A conversation with Benjamin Tsai, Wave Financial

Benjamin Tsai, President & Managing Partner at Wave Financial, a Los Angeles-based asset management firm focused on the cryptocurrency space, joined us recently for a recording of the Tokyo FinTech Podcast. We have extracted some brief highlights here — if you would like to listen to the whole conversation, please follow the link.

Q: What type of solutions are you looking to provide to your clients?

BT: From my perspective, there are a number of ways to access this space. The first way, obviously, is active management, and active management is relying on experts who are in this space who can manage your assets for you. We at Wave Financial consider ourselves an expert in this space, and this is one of the services we do provide.

The second one is to take a passive “beta exposure” to the market. You can see this mirrored in the traditional finance world, where there are a lot of ETFs out there for you to choose from. We think this can be done in the crypto world, too, we think that that makes a lot of sense. So we started an index called the “Wave Select 20” index. It basically indexes the top 20 cryptocurrencies, rebalances monthly, and it is a market cap weighted index. That index covers right now about 93% of the market. To get the other 7%, you need to go out another few hundred coins. And it’s really not worth the effort. So we believe something over 90% is more than reasonable. And it is a good measure of the market.

To take it a step further in the wealth management space, there are people who are interested in yield generating products or yielding products. So I am in the process of developing products that are yield generating using crypto derivatives. And that is something that is an upcoming field. That is something I am personally very interested in due to my background.

And I think that just for completeness, there is one other way of using blockchain that is not crypto-specific, which is the securitization and the tokenization of hard assets that can be used for investments.

Q: How do you think about hard assets?

BT: When we talk about hard assets, a lot of people start with real estate, because that is easy to understand. And there is a lot of real estate securitization already. There are REITs, for example, there is a lot of understanding in that space. With that said, I would take a step back and say let us take a deep breath and forget what we think is going to be big or small or make money or does not make money. Let just think about why we want to securitize something and what is the benefit, and then we can work our way forward from that. And from my perspective, being able to securitize an asset gives you a number of things. First, it gives you fractionalization, you are able to take an asset into smaller pieces and have percentage ownership.

The second point is the potential for liquidity. And I always say “potential”, because people say that if you securitize, you have liquidity. Liquidity means you have a buyer and a seller. If you do not have a buyer or seller, then you do not have liquidity. It does not matter what technology you use to to securitize an asset.

The third thing is reducing the administrative cost of managing the fractionalization and in the end the potential liquidity trading of of these tokens. These three are the main points that you would want to take advantage of for hard assets.

Q: What will our financial system look like in the future?

BT: I am more inclined to believe that at the core, our financial system will stay the same, and I think people who are more on the technology side are probably disappointed by the fact that I say that.

I feel like that our financial world is kind of optimized, the way it has evolved to where it is, because it is the most efficient way or the most — for lack of a better term — the most cutthroat way, the cheapest, the most efficient way of doing it. That is how it ended up here. For it to evolve further, there need to be certain advantages that are fundamentally different, that would be good enough for for for it to migrate to the to the next stage.

And I think a complete “let’s throw out our current systems and build a brand new one” is a very burdensome way of thinking about it. But with that said, I think some people are starting to do that. But they are adopting the technology to the current use, and not really going all out and coming up with new ways of doing it. Because there is some value in the fact that we are in tried and true systems. There is some value in that we have spent the past decades working out many issues.

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