 different currency pairs. What's interesting about us is we cover, right now we're over 250 different pairs that we support. We add them on a days notice, if people want them, they're easy to add. It's just a question of we don't add everything, because there's a lot of overhead in collecting thousands of price levels even on illiquid coins. So we add them when people want them.

Dave Weisberger
We're just in the process of getting that. We're going to announce within two weeks, a strategic investment from a large client of ours, and when we announce that and that breeds more trust, etc, etc. So we're in that kind of hockey stick level. We're way past the PowerPoint level though. I wouldn't even bother with the PowerPoints, we just do demos, and we show people that it works. But we're out there and we're signing people up. So that's where we are.

Ryan Selkis
So that's a billion, maybe a little bit more annualized, in terms of trading volume. Still a very, very small fraction of what's actually getting traded. So Bitcoin on the given days, several billion just by itself leaving out the other assets. How much volume do you think is going to move through systems like Coin Routes within the next 18, 24 months? So I know that there are other folks that are working on these types of tools. Institutional investors have to prove best bid and…Best execution of these orders. That traditionally has been a bit of a holdup. So it's, what's the reference data that you using to mark your book? How do you do custody? That's getting solved by a different group of folks and then it's best execution. It still seems like a very small percentage of the market that is actually filled with best execution.

Dave Weisberger
I think that, look at at the end of the day, I don't know the timeframe. I can remember, and I'm sorry for the storytelling, but it's actually very relevant. So I can remember because I'm old, the people on in the audience of this, will probably have to go back to the history books to remember something called the crash in 1987. but after the crash of '87 when the market dropped 25%, which to crypto folks is like, "Oh, okay fine, that's Tuesday." But we dropped 25%, shut down markets all around the world. There was a commission investigating what happened, and because I built the first program trading system, I was one of the people to testify.

Dave Weisberger
So I was in a room with a bunch of technologists who basically, they were all convinced within a few years, maybe two, three years, everything would trade electronically. I'm shaking my head saying, "Yeah, it could, but there's a lot of money stopping it from trading electronically." It actually ended up taking 19 years from that day, before everything was trading electronically as far as that goes. So I don't know about 12 to 24 months. But I can tell you that when the markets are evolved to the point where institutions don't think that it's a frontier anymore, it'll be 80% of trade electronically. Which is right now, I think if we're lucky, it's 20.

Ryan Selkis
Interesting. What are these systems, what could the impact be for these types of trading tools on the fees? Maker taker fees that the exchanges themselves charge? Because right now they're still making money hand over fist from a predominantly retail audience. They might have large market makers they work with that get preferred terms, but there hasn't, other than competition amongst the exchanges for market share, there hasn't seemed to be that much competition on on fees. This brings that to another level because it's not a want, it's a need to execute at the lowest price. So how do you think about the impact that this has on the Binances, the Coinbases of the world at scale, just to move to electronic trading? Or is it a wash, because at that point there's going to be so much more volume that it evens out?

Dave Weisberger
I think it's really interesting. Just taking those two examples shows you as different. Binance, if you trade BNB, their rack rate is one sixth Coinbase's rack rate. So Binance has already proven that when you cut fees and make it economic, you gain volume. So I think that's perfectly reasonable. I'd say on a blended basis, I would expect what will happen in crypto is exactly what happened in other asset classes, which is more or less on a blended basis, costs will drop by about 90%. So I think one 10th of today's fees will be there. But at the same time, I think volume will drop by 10X.

Ryan Selkis
But that might not necessarily trickle down to the retail, right? Because you can keep these ...

Dave Weisberger
Oh, I don't know, Charles Schwab and E*Trade. If you look at the commission rates that were being charged, they dropped the same. As electronification happened in every market, two things we saw and it's actually interesting. But in all cases you could go through it, you can look at it, and you can see physically commission rates dropping, and fees and other sorts of things dropping except for market data, which is a totally different kettle of fish. But blended fees dropping more or less by 90%. But when electronification happens, volumes increased basically also by 90%. so the net amount of wallet didn't really go down that much. It was just done differently, which is by the way the big new story this week, Deutsche Bank laying off equities. They cluelessly are blaming it on competition to Morgan Stanley and Goldman Sachs, and they're ignoring the competition that they got from…and Citadel and other small GTX others. Smaller electronic firms, where they were the ones who were eating the lunch. They were effectively the termites in their superstructure.

Dave Weisberger
So yeah. Profit margins come down for someone whose model is based on that. So will exchanges, will business models need to adapt? Absolutely. Will volumes go up and will the asset class become more attractive to people as a result? Absolutely. Is one of the things that will drive that, the ability of technology such as we're doing at Coin Routes, and that others are doing? Absolutely. Is it necessary? Yes. Is it sufficient? No. There are other things that have to happen. Other ways of doing pan exchange custody for example. Because one of the problems that people have is interestingly enough, a lot of the consumers, a lot of the traders of Bitcoin are not price-sensitive, which is really weird if you think about it.

Dave Weisberger
But they're more more concerned about, "I'm not going to give you mine until I get the cash, and then the escrow changes hands and all of that." Whereas in other asset classes, people don't worry about that. There's trusted providers. Once you're in your trusted providers, you do what's most economically efficient. That will happen too. But that's another one of the reasons why it might be stickier on the price side for a while.

Ryan Selkis
It was interesting that one of the first things that you brought up when you walked in, we were talking about things that we could cover, was on the regulatory front. Messari, our whole day we think about the SEC, and all of these long tail of token projects that are trying to figure out how to operate in the US and release these tokens. It doesn't feel like your day to day is so much focused on the SCC. It feels like it's more about the CFTC, and the rest of the alphabet soup. Where do you get frustrated from a regulatory standpoint? I'm going to try and get you in trouble here…

Dave Weisberger
Some of my friends down in Washington know my feelings. I don't hide them. I was talking with one of the commissioners a couple of weeks ago, and I basically told him point blank that when we were specifically looking at VC investors, and we just closed an investment round, maybe we'll raise some more money at the end of the year, but we're not actively killing ourselves for investment. That one of the first things every investor said to us is, "You have to establish an overseas subsidiary." In fact, you might want to move overseas. When you tell people, I told one of the congressman who was a co-sponsor of the Token Taxonomy Act, and one of the commissioners is, their antennas perked up. It's like, "Okay, we know you. We know you don't want to do that. And so that's kind of a bad thing."

Dave Weisberger
Well, that's the reality. I look at your article yesterday on the the grade scale, and a training strategy for that. And I had known about this. I have friends who were doing that strategy for the last year, but okay. But the fact is, why would we have a regulatory regime that effectively means that only rich people can do a strategy.

Ryan Selkis
Just for those that are not yet subscribers, unfortunately to our research newsletter, you're referring to a piece that I wrote on grade scales, investment trusts. Which is its own different animal, but in short accredited investors are able to create new shares in the trust, and then gain liquidity through OTC markets, which is not an ETF, but they can do so after a year and a day using something called rule 144, and essentially sell to retail investors in a 35% premium to what the underlying value is. Then folks can recycle this year in year out if they're accredited, and they can actually go through that process. I think for many investors, no one thought that this could have possibly persisted for this long. At least I didn't at that level. But that premium has existed for quite some time. But that is a good example.

Dave Weisberger
Right. But the point that I'm making here is, the SEC has been intransigent on a Bitcoin ETF. Yeah, there are some reasons, some of the people who have proposed ETF structures have done it poorly. I have a big problem with the notion that you should rely on market maker quotes to tell you where the NAV is, because market makers, I was one for 10 years. So I can tell you from a firsthand point of view, my quote is going to reflect my position, and it shouldn't. The price, it should reflect the quote that's being used by the public should be the full supply and demand, not individual market maker positions. But be that as it may, the fact is with our technology at least, you can see far more in the transparency of the underline for a Bitcoin ETF, than you can for gold or silver, forget natural gas or oil. Significantly more transparency.

Dave Weisberger
So the fact that the SEC keeps saying no, because they don't like the way the market structure works, for what they recognize to be an underlying spot retail asset, they're not allowing the ETF; means that people are either forced to buy things like the grade scale trust at a very large premium, which of course means eventually they lose money. Or worse they go overseas or worse still, they take on risks that they don't understand by trading futures. So to me, that that frustrates me. I think that's just a really bad set of decision making. I understand why they started that way, but at this point I think those reasons are gone. Certainly if you have the right technology those reasons are gone.

Ryan Selkis
That's more kind of macro in scope. Is there anything in particular that affects your business from a regulatory standpoint?

Dave Weisberger
Oh sure.

Ryan Selkis
That might not be as obvious…

Dave Weisberger
Well yeah. The single most obvious thing is people ask us, "Why don't we set up our own accounts? Why don't we handle customer funds and do it for them? Because we can do it for ourselves," and we can show how the technology works and the answer is-

Ryan Selkis
Which is basically Tagomi's model.

Dave Weisberger
Yeah. I don't have 10 million dollars in my back pocket to go through 50, or let's say a critical mass of 25 states, MTL licenses, federal money transfer licenses, banking, charters, CFTC, everything. If you look at what the money that was spent to invest in some of these businesses that look and feel similar to ours, it's an enormous percentage on regulatory. So we don't want to do that. So we're staying as a software company, and that definitely limits our flexibility. There's no two ways about it.

Dave Weisberger
The other thing is, is when you look at what the regulators do, the whole thing with Bittrex. Knocked them out of New York, or what's going on? Well, what does that mean? It means that we, our headquarters is California. So for us it's not that big of a deal. But there's exchanges as US citizens that we can't model. So we need to set up an overseas subsidiary to get accounts, to be able to verify that our technology works with those exchanges. So that's a frustration. Yeah, there's ways around it, and we have found those ways around it. But it's frustrating because it effectively means that you have less professional people. My largest frustration has to do with potential clients. So there probably are hundreds, but I've talked to about a dozen broker dealers that would love to offer agency trading services for Crypto to trade. Buy, sell, Bitcoin and some tokens, etc.

Dave Weisberger
They have been frustrated because the SEC and FINRA isn't going to let them do it. Now that's interesting and of itself. But if you think about what does that mean, that means that people who want to hire a trusted agent have to look outside the broker dealer community. Outside the broker dealer community people don't have a clue about best execution. They don't have a clue about the need for segregating customer assets. They don't understand fiduciary responsibilities. I've had series 24 and everything on down the alphabet soup of all this stuff, and this stuff you have to learn about, you may not trust Wall Street, but the alternative to not Wall Street is what we had back before the Great Depression. So by a matter of complete unintended consequence, what FINRA and the FEC are doing, is forcing people to use the exact archetype of agents that they stopped and put out of business before the great depression, because they're stopping broker dealers who at least have the ethos and follow the principles of best X.

Dave Weisberger
They're not letting them establish that as a business. Which to me is absolutely irresponsible and counterproductive. So yes, you want to get me in trouble, that's cool. But I have said this personally to Robert Cook. He knows I feel this way.

Ryan Selkis
The most interesting thing about what you said, as a software company, you have to set up a subsidiary just to get the data feeds?

Dave Weisberger
No, not to get the data feeds, but to be able to, because we offer algorithmic trading solutions. So let's say a customer of mine comes to me and says, "I want to trade with, OKEx." When you use Coin Routes, you don't have to actually have multiple exchange accounts. That's sort of a myth. Let's say you wanted to trade on OKEx. I'm picking them because you have to be non US to have that account. So what do we need to do? We need to find a friendly customer who will let us experiment with their accounts, to test to make sure our algorithms perform as we expect them to perform.

Dave Weisberger
One of the interesting things about crypto exchanges are, there are nuances to trading with every exchange. We know more about the inner workings of the APIs at multiple of these exchanges than the exchange people do themselves. I have actually had to educate the Biz Dev people at…about, "You know, this exchange, if you get a cancel back message back, you could still get eight executions subsequent to that. And here's why, and Here's the sequencing." So we have to get into that level of detail. To do that, there's no test systems in these exchanges. You have to use your own money. So we use ours when we can, and it doesn't take a lot of money. I mean you can trade for a few hundred bucks, fractions of whatever. But you need to get that nuance done. So yes, we need to do that. So that's been somewhat frustrating. That's why we were set up overseas to do it. And that's the reason.

Ryan Selkis
Interesting. So looking ahead to the next year, couple of years, what do you think are going to be some of the biggest changes in market structure in Bitcoin and Ethereum? Will there be really anything to pay attention to outside of those two assets? From an institutional standpoint, or for the foreseeable future, is that really where the lion's share of the action is?

Dave Weisberger
Well, A, yes. It's where the lion's share of the action is. B However, one of the things we find is that what happens in Bitcoin trickles down towards Ethereum, and moves down towards your favorite XRP and others.

Ryan Selkis
It's the…waterfall

Dave Weisberger
Yeah. Well, call it whatever you'd like to call it. The fact is, I'm actually writing a piece about altcoins. It perturbs me that people lump everything other than Bitcoin and Ethereum into altcoins. Well the reality is there's wide differences, not just between them but just in terms of what they are. Some of them are literal altcoins. So altcoins, Litecoin is an altcoin. It's basically what is it? It is trying to be a store of value like Bitcoin is. That's the only thing it can do, right? There's smaller ones like BitGreen, which is trying to be an environmentally safe version of Bitcoin.

Dave Weisberger
But that's a small percentage. Most of what are altcoins are tokens invented supposedly to support an ecosystem. The vast majority of those have no ecosystem to support. So there are these tokens looking for a use case, as opposed to BNB, which has done very well because there is a use case. So there's a use case and ecosystem. So when people look at altcoins and they look at the group, the ones that never should have existed in the first place, because you could have use Bitcoin or Ethereum, or Stellar or XRP, or some other existing public blockchain inside your use case, those ones are on the slow road to nowhere. And they keep going down, Bitcoin rallying doesn't matter.

Dave Weisberger
The ones that actually have an ecosystem that are developing, that's relevant. Because that's the business. So what we find, however is the market structure of those altcoins is remarkably similar to the way that Bitcoin, Ethereum, traded a couple of years ago. Which is to say wider spreads, no coordination, and that's why we actually think that that trend will be dropping. Because we can show people tremendous benefits, and trading with knowledge of the market in altcoins. Now the reason why there's a bigger benefit in altcoins using software like ours, is because in Bitcoin there are market makers who, you're going to lose dollars, tens of dollars and in rare cases, hundreds of dollars in Bitcoin. Which is still a percent or fractions of a percent.

Dave Weisberger
In altcoins, the difference between multiple exchanges can be significantly greater than that. So keeping yourselves in line, being aware, that's kind of a big deal. And so we think that the technology is really important for that. By the way, the market is evolving, every month things get a little bit better, a little bit tighter, but there's a long way to go.

Ryan Selkis
Well, there's a long way to go. So we'll have you on again, and hopefully a few months we'll be able to talk about the next major topics of conversation. Which I'm sure we're probably going to be some major money managers, or hedge funds, or maybe even larger asset managers moving into the space. It's my prediction I think we're both betting on that pretty heavily, have a ton of skin in the game there. But in the meantime, thank you so much for coming on. I think hopefully our users learned a lot here. Just as a reminder, we are going to be working with BlockWorks Group going forward. So this is live stream today. We're going to continue to do live streams, but these are going to be packaged up into a nice, neat little box for a podcast that you can consume anywhere, that you'd like to listen after the fact. So thanks again for tuning in. Dave, thank you. And we'll see you again real soon for Unqualified Opinions. Peace.