"Bitcoin is the most Honest Form of Money We've Ever Had:" Robert Sharratt of CrescoFin

In this week’s episode, I speak with Robert Sharratt, managing director at CrescoFin, a Swiss-regulated crypto firm which wants to become a bank alternative. He says Cresco’s objective is to replace banking with code. And while that sounds revolutionary, he’s the first to admit he’s in a “boring business.”

He’s not building a yield farming platform that can get you 1,000x yield. He’s building a savings account that’s backed by real-world assets like invoices, for users to deposit fiat currency in exchange for returns of about 3%. Instead of Yolo-ing into untested smart contracts, he’s offering a product that’s insured by Lloyd’s of London. While this may sound a lot like trad-fi, Ethereum smart contracts are used for the different counterparts to agree on things like product delivery and invoice fulfillment.

Robert says the next step will be to integrate stablecoins to the savings account via a money market on Aave. He also talks about the recent sale of the Cresco token CRES and how it’s backed by actual shares in the Swiss-based company. Robert, who was an investment banker for much of his career, is leading one of the few companies walking in the delicate line between traditional finance and decentralized finance. He’s betting this will be the key to get mass adoption.

🎙Listen to the interview in this week’s podcast episode here:

You’re a free subscriber, which means you’re getting a partial version of today’s newsletter.

The open economy is taking over the old one and this is the perfect time to subscribe and keep up with this revolution!

🎁 Merry DeFi! Get The Defiant’s $100 annual subscription for $80. Offer expires Dec. 31st. Get full access to Defiant content and community as a gift for yourself or for others.🎄

Get Xmas Special

🙌 Together with Neutrino, an algorithmic price-stable protocol that enables the creation of stablecoins tied real-world assets, 1inch.exchange v2, which aims to provide the best rates by discovering the most efficient swapping routes across all leading DEXes, and DeversiFi's Nectar Beehive V1, which allows traders to provide liquidity & earn Nectar ($NEC) tokens.

Robert Sharratt: I got into crypto in an interesting way. When I was in my mid-20s, I had just finished business school, and I was interested in emerging markets valuation, so I worked for an investment bank, and I ended up a long way from home, growing up in Canada. I ended up in Moscow, Russia, and we were making a loan to a Russian company. This is a long time ago. I saw with my own eyes what many people in the crypto community decry, which is the creation of money. I was this young banker, we're making this loan and, say the bank in Russia had, about five in its Treasury. Well, we were making the loan for 100 and I kept going around saying, where does this money come from? Do we send it from headquarters in London? Does it go through the Russian central bank?

Finally, the treasurer pulled me aside, he's like, look, Robert, I create a loan account for 100 and that's our asset. Then I type in 100 into the deposit account and then the board can access that. I was just shocked. That's where money comes from, right? So fast forward, a number of years, I found Bitcoin. Because I kept asking myself, what is money? It just kind of shook me, some guy could just create it in a computer’s digital entry. Then when I found Bitcoin, I said to myself, well, okay, now I know what money is. So that was kind of the start of my crypto journey, I guess.

Camila Russo: Throughout all that time since your first loan deal in Moscow, to finding Bitcoin, were you always involved in banking?

RS: My background is a traditional banker. I'm trying to get over it. I'm taking pills and getting shots. I’m restituting myself to the world by creating Cresco. My background was in investment banking. I did mergers and acquisitions for most of my career, and then I did private equity, and that was mainly in London. But I worked in Russia. I worked in Hong Kong. I did a lot of emerging market stuff and then I did developed market stuff and then I moved to Switzerland where I live now.

CR: How did you find Bitcoin and what led you to Switzerland specifically?

RS: Well, I was in Switzerland, and I've always liked technology and I was doing a little tech startup. A younger guy in my team came to me, and this was in late 2017 or 18 when Bitcoin was at its last all-time highs, which we've just amazingly blown past in the last few days, just really cool. But at the previous all-time high, this young guy is trying to sell me on getting involved in this cryptocurrency. As everybody, I think my first reaction was that it sounds like a scam. It seems scammy, doesn't seem real. Then I reminded myself, no, no way, traditional finance is a scam. I of all people know that, I've seen it.

I looked into it a bit more, and like many people was blown away by it. It's more than just the most honest form of money we've ever had. It opens up the whole philosophical aspect of controlling your own destiny of not being taken advantage of essentially by banks and central banks, and I actually ended up writing a book about it called “One Percent”. It's about how fractional reserve banking essentially channels wealth to the 1% from the rest of us. It was really interesting because as a young guy sitting on some park bench in Moscow, asking myself what is money and thinking of maybe getting my money back for my undergraduate degree, because I'd obviously been lied to. Finding Bitcoin was an incredible eye-opening experience for me.

“Bitcoin is more than just the most honest form of money we've ever had. It opens up the whole philosophical aspect of controlling your own destiny of not being taken advantage of essentially by banks and central banks.”

CR: Wow, what a journey. I'd love to hear more about this thesis of fractional reserve banking funneling money to the 1%, if you can briefly explain that and also compare it to how Bitcoin and crypto isn't that.

Banking vs Bitcoin

RS: Well, you and I had similar experiences, right? Because I think, I remember from your really cool book that you were in Argentina at a time when there was a crisis, and you saw also, firsthand, the declining value of money, and then the state putting a limit on that. Because I think you were getting your salary out of the country and into hard currency, and then they stopped it. Right? My view is that you really only understand money if you see it raw. If you live in New York, London, Geneva, you don't think deeply about money, because you're not pushed to do it. It's kind of a strange group of people, like cypherpunks, and the Bitcoiners now who really deeply think about it. I think if you stopped many people on the street and force them for half an hour, to stop and think about money, they probably come to the same conclusion.

“My view is that you really only understand money if you see it raw.”

But for me, it was really getting deep into fractional reserve banking, how it works. It's fundamentally dishonest, Camila. It's like an inverted House of Cards. At the bottom is the fractional reserve, and it's dangerous for the economy. I think it's very unhealthy for people. Anything that's fundamentally based on an untruth isn't very good. The bank tells you, it's your money, and it's here in the bank when you want it, and actually, legally, it becomes the bank's money, and it's not there when you want it.

I think people have this, Ocean's 11 view of their money in the bank and they think somebody goes and stacks their dollar bills in some giant cast iron safe at the back and they close the door and lock it away there, and actually, it's the opposite of Bitcoin. Bitcoin is premised on no double-spend, and fractional reserve banking is entirely based on double-spend, well, more than double spend, actually.

“Bitcoin is premised on no double-spend, and fractional reserve banking is entirely based on double-spend.”

It channels money, essentially to people who have access to the banking system, because it's a godlike power that banks have. They can create money, essentially out of nothing. It's not matching savings to productive uses in the real economy. It's genuinely, banks can and do create money. I'm kind of a nerd and I was reading the Bank of England quarterly journal from 2014. In that journal, the Bank of England states that 97% of money created in the economy is created by commercial banks. So anyway, that's my view. My solution is Bitcoin and also Cresco which we've created which essentially is matched funding, not fractional reserve.

CR: Wow, that's so interesting. It is crazy that banks can really create money out of thin air. I do believe banks can fuel growth by creating that money and channeling loans and investment to places that need it. But I agree that it's only a small percentage of people who have access to that financing, and not necessarily those who actually need it the most.

RS: Well, there's no question that banks are very beneficial for the economy and the vast majority of people who work in banks are very good people. It's a deception that hides in plain sight. There's a better solution for it. But it was only recently that humanity could actually tap into it, and that's the blockchain, which essentially allows no double-spend, it allows you to trust somebody, even if you don't know them. It allows this decentralized way of essentially operating an economy that didn't exist beforehand.

“It's a deception that hides in plain sight. There's a better solution for it. But it was only recently that humanity could actually tap into it, and that's the blockchain.”

But there's no question that many of the functions of banks are incredibly valuable. A lot of it is channeling savings into productive use. The way it was originally developed was essentially it evolved out of precious metals, guilds. The guilds just worked out that, not everybody came back the next day to get the gold back, so you could write IOUs against it. It's an old model, in my view it will be disrupted by crypto.

CR: It's only a matter of time, I think. So how did your discovery of Bitcoin lead you to founding Cresco?

[ … ]

Paid subscribers have access to the full transcript, including sections on:

• Building a better savings account“Our savings don't work very hard for us in the bank, and they really kind of work for the bank.”“We thought rather than lending, what if we can physically own an asset? What we do is we essentially transform paper contracts into smart contracts.”
• Ensuring savings“Our solution essentially was to involve insurance. So our model is now matched-funding plus blockchain, plus insurance. Insurance essentially negates a bank's psychological advantage, which is that your money is really safe in the bank.”
• Smart contracts behind the scenes “The smart contract is that the seller and the buyer both have agreed that what is written to chain is the truth. So it cuts off the biggest problem in the real world, which is disputes between sellers and buyers.”“The biggest point is that it's shared. This is where I think crypto will replace so many old blackbox SQL databases, which is that we've got a shared ledger now, and that is the state of truth.”“The smart contract, or Proof of Delivery technology cuts out a lot of the risk of non-payment and there having to be a claim. I think they really like it, because it's a new line of business for them.”
• Equity-backed token sale“We've offered equity tokens in crypto, so it's a one-to-one match with the shares of our company, this Swiss-regulated company.”“The price on CoinGecko went to zero, and it littered my DMs with images of rugs and death threats and stuff. Thank God, it came back rapidly.”“The wrapped version WCRES is like a share of Nestle or any other Swiss company that you might buy on an exchange or OTC. Anybody can buy it. You can buy/sell. You can do whatever. Then if you want to register to vote, or to eventually in the future to receive dividends, then you have to unwrap it, and you get CRES token.”
• Aave money-market “We're making some progress and really excited to do the insured collateral money market on Aave, probably in Q1 next year.”

Subscribe now so you don’t miss any of The Defiant content. Subscribers reading this post: Head to posts marked with the little lock to see the full content.

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Get The Defiant’s $100 annual subscription for $80. Offer expires Dec. 31s.

Get Xmas Special

About the founder and editor: Camila Russo is the author of The Infinite Machine, the first book on the history of Ethereum, and was previously a Bloomberg News markets reporter based in New York, Madrid and Buenos Aires. She has extensively covered crypto and finance, and now is diving into DeFi, the intersection of the two.