• Published on 24 November 2016
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Background notes on Interview with Richard Byworth, CEO, Diginex

Background notes on Interview with Richard Byworth, CEO, Diginex

Host: Emmanuel Daniel, Chairman, The Asian Banker

Guests: Richard Byworth, CEO, Diginex

The discussion will focus on these topics:

• The recent listing of Diginex
• The future of the markets for digital assets
• Views on the future markets in a networked world

The recent listing of Diginex

• Diginex, a digital assets financial services company, has completed its business combination transaction with 8i Enterprises Acquisition Corp, a special purpose acquisition company. The Transaction, which was approved at a Special Meeting of Shareholders on September 15, 2020, creates the first listed company on Nasdaq with a cryptocurrency exchange.
• With the ambiguous relationship that digital currencies and digital assets have with policy makers and regulators around the globe, this marks an historic event, and significant milestone for the digital assets sector and the financial services sector overall.
• Diginex Limited will trade on Nasdaq under the ticker symbol “EQOS” where it will offer investors the opportunity to participate in the growth of digital assets. The company’s warrants will trade under the ticker “EQOSW”.
• Diginex brings together a comprehensive ecosystem of financial services for digital assets, comprising the recently launched cryptocurrency exchange EQUOS.io, digital asset trading technology platform Diginex Access, securitization advisory firm Diginex Capital, digital asset custody provider Digivault and the investment management business Bletchley Park Asset Management.
• Diginex came to market via the now increasingly popular Special Purpose Acquisition Company (SPAC) route. After two rounds of SEC approvals and a COVID-19 impacted delay, the company listed on October 1, 2020. The Nasdaq listing comes with requirements that had the company remained private, it would not have had to address. An example of this is having a minimum of four non-executive directors.
• Approximately $50 million was raised, comprising both Diginex’s private raise completed in advance of the listing and the cash remaining in the SPAC. This will strengthen the company’s balance sheet and will enable it to realize its vision to build a digital assets ecosystem that offers innovative products and services that are compliant, fair and trusted.
• The keystone of Diginex’s digital playbook is its virtual currency exchange EQUOS. Launched in July, EQUOS is built using an advanced architecture designed to bring trust, transparency, and innovation to investors in the world of digital assets. The EQUOS roadmap delivers the infrastructure for managing derivatives and capital efficiency that is common in traditional markets but as yet unseen in the digital asset sector.
• EQUOS Capital that operates today in the traditional world, and provides buyers the option of taking their securitization investments in paper today and converting them to digital assets in the future, at the request of the investor. Byworth is a huge proponent of the future that blockchain can bring and the likely disruption this will bring to capital markets.
•  “When we started building Diginex, we felt strongly that we needed to help raise standards and the transparency of the industry in order to help it grow. Nasdaq was the ultimate destination as a technology company and now investors will be able to participate in the ‘picks and shovels’ of this burgeoning new asset class via the rich ecosystem built across the Diginex group,” says Richard Byworth, CEO of Diginex, and EQUOS, the group’s digital asset exchange.
• Partnering with industry leaders has been a focus across the Group. Diginex's multi-venue trading platform, Access, plugs into the portfolio management systems of two of the world’s largest trading technology providers: FIS and ITIVITI. Any clients of either of these two traditional financial technology firms can now access the digital asset market utilizing the Access suite of algos and spread trading functionality to ensure best execution across a globally fragmented liquidity pool.
• The firm also runs an asset management business under the brand Bletchley Park Asset Management, a tribute to the secret home of the UK’s World War 2 cryptographic code breakers. The firm runs a fund of funds that after years of research has understood many of the pain points for asset managers to allow them to allocate to this burgeoning asset class with fewer barriers and hassles. The removal of 'pain points' for professional investors is a core design principal that has been addressed in much of the EQUOS framework.

Source: (2020, September 16). Diginex Receives Approval on Business Combination from 8i Shareholders, Representing Another Important Milestone Prior to Diginex’s Nasdaq Listing. Retrieved November, 2020, from www.diginex.com

The future of the markets for digital assets:

• The push for wider institutionalization of digital assets is driving significant investment in new technologies. Five aspects need to be aligned to institutionalize digital assets. The technology needs to be mature enough. We need to identify valid business cases where real problems can be solved. The projects must be funded properly. The regulators need to be on board. Finally, market participants need to be prepared for the transformation.
• There is a demand in other industries beyond the capital markets where there’s an ask for institutional grade services for enabling marketplace to digitalize new types of assets such as the insurance industry, healthcare industry, betting industry, real-estate and commodity agriculture industry etc. wherever there is a need to actually more efficiently trade assets of value.
• Many processes that incumbent marketplaces currently operate manually will likely shift to a digitalized workflow, enabling market participants to connect easily with one another to trade those assets. They will also be looking to expand their product coverage by digitalizing assets traditionally dealt with bilaterally in OTC or manual and paper-based markets.
• Meanwhile, new types of financial and non-financial marketplaces for trading of digital representations of physical assets and certificates will be created. Their participants will be able to trade and track assets easily through their entire life cycle by operating on a harmonized, shared platform. Not only will they enjoy a high level of transparency, but they also reduced friction because there will be no need to reconcile data between multiple participants.
• Financial institutions are starting to see the technology’s power to provide robust and regulation-grade infrastructure, supporting the digital transformation of traditional financial assets and processes. Since conception in 2017, two STO projects collectively raised around $22 million, according to the report by PWC. As per an analysis by BlockState, in 2018, the number of STO projects increased to 55 and have collectively raised a total of $452 million. A PWC 2020 report identified major entities like the World Bank and the Austrian Government tokenizing financial assets on the blockchain.
• Furthermore, the asset tokenization market is predicted to witness exponential growth this decade. According to this research, the global tokenization market is expected to grow at a CAGR of 22.45% from 2019 to 2025. According to Data Bridge Market Research, the tokenization market in Europe itself is predicted to reach $1.4 trillion by 2024.The adoption of Digital Assets by financial institutions is also on the rise – as demonstrated by the fact that the European market for tokenised assets is set to reach $1.5tn by 2024.
• Byworth said, “Currently digital asset derivatives volumes are around three to four times the underlying crypto spot market if we include perpetuals, whereas traditional assets like FX or interest rates derivatives volumes many hundreds of times the spot market. This perceived volume differential between digital and traditional finance is largely due to infrastructure and capital efficiency gaps. Daily volumes in this market can still grow 20x from here and this is what we have built EQUOS for,”

Source: (2020, April 29). The Journey Toward Digital Assets Institutionalization. Retrieved November, 2020, from nasdaq.com

Views on the future markets in a networked world

• Technology is the fundamental driving force behind most of the changes in the capital markets industry. The two technologies with the potential to transform capital markets over the next few years: artificial intelligence (AI) and distributed ledger technology (DLT).
• The influence of AI can already be observed in alpha generation, alpha extraction and product generation. Indeed, quantitative hedge funds are using AI at scale. Other firms, including some fintechs, are pursuing its use in fields like signal mining.
• AI will also be used in knowledge-intensive tasks, such as research and risk analysis, and to automate the IB deal-making process. It also has powerful use cases relating to the monetization of data and services. Exchange and data groups are pursuing this vigorously, but we see even more potential in this area. Developments like data-driven client targeting and management, for instance, are still only in their infancy.
• DLT or blockchain infrastructure has many potential applications in the industry, from issuance (putting deal processes on a distributed ledger, redefining syndicates, and so on) to asset and wealth management (where it could be used to update reference data and create fractional and digital asset vehicles). Blockchain also has many uses in trading and market infrastructure.
• A few of these use cases can already be seen in the exchange sector. The Australian and Toronto Stock Exchanges are using blockchain to replace legacy settlement systems, and the DTCC is rebuilding its credit default swaps processing platform with blockchain. The Tel Aviv Stock Exchange is working on putting collateral management on a ledger. And other exchanges are experimenting with tokenized assets beyond crypto.
• Moving the capital markets infrastructure to the cloud allows for the democratization of markets. Given the elasticity of the cloud, services that have been limited in availability, such as co-location, become seemingly unlimited. Leveraging the dynamic infrastructure and APIs, marketplaces and firms can benefit from increased agility, an even higher level of security than on-premises, and access to disruptive technologies including machine learning and A.I. to enable innovation.
• Many trading firms co-locate their servers in exchanges’ local data centers to achieve the lowest network latency possible. However, that access comes with a tradeoff: Since physical space is at a premium, the co-located infrastructure isn’t suitable for storing large volumes of data or running analytics, making it less than ideal for those workloads. The elasticity of the cloud could address this issue.
• Managed services in the cloud are engineered to be compliant, performant, secure, and scalable. Outsourcing to a cloud-based managed service provider can reduce firms’ capital burden and allow them to focus resources on their core expertise and create differentiated offerings with a quick time to market.
• Most capital markets staff are working from home during the COVID-19 global pandemic, and this will likely continue until companies can bring employees back to the office safely. In our new normal, the cloud can help support remote teams and operations for an extended period of time.
• In June 2020, NASDAQ announced the launch of the Marketplace Services Platform. The platform provides marketplace capabilities spanning the transaction lifecycle to facilitate the frictionless exchange of assets, services and information across various types of market ecosystems and machine-to-machine transactions, including, but not limited, to standard financial assets, tokenized assets, credit card receivables, loyalty points, real estate, insurance contracts, gaming and wagering and more. The already established universal marketplace services, which includes matching, risk management and market surveillance, will be accessible on the platform.
• Complementing the rollout out the Marketplace Services Platform, Nasdaq is now offering its Digital Assets Suite. The suite of services, which is both DLT-agnostic and multi-cloud, is designed specifically to support the transaction lifecycle of digital assets and tokenized markets leveraging DLT technology to facilitate issuance of the asset through matching, custody, delivery and payment.

Source: (2020, April 29). The Journey Toward Digital Assets Institutionalization. Retrieved November, 2020, from nasdaq.com

Richard Byworth’s Profile:

Richard is CEO of Diginex, based in Hong Kong. He has over 20 years of experience spanning finance, start-ups, investment, and fintech sectors.

Previously Managing Director at Nomura, the Japanese Investment Bank, Richard was running Derivative and Equity Linked product Sales for Asia Pacific product globally. The youngest Managing Director in the firm’s history, Richard led the build of the #1 franchise for Convertible Bonds in Asia from 2005. In both 2008 and 2009 he was the firm’s largest producing salesperson across Nomura’s global wholesale investment banking franchise. Richard led the syndication and distribution of some of Asia’s largest convertible bond deals in the last 15 years including China Unicom and Softbank.

In business, Richard has founded several companies and is an active investor, having started his first trading company in 1990. He is a board member of Bletchley Park Asset Management, Jersey, Diginex, and sits on the advisory board to PrivateMarket.io, a private equity fund marketplace.

Richard is Hong Kong Regional Ambassador for the Global Blockchain Business Council (GBBC), and has spoken extensively around the merits of blockchain for business and finance at WEF (Davos) and the United Nations (Geneva).

Initially dismissive of bitcoin, he started to question that position after reading the book Sapiens by Yuval Noah Hariri, who discussed bitcoin as a logical progression in societal belief systems around money.

As an early stage investor, he supported Diginex founder Miles Pelham in the early development of the business. Miles approached Richard following his departure from banking to help build the strategy for the future of digital investment banking. What came next was a very deliberate design of a full suite financial services firm addressing the emerging and growing opportunities presented by digital assets.

Byworth has written a playbook that looks as if it will serve as a masterclass for smart capital focused on penetrating and growing the burgeoning future digital assets market. It seeks to occupy everything from the traditional payments space, to equity and debt assets, currencies and derivatives.

Source: Richard Byworth. Retrieved November, 2020, from diginex.com

Byworth's comments on central bank digital currency (CBDC): 

How the pandemic has accelerated central banks to issue CBDCs

Prior to the pandemic, the implementation of a CBDC was generally perceived as something interesting to explore with much theoretical potential, as opposed to an urgent policy issue. The concept of a central bank issued digital currency (CBDC) had been developing within the walls of central banks across the globe over the past year, and while Libra of course catalysed a more proactive response, the economic crisis being faced as a result of COVID-19 really kicked deliberations into high gear, and cemented CBDCs on the mainstream policy agenda for central bankers globally.

While the rush to implement ultimately superseded exploration of CBDC archetypes as conduits for the disbursement of stimulus packages, the renewed interest by policymakers is fast tracking the advance of this space.

In the broader context of a post-pandemic future, CBDC’s could offer central banks a more efficient and reflexive apparatus for implementing monetary policy, which will be all the more critical in the coming years as we seek to restore global growth. They could additionally be of massive benefit to treasury’s in the streamlining of tax collection, enabling individuals to settle dues directly from their digital wallet.

What is also interesting is the parallel trend in digital asset investing. Cryptocurrencies such as Bitcoin have been heralded as both uncorrelated assets against traditional asset markets equities backdrop, and as a hedge against currency devaluation as a result of quantitative easing (QE) due to its absolute scarcity.  With watershed fiat printing undermining confidence in conventional monetary instruments, the digital asset class is increasingly being contemplated as a portfolio hedge to counter recurrent market volatility and inflation. This becomes all the more prescient during periods in which markets are particularly exposed to politics in the form of crisis-related protectionism, stimulus policy interventions and geopolitical hostilities.

An all-inclusive participation of commercial banks in case of an interest-bearing CBDC

Prior to the advance of COVID, incumbent banking and monetary models were already being confronted with the pressures of persistently low interest rates, surging competition from digital and shadow banks, mounting compliance burdens, Brexit, as well as the rising popularity of cryptocurrencies. While enhanced liquidity may offer some temporary respite, COVID-era economics will likely compound these pressures with further subdued interest rates and the threat of insolvencies and non-performing loans.

However, crypto markets are actually already starting to hint at how easily transferable currency within trusted and regulated platforms could lead to an opening up of peer to peer lending markets leading to far higher rates of interest for savers than we are witnessing in the traditional banking. USD stablecoin rates for savers on the Celsius crypto borrowing platform are currently north of 8% annually.

We are at the early point of phased adoption of cryptocurrencies like Bitcoin, but the next phase is likely to see very steep growth. Indications of this are being seen in recent newsflow with Diginex integrating now with ITIVIT as well as FIS to accommodate new institutional participants, JPMorgan has opened up its banking services to U.S.-based crypto exchanges Coinbase and Gemini, and the announcement from the Office of the Comptroller of the Currency (OCC), that all nationally chartered banks in the U.S. are permitted to provide custody services for crypto.

To what extent can the CBDC’s overcome the shortcoming of cryptocurrencies

The biggest issue that cryptocurrencies have versus fiat currency right now is instability of price. Speculation and leverage lead to some violent price moves, and so the usage of blockchain technology to deliver fiat currencies in digital form will likely lead to far greater adoption of the technology.

The other key factor is trust. Whether it fits with your political view or not, governments and their money are generally more trusted than the current landscape of cryptocurrencies, and in the majority of cases this is for very good reason. Trust in the federal reserve and a digital dollar that they may issue could again lead to rapid adoption of the technology.

Progress of BoE in terms of the design and implementation of its CBDC

Virtually all Central Banks are actively looking in some way at creating their own digital currencies, whether that is for retail use or for wholesale settlement between banks, which has put this burgeoning asset class at the forefront of banking policy agenda.

The Bank of England is keeping central bank digital currency research high on its 2020 agenda. This was evidenced as recently as this week with their active participation in a roundtable discussion hosted by global central banking think tank, the Official Monetary and Financial Institutions Forum (OMFIF) to discuss potential infrastructural designs for CBDCs.

It is encouraging to see that the recently appointed Bank of England Governor Andrew Bailey, much like his predecessor Mark Carney, has come out as a proponent of CBDCs - acknowledging that in a few years’ time the UK will likely be heading towards some sort of digital currency solution.

Governor Bailey recognises that the future of the banking sector is under increasing threat, and that COVID has only accelerated the shift towards disruptive alternatives, with these digital-first players having the optimal set-up to thrive in such an environment. His statements are an acknowledgment that innovation must also come from the top-down.

While England is of course exiting the Eurozone, it’s closest neighbours are also closely engaged in this space, and Governor Bailey will be watching developments across the water closely. France is so far the highest-profile Eurozone member to launch a CBDC RFP and a Eurozone-wide CBDC solution may not be too much of a remote possibility, with Christine Lagarde, an advocate for CBDC exploration taking the helm as head of the European Central Bank in November of last year.

Byworth’s comments on technology and rising marketin during a pandemic

• Over the years, technology has improved by leaps and bounds, therefore making life more cost-effective and efficient. Such technological improvements, however, may not save citizens money as intended, due to inflationary efforts. According to Byworth, “technology is just so deflationary on many of our goods and services”.
• In the years following the 2008 financial crisis, Byworth explained he entered the crypto space looking to protect his capital against inflation. Money devaluation concerns have risen significantly in 2020, in line with COVID-19 prevention measures and various governments' efforts to fix economies struggling as a result of such measures. Countries around the globe continue printing money as a solution. “It's gotten to a point of being frightening”, Byworth said.
• “If you look at a trend line of monetary expansion over the last 40 years, and then it's a fairly steady line until you hit about 2008. Then the gradient just increases. It gets much steeper, and then suddenly, in April of this year, you have a straight line up that is an increase of 25% on the entire increase that you've seen over that 40-year period — you've seen that in four months.”
• In 2020, amid money printing and COVID-19 difficulties, the public has seen rapidly rising prices for assets and services that hold limited quantities, such as certain real estate for example. These rising prices stem from the aspects Byworth mentioned regarding currency devaluation.
• Inflation, however, benefits governments with debt. “The U.S. government has a gigantic amount of debt, so if the money is worthless, then the debt is worthless,” Byworth said.

Source: (2020, October 02). Technology itself is deflationary, Diginex CEO says. Retrieved November, 2020, from cointelegraph.com