Apr 4, 2023

A trio of Canadian crypto exchanges WonderFi, Coinsquare and CoinSmart are confirming plans to merge, creating what would be one of the world's largest crypto trading platforms.

Video transcript

North of the border. A tree of Canadian crypto exchanges are confirming plans to merge. Joining us. Now to discuss is Kevin o'leary, he's the chair of o'leary Ventures and Dean Ska, he's the president and interim CEO of Wonder PFI, welcome Kevin and Dean to the show. So the news is Wonder Fi Coins Square and Coins Smart have revealed plans to merge creating what would be one of the largest crypto trading platforms in the world. And I see shares of wonderfully surging nearly 50% yesterday. So tell us a bit about what prompted this merge. Yeah, absolutely. This this came about, I guess originally when Coins Square and Coins Smartt had initially entered into a transaction to combine the two companies that for certain circumstances fell apart. In January of this year. Wonder I saw a strong opportunity to act as the bridge and to revive these conversations and potentially looking to solve some of those structural issues through wonder. And so really throughout those discussions, what came clear was the opportunity to combine these three companies, three leaders in the Canadian industry in the digital asset sector and three of the largest crypto trading platforms in Canada, you know, really the opportunity spoke for itself and the companies jumped right in. Yes, this merger will result in almost 1.7 million users and more than $600 million in assets under custody. Uh At the time that Canada is set to tighten restrictions on crypto exchanges. According to some coin desk reporting, we've been been doing, Kevin is, is this a reason to merge? It is. But, you know, you've touched on the narrative that started last December uh around the Senate hearings of the FTX implosion and it's continued on. And you know, I learned something in Washington when I testified there that I had, I did not see coming. And now I realize that it's accelerated lawmakers have reached the point of fatigue in terms of the crypto market and they've essentially released the hounds to regulators. You've seen this manifest itself in these very serious charges on Binance that have occurred in the last week. And what happened with FX and the investigations going on there, there's no longer any sympathy in Washington for any exchange broker dealer exchange that is working as a rogue entity, not under a regulator in some jurisdiction. And you know, from the investment point of view, it was wildly profitable, the good old days of crypto and you could work outside of the regulator in the gray zone issue your own tokens do whatever you wanted completely unencumbered by the cost of compliance. You could argue that was the best economic model crypto will ever see. But those days are over. And now investors like me are seeking jurisdictions where we can invest in crypto infrastructure because I'm still a believer in the potential of crypto in terms of how it's going to revolutionize financial services and the potential it has in payment systems and everything else. But I can see now from what's going on with the litigation between regulators and all of the, all of the exchanges that think they can operate the way they used to in the old days. I mean, I almost feel sorry for them. That's why I've really focused on places like Canada where I can invest in 100% compliance. This was a necessary merger. The cost of compliance is expensive and the only way to offset it is scale and what that company has done wonder I is create a behemoth in Canada. They are the de facto standard for compliance. And indeed in our operating company, we've moved our assets to Canada because we're able to stake there. There's enough tokens under the regulatory environment that we can get full exposure to the volatility of crypto and do it on a way that we can report to our, our compliance departments and tax regulators in some way that model that just occurred is the future of broker dealers attached to crypto exchanges. I think it's going to get copied in many other jurisdictions. And I think, you know, the days of the Wild West, well, they're over. So how would this structure ever look like? I mean, I guess what you, you're calling the exchange? What wonder, uh, you know, coin, coin wonder. I, I don't know what you guys are calling it but how, how is it going to be structured? How did you break up? I, is it a, is, it's a complete merger of the three of you guys or are you guys e each one kind of taking apart? How is this looking? How is this going to look like? And, and also, uh, what makes Ontario because this is, this is gonna be regulated by Ontario, correct? And more so than it is, uh, than just the, uh, the, a federal, a Canadian federal, um, uh, regulator. How does that model of provincial regulation compared to what we have in the United States? Well, let me explain something about Canada. It was very, the very first jurisdiction through an order of the Ontario Securities Commission to issue a license that allowed for Bitcoin ETF. That was the first and that was years ago and then a bit, then an ef an exchange traded fund for Ethereum. Also the first in the world. You should be aware and, and this is known within regulators around the world that regulators talk to each other almost weekly. I don't care if you're in Abu Dhabi in Zurich, Switzerland in London, England in Washington DC, the global banking system is, is defined by regulations and many of them, excuse me are very current with each other. And so the OC you have to assume is talking to the Sec Canada, from that perspective may be the guinea pig that is forging forward with all kinds of regulation that is effectively working within this merger. You find a license to stake, that's pretty rare in the US within it. You find a license around 34 different tokens that are permitted on these wallets and and indeed, it's done in a way that you can't commingle assets. So what what happened with FT X is highly unlikely to ever occur in the Canadian market. The point is if we want and the crypto community wants and crypto investors like me want to fit into the existing global financial services system. We have to tuck under the regulator. So I no longer have any interest in going to war with regulators in litigating regulators in suing regulators. That is not the future of crypto. The future is to find the pathway to fit into the existing banking system. So we have an on and off to fit it in every jurisdiction. I don't care what country you're in. So right now, if you're an investor, you have an opportunity to invest in one of the world's largest compliant broker dealers attached to a crypto license, fully regulated. There's no war going on here with the regulators, nobody suing anybody at the regulatory level. I think that whole thing is that narrative is insane and it's proving to be a very bad outcome for shareholders in other jurisdictions where they're holding shares in companies that are effectively declaring war with their regulators. That's just plain stupid in my view. So, Dean, how, how, how is, how is this going to be structured though? I mean, it's an interesting merger of three different exchanges. Are, are you breaking, are you breaking up uh responsibility? How are you integrating these three different companies together? How is that, how is that going to be structured? Excuse me. So today we operate three crypto trading platforms across the various companies. One of the first immediate steps that we'll take will be looking to consolidate them through a unified technology stack. And we're in the processes of evaluating the various technology stacks that are incorporated across the three companies and identifying, you know, the best path forward leveraging one tech stack, which will create a ton of operational synergies on the back of that. Once we have that in place from there, we'll look at the various brands under our umbrella, identify the specific target audiences that they speak to and work well with and identify if there's a path forward with multiple brands on the longer term basis is equity. So you're going to have three going into one combined company where you'll split up the equity. I mean, I know this is kind of in the weeds there. But it is kind of interesting that how are you allocating that kind of equity? Is it based on market cap? Is it based on volume? Yeah, so wonder I was a public company, Coins Smartt was a public company as well and Coins Square was a private company which obviously made this three way merger quite complex. But all of the evaluation metrics that were incorporated landed, you know, sort of in the final details of the transaction that were released yesterday. I just wanted to touch on a point that we've been reporting on at Coindesk, which is that Canada is tightening rules for crypto exchanges. Uh Binance coin base are still in talks with regulators to stay, but there are exchanges that are leaving um I believe uh crack and being or no rather crypto dot com being one of them. I wonder if that kind of pressure you're feeling that right now in terms of more heightened rules keeping uh money separate in different custody accounts being more diligent about that. Can you want to have a go at that? You know, that makes me more optimistic as a shareholder. I saw what happened to crack in uh when they dealt with the regulator in the US and of course, shut down their Australian operations as a result. My message to the entire industry everywhere because I I I'm an investor internationally globally. If you can't stand the heat, get the hell out of the kitchen. If you don't know how to work with your regulator, I have no interest in investing in you and you will eventually be put out of business because it's clear now that there's no sympathy anymore for this industry in Washington DC, the number one regulator on earth, the SEC. And so frankly, there's, and this is a personal opinion, all of the pioneers of crypto, all of the rogue entities, all of the players that built platforms outside of the jurisdictions of compliance all around the world. I bet you within 36 months to five years, they're gone, replaced by managers who understand how the financial services systems work around the world. The great potential of crypto is to find its place amongst the world's banking system. And that's why I'm investing in it. That's why I endorse this, the fact that other players can't handle the heat in Canada, Sarra, I don't care if you want to play in Canada, you've got to be compliant and you have to sit down with your regulator on a quarterly or monthly basis to figure out the direction of the services you're going to be providing and that's going to be the same in the US. It's going to be the same in Zurich and in London, England and in Paris, France in the EU that's the future. And so what I'm doing as an investor with my capital is going to every geography looking for who's the next 1 to 5 that hasn't been able to make any money because they were competing with rogue operators that had no compliance costs. I want to invest in them because they're the future. That's what's going to happen. All of this stuff, all of this cowboy stuff gone. It's over and you won't get any institutional capital into that anymore. And it's going to have some costs. There are platforms and players out there that are going to get sued into the stone age. I just want to and that I want to correct myself there, it was do dot com and Darabi that are thinking of leaving crypto dot com wants to remain. But Emily, did you want to go ahead? Yeah, sure. Um Kevin, I just want to follow up on something you said. So are you basically saying that finance is not going to exist within the next 36 months? Because it sounds like that's a little bit what you're implying with your last statement. Finance has two options. Sit down with the regulator, pay the penalty, disclose ownership because in my opinion, you're asking me an opinion. I'm just an observer. I've made many comments about the demise of FX the FTT Token, the BNB Token. There are some major questions and now come to the fore about Binance that we're also asked of FX. So right now the Binance narrative at the congressional level at the regulator level is you got $64 billion in a token that is basically illegal. If you wanted it to fit it into the banking system, it's in two wallets, 97.3% concentration who owns them? Unknown who owns finance, unknown. If you want to get a license in the United States, after paying whatever it's going to cost to clean up this, all of these charges, you're going to have to disclose that. Not just finance, any platform is going to have to do that. The reason there was war between those two, Behemoths F TX and finance was FX could no longer get licenses because the 20% ownership held by Binance would not disclose ownership and you have to know your client at the cap table level. So Binance has the choice to make, they can remain in the shadows as a rogue entity, very profitable and you have to commence easy for what he's built. But if he wants to play in the real world and in the world's largest market, the US, he's going to have to disclose who owns them and who is backing that token. And Binance has the same risk that F TX has. If there's a run on the bank of that token of 64 billion, they don't have that much cash. It will be the same outcome and that is the risk that that has right now. And frankly regulators are tired of it. They don't want any more hearings. I was there. I talked to those senators. They're just pissed off and they've had enough of this and they're going to start squeezing hands like lemons. And you're watching it happen with Binance. And what do you think will happen with Coinbase? I don't understand why a public company and this is a personal opinion. Ok. This is not policy and coin base will drive its own mantra on what it wants to do at a board level. Litigating your regulator, in my opinion, is a really stupid idea. It's better to sit down and work it out if the US regulator doesn't want staking or lending, so be it, they're going to have to work that out. But I don't think the outcome is going to really work out for shareholders there. And I would argue that management is going to be put under tremendous pressure to resolve this problem. You've got to read the room, you have to read the writing on the wall since December, everything's changed. It's not a free lunch anymore. And if you don't understand that you will be in the dust heap with those great pioneers that founded this industry that now have arrows all through their back. Kevin, I want to bring up a litigator. We spoke with a couple of weeks back Moskowitz law and I understand they're suing several celebrities in class action suits yourself included. They're saying that, you know, you can't promote a platform that sells unregistered securities. In this case, F TX, they're talking about, they also say that you must say how much you are being paid otherwise you are violating anti touting laws. I wonder what your thoughts are on these celebrity lawsuits. I think, you know, I can't speak on the merit of them because they're in process in the legal. But I completely agree that you should disclose all of your compensation, which I've done. And I think the outcome of what happens with F TX, I mean, I'm a shareholder there in both F TX International and FT Xu. Si can't count how many lawsuits there are anymore. And the outcome will be determined by a very long process. And the narrative on ft now has moved away from the salacious stories that were happening on the island to basically recovery, trying to figure out how much cents on the dollar is going to be recovered through the 100 plus entities that went into bankruptcy through the efforts of John Wray and all the litigation. And I think, you know, it's just another, another part of the story of how going forward, we're not going to have many opportunities to have other F TXS because exchanges, broker dealer linked to exchanges, those structures are going to be highly regulated even if there's any licenses issued. And frankly, I think for the crypto world and the potential and I tell people this all the time when I'm asked, there's nothing nefarious about Bitcoin or any piece of crypto. It's just software. Software doesn't have a bad heart software is not leur there's no fraudster in a line of code of software. It's the people that manipulated the system that have taken down this industry in the way that it's been, you know, really beaten up and now it's a chance to turn all that around doing exactly what happened up in Canada play by the rules, build a business and I think Dean and his team are doing that and that's why I'm an investor. All right, we'll leave it there. Kevin and Dean, thank you for your time. That was Kevin o'leary and 1 to 5 president and interim co, Dean Ska.

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