| 16 February, 2018

Lebanon hops on the crypto train

Entrepreneurs aspire to tackle the digital economy on six fronts

Antoine Yazbek and Zaki Soubra are budding Lebanese cryptocurrency entrepreneurs, and they radiate seriousness in their endeavor. As a journalist, one is inclined to consider an entrepreneur serious if they answer a series of probing interview questions without losing their temper at the intrepid—or sometimes just intractable—media type across the table. A more general measure of seriousness in business, especially in a new fintech startup, is if the enterprise is founded with personal money.

Yazbek and Soubra pass the test on both counts. They set aside over an hour to detail their value proposition and enterprise development plan to Executive, and last year, they invested their own money into their first cryptocurrency venture: a cryptocurrency mine­—a facility with serious computing power that is dedicated to the production of cryptocurrency coins in—of all places cold and far, Iceland.

They do not disclose how much capital they committed to the venture—the partners only volunteer that their investment was 100 percent their own, and “above six digits and below seven digits” in dollar terms. Nor do they agree to disclose where they incorporated their offshore company for their initial foray into the global cryptocurrency realm, but it is clear that this tech startup has not been kissed by funding under the provisions of the famous Circular 331 from Banque du Liban, the Lebanese central bank.

“You have to put your money where your mouth is when you want to talk with an investor,” Soubra says, explaining the pair’s funding strategy. His partner, Yazbek, adds that they both learned the importance of an entrepreneur’s personal financial commitment when they were working in asset management for large Middle Eastern conglomerates and sitting on the buy side of the table, across from entrepreneurs looking for investment. 

Rather than divulging further details about the legal and financial information related to their first venture, the partners instead emphasize that they are determined to develop a new brand, under which they want to bundle as many as six diverse cryptocurrency-related services. “We have just registered our new brand under the name Crypten. This will be the umbrella for all that we aim to do; it is designed to stand for confidence and transparency, and the brand name will stay with us even as our verticals evolve. Above all, we want to build a brand that will inspire trust as we strive to be the continuous partner in crypto for stakeholders,” Yazbek tells Executive when confirming the launch of their corporate identity upon registration of their new brand in the last week of January, two weeks after the initial interview. 

During the first interview, he had explained that the facility they established in Iceland constitutes the first of six pillars, or business units, that they want to build under their brand. The other pillars will range from consultations on crypto assets for asset managers, high net-worth individuals, family offices, and financial professionals, to the for-profit provision of education and information seminars on the cryptocurrency economy.

Gate to crypto

Yazbek and Soubra chose to invest in Bitcoin mining and cryptocurrencies as their initial pillar because they perceived it as “a more stable business model” and value proposition than other segments of the cryptocurrency realm. They also reasoned that their mine would provide traditional investors with an “entry gate” to the crypto world, as it involves tangible investments into hardware that are well suited for presenting to prospective investors and clients, and because operating their own mining facility gives them the opportunity to acquire hands-on experience in this realm.

Going forward, the business plan is for the mining facility to grow organically and be kept under Soubra and Yazbek’s full ownership. The plan, however, includes added options for mining. One option is to rent out mining capacity to clients who want to produce their own cryptocurrency coins without exposing themselves to the  large investment expenditures required to set up their own mine. Other possibilities are to develop and manage a custom mining facility for a single investor on the side of the existing one, or to build an additional mine through a Crypten fund, attracting investors who are not necessarily interested in cryptocurrencies but are involved in tech investing.

The two partners say they became friends while studying economics at the American University of Beirut in the late 1990s. After having acquired about 15 years of experience in the finance field since they graduated in 1998, they separately discovered their passion for the crypto-economy about two to three years ago. When they reconnected in Beirut in 2016, they decided to team up.

“We truly believe in the advantages of cryptocurrencies and are both in it for the long term. This specifically means Bitcoin, but [beyond this] all cryptocurrencies in general. However, when I say this, I want to exclude many of the initial coin offerings, or ICOs, and new tokens that are just coming out. These are mostly rubbish because their underlying aspects are not strong enough,” Yazbek explains. (See glossary of cryptocurrency terms). Soubra adds, “Cryptocurrencies have real advantages, and sooner or later, even though there will be road bumps and some people will get burnt, the advantages of cryptocurrencies will impose themselves.”   

Their skepticism about the current ICO hype notwithstanding, the partners are not opposed in on principle to initial coin offerings. They envision creating an ICO consultancy as one of the pillars that they want to develop—possibly later—as part of the Crypten brand. “We believe that if ICOs are better regulated with a better framework, more companies are going to want to go [the ICO route]. We want to help these companies conceptualize their own tokens, write a white paper, and go to market. Crypten would perhaps underwrite part of the tokens and help them find investors in their tokens,” they explain.

They estimate that rollout of an ICO consultancy might still be a few years away and come after the crypto economy has acquired some greater regulatory maturity. Other pillars of the new Crypten brand might see the light sooner, and initially as tech consultancies. According to Yazbek, the planned asset-management pillar will initially provide technical advice and research, but will refrain from giving investment advice in the manner of a private bank. “We want to help any asset manager to understand [cryptocurrency] technology better, and we want to explain to them all different ways how to invest. So think of us as tech consultants for asset managers,” he emphasizes.

The second pillar, labeled as a brokerage pillar, will likewise commence as a consultancy, with a focus on solving problems people have in relation to cryptocurrency trading. Yazbek points out that it is very difficult for many people, locally and in other jurisdictions, to find out how to go about this business. The plan for the brokerage pillar is to show clients how they can participate in the cryptocurrency market and place even small amounts without succumbing to hype and scams or engaging in wild speculation. Another activity under this pillar will be the provision of storage for cryptocurrency wallets, either as “hot” or “cold” storage, meaning with or without online access to a client’s coins.

Like other experts on the matter, the pair found themselves spending a lot of time explaining to people what the whole crypto realm was about. They were confronted with a contradiction, or even paradox, when they would encounter people who were greatly under-informed about the crypto realm, but were already involved or wanted to get involved. This is the story behind the new brand’s pillar for providing training and education. “There is a huge gap in information and knowledge [among potential Crypten clients]. If we want to make a business out of cryptocurrency involvement, we realized that we have to bridge this gap through education. We need to educate our clients before we can have a large number of interactions about the crypto world with them. This is where the idea of [a consultancy] originated,” Yazbek says.

A vision to bridge gaps

The brand’s overall governing philosophy will stress objectivity, Soubra explains. “We want to be perceived [to be] as objective as possible because the whole thing we’re building is a trustworthy brand that is not partisan for one coin or the other,” he says. As to their competitive advantage in an area of economic activity that is expected to rapidly fill up with providers, Soubra says, “We feel that our main advantage is that we’ve been involved with the crypto world and with the younger, tech-savvy generation for a while now. We feel that we speak their language. At the same time, we speak the languages of traditional financial institutions because we both come from this background.”     

Soubra and Yazbek are setting their primary sights on winning clients among asset managers and high net-worth individuals, in family offices, finance houses, and banks. “We will be open to retail [clients] but we are not here for the hype. The goal is to take our knowledge and skill and use it to handhold potential investor clients or institutions interested in allocating funds to crypto,” in what they perceive as an unfolding paradigm shift in the entire world of finance, Yazbek says.

The ability to bridge the communication chasm between the new tech world and existing financial market leaders will be especially tested in the fifth Crypten pillar. This pillar is planned as blockchain consultancy with a mission to offer to financial institutions all the resources to understand how evolutions in the new technology affect them and which blockchain applications apply to them.

Knowing the importance of performing within the highly fluid environment of this paradigm shift, Soubra and Yazbek point out that the verticals or pillars of Crypten are not immutable. The venture’s organizational chart is not set in stone at this point, and verticals might be adapted and developed in response to market conditions. They are likely to also evolve along with the planned acquisition of licenses that the enterprise will need in order to give investment advice and move beyond a tech-consulting focus for some of the brand’s pillars. Some pillars might even be totally changed over the coming few years, the company founders acknowledge.

To them, flexibility is crucial, as no one can be certain how and in which direction the entire crypto realm will evolve. However, they are certain in their determination to build a trusted brand and also firmly convinced that cryptocurrencies will survive and stand tall, after having emerged from the expected phase of brutal adaptation. On top of that, they see cryptocurrency development as a chance for Lebanon to strengthen its economy, provided that the government adopts a proactive regulatory regime that sits well with the Lebanese central bank. “Let there not be a void; let the regulators decide on what they are comfortable with under the level of risks they see, but let there be something,” Yazbek states empathetically.

As Yazbek and Soubra see it, Lebanon has benefited greatly from BDL’s fostering of the country’s entrepreneurship ecosystem. This entrepreneurial edge, in conjunction with the country’s well-known competencies in the fields of banking and finance could, in their view, be developed into a powerful and fortuitous triangle by adding in the beam of virtual money. Says Soubra, “We feel that adding the field of cryptocurrency into the Lebanese mix will give us in this country a huge edge compared to our competitors, wherever they are.”

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