CoinRoutes CEO: Altcoin liquidity is moving into tokenized assets for good

Ashton Addison: What problem does CoinRoutes solve for big funds, and why does it matter more than it did 10 years ago?▶ 01:31

Ian Weisberger: Everyone in crypto, beyond market trends, is worried about all the hacks that are happening. We've been through multiple bear markets, and what funds care about most now is counterparty risk. They want to make sure their funds are safe, so they need multiple counterparties they can trade on. There's also price. Say you have a $50 million Bitcoin order. We break it up, and we do that quite well. We've worked multiple orders in the billions of dollars for clients over days. If you just call a market maker and ask for a quote on that, you're going to move the market, with multiple percent of market impact. We give that to every trading firm, not just the larger ones. We even have some high-net-worth individuals trading with us, and that's actually our fastest-growing segment.

Ashton: What did it take to move between crypto and equities before CRX Trade, and what changes now?▶ 03:03

Ian: Without a platform like that, you have to wire money from your Interactive Brokers account to Circle, convert it to USDC, and send it to Binance. It's a lot of friction, and a lot of mental gymnastics. If you're one person, or two buddies with a small fund, it's very difficult to track all of that and manage assets across exchanges. What we're doing with CRX is enabling people to have one account and one view. They can move funds automatically between equities, futures, crypto and derivatives, trade whatever they want, and track everything easily. That's where we see the future of CoinRoutes: enabling people to trade across all these markets.

Ashton: What do you make of 24/7 stock trading? Some veteran traders say they like market hours and want to sleep.▶ 04:44

Ian: It sucks. We've run a follow-the-sun, 24/7 desk since 2017. When we started, I didn't sleep and my partners didn't sleep. Thank God we now have a large, distributed global team. It's a lot of work, and I don't think traditional asset managers are really set up for it. Before, you had a team in Chicago and New York trading US hours, another in Hong Kong trading Asia, and one in London trading London. Now everyone's trading everything. That's the crypto model, where every desk has to touch every asset globally.

Ashton: How does collateral work when you hold a large crypto position and traditional positions, and a sharp crypto move hits?▶ 09:27

Ian: The crypto model and the traditional model are very different. In crypto, if you put up $100,000 of collateral, the most you can lose is typically $100,000, whether that's in Bitcoin or Tether. Exchanges have backstop liquidation funds and a lot of complexity behind that. In traditional derivatives, you sign up with a broker who underwrites your credit, and if you go negative, which you can, you owe the broker money. We have a risk engine on the back end that applies the crypto model to traditional finance. We make it a fully funded model by limiting risk on the crypto leg, so there are always assets we can use to cover negatives on the traditional leg. That's a big problem for individuals trading futures. They don't quite understand how going negative works.

Ashton: Tokenized stock volume has passed $25 billion this year. What's the appetite for it right now?▶ 12:09

Ian: There's a huge market for tokenized stocks offshore. If you're sitting in the US, you don't need it, because your broker already lets you trade 24/7, so there's no appeal and there's less liquidity. But if you're offshore, you don't want an account for the underlying cash equities, because suddenly you owe taxes, you have inheritance tax, and you have all this administrative overhead. Many people offshore don't want the voting rights. They just care about the economic interest. So you have different classes of tokenized securities. xStocks and Ondo are basically a wrapper, and you don't really get voting rights. At the other end, Securitize gives you a full security entitlement, including voting rights. On top of that you have the perps, the derivative contracts. I think there's a use case for each, but these products are really taking off in the offshore derivatives and cash markets.

Ashton: Is the anger from some CEOs justified when they see tokenized versions of their stock that they don't control, as with AMC?▶ 14:53

Ian: I don't know that it matters to them in the long run. For now, maybe they just don't understand it. I think it could end up being better for them, because they'd actually know how many shares are issued and outstanding. There have been so many short-selling scandals over the years of brokers lending out shares that didn't exist, and with tokenized securities that can't happen. I think this is really negotiating leverage. They say, no, I'm not going to do this, and at some point they say yes under certain conditions. If they get concessions, it's better for them than the current system.

Ashton: Tokenized stocks could become the majority of what we now call crypto markets. How quickly will that happen?▶ 16:01

Ian: I just looked at Hyperliquid. NASDAQ index derivatives traded the same amount as HYPE and half of what Ethereum traded by volume. It was 700 million for HYPE and a billion and a half for Ethereum. On some days, when the gold and silver move exploded, it was larger than Ethereum. So it's already getting there. You're seeing a lot of the liquidity sucked out of altcoins and thrown into RWAs. I think that's permanent. People used to buy altcoins basically to gamble, and now they can invest in actual assets that track reality. It's the same with prediction markets. Protocols now have to actually make revenue to be highly valued. Hyperliquid is making almost a billion dollars a year in revenue, which is pretty good compared to the value it's at.

Ashton: How does the Binance hack ripple through institutional desks when a trading venue suddenly loses that much money?▶ 17:53

Ian: It's obviously not good for confidence in the system. It just so happens that Binance has been making billions a year and can cover it. But Binance was one of the only exchanges that didn't support triparty settlement. That means an institution keeps its assets with a third-party custodian, which won't lend them out or rehypothecate them. The assets are held for your trading account and not given to someone else. If you give your money to the exchange, there's no limit on lending it out. They could even take it off the platform and lend it to a hedge fund. That's what happened with FTX, among other things. What our clients really want is to hold assets with a third-party custodian. We support a couple of the larger custodians, so funds can sit in custody while trading on exchanges. Binance was basically the only exchange that refused to play ball, and I think they'll be forced into it, because institutions will vote with their feet.

Ashton: Bitcoin fell only about five percent after the hack, less than after past exchange hacks. What does that say about crypto's resilience?▶ 19:45

Ian: I think people knew Binance had the assets to back it up, given how long they've been around and their investments. But it's affecting volumes, and market share on Binance will continue to go down. It really matters how they respond and whether they make improvements. I think they'll be forced to support third-party custodians to win back some of the institutional market, because they've lost a lot of trust. They said on Twitter that they're good for the money, and quite frankly I believe them. But it doesn't matter that you'll get the money in a week. It matters that you can have the money now when you need to cover a loss somewhere else. If you're a market-neutral hedge fund, long on Binance and short somewhere else, you might need to move that money to another venue. If you're an OTC desk and you owe Bitcoin to your client, you can't pull it off Binance, so you end up taking a high-interest loan. Being locked out for a week costs you money, and it's a huge reputational risk.