Exchange-traded product (ETP) veteran Laurent Kssis (pictured) joined Swiss financial technology and cryptoasset ETP issuer Amun in October as the start-up firm moved to establish itself in the market and respond to demand for bitcoin-based financial products.
Kssis’ background is market making on exchange-traded funds (ETF) but he admits being fascinated by the digital assets space for a number of years now.
“Back in 2013, I really wanted to open a wallet and play with it, but at the time that could only be done by investing via an exchange in China and hoping that your money would not disappear on the way and you would then be able to trade,” he says. “That was my biggest leap of faith.”
In his new role at Amun, Kssis sees many similarities with what he did in the past. Instead of making market in ETF for a living, he thought he could do the same with an asset class like bitcoin.
“That’s how it all started,” says Kssis. “I then got involved with XBT Provider, which is no more than a debt structure, an SPV to bring bitcoin to the structured products market world. It’s a very simple structure packaged as an ETN so the debt element buys the underlying asset and issues notes into the market with the issuer as liquidity provider, exactly what banks do today.
“We were trying to do a hybrid – not just acting as one player, but trying to have the market influence the order book so it just does seem like a plain vanilla structured product – where the same counterparty always acts as the liquidity provider.”
Kssis concedes that at the time this approach was not available for retail investors because you can’t bring a product to the market trading where the underlying trades at US$10,000.
From zero to one
“We never believed it would be possible,” says Kssis, adding, “at the time bitcoin was hovering around US$400 and US$900”.
The ETN stagnated with US$10m in assets at the time (2016), but 18 months later, in September 2017, bitcoin suddenly exploded and XBT hit US$1 billion AUM.
“This happened in just three months,” says Kssis. “Everyday we were getting inflows and at the same time the price of bitcoin went through the roof, so it was a double whammy for us. There was a period when we were doing US$25-30m in executed volume a day, and then US$55-80m a day – this was unseen and made regulators weary.”
When the price stabilised, XBT had US$1.3 billion invested in the ETN.
In a country like Sweden where product issuance is concentrated at the bank-level, having a professional product like this was a milestone, according to Kssis.
Then in 2019, out of nowhere came the opportunity to join Amun. “You have to give credit to the two co-founders for what they achieved,” he says. “In little under a year, they listed eight products on SIX Switzerland.”
Kssis has joined the firm with a mandate to promote product development and get the firm’s range to the next level. The initial mandate for Amun was the institutional market which is a very nascent area around crypto investing.
“There is uncertainty – some asset managers don’t know if they can use these products, so we’re initially targeting the professional investors to bring in the retail market,” says Kssis, noting that one of the co-founders – Ophelia Snyder - has a structured products background. “But then you have to put in on paper (prospectus, final term-sheets) and deliver it”.
Scalability
Amun sees the retail market as something that needs to be embraced locally before it goes international. “But there is scope in other European markets for this kind of product,” says Ksiss. “We need the domestic players on board to get the products off the ground into Europe.”
The regulatory framework is flexible enough to accommodate some of the innovation coming into the market and structured products are well-known and popular across Europe. Using structured products to deploy cryptocurrency investment was a natural step.
“There are a number of options because the products have listed derivatives and people love the transparency of an exchange but they don’t have the futures market as developed as we have it in Europe but they do have a very developed options market which could also open up opportunities for us in Europe,” says Kssis.
Before going live, Amun looked at many regulatory jurisdictions to see where would be most suitable and sustainable to scale the business.
“They looked at Sweden, which is open to ETNs, but they wanted something a bit more professional grade and akin to an ETF structure and then came the ETP route because it is a much more trusted vehicle for institutional investors since you can instantly remove the credit risk from the product itself as its fully collateralised and segregated,” says Kssis.
“One of the reasons I came on coming on board is also to develop Amun’s range further and bring new elements of innovation.”
According to Kssis, structured products offer many features to make an investment appealing and as the liquidity on these assets increases there is more scope to look into different structures with leverage, inverse and why not protection.
“Within our mandate, we can issue in the regulated market via the SIX Exchange but we can also use their structured products segment facility to issue structured products for other type of investors who may want to write calls or puts,” says Kssis.
Delivery mechanisms
By definition ETNs and ETPs are “do what’s on the tin and you can only add leverage/buffers or track a smart beta underlying”.
“But with non-listed structured products the building blocks for innovation are endless,” says Kssis. “That’s where we could in time to take Amun using the administrative platform Onyx. We want to be an innovative player that brings value to the market and the end investors using today technology and we are leveraging blockchain with our Onyx.”
Kssis believes structured products allow you to do things you cannot do with other products, and he wants to capitalise on that.
“People invested in bitcoin want to get something else and structured products wrappers can meet the needs of investors seeking growth or income,” he says. “We see stacking or ‘baking’ as a good and powerful way to generate and enhancing your returns using cryptocurrencies such as Tezos : XTZ. If we stack some the digital assets and we bring the crypto community together that can be very powerful. That is what stacking is about and we have some ideas around stacking. But we need to have an efficient wrapper to deliver this to the market.”
Digital assets within indices is another area where Amun is seeking to scale its activities. The firm launched a basket of cryptos – HODL, which captures 95% of the current market capitalisation.
“From a retail perspective, it is great to capture such market capitalisation but do investors really understand the blockchain protocol for ripple, Bitcoin Cash or Ethereum?,” says Kssis. “Structured products are an efficient vehicle to “deploy different strategies to extract value from the market.”