Guests:
Josh Crumb- Founder & CEO, Abaxx Technologies Inc.
Joe Raia- Chief Commercial Officer, Abaxx Exchange
Annoucer: [00:00:00] This is a special edition of MacroVoices with hedge fund manager, Erik Townsend. The premier financial podcast, targeting professional finance, high net-worth individuals, family offices, and other sophisticated investors. Now for this special edition of MacroVoices, here's Erik Townsend.
Erik Townsend: [00:00:29] MacroVoices Spotlight episode six was recorded on March 11th, 2021. I'm Erik Townsend.
When we had Kyle Bass on MacroVoices and talked about Singapore really becoming the heir apparent to Hong Kong as Hong Kong loses some of its independence from China. Kyle brought up Abaxx Technologies, a company that both Kyle and I have invested in. And when I asked him about it, he said, look, you really have to get Josh Crumb, the CEO of Abaxx on your show to talk about all the different dimensions of this because, as Kyle put it, he said, look, frankly, I invested because they're doing something cool in Singapore with natural gas and because Josh Crumb is involved and frankly, Josh Crumb's the only guy who really understands all the dimensions of this in his head. So we're following up on that advice.
Joining me now are Josh Crumb, CEO of Abaxx Technologies and Joe Raia, the Chief Commercial Officer of Abaxx Exchange, which is the commodity futures exchange owned by Abaxx Technologies. Gentlemen, thanks so much for joining us.
Josh Crumb: [00:01:30] Thanks, Erik. Good to be here.
Joe Raia: [00:01:32] Thanks Erik. Thanks for having us.
Erik Townsend: [00:01:33] Josh people know you as ex-Goldman Sachs commodities guru turned FinTech entrepreneur, the founder of Goldmoney, a company that allows people to essentially have a bank account denominated in gold, complete with an ATM card and so forth. That's a kind of a retail oriented direction. Then somehow you change direction and now your next venture is launching what really is a much more substantial and ambitious undertaking, Abaxx Technologies, which is not just a new commodity exchange, but also a FinTech company. And we'll talk about the different dimensions of that, but I want to start with, okay, what's going on in Josh Crumb's life. Why this, why now? Who were the other principles and what are you really trying to accomplish here with this company?
Josh Crumb: [00:02:19] Thanks, Erik. I guess a big question to lead off with.
So maybe I'll start a little bit with my background. And like you said, the transition through, the things that we've done to get to this point.
So, by background, I'm actually a mining engineer. Got to know the commodity markets from the upstream side, from project development and design all the way through corporate development and capitalizing early stage companies with the Lundin Group.
I then moved over to Goldman Sachs, where I worked under Jeff Currie as the Global Head of, Metals Research and really got to know the trading markets. The commodity exchanges, futures exchanges and how companies manage their price risk. But that said, my passion is, as an engineer, building things and solving problems.
And so when I look out on the horizon, both from a technology perspective, as well as an energy transition perspective, we've got some very large global problems that we're looking at. And really the first iteration of looking at technology as well as commodity markets and how things could be built differently and better, the first iteration was, as you mentioned, the business that I founded with Roy Sebag in Goldmoney, which actually originally was called Bitgold. And this was not a Bitcoin backed by gold, but we were actually very early in building some of the back office systems to really establish trust and be able to settle gold transactions much quicker. Physical gold transactions much quicker using blockchain.
And so really that was where the journey started is recognizing where technology can create some real efficiencies in the way we price and trade, physical, real things. And that's really where this journey started. However, my background really is much more in an institutional space than retail. Buying and selling and building large projects with the Lundin Group. And then eventually of course, working with, very large commercial clients with Goldman Sachs and the things that were learned and could be applied from what we did in the very early days of, sort of enterprise blockchain at Goldmoney is something that we thought could solve even bigger challenges at the global scale in the energy transition and de-carbonization efforts looking at starting with something like a liquified natural gas.
So that's really where this journey all started and where we're at. One of my other co-founders in this vision and idea was a gentleman named Thom McMahon who I believe you've had on the SmarterMarkets podcast. And Thom was actually, quite involved in a lot of product development at NYMEX. Was actually the Chair of the natural gas committee when the Henry Hub futures market was formed and growing that product. And Thom has really introduced a whole relationship network through the old NYMEX, which is another sort of core part of our team.
Erik Townsend: [00:05:04] Joe Raia, you have been involved in the futures markets for more years than most people want to admit to being alive. It seems to me as a futures trader, boy, there has been a trend in the industry of consolidation where CME Group and ICE bought up all of the independent commodity exchanges.
Why now? Why Singapore? And why a new commodity exchange? When it seems like you're fighting a headwind of, some would say consolidation, I would say monopolization, of this industry by two big players that are pretty formidable opponents.
Joe Raia: [00:05:39] That's correct, Erik. And again, thanks for having us.
Really the genesis of the idea around Abaxx and the Abaxx Exchange centered around the interest from the marketplace and looking at new ideas in physical commodities. The incumbent exchanges generally are more focused on financially settled products, which is nothing wrong with that. There's a lot more ability to bring those contracts to market faster.
However, the genesis of any financially settled contract is in the physical markets and my background, and maybe I can go into that a little bit, but my background is in physical commodity markets. I went to the Merchant Marine Academy. I sailed on oil tankers for many years. So my pipe, my genesis of my career is literally in physical oil.
And then I went to work for the NYMEX under Vinnie Viola for many years, building new markets there for him, particularly after ENRON defaulted and the market was looking for better ways to manage risk and mitigate risk with counterparties.
And so we developed new products at the NYMEX under the ClearPort product banner and really allowed new participants in the marketplace and engage with new participants in the marketplace, to bring better ways to risk manage their positions on the exchange.
The real importance of what we're doing that's a little bit different is that we are engaging with the commercial players in the marketplace. We are engaging with the firms that are trading the physical commodities that have exposure to risk in the physical commodity markets that allow us to, or we see, bring this new exchange to marketplace.
And granted, to your point, there are a lot of there is competition from the incumbents, but we think that particularly where we're domiciled in Singapore and how the Asian marketplace has grown, we know that origination of trades from Asia is growing in quite a quick pace. And in particularly in gas markets and we feel that there is an opportunity to bring a new exchange, not only to the marketplace, but with a focus on Asia, at least from our from a regulatory perspective, that can bring the opportunity for participants to hedge their risk in this new marketplace.
Erik Townsend: [00:07:44] With respect to domiciling in Singapore, it's a pretty easy strategy to understand. Kyle Bass told our listeners when he was on the show that Singapore is very likely to replace Hong Kong as the center of finance in Asia, because of Hong Kong's loss of independence. And at the same time, Singapore is already, I would say the primary energy trading hub in Asia already.
So the idea of doing something in Singapore with a new commodities exchange makes perfect sense, doing something with energy makes perfect sense. What was not clear to me in the beginning, as I first started learning about this company, was just how strategic liquefied natural gas is to the green energy revolution. Because a lot of people would tell you, look natural gas that's another fossil fuel. It's on the way out. Just internal combustion engines and all that stuff. It's going the way of electric vehicles, and we're not going to need fossil fuels anymore someday. But actually people who really understand how this green revolution is likely to play out, see natural gas and liquified natural gas particularly, as playing a strategic role.
Help our listeners understand why that's important and why natural gas is an important commodity in this day and age.
Joe Raia: [00:08:57] Yeah, you have to take a couple of steps back. If you look at the two answers to your question, first of all, taking a step back and looking at Asia and Singapore in particular, if you look back over the years that I was at the NYMEX and then the CME, we looked at various regions for domiciling new exchanges.
The general consensus internally, and I think it was in the marketplace, that Asia and Singapore in particular was an important part of the marketplace. But the origination, I like to talk about origination a lot, the origination of trades really wasn't happening in Singapore during Asian market hours.
It was generally waiting for the London markets to open at the very least. And then obviously when the U.S. markets opened in the commodities, the trades would happen. Over the past three to five years, at the most five years, you're starting to see a couple of things happen. You've seen firms move into Singapore that are trading firms, some from mainland China, some from India, some from Europe, some from the U.S. that are moving to Singapore in particular to set up actual origination trading shops.
What does that mean? So during the Asian hours now, you are having firms putting on trades, looking at markets, looking at natural gas markets, oil markets, crude oil markets, refined product markets, carbon markets, to hedge their risk and see where opportunities are to trade in those marketplaces. So that's really what's happened recently in the very recent times that made it not only important for the marketplace, but for us to look at Singapore as a place to domicile our exchange.
The other point and answer to your question on gas on global gas. The global gas markets, along with that change in the origination from Asia is also changing from the destination from a lot of the excess global gas that's on the marketplace. For years and years, projects that were started in say, Asia, Australia, for natural gas fields generally had a term, a long-term life to their projects. So a firm would develop a field in Malaysia, they would build LNG carriers for this, they would transport the gas, basically on a floating pipeline between Malaysia and Japan or China or somewhere in the region. And that contract lasted for well over 20 years.
Two things are happening over the past couple, over three years. The term contracts are coming to expiration and there's been a lot of excess global gas now on the marketplace, particularly from the U.S. coming from West Texas and other regions. And the destination for that gas is now generally Asia.
So when you see the opportunities for firms, not only in the U.S. but also in global markets to trade, you do see again, the origination of global gas trading happening from the Asian region. And, just to take it a further step, when you look at the focus on carbon and environmental markets, all you have to do is look at what's happened in Europe and the U.S. over the past, say five years. Coal to gas, switching from power generation, which is generally the biggest emitter of carbon and pollution in the atmosphere is generally the biggest, one of the biggest places where carbon reduction needs to happen.
We've seen a massive change in Europe, a massive change in the U.S. in generation of power, from coal and other more polluting hydrocarbons into natural gas. Natural gas is not just a transition fuel. It is a fuel of the future because it is cleaner and it obviously has less carbon footprint than other fuels.
And to take it to the final step. Asia now also, and especially with China announcing their commitment to the carbon reduction. You're seeing the adoption of natural gas in China and Asia in general, as another stepping stone to carbon reduction and potentially even to the hydrogen generation, right? Natural gas and hydrocarbons still need or power needs to be a part of hydrogen generation. Whether it's green hydrogen or blue hydrogen, natural gas is generally looked at as one of the solutions for the generation and the stepping stone to really clean fuel burning.
Josh Crumb: [00:12:49] Yeah, Erik and I'd probably add one point. That was a great explanation from Joe. But when we look at emissions in general from industrial activity right now, there's obviously a very very high focus on carbon emissions and greenhouse gas emissions, including methane, which is even more potent greenhouse gas. But we also have to remember that over the last, probably, 30, 40 years but really the last 10, 15 years intensively, the world has gone on a process of really outsourcing heavy industrial production to Asia and particularly China.
So we hear a lot about the labor conversations and currency conversations of cheaper labor. But ultimately, one of the biggest economic revolutions was really the growth of, basically industrial coal and the electrification of China. And so when we think about emissions and having clean air and clean water, Natural gas was always a premium fuel for many decades.
What's changed over the last five, 10 years is not just the demand for cleaner sources of energy, but also the cost base of producing natural gas at scale. And so first you saw natural gas become cheaper than heavy petroleum-based products. And then it became cheaper than coal. And now it's not only the cleanest, but it's also the cheapest. And then the other aspect that's so important about natural gas, is it really allows a much more grid flexibility to be able to introduce things like solar and wind, which is a big part of the green energy revolution.
When you build, very large centralized power grids, based around local coal, you do that to try to keep that air pollution out of the big cities. But with natural gas, you can be much more flexible in your hydrocarbon base and in your load balance, versus things like solar and wind.
So now we believe that the focus on upstream methane leaks and trying to get rid of hydrocarbons overall is something that looks like society is really starting to capitalize but that said, there are other aspects than just the carbon emissions that we're trying to reduce, to try to clean up the global environment, particularly in, in China and Southeast Asia.
Erik Townsend: [00:14:57] I want to just insert a quick primer on how energy is traded for any of our listeners who are not energy traders. Something like crude oil, there's hundreds and hundreds of different grades of crude oil that are traded separately. But the way we do all of this is through something we call benchmark contracts.
There's just a very small number of contracts that set the prices. Everything else is just priced as a discount or a premium to one of those benchmarks. So in the crude oil market, there are three important benchmarks that really define the entire global energy market. The Brent contract sets the price for seaborne crude oil on ships, the WTI or West Texas Intermediate crude oil contract on the NYMEX is basically the defacto standard for U.S., domestic crude oil. And then there's a Dubai contract for Middle Eastern oil. Everything else is priced off of those contracts.
Now for something like natural gas, we do have a Henry Hub contract in the United States, but that's for pipelined natural gas, and really in many ways, liquified natural gas that can be seaborne and carried on a ship is almost a different commodity.
So when I first learned about what you guys were doing, my first question is, okay, who are you going to be competing with? And particularly who has the benchmark contract for seaborne liquefied natural gas. Because once somebody got one of these benchmark contracts, it's a monopoly. It's hard to take it away from them.
And I was shocked when I learned, there really is none. How is that even possible? That, I see these ships coming in and out of ports all the time. They're very distinctive ships that carry natural gas. They have to be designed specifically for the purpose. How is it possible that we've got a global trade of liquified natural gas? And there is no benchmark contract for that commodity for everyone to price independent local grades based on that. How could that even be?
Joe Raia: [00:16:49] I think th the explanation of that, Erik goes back to my description of the marketplace and how the marketplace and global gas has really evolved, right? From that term contract structure to arguably within the past two to three years to more of a short term or spot markets.
So there really wasn't a need for hedging in the global gas market up to a couple of years ago, because of the use of term contracts for most of the gas that was on the water. Any instrument that was used for any excess gas that was being traded, or generally very inefficient means like Brent Brude. You mentioned, you talk about Brent is an oil contract. Brent was used as a hedge. It still is in some contracts that are done between suppliers and receivers in LNG for hedging or pricing the actual molecule that lands up in Asia, and certainly an inefficient pricing mechanism. The market move to Henry Hub at some to some extent, again, a very inefficient marker to price against LNG.
The market, them went to a product called JCC of the Japanese Crude Cocktail. Again, very inefficient, still being used today. So the point is that there wasn't a real demand for, need for hedging, with a benchmark for LNG and B. any products that were being hedged were used on very inefficient means.
And so the marketplace and the opportunity for us is looking for opportunities to list contracts that could bring more direct correlation and convergence to the physical marketplace, with the use of a physical futures contract.
Erik Townsend: [00:18:21] Joe, tell me more about what you guys are doing in terms of creating a futures contract. Seems to me like this is an incredibly ripe opportunity to establish what could become similar to the Brent contract in crude oil, the global benchmark that everybody uses, to price seaborne liquified natural gas. Do I have that right? And what do you guys have in mind?
Joe Raia: [00:18:43] Again, when you look at commodity futures markets, the genesis of any commodity futures markets that's been in existence for many years has generally been in physical markets and physically settled markets.
If you look at the contracts that were on the NYMEX or the CME or the CBOT, for hundreds of years, basically going back to New York, when it was sitting on the sidewalks and trading them they were all physically delivered of the optionality of physical delivery and physical settlement. In actuality, most of the contracts that are physical futures, don't go to physical delivery, but then optionality gives buyers and sellers in that marketplace the opportunity to go to the exchange, to be the buyer and seller of last resort. And what does that mean? If you have a contract you're holding a contract, your long physically settled crude contract or natural gas contract, you can actually, if nobody wants to, if you can't find a buyer of that contract in the marketplace, you can utilize the exchange mechanism to go to delivery of that contract.
And that just allows for firms to hold that contract to delivery and utilize that optionality and not have to sell at a lower price or find a buyer or seller in the OTC market that's, asking them to deliver it not a favorable place. And so that's really what the exchange mechanism does.
It allows for price discovery and allows for that buyer and seller of last resort. And again, as I said earlier on exchanges have gotten away from that. It's easier to launch financially settled products. There isn't the mechanism of going to the regulatory bodies to get approval for them, which is quite lengthy and laborious. There also isn't the need to go to the marketplace to get specifics around the specs of a contract and the quality of particular commodities that you're listing for physical delivery. It's a much easier process. You actually rely on an index provider to actually go out to the marketplace and find and survey the marketplace for prices. So it's a lot different than physical. The financially settled markets are a lot different than a physically settled markets.
Erik Townsend: [00:20:38] Now, what we're talking about so far is a new commodity futures exchange in Singapore, which is going to introduce a very strategic futures contract that could become the benchmark contract for pricing, seaborne liquefied natural gas. I love the story so far, but I can't help. But think back to when I had Jeff Currie, who heads up commodities research for Goldman Sachs on the SmarterMarkets podcast. And he said, look, Erik, the single most important thing that we need to do as an industry is figure out how to put a price, not on natural gas, but on carbon emissions. And if we can figure out how to do that, it's going to be the key to solving the whole green energy challenge that the world faces.
What are you guys doing in terms of carbon trading? If you thought about that marketplace as well?
Josh Crumb: [00:21:28] Yeah, Erik it's a great question. And certainly, having worked for Jeff for a number of years, really got to know the thinking and the ability for him to really see ahead. And I totally agree with him. And this is something that I think that, as you had the conversation with Bill Pazos on SmarterMarkets, which was an excellent conversation about the history and evolution of carbon markets. I think what we saw over the last, particularly over the last six months, even within the LNG traders, is how important the link between LNG and voluntary global carbon markets really is really. I'd say the biggest change in this market really came last fall, when there was two things that happened.
One, there was a long-term offtake agreement from U.S. LNG export or into a European utility where the French government essentially vetoed that long-term contract, based on global emissions goals. That was a very important event that happened in global gas markets.
And then the second one is when China formally committed to a 2060 decarbonisation or carbon neutrality goal, which was really, really the largest, two industrial economies being the U.S. and China, the world was really looking for leadership between these two economies.
And so really, particularly that second event, what you saw is really the flood gates open for energy traders to really look how we actually organize a voluntary carbon market to start meeting some of the goals of local governments that are taking place.
And what we saw, again, talking to industry, is that LNG trading was really at the forefront of thinking about how we actually create carbon neutrality. And in what, at the end of the day, is actually a very clean and pure commodity in LNG. So if you look at LNG as a commodity, it's actually much more homogeneous than say, crude oil with all its different, grades and qualities and various specs. So this has really a very clean market to start working on carbon pricing.
And I'll leave it up there at that, because we don't want to get into sort of the specific proprietary approach that we're taking, but just say that we've had, very strong commercial interest in what we're doing, how we're doing it and how these two commodities really go together for setting a price on global carbon.
Erik Townsend: [00:23:44] I'll take that as a signal that you don't want to fully answer the question. Cause I know you've at least made it a strategic investment in air carbon exchange and have some big plans there. It sounds like we're not ready to talk about those quite yet.
Let's move on then and talk about everything we've discussed so far is basically new commodity futures exchange domiciled in Singapore, trading liquefied natural gas, doing some exciting things with carbon credit trading that you're not ready to talk about publicly yet.
That's how you're going to make money with this business initially. But longer term, you've got some really exciting strategic plans to, not just have another commodities exchange like the other commodities exchanges, but eventually to rearchitect the way commodity futures trading actually works around tokenization, what some people call blockchain technology. The idea of digital bearer instruments that provide a whole new way of doing business in finance.
Josh, what's the vision? Why would you pay the commodity markets as something to apply distributed ledger technology to? And what's your vision of where this is all headed?
Josh Crumb: [00:24:52] It's a great question. And again, I go back to my background as both, somebody that's grown up in the commodity industry as well as an engineer, and you're just fascinated by new technologies and new systems and how things work. And really being quite early in the blockchain movement getting involved and building my first business around this new technology and sort of the revolutionary work of the work of a Satoshi Nakamoto, is really solving the double spending problem on the internet.
Up until now, we've had a, what I call, a copy and paste internet, where we've taken, generally paper systems and digitized the speed and movement of various, paper-based information, but really haven't gotten away from all of the trust systems and legal and trust mechanisms that the real world uses to solve these double spend problems in commercial industry.
So when we look at the commodities markets, what's very fascinating, and of course the very first comparison of Bitcoin and really based on the work of Nick Sabo, of Bitgold, was this idea to have a scarce bearer asset that can be moved, an actual bearer commodity that could be moved over the internet. So there's always been this link to commodity markets in the thinking behind a decentralized computing and blockchain.
But being a commodities person as well as a technology person, where I saw that link was very important is at the end of the day, most of these paper-based systems are based on local regulatory and local laws and local regimes. But in the commodities markets, by nature, most of these commodities are global markets. So how we deal with having a bearer receipt, shipping across the world cargo of commodities and the financing of that digital receipt is something that the commodities markets has always had to deal with. So I've always believed, even from the first time I read the white paper, is that this is going to be most applicable in commodity markets. And so really, thinking about, okay so how do we get from point A to point B? In my view, most of these people jumped to that conclusion very quickly. I'm not the only one to make that jump or make that leap. But this is a very big system to rebuild and rearchitect.
And so from an Abaxx business perspective, knew we needed to be in this game. We knew there was a lot of smart people working in this area but how do these technology cycles, after revolutionary idea tend to be, we overestimate the impact in the short term or, first five years and under recognized the impact on a 10 to 15 years of these revolutionary ideas.
So we wanted to be in the game and we wanted to stake our claim and really build, almost build a business, almost an exploration company where you're really focused on long-term research and development, but also have a commercial opportunity to be able to play that long game. So we knew that we didn't want to just to build technology and try to sell it to an existing exchange. We wanted to have that technology in the front office, so to speak, we wanted that technology to be a big differentiator in what we do but also have a sort of a more traditional commercial opportunity to allow us to, stay in the game and over the long-term, as we knew, it's going to take a long time to build out this infrastructure until we truly have digital bearer assets moved around the world, really at the wholesale level of the economy.
Erik Townsend: [00:28:08] And I'll just add to that from my perspective, there's a bridge aspect to this, at least as an investor. This is what I looked at most closely before investing in Abaxx is there's lots and lots of other guys, Josh, that have seen what you and I have seen, which is we all know that the future of all financial markets is going to move to what people are now calling DeFi, decentralized finance. There's lots and lots of other guys that are trying to figure out how to trade commodities using blockchains. It's all over the place. But you guys are the only one that have veteran builders of existing futures exchanges, who are connected in the marketplace to the network of futures commission merchants, and commercial traders, and so forth that can put yourselves in a position to be the ones to introduce a distributed ledger-based or what some people call blockchain-based version of commodity trading.
I think you're extremely well poised to do that. Where there's lots of other people thinking about it. They're not people that were involved in building NYMEX and know all of the players in the industry, the way that you guys do. I think you're onto something.
So am I correct Josh? That the strategy is basically build the futures exchange using existing technology to get it launched, and then in the second generation, you'll start to re-engineer the way it works to embrace digital bearer assets, starting with the warehouse receipts that we've talked about before with Thom McMahon on the SmarterMarkets podcast and begin to essentially a transition of that futures exchange from traditional technology to DeFi technology.
Josh Crumb: [00:29:46] Yeah, no that's exactly right. But I'd say more specifically, what we're focused on is really finding where does this technology at its core? And when I say that technology, true decentralized computing, a true decentralized data store. Not a partially, federated database or something that's still centrally controlled but maybe a little bit less controlled than say, one server, one company, but what are the real advantages of a true decentralized ledger and where are the pieces of this very vast ecosystem that we can be first in solving an actual commercial need. So that's the way we approached it.
And if you look at the regulatory regime, all of the decentralized trust mechanisms that the global financial system is already built, there's a tendency for technologists to really simplify, what happens on a bank ledger or in a clearing, a central clearing house ledger. These are actually mechanisms of federated trust that took really many decades and many financial frauds and crisises to really work out and all of the separations and powers and separation of liability between trading and clearing and settlement and custody and all of these different pieces are already a human paper, blockchain, right? It's all the ways that we distribute trust and liability throughout the ecosystem.
So there's, based on sort of the Web 2.0 Cloud computing, business model that we're seeing in information technology and less valuable data, there's this view that, okay, if we can get everybody on the same blockchain or get us everybody on the same system that somehow, we're going to create all sorts of efficiencies and markets. But I actually believe that this much more decentralized market is far more efficient than any sort of one technology company can try to understand.
So what we're trying to do is looking at how do you actually speed up the settlement of these systems of federated trust? And that's the piece that I think, we're taking an approach of which pieces are gonna remain centralized for the foreseeable future, whether for IT reasons, regulatory reasons, dominant market participant reasons, there are going to be aspects of the system that remains centralized as other pieces of it become decentralized. The notion that we've run all these experiments in retail trading and Bitcoin and crypto and DeFi at the retail level, that's very different than moving trillions of dollars through the global economy, particularly in energy and commodity trades.
Our view is there's going to be incremental pieces of this already global federated system, that you can pick off first. And that's really been our approach is that, like you said, build this bridge where we really understand these pieces of the system and we slowly introduced the technology throughout the system through the control of our own infrastructure.
Erik Townsend: [00:32:26] Josh, I'm going to invoke Kyle Bass as vocabulary of dimensions of Abaxx Technologies. The first dimension is building and launching a new commodity futures exchange in Singapore, which is going to focus at least initially on liquified natural gas, which potentially could become a global benchmark contract because there isn't one yet and doing some exciting things with with carbon that, it sounds like you're not quite ready to talk about.
Then the second dimension of Abaxx is re-architecting the way commodity futures trading works to embrace decentralized finance concepts and do some exciting things there. That's more of a longer-term vision thing.
There's also a third dimension to Abaxx Technologies and just to explain to our listeners, the reason it's taken us so long after Kyle Bass suggested this dimensions of Abaxx podcast to actually do it is because the company wasn't really ready to talk publicly about that third dimension until now.
So Josh, let's move on to ID +, and I want to refer our listeners to an article on CoinDesk. If you Google CoinDesk, self sovereign identity explained, there's an excellent article explaining this concept of self sovereign identity. Very briefly, this is the idea, the way you can log into Google today, just once and when you go to Gmail, you've got your email, you go to YouTube and if you're a premium subscriber to YouTube, it knows who you are. You don't have to log in again, because you've got like a master login to all of Google's different products, but it's only across Google. It's not across everything. It would be so much better if you could be logged in once to the whole internet across everything. And that's an idea that people in the technology space are starting to call self sovereign identity.
Josh, you've got some really exciting plans for how Abaxx can be a pioneer in the area of introducing this self sovereign identity concept to the finance industry. Tell us more.
Josh Crumb: [00:34:33] Yeah, Erik. So maybe stepping back for a second. Didn't Mark Zuckerberg already solved this with the Facebook? Wasn't that the pitch to Wall Street back in 2010 that we're going to have one identity on the internet and it's going to be Facebook?
You're absolutely right. I think this identity issue on the internet, there's nothing new about trying to solve this identity internet. But where I look at it from a business perspective is really the different stages of how different computing models and computing innovation was really able to open up a whole new way of business. And I will get back to the internet identity piece. Cause I really believe that decentralized data stores, i.e. the decentralized computing of the blockchain, combined with a very strong identity internet will create a strong data internet and really revolutionize the world very much. Cloud computing plus mobile or maybe the GUI and PC revolution before that. And we're really we're building up from that sort of like commoditization of personal computing into the, to the next sort of decade and the half of the commoditization of these networks through mobile and cloud and where I see the world heading over the next five, 10 years is another sort of game changer.
And that's why having a strong identity internet, like truly decentralized, not identity custodians like Google, like Microsoft, all of the different ways that you can log into a certain thing using credentials from one of these big cloud providers, but truly having decentralized identity really opens up entirely new business models. And I would even, to be putting on my technologist hat, I actually think it really completely changes the way we do business overall.
So getting back to the point that you made earlier about having paper identity documents, whether it's on a commodity trade or any other sort of contract, our view is that when we get to the point where in a court of law, locally, or even in the sort of new international legal systems that are forming around blockchain, when you're in a court of law and it's more likely that your digital signature came from the real person than handwriting expert, analyzing your squigglies and comparing sort of paper-based signatures. When we get to the point where that digital signature becomes a stronger proof and representation of a real person, then the internet moves to a whole nother level.
And so we've been really focused on that problem. The first problem we were trying to solve when we first saw it, the blockchain revolution start to take hold and sort of 2014, 2015, the first piece that I really wanted to roll up my sleeves and get in the weeds of was custody and started in the gold business, looking at both physical and digital custody and all of the legal systems that surround that. And I wouldn't say custody is yet solved. That's actually still a big problem, even though that's often dismissed somehow. We've solved this with Coinbase custody or some of the trusts, New York charter trust that are now getting into digital asset custody.
In my view that private key custody issue is not yet solved, but, we made a lot of progress there. The next stage, that I believe that really opened up this whole industry is really solving that decentralized identity issue. So that's what ID + is all about.
And going back to my point earlier about trying to find where the real game changers in technology and where can they best be applied within this, very complex ecosystem, that's where we're taking ID+ , and actually, looking at what problems can we solve with this technology.
Erik Townsend: [00:37:59] Just to bring this into concrete terms for our listeners. Josh, I want to talk about the DocuSign service, which is extremely popular in finance. And what DocuSign does for you is it gives you the online equivalent of a signature. And in another words I can go and forge your signature. I can say on DocuSign I'm Josh Crumb and sign and so forth. They've organized things so that I will probably be committing a crime if I do that, but I could still get away with it.
If what you're saying, and I'm, I know that you are saying this, Josh, but I just want to put it in context is if Abaxx can deliver something like DocuSign, that's not a signature, but it's more like a notarized signature where an independent third party authority is attesting to the identity of the person signing and saying, this really is Josh Crumb. It can't be forged. You can't just go sign somebody else's name because you have to be logged in and have authenticated with some kind of two factor authentication as truly being Josh Crumb before you can gain access to sign something. That by itself, makes DocuSign obsolete overnight and puts you guys in the position of having a business line just right there that might be bigger than the whole futures exchange business. This is a really big aspect of this.
What's the timeframe? Is this just something you guys are thinking about someday, or is this years off, months off? When do we start seeing Abaxx actually releasing products from this ID+ aspect of your business model?
Josh Crumb: [00:39:32] No Erik, that's exactly right. We're taking the approach of all of the tools and efficiencies, again, I've called it Web 2.0. Whether you're looking at something like decentralized cloud storage, Dropbox, Google Drive, these types of services, but also, Slack, Zoom DocuSign, as you mentioned, all of these sort of work productivity tools, and we've been building them on a Web 3.0 Architecture, which again involves decentralized data stores and decentralized identity. And so really rather than having Dropbox as a great service, but it's a great service within Dropbox. Maybe they'll open up an API to allow you to connect to some other cloud service, but there's a lot of friction in that. Again, it's still fundamentally built on this sort of copy and paste internet.
So what we're building is these services and this infrastructure where you can be as secure as a local encrypted server that's needed, call it Web 1.0, that's still used in the banking system and healthcare and other places where you have very strong, important data, so it can be as strong as that, but it can be as flexible and moveable as a cloud infrastructure service.
So to get back to your question, we built all of these services already. We have our MVPs of our Web 3.0 version of Box of Slack, of Zoom, of DocuSign and some other other tools and services. And our first way that we're going to be rolling out these products is to allow them to be exclusively used by the members of the exchange and to solve very specific issues that are needed in the exchange marketplace and the global commodity trading marketplace.
There's a big, the problem with the centralization of data and communications in, call it the retail internet with the Facebooks and the Googles of the world. If you talk to any commodity trader there's some real problems in this sort of centralization and monopolization of chat apps, of the movement and control of your own data that you produce financially. We were having these same problems based on that highly centralized version of web to where it's very scalable. It can move very quick. It can form very big oligopolies or monopolies overnight, but ultimately it creates some real problems in the data and transparency and the competition of marketplaces.
So we believe that starting within the financial services, rather than in retail consumer applications, we believe we can start introducing these new tools of trust in industries that are highly regulated and really rely on trusted IT systems.
So getting that sort of trust branding by working in a very highly regulated industry, we can then test and prove out our technology and move it into other domains. So that's really the way we're thinking about it. But again, it all comes back to this architecture of decentralized identity and utilizing decentralized data stores.
Erik Townsend: [00:42:15] I think the opportunity is incredibly ripe for you to establish yourselves as they defacto finance industry identity token of choice. If you look at the way people deal with this problem today in finance, we're really pretty darn stone-aged .People literally say the way you prove that you're a finance professional is send me a note on Bloomberg because we assume since Bloomberg is so overpriced that nobody who's not actually in the industry would ever have one. And therefore we're going to use that as a validation tool to see if you're a professional or not. That's pretty darned, inefficient and crazy.
If you can introduce a notarized form of DocuSign that becomes the standard for all contracts in finance, and everybody can execute online documents very quickly, and they have the same effect as a notarized contract. That is a breakthrough that is tremendous by itself.
I want to come back to Joe now because, Joe, it's great you've got a CEO who's thinking about all of these amazing strategic opportunities, but you and I both know if you guys are going to make money in the commodity trading business, you gotta have somebody in the team who wakes up in the morning, thinking about the commodity exchange, the commodity futures exchange and nothing but the commodity futures exchange and is really boots on the ground, building it and making it happen.
And I would say that based on what you're undertaking, that somebody better be somebody who's actually done this before and has experience building a commodity futures exchange that actually got used. That's where I'm most excited about this company. You don't just have one of those somebodies, you've got several people who were involved in designing and architecting some of the biggest exchanges that are in use today.
Tell us who the team is on your side of the house, not the technology long-term strategic side, but right now building the commodity exchange. Who's in charge of this and what are their qualifications and credentials?
Joe Raia: [00:44:14] Yeah, it's a great question, Erik. I always look at the things that I built in my career and again, most of it in the commodity markets and in the futures markets, and you're only as good as the team that you're with and making sure that everybody is rowing not to use a sailing analogy, but I will, everybody rowing in the same direction. I think that I'm very fortunate to be part of a team that does wake up every day to see how we are going to launch those, how we're going to put our collective experiences together from arguably over a hundred years of experience in the exchange landscape to build something that's not only traditional, but also something that's better.
The futures marketplace and the participants in the futures marketplace, and I look at those participants being not only the trading firms, but the FCMs, the futures commission merchants, the brokers the technology people, the backoffice people that are involved in futures markets. They really are in need of a better solution for their business, better for risk management, better for handling of assets, better for handling of money flow and collateral. And it really is in need of it.
And, if you look back at, I spent seven years at Goldman in their futures group on the clearing side. And if you look at even Goldman is being the leader in the clearing space, even there it's only looked at as utility, right? The revenues that clearing firms generate from clearing customers, unless you're in the scale of Goldman it's not large yet they take on all this risk.
So we look at it as I go, not to answer your question in a round about way, but the team that we have, we're looking at, yeah, how do we solve these problems for them and make their lives better. Make it easier. We're not trying to put anybody out of a job with technology, but we're trying to look at a way to better manage risk at these FCMs, right?
The FCMs that handle customer flow and risk are looking for better ways to, and to up to this point, there has been almost nothing that's been introduced over the past in all my years in futures markets that really has made their lives any better. So that's really what we're looking at. And the team we have from myself and I look at myself as a, not as the key cog in the whole thing, but you look at Dan McElduff who's our president, who was a great partner of mine at the NYMEX back in the day when we launched ClearPort, which was arguably, has been one of the best solutions for risk management in the commodity markets over the past 20 years, Ryan Ingram, who's our Chief Risk Officer who's had experience across not only Goldman Sachs, but exchanges in Asia.
It's just a great team that really is trying to solve these problems, not only in a traditional way, but also using new technologies that Josh and his technology teams have brought to the table here.
Erik Townsend: [00:47:00] Gentlemen, I think we've talked about all of the strategic dimensions of Abaxx that I'm aware of. There's actually one more dimension that puzzles me, Josh.
In addition to all these other things that you're doing, Abaxx owns a large iron ore deposit in Canada. What gives? Why do you have that?
Josh Crumb: [00:47:18] So just to throw everybody off...haha. No, so really it really was our approach to our capital structure and how we wanted to fund very big ideas that they're going to take a long time.
And so when we looked at the types of markets that fund this type of, not just the three to five-year risk, but the seven to 15 to 20 year risk, there's really no better market than the markets that really understand resource investing and the commodity infrastructure that's needed to generate the kind of cash flows at scale of a resource company. And we knew we needed to be in this game five, 10, 15 years to really achieve our vision.
And so we started in Canadian capital markets and it's actually funny how the world worked the last 12 months. You've seen the SPAC really take hold in the United States. Canadians have been doing SPACs basically forever. What would happen is an exploration or development project would either run out of money or the market would change, or maybe the team wasn't viewed by the market as the team that could really invest the billions of dollars in capex, and so you'd have these exploration projects that go defunct, but you still have this shell that may still retain some cash. And then an emerging company will take it over through reverse takeover and become a public company. So now we're now seeing that in SPACs and sponsored SPACs as an alternative to an IPO.
But again, that's actually how our Canadian markets have been working for a long time. So part of our reverse takeover was a company called New Millennium Iron, which actually has a very substantial iron ore asset in Canada in a very proven geologic zone, very proven infrastructure zone, in the Canadian iron ore belt, but ultimately the cycle turned on iron ore and this asset was left stranded.
So we acquired the company essentially for the cash and the shell, and as a way to list our company with minimal dilution, but ended up inheriting this asset and actually lot of good shareholders as well. So that's really how we came to own this iron ore asset.
And I believe in the long-term optionality of resources in the ground, we've got a team and some of our investors that really understand these markets and these long cycles. So yeah, we're definitely gonna utilize that asset, but it's certainly not part of the near term story.
Erik Townsend: [00:49:28] And of course you really lucked out in terms of timing because you did this reverse takeover, basically in the summertime, in the middle of a pandemic when iron ore prices were bottoming. And now we have what looks like the beginning of a secular inflation cycle and commodity supercycle kicking in. And I think the price of that iron ore deposit must've tripled, but it's basically something you picked up almost by accident. It came with the public company that you acquired for the purpose of providing public trading and access to capital markets.
But I want to come back to that one, Josh, cause you asked me off the air not to make this an infomercial, but to ask you tough questions as well. And there's a tough question that frankly, is on a lot of people's minds, which is you've got a very exciting business here, one which Kyle Bass said just the futures exchange in Singapore and the natural gas, nothing else that by itself has him incredibly excited about investing with you. So that business by itself, clearly warrants at least a NASDAQ listing, if not a New York Stock Exchange listing.
ID+ by itself could easily completely obsolete DocuSign overnight and that's a business by itself that probably justifies at least a NASDAQ listing. And meanwhile, you've got plans to completely rearchitect around decentralized finance, which anybody who can really see where the future is headed knows that's it. That by itself has a business easily justifies at least a NASDAQ, if not a big board listing.
Yet, you went and you began your public trading, not just in Canada, but in this tiny little NEO Stock Exchange, not even on the TSX exchange. And there's literally as a result of some of the podcasts we've done, we've got people angry at us that investors in Northern Europe saying I'm calling every broker, I know I can't get anybody to sell me shares in this exciting company because they went and listed it on a stock exchange that very few people have access to.
What's going on here? Why did you list it in Canada and on the NEO Exchange rather than on the New York stock exchange or NASDAQ?
Yeah, Erik, it's a goodJosh Crumb: [00:51:42] question. And, for me, I think maybe once we went public and maybe some of the visibility through the podcast and the vision that I think probably resonated with more people than maybe I was originally expecting... remember we were a private company raising, essentially raised $20 million, unbrokered. Just through my own relationships over the last couple of years. And one thing I noticed is it was actually because it was so complex, not complex from a business model perspective, but there's so many moving pieces and so many things we have to get right, to really get to the end game scale that we're looking at, it really has a certain type of investor.
We aren't the n'th Cloud computing service or mining opportunity or blockchain opportunity that you can fit in a bucket with other things. We know we've got a very long path ahead. We were in hand-to-hand combat and finding investors that really backed our vision. And maybe things took on a little bit more life of its own and more people getting it than maybe we saw in the hand-to-hand combat era of capital raising. And so yeah, we probably weren't prepared and in some ways to offer a pre-revenue company globally. And we really wanted to stay in the home markets that we knew.
I've always said, even back in the early evaluation days, that Canada is one of the best markets in the world to raise 20 million bucks at a $200 million valuation, that's the sort of path we were on. And some of my former companies, both with the Lundin Group and then on my own and my partners previously. We were always focused around that metric. At the same time as well, we know that these smaller liquid companies can also get ahead of themselves with too many eyeballs and for us, we wanted to do this stage wise where we're more liquid than a private VC investment that sort of trades by appointment and some of these private company exchanges, so we wanted to have the visibility of, and the ability to raise capital in public markets. But, this is still our pre-IPO phase in many ways. This is our pre sort of NASDAQ listing phase.
Once we are producing revenue with the launch of the exchange this summer, then we'll look at the larger listing opportunities. So yeah, hopefully that helps the thinking a little bit.
Erik Townsend: [00:53:42] You just touched on were really where my next question was headed, which is, where we stand right now is this is still a pre-revenue company. You haven't launched this exchange yet. I'm excited about it because of the vision and you've got some really high profile people, whether it's Kyle Bass or Lucas Lundin or Robert Friedland, your backers are some of the most qualified people in the commodity markets world, universe. So that's all great, but still we're talking about a pre-revenue company that hasn't actually proven anything yet.
What is the timeframe look like? What are the major milestones that we can expect? And when can we expect them particularly launching the commodity futures exchange to where you're actually trading natural gas contracts for real customers, as opposed to talking about it, planning it, designing it and so forth.
Josh Crumb: [00:54:30] Yeah, absolutely. So there's really three aspects of the project. There's the commercial aspect really been at for three years and engaging physical market participants and getting our contracts ready for trade. And I'd say again, we're in the 90th percentile of that work over the last couple of years.
There's the technology aspect, not just the forward-looking technologies, but the actual systems, we've got a partnership with NASDAQ and license a lot of our central limit order book technology and clearing house technology through NASDAQ. We're connected to the FISs of the world that sort of connect your exchange to the global trading systems at the various banks and large energy traders. We're building traditional infrastructure to be able to handle this sort of, high-frequency institutional market, globally. So that, that technology is built and again in the 90th percentile completion of the project.
And then the last piece is the regulatory piece. And this is the piece that really determined our timeline and our listing and our capitalization needs. So we went public once we got our exchange approval, principal approval in Singapore last fall. That allowed us to go public and get to that next stage of more tangible/ intangible, more value you can hang your hat on.
Last piece is the clearing house license. At that point, we'll be able to prepare and launch our exchange this summer. So we're working through that last piece.
Again we're taking the long game here, we can't put ourselves in a box because there's a lot of pieces that go into the risk and preparedness of launching a global clearing house. If you look at, just even the things that are needed to get a bank license, essentially what we're building is in some ways, a global bank license, a clearing house license. And that to us also adds, or for our investors that adds another sort of valuation benchmark that we can hang our hat on.
We've seen a couple fully integrated exchange clearing houses sell over the last couple of years, $100million+ valuations, mostly for the infrastructure, the technology, the regulatory, the operating team of having those types of licensed entities. So this is our stage wise de-risking even though we're pre-revenue is to get that clearinghouse license, get to the point of launch, have another sort of valuation benchmark, and then the market can start forward-looking to the potential revenue of our markets.
Erik Townsend: [00:56:43] Are we going to see a listing on a major stock exchange? Let's say NASDAQ or NYSE by the end of 2021.
Josh Crumb: [00:56:51] Yeah. Again, we don't want to put ourselves in a box on things that are regulatory out of our control. But yes, as far as our plan, that is to get up and trading and prove out our customer base and the need and utility of the products we've been building and, upon a success in our commercial success of those types of launches, yeah, we would then seek to to list in, whether it's the U.S. on NASDAQ or out in Asia, perhaps the Singapore exchange. And I'll admit, we are more, much more familiar from a timing perspective with what it'll take to be NASDAQ, which I think could be within the next year, but, earlier stage discussions for Asia.
Erik Townsend: [00:57:25] I look forward to talking to you again for an update as things continue to progress, but before I let you go, Josh, please tell investors in our audience where they can contact you from an investor relations standpoint how do they get in contact with a company to find out more.
Josh Crumb: [00:57:40] Erik, we are a digitally native company. So probably the easiest way is to just to go to our website Abaxx.tech and go to our investors section and sign up for our updates as well as the SmarterMarkets podcast that we partnered with you on. That's another place where you can sign up for various informational updates and we've got a lot of, there's been a lot of different topics we've covered here. We try to bring in the world's experts to talk through market structure, energy transition technology. There's a lot of pieces that we try to bring in and put out long form in these conversations.
And then of course you can, follow myself on Twitter @JoshCrumb. We also have our company links in my bio and then Joe Raia is quite followed on LinkedIn. So yeah, there's a number of places, in this age you can generally find us online pretty easily.
Erik Townsend: [00:58:26] Gentlemen, thank you for a terrific interview. Listeners, stay tuned for updates coming in the coming year.
I'm very excited about where this company is headed for the MacroVoices podcast network. I'm Erik Townsend.
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