DeFi Technologies - Q4 2023
April 4, 2024
Transcript
Operator (participant)
name is Jamie Frawley, Vice President at IR Labs, and it's my pleasure to moderate this webinar for DeFi Technologies. We're fortunate to have Olivier Roussy Newton, CEO and Director, and Russell Starr, Head of Capital Markets, on the panel today, and I'll turn it over to them shortly to present an overview of the Q4 financials. If at any point you'd like to ask a question, please do so using the Q&A function. Questions will be answered at the end of the presentation. Now, just before I turn it over to Olivier and Russell, I'd like to remind everybody that certain statements made during today's presentation may contain forward-looking information with the meaning of applicable securities law. Such statements may include estimates, projections, goals, forecasts, or assumptions that are based on current expectations and are not representative of historical facts or information.
We want to be clear that such forward-looking statements represent the company's beliefs and future events about future events, plans, or objectives, which are inherently uncertain and are subject to numerous risks and uncertainties that may cause the actual results or performance to differ materially from such statements. Okay, with that, I will now turn it over to Ollie and Russ to kick us off. Over to you guys.
Olivier Roussy Newton (CEO and Director)
Well, thank you for that, Jamie, and thanks for everyone who's joining our webinar. Just to start off on the financial highlights of 2023. The company reported cash balance of CAD 6.7 million compared to CAD 4.9 million in December 30, 2022. Revenues were CAD 10.4 million compared to CAD 14.2 million for fiscal 2022. The company's venture portfolio investments were valued at CAD 44.1 million by the end of the year. Our AUM growth from our fully owned subsidiary Valour grew under 500%, reaching just over half a billion Canadian dollars. Current AUM stands just under CAD 900 million at CAD 880 million. We've seen significant revenue growth in Q4, especially in December, as digital asset prices started to spike. Yeah, we've taken corporate governance and operating costs down considerably to CAD 10 million from just under CAD 15 million in 2023.
Our total expenses for fiscal 2023 stood at CAD 13.5 million, a decrease from 41% year-over-year, and is broken down into our operating G&A at CAD 10 million, share-based comp at CAD 3 million, amortization of CAD 2 million, interest costs on debt CAD 4.2 million, transactions on ETP issuance and digital asset trading fees is CAD 1 million, and mark-to-market FX loss CAD 10 million.
Russell Starr (Head of Capital Markets)
Can I move this forward here for you, Ollie?
Olivier Roussy Newton (CEO and Director)
Thank you.
Russell Starr (Head of Capital Markets)
There we go.
Olivier Roussy Newton (CEO and Director)
So our highlights for 2023, as stated, CAD 6.7 million compared to CAD 4.9 million at end of 2022. Revenues were CAD 10.4 million, compared to CAD 14.2 million.
Russell Starr (Head of Capital Markets)
Yeah, this is sorry, Ollie, this is not advancing.
Olivier Roussy Newton (CEO and Director)
Okay. Yeah, it's not advancing.
Russell Starr (Head of Capital Markets)
Try that.
Olivier Roussy Newton (CEO and Director)
Sure. I think you might need to put it to full screen. Yeah.
Russell Starr (Head of Capital Markets)
There we go.
Olivier Roussy Newton (CEO and Director)
So, in our wholly owned subsidiary, Valour, our asset management business asset management business that runs our ETP business, we've seen tremendous growth in our underlying AUM, a 476% increase from the end of fiscal 2022, which ended at $106 million in AUM. As I mentioned earlier, we're just under $900 million in AUM. The company's management fees increased in Q4 2023, driven by increase in the company's exchange-traded products, net asset values with October, November, and December 2023 management fee revenue being $114,000, $240,000, and $402,000, respectively. So you can see here, in the graph, I think if we can go back, just, you know, this is our basically inflows on specific products, our various products listed in jurisdictions in the Nordics and around Europe.
You know, important thing to note is we've, I think, only on two days since inception seen net outflows of our products. So our buyers of our certificates and other products continue to, you know, average into these products and are bullish on long-term growth prospects of the digital asset class. So for our 2024 outlook, we're continued and excited about the, you know, the underlying digital asset class and, you know, especially its institutionalization that has come into effect with the approvals of Bitcoin ETFs and hopefully more asset classes, you know, to the largest capital market in the world, being the U.S. So our, you know, as of March 2024, our AUM stood at $880 million with robust daily trading volumes exceeding over $20 million.
So we're seeing lots of trading activity and volumes across all of our products, continued revenue growth with an annualized forecast of approximately CAD 63.3 million, on the basis of our current AUM. Our growth in AUM is expected to lead to proportional increases in revenue, accordingly. The ETP business aims to maximize AUM through increased ETP launches and geographical expansions that we're planning. So plan to launch around 15 ETPs in 2024. We have a lot more slated, you know, double that, in 2025. And we have various, you know, joint ventures and partnerships that we're announcing in various geographies such as the Middle East and Asia, to match our growth prospects of what we've been carrying out successfully in Europe, specifically in the Nordics, to match essentially niche markets and geographies where crypto regulation is friendly.
You know, specifically the Middle East where, you know, regulators are very forthcoming to digital assets as an asset class, and we will see similar regulatory frameworks enabling our products to succeed in new geographies. So this is our overview of our product roadmap. So we have lots of new digital asset classes in the pipeline that we're excited about. We're exploring other sorts of products, given we have a very, you know, sticky customer base in the markets that we operate. So we're exploring other, you know, thematic baskets of products across emerging technology trends in, you know, AI and things of that nature. We've also announced a partnership with Neuronomics that we're hopefully launching very shortly, an AI leading digital asset product to the market.
We will continue to explore kind of derivatives associated with digital assets primarily. We will be coming out quite shortly with kind of market-first products to give people more efficient exposure to the myriad of digital assets coming on stream. This is an overview of our corporate structure. So I'll start from the left. We recently acquired a research business led by a friend, Anthony Pompliano, who's been spearheading and initiating coverage on leading blockchain protocols.
So we're aiming to basically combine forces with Reflexivity, and cover more extensively the protocols and foundations that we're partnering with on our ETPs and the tokens that we launched into markets with cutting-edge research on these projects and also bringing, you know, institutional and retail awareness to the space in general. Reflexivity just held their first institutional Bitcoin Day in New York that was, you know, extremely well attended, sold out, and hosted a number of thought leaders from the space. We also hold just over 5% of AMINA Bank, formerly SEBA Bank, which has seen, you know, a large growth in underlying AUM to a few multibillion dollars of AUM as digital asset classes continue to rise.
And you know, they were one of the first crypto-licensed bank in Switzerland. So we continue to hold that. We continue to explore strategic investments in our venture portfolio, which was set up to take stakes in, you know, leading companies in the digital asset space with the primary objective of helping our subsidiary Valour come across and streamline new ETPs that can be market-first products. So we've seen, you know, tremendous growth in Solana as of recently where, you know, we're listening to what our customers want in terms of accessing new digital asset classes. So we'll continue to push the frontier on developing cutting-edge and innovative blockchains in our ETP formats across different geographies to give our clientele exposure to new blockchain assets, as they come to fruition in the market.
So, you know, we're seeing that there's a lot more education and research culminating from the digital asset space. You know, our investors and certificate holders are very knowledgeable of the space and want access to cutting-edge blockchain asset classes. We will, you know, hopefully continue to, you know, spearhead and innovate and launch new products for them. We also have our infrastructure arm, which we've been working, you know, very, very actively on over the last year. We acquired a portfolio of Solana intellectual property that helps us maintain Solana nodes, validators, to optimize our revenue generation from our AUM. We were also one of the initial node providers for Pyth Network, which has recently surpassed a multibillion-dollar valuation, which is an oracle data aggregation oracle and authentication provider for the Solana network.
We've also formally set up infrastructure with Bison Trails, which was acquired by Coinbase, on the joint ventures. We have Neuronomics, a Swiss-based AI company that has been applying artificial intelligence to digital asset products, which we're working with Valour to wrap into our ETP structures. We recently, I believe a few weeks ago, you know, rang the bell in Frankfurt on our joint venture with Bitcoin Suisse, where we came out with, you know, an innovative basket approach and will be doing more collaborative efforts and product launches with Bitcoin Suisse in the European market landscape.
Russell Starr (Head of Capital Markets)
And just to add to that a little bit, everyone, and Ollie, when we gave our guidance, off of the $650 million that we basically currently sit at and guided to $46.8 million in revenue for this year, that was exclusive of what you see in AMINA venture portfolio and infrastructure. You know, when we made our investment in AMINA Bank, which at the time was SEBA Bank, I think they had close to $1 billion in AUM, and they're now sitting with almost $3 billion. And just by virtue of the way our regulators approach crypto and, you know, just so everyone's aware, it's a very, very difficult process, filing your financials and audits. But we are effectively marking AMINA Bank at cost, and similarly with our venture portfolio.
As you guys can all imagine, everybody who's listening, you know, as Bitcoin goes, so generally does this sector, call it the high tide that's floating all the boats. So really please appreciate that 46.8 is, in our opinion, you know, a very conservative estimate, because we fully anticipate Bitcoin going into the halving, continuing to appreciate. Obviously, no one has a crystal ball and can tell, but effectively that's a valuation guidance based off of a fixed amount of assets, not including very important parts of our valuation.
Olivier Roussy Newton (CEO and Director)
Yeah, that's a good point. I think we will, you know, see Reflexivity is generating strong cash flow. We'll see AUM growth come out of Bitcoin Suisse joint venture and, you know, hopefully have some new numbers shortly with our Q1 out, I believe within a month.
Russell Starr (Head of Capital Markets)
You know, everyone, that's basically the end of the presentation. It's a simple presentation. Everybody has access to the press release and our deck. One point that one of our listeners caught that was quite correct, 2023 was a gain of 10.4%. 2022 was a loss of 14.1%. You know, Ollie and I sometimes make little mistakes, but that was a loss. Ollie, a question from the crowd is, how do we see our margins continuing to scale, as well as expenses and operating leverage? You know, we can both give our answers.
Olivier Roussy Newton (CEO and Director)
Yeah. So I think as we saw in 2021 in the digital assets space, we saw kind of an implosion of centralized exchanges and actors materially dissolving to our company name, DeFi, which stands for decentralized finance. We have been kind of, you know, spearheading the decentralization of our technology infrastructure to create more meaningful returns from our AUM, you know, our exponential AUM growth. But bringing all of that technology in-house and leveraging the best of blockchain technology essentially helps us continually, you know, bring our margins of operating higher without relying on centralized parties. So we'll continue to innovate that.
We've made great hires on our development and engineering side where we essentially don't need to rely on centralized, third parties for a lot of our in-house technical, revenue generation, which attributes to, you know, stronger balance sheet and net revenue performance. So that's, I think, would be the largest, you know, attributable factor to our growth as a company and obviously to our, you know, thesis of, you know, why we created this.
Russell Starr (Head of Capital Markets)
Yeah. And just a little bit of thought on my end, you know, the most exciting part of this company is in our Ethereum and Bitcoin products. A reason why, Pomp, who, you know, as you everyone probably knows, wrote us up today, but also took equity is because the leverage of this company to the altcoin or call it the DeFi coin space is substantial. And what's important about that is all of those altcoins generate substantially higher yield or lending rates than Bitcoin and Ethereum. And so from a margin perspective, as everyone knows, based off of, you know, conversations and whatnot, our operating expenses are basically flat. I mean, debt servicing and operations are effectively $12 million a year. And those shouldn't change.
They could go down a little bit. They might go up a little bit, but ostensibly they're going to stay right around that level. And so as our AUM goes up, our revenues go up, but with fixed costs, that means that your margins increase as your business grows, which is counterintuitive to many other businesses. But it's fantastic for, for us and investors because it basically means increasing margins, with increasing revenues and hence more profitability. And so, yeah, you know, launching our products is not expensive. What is it, Ollie? About $50,000 a cert, and maybe a bit more.
Olivier Roussy Newton (CEO and Director)
Yeah. It's coming down even less, right?
Russell Starr (Head of Capital Markets)
Yeah. So this is a cheap business to run with, you know, massive scaling potential. And again, going back to sort of that $650 number, and the guidance, I mean, if Bitcoin goes to $100,000, we're without even launching new products, we're at $1.2 billion, by my math, in AUM. So this is early days. This stock has tremendous potential. And as long as we focus on continuing to build out our product suite and expand into those jurisdictions, people should be very, very excited about the prospects for not just revenues, but profits.
Olivier Roussy Newton (CEO and Director)
I think, yeah, one thing to note is, you know, when we launched Valour, we were, you know, basically scanning the digital asset class for attractive crypto products to launch to our end users and buyers of our products. I think in the last three or four months, we've announced two direct deals with ICP and Hedera, which is traded under the ticker HBAR. So two of the largest cryptocurrencies that we've basically done deals with directly with the foundations to bring those products to the market. And that's something we'll continue to spearhead and do.
So, you know, searching for the next Solanas that people want exposure to that bring different efficiencies. So, you know, for example, ICP has been focusing on bringing decentralized artificial intelligence to the market through their blockchain. So as these kind of new themes emerge for what blockchain can be used for, we intend to, you know, partner directly with these leading foundations and bringing their products to the market.
Russell Starr (Head of Capital Markets)
So, next question was, how is our partnership with SEBA Bank, now AMINA Bank, evolving? Do you want me to say, go for it, Ollie? That's an easy one to answer.
Olivier Roussy Newton (CEO and Director)
Yeah. We've spent, you know, the better part of our last year, you know, focused primarily on our strategy at Valour. You know, to Joseph's question, they did receive a license in Hong Kong, which is a jurisdiction that we're looking at. There are, you know, different jurisdictions around the world that are a lot more friendly for digital assets than the US and are actually looking at them as growth catalysts for the economy. So, you know, the Hong Kong Stock Exchange, and other jurisdictions in Asia and, you know, the Middle East, also Europe, for instance, you know, the London Stock Exchange recently approved our certificates for Bitcoin and Ethereum.
As these new kind of geographies open up, we'll continue to explore how we essentially a process that's called passporting our prospectuses. So the prospectuses that are regulated in the European Union, we can work with other regulators around the world, and basically replicate our prospectus and issuance and subsequent offerings of our products in these new geographies. So I think, you know, with Amina kind of spearheading, you know, regulatory environments in these different geographies where, you know, we're seeing regulators open up, so effective there. But we have really been focused on our internal growth strategy at Valour.
Russell Starr (Head of Capital Markets)
Yeah. And just a little, little more color. The, the AMINA Bank relationship has, has largely now become an investment versus a, a partnership. Is that fair to say, Ollie?
Olivier Roussy Newton (CEO and Director)
Yeah. I think, you know, what we had planned and envisioned for AMINA, we see kind of better resources spent growing our own proprietary brand, which, you know, it's a financial decision to grow our own ETP markets, which attribute more bottom line to DeFi as a company.
Russell Starr (Head of Capital Markets)
Then, next question is, with $1 billion coming up, what's the marketing plan? And, you know, I've got my thoughts. You've got your thoughts, but go for it, Ollie.
Olivier Roussy Newton (CEO and Director)
Yeah. So I think, you know, when I think it was around 2020, 2016, I took a company called Hive public that is a large shareholder of DeFi. And since then, I think there hasn't been much disruption to the public equity landscape of digital asset companies. You have a bunch of miners that are listed that, you know, have very differentiated business models to a company like DeFi. You have MicroStrategy, Coinbase, but that's Galaxy as well. But, you know, that's really it. So I think, in terms of us amplifying our visibility for people looking at the digital asset class and publicly traded securities, we're in a very unique position, specifically to what Russ was alluding to.
Our fixed cost basis and our upside on our AUM makes it very attractive for us to be, you know, a very efficient proxy to, you know, Web3 and blockchain protocols as we capture the revenue of the upside from these new products in a form factor that I think is very palatable for institutional and retail investors looking for a proxy without having to play within all of these different coins and the security risks associated with interacting with all of these exchanges.
So I think we've built a very robust business in the form of Valour to capture the upside of what we think will be a, you know, a very substantial crypto bull run, and an extremely profitable business at that, that all gets kind of encapsulated in a public equity. So I think, you know, as we continue to grow our business, I think that you'll be seeing more marketing efforts and visibility on our underlying business, how unique it is and how well positioned we are, you know, in the space.
And I think a lot of the big names, the BlackRocks, the Fidelities who are coming out with these ETFs in the U.S., they are marketing our business case for us, because, you know, I co-founded Valour with Johan Wattenström, who, you know, essentially invented the Bitcoin ETF in the form of an ETP form factor in 2014 with a product called XBT Provider. So in terms of, you know, business models and, you know, every day you're seeing you know records of Bitcoin ETFs in terms of AUM growth. And, you know, you'll, I assume, start seeing revenue attributable to these, you know, large, you know, behemoth companies like BlackRock. But we're operating a very similar business model.
The differentiator is that we're working in more regulatory-friendly environments that are conducive to new product offerings, innovation on those product offerings, which will allow us to capture, you know, the growth of the crypto upside. Obviously, you know, Bitcoin and Ethereum are primed to have, you know, large and substantiated growth. But I think, you know, a large portion of our clientele are very attracted to the alternative cryptocurrency space. And that's what we want to encapsulate within our product strategy, which is bringing, you know, the newest and greatest protocols directly to our end users and capitalizing on the underlying revenue of our business model.
Russell Starr (Head of Capital Markets)
Yeah. And only a tiny bit to add to that, you know, everybody needs to appreciate that, you know, we were in survival mode in the downturn in the market and we're finally, well, legitimately printing money right now. And so, you know, everything we've seen thus far is largely word of mouth and absolutely will be marketing more. We are, you know, we will actively look to uplist to a senior U.S. exchange. You know, our share price should get to that level on its own organically just by virtue of our guidance we provided. You know, everybody needs to appreciate just even with the move today, just how cheap the stock is on a revenue or a profit perspective.
You know, uplisting to the Nasdaq or one of the senior U.S. exchanges will also give us a lot more visibility among the masses, without necessarily having to spend a ton of money on marketing. But we're obviously prepared to do that in a sensible fashion. Regarding the product roadmap, most are not out yet. Yeah, that's correct. We only have 17 ETPs. And you know, we can do ETPs and anything. Sorry, Ollie, I just stole that one because it was a pretty easy one to answer. You know, right now our focus is Web3 and crypto. But we have the ability to do anything that's really cool. Neuronomics, AI. Ollie, anything to add?
Olivier Roussy Newton (CEO and Director)
Yeah. I think I'm seeing one question here, from Boris in terms of, you know, unfortunately, the ETPs launched are not currently driving crypto narrative, e.g., AI, new meme coins. How long for time to market for new ETPs? So I think, you know, what I touched on, you know, I think ICP is in the top 20 coins. They've been working on AI integration within their blockchain for several years now. In terms of new meme coins and themes that are popular within crypto natives, we're constantly evaluating these things. One thing we need to also be cognizant of is, you know, these meme coins are usually launched by anonymous people. They're extremely volatile.
So we have to also be sensitive in terms of our regulatory framework and guidance of not bringing, you know, for lack of better words, dog shit to the markets. So, you know, as these kind of larger, you know, meme coins that have only been around for weeks or months stabilize and we feel confident that they will be able to, you know, be approved and correspond with our regulatory environment, we will definitely, you know, address and, you know, our goal is to bring, you know, what's trending and hot in the crypto market to our customer base.
Russell Starr (Head of Capital Markets)
Next question. Do you own a position in Solana, and enable node management? You know, everyone should know, we have the third biggest Solana ETP ETF in the world. Ollie, maybe you want to comment on the node management and whatnot. You know, we hired an individual early on specifically to leverage Solana at its utmost. So, yeah, go for it.
Olivier Roussy Newton (CEO and Director)
Yeah. So we're operating our own Solana validator that gives us, you know, more efficient revenue dynamics on our underlying product. We're continually, you know, working and operating within the Solana technical ecosystem to, you know, experiment with new technologies. You might see some, you know, interesting kind of product launches outside of our ETP business, in that sense. There's just so much growth that's happening in the Solana ecosystem that we're exploring, you know, different opportunities there. But our primary focus is using the open-source Solana technologies to contribute to our underlying revenue growth.
Russell Starr (Head of Capital Markets)
Yeah. And everybody should be aware that, you know, Solana has been a major part of our growth this year. And, you know, no one knows what the next protocol will be. But DeFi, unlike any other company out there, gives you the ability to not have to do that. You know, we launch another 15 products this year, another 30 the next. You cover a lot of, of new opportunities in the crypto space. Any potential on listing in the United States? Ollie, you want me to do that? You want to it's I mean, I can do it quickly.
Olivier Roussy Newton (CEO and Director)
Yeah. I think we had Nasdaq approval in 2021. It's something that is definitely, you know, topical and something we discuss, you know, as a board and a company. The Canadian exchange, that was previously called NEO, now Cboe Canada, was acquired by the Cboe U.S. So they've permitted for basically kind of a, I would call it a, you know, a fast track or an amicable way to uplist their listed companies to the main board of the Cboe as well. The one kind of factor that has been a, you know, a prohibitor to us entering has been the SEC. So we're constantly evaluating kind of our entry approach to larger capital markets around the world and not just the US.
It's definitely something that we're constantly working with counsel on figuring out when the time is right from a regular regulatory perspective.
Russell Starr (Head of Capital Markets)
Yeah. And just, I mean, very little to add to that, everyone. It's clearly a strategy that we will embrace. You know, the only thing stopping us right now is our share price. And as I commented, you know, trading at three times, even with today's move, three times earnings or four times profits, those are multiples you never see in the capital markets. This stock has a long way to run before it's trading at fair value. And once we get to the minimum hurdle price for a U.S. senior listing, we'll obviously look and embark upon that.
But as Ollie mentioned, you know, while the U.S. is amazing and the largest capital market in the world, the rest of the world is a really big oyster that we can clearly leverage and have a huge first mover or second mover advantage against 21Shares, moving forward. You know, Ollie, there's a, oh, sorry. Go ahead. Well, I was just going to say next question is sort of on our thoughts of, you know, Middle East or and I would presume the next one would be Asian expansion.
Olivier Roussy Newton (CEO and Director)
Yep. Yeah. I mean, like as I said previously on the call, specific geographies in Asia as well as the Middle East are very conducive to digital assets. They're very, you know, hospitable to companies like ours. So we've been in touch with, you know, multiple regulators across these jurisdictions to see how we can pioneer our business model in new and emerging markets, that you know, see digital assets and companies like ours, as growth opportunities for their economies. So we'll continue to, you know, explore theirs. And we should have, you know, news on those topics, you know, shortly. But we have a great, you know, regulatory framework. You know, you can, you know, refer to it as a template, which we can essentially copy and paste with other regulatory bodies around the world.
You know, just given that, you know, Johan and myself, when we, you know, started setting up Valour in 2017, he was operating ETPs in, in, in 2014, you could you could argue, you know, we have the most experienced team, in the world when it comes to, digital asset securities that, that are listed on traditional stock exchanges. So we've, we've had very positive, discussions with, you know, multiple regulatory bodies on, on leading the charge of, of pioneering their markets. I'm just seeing a, a question here from, from Michael Donovan. What sort of mix are you seeing between retail versus institutional interest in Europe? What are your thoughts on MiCA's impact when it comes to onboarding institutional clients? Are you providing ETP strategies in addition to passive ETP products? You mentioned interest in Solana. Are you seeing interest in specific tokens within the Solana ecosystem?
So I'll just take these one-by-one. So we are seeing our products as of now are primarily, I would say, kind of driven by retail interest. I would say there's kind of maybe a 60/40 makeup, but we're definitely seeing, and you can notice by kind of how, you know, the bids and the products are kind of being recognized by our trading desk that there's definitely, you know, more institutional activity occurring that we definitely saw in the Solana products. In terms of kind of MiCA's impact, it's fairly kind of straightforward and friendly for institutions to be onboarded.
I would say that's one of the differentiators of our products for institutional investors is that they don't have to pass through any new hoops that they would, say if you're, you know, a fund in Europe and you want to buy through a cryptocurrency exchange. That's where you're going to run into cost and trouble, you know, re-engineering, you know, regulatory measures to basically take into account other currencies in the form factors of digital assets. That's where you're going to run into issues where any fund can buy our products just like a stock, and it doesn't impact their regulatory structures whatsoever. We are looking at various different strategies, actively managed, passive, ETP products that you hopefully should see on the shelf relatively shortly.
In terms of, you know, growth within the Solana ecosystem, you're seeing, you know, hundreds of millions and, and I think, you know, over this year, billions of dollars that are going to be poured into venture capital-backed and decentralized Solana tokens and protocols. One which I mentioned, which is in our infrastructure column, Pyth, which we were one of the first node operators on, you know, recently surpassed a $1 billion market cap. We have a good relationship there with the team. They're doing very, very innovative things. People might be familiar with Chainlink, but they've essentially come up with their own kind of Oracle provisioning system on the Solana blockchain. So there's definitely huge amounts of growth in the Solana ecosystem.
We'll definitely, you know, have an internal process that we're managing and tracking these projects. You know, when they reach a certain level of robustness, stability, that's when we, you know, look to either directly partner with these foundations behind these tokens or, you know, take them to market on our own.
Russell Starr (Head of Capital Markets)
You want to do the next two from Ed, or you want me to?
Olivier Roussy Newton (CEO and Director)
Yeah. So, is there an opportunity to monetize JV minority investments given DeFi's valuation? Does it reflect these? Yeah. As I indicated, our venture portfolio was set up, obviously, to kind of reap the rewards of, you know, having, you know, deal flow access and being early in these protocols, but also being early in these protocols to cultivate relationships and ultimately be the first to market in terms of bringing them into our main cash flow business, generating business, which is Valour.
So we'll definitely continue to spearhead these initiatives and, you know, potentially what you might not see directly on the balance sheet from our venture portfolio, if we're, you know, cutting checks directly into these tokens, developing relationships, and bringing them first to the market, in the form factor of Valour products, you will see that benefit in our underlying revenue. Being first to market with innovative products and, you know, next game-changer protocols that are constantly emerging.
Russell Starr (Head of Capital Markets)
And then I think you answered the next one just by discussing.
Olivier Roussy Newton (CEO and Director)
Yeah. So I think yeah, another one from Ed. So I'll repeat it. Have AUM inflows been consistently positive throughout year-to-date? So yep. Like I said, since inception, I think we've had one or two days of outflows. We're, you know, I'm, you know, enthusiastically surprised when I look at our trading data that I think, you know, and this goes back to how much information is out there and how much historical data people are correlating their trading activities with the growth of the crypto ecosystem. So I think, you know, people definitely look at, you know, halving cycles, our understanding that bear markets are when, you know, there's time for accumulation. So our, you know, customer base is extremely bullish long-term on digital assets, which, you know, helps us with the stickiness and retention of our AUM.
As you see, it kind of catapults our AUM substantially higher in terms of, you know, percentage gains in the hundreds of %, when we have these aggressive moves in, you know, that digital asset class that is obviously famous for.
Russell Starr (Head of Capital Markets)
And I'll crush this next one easy. Next, it's someone asking what is a mark-to-market FX loss? Why is it so high? And why is it equal to your operating G&A? All of those operating expenses that totaled CAD 30 million, basically CAD 28 million or sorry, CAD 18 million of those are all mark-to-market. And what that means is when we started this business, there's an average cost associated with the price of Bitcoin that we were buying. While Bitcoin was lower than that average cost, you take a mark-to-market loss, which never gets realized because you're never, ever exiting it. That actually has now flipped to a positive, and you should see a substantial mark-to-market FX gain in Q1.
But it's largely irrelevant to modeling out the business because it's basically a fictitious loss and a fictitious gain, based on average prices, that we either buy Bitcoin, sell Bitcoin, or similarly any of our other ETPs. So, you know, while it looks large, it's actually nothing. And this is just part of the accounting standards that we have to deal with on a day-to-day basis, with the Canadian regulators. Why should someone choose? Sorry, go ahead, Ollie.
Olivier Roussy Newton (CEO and Director)
Yeah. I can take this one from Shree. So the question is why should one choose DeFi ETPs? So you have Valour ETPs over others. The differentiation factor, I think, you know, historical track record, our team has created the digital ETP space. So track record of, you know, not going down, the security of the products, the resiliency of, you know, our trading desk and technical chops, that keep our products extremely efficient. And I think that's what people kind of look for and keep on coming back to us for, in our products, which I think, you know, speaks to our growth in AUM and, you know, underlying kind of robustness of our technology frameworks that we've developed over the years.
Russell Starr (Head of Capital Markets)
Also, in some instances, we're the only one who has the product. So, like the Uniswap, I'm not sure if there's another Uniswap product out there. I haven't seen it. But for a long period of time, we were and may still be the only company with a Uniswap ETP. Right? And, one other one is.
Olivier Roussy Newton (CEO and Director)
Absolutely.
Russell Starr (Head of Capital Markets)
Yeah. Our Bitcoin and Ethereum products, everyone in the U.S. is talking about the race to zero management fees. We already have zero management fees on our Bitcoin and Ethereum products.
Olivier Roussy Newton (CEO and Director)
Well, they're actually called Bitcoin Zero and Ethereum Zero, which we launched them with in 2020. Yeah.
Russell Starr (Head of Capital Markets)
Do you mind if I grab this one? Just, it's addressed to me. Mark's asking, can you expound in greater detail on how $1 billion in AUM might shift our forward-looking one-year guidance? What might our operating incomes look like? And actually, the next question also fits into this, so I'll kill two birds with one stone. And that is, have total expenses in Q1 remain similar to Q4? So at $1 billion in AUM, one part of the reason why we gave the $650 million AUM and the $46.8 million guidances so people could actually calculate how much money we're actually making, across all of our products, which is about 7.2% yield. You go to $1 billion in AUM, that means we're making $72 million in revenues.
It's a little bit higher than that because we're not including trading flows. It's probably closer to $75 million. Adding in the answer to the next question after that, basically, our costs are now set at a fixed $12 million a year run rate. I mean, it might go up a tiny, but it might go down a tiny bit. But yeah, our expenses will basically not change, really in any material fashion moving forward. While, as I mentioned, you know, revenues and therefore profits will skyrocket as Bitcoin goes higher.
Olivier Roussy Newton (CEO and Director)
Yeah. I think what, you know, to Bobby's question also, you know, having lived through several bear markets teaches you is, you know, you cut costs wherever you can, whenever you can, and are always looking to, you know, opportunistically decrease spend. And it's just something you get used to living with, when you have these, you know, severe bear markets, which are great to, you know, create and make extremely efficient and robust revenue-driven business models. So.
Russell Starr (Head of Capital Markets)
Great. Next one. You want to track that one down? It's on tokenization.
Olivier Roussy Newton (CEO and Director)
Yeah. So we definitely—I mean, in terms of real-world assets—definitely something that we've been looking at. You know, you've seen, you know, a definitely large momentum in real-world asset-associated tokens as of recent, due to the tokenization of BlackRock's first fund on the Ethereum blockchain. So it's definitely a theme that we're looking at. Definitely, some of our technology partners and the Swiss digital asset ecosystem has been, you know, pioneering the tokenization of real-world assets. So, as of yet, we don't have anything in operation, but we are definitely looking at, you know, real-world assets and potentially the productization either in Valour separately of those opportunistically, as of now. But as of yet, we don't have anything in the pipeline.
Russell Starr (Head of Capital Markets)
You want to tackle that one, or you want me to do it?
Olivier Roussy Newton (CEO and Director)
I think, yeah. This is the questions. Can you speak to your management fees on your products and the revenue of those, assets under management? You know, I think that's been kind of a common thing we've addressed in our conversation. You know, we are currently innovating to remove centralized form factors from our revenue production and bringing it in-house in a decentralized fast fashion that will continue, which results in higher yields of our trading revenues and assets under management. And that's something we're, you know, perpetually doing going forward. And you know, as we've discussed, we have a fixed cost or, you know, hopefully depreciating cost basis that will continue to drive enormous growth to our bottom line.
Russell Starr (Head of Capital Markets)
Jeff asks, you know, how do you think the new legislation, and ETFs affect your business?
Olivier Roussy Newton (CEO and Director)
Yeah. So, I mean, you know, when the ETFs got approved and launched, this was, you know, a question both myself and Russ were, you know, kind of inundated with, but lots of people reaching out to us and saying, "Oh, is all of your, you know, Bitcoin AUM gone overnight?" The answer is no. It's actually grown since then with record net inflows. And I think it's definitely great for the space because you're seeing institutional and retail participants now being able to access a regulated instrument in the largest capital market in the U.S., which is great for digital assets as a whole. For our products specifically, it doesn't affect our growth.
It actually is a positive to our growth as our, you know, our focus is niche markets in various geographies around the world where people are not trading in the U.S. market time zone, and they're also trading in their, you know, in Sweden, they're trading in Swedish kronor and other, you know, localized currencies in other European markets. So we really, you know, focus on providing the best experience for our customers in those different jurisdictions. So yeah, that's my answer to that.
Russell Starr (Head of Capital Markets)
Then, you know, next question is, would you ever consider raising a digital asset venture fund with Pomp? I mean, that's an easy one. We already have it. You're looking at it, guys. Pomp, Pomp,
Olivier Roussy Newton (CEO and Director)
Yeah. So, Pomp has definitely kind of, you know, before we made the acquisition, I think he's been an advisor to our company for close to since inception. And as referred to a few names in our venture portfolio, would we, you know, explore the opportunities to, you know, shape our own venture fund and raise outside money? Yeah, definitely potentially. And was a conversation I had over lunch earlier today. So, you know, as the digital asset class expands, as we see opportunities, we will definitely kind of act on them, you know, to the best of our abilities. And that's definitely an area of discussion we've had.
Russell Starr (Head of Capital Markets)
Any interest in white labeling our products for large institutions and investment banks?
Olivier Roussy Newton (CEO and Director)
Yeah. So I think, you know, this is kind of a, you know, double-edged sword that we've looked at, in terms of, you know, one thing you need to factor in is, you know, opportunity cost, proprietary knowledge that who what information you're sharing with which counterparties, what their intentions are. We've, you know, essentially gone through very strategic joint venture processes with the likes of Bitcoin Suisse, one of the first, I think, probably the first, digital asset company in Switzerland and in the Swiss ecosystem that has been kind of a champion for Switzerland and regulatory frameworks. So I think, you know, you'll see more, you know, mutually beneficial joint ventures presented and announced over time as we identify the right counterparties to attribute growth to our bottom line.
Russell Starr (Head of Capital Markets)
Are you looking to launch any ETPs for BRC-20 or other Bitcoin chain projects or tokens?
Olivier Roussy Newton (CEO and Director)
Yes. Yeah. So, you know, given our name, DeFi, absolutely. We're very enthused by Bitcoin, you know, and the whole layer two community that's evolving on chain. Obviously, it's the largest asset class in terms of the digital asset space. So the innovations that are bringing DeFi on chain are extremely exciting. And we're actively discussing, you know, I'll leave some things up for mystery, but we're actively discussing very novel ETP products that have to do within the DeFi and Bitcoin framework that's emerging within the L2 space. And for anyone listening who hasn't been following kind of the innovation on Bitcoin and DeFi, you know, Ethereum kind of made this all possible, several summers ago.
But, you know, the robustness of the liquidity associated with Bitcoin is very interesting in terms of capturing yield off of that asset class. And we're actively exploring ways to conceptually, you know, formalize that into an ETP form factor.
Russell Starr (Head of Capital Markets)
Yeah. This next one's kind of similar to the last one, but it's, you know, Michael Saylor and MicroStrategy is a Bitcoin-focused company. Do you see, they see a match made in heaven for DeFi? Would that be of interest to your team? And then, you know, the last question is also, do you, due to the huge value proposition, do you foresee a potential acquisition or bid for Valour DeFi?
Olivier Roussy Newton (CEO and Director)
Well, I mean, I can take the last one. I think, you know, we've we have lots of inbound from I would say, you know, due to the recent launches of the Bitcoin ETFs, you have probably every single financial institution globally looking at how they can bring digital assets to their customer base because they're inundated by requests of, you know, if you're a client of a bank in Hong Kong or Singapore, and you can't access the Bitcoin ETFs in the U.S. globally, you're asking your bank or your financial advisor how you can, you know, get in on these massive returns that are being produced by the digital asset sector. So, you know, will there be new entrants in this space? Definitely.
I would say as of now, we have our heads down and our focus on delivering as much kind of, you know, shareholder growth as possible through, you know, the launch of our roadmap and optimization of our revenue-producing yield associated with our AUM.
Russell Starr (Head of Capital Markets)
And the only thing I'd add to that, for everyone listening, you know, management has a very meaningful stake in this company. Well over, like, 100 million shares are controlled by participants on this call and other, other players in the company. My, my worry is that we're bought too soon. And I know that sounds a little cheeky, but it's not meant to be that way. We, we have a massive advantage that we're leveraging, having all of these products that the likes of BlackRock, Fidelity, and, and any of these other ETF providers would want to be involved in. And if you look at the way they operate, typically, it, it tends to be through acquisition. You know, and we're, we're, you know, very close to cresting through $1 billion.
If things work out in the Middle East or Asia, all of a sudden, our AUM growth is even more substantial. And, and clearly, that's something we're, we're hyper-focused on. And with, with the tremendous discount that our stock's trading at, we become a very intriguing target. So, you know, we're going to have to work diligently to, to get the share price up. And that's something we're working on aggressively. And, and you can see it unfolding on a day like today. And Dave asks this just falls on is, is our lower share price keeping institutions from participating? Look, Dave, no. I would guess that there's probably institutional buying or an institution, or it could just be a ton of high net worth in retail. But, but people are starting to realize the value proposition of this company.
The Pomp article today is, is an early step in that, our press release and our guidance and other step. But, you know, I have to reiterate that math. You know, we're already more profitable than any miner, basically, out there. We, we are we are generating more free cash flow than some of these multibillion-dollar companies. And, and it's just a matter of getting more eyeballs on our stock. And if everybody remembers what happened before, it was, you know, kind of 60, 70, 80, and then all of a sudden, we were $2. And, and I have a you know, the what's the best predictor predictor of the future? It typically is the past. And I, I don't see this as being any different, this time.
Ollie, if you want to handle this one, do you want to buy back shares at some point, or even issue a dividend if you start getting into that sort of billion-plus AUM?
Olivier Roussy Newton (CEO and Director)
Yeah. I think we've had a share buyback program in the past. It's something we'll definitely explore, in terms of, you know, when we see the opportunity to do that. I think it's a, you know, a management decision that gets discussed. But, you know, right now, we're focusing on, you know, getting out as many innovative products as possible. And, I think, you know, the realization of, you know, new financial quarters ahead of us and people seeing the underlying growth being realized will eventually kind of correlate to the share price, or, you know, very rapidly, as, you know, Russ pointed out, we've seen historically within our share price. Last question from Joseph. ARK partnered with 21Shares, listed Bitcoin product in the U.S.
Were you approached for product listings? Would you partner with a giant asset manager like those heavy hitters to list products? What are such dynamics in such a decision? So good question, Joseph. We yeah, we were definitely approached by, you know, U.S. market participants, you know, with, with portfolios. We looked at acquisition opportunities, and eventually kind of made this decision to focus on what we're good at, which is, you know, the markets that we operate in. I think going you know, we from a technologies perspective, you know, there could be opportunities in terms of, you know, productizing our trading engine, eventually when you know, these large institutions have to manage a multitude of cryptocurrencies over time.
But we don't think, you know, the BlackRocks, the Fidelities of the world have such a kind of, you know, controlling stake of the U.S. financial enterprise that it would be a bit reckless of us to, you know, go into a market we know nothing about and try to compete against behemoths. So that's a, you know, an executive decision that we made to focus on where we're seeing growth, which is in novel cryptocurrencies that will not be permitted for many years to operate within the United States financial sector. So to, you know, to elaborate, you know, again, at Valour, we're seeing the biggest growth in new coins such as Solana. And our main focus is on bringing, you know, all of these new coins to the market.
That's something that we just simply can't do in the U.S. under its current regulatory regime. We don't see that, you know, changing anytime soon.
Russell Starr (Head of Capital Markets)
You know, everyone, it is 2:00 P.M., and we're at our limit. But you know, as always, Ollie or I are you know, amenable to answering emails. Feel free to reach out. And I suspect from all of us, we want to say thank you. Thank you for joining us. And thank you for all of the questions. And thank you for being consistent and supportive shareholders.
Operator (participant)
That was great, guys. Very informative webinar. Thank you both so much. This does conclude the Q&A session. Thanks to everybody who joined us on the call today. If you do have questions or need more information, like Russ just mentioned, please feel free to reach out anytime. My email address is [email protected]. A video replay of today's webinar is going to be available very shortly, right after this call. So keep an eye out for social channels or contact me directly for the link. If you have any follow-up questions, reach out anytime and be sure to add DeFi to your watchlist. Thanks, everybody, and have a great day ahead.
Olivier Roussy Newton (CEO and Director)
Thanks, Jamie. Thanks, everyone who attended. Cheers, guys.
Russell Starr (Head of Capital Markets)
Thank you.
Olivier Roussy Newton (CEO and Director)
Thanks.
Russell Starr (Head of Capital Markets)
Bye-bye.
Operator (participant)
Thanks, Russ.