Perspectives from Asia on Dollar Digital Currencies with Annabelle Huang of Amber Group
As the cryptocurrency markets and stablecoins start to intertwine with traditional financial institutions and investors, regulatory oversight and more transparency are emerging as key considerations.
Joining us this week is Annabelle Huang, Managing Partner of Amber Group, a leading digital asset company operating across the globe working with token issuers, banks, and fintech firms. She has a bachelor’s degree in business administration and mathematical sciences from Tepper School of Business.
Jeremy Allaire: Hello, I'm Jeremy Allaire, and this is The Money Movement. Today I am here with Annabelle Huang, the managing partner of Amber Group, a leading crypto firm here in Singapore. We're recording Money Movement live today. Annabelle, great to have you and have this conversation.
Annabelle: Thanks for having me here, Jeremy.
Jeremy: Absolutely. Obviously, there's just tons going on, so much happening in crypto markets. I think, Amber Group obviously is a major firm globally now, but also very much anchored here in Asia as well. Before getting into Amber and the markets and where things are headed, I'd love to just start hearing a little bit of your story. What brought you into crypto? What brought you into this space? What are some of the major things that you're motivated about as you work on all of this?
Annabelle: Sure. I feel like it's been four, almost five years but felt like a lifetime since I've been in the industry for years even longer. I started my career in New York in an investment bank. I was trading FX derivatives back in the days, and first got involved within crypto actually through just alumni connections. A few of the Carnegie Mellon alums, they were building the very early decentralized finance applications on top of Ethereum back in 2017.
I was part of consensus project and just really got red-pilled by the fellow alums and convinced that this is a new way of doing finance, and moved to Hong Kong actually to look at the Asia market. I think the challenge was that there was very low liquidity within the DeFi space back then. There's not enough infrastructure. Infrastructure space itself was just nascent. The UI/UX is horrendous if you remember.
Jeremy: Totally.
Annabelle: Then realized the need to actually having more centralized or cFive platform to smoothen the path into crypto for a lot of the new users. That's when we started Amber almost five years ago now in Hong Kong, continued to build upon the space. Most of the senior management also came from different traditional finance background. We're always security and compliance first, and really over the years improving our own risk management abilities. I think that really help us stay relevant and continue to grow over very volatile market cycles.
Jeremy: Big time. When you were finding your way early on, you're saying 2017 and 2018, that was actually right when we were inventing USDC and rolling out USDC. I remember very well the very first DeFi projects were happening then. You could see the vision of what was going to be possible and it's interesting. It seemed to me at the time, I didn't know how long it would take until some of these things really took off.
In some ways, it happened faster like in 2020 when you had the DeFi summer and some of that. Just, I think, it surprised us how fast some of those things happen. Coming back to your own original interest in this, when you think about what is this going to do for financial markets? What is this going to mean in terms of the traditional roles in traditional finance moving over to a digital asset native world? What do you see that looking like?
Annabelle: It's a very interesting question because that landscape has changed so much over the last four years. I think when we initially started, not that many "traditional financial institutions" are even entertaining the idea of doing anything within crypto. I think now that existential question is past us. They all or we all realize that crypto is here to stay. We might have differences in terms of where we think the use cases or the future development goes to, but I think we have established ourselves as a more mainstream asset space compared to early days.
Then I think for us, what we were anchoring on has always just been to build upon open access. Also on transparency, I think this is what DeFi or just blockchain general was able to bring. I think we also discussed this in the past where there's financial stress in the market. You can see how traditional financial market and the very crypto-native on-chain market reacts to it. It's fascinating to see, and I think we've been learning our lessons. I think this space has continued to grow and to mature. I think every time we go through this, we'll just be able to come out of it much stronger.
Jeremy: For sure. we'll come back to the current things that have happened in the market, and where we go from here, and all that in a little bit. I want to come back to what makes Asia so unique in this market. I remember in 2013, the first time I was asked to testify to the Senate in November of 2013, and I remember Bitcoin price rallied to $1,000 the day of the Senate hearings that I was involved in, but it was all China. It was all Chinese traders who were basically saying, "Oh, the US is not going to ban Bitcoin," and everyone was like, "This is amazing."
The interest in digital assets, the interest in this, in many ways, Asia has led the narrative even though there's all these companies in the West and there's activity, but it's been such a big part of the narrative. With Amber for the last five years, I'd be interested just to hear what makes this such a powerful market in Asia. Why is Asia playing such an outsized role in all of this?
Annabelle: I think there are a couple of reasons. I think, first of all, Asia or China specifically, being less of a developed market, or by that I mean the financial infrastructure in terms of access to global liquidity or FX, banking infrastructure, credit card, it's very different. That gave the rise to a lot of the super apps within China that had that window of opportunity. We skipped the whole desktop era and went straight to mobile. We don't really use credit cards. It's all Alipay, we tap it. There's that, and I think that's prevalent in Asia, not just in China. Southeast Asia, even Korea, and Japan, all have their own ecosystem of this.
When it comes to money, we don't feel like our own fiat is as easy or as global as dollars. When there's alternative that we discover, it is actually very interesting, we're using a lot of times the early stablecoins as cross-border payments because it's very difficult to do it otherwise. There's that initial adoption. Let's not forget, I think a lot of the Asian traders or participants, they really see it as a speculative asset especially early days.
I think combined with the fact that actually Asia had a lot of pricing power because all mining was happening in China and wherever there's cheaper electricity. That was back when the market cap was much, much smaller than where we are today. Actually, I think even just a few of the miners or a few of the trading shops or exchanges back then would have a lot of pricing power in the market. I think that's what made Asia a very prominent place to be.
I think a lot of projects are spun out of China or Asia in general. Then you see this very vibrant community, despite the fact that from a regulatory stance, it's not always supportive. Then I think, at least, from 2017 until 2021 almost, they've acquiesced that things could happen if you're building on technology and all of that. I think what happened after May of 2021 that landscape has changed a lot, especially with what happened with miners. Now they've all moved overseas, a lot of them in the US.
Jeremy: Texas.
Annabelle: Yes, Texas, exactly if not elsewhere. I think that has changed really significantly. A lot of the projects or VCs moved out, some of them in Singapore, actually. Then I think that pricing power has really been distributed again, which could be a good thing for the industry if we're really aiming for a truly distributed and decentralized market.
Jeremy: One of the things you said, maybe I want to pick up on a little, which is, I think in the region, it feels like the average person or household, they're more aware of fundamental questions about what is the money that you have? What is the store of value? What do I control versus the government control? These are questions that I think are just more visceral, more apparent to people. That's very different than, I think, in certainly in the United States.
In some ways, there's a greater awareness around what this all means in Asia, which I'd be interested if you think that's the case is there. Also maybe all this has geopolitical, geo-economic implications. I also feel like people are more aware of that as well in Asia.
Annabelle: Yes. Growing up, we know that our own currency is controlled in a way, and then we pay attention to FX every day or where is dollar-yen or dollar-yuan, that every day. When I went to the United States for college, I realized, "Oh, people don't really think about that; it's just dollar-based." That's very easy for you to exchange to Euro or anything else when you travel. For us, at least, in China and I think in another capital-controlled country like Korea or elsewhere, then you inherently think about that. It's like, "Oh, I need to go travel. I need to make sure whatever FX I exchange is within my quota, and I can get it," but then now you give me this.
I think that's what made a lot of the digital payment very popular for tourism, where I can just scan a QR code' and I'll deduct from my RNB account' and it's very convenient. Then now I think crypto is one-step further than that. It's even faster, even cheaper. For a lot of them, it's just alternative way. I think to your point, it is because there's an inherent demand or awareness, and we think about money in a fundamentally different way.
Jeremy: It seems like in some ways; I remember when the Internet itself became a mass society thing, and I don't think people thought a lot about information and communications as these big systems or what it meant to have freedom of using those. Then the Internet brought that into more people's attention everywhere. People experience something in terms of connecting to the whole world and all the world's information. It was transformative for people. It feels like we're not quite there with crypto, but for the people who have red-pilled, they are there.
They're like, "Oh, my God, this is such a different world." It feels like maybe in the coming few years, maybe everyone's red-pilled or whatever it is. Basically, there'll be more dialogue about money in the world. What money is? What role it plays? How you can interact with it? This birth of this Internet of money is just changing society and awareness on these things. As we were saying, ages at the front edge of that but the whole world as well.
Annabelle: I think it's just a question of what blockchain or Web 3.0, as we stated in terms of the value creation and value transfer, it's in a very different mechanism. I think with a lot of the more value being created digitally in a digital fashion and we interact digitally and we are already doing that. Then I think that will also have everybody participating in the so-called maybe digital virtual world and metaverse trying to think about, "Okay, what is the currency of that world? How do we think about the most efficient or optimal way of different of economy?"
I think that's very different than us in Web 2.0 era that currently, we interact with other people online, but we're so physically constrained to one place, having to-- I think we all travel a lot in our wallet, just all different currencies. I think they'll at least have the younger generation, the Gen Zs and the beyond, think about it very differently.
Jeremy: Definitely see that. Definitely see that. Interesting segue, I'll come over to some of the Amber things that are happening. You're one of the I think significant firms that has made a huge investment in these major sports franchise partnerships, brand partnerships. I think in some ways trying to use that as a connection to more mass awareness on these technologies. Talk a little bit about the thesis behind that. What you're specifically doing? What that might translate to in terms of some of the things that Amber's building?
Annabelle: Sure. That's something that we're so excited about. I think us is more of a financial services firm within digital assets. We've focused, a large part of our history, just focusing on providing institutional-grade financial services for anyone that wants to be a part of the digital asset space. Then I think we realize a lot of opportunities lie beyond that. It's not just digital wealth; it's part of it, but I think it goes beyond to digital lifestyle. Exactly what we were talking about earlier. I think that the way that we interact, the way we create value, or transfer value will be very different going forward. How do we build the right infrastructure to support that as well?
I think by starting with working a lot of the global renowned brands, different sports brands, or even other consumer brands, then that's opening the gateway to having more users being aware of the space and participating in it. Not having to realize, "Oh, I'm doing anything within crypto." Maybe it's just, oh, you are a Chelsea football fan or Atletico Madrid fan. By participating in this live stream, then you'll get maybe a NFT badge. Then you can use that to unlock so many other things that come with it. You don't even have to realize it is so called on a blockchain. It's just something a new badge or ID for you.
I think by doing this, it's going to make it a lot smoother and easier for the mass to really come into the space. That's one thing that we're building on, and very excited about looking at more partnerships. We think there, we have to create more real demand and more use cases before everything else really catch up as well. It doesn't matter if all of us are just focusing on building infrastructures. For example, we're all just building on USDC and stablecoin, but no one's really using or transacting with it. Then I think the growth is very limited. How do we together really find the real use cases down the road?
Jeremy: Let's talk about that a little bit. I think we have this concept that the idea of a dollar digital currency and programmable dollars on the Internet. It's all very powerful and moving money very easily, safely, fast, cheap. These all sound good, but I think the really exciting thing is when it unlocks new utility. I think you've heard me talk about, how do we move from the speculative value phase to the utility value phase of crypto. stablecoin can play a really key role in that. What are some of the big categories of utility that you see happening whether it's enterprise or retail or financial services themselves being built up using stablecoin? What are some of the things that you're seeing from your vantage point?
Annabelle: I think there are twofold, at least from where Amber is sitting. First and foremost, still on the financial asset piece or for a lot of the more traditional financial institutions to come into the space, they need a segue. Stablecoin provide that for them. I think now they're understanding the different nuances of different types of stablecoins. How they really work and being able to access it globally. I think this is one of the use cases. I think that this pocket, the liquidity is going to be huge just because of the sheer size of these finance institutions globally.
Then I think in terms of mass adoption in terms of user numbers as opposed to maybe volume, then I think that comes from maybe the more consumer side of the things. That's by integrating with brands and similar to what I mentioned earlier, they're just using stablecoin because it's already so integrated into the ecosystem to whatever it is they need to do. They don't need to think twice about it. It's smooth. It's already in their wallet or whatever apps they're using. Then they can buy the things they want or experience things they want. I think it has happened in that fashion. We have to create a good UI/UX first. We can't count on average user to go through so many hurdles-
Jeremy: Yes. Totally.
Annabelle: -to try something.
Jeremy: I think there's been-- I talk about this in a lot of different ways like this will become mainstream when the technology behind it disappears, when people are just interacting, like the example you gave of a live stream and these entitlements that just happen to be digital tokens underneath. People aren't focused on like, "Oh, this is crypto," but with things like the consumer payment experience and stablecoins right now, USDC are a base layer.
It's this very secure, powerful model. From a consumer experience layer, and maybe talk about this from the perspective of the Asia market as well, do you see some of the established payments companies in Asia or Southeast Asia or other, do you see them connecting up to blockchain rails? Do you see them connecting up and starting to support things like stablecoins as something that will happen in the next couple of years?
Annabelle: I think so from just even the conversation we've been having already, more from the perspective of Amber offering our infrastructure as a service, as a [unintelligible 00:19:15] service to a lot of the traditional FinTech or the Web 2.0 FinTech apps for them to-
Jeremy: [unintelligible 00:19:22]
Annabelle: -to be able to access crypto or provide crypto-related services to their users because they see the demand from their user as well. I think they're already very actively thinking about this, but now maybe still limited to, "Okay, how do I add a simple trade or swap function on the app in addition to maybe the stocks or the equities they could trade or FX they could trade." I think eventually they'll think about more use cases that are more integrated with their own ecosystem because everyone of these apps are actually ecosystem of their own. They have their own payment or e-commerce and all of that within them.
Then I think they're starting to realize that in addition to using stablecoins or even thinking about how to gamify their own points, loyalty points which could unlock a lot of value for their users. I think from where we sit, we'd like to see a more interoperable ecosystem across all these apps. My grabpoints can get me something else other than using on grab, for example. I think it's up to all of us to really continue to have this discussion with them. I think we need to also wait for the right market timing, as well.
Jeremy: The building blocks are there, and the technology keeps improving. I want to come back to the current market environment a little bit. I know Amber has played a important role in facing the markets and facing a lot of the institutional counterparties. I'd be interested in hearing your thoughts on the most recent challenges. What do you think characterizes this? I think I heard you earlier talking about this is a credit market failure. Talk a little bit about what you see as the failures in a sense, and then we could talk about the path forward.
Annabelle: I think because a lot of the players in the space are so quite new, I'm not sure if people really understand the risk-reward in a way that they should. There's a lot of influence in the market that seemingly where I have a lot of success and people would believe that. "Oh, you have a lot of Twitter followers, therefore you must be legitimate." I think at the end of the day, then it's not necessarily true. I'm glad to see that a lot more traditional finance, credit, risk, or risk management experts coming to the space, but I think that they're still new. Whatever happened in the past we see because crypto space just grow so much.
You have a platform that all of a sudden just came into a very high AUM, maybe more than they knew how to deploy. Then they might have been forced to make a lot of decisions that they didn't really understand the risk of in hindsight. Because of this rapid growth and when market is good and dandy, nobody really thinks very risk management, but when things go wrong, it happens in that spiral way. That's what we saw and that's what I think we'll continue to see. With every market cycle, we learned something different.
I think a couple of years ago it was maybe more so risk management in terms of, on the operational, on infrastructure side. I think most of it coming from traditional training space didn't realize that exchanges could just go down, or just unresponsive. Then you, you learn that, and then you improve on your own internal systems. I think at this time is more the credit risk or counterparty risk that people probably didn't think about. Then also just seeing how incestuous, for lack of a better word, this industry is. You think you're--
Jeremy: Interconnectedness.
Annabelle: Yes. You're facing one counterparty; you think that was it, but then they might be facing all the other ones.
Jeremy: The amount of rehypothecation-
Annabelle: Exactly.
Jeremy: -that was actually happening in the crypto lending markets, I think we're now seeing how much that is. Part of the issue there is about disclosure and transparency. In a traditional in say the regulated securities industry, you've got all kinds of reporting obligations and record-keeping obligations. You've got assurance firms that are signing off on things. It's not perfect because there's blowups in trendify all the time as well.
It seems like at the heart of the issue in terms of credit risk is about these information asymmetries and disclosure and transparency. Now that as you said, maybe more traditional risk managers are coming into this space, what do you see evolving there? Is this a place where there's a whole new build now, the big build over the next couple of years is significant enhancements in what we do in terms of risk management, but even the shift from off-chain to on-chain in terms of how this happens?
Annabelle: Yes. I think this is something that we've been thinking over the last few months. Internally at Amber, we have very stringent risk policy that we don't take on any credit risk to any other counterparties, if anything, we tend to be net borrowers in the market. That has really played well for us with this move. Then that's also not inherently very efficient if say there's no presence of credit market in the space, then where does liquidity come from? How do we best solve that? It is moving a lot of the information on chain maybe in a zero-knowledge proof way that I don't need to know how much you have, but I need to know maybe who your counterparties are and how we can actually evaluate it.
Maybe coming up with the standard credit market, even different credit rating or tiers. I think at least the bigger trading shops, we all have our internal credit rating, but then we're only privy to the information that we know. How do we maybe leverage the traditional finance way or the traditional markets way of having a credit rating and having more transparency, whether it is mandated by regulatory requirements, or just self-driven that will help the entire market unlock more liquidity?
Jeremy: It seems like this is a huge opportunity actually. In these situations, there's a huge opportunity for a crypto-native credit intermediation to actually come up with models that are superior to their traditional financial system. I know there are all these emerging next-generation DeFi-protocols that are basically trying to provide various forms of under-collateralized or uncollateralized credit provisioning. It's a really interesting space. A lot of that is all USDC based, so we get to see a lot of that and what's happening there.
Related to that, I'm interested to, so far a lot of the credit markets and lending markets, they have really been very trading and markets focused, which makes sense because that's core function of markets. I'm interested from an institutional perspective. If you see some of those innovations that are coming as really finding their way into commercial finance and finding their way into trade finance, and what I'll call real economy financial applications.
Annabelle: I don't think I've seen anything that's been very road tested yet. What we are seeing at least from the DeFi boom, is that that's actually a very interesting way of creating different risks buckets for different LP or liquidity providers or different even consumer users to use. I can create a pool and say that there is the senior or the junior [unintelligible 00:27:18] and you can earn different returns depending on your risk. Then all of a sudden, you very quickly have a pool of funding that you can use either to maybe lend out to others or to finance. I think some of the projects are already building on that because it gives a project or a team very easy and quick access to pool of capital.
If you want to do it through lending through banks, that's just probably not going to happen. It's going to be perhaps more expensive, but then, because there's this DeFi farming or pool idea that you can quickly pull together capital and put it to better use. Of course, this still relies on every pool participant or the retail users to properly understand the risk. That might be the harder part. There's a lot of education that needs to happen, so they understand, "Okay, I'm actually okay taking this risk and I know that what I'm doing."
Jeremy: The Internet dealt with these issues in other categories where reputation systems and community-based reputation systems have made it so that I can go on to a marketplace like Alibaba or Amazon and I can find someone who makes a product or a seller and there's a history. There's still fraud of course, but there's so much there that I can have confidence that I can basically in an open global market, directly transact with someone who's created a product in a completely different part of the world. I have confidence that it will arrive and that very long tail, as people say of markets. We have that in transportation and in hospitality and in commerce more broadly and in content and all these areas.
It just seems like that could be applied to capital markets and debt capital markets. You could actually see a very, very long tail of essentially these pool operators, really just being highly, highly specialized in a specific topic, subject matter, geography, and then leveraging on chain reputation and other things to actually make it so that people could have the confidence that they could allocate capital into these, and it would meet a real commercial or household need.
Annabelle: I love this idea and it's actually interesting because all of this, the data itself is on chain or is public and it's digital. There's so much we could work on the back of that and we have the entire history of the blockchain on the ledger. I think it's interesting that you mentioned the social credit aspect, and that's already super-well developed in China. Because by leveraging on the digital payments, they see everything that you do. Then in a similar fashion, we can do the exact same for anything that's happening on chain, and therefore build a more informed model on the back of that. We can obviously get the data identity in a way, but I think that's what is exciting about this.
Jeremy: Yes, for sure. We're interested in this idea that credit intermediation doesn't have to be banks, there can be these new roles. It's like structured finance and things like that. You can imagine it being very efficient and very scalable with a lot of participants informing these kinds of things.
Annabelle: They don't need to be a bank with massive balance sheet to do that.
Jeremy: Exactly. Yes and that's also for us, and maybe we'll turn a little bit to stablecoins for a minute. One of the things that I'd be interested in hearing your perspective on is really around stablecoin specifically. I think there's a philosophy behind what we've done with USDC and this general idea of sound money, which exists in crypto, but this idea specifically of full reserve money. We've tried to design a model where essentially, a dollar token is almost like just straight government debt obligation.
Instead of a fractional reserve of a bank, it's has this. I'm interested just from your perspective as well, just within the Asia market, how do people think about dollar stablecoins? Do they think about the philosophy behind it or what it is and what kind of risk it represents and how are you seeing that evolve here as well?
Annabelle: I think it's interesting to see from an Asia perspective because their own base money is oftentimes not USD. For them, I think they're first exposed to Tether, and they've been holding that for many years. Even though there were events where it was deppeging is still has been stable for the better of the most part. They just think of it as another FX that they own. I don't think anyone's really digging that deep into of Tether's reserve and all that. I think they've also gotten better in terms of being more transparent with the market.
Whether you believe it or not, it's also up to you versus on the more institutional players, I think they either buy their own risk requirement or their own preference that they prefer USCC for the same reasons that you mentioned. It is one-to-one backed, fully reserved by USD. It is safe and secure and I think circle. You yourself, In terms of branding, I think the institutional players definitely prefer that. Then they use it as their gateway into digital assets. They'll exchange their dollar, or anything else into dollar stablecoin, UCC in this case before they go into Bitcoin or other things.
Over here at Amber, and I think a few other platforms as well, we are also providing interest or yield on top of dollar stablecoin that mimics what you could have earned with dollar by even higher because of the structural yield pickup opportunities within digital asset space. That itself has been a very popular product within the institutional players as well. If you look at retail, then I think a lot of them just see whatever is available. They could be attracted by the 20% return.
I don't think they really think about risk and return in the same way that maybe the trained professionals do. A lot of times it is about branding, it's about marketing, and just even by being on top of mind, they realize, "Oh, there are different fear-backed cryptocurrencies." There are crypto collateral back crypto and stablecoins. There are even the more funkier versions of those, so to understand the difference of that is already pretty difficult.
I think a lot of them who already had, for example, Tether to start with then they're comfortable sitting that. Then it's very liquid. They can exchange for other things. For new or incumbent stablecoins to penetrate this market, it has to be accessible as Tether at least. Then maybe there is something else to it, and then they'll start to say, "Oh, it is actually perhaps a saver alternative in that regard."
Jeremy: We continue to make progress and have been grateful for the work we do with Amber as well. Annabelle, this has been a great conversation, just really a pleasure to have this with you, and thanks for joining The Money Movement here today.
Annabelle: Thanks for having me.