Building a Better Financial System with Crypto - Farzam Ehsani | ATC #509

In this episode of Around The Coin Podcast, host Stephen Sargeant engages with Farzam Ehsani, CEO and co-founder of VALR, Africa's largest crypto exchange, that allows customers to buy, sell, store and transfer one of the widest selections of cryptocurrencies. He was previously the Blockchain Lead at Rand Merchant Bank and the FirstRand Group, and was the inaugural Chairperson of the South African Financial Blockchain Consortium.

Host: Stephen Sargeant

Guest: Farzam Ehsani

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Episode Transcript

Stephen: You know, I hate to play favorites, but this is probably one of my favorite episodes. We get to talk to one of the CEOs and co founders of a crypto exchange, one of Africa's largest crypto exchanges, Valor. And normally, you know, they're talking about You know, trading and options and all these different crypto stuff.

And this person, Farzad Massani, is talking about trust. He's talking about how challenging it is to operate in the African market. He's talking about how he built one of the largest African exchanges at times when there wasn't regulatory clarity in that continent. He goes into many aspects of how they can improve the market since things like FTX, Celsius, and other crypto This is probably one of my favorite episodes.

I don't think you're going to expect to hear the thoughtfulness from a, from a leader of a crypto exchange that you hear in this episode, please listen all the way through, trust me, you won't regret it.

Stephen: This is Stephen Sargeant, host of another episode of Around The Coin Podcast. We're in, we're going to Africa to talk to Farzam Hassani, CEO and co-founder of VALR.

Farzam, tell us a little bit about yourself and what you guys are building at VALR.

Farzam: Sure. So, I'm the CEO and co-founder, as you mentioned. VALR is a global crypto exchange. We're headquartered in Johannesburg. We've been around for nearly six years. In March, it will be six years. My background is banking and traditional finance and consulting and I kind of got into the belly of the beast in investment banking and wanted to kind of understand the world because when I got into it, it was kind of the height of the Greek debt crisis in 2011.

If you can remember that. And gold prices were going crazy at the time and, you know, we were just coming out of the global financial crisis. So I felt like our financial system was off tilt and I wanted to see if I could learn about it from within to make it better. And then long story short, I heard about blockchain and crypto a few years later.

Got involved, became the blockchain lead at the largest bank in Africa. We built some stuff for them, but they didn't have the appetite at the time. Myself and my co-founders went to start off VALR in 2018. And VALR is a global crypto exchange. We we offer spot markets, spot margin markets, perpetual futures markets.

And we're really, I think the big thing about what we're trying to do is we're really trying to, like many others in our, in our industry, trying to make the financial world better, to make it recognize the oneness of humanity. That's a big kind of spiritual belief of my own, which is that humanity is one.

Our financial system doesn't minister to the needs of that. It's all fragmented and siloed. We need a better financial system and VALR is doing its playing its role to help build that.

Stephen: You kind of like skimmed over, you ran into Bitcoin, like it was a grocery store. Like, Oh yeah, I went to the grocery store, you know, blockchain.

Cause when I first heard about it, it was actually listening to this podcast back in, like, I think it was May, 2015, Bitcoin prices was about 700 if that's going to give any kind of I'd never heard about it before. You know, as an African American, like I've never heard, none of my friends are, we're talking about it.

So how did you hear about it? What was your first impressions? Or because you were diving so deep into like investments, this actually made a lot more sense to you than maybe the average person.

Farzam: No, no, no. Far from it. When I first heard about it, it was probably, I don't know the exact date, but I think it was about 2012 when I first heard about it.

And I thought it was a complete scam. I was in the news and I remember like someplace in New York city was accepting Bitcoin as payment for a coffee or something crazy. And I was like, what is this stuff? And it looks weird. And then you know, the price in 2013 went up. I think it was still about. Close to 1, 000 at the time, if I'm not making a mistake, and then it crashed.

To like 150 or 200, 250, somewhere around there. And I remember when it crashed, I felt vindicated. Like, yeah, this thing's an absolute scam. Right. So let me move on with my life. And then I, a buddy of mine called Adam had a startup in San Francisco and he was, he's also a member of the Baha'i community and a member of the Baha'i faith.

And I wrote to him and I said, Hey, Adam, what are you doing with your life, man? This is, this is beneath us. This is not, you know, this is not worthy of what you should be doing with your life. And as far as I think, I think you don't understand. Let me explain a couple of things about Bitcoin and blockchain.

And so we had a very long conversation. He opened my eyes in a very big way. And the rest is history, as they say.

Stephen: Could you see at that time, like, could you ever imagine it being like an asset class? So, you know, Bitcoin ETF spot trading was just approved here in the United States. Within the last couple of months, could you believe it could ever get to that point or do you just think it was like an alternative financial system for only instances like what happened with, you know, the Greek market, Venezuela and places were like hyperinflation, money's worthless, post war.

Did you think it was more on the fringes or could you see it being like a big asset class back at that time?...

Farzam: yeah. So when I had the conversation with my friend, it was like 2014, 2015. And I remember thinking I told my wife about the conversation. She said, Farzam, this might be what you've been waiting for. Like something that will really revolutionize finance.

And so I've always, since that time before that, obviously I thought it was a fraud and I thought it was a scam and I thought it was going away. But since I had a better understanding, I, I always thought that it was going to become really big. And. I mean, I even, the bank put some presentations together, they're kind of making a business case and, you know, we had some big numbers at the time.

I think the market cap of, of, this is now 2016/17, I think maybe 2016, the market cap of Bitcoin was about 12 billion dollars, right? Right now it's over 1 trillion. Right. And we were just saying, you know, just imagine this can go up 10x, like, you know, it's going to be huge. And so obviously we're up nearly 100x since then.

So, I think it's, it's gone much bigger than our short term kind of indications. But I also think we're still very, very early, Stephen. So I think we're going to be, we're definitely, you know, Bitcoin price is above $500, $600, $700, 000 easy because $700, 000 is parity between Bitcoin market value and gold market value.

Right. And as I always say, anything digital. And I view Bitcoin as like a digital version of gold. I think it's going to outstrip its analog version by a huge margin. So I think we're still very, very early.

Stephen: And you know, a lot of people are like 500, 600, 000 Bitcoin doesn't make sense. When I was listening to this podcast and it was at 700, Brian Romley, who is the host of the podcast said, I envision a 10, 000 Bitcoin.

And at that time it was like blasphemy. Like, I don't even think he was allowed on Twitter after that because of the amount of probably hate messages he was getting and then, you know, it goes to 17, 000 and it's like, Oh, like when you see that vision, it's the same thing, right? Bitcoin at 1000 going to 10, 000 is exactly what you're saying.

Bitcoin at 50, 000 going to 500, 000. And although this is not investment advice, You can see the parallels of the conversation and what a decade, how things can change.

You talked about the big bank that you were working at with in South Africa. They were actually part of the South African Financial Blockchain Consortium.

And you were, I think you were a chairperson at the time in 2017. What were the conversations? Cause it seems like at that time they were very openly talking about blockchain, business use cases. I'm curious, what were the conversations with your organization and maybe some of the other members, cause there was also regulators in that consortium as well, which is unheard of, right?

Farzam: Yeah. Yeah. We were very early and actually. It was a fantastic consortium. The conversations, first of all, we met once a month for about, I think, two to three hours a month. So it wasn't like it wasn't every week or anything like that, but it was once a month. The regulators were there. So we had a national treasury that was there.

We had the financial sector conduct authority. I think we have representatives from the reserve bank or the, which is the central bank in South Africa. And basically the, the breadth and kind of the diversity of knowledge was, was huge, right? There were some people that were breathing and living this, and there were other people that had no idea what this was, and so the, the intention of that That forum was really to allow people to come and just get educated for us to talk about it, right?

For us to understand what are the trends, where is this going? What would the regulatory regimes need to look like, you know? And even before what the regulatory regimes would need to look like, what is this stuff? Like, what is blockchain technology? And you know, I remember 2016 ish. When I was bringing this up with the bank, I was like, hey, I heard about, actually it was between 2015 to 2016, I said, I heard about this blockchain technology, like, are we, are we doing stuff like that in the bank?

And I would talk to people and like, oh yeah, yeah, yeah, we've got a whole team working on blockchain, oh yeah, blockchain, oh yeah, we've done that, we've done that. And I was like, Oh, wow. Okay. People are really, they're, they're amazing. They're, they're ahead of their time. Then I just realized that people are just, you know, people's egos get in the way and they don't want to admit that they don't understand what this is.

They're like, Oh yeah, yeah, yeah, yeah. And then I realized actually nobody's doing anything in the bank. They say it. I know that it's called blocking.

Stephen: It's an Excel spreadsheet. with the title Blockchain Hunter.

Farzam: Pretty much, pretty much. And actually, I say some guys know this about blockchain. Even that they didn't know is blockchain one word? Is it two words? It's like...

Stephen: hyphenated?

Farzam: Exactly, exactly. So, I think it was just very early. The conversations and the intention of that, that forum. Was really just to bring a diverse set of stakeholders together to understand what the power of this technology is and where it could it possibly go, and to hopefully create a welcoming environment for the technology and the asset class in the South African context, which is what that forum was for.

Stephen: Now, during that time, you talk about 2017, 2018. In 2021, you know Africa got rocked by Africa Crypto, which was a crypto exchange. I think it was like 3.6 billion dollars worth of cryptocurrency.

Farzam: It wasn't that high. That's what the... for sure

Stephen: That's what the news says?

Farzam: That's what the news, and that's... Actually, sorry to interrupt.

Stephen: No, no, no. I think it's important. We want to hear facts.

Farzam: That's one of the few times, not a few times, but actually one of the earliest times. This has happened many times since then. When I realized, wow. These major outlets around the world, Bloomberg, Reuters, et cetera, are regurgitating stuff that they have not checked the facts on. And because this was in our backyard in South Africa, right?

So we could kind of, you know, and also we run an exchange. So we, and right now we're like 60, 70, 80 by 60, 60 to 70 percent of the market. We kind of know what the flows are. of, of people and we know what the market flows are and like the, the, the flows that they were talking about exceeded the flows in the entire market.

It's not even possible. And so what actually happened just so that people know is that some investigator that didn't fully understand how the blockchain system works followed some of the the paths on the blockchain of one of their clients. I think they probably found themselves to some huge wallet at Binance, right?

And thought, Oh my goodness, all this money has been stolen. And these guys are the thieves. Which is not the case. Not to, not to belittle what they did, because that was, that was actually, from what I understand, it was fraud and it was a crime and all that. But I'm just talking about the magnitude. I think they were talking about, as you said, 3.6, 3.7 billion dollars. Right. I think the actual magnitude is probably anywhere between 5 to 100 million dollars. It's not 3.6 or 3.7 billion. That's for sure.

Stephen: That's a big number. That's still a big number, but that doesn't get you looking at the headlines quite as much to your point, right?

Farzam: I think it was, I think it was 25 million...

Stephen: everyone makes that hot wallet mistake, I think, sometime in their career, even professional investigators working with law enforcement. Tell me about what did that do for your organization? Did it increase business? Was it a now black mark on the industry, especially in Africa? Tell me the impact of that at the time.

Farzam: Yeah. So there wasn't really any major impact from volumes on the platform. You know, the customers that are buying and selling kept buying and selling. Right. But there was definitely much more scrutiny from the regulators. We were in touch with many of the law enforcement agencies that contacted us to try to get information about this.

You know, we're, we're always in touch with any, any type of thing that happens that affects South Africa. People are always in touch with us because we're, we're now the largest player by volume in, in South Africa and in Africa. But I think the biggest thing is just reputationally, right? And this is a big, like, mark on our industry and it keeps happening over and over again.

Which is just a few bad actors, that has nothing to do with the technology, that has nothing to do with the asset class. But it's in the name of the technology and the asset class that a few bad actors come and perpetuate frauds or misdemeanors. And then basically cast this whole shadow on the entire industry, which is actually very, it's very tiring, particularly for those of us that are trying to actually review this technology as something that can serve humanity, that can improve our financial system.

You get a few bad apples that kind of cast the shadow across the entire industry. So, I mean, if we have some time like what we're recently talking about at VALR is actually, we're calling for a global whistleblower program across the world, particularly for centralized exchanges. Because I know as a CEO and co-founder of an exchange, if I wanted to be dishonest, and if I could lie, if I wanted to lie to the public.

I could lie and you can present all sorts of things. We could say we're doing proof of reserves and all these kind of things, but I actually, if I wanted to, right, it's very easy to mislead people. So the fact that you have a proof of reserves doesn't mean that there's actually the funds there in the first place.

I always say the major proof of whether your funds are there is withdraw your funds. Withdraw your funds. Right? And if they're there, then you'll be able to withdraw them. But the point is that there are many people in exchanges behind the curtains that might be able to see something that's not as it should be. And we need those people to speak up from behind the curtain to say, Hey guys, this exchange is saying they're doing XYZ.

I work there. I'm in the operations and actually they're doing ABC. So we need to have some protections and from some incentives for people like that behind the curtain to come out for the protection of the public.

Stephen: And there needs to show that there is that protection. I'm based in Canada. We had this issue with a exchange here, Coinsquare, where they were wash trading and a whistleblower did say there was wash play and they got penalized and they got fired and eventually they did get compensated.

But like now you're fighting, you know, you're fighting to get compensated. Even though you did what was right, right? I don't think there was the full support of regulators and even the industry as a whole, right? If you're a whistleblower, what are the chances any exchange, as you said, maybe you're not doing a hundred percent of things wrong.

Maybe you value compliance. But there might be holes in some of the things that you are doing. Exchanges aren't going to be running to hire that whistleblower, right? At the day, you want someone to do what's right, but you don't want someone reporting on anything that is wrong either. So, to your point, I think there needs to be What do you think it is?

Do you think it's the fight that they would have to ensure after being a whistleblower? Do you think it's like, that might be career suicide? Cause those are the first thoughts that come to my mind. What are your thoughts?

Farzam: Yeah, the two things, number one is there needs to be protection for the individual so that they can't be just like some type of an NGO that has some type of whistleblower program.

And these are come from the authorities, from the regulators. For those, from those that have some enforcement power, all right. So there needs to be some type of protection, right, that they can provide protection. But number two, there needs to be some type of incentives, monetary incentives, right. And actually the SEC is not, not the closest friend to the crypto industry at the moment.

But if there's one thing that we can learn from the SEC is that they've had a whistleblower program where they've spent, they've paid out lots and lots of money from that program. And they've had people that have come forward to say, listen, there's security frauds in X, Y, and Z. I'm not talking about the crypto industry.

I'm talking about beyond the crypto industry. And that's served them well. And I think we need to have something similar where there's incentives for people to come up. They're taking a risk, right? As you said, it could be perceived as career suicide. So what are they going to benefit from? A, obviously ethically, they benefit from Just telling the world that, Hey, you could be losing your money if you continue to deal with X, Y, and Z exchange.

But B, they need to be compensated financially such that, you know, if they are ostracized, that, that they, they are financially taken care of for, for a while, at least, right? So the protection and the incentives are particularly important from the right authorities to make sure that the whistleblower whistleblower whistleblower program actually has some teeth and is effective.

Stephen: And I think you also need like a network and a community and resources, right? Like if you're doing this for the first time and you're going to an authority that maybe doesn't know the process that well, or even if they do know the process that well, I didn't feel like, hey, am I doing the right thing?

What's the process I need to go through? So there needs to be some kind of either a task force, Of lawyers to help you out as well and trained professionals to help you through this process because, you know, the authorities can say what they want, but at the end of the day, you're the one that may lose your house because these exchanges come with some very powerful lawyers.

So by the time you get done what's right, you could be homeless at the rate that these lawyers can attack you, right?

Farzam: Yeah, but remember, they could be also anonymous. A lot of these whistleblower programs are anonymous. So the actually, the idea is that the whistleblower doesn't take on the perpetrator head on, but they provide the information to the regulators to actually make sure that their regulators have sufficient information to look into any particular matter.

And then it's the regulators that take on the, the, the The party that's misbehaving. There's not the individual. I think that individual should not be going to court against their previous employer, but they should just be providing the information so that the regulators and those in charge of public protection can actually do their job more effectively.

Stephen: One of the issues with the AfriCrypt issue is that I don't think South Africa had Bitcoin as like a financial product. So the regulators there said they couldn't go after. The criminals are the illicit actors. They didn't have jurisdiction, but recently, I think it was 2022 that they did now include cryptocurrency or at least Bitcoin.

Do you think that was the push that they needed to include cryptocurrency or from your conversation with the regulators was just happening way before the AfriCrypt accident or incident?

Farzam: What are you specifically talking about?

Stephen: Like when they regulated crypto to, you know, be a financial product within their jurisdiction so that they could pursue criminal investigations with cryptocurrency.

Was that always on the plan or did that just happen?

Farzam: First of all, if you, if you, if you commit a crime, regardless of whether it's FX or crypto or property, it's a crime is a crime. So the regulators in South Africa have always been able to go after people that are committing crimes. But to your point, it's been very helpful to have the authorities declare crypto assets as a financial product in South Africa, right?

That's the first thing that they did. Secondly, the, the, the reserve bank has actually sent circulars and guidelines to the banks to say, listen, guys the crypto asset industry isn't an illicit industry, right? And actually, and they explicitly said that the banks need to up their game and their knowledge of this asset class so that they can actually assess the risks as they would with any other industry.

So I think there's a lot that's happening, not just in South Africa, but abroad. We're also approved in Europe. And as we know, there are regulations coming out in Europe. So I think a lot is happening that is putting in place a framework for the legitimization, not that the legitimization is needed for, for people that understand the product because they're already in it, but it does help for the mass market to understand, okay, A, this is not an illegal product because there's a lot of miscommunication and kind of misinformation about most of crypto is illicit activity, which we know is just not a fact.

Right? And then secondly, to provide access via ETFs, etc. So, all of these things are coming into play, which is the regulatory framework, the infrastructural players building, etc. Which is why, coming back to my earlier comment, We're still so early. We're really early. And over time, all of these different things will start coming in and forming this foundation of what I think is going to be a glorious system to come.

Stephen: When, you know, you're talking about working at a bank that was obviously very forward thinking, they're part of financial, you know, blockchain consortiums. What was your thought process? Where did you see the void where you're like, 2018, Downmarket. You know what? That's the best thing to do is create a crypto exchange here in South Africa.

You know, you have a cushy bank job. You at least get to talk about blockchain and cryptocurrency three hours out of the month, if not more. What made you decide, what hole did you see that you were planning to fill?

Farzam: This is a great question. And I, I literally asked myself, I remember I was sitting on my desk.

Looking out the window and I asked myself, you know, I do have a good job. That's paying me a nice salary. I could stay here and it's very comfortable. And I asked myself later on in my life, I'm going to say 80 or whatever it may be. And I look back, would I be proud of myself for making the decision to stay in comfort?

Where I could take a leap that's very uncomfortable, but hopefully make a bigger impact in life. And the decision was very clear. It says, take the leap. Now this isn't, let's be very clear. The decision that was made to do this happened towards the end of 2017, which is when the prices are going up in a big way.

And then when I actually left the bank it was post the $20, 000 kind of, you know, local all time high. And the price was going down and that's when I left and we started VALR. We launched VALR in December of 2018. And the price then was about $3, 000 U. S. dollars. So it was actually pretty close to the bottom at that time.

But as they say, the best building is done in the bear market. You know, because you kind of get rid of all the noise, you focus on the product, you focus on building a proper service. So I'm very grateful that that happened. And also the last couple of years in the bear market have also been a time where we've built, been building our perpetual futures, we've been building our margin engine, a risk engine that's, that's to take into consideration the, the, the futures product that we've just launched.

Liquidation engines, all this kind of stuff that's all kind of. Part and parcel of creating a more global product. So that's where our next stage is now. We've kind of. We're the dominant player by volume in Africa. We now want to go and actually deliver our product, which you think is a fantastic product, to the world.

So that's the next phase.

How did you deal with those early regulations? You know, I know you were speaking to some of the regulators there, but there was still some vagueness in the regulation at that time. How did you navigate a large crypto exchange at that time?

So obviously we weren't large at the time, we weren't non existent at the time, but we went to the regulators and we basically said, this is what we want to do.

So pre launch, we were sitting in the offices of the regulators, said this is what we want to do. What are the laws that apply to us? And basically they said, actually, this is outside the scope of the, we don't really know what this is, how do you classify it? And so we said, well, are we allowed to proceed or should we wait?

And they said there's nothing stopping you from proceeding. So our approach has always been one of transparency and compliance. And so as we go along, we keep the regulators abreast of what we're doing. We have good relationships with those regulators. There are, you know, a couple of years ago, we had tokenized stocks that was in our development in our dev environment where we wanted to actually put into production and we went to the regulators and we said, Hey guys, we've got this tokenized stock.

It's a crypto asset, but it's, you know, this is Tesla, right? Can we, can we put this in production? And they said, no, no. What's a tokenized stock? No, no, no, no, no, no. Wait, wait, wait, wait. And then don't proceed. We need to understand what this is first and then we can proceed. Today we've never, we've never actually launched that because we never heard back from them.

So we also, there have been some learnings because we want to be compliant always, but also with regulators and I can say this publicly, they're very conservative, right? And as they should be, but they also have a dual process, which is to be conservative to protect the public. but also to enable a flourishing environment for technological progress and advancement.

But it's very rare that you'll have a regulator that will say, listen, this is new, but we'll get, we're going to give you a written piece of paper to say, we approve for you to go ahead and let's see where it goes. That's not how that works. So, I don't know if, can you still hear me? Yeah, I can hear you.

So basically what our approach is, is to talk to the regulators as much as possible, and then also to have our legal system and our legal team look at the laws to say what's possible and what's not possible and to get actual legal opinions. Let's say, you know, you can do that or you can't do that.

And then that one, that's what guides us with our, with our approach.

Stephen: And now real world, you know, real world asset tokenization is like blasting off. You're like, we're ready. Like, let us, let us into the game, but talk to me about the real regulators, which are the banks, right? At the end of the day, you can get as much from regulators as possible, but the banks are ones during that threshold to maintain a bank account, which you need to operate your business.

How difficult was it to get, maintain bank accounts during that time, and even now, especially everything that's happening in the States with SVP Bank and also, you know, with what happened with FTX and Binance.

Farzam: So our first bank account that we got was relatively straightforward, but it was early again, this was like in 2018.

And then when we launched in 20, we launched at the end of 2018, signups, and then we actually launched trading in 2019. In the middle of that year, we were contacted by our main banking partner to say, listen, we are going to be off boarding all crypto players from our platform. And so at that point we said, okay, well, why is that the case?

And they said, we don't have the risk appetite for it. And we said, this doesn't seem to be in line with what the, you know, FATF and the global regulators are talking about. This is de risking, but it's de risking in a bad way, which is don't get rid of an industry because then you lose sight into that industry.

Right. But they didn't listen to us.

And then we basically had to go and get other bank accounts. We were lucky that we have some very strong banking partners now. But we literally had to shift our banking rails from one to another which is obviously causes a lot of operational disruption that we had to navigate.

But recently that same bank that that off boarded us. They now have a crypto team. I think it's probably five person strong. They're thinking about doing a whole bunch of stuff themselves in this space. And I've always said, it's just a matter of time before they not only just bank start bank re banking, excuse me, customers like ourselves, but actually start offering crypto products to the public.

Stephen: Yeah. They're like, we got re banking. We'll, we'll become a crypto bank and we'll get what we need a middleman for.

Farzam: Without a doubt.

Stephen: You, you're on LinkedIn. I see you post some really great things. One thing I did see on LinkedIn is like Obama with, you know, a synthetic Id. Like, there's a real threat now with AI being able to create regenerative AI IDs, identification.

We're seeing them being sold on the dark web. How do you protect your consumers? From things like synthetic IDs and these, you know, really, really well crafted pictures that they would be submitting to you as part of the onboarding process.

Farzam: Yeah, you're right. AI is getting very advanced, but also the protections that use AI are also getting advanced, right?

So, so things like KYC, that's not our bread and butter from the perspective that we run an exchange. And so our expertise is. Dealing with a matching engine and security and things of that nature. And so we work with partners whose full time reason of existence is to put in place systems that combat this type of stuff, right?

So we're working with a couple of different KYC partners to actually onboard people through the entire Know Your Customer process. And then we have a whole bunch of, a series of Information if someone wants to get into their account, we do kind of live videos, but live videos can sometimes be an issue as we know with AI, AI.

But then there's a whole series of security questions you need to answer, a whole security protocol that you need to pass before getting access to your account, as an example. So it's a dual process thing. Number one is the KYC right at the beginning. We don't accept anybody without full KYC. And then the second thing is you need to serve people and make sure that they are who they say they are.

And there's a whole host of kind of steps that you need to go through that are actually, to be honest, very inconvenient to the end customer, but it has to be that way. Otherwise you compromise on security.

Stephen: Now VALR, like when I hear about VALR, I associate with like sophisticated traders. You look on your website, you even mentioned it here.

You're pretty much a one stop shop, right? People come to you and they can do pretty much everything using digital assets. What do you feel is the most common use for your platformers? Maybe even some of the most unique uses that people are coming to your platform...

Farzam: yeah, so we have about a thousand institutional customers and about half a million retail customers.

And so we have a lot of people that are just coming and buying and holding on the platform with the view that, you know, Bitcoin or even Stablecoins in Africa are a hedge towards the devaluation of any local currency. We have a lot of sophisticated traders that are employing or deploying very sophisticated trading strategies, right?

And so they look at kind of differentials that are happening in different markets as arbitrage plays, but even within South Africa that are capital controls. And so there's a little bit of a premium in the South African price. And some of these advanced traders look at that premium and they trade the magnitude of the premium itself, understanding that this is where it generally is.

And if it goes up, then they'll, you know, short it because it's going to mean revert or. You know, things like that. So, there's a lot of sophisticated trading through our API, which has been very well received from our global client base. And then there's some remittances that people do. A lot of, a lot of people sending value or, or capital into the country will do so with crypto.

Come send it on to VALR, convert it into Rand, and then sell it send it into, you know, the traditional financial system. So we have a whole range from the retail traders all the way to the sophisticated traders that are trading on the platform.

Stephen: Have you seen any emergence of trends maybe in the last, you know, two years during this bear market where a certain usage has picked up, you know, there was a big NFT hype?

Back in 2021. So have you seen any sort of trends that you, you didn't know this maybe before between 2018 and 2020, before the pandemic started?

Farzam: Yeah, I think probably the main trend that we see is obviously as the price goes up, the retail market comes in and then when the price goes down, they go out, we, we learned a very tough lesson, which is that we, we started trying to market our, our product and, and, and VALR in the bear market.

Marketing is never going to lose with a price that's going down. The Bitcoin price is never going to win with the price that's going down, right? So we had to pull some of that back. I think one of the other trends is that we're starting to see many more players build upon VALR for a bunch of different services.

There might be remittances, there might be right now at VALR, for example, you can go and use your Bitcoin and crypto to buy at a supermarket called Pick and Pay, which is one of the largest supermarkets. There's 1, 000, more than 1, 500 stores around the country in South Africa. You can go and use your VALR app and you can go and pay for groceries using Bitcoin.

So there's, I think the idea, and I would still say like the majority of what we're seeing is still a speculative environment. Right. And when I say speculative, I'm talking about speculation from protection from devaluation of your own currency or just appreciation of Bitcoin or whatever it may be.

But more and more we're seeing these add ons, which is kind of the payments piece, the remittance piece that's coming into place, the acceptance of it for goods and services. That's what we're seeing more and more of. We're not close to the unit of account stage. And in monetary theory, we're pricing things in Bitcoin, although some people do price it, but it's still so volatile.

But it doesn't make too much sense when most of the economy is, is in fiat. But we're kind of moving from that store of value into kind of the means of exchange. And I think in the future we will see crypto and, and Bitcoin being used as a unit of account.

Stephen: You had mentioned stable coins. You also mentioned things like capital control issues.

You know, maybe the restrictions or the expense of sending cross border payments, how much or how big is a stable coin? We've seen it go up. I think 60 percent of, you know, of a lot of the on chain traffic is now based on stable coins. How about for you? Where are you seeing Stablecoins position itself in the digital asset ecosystem there in Africa?

Farzam: Yeah, I can look actually right now. So, so we used to see our Bitcoin RAN, so we've got the largest Bitcoin RAN trading venue in the world, out of all platforms, including Binance's over here, but we've got something like 10 times, at least 10 times their volume. But Bitcoin Czar used to be the largest trading pair.

It still is by, but, but it used to be by a long shot. And USTT, USDT Czar and USDC Czar are also coming up in a big way. And sometimes I think we have even seen days where some of those pairs have actually exceeded Bitcoin Rand trading. Right, so from a, I haven't looked at the on chain analytics, but from a volume perspective, we're actually starting to see a lot of demand and trading for stablecoins as well as just Bitcoin.

Stephen: You know, what's interesting, you know, when I'm researching for this topic, you know, South Africa has always had maybe like not a dark cloud, but just that overarching theme of apartheid, you know, Nelson Mandela seemed like it just ended 30 years ago. So, yeah. With Nathan Mandela being released and becoming Prime Minister or President, I'm not sure which one you have.

We have a Prime Minister here in Canada. Do you think the decentralization nature, the censorship resistance, It has opened up the floodgates for more participation from the average consumer to, you know, combat some of the bias and racism that maybe South Africa has seen over the years.

Farzam: It's a charged question.

Stephen: And that's what I asked you. I know you're the person that, you know...

Farzam: I wouldn't, I wouldn't bucket those two things together. I think they're quite distinct. There's a lot of social challenges in South Africa, for sure. That existed pre-apartheid, the ending of apartheid, or during apartheid, and it still exists post apartheid.

There are a lot of challenges with racism and inequality of, you know, the rich and the gap between the rich and the poor, etc. I take quite a conservative approach because I, at this stage, I'm quite public and I'm going to start with a little bit of vociferous in saying that I don't think Bitcoin and crypto is for everybody in the world right now.

And the reason I say that is that there are many people living hand to mouth, you know, earning a little bit of fiat currency to be able to pay the next day or the same day or the following week rent or whatever it may be. And I think for those people, while we're trying to build a system that will serve them for sure, I would never ever recommend that someone goes and buys Bitcoin for, you know, A fiat debt that they have that's going to, you know, mature in a, in a month, not knowing if this is going to be up or down.

I think that's a very dangerous thing to do. So I think there's a lot of work for us to do in society. To make a more even playing field for the people that are less fortunate. And there are many, the majority of the people, you know, as you know, they just a pyramid in our world. And so the way I look at Bitcoin and crypto is that it's a tool and it will help us allow for more frictionless finance, but a tool is a tool, right? It's not a system itself. And I think we've got a lot of work as society to try to solve our social issues, racism, the divide between the rich and the poor gender issues, things of that nature. But I, I, I'm not one of those that says, Oh, Bitcoin fixes everything. You know, and I, and I say that deliberately because I think our challenges are much more multifaceted and it is very naive to think, oh, Bitcoin fixes, no, we've got a lot of hard work on our hands as a society to fix our issues.

Yes, Bitcoin and crypto is a tool that will assist us, but let's not forget the hard work ahead of us.

Stephen: You know, what's interesting is when people talk about the underbanked and, you know, unbanked, they always usually refer to Africa as like kind of that use case. And Bitcoin was supposed to help with financial inclusion.

Have you seen it help at all? Like, just being able to use your crypto exchange to convert to, you know, stablecoin or to rent and maybe send abroad. Have you seen it help that or have we not made a dent in financial inclusion using cryptocurrency?

Farzam: I'll give you a very practical example, right? We really aspire to serve everybody, right?

People at the so called bottom of the pyramid, all the way to the top. Like, it's really a big aspiration of VALR to serve humanity. And then we have something called VALR Pay. VALR Pay is you can send, you know, rands or crypto for free to anybody in the world, basically, to any cell phone number, any email address, you it's all, all on the platform.

You have to be a customer, but if you're not a customer, you'll receive an SMS or an email that says sign up and then you receive it. Right.

Stephen: Sign up and get your money. That's usually a pretty quick, pretty quick interaction.

Farzam: But the reason I bring that up is that I used to start sending, you know, some tips to, you know, a waiter or a security guard or whatever it may be.

And I realized, because after three days, if it's not claimed, then it reverts back into your account. And it wasn't, many of the times it wasn't getting claimed, and this is a decent amount of money for, for, for some people. And so I started talking to people and I said, you know, why didn't you claim the funds?

And they said, well, your, your platform requires an email address to sign up. I don't an email address. Right?

Stephen: That's interesting.

Farzam: So in, for most of the world, everybody's on email. Yeah. But in Africa, there's a huge sliver of people that do not even have an email address, then they have a phone, they have a cell phone number, they're a conservant with mobile banking and stuff like that, but that just shows you a little bit of kind of where we are.

And like a lot of crypto platforms require email as one of the security features, right, to authenticate or to get a code in addition to your, your phone. So these are some of the challenges that, that we're working with which is kind of beyond what you would. Actually think initially.

Stephen: So in 2022, you raised 50 million in a series B, which is a lot of money, especially at that time.

I feel like VALR thrives in a bear market, right? Like I feel like VALR is the chain. You'd love a good bear market to build. That's a lot of money to get during that time though. Like I think. And one of the plans was obviously to expand, you're talking about global plans, I think one of the plans at that time was to expand more in Africa itself.

How successful have you been? Like, has it been challenging? Because we do see bans from certain regulators on and off bans. How challenging was it for you? To, you know, continue that success that you saw in South Africa to other parts of Africa.

Farzam: Africa is a very challenging place. You know, it's over 50 countries and you know, maybe about 40 currencies.

And you know, different central banks, capital controls across the continent, different regulatory regimes. So, you know, Nigeria is one of the big markets there that recently opened up. So we're actually making some headway there. Before we were about to get into Nigeria and then the central bank came and instituted a ban on all banks working with crypto companies.

Right. Kenya is a similar point, which is also a relatively large market. We can't get a bank account there. There are some of our competitors that will kind of play cat and mouse with the banks and the regulators and say that they're a digital platform, they don't do crypto. And then people will find out that they're crypto and they'll close the bank down and open up another one.

That's not our style. We are who we are. We'll tell you who we are. If we're welcome, we'll come. If we're not welcome and it's illegal to operate in your country, we won't operate. So. Africa is very difficult. Even a place like Zambia, we entered into Zambia about a year, November, 2022, if I'm not mistaken.

And about three or four months later, we had to actually bring those pairs down because we had banking issues and we couldn't service our, our customer base. So we had to actually you know, pay out the withdrawals or to our customers where we could. And then basically delist those, those pairs because the banking facilities weren't able to accommodate us.

So everybody's fine there in, in, in, in Zambia from our customer's perspective. But unfortunately we can't continue serving them, which is a real shame, right? So it's a very difficult, difficult place to, to navigate. Not impossible, but it takes a lot of, a lot of work and we're working on it.

Stephen: Did you find similar challenges in places like India?

I think that was one of your areas you're targeting. And where else are you looking around the world that has maybe a similar framework, like Africa, where you're not scared to roll up your hands get into a conversation with the regulators and transparently, you know, maintain and, Those bank accounts.

Farzam: Yeah. So we were going to go into India again, then India had a regulatory change and their volumes went from hundreds of millions of dollars a day to, you know, just in the single digits of millions of dollars a day. I think it's still around there. And that's because it's a 30 percent tax, TDS and GST and a whole bunch of stuff.

So we actually put that on a hold until we have some more clarity there. So, But we are licensed or we're approved to provide crypto services out of Poland. So for the European region, we've got an initial approval from Vara in Dubai. We're in the process with Mauritius, and we're hopefully going to be getting one of the first licenses out of the South African regime.

Coming shortly. So, so to answer your question, it's been very difficult, right? Based on where the maturation of the regulatory regimes have been across the world. And particularly for a platform that wants to be very compliant to ensure that there's protection of our customers and that we're in line with the With kind of what the laws require, it's, you've got to be very careful and make sure that you're not overstepping any bounds, which could get you into trouble.

And we've seen other exchanges that have, that have taken those steps. On the one hand, they've become large exchanges. On the other hand, you know, some of the founders are facing, you know, prison sentence very shortly. So we, we, we definitely want to do things in the right way. Our, our next kind of phase is we are targeting, we have, we have dollar on and off ramps as well.

And so we're targeting a global audience and we're going to be actually announcing what we think is going to be the largest crypto reward program that's ever existed from a centralized exchange. I won't get into that just yet, but in the next, I'm hoping in the next month or six weeks, we'll be able to announce that.

And really take our products to traders across the world, which we're very excited about.

Stephen: And we'll include in the show notes, if you do mention it, we might even update the intro to let people know exactly what that is, if this episode doesn't air by the time that amazing announcement comes up. Talk to me a little bit, you mentioned a couple of times here in the conversation, you know, crypto might not be, and Bitcoin might not be for everybody, it definitely doesn't solve all the problems.

But you went as far as in 2018, writing an op ed for Coindesk, basically with this same sentiment that crypto or Bitcoin doesn't solve all problems. Do you feel like your opinion has changed over the last, now that's six years ago, do you feel like your opinion's changed a little bit and it does solve maybe more problems than you thought it could solve back in 2018?

Farzam: Are you talking about the real world asset? The problem human? Yeah.

Stephen: Kind of discussed here where you're like, Hey, we were ready to go, but it may not solve all problems if the regulators aren't on board with it.

Farzam: So I do stand by that op ed, which is to say a lot of people are wanting this real world assets, tokenization of real world assets.

I personally think that people are getting too excited about it. And the reason I say that is that the real world and tokenization require a reconciliation. And so the beauty about Bitcoin, which a lot of the skeptics think is actually the Achilles heel, which is actually not the Achilles heel. It's the beauty of it is that, excuse me, Bitcoin is not backed by anything.

That's actually the benefit of Bitcoin. If it were backed by something, then you need to be worried about the recon behind that, whatever it's being backed by. And so whenever we put like property on a blockchain, well, just because you've got the keys to the address on the blockchain, if some squatters come and sit on your land, And you can't get access to it.

I'm sorry, but you can't go and tell the squatters, Hey, I got the key. So can you please vacate? No, they're going to be there. Right. So you're going to need to go and ask a central authority to assist you in forcing your rights to get them out of that piece of land or that property. And if you're going to have to rely on them to do that, why can't you rely on them to run a central database?

I don't understand. Right. So this is where I think some of the discrepancy comes in. The beauty about Bitcoin. There is no recon, as I mentioned, there is no central authority that can enforce your rights because the key enforces your rights. Right. In the real world, the key doesn't enforce your rights.

Stephen: I think that's such a perfect, perfect example. And I think that, you know, Instagram, it seems like those squatting videos are coming up more and more and you're right. The only way they're able to get them off the property is by bringing in law enforcement. And to your point, if they're bringing over a centralized party, We might as well just let them keep everything in that database.

The blockchain isn't going to help you remove squatters. That is such a great point.

Farzam: Don't get me wrong. There can be like, you know, you can have a distributed ledger, maybe much more transparency and things like that. I'm not, I'm not, but I'm just saying like the true Bitcoin, like blockchain type of scenario where you have no centralized authority. I think it's taking it a step too far when it comes to the real world.

Stephen: If you were to write a follow up to that article with everything that you're seeing maybe in AI and machine learning, is there things that you think that Bitcoin now using this technology could solve for that you had no idea it would be able to even impact maybe six years ago?

Farzam: I mean, I think that the cross and where, where, where AI meets crypto is going to be tremendously powerful. I, I, I can't even imagine what that will look like, but you know, we've had glimpses in the past of like streaming payments, right? So instead of getting your salary once a month, it's streamed to you as you're working, right?

Like streaming music, streaming payments, right? Just the automation of using smart contracts to, to, to enforce certain kind of conditions to kind of get rid of a lot of the admin that's that's historically been associated with workflows. I think though that when we have like self driving cars and we have AI and we have all of these beautiful technologies There will still be a need for the transfer, the seamless transfer of value.

And I don't see that seamless transfer of value being provisioned by a traditional financial system today. I see that seamless transfer of value being provisioned by the crypto industry, by the crypto technology. It, it just makes sense where this, the AI and when real world assets like that come in, but start using payments and stuff like that to interact, the IOT and stuff like that.

So. I think that's very powerful. I think much beyond my imagination, but I, I think we cannot imagine what that will look like, and it's definitely not going to be based on a national currency when we're talking about, you know, platforms that are world encompassing that require a global currency as well.

Stephen: As we finish up this podcast, I know you gave us a little hint of some news that might be coming with VALR. But tell me everything, like, what features are you excited about? What use cases are you excited about? What markets are you really excited about? Like, where do you see VALR if we were to have this same conversation at the start of 2025?

What would you have loved to have What would you love to talk about then that you can talk about now?

Farzam: Sure. I would love to see us as a really strong infrastructural player that is a pillar for this entire system that we're talking about, so that we have a whole bunch of assets, a whole bunch of liquidity, a whole bunch of different products and services, whether it's spot or derivatives that provide, you know, protection or hedging strategies for people, and then to expand our API from what it is already, which is a world class API.

And to see the continued trend of our customers building more products and services on top of our infrastructure to be able to better serve the world and from a financial services perspective, right? So it might be payments, it might be investment portfolios, it might be hedging strategies, it might be, you know, inflation protection, whatever it may be, but using a very seamless product to be able to facilitate.

A much grander financial system that's accessible to all. So that's my, the very highest level, what our aspiration is, is just to help make the world a little bit of a better place to promote civilization, a few steps.

Stephen: When you see things like Binance and FTX, does that kind of validate your plan to be like compliance and transparency first?

Like when you see things like, I'm sure you've looked at your legal department, like, Hey, how are they allowed to do those things? That doesn't make sense. That product is not allowed. How are they able to, you know, sponsor arenas with, you know, these tight margins during a bear market? Does what happened?

Obviously it's a black eye for the industry, but does that help you like carry on and continue to grow? With, you know, leading with compliance and leading with good and leading with consumers in mind.

Farzam: Definitely. So, I mean, if you think we're not here for the short game, right? And in the short game, people can take all sorts of shortcuts.

They can lie and all that kind of stuff. And they might make a few extra bucks. I think I'm a very big believer in the type of karma that it comes back to get you and that you need to live your life in a, in a, in a worthy fashion, upright and with integrity. But. We're not here for the short game and we're here for the long game.

So I think there are other platforms like ourselves that are, are compliant, that I wanted to serve people, protect them. They're not trying to be cowboys. We obviously always want to push the technological envelope, but that's a very different thing from like, just as an example, there's customer funds and then there's proprietary exchange funds you never, ever, ever touch.

The customer funds, let alone take even a cent or a Satoshi up. That's out of bound. If you're able to cross that chasm, and to do that just for a little bit, then you've lost the plot. Right? So just things like that. And that's by the way, that's something to do with the compliance. Obviously that's totally illegal.

Right. But just like, as a culture, you need to know that There's not even a conversation that happens, but that's totally out of the question, right? And I'm, and unfortunately, I think there are still some platforms out there that don't see it that way. And they might say, Oh, extra pool here to do, to maximize profit.

I think over time, those platforms will be caught out, but this platforms that have integrity and compliance at their core and their foundation, I think those are the platforms that we'll still see standing in the future.

Stephen: And to your point, like the boundaries you're pushing is to get Better access to your customer, get better products.

It's not to like, Hey, we want to like onboard people with just an email address and no KYC, it's more so like, can we get our customers the best rate global, like it's more pushing the boundary to support your customers. Where they're pushing the boundaries to support their profits. It's two different boundaries, I think being pushed.

Farzam: And, and there are, just to be clear, we're law abiding, but that doesn't mean that we, we agree philosophically with all of the laws that we have to abide by. So as an example, in South Africa, there's capital controls, and we have to abide by that. We do. I'm a very vocal person saying, guys, this is not in the service to our people in this country, right?

So let's get rid of that. Or even KYC, I think KYC needs to be improved. We need to obviously have the information and there are basically improvements that are happening by the way, which is very good, but it's very important for us to have a very open dialogue with the regulators to say, these are our pain points.

How do we make sure that we're protecting the customer and the public interest while also allowing people. To flourish and to do what they need to do in a compliant fashion.

Stephen: Farzam, I think this is the interview that people really needed to hear from an exchange like yourself. They really needed to understand the mechanics and the thought process between everything that you're doing at Bower.

We're so appreciative you took your time to come and talk to us about it and have a real genuine conversation about what's going on in the industry. But also an exciting conversation about how you're going to be bringing all these ethical things and products and services around the world. Cause I think that's what globally we need more access to more products working with exchanges that we can trust.

So thank you so much for joining us today.

Farzam: Thank you for having me on. It's been a pleasure. I really appreciate it.