DeFi Technologies Inc

NEO:DEFI

Earnings Call Transcript 2021-Q2

[Operator]

Hello! And welcome to DeFi Technologies Second Quarter Conference Call. As a reminder, this call is being recorded and all participants are in a listen only mode. We will open the call for questions-and-answers following the presentation.

On the call today are DeFi Technologies CEO, Wouter Witvoet; and Executive Russell Starr.

I would also like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of Safe Harbor Provisions under of the Private Securities Litigation Reform Act of 1995. DeFi Technologies cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks described in the company's filings with the SEC.

Any forward looking statements made on this conference call speak only as of today's date, Monday, August 16, 2021 and DeFi Technologies does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. A webcast replay of the conference call will be available on the DeFi Technologies website at www.DeFi.tech.

With that, I'd like to turn the call over to DeFi Technologies, CEO for opening comments. Please go ahead.

[Wouter Witvoet, Chief Executive Officer]

Thank you very much, Darryl, and thanks everyone for joining today's call. Today the subject is kind of two-fold. We wanted to give you, all of our shareholders, a little bit of an update on the Q2 earnings and give some commentary as to some of the figures. We also have made two recent acquisitions in this space, which some of you may be aware of given our Press Releases of last week, so we will be commenting on some of those initial acquisitions as well.

Today I will be a presenter and CEO of DeFi Technologies. I will be supported as well by our recently appointed, Russell Starr, who is our Executive Chairman; and Ryan, our CFO will be available to for any detailed questions that may come up later in the Q&A.

A little bit just about DeFi Technologies. How to summarize our company as it stands today is that we are really the first publicly listed company, giving investors exposure to decentralized finance. We have our primary listing on the New York Exchange that we completed earlier year this year, moving up from the GNXT [ph]. And we raised approximately CAD$12 million across two different private placements since November 2020.

And with our small team, we have a low working capital requirement, we're very efficient in enter the capital deployments, and we have the team that has acquired proven business model with Valour and some of the other things that we're acquiring, that we're talking to you about today. And with that, we have a diversified suite of exchange-traded notes business, we have our Governance business, we’ll update you also on our Venture business and recent acquisitions of DeFi Yield and Protos.

Starting a little bit with the capital structure overview. This is a reminder, so we were listed on the NEO as DeFi. What you see at the moment is DEFTF and then in Frankfurt as RMJR or RMJ.F.

As when we printed this deck, our share price as of August 13, 2021 last Friday was at CAD$1.49, and some of the development figures to disclose here, the number of shares we currently have outstanding is 210 million with about 20 million in options at warrants as well, bringing our total fully diluted shares to 253 million, which means that as of Friday we have a market GAAP of CAD$377 million.

And as some of you may have followed, we had the crypto market since sort of the 19 May if I remember correctly. I’ve see a little bit of ups and downs. That's now coming back from some of the price I think that was participating with what’s happening in May and we've seen a really good resurgence in the crypto market, in the DeFi space in general.

We see a similar experience happening with our share price. Obviously from the $0.10 round that we did in November, we've had a lot of people taking some of our profits. We've let it run for a little bit, because of the lease and the long term vision of the company, and that's also been paid off in sort of the recent resurgence of DeFi in the crypto market. We’ve seen a similar sort of strong uptake in our stock price and support in the markets. And that if we go to sort of how that's transpired in the decentralized growth in general, well that market is still very strong, so the current total market capitalizations across the likes of [inaudible] Synthetic, like all different protocols, that total market cap currently sits at $116 billion, and you can see that sort of the decentralized sort of market, sort of resembles a little bit of our share price as well. So it's good to see sort of a rebound in the market from May earlier this year.

Then we spent – we did a lot of outreach and a lot of connections that we reporters in this space. So we had a really nice feature NBC which went live at around 4:00 p.m. Eastern Time, the feature on El Salvador accepting bitcoin as a legal vendor. So it’s really great to see, to sit between some of the leading figures of the industry and as DeFi Technologies gave some commentary on some of the very interesting developments that are happening in this space. And then MarketWatch did a really big feature on DeFi Technologies across, I think two or three articles, but we were mentioned in the space, so it’s really good to see media sort of adopting us as well.

We did our own outreach as well. So we started with a lot of videos explaining what DeFi is. We did some fire chats with the likes of Teeka Tiwari and we did a podcast with Anthony Pompliano, which is one of our advisors and works very closely with us. And we got covered by the likes of Rich TV as well. So giving rebuild investors more sort of an understanding of what DeFi is, what the DeFi sock is and how people should be thinking about evaluating us, which is really nice to see that that's being picked up.

Similarly on Seeking Alpha, we have an issued analyst writing their report on their experience with DeFi and then how they view us. And it's really – this one I wanted to particularly highlight because it is exactly what we preached to our sort of investors. We have a call option on the entire DeFi space. If you want to get exposure to the DeFi space, you don't want to manage your own wallet, you don't want to sort of be involved in like picking the different protocols, and you just want a general, diversified exposure to the space, DeFi Technologies is a really good path to do that, which is exactly what we're trying to achieve.

In Q2 we also further diversified our product mix in our ETN business by adding Polkadot and Cardano trackers. So as most of you will be familiar, in late last year we launched the first Bitcoin zero tracker on the Nordic Growth Market. At the end of Q1 we added Ethereum, so that really only became trading in Q2. So it will be interesting to see how that developed or where it will get to shortly.

And again then we launched two completely new trackers. The first one on the Polkadot, which is a different type of decentralized blockchain that's completes with Ethereum and is especially relevant in the decentralized finance space, as well as Cardano, which has seen a lot of interest recently, and I believe from memory it’s now the fourth largest token. So that's what we want. All these products are currently live on the NGM and of course over time, we’ll shift to diversify and we'll talk a little bit later around some of the plans around this.

So what has it done in terms of results? Well, it’s done exceptionally well in terms of AUM growth. From Q1 2020 when we were just a sub-10 million, we went to just under $60 milling and we are now at $107 million. And this is especially good when you consider that Bitcoin has had that crash in May where it went from 60,000 to about 30,000 before it recovered to around 35,000 just under 40,000 and we still see a net inflow of Bitcoin AUM here.

You see an almost measurable Ethereum in the previous quarter, Q1, because we launched it very late in the quarter, and you'll see that it's now a very substantial piece of the total AUM pie that we manage inside of our ETM business.

Then the DeFi protocols, Cardano and Polkadot sort of been topped that out to get to about 107 million AUM, and since then of course the market has grown both in terms of like the share prices of the various crypto currencies that has seen a real rebound. So of course, if you look at this on a going forward basis, those figures will look even better than what we see here.

On April 21 2021, we also completed a share exchange agreement with HIVE Blockchain Technologies, and what we effectively did, we swapped 10 million DeFi Technologies shares for 4 million HIVE shares, which was a really good way for us to strategically align us with the first public listed crypto currency mining companies that is responsible for a very good portion of the Ethereum global hash rates and Ethereum being a background for decentralized finance, this became a really sort of strategic interest for us, and it also adds liquidity directly to our balance sheet. So we added around CAD$60 million in our liquid assets as of August 16, 2021.

If you look at it purely from a Q2 perspective, HIVE did go down a little bit when you look at it from the June 30, 2021 perspective. So there's is a slight decrease there of 8.3%, but when you look at the current market buy so far, HIVE is most of – almost all of that has been recovered since in the last few months.

So, that means that we're in a very strong liquid and cash position. So if you purely look at our cash and the liquid public investments, that has only grown over time. So that was very little in the Q4, 2020. This already grew in Q1, 2021 and then grew further in Q2, 2022. So that, we're in a very strong position there still and have almost all the cash when you look at it from a pure cash perspective, we have almost all the cash locked from our credit replacement that we did a few months ago of CAD$10 million.

So then, this is the first quarter where we’ve completely absorbed the Valour business into our own P&L. It being the issuer of the ETN's, it's probably good to run through some of the figures.

So we realized in the Valour business $2.6 million of top line income, which consists of the ETP trading, the other trading income and then the lending income. Then we have the result of a non-IFRS revenue of $0.4 million. And some of the clarifications around there is that Valour is hedging its own certificates, but even though it does have for its certificates, because we hold stock owner balance sheet, that is still, that hedging – those hedging activities are still recorded on our P&L.

So that's why you see it perhaps sort of odd looking realized loss on digital assets of minus-$3.9 million. And then we also have to recognize according to our accounting policies, any unrealized even though it not sold, loss on investments, which is the difference between where we did the HIVE deal and where HIVE is trading right now. Obviously in another month, those figures can swing completely the other way. When crypto prices are positive, of course this will swing the other way, the same goes for HIVE.

Then we wanted to focus the remaining of the presentation on kind of the path ahead and some of the discussions around the recent acquisitions that we did. So when you look at…

[Russell Starr, Executive Chairman]

Wouter, did you want me to discuss just briefly now or do you want me to wait until later on in the slides?

[Wouter Witvoet, Chief Executive Officer]

The Valour business do you mean?

[Russell Starr, Executive Chairman]

Yeah, just what we had discussed earlier.

[Wouter Witvoet, Chief Executive Officer]

Yeah, you go ahead, go ahead.

[Russell Starr, Executive Chairman]

Yeah, sorry. I might be a slide or two early, apologies Wouter. Everyone, one of the more intriguing aspects of what we realized with this business is despite the fact that quite frankly our business is growing exponentially and you will see later on this week an update on just how quickly that business is growing. You know obviously getting ourselves on the German market is a key focus for us moving forward, because with very little marketing whatsoever and not being in Germany, we've seen our AUM effectively explode.

But what everybody should be fully aware of is just as Wouter pointed out, a large portion of what you see in terms of negative returns are purely intangible mark-to-market, negative returns that occurred almost 100% as a result of a minor crypto winter, which we all witnessed, which was Bitcoin as Wouter pointed out from kind of 60,000 down to as low as 28,000 and Ethereum down to at least lows for the year.

What everybody needs to realize and what I'm quickly learning is everybody sort of compares the growth of the crypto market to the growth of the Internet and email, but the reality is that the crypto market is growing actually substantially faster and the adoption is growing substantially faster than what occurred with the Internet. And consequently, what you're looking at here, if we do see continued growth in the crypto market, just as you see these negative figures on our balance sheet, you're going to see the exact reverse in the next quarter, and I just want to caution everyone to appreciate that these swings are probably going to be continuous depending on how volatile the crypto market is.

I think when you talk in terms of volatility, we're talking substantial volatility in the crypto market, and so come Q3 and, Wouter I actually think Cardano was now the third largest DeFi protocol out there, we are the only ones that have a crypto wrapper on Cardano. We are the only ones that have sort of equity wrapper on Cardano or an equity wrapper on Polkadot.

I suspect you're going to see rapid adoption of these opportunities and major swings to the positive. And so I just want everyone to appreciate that these are intangible, unrealized losses and just as you'll see on the Q3 adjustments and these will probably all level out at the end of the year, but you will see very likely a very positive swing in Q3.

And thank you very much, Wouter.

[Wouter Witvoet, Chief Executive Officer]

Thanks Russell for that addition. So yes, and then focusing on the path ahead and some of these discussions on our acquisitions. So when internally we were analyzing, asking this question around sort of the core groups that are – that will be looking for exposure to decentralize finance that would perhaps not go through the trouble of some of these protocols and some of these strategies that are difficult to understand. It's sort of identified like three different groups.

Like the first one you're familiar with, which is more the public market investors that prefer to buy something in the brokerage account, they don't want to manage all these different strategies. They don't want to have coin shares or a coin base or a cracking account, etc., which is really the sort of investors that we cater to with Valour.

The sort of second group that we identified the last few months through many conversations is institutional private market investors – investment that want to effectively invest their money into sort of a fun structure, diversified, kind of have someone managed their money for them rather than doing it themselves.

Then we also have a third bucket, which is kind of the people that are crypto-native, but have for example, a large amount of stable coins or a large amounts of crypto that is currently shipping in wallets, but they are looking for some type of yield for those or some type of return without it having – without it just sitting there.

So we have no offer to that to-date, and we spent a lot of time in the last quarter figuring out like what are some of the interesting products and kind of acquisitions we could look at in that space? So that's how we came with two new acquisitions, DeFi Yield and Protos to complete our product offering in all three core groups.

So Protos, it's really meant for the institutional private markets, and then DeFi Yield is really the first acquisition in the Blockchain and Crypto investor kind of group.

So first we announced Monday last week, the LOI for the acquisition of DeFi Yield Technologies, Inc. So we are going to acquire 100% of this company, and they have developed like an automated yield engine that helps people make investing in DeFi finance efficient, but also does all of the work for them.

To give you an example, there are probably around 15 or so different yield farming and yield strategies that are on stay bitcoins at the moment that they have identified and if you have to manually switch between them, you have to switch your funds between wallets, you have to manage sort of all of that process.

So the core sort of asset that they have developed is a smart contract that looks for whichever yield strategy, which whichever yield funnel or liquidity for us at that moment in time, most efficient, and then allocate your capital accordingly to get the best return on your stablecoin or on your ETAchurn,your B2C or whatever. So they are currently getting around 7.68% yields on the stablecoin such as USBC, which is a very sort of interesting, because it's very difficult to get that if you come to asset switch between any of these different, these different protocols.

They currently have $20 million or AUM locked in their volts, and this is a typical technology in terms of the smart contract that we could expand into and make that available to retail clients. We currently live in a negative interest rate or almost a negative interest rates environment when you look at USD and in order to get even above 4% or 5%, or 7% is an amazing kind of yield if we can get on just money sitting in their account. So that, we see huge potential to scale that up.

So just to explain that a little bit further, so the core asset is their proprietary smart contract. And so it algorithmically chooses between over 15 different protocols and then allocates the capital in three different strategies. So I mentioned already Yield Farming, Lending and Liquidity Pools, and it consistently looks at like the smart contract and liquidity, the stablecoin, the risk associated with any of these and then allocates the capital. So that's one of their proprietary assets that we were very interested in.

And then the plan is to launch a suite of products in this space. So I already mentioned like retail clients, you can imagine stuff around mobile apps, like all the kind of things that this can power, and that's what we're excited to build out with the team over there.

Then we followed last Thursday with the second LOI to acquire Protos Asset Management. So it will similarly be 100% acquisition of the hedge funds. So they are based out of Switzerland and they give professionally managed – they have given their professional investors basically per portfolio that is professionally managed and that invest in DeFi and they’ve done that since 2017. So they have an history of track records. We know some of the investors that are investors in this space, that have done also extensive due diligence just like us on them and they have funds of returns done very well.

So the rationale for us to make the acquisition is that we now have the infrastructure as well to get institutional private investors onboard, that once we get access exposure to a fund they can do that through a standard fund structure that Protos has replaced, but they’d also have to select their own security token PRTS, which if you would like to invest in the fund via your crypto holdings, you can also do that by buying the tokens.

So they are very innovative. It's very – the infrastructure is a strong team, and it sort of completes our DeFi triangle where we have the public margins investors, institutional price of investors and then also the crypto investors. They currently have I believe around $20 million in AUM and that's of course growing every day and we seek to expand that with them, with some for the contact that we can bring in. There has been a lot of ask around like this type of product. So it just speeds up the development if we have to do this all by ourselves, which is the final set of rational for the acquisition.

Some other short updates, on our DeFi Governance side of the business, the shift that network officially launched on July 7, 2021. We're one of the 21 main nodes, providers to get the likes of Cornshares, BitFury, Chainsafe, Fabric, few others, including one government. And now that this launch will follow-up later in the quarter with some updates around how that is going and any further developments in this space.

Now I would like to spend some time on areas for growth and maybe Russell, I want to hand it here to you. You wanted to give some color I think on the Valour ETN business and then I'll take it over from you after.

[Russell Starr, Executive Chairman]

Well, obviously our effort to launch all of our products in Germany is going to add substantial value. That's something we're very, very focused upon and kind of got stuck in summer doldrums as well as crypto winter. And then obviously in North America, I don't think we appreciate the amount of holidays that your typical European gets. But as I mentioned before, a lot of people don't even appreciate that we have a – sorry an equity wrapper for Polkadot and Cardano, and obviously we'll be launching substantially more products as we gravitate and migrate over to Germany.

But effectively the sky is the limit, and I was mentioning earlier that people, I don't think appreciate just how quickly the crypto market is growing. And the value that we are offering people to participate in an equity fashion in DeFi as it effectively alters the entire global financial landscape. And so these products, we will continue to grow, we will continue to launch. Wouter and I and our team are always looking for M&A opportunities to add incremental value just like Protos.

And for anyone on the phone call listening to this and obviously there'll be people who will be calling in later, the Protos acquisition is substantial, far beyond what I think anybody is probably appreciating right now. In a negative yielding environment, if you can actually provide people the opportunity to get 6% to 8% -- and I will tell you that Protos has been far outperforming the 6% and 8%. I think it's actually closer to 40% since inception. This will alter the financial landscape for your traditional retail investor, and sorry, someone's got something going on in the background there.

So at the current market cap that we sit at, with the cash that we have, with the products we're launching, with the AUM growth we're experiencing, obviously, I'm a believer. Have accumulated a ton of stock myself, but we will be doing our utmost to communicate to all investors globally what this opportunity presents.

You know a lot of people have been pouring capital into the miners. Something people need to appreciate with what we're offering is from an ESG perspective, not to mention that we're offering at Cardano, which is most – are the most ESG compliant protocol out there. But we actually don't have any impact in the environment. We are simply providing an equity opportunity for people to participate in the DeFi landscape. So from an ESG perspective, we eclipse many of the miners and that's something else that I think you're going to see investor dollars gravitate towards us as a company.

And with that, I'll just leave it back to Wouter to walk through the rest of the presentation. But again, everybody needs to keep in mind that for us to be basically breakeven in two quarters, basically only five months of inception, you haven't seen a lot of our trading revenues. You've basically seen none of our staking revenues being reported. I have a feeling with our Q3 is going to surprise everyone substantially to the upside, and I look forward to being able to execute and to show people what we can do as our company grows and as people get a chance to learn more about us, because really, truly in earnest we've only been around now for a very short six months.

[Wouter Witvoet, Chief Executive Officer]

Thanks Russell. Giving it a bit of color on the growth on DeFi Governance. So we're currently – there's other notes that are similarly interested to have as a node provider. So of course with the existence of shift, it's key to us to see how that develops. I think I’m very excited about the project. It's going really well and it’s good to see that they’ve launched their main net [ph] and we could be such as contributor to getting their test nodes sorted and helping them along the way.

And then that brings a new node to their interested to become – for us to become a node provider and we're currently working on some of the business cases around this and we’ll update shareholders along in the quarter on how that's progressing. But those are some of the things we're looking at from growth prospect in the DeFi Governance part of the business.

Then on DeFi Venture, it's our strategy in terms of our existing investments to hold for the long term. So of course, people know about our we out about our Luxo [ph] investments that we did, which is Derivatives Mining, actually Derivatives Platform that we continue to follow, and we think some of these some of these companies where they are early on, can become really big positions later on.

They raised them upfront at around 5x or 6x evaluation that we did – that we did our seed investment in, so that’s where they get good to see and we remain sort of investment there, and other investments that we updated you on is its around like the trading fact, that golden asset which is very strategic to us if we want to execute DeFi trades on ourselves, and we'll keep holding these investments for long the long run. And then we have some token investments we just mapped in Oxygen that we’re locked in, locked in at the moment and that's also for similar reasons.

So then, we will continue to look at as new strategic investments that we can make. So anything where maybe there's a technology we can use or make an investment as well or maybe bring new business development opportunities. Obviously HIVE is an example of this. So when we did the share swap, we are currently working with them on seeing how we can optimize their minor expectable value that we announced and those are just some of the developments that we'll continue to look at.

For DeFi Yields, like I mentioned before, we see a huge potential to bring some of the technology that is inherent in the smart contract to retail clients. I think it’s unprecedented to get a 7% to 8% yield on stablecoin. Russell already correctly mentioned that if you really look at the diversified DeFi portfolio of Protos, and that returns that far exceeded. So those type of things could be very interesting to bring to a wider audience. And then also we’ll be working actively with the team at DeFi Yield technologies to affect that.

I'm having an issue getting to the next slide. Darryl, is there any jump you can make?

[Operator]

I don't see them, but let me just reach out to the IT department. Give me one second here.

[Wouter Witvoet, Chief Executive Officer]

It's back online again.

So then – so now we’re at slide three. So the only thing that I want to finish off with is really the Protos acquisition. So we have – we of course want to grow the AUM of the current funds, like them being in business already since 2017, having had several institutions come in and having had the sort of stable returns over those years, gives us a lot of comfort that we can grow this space.

We've been in touch with several hedge funds, institutional clients. I know Russell had some of these calls as well that have actively asked us about this, and this is how we sort of also came to doing something with Protos. So the first is the growth of the current funds. I think with our combined efforts we can really grow that public market exposure.

And then also new types of funds. The different investors have different types of risk profiles, so I’m just going to focus on stablecoin yields. I just want to invest more into a basket. And then we also see – some of you may see in sort of the announcement that we did, that we can create ETN for a fund such as Arcane. Like all those types of varieties are also possible where Valour issues with ETN, but then effectively can provide some capital for our fund, and that's also some of the synergies that we see.

So these are like all the things that we are growing, things that we're working on for Q3. I personally am super excited to work with the team at DeFi Yield and Protos and integrate them into the sort of our family of companies. Diana and the team have done an excellent job in Valour and you know making crypto products available through the masses, which really isn't been an easy task. Obviously there is the reason DeFi exists in the first place, it’s because there is the centralized financial ecosystem which is sometimes difficult to navigate, but the team has not an excellent job there in getting that done.

So that's kind of where we wanted to leave it. We wanted to leave some time for sort of the Q&A. So I think I’m giving it back to Darryl to give the instructions there.

[Operator]

Thank you. [Operator Instructions] Alright. Our first question is from Richard Parsons with Rockefeller. Please proceed with your questions.

[Richard Parsons, Rockefeller]

Hi guys! Great call. We're just curious about the Cardano. And if there are any other companies that are offering an equity position. How you got in and what the size is? We're not – we don't need the exact size, but we're curious, when you got in and what your plan is with it?

[Wouter Witvoet, Chief Executive Officer]

So for Cardano – thank you for your questions Richard by the way. So for Cardano, we are not directing investors and ourselves in the project. So through our ETNs, we make ETNs available on the NGM in this case, where public market investors can buy through their normal brokerage accounts rather than having to go through a clock-in or buy-ins or any of the other exchanges and just effectively buy predominantly in their brokerage account. So it's not – we are not a principal investor in that sense in Cardano. Does that answer your question or did you mean something differently?

[Richard Parsons, Rockefeller]

Yeah, that answers my question, but I'm curious, are there any other people or any other companies that are public that are offering this?

[Russell Starr, Executive Chairman]

No, there are no – we are the first of our kind to do it and I think that as people start becoming more familiar with DeFi protocols, in particular with Cardano, just because it actually is of all of the DeFi protocols known one as the most ESG compliant of those protocols, and now I believe – I mean if Wouter is right, it's the fourth biggest; if I'm right, it's the third biggest, but you know you're just splitting hairs there.

But as people understand that you can actually buy Cardano through us with our equity wrapper, I mean really truly that's the essence of our business. We are bringing DeFi protocols to mom and dad, without them having to open an account on coin or a crack-in or binance. They can actually buy these DeFi protocols by themselves through the NGM, which Diana and her team have created or quite frankly, if you're even worried about just simply being exposed to one DeFi protocol or the other, you can actually just simply buy DeFi, the equity, which is a diversified play on the entire DeFi space.

And it's amazing how few people appreciate what we're doing now and we fully intend on really kicking up an aggressive marketing campaign here, so the people appreciate that not only is the space growing in leaps and bounds, but you can actually participate in that space by just buying our equity as a sort of a more diversified way of playing DeFi protocols in general?

[Richard Parsons, Rockefeller]

Could you go into how you guys compare to this other company, this Net Savings Link, because they seem to be attempting to do the same thing. We just wanted to just check basically, are you familiar with them?

[Russell Starr, Executive Chairman]

I'm Googling it right now. [Cross Talk]

[Wouter Witvoet, Chief Executive Officer]

Yeah, we're – [inaudible] on the floor, which doesn’t mean that – it doesn’t necessarily always mean anything, but I'm just looking at it right now, so clearly to play on blockchain. But I don't see it’s around some of the – they don't really offer of same as it seems like the same type of service. So they are more like a holding company for a variety of different investors – investments, sorry, whereas we help other people invest in the decentralized finance space, right. So that's I guess the difference.

[Richard Parsons, Rockefeller]

Okay, thank you. Great call guys, great earnings call.

[Russell Starr, Executive Chairman]

And Richard, I'm going to give us one more big time plug here. When you're dealing with a world where ARC is struggling to launch a bitcoin ETF and we already have one launched, you know that's a big competitive advantage. And then you add in the fact that we charge no management fees, that's another competitive advantage. And then you look at our team and we really didn't even highlight Johan, who is one of the Founders and Creators of XBT, which is now Coin Share’s. He's directly behind a lot of the products and works hand-in-hand with Diana to create these.

We're an underdog right now, just because I don't think a lot of people know what we're doing or how we're doing it, but you know I think you and I have actually spoken and I intend on speaking to pretty much every single one of you guys who are on this call, as well as broker dealers, as well as international retail clients, high net worth. This is just the beginning of us bringing DeFi, DeFi protocols, ETNs, ETPs, Protos, which I think is a game changer from a yield perspective.

You know I call it mom-and-dad, but basically to traditional investors who are terrified or just don't want to open up a claim base, a crack-in, a binance account. This is the equity way of playing the DeFi world, which is arguably one of the fastest growing spaces in the world. And I'm going to reiterate what I said before. You know there are a lot of people who became millionaires often just staying along Amazon, but most of us missed the Internet. Crypto and DeFi is growing twice as fast as the Internet grew. If you want to be a part of that, we're a great way to play it.

[Richard Parsons, Rockefeller]

I agree. Thank you. Very good.

[Wouter Witvoet, Chief Executive Officer]

You're welcome.

[Operator]

Thank you. Our next question is come from the line of Mark Trivenski [ph]. Please proceed with your questions.

[Unidentified Analyst]

Hey there guys! Russell, first of all congratulations on your new role at DeFi Technologies. Thank you for taking the time to do this call.

[Russell Starr, Executive Chairman]

Thank you.

[Unidentified Analyst]

I've been actually accumulating aggressively shares of DeFi Technologies since March and certainly we’re excited for the future. Two questions very quickly; number one, if you could maybe just quickly take us through your methodology of driving the AUM for the TP’s, because just looking at like the term sheets, I'm looking at $30 million plus of creation units dated for let's say the Cardano ETP, I guess May 10 or so and you sort of look at the SEK current trading price of one of these ETPs. Where are my – there must be a chasm in the sort of math, sort of how you're getting from the AUM of one of the ETPs to obviously the aggregate AUM. I must be missing something here?

[Russell Starr, Executive Chairman]

I think you're looking backwards. [Cross Talk] Sorry, you go ahead Wouter.

[Wouter Witvoet, Chief Executive Officer]

No, I was just – I was going to say something similar, but just trying to understand your question. So you're trying to understand how we derived the AUM of Cardano or what it did for its employees?

[Unidentified Analyst]

Well yeah, I guess just yeah, if you take one of the – if you take the AUM of one of your ETPs, one of the four that are currently trading, I mean obviously I'm trying to sort of get a sense as to where that comes from? Because I guess there is, if you look at the initial term sheet offering, there were I guess – I would imagine to create certificates or units excluding union of 30, 37 point -- $37.50 million. Just – so we’re just looking at the – trying to get an understanding of the outstanding number of units, time of the SEK trading price and then obviously bringing that back to CAD. Can you maybe walk us through sort of the AUM calculation of one of the ETPs, just so I can kind of like get a better understanding as to where the AUM is coming from?

[Russell Starr, Executive Chairman]

Do you want me to handle that for you Wouter or do you want to do it?

[Wouter Witvoet, Chief Executive Officer]

Yeah sure, why don’t you go ahead, then I can fill in some of the details on the completion.

[Russell Starr, Executive Chairman]

Yeah. So obviously there's buyers and there’s sellers. So you are creating a contract and sometimes you're unwinding a contract. But without getting us into any trouble here, what we're doing and discussing on this call is looking back to the end of Q2 and you're going to be getting an update for live very, very shortly and I think that's the safest way of explaining it for you.

You're looking backwards right now into kind of crypto winter when everything halved and obviously the crypto market has changed substantially in a short period of time since Q2 was reported – or since Q2 occurred and now we're reporting it. And so Wouter may have a different answer, but I think the best way to do it is why don't you wait a few days. My email is our [e-mail]. Send me an email, and then we can really, really get into it, because there's a material update coming.

[Unidentified Analyst]

Okay, no, I appreciate that. And then very quickly the second question is for Q2, maybe I missed this, what the rough revenues were for the governance portion of the business?

[Wouter Witvoet, Chief Executive Officer]

What the rough – what was the rough – I think I didn’t catch your second word.

[Unidentified Analyst]

For the DeFi governance?

[Wouter Witvoet, Chief Executive Officer]

Yes sir. We shipped, that one just went live, so we basically expect most of Q1 and Q2, like helping run their test net, which is only one of – they are one of 21 nodes that did that. And currently we – now that the network is live, we're going to start to basically generate for every transaction that we validate, we're going to start to generate some of the shift tokens. But we'll follow-up with an update on that later in the quarter, when everything is consolidated and we have a better view on what that looks like. But it is – yeah, this is just last month that the actual – that has actually went live, which falls just outside of Q2.

[Unidentified Analyst]

Okay, I understood. Thank you.

[Operator]

Thank over. [Operator Instructions] Our next questions come from the line of Ken Parva [ph]. Please proceed with your question.

[Unidentified Analyst]

Hi there! Thanks for taking my question. Are you able to hear me okay?

[Wouter Witvoet, Chief Executive Officer]

Yes, yes we can. Absolutely!

[Unidentified Analyst]

Okay, great. So I've been an investor along with some of my part – sorry, late last fall. So I congratulate you on the performance so far. It's been very impressive and I don't think I fully understood the sort of expanded role that you were planning on taking in the DeFi space, so this is fantastic. I think the markets been waiting for something like this.

I guess I have one question and one comment. I'll start with the question. I'm curious to know, there's obviously a discordance between where your stock is trading in terms of – you know you're listed on the NEO exchange, and where all of your products are, which is all entirely in Europe. So you know investors that are North America can't really easily access any of the ETNs and vice versa.

There's a note in your last quarterly update that you're planning on uplisting to the OTCQX. Can you just expand a little bit on those plans? You know why not NASDAQ? Do you have any plans to bring any of those ETNs across to North America? Is that even feasible given the securities regulations? And then I’ll wait for your answer before making my comment.

[Wouter Witvoet, Chief Executive Officer]

Yes sure. So I'll answer the ETN side of things and then maybe Russell you can comment a little bit on the other side.

[Russell Starr, Executive Chairman]

You bet.

[Wouter Witvoet, Chief Executive Officer]

Yes, so on the ETN side, so we expect Sweden as Sweden is a traditional very frankly place to list innovative products and our products definitely are followed in that category. You've seen most of the players in Europe that have done this, have started in Sweden and then what the European Union has created this kind of, this pass through function. So once you have your perspective approved by a regulator in one European country, you can pass through other countries, but it doesn't mean that you can immediately list. You still have exchanges to deal with and integrations and stuff, so that means that’s in travel. But this is proven sort of the – I guess the path of least resistance.

Now in Canada and the U.S., like the ETN market is just a little bit more developing in this space in Europe, whereas Canada and U.S., there's a slightly different market. You also know that for example from Russell’s comments earlier, yes there is ways to get exposure to bitcoin, but it's for example through the gray scale Bitcoin Trust, which doesn't really track bitcoin onto one. So we have all these sort of mis-calculations. It's been challenging and also with even ARC not being able to launch an ETF yet in the United State.

They are just a little bit behind in terms of the adoption of some of these instruments, which is why we've chosen Europe as a first venue. Plus from a competitive point of view, it's good, because we're one of the few players that are kind of like trying to get these products to market, which really helps as well.

Then in terms of bringing some of our products to North America, obviously we're always looking at this and continuing to be evaluating that, with some of our plans to regarding up-listing, which I'll let Russell comment on. Definitely we're monitoring the market if and when the SEC is opening up this.

With the new commissioner, we haven't yet seen a complete openness to do this. But that doesn't mean that that won't come, because the go-to market is ever growing and it's ever becoming more important in terms of people's financial position. So I would assume that at some point the SEC does want to regulate it and we're definitely not against that, given that we we're very familiar with the regulated environment.

I’ll leave it with that and maybe Russell you can answer the second part and then we can go from there.

[Russell Starr, Executive Chairman]

Yes, so Wouter correctly pointed out that when you get listed in Sweden, the transition to Germany is substantially easier, because the German exchanges actually own the Swedish exchange. So there's a real strategic thought process that went into it.

Also, for anyone who's been paying attention, Germany has adopted a very, very pro-crypto stance and recently announced a $415 billion tax incentive plan, where anyone who holds their crypto products for a year will encounter zero tax. And so when – not if we get listed, when we get listed in Germany, I think that's an inflection point where this stock could theoretically go parabolic.

To your question on OTCQX, OTCQB and NASDAQ, we're actually pursuing a dual pronged strategy, where we're just going to wait and see which one uplifts us first. It's actually being staggering how overwhelmed and I don't want to be critical of them, but effectively from a staffing and from an effectiveness perspective, being around the NASDAQ, right now we’re overwhelmed. And it has a lot to do with COVID, it has to do with people quitting and not bringing on more staff, and it has to do a lot with quite frankly crypto and the amount of listings crypto, cannabis and solisiden [ph] and the amount of listings that are being driven towards the NASDAQ.

But we are actively pursuing listings on both, and what is a beautiful thing though is that for whatever reason our current listing does have depth and did in offers, which is a little bit unusual, which isn’t ideal, but it at least gives people an opportunity to buy in the U.S. But we are fully cognizant that we need to uplift. We're just stuck in sort of this regulatory morass that exists in the U.S. right now. But like I said, we will see which NASDAQ or OTCQX, OTCQB list us, uplifts us first and we’ll be going with that one immediately.

[Unidentified Analyst]

And so just in the follow-up, what's your timeline then roughly? I know I'm asking you to sort of to predict the future here. But for the Germany side and also for the NASDAQ OTCQX sort of side of things, what do you – what sort of horizon are you looking at; weeks, months or…

[Russell Starr, Executive Chairman]

Honestly, it could be tomorrow and it could be a month from now. I mean, it's not going to be tomorrow. A lot of people are coming back from holiday in Germany. I'm much more focused on German listings than I am on uplifting to OTCQX, OTCQB or NASDAQ, just because of the tax benefits and the competitive advantage that we have sort of as a first mover.

I remember this famous, famous Bobby Knight who was the coach of Indiana Basketball and someone asked them a question and he turned over his cup and he started rubbing it like it was a crystal ball and everybody started to laugh. I wish I knew the answer. All I can tell you is we are doing everything right as quickly as we can. It's literally just regulators, government. Everything seems to be twice as slow as it used to be with COVID. So hopefully we're going to surprise you near term, but I wish I could give you the answer, I just can't.

What I can tell you is, even without Germany, things are exploding and going incredibly well. And regardless of that uplifting, we are going to pursue a very aggressive marketing strategy, just because I think we've seen that sort of crypto sell off and like I said, I think you're starting to see the likes of J.P. Morgan and Goldman Sachs starting to institutional crypto and despite us not having that uplift, I think it's just worth our well to start marketing the graph out of this story, because it is such a good opportunity for people to get broad based exposure to DeFi. And I get it, some investors can't buy on the pink stand in the U.S., but we are on a credible Canadian listing that I can tell you a lot of my old institutional clients have been buying on.

And so I know that's not the answer you're looking for, but just look, we're doing everything we can. We've got one of the top legal firms in the U.S. working for us. We're in constant contact with the German regulators. We have a staff member directly focused on up listing in Germany. We're doing everything we can. It's just one of those ones where it's completely out of our control, which I despise, but it is what it is.

[Unidentified Analyst]

Great! Thank you very much. And then I'll just sort of finish with a comments. And again, I just want to congratulate you guys on what a great sort of enterprise you've established, and we are very much looking forward to the future. I guess my comment is with regards to a bit of your strategy on investor outreach and Investor Relations.

I think to-date that's probably the one area where it has been a bit disappointing I think. You sort of look at what's not posted online; there's a telegram forum. Most of its been fairly armature-ish and fairly unsophisticated for such a sophisticated enterprise and the suites that you guys are providing.

And I think really doing things like this, the investor call, but also making that accessible to retail investors, so they’ll actually understand what you guys are doing a little better and you can sort of tell by some of the questions from the previous callers as well as that I don't think a lot of people really have even a basic understanding of what you guys are putting together here. Because it's very conceivable that you guys were being the same neighborhood as companies like Galaxy and in that sort of echelon of companies, it's just a shame that I don't think that message right now is getting out there.

[Russell Starr, Executive Chairman]

So, I will…

[Wouter Witvoet, Chief Executive Officer]

So I think that’s really appreciated and I think you know always when we are growing as quickly as we do, this is why I know we've partnered up also with Russell. Super happy he’s come onboard, and we're kind of where we're absolutely taking these comments to heart and there will be something definitely that we're working on there. Russell, sorry to interrupt you, you wanted to add something as well.

[Russell Starr, Executive Chairman]

No, no, no, always cool. We don’t have a problem at all. First of all, totally agree with you. Constructive criticism is always appreciated, but you are going to see a – like you're basically going to see a 180% turn as of probably a couple of weeks ago and you're going to see a very, very aggressive marketing IR and PR campaign.

It's not an excuse, but we were actually hoping the marry it with an uplifting and we finally just realized that the uplift is just completely out of our control, and to your point for what we have and what we're trying to do and the quality of people and the quality of product, we're going to embark on a very aggressive marketing IR, PR strategy.

Basically, you can sort of peg September 1 as the date that it's going to go kind of parabolic, but it's already started and we respect your comment, apologize for letting you down in that respect. But I always – one of my mentors and favorite people always said that when you make a mistake, it's actually an opportunity for you to really, really shine and we take your comment to heart, but you're going to see us really, really shine and change that.

[Unidentified Analyst]

Fantastic! Thank you very much guys and keep up the good work.

[Russell Starr, Executive Chairman]

You bet. Thank you for the comment.

[Wouter Witvoet, Chief Executive Officer]

Thank you.

[Operator]

Thank you. There are no further questions at this time. I'd like to hand the call back over to management for any closing comments.

[Wouter Witvoet, Chief Executive Officer]

Yeah no, I wanted to again thank everyone for joining and we are just super happy to see so many people on the call. Like I think we mentioned before, there is – this is one of the first quarters that we have one of the business fully integrated. I think Q3 will be super, super exciting for us like it already is. We’ve seen some of the things turnaround in the crypto market and also decentralize the finance space and we're working on all fronts. We're coming up with some additional updates like Russell mentioned later this week and I would look forward to keeping you posted through the various channels. I'll let Russell chime in here as well.

[Russell Starr, Executive Chairman]

Yeah, I just want to thank everyone for their comments, for their questions. I want to thank Diana and the Valour team for doing such a great job. You know this is truly a startup.

And then I also just wanted – I've been doing a little bit of reading on Net Savings Link. They are actually a lot like our venture capital arm where we co-invest in early stage DeFi opportunities. So they are kind of like a fraction of what we do. I can't remember who asked us by question, but I just wanted to address it.

And then I just wanted to also add, really truly you're going to see us embarking on a very, very material marketing effort. We're going to be bringing this opportunity to the masses. I think it needs to be addressed that way. And again, thank you everyone for all of the comments, questions, criticisms. We take it all to heart.

And lastly, like I said [e-mail]. I've been trying to answer all of the IR emails, but I'm an open door and anyone who wants to reach out and has any questions, please just fire me an email.

[Operator]

Thank you so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day!