- Lykke is close to getting its OTF license, four years into what was supposed to be a nine-month process
- Central bankers and regulators have not done their “homework” on blockchain technology, which is slowing its acceptance
- The way regular banks are treating cryptocurrency companies is “a joke”
Lykke is a cryptocurrency exchange, wallet, and blockchain developer, but founder and CEO Richard Olsen wants it to be so much more than that. The 66-year-old has grand plans for the company he founded in 2015 following years in the finance sector, where he experienced the inefficiencies in the system first hand.
Richard spoke to FullyCrypto’s Mark Hunter about the pleasure and perils of working in the blockchain space, why blockchain technology has struggled with mass adoption to date, and how regulators are struggling to keep up with the companies they are supposed to be regulating.
What’s behind the name Lykke?
It means ‘happiness’ and ‘luck’, and its actually the surname of my grandmother in Denmark. When you start a venture you want it to succeed, and you want the people who interact with it also to be lucky.
Tell me a little bit about yourself, your background, and how and why you got into crypto.
I came into crypto because I’m passionate about creating a sustainable financial system and a society that really is functional and doesn’t have all these inequities that we’re accustomed to. My journey started way, way back when I was at school. I can clearly remember saying to myself ‘why in the financial industry don’t they use science-based principles to build their businesses?’. After studying I joined a bank and very soon realized that there are these startups which are being set up in the US, and why don’t I build a startup here out of Zurich, Switzerland?’
The first startup was called Olsen and Associates. We were building a real time system using big data with the goal of having real-time forecasts that make better decisions, even though I had little understanding the complexity of doing that! We eventually had many of the big European banks as our customers, and that was early into providing not only predictive services, but risk data for the big banks. Then when the internet arrived we saw a huge opportunity and launched a company called Oanda, an abbreviation of Olson and Associates.
In 2001 we launched a first-of-its-kind straight through trading platform for foreign exchange, which revolutionized forex trading for the retail because we gave the retail people access to very efficient spreads. It was then that I became acquainted with the deficiencies of the financial system, and soon we offered second by second interest rate payments. This for me was a statement that it was necessary to rewire the backend of the financial markets.
When Bitcoin first emerged, people were talking about it being the single global currency. I didn’t understand at the time, but in 2011 I suddenly realized “my goodness, we could use this infrastructure that is blockchain to build the new back end for the financial industry”. I tried to convince Oanda to do that, failed, and left and then waited for the right moment. And then, in 2015, we launched.
What was it about 2015 that made you think that the time was right?
I went to a gallery opening and two or three people came up to me and said, “you have to buy Bitcoin.” When the man in the street tells you to do something it has really arrived. To be very honest, I thought that that debate would shift to blockchain as a solution to big problems that exist in the existing financial system. I was not prepared for it to take so long. Everyone only talks about crypto, crypto, crypto without ever putting the light on the big deficiencies which are a hindrance to an efficient financial system and which ultimately decides if our economy goes into recession or we have a booming economy.
So the disappointment today is the lack of awareness of the true potential of blockchain and tokenization. People don’t share that and don’t understand that.
And why do you think that is?
Central bankers, regulators, and bankers have not done that homework. They are practitioners who take gut decisions, but they’re not engineers in the true sense. They lack the knowledge and understanding of why financial markets are as outdated as they are. And it’s actually this lack of understanding and a hands-on experience in trying to create a better infrastructure. That is the true reason.
I’ve talked to a lot of bankers, lots of central bankers, and regulators and explained it to them and they say, “yes, yes, you’re right”, but the truth doesn’t ring home.
With Chris Giancarlo, who belongs to the steering group of the Open Initiative, who has himself been a regulator and has owned his own company, it’s very different for him. It’s very tangible. But there are too few people that have that understanding today.
And do you think that if there is to be this meshing of blockchain technology into the traditional financial system, is it something that the populace can drive or do you think it’s something that only the banks can initiate?
You’re putting your point on a key problem. First, what would help that a big deal is if the populace at large would go to its government and say, “please, just come up with new ideas and allocate some money toward sustainable solutions. Don’t just try to do one emergency measure in there, but embrace technology.” So that’s where the populace can help.
The second thing is, if you talk to a thousand bankers there will be one or two or three who are true pioneers and they’re open to coming up with true innovation, and it’s important to give them the advice and strategic support to implement. But the remaining nine hundred ninety-seven people and banks don’t have the stamina, knowhow, and determination to know what it really means to implement.
And finally what one has to do in general is, I think, an educational program, and the educational program starts with something very trivial. This is what we’re doing – we’re just creating the products. And then hold it in your hand and suddenly you say, “oh, this is what it brings”. It’s very much like the smartphone. The smartphone was only developed because some people had the courage to just build. It was unimaginable before and the same thing, I think, [needs to happen] with this new technology.
How hard have you found it to try and get people to understand the benefits that both your product and blockchain in general can bring?
First of all, if you listen carefully, yes, we get a lot of endorsement. But it’s whispers which we hear, it’s not a loud voice saying, “this is what we need”. If we’re happy with people whispering, “yes, you’re on the right track”, then we get a lot of endorsements. The people who sign up for us who are in our communities, how passionate they are is quite remarkable. But again, we have a long way to go. It’s a real journey. And I expect that as painful as the whole Covid crisis is and its impact on the macro economic front, it actually creates awareness. Before the crisis, many people didn’t really understand what I was meaning, but today they say “oh, yes, Richard, you might be really right.” This is what is needed.
There’s lots of things that are going to come out of this pandemic, and it could be that we see the benefits of some systems and the problems with other systems that lead us to make these changes.
The reason this interview came about was because I read that you lost your banking partnership with a UK bank. How and why did that break come about?
One hand in the bank doesn’t know what the other hand is doing, it’s really just that. It’s nothing relevant. We have actually held a little back in reaching out to other banking partners because on our side will very soon have a substantial regulatory jump, which we’re doing. And we really wanted to wait until we have done that jump and come into a very different bracket.
Now, if we do business with an existing banking provider, we come in under that crypto umbrella and that is notoriously just a very bad brand name. As soon as we have our OTF license we can come in under that new flag and hopefully we’ll be treated in a very different way.
And do you think that what you’ve experienced is symptomatic of the relationship between blockchain fintech companies and the mainstream banking world?
Completely symptomatic. It’s a joke what’s going on. I could tell you stories and you wouldn’t believe me. It’s just crazy. There are so many people who are so enthusiastic within banks about what we’re doing, but then get blocked off and don’t have a chance to move it on. It’s really painful.
How much of that do you think is down to them not understanding, and how much do you think is down to them being fearful that they could just be creating their own downfall by making this more mainstream?
All of these different fears and things all come together. It’s a little bit of that, a little bit of that, and then with one bank more of that. We also have to realize that the regulatory framework which people operate in is daunting. There is everywhere red tape and then there’s fear and even the most courageous people become very frightened.
So there are just a lot of factors. And because there’s so many different factors it’s very difficult to argue because you might have a good guess at the person who’s your opposite in the discussion and what his fears are, but you don’t know who is his supervisor, who is his colleague, who is the top boss. And that has all a big impact. But I have to say, there are some financial institutions or CEOs which are very forward looking and trying to move their operation in a very different way. But it takes them a long time.
The existing banking model has been in place for so long now that it’s going to take something special to shift it, which is why I asked you earlier if there’s something that’s driven by individuals rather than by companies.
Very much so. On the one hand, really plead with your local MP, “please use and embrace technology”. But this is also why we’re launching the Open Initiative, because we think there is a big space where the populace at large can help. Basically, any government knows that they have to build bridges, roads and have to ensure some public transport. These public utilities in the physical world are reality and part of the agenda of every government.
Now, over the last hundred years, the world has become very virtual with the internet and all those services, which are where you have this virtual existence. It’s not physical roads which are needed, but now this virtual space. Governments have not woken up to the fact that these virtual spaces don’t have public services. They will not be operational for the benefit of society, and the Open Initiative fills that gap and tries to tell the populace at large, “please help start to contribute to these”. So, yes, they could contribute a lot.
What’s the response you’ve had with regards to the Open Initiative?
When you take a project, the really good projects take time. We never expected to just publish it and everyone just says “this is what we were waiting for”. But what I have been positively surprised by is the caliber of people ready to contribute. And then we’re building a small team of experts, very interesting people with a lot of knowhow, where Chris Giancarlo is just one of them.
In terms of the mainstream adoption of blockchain technology and cryptocurrency as a whole, just yesterday we got this talk of PayPal and Venmo potentially having some sort of cryptocurrency functionality. If that was true and if that happened tomorrow, what impact do you think that would have on the industry?
Obviously, any incumbent who embraces that is positive. But I think the real breakthrough of blockchain and tokenization comes when it’s fully regulated. And this is why what we’re doing here is so important, where we can tokenize any security, be it bonds or shares, and create a whole universe of stablecoins, so to speak, that you can use when you go shopping. Think of the change that will have.
I think it’s like us asking ourselves, “does a half smartphone capture the imagination of the people?” No, you need the full smartphone. And I think one of the reasons why crypto in general will have a very positive future is because of all this printing press going on printing fiat currency. In a relatively short period of time there will only be one asset class which has a consistent, positive performance.
Now, a big worry for me is its volatility, which I think is a great pity. What is really needed is some innovative products which don’t exhibit that volatility. I think it’s just very important that the people involved in this industry themselves have a broader remit of what they try to realize in terms of offering the end user some products which address some of the current concerns which today exist.
How would you go about trying to reduce the volatility of the market?
Create a financial product which is designed for that. Literally say, okay, let’s design something which has a much lower volatility. I mean, any option product has that. Introduce some option features into it to give it that flavor but, again, to make it work there is a regulatory dimension. So a lot of question marks.
The painful thing in this whole industry is its own complexity. Creating a smartphone you just need user experience guys and technology guys from mobile telephony technology and then some software engineer. In the domain we’re doing here you need financial engineers, you need user interface, you need software, but you also have this regulatory dimension. And it’s not just having an answer to the regulatory dimension, it’s also about having the right legal entity which has the right approval. So that makes it much more difficult.
It certainly does. As you said earlier, the red tape is a massive, massive problem. How have you found dealing with the regulations in different countries? And do you see it getting easier or harder in the next few years as we hopefully see more adoption in the space?
We have a lot of exposure across it, so we have good judgment, that’s point one. The second is that it will definitely become a lot easier because the pressure to innovate and introduce this technology is increasing rapidly and the Covid crisis is yet another prompt. The third point is something which I got completely wrong. Starting in 2015, I thought it was so obvious that people would understand that the big finance crisis was eight years ago and would say, “oh, we really need a solution”, so it could somehow be possible to communicate that blockchain is the answer. That didn’t succeed.
At the time when I went to the lawyer he said your OTF license would take nine months, maybe a year. We’ve been at it for four years. We’re literally coming to the end of that process, but the persistence necessary was quite special. I’m convinced going forward takes a lot of persistence, and the quality of legal support you need has to be very high, otherwise people will get lost in the regulatory complexity.
What we’re trying to do is use the existing law as it is and present what we’re doing in such a way that it can be used and executed within the existing legal framework. Far too many lawyers say, “oh, you want to do this”, and then they say they’re not allowed to do it. They will then plead for a new law exemption, etcetera. They don’t take the time to think if we would present the product in a slightly different way, design it slightly differently, then we could do it within the existing legal framework. Our mantra is to execute within the existing legal framework.
Is there an issue then that regulators are trying to come up with laws at the same time as these products are being created?
Yes, that is a big issue. But you have another problem in this whole blockchain and crypto space – there is a lack of financial engineering expertise. There are lots of software engineers, lots of crypto specialists, but a big, big lack of people who have deep financial engineering expertise. And this has been a struggle for me. If you have intelligent people, they can tell you, “I know how to do that”. But then there is a big gap between just conceptually saying you can do certain things and [being able to] physically execute it. I think that is a hindrance, which people look across the industry. And this is slowing progress a lot.
There is then an additional problem. Biotech has undergone the same kind of problem, in the sense that it was a new discipline. There was lack of knowhow and it had to be built up. But in the pharmaceutical industry, you had a tradition of heavy capital spending on R&D. So here is a new technology and this tradition could somehow spill over.
Today in the blockchain fintech industry we don’t have that tradition. Banks are attempting now to fund a few startups, but they don’t have this deep tradition. And this makes it difficult for companies to raise the money. It’s difficult to get people to say, “OK, look, let’s invest, let’s think of what is the big upside and do that.” But there is also a big opportunity for people now in the space. If they understand the companies which have potential, they can go in and say, “look, I’ll invest some”.
Let’s talk about something a bit more positive after all the doom and gloom of regulations. Could you tell me a bit about what Lykke is at its core and what your ambitions are for the various elements in the short term and long term?
The mantra of the company is “let’s democratize finance at all levels”. That’s the basic model. Secondly is actually to bring traditional financial markets to blockchain, to really help this migration, which at some stage will happen to this new blockchain digital world. That’s the second.
The third is, let’s get our hands dirty and not just make abstract statements. The fourth is, let’s get the right regulatory wrappers, which give us a true long-term strategic gauge. As a first step, we launched the crypto exchange out of the UK, always cognizant that we have to do it in such a way that as soon as we are regulated the regulator doesn’t fall out of this bed and really will say “Richard, you have done the right thing”.
We have today this unregulated exchange out of the UK, but we have for years been in this process to get a FINMA broker dealer license, which is also called an OTF (Organized Trading Facility) license out of Switzerland. We’re literally in the last phase of that. That license is a game changer for us, because it allows us under the brand of Lykke to tokenize any share, any bond, or commodity, and that token can then be bought and sold on our exchange or exported outside our ecosystem.
Even more important, other players are allowed to issue their financial product on our OTF and tokenize their assets. So it’s an exchange, it’s one which will allow tokenization of any financial instrument. And now this is the important thing, because brokers around the world can then start to buy those instruments and sell it onto their users in their countries. The OTF opens the door through which brokers can then get access. That’s the big game changer.
There is one more important element in our strategy, and that’s the Lykke business side. From the very start, I said, “let’s build our own stuff, but let’s also make sure that whatever we’re building, we can export and make available to incumbents, and Lykke business does that. It works with big banks and big corporates to provide solutions for themselves and their space, leveraging what we have built.
Some quite heavy hitting stuff in terms of ambitions.
Yes. What I can tell you is that it’s so exciting to see how much of a really strong fighting team we have. And it’s just fun – the people we work with, the real characters, real passion – it’s just a lot of fun.
Lykke certainly has big plans for the future, and with a man of Richard Olsen’s experience and drive it is hard to see them not succeeding in their ambitions. We could see Lykke really pave the way in terms of tokenization in the coming years, while their Open Initiative could sprout game-changing projects that make the blockchain breakthrough Richard is clearly hoping for.
