← The HC Commodities Podcast
The HC Commodities Podcast
Digital Assets and the Blockchain Renaissance with Joe Miscioscia
00:48:00
Today, we return to digital assets, quant trading and blockchain infrastructure. Since we last checked in on the space in the wake of FTX's collapse, digital assets, crypto trading, blockchain infrastructure has recovered and gone mainstream. From major institutions and hedge funds having multiple desks to the rise of blockchain infrastructure in settlements and payments - not only in the commodities sector, but across all of industry. What are the latest trends? What is talent demand and for which disciplines? What is the intersection with the commodities sector? Our guest is Joe Miscioscia, Founder and CEO of the Joseph Anthony Group, a recruitment firm dedicated to digital assets, quant trading, and blockchain infrastructure. Visit https://www.josephanthonygroup.com for more,
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Transcript43 lines
- [00:00]
Joe Michiosha
Foreign.
- [00:06]
Paul Chapman
Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we're talking digital assets, quant trading and blockchain infrastructure. Since we last checked in on the space in the wake of FTX's collapse, digital assets, crypto trading, blockchain infrastructure has gone mainstream from major institutions and hedge funds having multiple desks to the rise of blockchain infrastructure in settlements and payments. Not only in the commodities sector, but across all industry. What are the latest trends? What is the talent demand generated? What is the intersection with the commodities sector? Our guest is Joe Michiosha, founder and CEO of the Joseph Anthony Group, a recruitment firm dedicated to digital assets, quant trading and blockchain infrastructure. The firm was founded this year leveraging Joe and his team's long career in the sector and HC are proud to be among a group of backers and from the fascinating insight you'll hear, I hope you'll see why. As always you can really support the show by leaving us a positive review on the platform you're listening on and as always, I hope you enjoy this episode. Joe, welcome to the show.
- [01:27]
Joe Michiosha
Glad to chat.
- [01:28]
Paul Chapman
This is somewhat of a commodities adjacent story, but there's certainly overlap and I think it's going to be of interest to our world. And we're talking digital assets, blockchain infrastructure, quant trading, a world that you've been recruiting within for quite some time and very knowledgeable on. And I guess it falls into two large buckets. The first is probably going to be for interest sake only. It's is going to be the digital assets trading world, what the latest developments are there, how that's going, who's doing it, why, et cetera. And then talking about the infrastructure world, which is certainly an area of key interest to the commodities sector as more and more international trades are being done with the use of stablecoins and through these technologies for reasons we covered on the show a while back. But let's start on the trading side. I guess the last time we did a proper crypto dive was with Zeke Fox of Bloomberg and talking about his book number go up and Sam Bankman Fried and FTX and all that world. Right. And I guess where are we today and how is that different to a couple of years ago and I'd just love to dive into kind of who's now trading and so forth.
- [02:35]
Joe Michiosha
Great starting point and I think obviously when you Think of crypto digital assets as a whole, it's been a rocket ship over the past like four or five years really. And honestly going back to when I first got into the space is just trading out of my college door room. And 2020, 16, 2017 to today, it's a world apart. I think 2020, 2021, when you were starting to see the real kind of institutional boom across the space, just seeing the trading opportunity, a lot of the kind of large scale multi managers, tier 1 hedge funds of the world, I think were somewhat hesitant to get their feet wet into the asset class part of that given obviously the compliance kind of aspects and regulatory constraints that a lot of different countries and regions we're trying to figure out and are still doing so. But better clarity overall in terms of how this is regulated as a field, as an asset. Because of that you're seeing more and more groups obviously build out desks, whether it's CEFI specific, something a little bit more easy to run on a day to day and easy to kind of tie in with regulation. But you're also starting to see a lot of interest in terms of like super niche trades within crypto as well. On the defi side today with you think like tokenized marketplaces, especially within commodities and push towards 247 trading there as well as like in the traditional equity space, you're starting to see a ton of overlap as essentially these, these markets almost converge, which, which I think has helped obviously push the space forward quite a bit over just, you know, the past six to 24 months, so to speak.
- [04:05]
Paul Chapman
Yeah, okay. What does CEFI mean for me? And then can you exactly tell us what products these sort of the hedge funds are trading and then has. This is also now within banks, what institutions are trading this as kind of like a normality.
- [04:18]
Joe Michiosha
Now to start with the CEFI defi difference, CEFI just refers like centralized exchange trading. So think like a Binance, a Coinbase, an okx, a Kraken, similar to how traditional exchanges work. You work with them as a singular counterparty. Once you start getting into DeFi, decentralized finance becomes quite a bit different where you'll see a lot of teams where they are, you know, running trades on a, on a Solana for example, or Hyper Liquid, which has been obviously very popular and increasingly so over the past year, where it's a decentralized blockchain, there's no one centralized entity or firm kind of controlling that infrastructure. It's almost this, this open source kind of code and development community behind the infrastructure layer itself. Because of that there's obviously different compliance repercussions and risks involved just inherently in those trades. But across both, I mean you'll see your standard kind of trading, buckets of arbitrage, cross exchange arb. You'll see traders going after different pricing dislocations or event driven style trading. So your standard buckets. But within defi it sometimes gets a bit more niche where you have essentially like staking yield farming type trades that you can implement, different carry trades that are kind of specific to that defi space as well as teams where they get very niche into like nev front running and basically execution based strategies that are very niche kind of liquidity markets, very competitive sectors. And we're seeing a lot of firms, they start more on the centralized side of trading within crypto for groups getting into it, I think it's a little bit of an easier starting point. It's a bit more familiar in terms of the style of trading, almost comparable to a traditional equity market in terms of how they're operating on a day to day with those counterparties. I think the teams that really dive into the digital asset crypto agenda start getting into a bunch of different buckets and categories. And similarly with the real evolution of not only prediction markets but also the tokenized crude trading that you're seeing on hyper liquid with just insane volumes this year where I think the first week or two it went from zero to billions trillions in volume over just such a short span. And seeing a number of teams that see the opportunity there to go and capture and essentially be you know, early movers in kind of this, this new space. So quite a bit of kind of different things that we're, we're kind of seeing on our side today.
- [06:40]
Paul Chapman
Yeah, I want to come back to the tokenized crude trades as best we can to understand what's going on there. But so if in simple terms, so if I'm thinking of you know, your bog standard, you know, macro hedge fund and they have a digital assets pod or pods, what do they definitely have? Can you just help us understand that sort of setup if you'd like? I mean I feel quite at sea when I think about this. Do they have sort of, you know, a bitcoin desk and a Solana desk, they as you say splitting it by arbitrage desks and then they've got quant trading desks. How does that work?
- [07:11]
Joe Michiosha
Typically it depends on the shop. So I mean you'll, you'll see, you know, your pod shops with individual teams that are Kind of running their own, you know, book or kind of bucket of strategies. Whether it's hey, we're going to cover futures or options or something adjacent where they're getting differentiated alphas on the desk that are complementary to one another. But it's not necessarily so broken down between individual crypto ecosystem, if that makes sense, where you know, one individual team, if they are really trading within DeFi, I mean they might be trading obviously on the centralized side as well. So like no kx, a Binance, a Kraken coinbase, these kind of major platforms that you're, you're seeing a lot of teams utilize but then also trading via individual dexes, like an Orca on Solana, which is a, an exchange and marketplace there as well as on hyper liquid directly which is a hyper liquid based exchange and bark marketplace. It will depend more on the team's ability to connect whether it's you know, a websocket API or some of the centralized exchanges, you know, are they KYC or Coload or whatever the equivalent is on some of these different marketplaces. But I think depending on their infrastructure set up or ability to facilitate that kind of infrastructure network might kind of dictate the types of trades they'll run. And I think one of the biggest points there, especially for like US based companies, given the regulatory environment and you know, not to get into all the specifics of it, there's some limitations in terms of the type of trade or types of exchange individuals or trading desks can operate on. So you're increasingly, and this isn't new but you know, seeing more and more of these real, really global collaborative pods and offshore execution desks that allow them to really tap into the, you know, different types of liquidity throughout the market as a whole.
- [08:56]
Paul Chapman
Yeah, I'm kind of fascinated by this. I kind of get the DEFI side and you're starting to tokenize different asset classes obviously a key one of which is crude and that's been a goal for quite some time other commodities. But just going back to like you can see, you know, you've got a commodities desk who are talking about this might sound slightly naive, but there's underlying fundamentals that your analysts can look at. Likewise equities, you're looking at, you know, 1Ks and 10Ks and earning statements and all this kind of stuff. There's a, there's an underlying thesis when it comes to trading, you know, a given crypto. Is this just purely all quant trading? And to some extent, what do I mean by that? How Are they actually sort of basing these trades in terms of, you know, the why, if you'd like. Is that so?
- [09:41]
Joe Michiosha
Yes. And, and I think the majority of what I'll interact with just partly given our positioning as, as a firm tends to be a lot of, you know, algorithmic or quantitative deaths. They tend to be leaning more fully automated as opposed to more gray box modeling. But, but there's, there is from time to time a discretionary element or overlay on the trades and trading desks we work with. Just, just given the nature of these markets and increased volatility that you'll sometimes see within digital assets. That being said, you look at the block towers of the world or these discretionary trading firms that run pretty massive books throughout the crypto space. I think the difference is how they're, I guess evaluating those positions is much more similar to almost a, I think like a traditional equities trader that's, that's making discretionary trading kind of like long, short type positions where they might be looking at like much longer holding periods on average as opposed to, given the, the opportunity to really generate alpha or generate returns on a crypto strategy. This high frequency to mid frequency intraday weekly bucket tends to be the most popular and successful just, just given what we've seen over the past few years. But I'd imagine as the industry as a whole continues to legitimize and essentially move into this almost equal playing field where it's, you know, it's no different than going and trading, you know, rates or credit or equities or whatever it may be. Right. I think that'll open up the, the amount of different types of desks and kind of niche ideas that you'll see these trading teams implement in live markets.
- [11:18]
Paul Chapman
Yeah, it's fascinating. Okay, so, and maybe you can weave in prediction markets here, but kind of one basic question you get into this esoteric sort of defi world of trading. This even to me this sounds very basic. But I'm interested in the answer. How do you guarantee you're going to get paid if you win? Essentially in that world, does everyone stake the money up front like you would do on a poly market, et cetera,
- [11:41]
Joe Michiosha
different blockchain ecosystems and exchanges will operate, you know, somewhat differently behind, behind the scenes in terms of how the, the infrastructure actually, you know, cements these transactions. But I think the beauty of smart contracts which make up blockchain and crypto trading that's done natively on chain is there isn't this trust factor. It's, it's A very straightforward, hey, if we do X, we receive Y. Or it's very easy to kind of track where those, those funds and money is moving from, from one wallet to another. So when individuals go in and create these trades or, you know, infrastructure to, to create algorithmic trading opportunity, it's typically something that's coded in. You're not necessarily dealing with a counterparty in the same way you would in some traditional markets where, you know, you're waiting to be paid or, you know, sending an invoice or whatever the, the kind of process may be there. It's typically something where, you know, look, if we, we win on a trade or lose on trade, those funds are either deposited or withdrawn directly from our, our wallet or our, our team's treasury, if that makes sense. So it's not something where the risk is on the counterparty paying you. It's typically the biggest risk that we'll see is from the actual bridging. So moving money from, let's say Ethereum or evm, which is a blockchain, a layer one, to a Solana or years ago it used to be Cosmos, today it's hyper liquid. You're seeing all of these different types of blockchains that are built where they have somewhat differences in terms of the infrastructure, you know, the underlying kind of piping of how those systems operate. But in moving from chain A to chain B, there's this complex bridging process that takes place. And you know, every few years you see these, you know, massive crypto hacks. And it tends to be at that essential, like that point of failure as opposed to kind of the similar counterparty risk that you may have in terms of, you know, will they deposit funds if things are held up. It's typically on the bridging side. The issues we see with counterparties tend to almost be more on the decentralized exchange side of things. And looking back to like an FTX or Alameda or some of these groups that have had issues as a firm and then because of that have delayed payments to investors or individuals with money tied up on those platforms. As opposed to the defi side of things, it's a bit more straightforward. There's hack and there's different infrastructure risk. You're not dealing with a person on the other end, if that makes sense when you're executing those trades.
- [14:13]
Paul Chapman
Okay, so when, when you're thinking, and this is weaving in the recruitment side, but I find this fascinating. So you take again your average POD or whatever it might be, that's kind of engaging. In that wants to have all of these capabilities under their belt. What, what are the key buckets of talent that they're looking for and that not just on the trading side but also kind of on the infrastructure piece as well to enable this, whether that's regulatory compliance, et cetera. And where do they get that from? And how, how different does that look to your average kind of equities desk or credit desk, whatever it might be.
- [14:47]
Joe Michiosha
Yeah, so I mean somewhat similar. I think years ago it would have been a much different answer where early crypto was a lot of called degens and you know, individuals that came from very untraditional. It was, you know, you had the, the wave of degen traders and developers.
- [15:05]
Paul Chapman
Is that degenerates?
- [15:06]
Joe Michiosha
Correct. And this is going back to almost NFT days and you know there's all this hype around the space where you had individuals that were very, very smart. They might, they're you know, MIT grad or post grad, sitting in their, their dorm room or apartment after graduating and just running their own trading book out of their personal account and you know, hey, I want to go and, and join a startup prop group and you know, really scale things. And you, you saw an odd amount of them actually become very successful I think early on. But it was you know, a very different type of profile at that point in time than what you see today. Today it's look, you're getting the, you know, the PhDs, the research scientists, the individuals that you know, they have five, six years of experience sitting on a quant research desk in the traditional equity space or you know, commodity markets, whatever it may be and then have just moved into a crypto or digital asset sector. But it's essentially being treated from a talent angle very similarly to how traditional shops are running in terms of just like where that bar is for, for talent. And similarly on the, the infrastructure side there is obviously a bit of nuance when you are, when you are looking at smart contract development or building out defi desk where there is a large on chain component and obviously understanding look, if I'm trading on a Solana versus a hyper liquid there's you know, differences in market microstructure and how those those systems will integrate and essentially collaborate with the internal tech we're building. But that being said, a lot of the of those trading desks is very similar where it's you know, do you need a typescript dev, a Python developer? Are you building some of the latency sensitive software in a C or sometimes rust if it interacts Better with team systems but very traditional engineering type profiles for the most part. And then you'll see a small portion of those teams that you know, they may have something like a, like a keeper experience which is really valuable. Obviously in the crypto space they've dealt with kind of MEV searchers and you know, a lot of on chain tech and are familiar building out that type of system and software. Similarly, on, on the compliance and kind of operational legal side, whatever it may be, of these teams you do see a lot of individuals that are coming from, you know, the traditional banking or finance sector. Moving over to the crypto space. You see some that are obviously becoming crypto native at this point and would consider them so where they've been on a crypto team or within the industry for 5, 6 years and are really experts in this new space. But I think there is so much overlap in terms of how these markets are regulated as a financial industry and trading space where you really need individuals that have knowledge of kind of the broader trading landscape to make sure that you're, you know, on top of things and above board. In that sense.
- [17:57]
Paul Chapman
I want to come on to this pockets of demand for that talent. But like can you give us some sense of P L's scale of success? I mean, are they competing with the, the equities desk next door and the commodities desk, you know, on the other side of the office in terms of performance, like how lucrative is this? Can you give us some sense of
- [18:15]
Joe Michiosha
that trade type will dictate this? To an extent. I think there's a lot of profitability to, to be had, which is I, I think why obviously you're seeing, you know, a large number of teams that even aren't necessarily crypto native. They're, they're looking to get into this space. Right? So when you look at a, a traditional equities group and I'm, you know, I'm speaking from more of a, you know, quant trading think like HFT mid frequency type trading book. You look at like what standard metrics may be on a US equities desk. So you know, look, if they have a draw down south of you know, 2%, they're returning to call it, you know, 10% on capital with like a 2, 5, you know, 2.5 plus sharp. That's a very solid systematic strategy, right where it's, it's risk adjusted. You're not dealing with any type of unexpected draw down or huge volatility. You're, you're able to, you know, maintain profitability on that book. And if you can do that with scale, you have a pretty good trade and trader on your hands. Obviously you have, you know, the top 1% in the outliers who do very well on the equities side as, as you will in any other space. But I think where crypto digital assets differentiates a bit is you might see the same type of Sharpe on a crypto desk but just much different return profiles where, you know, it's not uncommon to see crypto traders with, you know, 30 to 80% returns on capital. There's much more volatility at times within those trades where, you know, max drawdowns might be all over the place. You know, you might see someone with a, you know, 8 to 15 type drawdown. Obviously when you start getting too high, it becomes unattractive for, you know, most money managers and funds in that sector. But it's almost the kind of, you know, classical more risk, more reward type scenario that you're seeing in that space. I think managers that have been able to, to navigate that sector well, they have some type of, you know, orthogonal value add that they can bring with them to firms and niche edge tend to do very well in that sector. It's almost finding this sweet spot of, you know, keeping volatility in check and drawdowns in check while, while we're retrieving a return profile that's, you know, slightly above average in terms of how it, you'd expect it to be on, on quant desk in, in other sectors or, or product markets.
- [20:29]
Paul Chapman
Yeah. So it's clearly more volatile to some extent. It's less efficient than a very established in the equities desk and it's more specialized. How do you go about building, you know, in the commodities world you build an edge through obviously proprietary analytics if you're a hedge fund, if you're a trading house, by a massive global physical footprint. But over time it's arguable that as those markets become more efficient, maintaining a mousetrap without having to spend lots of money on an asset or spending more in a war for the compute versus your sort of competitors, it's hard to maintain that you're talking to a team and they might be interested in moving whatever. How do you capture an edge, a lasting edge to, to generate those kind of returns in this crypto space?
- [21:14]
Joe Michiosha
It's a really good question. I think if I had the perfect answer, I'd be trading and not in my own shoes. But I guess to put in the perspective of traditional markets and I know I've used Equities a bunch as an example. But like to do that again you look at you know, why are the junk tradings and Jane street to the world and you know, Susquehanna is super successful and it's, they have a massive infrastructure edge. They have a lot of data at their fingertips that they can go and leverage. You know, the market, access the execution services. The, you know, the co location is exactly where it needs to be. They have the right prime services and you know, security lending if needed the service and support. They have the correct analytics and risk management teams in place. Similarly on the crypto side there's a huge difference between you know, hey, we're running a crypto desk and we're just, you know, we're logging on to this, you know, defi market or whatever exchange and trading then a team that's like look, we're doing it at volume. We have you know, better fee tiers with those exchanges. We're using you know, APIs or colo directly to these, these markets. We're, we're using, you know, WebSocket. There's levels to the, the infrastructure that's not always needed to be transparent if it's not a latency sensitive trade or there's different specifics that might dictate what those needs are or but similarly on the data side and I think this is almost where you'll sometimes see some of that edge emerge within some of these teams. Look, there's alternative data sets or firms within the crypto markets that provide here's what's going on on chain off chain throughout the larger space. Almost the Bloomberg terminals of crypto, if that's what you want to call it. But you'll see some teams where they go a step further and they build out in house data scraping tools and essentially like research pipelines where we might be looking at more niche sentiment data. So in crypto where there is a lot of market volatility that's driven by consumer sentiment or trends that are happening throughout the larger industry, certain teams have identified niche pockets of either news sources or individuals that are think someone that, that speaks and they affect the market. Use your, your mind to kind of imagine who those individuals are and how do we essentially await that sentiment data and use it to make informed trading decisions. So I think there's levels to teams that figure out a correct way to implement those types of I guess ideas or underlying strategies within the portfolio that tend to capture a bit more upside and kind of edge that tends to be sustainable but similar to any other space. You still have these alpha decay cycles. You're constantly optimizing and kind of revisiting not only the infrastructure but the trading ideas and strategies themselves to make sure you're continuing to beat the market and operate at a high level.
- [24:05]
HC Group Announcer
The energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters. Learn more@encoinsights.com yeah, yeah, and we're going
- [24:43]
Paul Chapman
to come on to sentiment and information in a minute. When it comes to crude trades, how mainstream is this gone? Right. So are the major Wall street banks, do they have crypto desks on the buy side? I don't think yet. We've seen commodity traders themselves start thinking about having crypto desks. They've certainly had talent within them go into this space. What are the different, I guess industry participants that are now trading that sort of suggest this is really has gone mainstream today?
- [25:12]
Joe Michiosha
It's almost everywhere. Right. Like you'll see I think like your tier one multi managers that have either internal crypto teams or they have funded external teams or desk to get some type of exposure to the space. And I think that's increasing more and more every year just in terms of what that appetite looks like. You think of the DV chains, the Brevin Howard Digitals, the Cellini capitals of the world that have been very, very successful and essentially spun out of more traditional firms and funds. And I think that's something that we've seen a ton of over the past five, six years. But today I think there's a lot of firms that we've seen where they are an equity centric firm. So they're doing US or global equities. They might be doing China A shares, whatever it may be. And they're seeing, look, Robinhood is tokenizing their marketplace. The New York Stock Exchange is going to be, you know, 247 trading and you know, I don't know what the specifics are around that actual build out but thinking about, you know, what does it mean to trade in a 247 market and I think with the idea of crypto where it's to my knowledge kind of the, the original 247 Marketplace, it's, you know, it's constantly moving and you get These volatility cycles with, you know, different kind of days that you'll see. So like you know, the US market hours versus, you know, Asian hours. And does that create volatility just, just on a day to day basis you're starting to almost see similar effects or you know, early stages of what that looks like even in an equity sector. And I think because of that teams are looking at, you know, look, we're already running a, you know, I don't know, mean reversion or whatever the trade. It doesn't matter what it, what it is, you know, can we now implement this on a, on a crypto market and do we see similar opportunity in these sectors? So I think because of that, given that the regulatory environment has become a bit more clear, obviously not entirely kind of over the hump yet in that sense I think there's still a number of policies and things to hash out at the federal level depending on for us, UK whomever. But I think because of that you're seeing more and more teams get comfortable with, look, can we put some capital into this? Can we have a team or is our cross asset futures traders able to maybe get some exposure to this space? Even if it's, you know, hey, we'll just have them trade crypto kind of derived products on like a CME or through like a, you know, a deribit or a bit of a different counterparty that they're a bit more comfortable with. You're seeing at every level from, you know, large hedge funds to small prop groups and family offices and the sell side as well. I think their exposure is obviously much different than the buy side in terms of how those desk operate. But looking at even, you know, the JP Morgans of the world, we're starting to look at, you know, do we use a bitcoin BTC as a collateral and what does that look like for the long haul? You're seeing the blackrocks and grayscales of the world put out these ETF products that are derived by underlying crypto and digital asset products. So there's a huge appetite I think for the space. I think more and more teams are starting to just view it as they would any other asset class. But then becomes the challenge of are you the correct firm that has the infrastructure and capabilities to be one of the top performers in this kind of newer sector? If that makes sense.
- [28:26]
Paul Chapman
Yeah. And part of obviously what is driving that legitimacy is as it has a real world function in global finance. Right. Which we're going to come on to, which is Actually, you know, more and more global transactions go through blockchain infrastructure. You know, use stablecoins for those benefits of effects, risk and so forth and immediacy and all this good stuff. That means a lot in the, in the commodity trading world. Having your money tied up for three days in a international transaction can be really meaningful just before we get to that. And I think that's where sort of certainly our clients are going to be. I imagine quite a few interested in your views on how to set up that piping. For want of better word, just on, on the, the tokenized crude trades that are done on hyper liquid, these sort of perps as they're called. Another, another good crypto phrase, I guess. What do we know of hyperliquid? What do we know these, these transactions and you know, is this really kind of the start of a great interest in a broader tokenization of different commodity contracts as best as you know, I
- [29:26]
Joe Michiosha
think it's huge for the space. And you know, looking at hyper liquid and looking at like WTI and Brent crude contracts, you're seeing daily trading volumes surpass a billion, billion and a half where it's, you know, it's frequently making, you know, oil the second most traded asset on that platform behind like a Bitcoin. You think of Bitcoin as. It's been almost this kind of holy grail gold standard of crypto in the digital asset sector for years and kind of almost the entry point for a lot of firms and individuals for these crude contracts to become that well known and trade it in just this quick of amount of time is really incredible. And I think too that surge in volume is really driven. You have this, you know, think increasing geopolitical volatility that that's happening at this, this macro level. For individuals to be able to come on and look at, look, we can trade this as a 247 market in, in you know, for these perpetual futures contracts. That's huge, right? Like a traditional exchange, a cme, you know, they're closed at the end of the day. Right. But is there opportunity to go in and continue to, to trade and generate returns? Of course companies are going to go after that. I think there is a big challenge today and I think hyperliquid's done a fantastic job of this. But I think as that type of trading expands and not just specifically kind of crude, but you think of similar opportunities within, you know, metals or nat Gas desks across kind of the larger commodity sector, thinking about the structural cost, potential friction that transpires internally as Those deaths are built out commodities firms that are looking to get in on this opportunity. But figuring out kind of the weeds of a digital asset sector on top of just the understanding of the commodity crude markets, I think that's the biggest next step. And from the tokenization side in particular, you're seeing these special purpose vehicles where you can move instantaneously from tokenized to the real world asset. Right. So you know, we, we found a great liquidity opportunity in a traditional space. You know, we can convert our tokenized product back to standard crude and all of a sudden go and take advantage of that trading opportunity versus some trading desks and teams are going through counterparties like a Galaxy Digital for example, where you actually have to call up and have a conversation with a, with a counterparty at the, you know, exchange directly. And sometimes there's this kind of conversion process that can take a few days. When you're moving between tokenized and real world asset, it's definitely sort of the start, right?
- [32:03]
Paul Chapman
I mean you say you, you start to build these sort of synthetic swaps, you know, tracking, tracking an index or an exchange, it kind of the next logical step is how you tie, and obviously people are working on this, how you tie that up to the, a real world contract, you know, and then obviously the real world barrel as well. It's certainly sort of the start of it. As you say, you can see that expand across different commodity classes, no?
- [32:26]
Joe Michiosha
Correct. And again, I mean oil markets are and always have been a huge space. I think there's some operational inefficiencies within that traditional crude trading space that I think the tokenization and push towards this helps reduce in terms of the different settlement friction or counterparty delays or kind of access barriers to these different markets. So I think over the long haul it makes a ton of sense, not only for crude, but for I think a lot of assets to come on chain and move towards more of a 247 type of trading platform. But yeah, we'll obviously take some time to figure out and work through the details of how that's done behind the scenes.
- [33:06]
Paul Chapman
Yeah. Just out of interest, what does it mean for the humans involved in this to have 24,7 trading? How do teams deal with it? Do they run a three, eight hour shifts or is it sort of handed around the globe or did everyone just sort of sit in their underpants at home sort of never getting a, never getting a break?
- [33:23]
Joe Michiosha
And again, I think most traders I talk to that are managing risks on these books feel like they're working 247 regardless, but as you've seen within a lot of crypto desks there's increasingly more globally spread teams where the same trading pod might have an individual in Singapore, they might have someone in Abu Dhabi, they have a developer that sits in London, they have someone in the Caymans or us. And you're seeing these teams where you know, we'll slot headcount more globally to really cover the time zone challenge that, that this creates as a, as a market which you know, my own thoughts on it are, you know, what does that mean for, for a traditional PM role, right, like where it's, you know, do you need almost like CO PMs that are, that are running, you know, 12 hour, 12 hour type shifts or whatever that may be longer term but I think a lot of teams just made it work where they're you know, really being conscientious behind risk signals that they're, they're putting in and alerting tooling that can let them know if they need to, you know, hop on and get involved with, with trades that are happening or you know, have a individual on their team that can manage the, the kind of downtime or other side of the world while they're, they're asleep at the end of the day.
- [34:35]
Paul Chapman
Fascinating. Just out of interest as well just on the talent side because obviously one of the things that happened somewhat under the radar initially at least certainly to me was within these sort of high frequency traders with these heavily quant trading firms or Renaissance Capitals and so forth. They're well known now for having these two year non competes and essentially based on the fact that actually we're building a lot of IP and that IP is defensible in terms of non compete and notice periods and all the rest of it, which is what they're legally bound on sent in the States. Are we seeing any of that creep into this space? Is there sort of much more onerous employment terms put on people or is it still sort of somewhat akin to other asset classes?
- [35:18]
Joe Michiosha
I mean similar to most DEs I think. Look, if you're trading interest rate bonds on a fixed income desk, you typically have a non compete that's going to bar you from running a similar trade on a similar fixed income desk or direct competitor. But this might vary from firm to firm, but you're typically, you know, okay if you want to move into an adjacent asset class, right? So if you want to go from what would you say like interest rates to you know, all of a sudden I want to go and trade you know, petrol at a, at a Commodities firm. Typically there's, there's not as much friction. It's not something that your non compete is going to be, you know, directly enforceable within. Similarly, within crypto or even prediction markets, I think you're, you're seeing that almost treated as part of that, you know, big grouping of assets where you know, look, you'll have a crypto trader that's, that's done it. They might have a 12 month non compete. Can they go back into a traditional equities market for you know, their next opportunity or you know, vice versa. You, you have someone coming from an FX desk that wants to move into, you know, crypto. So you, you typically have that, that same kind of issue across the board. And I think terms in contract are becoming very similar for a lot of these firms where you know, a 6 to 24 month non compete tends to be standard. A lot of times we'll see anywhere from you know, 6 to 12 as kind of the most common range. But obviously you know, senior traders, senior PMs on these desks, you know, sometimes get, get hit with much longer sit out periods.
- [36:48]
Paul Chapman
Yeah, and I guess this will be important for the final section on sort of the piping piece. Is there a, any demand, pockets of demand within those teams? What are the sort of the most challenging roles to fill? And I ask that in the context as well is I presume if you're on a revenue generating desk, you get paid more than if you're in sort of the blockchain infrastructure world trying to connect together piping so that companies can do transactions in these digital assets.
- [37:15]
Joe Michiosha
Look, trading is hard and I think you know, to be a good portfolio manager or a good, you know, quant researcher, someone that's high level, it takes a lot to, to find that type of person. And I think a lot of companies because of that are always interested in can we bring in a high level PM or someone to join the team. So typically you're seeing P and L splits associated with those types of roles, higher base salaries, but they're tied into the profit sharing, it's you eat what you kill type of a scenario on the infrastructure side. So it almost gets split into two categories within crypto or digital assets or prediction markets, whatever a bio, you know, you still need your standard infrastructure team, right. So you know, you have your, your front end guys, your back end, your you know, your DevOps, whatever it may be, machine learning engineers that are helping build out the actual trade infrastructure, quant devs and those skill sets and backgrounds of those individuals are really no different than what you'd find internally like an HRT or you know, traditional firms in that matter. Where you see the biggest difference is, you know, all of a sudden we need someone who really understands kind of the nuances of a specific blockchain or ecosystem. Going back to like a Solana for example. On chain, smart contract development tends to be rust as a programming language anchor for the blockchain framework. They actually need to interact with those smart contracts. It's obviously a niche candidate market and pool of individuals that are uber talented and experienced in that sector. And similarly a lot of those guys and girls, those developers on those teams also are, they're familiar in, you know, SQL TypeScript, they can really do the full stack. But you tend to get this real opportunity for developers within kind of those niche trading teams that need to build out infrastructure or you know, direct connectivity within a specific space. They tend to be paid very well as someone that's kind of micro specialized as well. And I think from a talent perspective, some of the hardest individuals to find today with hyper liquid and I think the crude market trading that's happening on chain there has really helped driven a lot of this. But similarly finding individuals, whether it's a trader or developer or someone who's familiar on the compliance side, if it's relevant, is somewhat hard to find within that sector still. And I think it's because some of this is so new. People don't have years and years of experience. It's a handful of companies that are really operating these trades at a super high level. But you're starting to see just about everyone I've talked to honestly on the client side. So funds that we work with and prop desk, whatever it may be, Almost everyone I've spoken to has said, look, we're interested in getting in on this, we're starting to look at research and where is an entry point that makes sense. And all of a sudden this becomes relevant for us to, you know, really push the pace into these sectors in
- [40:10]
Paul Chapman
the sort of five minutes we've got left sort of on that piping side. So essentially this is obviously not trading taking a view on the underlying, on the digital assets themselves, but you know, leveraging blockchain infrastructure. And it's strange to be talking about this because obviously four years ago and you and I had drinks about this last week in New York, right? It was sort of that, you know, the meme coin stuff. And if you didn't have a block, if you were a recruitment firm without a blockchain plan, to put candidates on, on chain, you know, whatever. It was like any company had to have a blockchain trap plan and it all kind of died away for a while and. But now it seems like actually as with all things, sort of the underlying valuable bits of the technology are being seen. There's clear cases where with the correct sort of governance and compliance, you can start increasing. We're seeing increasing transactions in commodities, in stable coins using blockchain infrastructure. All makes sense to me. You know, like I said earlier on the speed of transaction, the lack of FX risk, some of the complexities about setting up US dollar denominated accounts, all this kind of stuff, of course it can absolutely also be used for nefarious purposes. How widespread are you starting to see companies, traders, merchants set up or starting to think very seriously about digital infrastructure, blockchain infrastructure to be able to process these transactions and so forth?
- [41:33]
Joe Michiosha
I think I see it like everywhere. I'm obviously biased on the industry as a whole. Someone who's much closer to the product than most people. But as an infrastructure, any infrastructure develops over time, any underlying technology develops over time. So I think one of the marketing challenges I think crypto and digital assets has had to overcome is I think when people heard crypto or digital assets five, six, seven years ago, you think, look, oh it's digital gold, maybe it'll pump and we'll get these excellent returns. I think the connotation became trading and trying to just generate like returns, almost like, hey, this is monopoly money versus look, this is a real technology and infrastructure that, that changes the way we transfer funds that we, you know, we have to rely on different agents or liquidity networks, which I think is where a lot of the real underlying value is. And why you're seeing credit card companies that are, you know, now implementing their payment transactions via blockchain and you know, banks that are looking at building some of their in house tech on this type of software. If you're familiar at all with the at the end PESA days in Africa where individuals living in a small kind of remote town go off and work in a big city and you know, send money back to their family and there was no way to transfer those funds. So what they did is, you know, through the phone lines, they would put money on an account that their parents would use and they would essentially, they almost created this marketplace where then individuals were selling those phone minutes to others and almost using it as a currency. And it became kind of like a super early version of almost what like blockchain stable coins Blockchain payments have done today. I guess the way that you're looking at those networks and systems being developed is, you know, how do we allow for settlement to happen on chain? How do we create more liquidity where there's less constraints and more of an open access for individuals whether they're in a, you know, a major developed portion of the world or you know, small country in the middle of nowhere. It's, you know, look, here is a system that, that works in all of these different environments and allows for us to have different transfers or systems that are programmable. You know, we can look and see receipts and information very clearly on chain where, you know, how do we kind of move to this like payment system? So yeah, I know that's like a very long winded way of saying it, but I think you're seeing it as a technology and use case behind the scenes everywhere from like, you know, healthcare to fintech to trading. Blockchain is an infrastructure whether it's a decentralized chain or an in house kind of replicant of those. You're seeing it more and more widely used today just because of what it can do as a whole.
- [44:14]
Paul Chapman
Yeah. And is it the same talent pool they're drawing on or can existing talent within these organizations kind of figure it out? Like how are people coming to JAG saying, you know, hey, we're a healthcare company, we need a team to come and start doing this for us today.
- [44:28]
Joe Michiosha
Yeah. So and again, I mean, you know, we don't as of now do anything in non finance related areas but it's a lot of teams are saying look, you know, we're building out infrastructure. We typically are dealing with like trading desks or more like fintech style projects. But that being said, it's, you know, here's what we want to do. Do we have a lead or an expert that really knows this space in depth and can essentially come in as you know, ahead of engineering on this type of a project or an initiative where I think early on needs someone to almost architect the correct infrastructure. Speaking of a friend of your, your guys not too long ago that you know, building an exchange and you know they're doing so on, on avalanche, which is a big blockchain infrastructure layer understanding. Look, is it, does it make sense to build on an avalanche versus you know, another EVM chain, like optimism or whatever it may be, I think is step one, understanding the type of infrastructure you want to build and create different chains or ecosystems will allow you to do some different things. So a lot of companies I think it's almost where do we get started? And that becomes I think almost a stopping point. So what we try to do as a firm is say look like what are the goals of your project? What are the goals of your trading desk and team? Where are we seeing similar build outs taking place? And obviously without going into in depth in terms of the tech stack or infra that's being built at community competitors, you know, here is kind of the general market direction that you should be maybe looking at and you know, a talent pool that makes sense to start engaging where, you know, can you start to generate ideas or bring in an individual that can help you lead out these, these initiatives in house.
- [46:02]
Paul Chapman
Yeah, yeah. And I imagine the management consultancies as well have talked to you about building teams. As we said at the start, it's gone mainstream. Joe, what a pleasure to have you on. We are very excited about the Joseph Anthony Group. It doesn't need an endorsement from us. After listening to you Talk cogently for 50 minutes, much more than I think I could do on our specialism about the trends and the talent needs. When should people call you guys? Where can they find you?
- [46:30]
Joe Michiosha
Yeah, no, I look and you know, josephanthonygroup.com you know, we're on LinkedIn, Twitter, wherever platforms that people use for socials, we have an account if people are interested obviously in learning more about the space. Always happy to connect. But I think for teams that are really looking at, you know, we want to build out quantitative or algorithmic trading desks within the, you know, digital asset space and not just limited to crypto but you know, look, we want to get into prediction markets or tokenized, crude, tokenized equities. We tend to have a very kind of niche network within those networks to just be able to implement and help facilitate those build outs. So something that, you know, obviously we're very well equipped to do if you know, done for years even at some of my past firms as well and always excited to be part of new exciting build outs. Great.
- [47:17]
Paul Chapman
Well, I will put links to the Joseph Anthony Group in the show notes as well as your email and people can reach out and I look forward to having you back on in a year or so and we can see where it's all gone. But we moved from sort of the, the retail meme, coin trader and now it's, it's definitely hit the mainstream and, and the talent is required. So excited to have you back on at some point.
- [47:39]
Joe Michiosha
No, awesome. It sounds great. I appreciate you setting it up.
- [47:44]
Paul Chapman
Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup global.