"Bitcoin is the Most Honest Form of Money We've Ever Had:" Robert Sharratt of CrescoFin
Sharratt, a former investment banker, says traditional finance is a scam and is building an insured, asset-backed, blockchain-based savings account to take down banking dinosaurs.
In this week’s episode, I speak with Robert Sharratt, managing director at CrescoFin, a Swiss-regulated crypto firm which wants to become a bank alternative. He says Cresco’s objective is to replace banking with code. And while that sounds revolutionary, he’s the first to admit he’s in a “boring business.”
He’s not building a yield farming platform that can get you 1,000x yield. He’s building a savings account that’s backed by real-world assets like invoices, for users to deposit fiat currency in exchange for returns of about 3%. Instead of Yolo-ing into untested smart contracts, he’s offering a product that’s insured by Lloyd’s of London. While this may sound a lot like trad-fi, Ethereum smart contracts are used for the different counterparts to agree on things like product delivery and invoice fulfillment.
Robert says the next step will be to integrate stablecoins to the savings account via a money market on Aave. He also talks about the recent sale of the Cresco token CRES and how it’s backed by actual shares in the Swiss-based company. Robert, who was an investment banker for much of his career, is leading one of the few companies walking in the delicate line between traditional finance and decentralized finance. He’s betting this will be the key to get mass adoption.
🎙Listen to the interview in this week’s podcast episode here:
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🙌 Together with Neutrino, an algorithmic price-stable protocol that enables the creation of stablecoins tied real-world assets, 1inch.exchange v2, which aims to provide the best rates by discovering the most efficient swapping routes across all leading DEXes, and DeversiFi's Nectar Beehive V1, which allows traders to provide liquidity & earn Nectar ($NEC) tokens.
Robert Sharratt: I got into crypto in an interesting way. When I was in my mid-20s, I had just finished business school, and I was interested in emerging markets valuation, so I worked for an investment bank, and I ended up a long way from home, growing up in Canada. I ended up in Moscow, Russia, and we were making a loan to a Russian company. This is a long time ago. I saw with my own eyes what many people in the crypto community decry, which is the creation of money. I was this young banker, we're making this loan and, say the bank in Russia had, about five in its Treasury. Well, we were making the loan for 100 and I kept going around saying, where does this money come from? Do we send it from headquarters in London? Does it go through the Russian central bank?
Finally, the treasurer pulled me aside, he's like, look, Robert, I create a loan account for 100 and that's our asset. Then I type in 100 into the deposit account and then the board can access that. I was just shocked. That's where money comes from, right? So fast forward, a number of years, I found Bitcoin. Because I kept asking myself, what is money? It just kind of shook me, some guy could just create it in a computer’s digital entry. Then when I found Bitcoin, I said to myself, well, okay, now I know what money is. So that was kind of the start of my crypto journey, I guess.
Camila Russo: Throughout all that time since your first loan deal in Moscow, to finding Bitcoin, were you always involved in banking?
RS: My background is a traditional banker. I'm trying to get over it. I'm taking pills and getting shots. I’m restituting myself to the world by creating Cresco. My background was in investment banking. I did mergers and acquisitions for most of my career, and then I did private equity, and that was mainly in London. But I worked in Russia. I worked in Hong Kong. I did a lot of emerging market stuff and then I did developed market stuff and then I moved to Switzerland where I live now.
CR: How did you find Bitcoin and what led you to Switzerland specifically?
RS: Well, I was in Switzerland, and I've always liked technology and I was doing a little tech startup. A younger guy in my team came to me, and this was in late 2017 or 18 when Bitcoin was at its last all-time highs, which we've just amazingly blown past in the last few days, just really cool. But at the previous all-time high, this young guy is trying to sell me on getting involved in this cryptocurrency. As everybody, I think my first reaction was that it sounds like a scam. It seems scammy, doesn't seem real. Then I reminded myself, no, no way, traditional finance is a scam. I of all people know that, I've seen it.
I looked into it a bit more, and like many people was blown away by it. It's more than just the most honest form of money we've ever had. It opens up the whole philosophical aspect of controlling your own destiny of not being taken advantage of essentially by banks and central banks, and I actually ended up writing a book about it called “One Percent”. It's about how fractional reserve banking essentially channels wealth to the 1% from the rest of us. It was really interesting because as a young guy sitting on some park bench in Moscow, asking myself what is money and thinking of maybe getting my money back for my undergraduate degree, because I'd obviously been lied to. Finding Bitcoin was an incredible eye-opening experience for me.
“Bitcoin is more than just the most honest form of money we've ever had. It opens up the whole philosophical aspect of controlling your own destiny of not being taken advantage of essentially by banks and central banks.”
CR: Wow, what a journey. I'd love to hear more about this thesis of fractional reserve banking funneling money to the 1%, if you can briefly explain that and also compare it to how Bitcoin and crypto isn't that.
Banking vs Bitcoin
RS: Well, you and I had similar experiences, right? Because I think, I remember from your really cool book that you were in Argentina at a time when there was a crisis, and you saw also, firsthand, the declining value of money, and then the state putting a limit on that. Because I think you were getting your salary out of the country and into hard currency, and then they stopped it. Right? My view is that you really only understand money if you see it raw. If you live in New York, London, Geneva, you don't think deeply about money, because you're not pushed to do it. It's kind of a strange group of people, like cypherpunks, and the Bitcoiners now who really deeply think about it. I think if you stopped many people on the street and force them for half an hour, to stop and think about money, they probably come to the same conclusion.
“My view is that you really only understand money if you see it raw.”
But for me, it was really getting deep into fractional reserve banking, how it works. It's fundamentally dishonest, Camila. It's like an inverted House of Cards. At the bottom is the fractional reserve, and it's dangerous for the economy. I think it's very unhealthy for people. Anything that's fundamentally based on an untruth isn't very good. The bank tells you, it's your money, and it's here in the bank when you want it, and actually, legally, it becomes the bank's money, and it's not there when you want it.
I think people have this, Ocean's 11 view of their money in the bank and they think somebody goes and stacks their dollar bills in some giant cast iron safe at the back and they close the door and lock it away there, and actually, it's the opposite of Bitcoin. Bitcoin is premised on no double-spend, and fractional reserve banking is entirely based on double-spend, well, more than double spend, actually.
“Bitcoin is premised on no double-spend, and fractional reserve banking is entirely based on double-spend.”
It channels money, essentially to people who have access to the banking system, because it's a godlike power that banks have. They can create money, essentially out of nothing. It's not matching savings to productive uses in the real economy. It's genuinely, banks can and do create money. I'm kind of a nerd and I was reading the Bank of England quarterly journal from 2014. In that journal, the Bank of England states that 97% of money created in the economy is created by commercial banks. So anyway, that's my view. My solution is Bitcoin and also Cresco which we've created which essentially is matched funding, not fractional reserve.
CR: Wow, that's so interesting. It is crazy that banks can really create money out of thin air. I do believe banks can fuel growth by creating that money and channeling loans and investment to places that need it. But I agree that it's only a small percentage of people who have access to that financing, and not necessarily those who actually need it the most.
RS: Well, there's no question that banks are very beneficial for the economy and the vast majority of people who work in banks are very good people. It's a deception that hides in plain sight. There's a better solution for it. But it was only recently that humanity could actually tap into it, and that's the blockchain, which essentially allows no double-spend, it allows you to trust somebody, even if you don't know them. It allows this decentralized way of essentially operating an economy that didn't exist beforehand.
“It's a deception that hides in plain sight. There's a better solution for it. But it was only recently that humanity could actually tap into it, and that's the blockchain.”
But there's no question that many of the functions of banks are incredibly valuable. A lot of it is channeling savings into productive use. The way it was originally developed was essentially it evolved out of precious metals, guilds. The guilds just worked out that, not everybody came back the next day to get the gold back, so you could write IOUs against it. It's an old model, in my view it will be disrupted by crypto.
CR: It's only a matter of time, I think. So how did your discovery of Bitcoin lead you to founding Cresco?
Making Money Work Harder
RS: Well, so there's been a war on savers that's gone on for at least the last decade, and that is going to continue for the foreseeable future. So my partner is my oldest friend from growing up in a small town in Canada. We're both sitting around, just kind of bemoaning the fact that our savings don't work very hard for us in the bank, and they really kind of work for the bank. Central banks essentially, distort the economy so that as a saver, you don't get very much for your money. We thought, well, what can we do as an alternative?
“Our savings don't work very hard for us in the bank, and they really kind of work for the bank.”
We're not crypto native, but we're both into technology. We came up with this idea of matched-funding using blockchain. Our idea was to cut out the bank and essentially tie our own savings into the real economy. That's what we did. So we actually didn't start out to create a business, we actually just started out because we were kind of pissed off at not getting very much in the bank. It's a good way to start a business, though, you know, you start it for yourself, because you're annoyed, something irritates you. So that's how we created it.
Then people would ask us, well, what do you do? I'd be in Switzerland, well, I'm trying to make my money work harder for me. And people would be like, okay, well, I kind of like that idea too and maybe I'll be part of this. We had built the software, we had tested it, tested with our own money. We didn't take any VC funding. There's no kind of these pre-sales or whatever, because we were just doing it for ourselves.
As more people got interested in the idea, because you don't get very much for your money in the bank, in Switzerland, actually, if you're an institution, you have to pay to have it in the bank. So some people came to us and were interested, but then their next thought was, would I trust you with my money? That actually led to a thought piece that you were kind enough to publish for me, which I wrote in The Defiant back in August, which is, why are banks still around, because most people don't like their bank. Most people, I think, statistically prefer to go to the dentist rather than going to the bank.
As long ago as 1994, Bill Gates said that banks are dinosaurs. That was the article that I wrote. Maybe they're dinosaurs, but they're not extinct. They're very healthy. Our solution essentially was to involve insurance. So our model is now matched-funding plus blockchain, plus insurance. Insurance essentially negates a bank's psychological advantage, which is that your money is really safe in the bank. People don't bank with tech companies, right? You don't have your salary paid into some Google account or Apple account. FinTechs have done an amazing job of improving the existing system, but a lot of it is nibbling around the edges.
“Our solution essentially was to involve insurance. So our model is now matched-funding plus blockchain, plus insurance. Insurance essentially negates a bank's psychological advantage, which is that your money is really safe in the bank.”
It's amazing what FinTechs have done. But to challenge core deposit banking, you need to address this main issue, which is the feeling of safety and so we do that through insurance. Out of that kind of came Cresco. Then more and more people got interested in it, we started testing it with other people's money here in Switzerland in addition to our own.
CR: Can you dive more deeply into these two key pieces of match-funding and insurance? What exactly do you mean by match funding? Is this actual Swiss Francs or Euros or is it crypto? How are you ensuring these deposits?
Match-Funding and Insurance
RS: It's a good question and it all starts in the real economy. We're built on a blockchain tech stack. So in our view, like for finance, there are two tech stacks. There's the old legacy tech stack and then there's blockchain. Now, our view is that blockchain will totally replace the legacy tech stack, eventually.
Our idea was just simply to make our money work harder for us. That was the idea. So we thought, well, we'll do what banks do. We'll just cut out the bank. How do banks make their money? Well, they make it by lending. Then we stopped and thought, well, we don't really want to lend money because it's just a paper promise to repay. We wanted to build on blockchain and crypto. Anybody who's thinking of a new banking model today, any thinking person will go right to crypto once you really look at it.
We thought rather than lending, what if we can physically own an asset? What we do is we essentially transform paper contracts into smart contracts. So every business relationship starts with a seller selling something to a buyer and so it's all a contract. What we do is we insist that the seller and the buyer, both agreed that the contract is essentially registered on-chain. When this seller delivers something, our mechanism is called Proof of Delivery. Because the big issue with contracts, there are two of them. One is has the seller properly delivered? And two, will the buyer pay for it?
“We thought rather than lending, what if we can physically own an asset? What we do is we essentially transform paper contracts into smart contracts.”
That's at the top of every single business relationship. Below that is debt and equity, and you can carve it up in different ways. We thought, forget it, we'll apply this crypto idea of smart contracts. Once it's delivered, and both parties agree, whatever is written to the chain is the truth, and so it's delivered. Then the obligation is just on the buyer to pay. So we actually buy that invoice which we create ourselves. So it cuts out disputes, it cuts out fraud, because it's from our software, essentially, that this contract obligation, the payment obligation exists.
We buy at a discount, the seller gets the money right away, we're cutting out the bank, so they get a better deal than they would get from borrowing elsewhere, and then we wait for the buyer to pay us in like 30 days, for example. If the buyer doesn't pay us, we have insurance. If the buyer doesn't pay, Lloyds Insurance in London pays.
But it's amazing, Camila, that by cutting out the bank, and just going to a very typical relationship in the real economy, you get an asset that you can insure, and you get a lot more than you get paid in the bank. So we offer that for 3% in USD, and it's 100% insured, whether you put $100 with us or $100 million. That's the different model. That's the match model. I'm a pretty boring guy. I spent a lot of my life thinking about fractional reserve banking and how it could be better and better for the economy and better for society. This is our solution.
“By cutting out the bank, and just going to a very typical relationship in the real economy, you get an asset that you can insure, and you get a lot more than you get paid in the bank.”
CR: So in that model, who exactly are the buyers and sellers? Where are you getting these invoices from?
RS: Well, you can get it from any relationship in the real economy. Because we're very conservative, we only deal with large corporates, and so typically, they’re investment grades. So the buyers are all investment grade. The smaller guys are suppliers to them. So we do, for example, suppliers to supermarket chains here in Switzerland. We do staffing, so a contract employee works for eight hours a day, at the end of that the employee and the supervisors sign that they work for eight hours a day and that is essentially recorded to chain. So that's our Proof of Delivery.
You can't come back later and dispute it. Our model is that with Proof of Delivery, you can't dispute it later, because that's where so many problems arise in the real economy, because you've got two different databases, one for the seller, one for the buyer, and they don't talk to each other. But if everybody agrees on using one database which is obviously the blockchain, then that cuts out those possibilities.
Switzerland's a great place for the business. One is because regulation’s very clear, two, because there's a lot of money here. The third is that there's a huge number of supply chains go through Switzerland. It's a funny statistic. But half the world's coffee flows through Switzerland, half the sugar, 35% of oil, there's enormous supply chains here, because Switzerland's a pretty safe and stable country and there's some tax advantages. We tap into some big markets. We're attacking the core deposit banking market on one side, which is a $60 trillion market, it's just enormous, and then supply chains are like $7 trillion and then staffing is like half a trillion. It's big.
CR: How much in deposits are you handling right now?
RS: At the moment, we're just testing it. We've been testing it. So my partner and I started on the first of October 2019 with our own money. We built our systems up by then, we got it regulated, we hired people. In May of 2020, we open to some selected institutions, and the early adopters have been family offices. As principals, they're really affected by very, very low rates, and they're a little bit more forward thinking about crypto. Really helpful for us was we saw a real increase in interest in the spring after Paul Tudor Jones said that he was holding crypto or Bitcoin in his portfolio.
We haven't said the exact amounts that are holding, but we're holding a fairly substantial amount. It's not on-chain. It's all off-chain. We're going to move to on-chain. We have an on-chain offer coming up next year, which we're really excited about. From the crypto perspective, we have an okay amount of money that's deposited with us. From kind of a Swiss deposit perspective, we don't have very much, because there's so much here, so but you got to start somewhere.
“We haven't said the exact amounts that are holding, but we're holding a fairly substantial amount. It's not on-chain. It's all off-chain. We're going to move to on-chain. We have an on-chain offer coming up next year.”
CR: Of course. Let me see if I understand how this works. You get investors to deposit or family, offices, funds, to deposit money with you and then you get these two sides of the coin, buyers and sellers, to access those funds, so the sellers of a product will be able to get secure cash flow from those deposits that investors are making to Cresco, and in return, you're getting the other side of that invoice, getting that cash from there?
RS: It all starts with the smart contract. The sellers are essentially delivering something to the buyer. They want to be paid, and we arrange everything in advance. What we do is we get insurance against the buyer not paying, and that's all arranged in advance. Basically, it's what the banks do, except it's not lending. It's secured. The sellers get some financing, and they get it right away, as soon as delivery is completely confirmed. Then we wait a certain amount of time and essentially, the invoice that we bought, our own invoice that we create ourselves, we buy it at 95, it pays back at 100, and that pays the interest to the depositors.
“What we do is we get insurance against the buyer not paying, and that's all arranged in advance. Basically, it's what the banks do, except it's not lending. It's secured.”
Derek and I started with this ourselves. We started testing this with single digit millions of our own money and it worked pretty well and well, there was a few early bugs in the software, but we've worked it out. But there's never been any issue with the credit side of things, so we've invited others to come into it. At the moment, it's just Swiss institutions. But if you put 10 million Euros with us, essentially, it's matched to an asset. You don't take any risk against Cresco, because we act as a fiduciary. Simply, you buy these assets, and the assets pay back such that you get an insured return.
CR: You buy these invoices basically at a discount, and then when those invoices are paid back, you get that difference, the interest?
RS: Exactly. Officially, it is essentially seen by everybody as interest. But technically, it's an increase in an asset value. But the nice thing is as a depositor, you're not taking a risk against us, and you're not taking just a promise to repay risk. What you've got, essentially is you've got an asset, you've got a legal asset, that's due to you. If the buyer, who are all major companies, if they were, in some cases, not to repay, Lloyds Insurance pays, so that's the idea. It's really only possible if you can do this on the blockchain. Because it's the Proof of Delivery is recorded to chain, so you can't have a dispute afterwards. You can't say, well, I didn't receive it, or I don't agree to it. The smart contract is that the seller and the buyer both have agreed that what is written to chain is the truth. So it cuts off the biggest problem in the real world, which is disputes between sellers and buyers.
“The smart contract is that the seller and the buyer both have agreed that what is written to chain is the truth. So it cuts off the biggest problem in the real world, which is disputes between sellers and buyers.”
CR: How does Proof of Delivery work? Is it kind of a delivery of cash and that's verified on chain?
Proof of Delivery
RS: No, to be very Swiss, think of it as like somebody who's selling chocolates to the major supermarket, so essentially, is the question, has the chocolate been delivered? Every week, you send chocolate to Migros whatever, the supermarket chains here. What happens is that the proof of that delivery is recorded on chain. So the seller and the buyer, as delivery happens, they essentially record that process that it's on chain. The smart contract, any contract, it has volume times price. So the certain amount of chocolate times the price of the chocolate equals this is how much is owed, and it's owed in 30 days. It's not a question of the chocolate supplier creating their own invoice and sending it to the supermarket chain and saying this is my view of how much was delivered and the price. It's all captured in that smart contract.
CR: The smart contract becomes kind of the one source of truth for both parties. But they both still need to kind of trust each other, right? You need to trust to the supermarket that they're inputting the right information, and the supermarket needs to trust the chocolate supplier that they are doing the same?
RS: Well, there's always a bit of trust in anything. Crypto, the idea is totally trustless. But this is as trustless as you can get, I think. Because both parties pre-agree that the smart contract like you just said, is the source of truth. What's recorded to chain from that contract is the real source of truth. So you can't come back later and say, I didn't agree that price for chocolate or whatever. Because you've pre-agreed it and you've pre-agreed that when I signed to receive the chocolate, I've inspected it, I agree, there are all these processes, at like whatever the warehouse door, whatever, it's checked, it's agreed it is what it is. I accept it. You sign it, you hash it essentially. It's recorded. So a lot of the trust part is taken away. But you've put your finger on it, Camila. The biggest point is that it's shared. This is where I think crypto will replace so many old blackbox SQL databases, which is that we've got a shared ledger now, and that is the state of truth.
“The biggest point is that it's shared. This is where I think crypto will replace so many old blackbox SQL databases, which is that we've got a shared ledger now, and that is the state of truth.”
CR: Right now, this is all done with fiat currencies, is the plan to add crypto in the future?
RS: Yes. Derek and I just started thinking we would do this ourselves, we'd make more money on our own savings. To be honest, it's very simple kind of boring business. I'm a boring guy. It's an insured savings account. It's an alternative to a bank account. It's not yield farming. You're not farming Yams. You're not going to make 1,000X on it. The point is, it's designed for mass adoption. It's designed to bring people into crypto as well, and because it's enabled essentially by the blockchain. You can do it in our three different currencies in fiat. But yes, of course, we're definitely going to do it in stablecoins. So we're trying to develop a USD stablecoin alternative, which is going to be in USDC, or DAI, or both, and we're working on that now. So that's one of the things.
What I’d really like to do is I'd like to roll this out globally for individuals. So whether you're in South America or you're in Europe, or Asia whether you're an individual or an institution, everybody can make their money work harder for them. Anybody can essentially send in money and have essentially a savings account with a Swiss-regulated company, and it's enabled by blockchain, and you can make 3% in dollars. So we're working on that. We're going to release some of our product look and feel next week. I would say like two months have been me trying to figure out listing our shares as equity. It's been a real education process.
“Anybody can essentially send in money and have essentially a savings account with a Swiss-regulated company, and it's enabled by blockchain, and you can make 3% in dollars.”
We're definitely going to do that in stablecoins. We're really excited as well. We've got a proposal in the Aave governance forum to create a money-market basically on Aave, which is one of my favorite DeFi projects, and it's such an incredible, permissionless money-market system. I think it will really change traditional money markets. So we're going to try and build a money market on Aave for our insured collateral. That's one of the things that we're doing in crypto. I mean, now we're fully in love with crypto. We did it initially just because we were irritated with the bank, and that leads you to crypto. But I think our idea for mass adoption is that once you try crypto, you're just enamored by it.
“Our idea for mass adoption is that once you try crypto, you're just enamored by it.”
CR: Let’s go back to the different pieces you mentioned. First, we didn't really finish covering insurance. By which insurance company are you insured? Did they have any trouble getting past the fact that you're using smart contracts or did that not really become part of the conversation?
Insuring Crypto-Backed Deposits
RS: It was definitely part of the conversation, I mean, it's an education process with crypto everywhere. I read something funny about Jeff Bezos raising money for Amazon in the early days and the question he got asked the most is, what is the Internet? Anybody who's doing anything in crypto, when you're touching the real world which we are, everybody asks about blockchain, everybody has their preconceived ideas. We definitely decided that insurance is crucial for what we're doing.
We looked around for a few different insurance companies and the best, like the most open-minded was Lloyd's of London. It's funny because it's the world's oldest insurance market. It's famous for insuring ships. But it's very used to looking at non-standard things. I mean, David Beckham got his legs insured there and people get their voice insured.
When we showed up there, an old friend of mine, Simon, who's now our head of insurance, he helped us navigate this market. I said, I've got something that's a bit strange to kind of explain to people and he's like, you've come to the right place. So, the amazing thing is that, I was just shocked. I started my career in London not far from Lloyds and everybody's wearing suits and ties and I thought, I don't know how this crypto thing is going to go over and they were amazingly receptive to it. It was really incredible. They were like, okay, so I see that if you use crypto, if you use your smart contracts, you're cutting out the biggest issue here, which is disputes. The second biggest issue is fraud. Because many people show up and say, hey, I just sold a bunch of chocolate to the supermarket. Do you want to finance it?
“I started my career in London not far from Lloyds and everybody's wearing suits and ties and I thought, I don't know how this crypto thing is going to go over and they were amazingly receptive to it. It was really incredible.”
The difference is that if you produce the invoice yourself, and it comes from essentially what's registered on-chain, and the seller and the buyer have agreed that what's registered on-chain is the truth, Lloyds was really excited about it, because a lot of people show up there and want to insure some industrial facility that they're building in some difficult country and there's actually a decent chance that there might be an insurance claim, whereas for us, we're only dealing with investment-grade credits. The smart contract, or Proof of Delivery technology cuts out a lot of the risk of non-payment and there having to be a claim. I think they really like it, because it's a new line of business for them. One of the most amazing things about crypto is it creates new business opportunities, so they were like, this is pretty interesting. So, it’s all completely insured in Lloyds.
“The smart contract, or Proof of Delivery technology cuts out a lot of the risk of non-payment and there having to be a claim. I think they really like it, because it's a new line of business for them.”
CR: Maybe you've made them see that blockchain actually makes it work easier for them, and they'll start exploring more blockchain opportunities.
RS: Well, Camila, in crypto, we focus on the back end and because many people are very, very technical, that's what we're really, really interested in. You get all this tribal warfare about my blockchain versus your blockchain. Whereas in the traditional world, for most users, they just care about the benefits to them. Human beings are selfish, and they're pressed for time, and they're not going to go in and read your really, really detailed white paper. What they really care is what's in it for me? Finance is about risk and return. So it's like 3% insured return, that's it. You go and talk about the back end. I'm really excited about it, I love these conversations, because I can talk about how we do it, how the company works, etc. But most people are, okay, it's 3% in USD. It's completely insured by Lloyds.
“In the traditional world, for most users, they just care about the benefits to them. Human beings are selfish, and they're pressed for time, and they're not going to go in and read your really, really detailed white paper. What they really care is what's in it for me?”
CR: That’s all you need to know.
RS: Exactly. My business partner has his PhD in structural engineering. He's so into all these details, and finally, he turned to me in some of these meetings that we're having, and he's like, look, Robert, stop saying crypto, blockchain getting into it. He says, just tell them it's 3% insured. Finally, people are, yeah, that's great. It's like watching Netflix, nobody thinks of streaming packets, and the transport layer, and people just want to be entertained, right? So it's the front end, it's the UI/UX, it's the benefits to users that really is the most important part.
“It's the benefits to users that really is the most important part.”
CR: As you said, once you start using this stuff, you realize how much better it is than traditional banking. To me, it's a matter of when, not if people will start using DeFi more.
RS: I think that's right. Because if you could give people a taste test, like a Coke/Pepsi taste test, if you could sit down and say, here's your existing financial system and here's the UI/UX, here's the KYC, here's all the complexities to it, and then here's what it looks like if you use Bitcoin, or Ethereum, or some DeFi project, 99 out of 100 people are going to be, oh, my God, this is so amazing. I'm not going back to banking at Wells Fargo.
CR: I wanted to get into your equity offering or tokenized equity, can you explain exactly what was going on there?
Equity Tokens
RS: Well, what we've done is that we've offered equity tokens in crypto, so it's a one-to-one match with the shares of our company, this Swiss-regulated company. I don't understand a lot of the tokens that are out there, to be honest. I don't really understand utility tokens, governance tokens. I think a lot of it is because of the regulatory system. The regulatory system exists to protect people. I really understand that, however, it also exists to protect the incumbents from competition and it's the same thing with KYC. It's definitely a valuable thing you need to do it, but I mean, it's a real disincentive to innovation. Ours is very simple. It's just tokenized equity. It's like buying a tokenized version of Apple or Tesla.
“We've offered equity tokens in crypto, so it's a one-to-one match with the shares of our company, this Swiss-regulated company.”
What we did, Camila, is we really wanted to develop a community. So Derek, and I didn't take any money, we developed this all ourselves. We paid for everything ourselves. We thought we're not beholden to anybody now. What we'll try and do is we'll try and create a community who really believes in this, who really believes that there's a better banking model that people deserve to have their money work harder for them rather than for the bank. We wanted to distribute as many tokens as we could, as many shares basically at a low price that was fair. I mean, people talk about fair distribution.
Our first thought is Uniswap, because it's kind of the reference in the space, and then we've got some really cool advisors and some of the advisors said, no, because of the AMM price curve, the price is going to skyrocket and you're not going to distribute as many tokens as you probably want to create an early community. So, we came up with a kind of a novel idea. My partner, Derek has just written about it in Medium.
We went first to the Dodo exchange, because we fell in love with kind of their PMM algorithm, which basically replicates an order book on-chain. So basically, it means the price curve moves with the price so it doesn't skyrocket. Then we went to Balancer, and we did an LBP, a Liquidity Bootstrapping Pool on Balancer, which essentially, is a declining option or a Dutch option mechanism, so it starts higher and goes down. In both those cases, the idea is that the community wins and bots lose. But it was pretty complicated.
We did it, Camila, and we're really excited to have our community but it was endless questions of when are you going to Uniswap and why did you do this? We're a bit naïve, we didn't set up a Telegram channel first. So the community set up a Telegram channel for us. That's why I love crypto. It's so amazing. It's such a refreshing change from traditional finances. People are cooperative. It's really incredible. People helped us set things up. They set up a Telegram. And then the Telegram filled with these green frogs, and then it’s a real mystery to me.
Then so and then the price feeds from the different pools that go to CoinGecko dropped a number of times. So they just disappeared, so the price on CoinGecko went to zero, and it filled, it littered my DMs with images of rugs and death threats and stuff. Thank God, it came back rapidly. CoinGecko was amazing. I was trying to figure out how to get it quoted on CoinGecko and they listed the tokens within 37 minutes of starting. It's just incredible. I was going to fill in some form and they contacted us and got it up and running. It's amazing. But the price feeds did drop momentarily and it's like heart-stopping because people are like, oh my God, you've done a rug pool. So I figured out what a rug pool was. I figured out what these green frogs are.
“The price on CoinGecko went to zero, and it littered my DMs with images of rugs and death threats and stuff. Thank God, it came back rapidly.”
Anyway, yes, finally yesterday, we went to Uniswap, we've created quite a large pool, it's about $2 million. We're really excited, because the whole process was a lot longer than it would have been if we had just gone straight to Uniswap. But we ended up distributing 630,000 tokens, and essentially, equity shares in our company at an average price of $3. Had we done that on Uniswap, it would have been half that amount and the price would have been $40 on average. We're really excited. We've got a small, but kind of passionate community, which I'm really excited about, and we're going to try and use that community from all over the world to help us encourage people to use our product when we roll out to retail and in stablecoins next year.
Swiss Law Wrapped Tokens
CR: For this token offering, you basically did two separate ones, one on Dodo and the other one on Balancer?
RS: We did Dodo first, and then we went to Balancer and then we went to Uniswap. I don't know if I would do it again, you know, my hair's lot grayer than it was two weeks ago.
CR: That’s a lot.
RS: But it was really fair. It helped us get out 630,000 shares tokens at a much lower price than if we had just done it on Uniswap and that's what we wanted to do. So it was worth it.
CR: Distributed among how many holders?
RS: There's more holders than there are people in our Telegram, so we're just starting. There's 1,500 holders last time I looked at it, and there's just under that in the Telegram.
CR: What's the ticker for your token?
RS: It's WCRES, W-C-R-E-S. So it's really cool. We've used this really cool, open source software for tokenizing the shares and so it's called the C Layer Standard. It's under MIT license. It exactly replicates Swiss law. So the wrapped version is like a share of Nestle or any other Swiss company that you might buy on an exchange or OTC. Anybody can buy it. You can buy/sell. You can do whatever.
Then if you want to register to vote, or to eventually in the future to receive dividends, then you have to unwrap it, and you get CRES token. So there's only one unit, one equity unit, which is CRES. We've wrapped some of them. We've wrapped about 15% of the supply is wrapped and is available to be purchased. But then, if you want to be entering the company's books to vote and be officially in the shareholder registry, then you have to do KYC.
The KYC is very simple. The Swiss have a very common sense approach to KYC. It's your name, your address, we verified that you're not on some sanctions list from the Swiss government. If you're not, then you're automatically a shareholder.
“The wrapped version WCRES is like a share of Nestle or any other Swiss company that you might buy on an exchange or OTC. Anybody can buy it. You can buy/sell. You can do whatever. Then if you want to register to vote, or to eventually in the future to receive dividends, then you have to unwrap it, and you get CRES token.”
CR: Did you issue equity shares on Cresco first? So you issued 630,000 Cresco shares?
RS: Well, we've issued a bit more than that, because we put 1.7 million, it's just not all of them have been sold. So they still exist on the exchange. We have some as well that we're holding back because we're kind of looking for partners. Because we didn't do the standard route, I mean, and we're not crypto native. So we didn't take VC money. We went straight to kind of trying to build a community. All the shares are tokenized, it's not just a portion of them.
There's 12 million shares in total, and we can't mint any more shares. We've moved a bunch of control from the team to a voting contract. But neither the team nor the voting contract can mint any more shares. There's a hard cap. There will never ever be more than 12 million shares and about 15% are wrapped and are traded. They’re wrapped in a way that really optimizes for gas costs because gas is expensive today.
CR: Then a percentage of the shares are wrapped tokens that can be traded freely in decentralized exchanges?
RS: That's right. There's about 15% that is wrapped and of that, a little bit over the majority is actually traded and the rest we have wrapped. But we're going to use it either to bring in some partners, or we're going to use it to incentivize employees or whatever. There's about 15% is the total amount that can be in circulating supply. My partner and I started off with 100% of the company, because we created it a year and a half ago and got it regulated. Actually, in the beginning, we never were thinking of issuing tokens in DeFi, never crossed our mind. We were just kind of annoyed with not making anything in the bank and we wanted an alternative. It's been quite a journey for the last year and a half. It's been a long learning experience. But 100% of our team tokens are all locked up for up to two years.
“In the beginning, we never were thinking of issuing tokens in DeFi, never crossed our mind. We were just kind of annoyed with not making anything in the bank and we wanted an alternative.”
CR: What percentage of tokens does the team own?
RS: Roughly, the team owns 15%, and there's 15% in the market, and there's 15% that are still left for the founders. So we're trying to decide what to do with it. I know, there's this kind of idea that with some tokens, you just create them, and you get together and you get an idea. I mean, with us, we approached it in kind of an old fashioned way. We just created a company and the two of us put our own money into it, and financed it and built out the software and got it regulated and hired a team and stuff. So we have probably more tokens as founders that is typical in crypto. But it's pretty normal in the real world and they're all locked up. We're trying to think of some way to move to more of a community governance thing. But it's step by step.
CR: Of course. There are different models of building businesses and companies and projects or platforms in DeFi.
RS: I love Uniswap, which is a permissionless smart contract running on Ethereum. That's amazing. But it just doesn't work with our model. We're trying to compete with core deposit banking globally. It's a really tough challenge. But you still do need people kind of to oversee that, and to make it work at the moment. Increasingly, we're trying to automate it like with the smart contract and whatever. There's a funny quote at this amazing older British guy in the Lloyds market. He said, he wanted to go for a drink, and he said, I never signed an insurance contract with anybody that I haven't had a drink down in the pub with. Obviously, you can't get the smart contract to have a drink down in the pub with some insurance, guys. So we'll get there one day, but it's step by step.
“We're trying to compete with like core deposit banking globally. It's a really tough challenge.”
CR: For sure. This is a really interesting solution that you came up with to tokenize equity and still have it be kind of freely traded. Because I think that's the main question mark of how do you do that and have a still interact with DeFi if it needs to go through KYC. So I think this is a cool solution to wrap it up and have a different sort of token, and then you need to go through that KYC process to actually convert to equity itself.
Perks of Crypto in Switzerland
RS: That's exactly right. They're both essentially an equity claim on the company. So you can do a standard valuation model. From your time at Bloomberg, it's like you do a DCF or you do a multiples comparison model to kind of work out the value of it. But it really exactly matches Swiss law. So if you want to buy a share of some Swiss company, you can do that, and you're not registered as a shareholder until you actually go to the company and say, hey, I just bought your share on the market or peer to peer and it's called OTC in TradFi. Then when the company says, okay, who are you and you write down, you have to get your name inscribed in the book.
Switzerland's really great because it's very supportive of crypto. I feel badly for some of our friends in the UK, in the US, where you've got some amazing crypto development but the regulations are just not very clear. Here in Switzerland, it's really clear, so we’re very fortunate, we're a regulated company, and so we were able to offer equity in a very honest way that works with Swiss law. I think the C Layer standard is pretty cool for wrapping equity and hopefully it'll be accepted in other jurisdictions.
“I feel badly for some of our friends in the UK, in the US, where you've got some amazing crypto development but the regulations are just not very clear. Here in Switzerland, it's really clear, so we’re very fortunate, we're a regulated company, and so we were able to offer equity in a very honest way that works with Swiss law.”
CR: Can you still get dividends through the wrapped tokens?
RS: The idea of that, it's a share. As I said, it's like Tesla, Apple, or whatever. To receive the dividend, officially, under Swiss law today, you have to be registered in the shareholders registry. So Swiss law hasn't caught up yet with just pushing dividend payments to chain which is what we want to do. Swiss law is moving in that direction. So my guess, Camila, is that in the future, I don't know, if it's six months or two years, but in the relatively foreseeable future, I think Swiss companies will be able to push dividends just to Ethereum addresses. But today, no.
Switzerland's very advanced in many ways for crypto. But for dividends, it's still treated as you have to be an official shareholder. But we're in a growth phase, we're raising money, so we're not paying dividends immediately. But we definitely want to. One of the nice things about finances, it's quite lucrative. Even if like us, you're cutting out the bank, you're paying a lot to savers, our margins are really pretty attractive, you realize how profitable banks are, right? Here we are trying to give a great deal to the seller, the buyer to the depositor and still we have a high margin.
Eventually, once we've done our build out, which we hope to do by the middle of next year, we'll turn our attention to dividends. That'll either be people need to register, basically, you can easily swap between the wrapped equity and the equity. So you can just swap, you can then vote, and you can receive dividends. You can go back to wrapping it again if you want to trade it.
CR: This is a really cool kind of fluid system between equity and tokens that you don't see very often. It's really interesting.
RS: We're really excited about it. It's a tough task to compete with banks. It's also, bridging traditional financing crypto. It's really exhilarating, it's a challenge. It's the earlier days. But so many giants have gone before us and you see much more acceptance of Bitcoin or Ethereum. Those are pretty mainstays today. Particularly, in Switzerland, Bitcoin’s widely accepted. You can pay your taxes in some places in Bitcoin, like in Zug, in Chiasso. There's a little Thai restaurant behind where our offices in the old town of Geneva. If you walk through one of the lolly ways to this great little Thai place, you can pay, they take Litecoin they take Bitcoin cash, they take Bitcoin, it's a pretty crypto-friendly place.
“Particularly, in Switzerland, Bitcoin’s widely accepted. You can pay your taxes in some places in Bitcoin”
But it raises lots of funny things, though, trying to go from traditional finance to crypto. Because traditional people ask, they say, what are you trying to do? We say what we're trying to replace banking with code. Some people say, come on, what are you guys thinking? You're in Switzerland, it's a land of banks, you're not going to have any friends left if you do replace banks with code. It's like attacking chocolate. So there's lots of amusing things about it. But at the end, it's the user benefits I think that people care about, they don't care about so much that the infrastructure is crypto.
“But at the end, it's the user benefits I think that people care about, they don't care about so much that the infrastructure is crypto.”
CR: The other piece is the Aave market place that you were talking about. How are you thinking of integrating with Aave?
Aave Integration
RS: Well, so that'll be our first big move into cryptos. The way we essentially make our money is by having an asset, and then that asset is insured. That's a million times better than just having a promise to repay, because we actually own that asset. So then it's a question of where do we place it? We have a list of people today who are interested in being our savings partners in Switzerland, because we pay in Swiss francs, we pay 1%. If you're a large holder, you actually pay 75 basis points to have your money in a bank.
Then for me, I'm kind of agnostic, whether it's in fiat, or crypto. We're trying to bring essentially our insured regulated asset to crypto. I think Aave is incredible. I don't know all the different protocols, but it's for sure, one of my favorite protocols. We're really blessed that Stani is on our board of advisors and he's been incredible. We've worked on it for a while. We have a formal proposal in their governance forum. Stani, has done himself out of a job. He's given over the admin keys to the community. So it's up to the community to vote.
“We're trying to bring essentially our insured regulated asset to crypto. I think Aave is incredible. (…) We have a formal proposal in their governance forum.”
We're securing that data on-chain using Chainlink. Chainlink does proof of reserves for us so that, you can see on-chain, essentially what we've got off-chain, which is the assets that back the collateral. The way it will work is people will be able to send in USDC, and they get in return, they get this little token indicating that they have insured collateral on, Bennett pays the same, it pays 3% in USDC.
It's funny, because in the traditional space, I say that I pay 3% in US dollars, and people are besides treasures are beside themselves excited to have like that and it's insured. In crypto, I say, pay 3% insured, people are like 3%, that's nothing. Come on. It's bridging those two worlds that's a bit of a challenge. So Aave will be our first move into crypto and it's been a long learning process for Derek and I. It's been all autumn we've been working on tokenizing our shares. We thought we would have had this done in September, it's taken a lot longer. Because you can imagine, we're regulated, we have to go to the lawyers, we need to go to the regulators, to make sure it all works. Then we've been off a lot going to three different exchanges. But anyway, we're making some progress and really excited to do the insured collateral money market on Aave, probably in Q1 next year.
“We're making some progress and really excited to do the insured collateral money market on Aave, probably in Q1 next year.”
CR: That'll be exciting to have more retail users of your product on Aave and more of a permissionless product as well.
RS: We’re really excited about it. You know, what's an amazing thing, is that our regulators just down the street here in Geneva, and they have a crypto specialist for the regulator. I can actually go see my regulator and talk about, hey, we're going to build a regulated insured money market on top of Aave and the guy gets it, he knows what Aave is and he understands that okay, well, you're gonna have to do KYC. How are you going to do it? The guy, he’s actually, I think he's a bit of a LINK Marine as well. It's really kind of funny. The world is slowly really catching on to crypto. I think 2021 is going to be huge adoption for crypto. You're seeing it in the in the price today. You see more and more people moving into it, but it's just becoming a lot more mainstream.
CR: The price is certainly reflecting that. What a luxury to have a Chainlink marine as your regulator!
RS: I know it's really funny. We've got this young woman who runs social media, for us, Elsa, she's also a LINK Marine. I deal with Chainlink all the time and they are an incredible company. We have a really symbiotic kind of relationship with them, because we have so much data through our supply chains that Chainlink could put on chain. Chainlink is just touching, you know, it's the tip of the iceberg. There's so much rich data that even just we have, from how we do our Proof of Delivery smart chain mechanism. It's actually it's refreshing to be here in Switzerland. It's kind of sad to see in the US and in the UK and some other places that are not quite as crypto friendly.
CR: Where do you expect Cresco to be at this time next year?
The Missing Piece
RS: Well, it's a good question. I'm being really honest with everybody in setting expectations, it's a tough fight against banks. We're looking for partners. We went to crypto for the community, and we've developed an amazing community who I hope are going to help us, you say we roll out to retail.
“We went to crypto for the community, and we've developed an amazing community.”
One of the quotes that really keeps me going is from Damian Horner, he's a cofounder of Real Vision who helped us with some of our marketing, which we haven't really started yet. We've done some basics. He put out some nice comment where he's working with Cresco, it's kind of maybe Amazon was in the early days before anybody knew who they were because the potential is enormous. Again, it's a really boring business. I'm boring, it's regulated. It's here in Switzerland. But we're competing with core deposit banking. We talked about for a taste test, if you sat somebody down and said here's what banking looks like on a traditional tech stack, and here's what it looks like on a blockchain tech stack, you get so much more for your money. It's so much easier. I think it's so much better for the world.
It's an enormous market and that's what we're going to try and capture. It's really trying to change how people bank and it kind of started with a little bit with my thought piece, which I wrote in The Defiant last August about, what do you need to compete with banks? I think, Bill Gates calling them dinosaurs, on a technology side, for sure, they're dinosaurs. I think the missing piece is insurance. I think for crypto, it needs to be coming from a regulated company. So our idea of essentially matched funding, plus blockchain technology, plus insurance, we hope that leads to mass adoption, but you never know.
“I think the missing piece is insurance. I think for crypto, it needs to be coming from a regulated company. So our idea of essentially matched funding, plus blockchain technology, plus insurance, we hope that leads to mass adoption, but you never know.”
CR: Awesome. Insurance is a meteor.
RS: That's the meteor That's right. That was what you came up with. That's what's needed to make banking dinosaurs extinct.
CR: Well, Robert, it was a pleasure having you on, such an interesting conversation. We’re really looking forward to everything that that's coming up with Cresco.
RS: Thanks, Camilla, so great chatting with you.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money.
About the founder and editor: Camila Russo is the author of The Infinite Machine, the first book on the history of Ethereum, and was previously a Bloomberg News markets reporter based in New York, Madrid and Buenos Aires. She has extensively covered crypto and finance, and now is diving into DeFi, the intersection of the two.
