Fyde, FTX And Treasury Management: Exclusive Interview With Fyde Co-founder Behrin Naidoo

Fyde, a leading treasury management company, was a London Business School project started by Behrin Naidoo and other like-minded co-founders to develop real-world solutions and sustainability for the crypto space.

Behrin, a graduate of the London Business School; where he helped co-found the London Business School Blockchain Society, commands an enviable knowledge about issues surrounding asset management in the crypto industry and strongly believes that traditional finance solutions have a place in the security and regulation of the CEFI industry.

I recently sat down with him for a discussion about Fyde, FTX and Treasury Management.

Mr Behrin, it’s great to have you. Can you briefly tell us about yourself?

Thanks for having me. I am Behrin. I am from South Africa. I have been involved in the finance and technology space for quite a number of years in various positions. I am in the blockchain space right now and I believe being South African is one of the reasons why I am so passionate about it.

I have seen how blockchain and especially DeFi can revolutionise the financial sector and help make the world a more fair playing ground. Before I started off at Fyde, I, fortunately, met my like-minded founders at London Business School. My co-founders also started the LBS Blockchain Society, this is when we realised that an institutional grade, trustless, transparent crypto treasury management solution was lacking in the space. We needed to build a real solution for all crypto projects in the space so that they can be more scalable and sustainable, helping the industry grow.

Outside of crypto and finance, I love exploring other cultures, travelling, running and playing sports.

Can you take us down memory lane to how your journey to blockchain began?

My blockchain journey started when Bitcoin was very new. The decentralised concept blew my mind. I really only became a believer in blockchain’s capability when I dived into Ethereum and largely around the scalability of infrastructures and its being able to be used as a platform for other innovative projects to be built upon. At that point, I was still in traditional finance working at J .P Morgan but I realised the use case of blockchain technology in traditional finance, asset management and how it could help change the status quo going forward.

How did treasury management become such an important component of DeFi?

I think you have summed up most of the problems that I have seen in the space. If you pan the lens back a few years, the ICO boom that started on Ethereum really and a lot of VCs and centralised players came into the space. VCs backed these centralised exchanges, with market makers running a lot of the ecosystem around token sales, issuing etc. Nobody could really see the transparency around these types of transactions.

Although this would be marketed as blockchain, they really were not using blockchain’s true capability.

I think what we have seen now around treasury management is important. It first started off I guess last year when you had a few of the major hedge funds going bankrupt because they were running a lot of risks off-chain. When I say off-chain, it is not on the blockchain and you can’t really see the transparency around transactions. A similar case happened around FTX and I think we have many articles reporting this incident.

The reason why Defi is really becoming important especially around the treasury management side of it, I think it because in the last few years we were in the last bull run - many crypto projects did not care about risk management around token pricing and sustainability because as soon as a token price went down in the next few months it probably went up. So why is treasury management super important?

It is actually about ensuring optimal utilisation of a project's resources and other projects as well as institutional players such as banks, asset managers etc are actually starting to try and offer it.

If you look at crypto projects right now, it is very different from traditional finance or companies in the sense that a lot of the investments in the projects are raised in the native crypto tokens. The issue here is although project tokens bring about a lot of exposure and have mass market adoption. If you actually have to sell native tokens to pay for things that are needed such as auditing, smart contract development,risk management frameworks, you would see massive price slippage because of lack of liquidity in the tokens .For instance, if you look at Uniswap it had $10 billion worth of treasury in the Uniswap tokens during the last bull run now that is currently close to $2 billion.

If you actually have to sell native 2-5% of Uniswap tokens this would tank the price 50-60%. So right now treasuries need to be managed more of a traditional finance institution grade and that is where we come in:  what we are working on offers treasuries a way to diversify their treasury management so you are not holding everything in one native token that creates symmetrically related risk to an individual project.

Projects are also able to diversify across different types of assets in the space such as real world assets, and tokenized corporate bonds that are entering the space right now. By using this vehicle there is a lot more liquidity for the underlying token which becomes a viable solution.

Let us talk about Fyde. As a cofounder of the company, what can you tell us about its founding?

I had largely left traditional finance before joining Fyde. I was at London Business School, where my team co-founded the LBS Blockchain Society where we have partnered with some of the other UK institutions as well as other global universities. The cool part of Fyde was that we were trying to figure out real world solutions and sustainability for the entire crypto space and treasury management was lacking.

I fortunately found my like-minded co-founders at the time at school and through our network we managed to bring across a really good team that have worked with some of the older, bigger protocols and institutions as well as a team of academics and PhDs from Standord, UCLA,Cambridge,etc.

How we founded it was that we realised that like LBS there are other institutions such as Harvard where they have been creating a DAO, and a DAO is a decentralised autonomous organisation. With these types of DAOs that are being run out of school, maybe they are able to attract endownment funding for the school and society. My co-founder wrote the white paper for the LBS DAO and said now that we are bringing capital to the school and sustainability for the society,how do we manage these types of assets on-chain.

The funny thing is that at the time I think the crypto market was  $2 trillion but there were no actual legitimate treasury management solutions. There were limited solutions for a handful of tokens where you could sell your tokens but then you take massive selling pressure on your token prices, you are allowed to stake your tokens at some providers and generate yields but then you are losing governance rights of your tokens and then the third option is that you may be able to use an outside service provider to market make your token sale, but this is usually at a hefty discount or your are front-run by the market.

No one has really confined all four needs and aspects of treasury management in one protocol and it dawned on us that these are the actual needs for the scalability of the entire crypto space, a really good treasury management solution. We have been on that journey for the last year.

How does Fyde ensure the efficiency and security of treasury management?

So for us, the solution right now is you have to look at it versus a centralised solution or versus using a VC or market maker like in traditional finance. We are completely on-chain; we are completely transparent.

There is self-custody of the user's token. We don’t take anybody’s tokens and take them off-chain. You will be able to see everything on the blockchain through smart contracts. How do we allow efficiency and security around it? At the moment we run multiple code audits. What you will also find in this space is that you actually need to have a project audited by external code auditors.

There are multiple service providers but there are only three to five that are top-notch and that are really security driven and you haven’t seen any hacks or any type of issues around it. So we have employed two of these auditors and they have been running code orders regularly on any types of updates that we do as well as we are employing risk management assessment using some of our own frameworks as well as working with other protocols that deal with risk management. Efficiency and security are the most important things in this space.

How does Fyde's platform compare to other treasury management platforms ?

Sure, Gnosis is a great company that allows you to keep your tokens in an outside vault and manage that. I think Fyde takes that to another level. It is creating a solution where you could partner with Gnosis, MataMask and whatever type of custodial medium you use as your wallet. Basically, you will be able to use those tokens and if you want any type of diversified returns or exposure as well as making sure your tokens have better risk management and liquidity you launch into the Fyde protocol.

So you just plug in through your wallet, connect and deposit straight in. Fyde is actually bringing in and bridging that gap between traditional finance and DEFI risk and portfolio management strategies that have not been run or created in the DEFI space so far. There are other type of protocols where you are able to take your token and deposit them to earn staking rewards for instance. Once you do that you are only earning staking rewards and it does not actually solve the diversification and portfolio management need. Another competitor may be using an OTC market maker .

If you are a project and you need to sell $3 million worth of your tokens and you use them. You typically would be quoted a massive discount to actually create liquidity around the sale. We see VCs doing it as well. These companies also tend to only work with a handful of tokens and not the entire space.

With Fyde ,you do not need to actually sell your token to us. You are able to keep your governance rights for your projects. Due to using an on-chain liquidity pool the discounts we are running are much smaller. We are working across the entire ecosystem. We are working with major price oracles to ensure we have real-time best pricing in the space.

What lesson did the FTX scandal teach the asset management industry?

From my point of view, I think it came with many lessons. The FTX collapse underscores the importance of having robust risk management and compliance as well as being fully transparent around what is actually happening with trading on the blockchain. This was not happening with the way they commingled funds and operated off-chain.

It also created the new wave of regulatory compliance we need for a lot of bad actors out there. Because this is an evolving digital space, we need to ensure that the right projects are being run by the right team and now we know this was unfortunately lacking at FTX.

How does Fyde help crypto projects manage their assets? Is diversification part of the strategies used?

You are 100% right. Diversification is key and that is what we do. In traditional finance, you could typically diversify by just buying your own assets or accumulating cash. You could also diversify by buying ETFs that or other diversified portfolios that are out there in the market. Treasury management is a legal requirement for companies.

Diversification is a key part of our strategy and we also provide a way to maximise off-ramping into other type of stable or liquid coins by providing liquidity. This is by using a new innovations called protocol own liquidity that we think will revolutionise the DEFI space.

The protocol also provides a mean to create your our own yield optimisation startegies so you are able to earn while you diversify, which has not been done so far and all this whilst still keeping custody of your governance rights. This solves the problem if you have bad actors in the space who  may accumulate your company's tokens and decide to push through negative proposals that may impact the future of the DAO and protocol. We believe keeping custody of your own tokens is still super important in treasury management.

Can you share your experience as an asset manager ?

It has been one of the best times of my life to be honest professionally. I have worked across multiple institutions and some of the biggest companies around. and in different roles in traditional finance. But building a project that is going to revolutionise the DEFI space and working with the team we have around us ,it is exhilarating. You are excited to wake up everyday, you are excited to go to bed everyday knowing or thinking about the next day.

But saying that I never had grey hair so that is crypto. It is a tough industry but it is amazing knowing that you are creating something that can revolutionise and bring scalability and sustainability to projects that are trying to be legit in the current environment today.

What piece of advice do you have for people who want follow in your footsteps?

Similar to what you are doing . I mean you are doing great stuff and great work. It is good evidence of what you can be doing out there. I think we all can come from different walks of life and different types of professional backgrounds. Web 3 and especially crypto or DEFI space right now, there is a lot to learn so you just have to keep learning and it doesn't matter who you were before or what your background was but there is always something you are able to do and there are a lot of people in the space who are willing to help. So just keep learning and being passionate about something you enjoy as well as reach out to many people that are open to assisting others.