While the world has been tossed into a state of ongoing turmoil over the past several months, innovation across a number of different industries is charging forward.
This is particularly true in the financial and fintech world, where the infrastructure that the global economy relies on is being “stress-tested” from just about every angle. In some cases, this kind has caused almost instantaneous innovation to take place; more broadly, however, the last several months have made the need for innovation more apparent than ever.
As such, while the coronavirus has caused a global reorganization of financial priorities, companies who are attempting to build the financial systems of the future have been diligently working away. Recently, Finance Magnates spoke to John Wu, president of AVA, about how his company is trying to do just that.
AVA, which was founded by Cornell professor Emin Gun Sirer, is a platform that allows users to create public and private smart-contract-enabled blockchains that are interoperable; in other words, it allows users ot create their own tokenized assets that exist on their own blockchains. AVA is also designed to be backward-compatible with existing Ethereum-based DeFi applications.
John Wu joined AVA as president earlier this year. Prior to joining AVA, John founded Investery Inc., a private capital markets platform that empowers investors to manage alternative investments.
Investery was acquired by AVA Labs in February 2020. Before that, John founded Sureview Capital with a strategic investment from Blackstone, and was a tech investor at Kingdon Capital and Tiger Management. He also served as the CEO of SharesPost’sDigital Assets Group, where he built and led the digital assets business.
“I realized how many hopes I had to jump through in order to invest in Bitcoin [via] my fund. It was basically impossible.”
John said that his interest in moving from the traditional financial world into the cryptocurrency space had much to do with a desire to upend the bureaucratic and inefficient nature of the traditional financial world.
“When you work at [financial] institutions, you kind of take for granted that the operations and the back-office benefits are there for you. It makes your life so easy and seemingly efficient; all I had to know was focus on finding great investments.
“But once I started investing for myself and looking at what I call ‘new alternatives’, such as crypto, private-share investing in unicorn companies, or even being an LP in a hedge fund or private equity–[I] realized the benefits that the institutions don’t have.”
Specifically, “it’s not easy,” John said. “It’s not efficient; there’s a lot of paperwork, and there’s a lot of things that you have to jump through just to find these investments, and then to access them. The workflow associated with it is very cumbersome–it almost detracts the interest you had in investing in [these assets in the first place.]”
“So, back in 2014, when I first started looking at cryptocurrencies and Bitcoin (because it had just crashed), I started thinking about it and researching it, and once I decided to get involved, I realized how many hopes I had to jump through in order to invest in Bitcoin [via] my fund. It was basically impossible.”
The ICO boom of 2017 was astonishing–and likely largely illegal
“At that time, issues like custody, issues like settling the stuff, or even reporting and accounting and how you handle that; or even the systems to track–there are no OMS systems for Bitcoin.”
The infrastructure for investing in Bitcoin on an institutional level simply didn’t exist: “it was almost as if I had invested in it, I would not have done my fiduciary responsibility for my investors,” John said. Therefore, he didn’t invest in Bitcoin through the fund that he was managing at the time; however, he did invest in BTC on a personal level.
This was when John’s journey into crypto truly began. “Then, in 2017, I saw the ICO boom–I was astonished for two reasons: [first], the amount of crowdfunded capital that was being raised was, to me, astonishing–and how quickly it was being done. It was amazing how fast this money was being raised.”
However, “the second thing that I was amazed about is that–in my opinion–all of these ICOs were illegal raises, at least to a US investor. The fundraising of these ICOs, in my opinion, should have followed the securities and exchange laws of 1933 and 1934, and used the extension standards of Regulation D or Regulation S and 144A in order to do that raise.”
The dance of compliance and tokenization
Still, the token sale concept stuck with John: “I thought that creating and issuing tokens for assets was a great concept–it definitely was a very efficient way to allow individuals to get access to things that they never could have in the past.”
This interest in the token sale concept eventually brought John to SharesPost, where he was the chief executive of the digital assets group from 2018 to 2019. “My team and I were diligently plugging away, and we were successful in building a regulatory stack with the right work and dialogue with the SEC and FINRA, and embedding that workflow and process into electronic marketplaces.”
“Since then, I’ve been on this mission to make investing in alternative assets like crypto a lot simpler and a lot easier–that’s kind of why I ended up at AVA; my mission and their mission are very similar. We see a world where one day, investing in alternative securities is as easy as sending an email.”
John also believes that AVA has a platform that is “scalable and easy ” to use and that therefore, enables “business people can create these assets.”
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The platform also has a “mechanism for governance that will allow people to do things in a regulatorily compliant way.”
How does it work? “The old way is that when you wanted to get your asset tokenized, you would go to a third-party. That third party would come into your office and ask you for specs, and then they would create (with their tech team) a custom smart contract for that asset.”
Creating flexibility in protocol realization was essential
John said that he believes AVA’s platform is a bit more like the “Wix” of the blockchain world: “you can almost drag and drop, and create your own asset that way, instead of the 1990s way of hiring Accenture to come in because you figure out you need this IT infrastructure and you have to go do it.”
John also said that he believes that AVA’s “core blockchain–the core engine–of the platform” is “one of the most remarkable technologies out there.”
“It’s a whole new consensus protocol,” he continued. “…It provides the users [with the option] to embed the governance that you need in financial services at the network layer, as opposed to the smart contract layer.”
This means that “the old way of doing it was that you program the restrictions, [ie] whether it is accredited investors” or another restriction on who can and can’t hold tokens. You would do this “on the smart contract, and then you have an off-chain whitelist that you use to figure out who is allowed and who is not allowed to participate. That’s kind of ‘set’–that’s on the contract itself.”
On AVA’s platform, however, “all of that is done in the nodes–on a network level.” This means that “the people who create this can embed the restrictions and the rules themselves instead of relying strictly on something that is code-[based].’
This is important because it allows a degree of flexibility in these restrictions: “rules change, restrictions change,” John said. This can be in the way of things of “geographies” and “who you want to transact.”
“It becomes a far more flexible instrument,” he said.
John also explained that the nodes who determine these restrictions “are determined by whoever is spinning up the marketplace or the blockchain–so, a subnetwork is almost like your own little private blockchain that you (at some point) can connect to the other subnetworks and be part of a truly permissionless system.”
Mainnet migration is expected in several months
Where is the AVA network in its lifecycle?
“We’re very excited because in April, we went on the test net,” John explained, adding that the first iteration of the test net was released in the middle of the month. “Over the last few weeks, we’ve seen validators, developers, and entrepreneurs all coming in and investigating the technology, testing the speed and the flexibility of the architecture.”
“Now, we are engaging heavily with these early participants, and we’re getting ready to deploy the mainnet, which we’re anticipating in mid-summer,” he continued.
At the moment, AVA is targeting users in the “finance and DeFi” industries, John said, adding that DeFi in particular is “one group that’s been very interested” in the platform so far.
Crypto and other fixed-supply assets may play a particularly important role in the future
John said that believes that the work that AVA is doing–and the work of the cryptocurrency space in general–is more relevant to the world than ever after the spread of the coronavirus and the ensuing economic fallout.
On a macro level, “the amount of money printing that we’ve seen in the last ten years is just phenomenal; I’ve never seen anything like this in my career,” he said. “The Fed’s balance sheet after ‘08-’09 went up to $4.5, almost $5 trillion–then they started taking that down, and then all of a sudden, [the coronavirus] happens.”
“[…] The Fed’s balance sheet has increased somewhere just under $2 trillion since February; the money supply number (which is cash, savings, or marketable securities–very liquid stuff–is over a trillion.”
“So, of this money that’s being put into the market–this is going to lead to very interesting results, because when you have fixed-supply things, and you have the actual money increasing as fast as it is–I can see a world where there’s going to be asset inflation and fiat deflation, where your dollar is going to have less buying power.”
“What that means is that you’ll ultimately want to buy things that have a finite supply–that’ll be gold, possibly Bitcoin,” he said. “It’s no coincidence that my friends from the traditional finance world–who, in 2008-2009 didn’t know about this,” have taken an interest in Bitcoin.
“Even during the run-up in 2017, they viewed it very skeptically; but suddenly, I’m getting calls from even the most skeptical of skeptics asking more about how Bitcoin and crypto work, and thinking of it as something that can protect them in a world of asset inflation and fiat deflation.”
“[…] So, from a macro level…there could be great effects for this industry. That’ll spur development; more people like AVA, more people developing on AVA, and it’ll be just an incredible environment for everyone in the blockchain space.”