Pat White has been involved in the DeFi industry for a while and understands its history. He’s a big advocate and is passionate about what needs to happen for it to maximize its potential.
Mr. White is the cofounder and CEO of Bitwave, a complete enterprise digital asset management platform. Bitwave provides solutions for DeFi investment monitoring, multi-user wallets, cryptocurrency accounting, tax tracking, token management and accounts payable and receivable.
An enterprise software veteran with experience at Microsoft and Sisco, Mr. White was waiting so long for the intersection of enterprise software and cryptocurrencies that he decided to build it. A few years ago he saw non-financial firms using crypto for daily financial functions and knew if that rate was to increase such companies would need software to complete those normal functions or use wouldn’t scale.
“It’s an ecosystem for businesses using crypto,” Mr. White explained. “How (otherwise) do we enable businesses to compliantly use crypto, track it, get it into their accounting system and pay their taxes on it?”
Contrary to the mainstream media narrative of crypto solely as a value store, Mr. White said there are many who want to use it in the way it was intended, so many that they essentially pulled him into DeFi.
“We’ve ended up seeing this amazing evolution of the market where we’ve got people coming to us who are businesses that want to put their money to work,” he said. “These are… cash rich businesses and they want to start putting it to work in the crypto market and earning yield on it.”
The typical business began interacting with crypto as their customers began paying with it, Mr. White said. That led some businesses to pay bonuses with it and hold it as an inflation hedge. As they grew comfortable with it they want to put it to work in lending or yield farming. But because no proper software existed before now, each company was left to do many of the transactions done by their financial institutions.
As I saw with the evolution of multiple fintech sectors, after the initial buzz wears off people mistakenly believe a crash has occurred. But innovators like the calm, where they can work without the attention. The same works for developers happy to cede the spotlight to an aspect of the sector that commands the spotlight.
“NFTs have taken over a lot of the mine share but there’s this constant, steady drumbeat of really cool stuff which is taking traditional financial products and moving it on the blockchain and cutting out the middleman like the JP Morgans and Goldman Sachs of the world,” Mr. White said. “It’s a really exciting time that’s going to fundamentally change finance for corporations over the next couple of years.”
Bitwave’s software was designed as completely agnostic, which was a feat in itself, Mr. White said. Go to three accountants and they will all have a different opinion on how to treat different crypto transactions.
“ETH turns into WETH (wrapped ETH) and there’s no agreement on if it’s a taxable event,” Mr. White said. “Are you trading ETH for WETH where you are disposing of one and acquiring another? Or is it containerization where you treat them as the same asset and move the cost basis over?
“That has implications. We have customers who have ETH at a 70-cent cost basis. If you’re looking at going into some sort of compound pool with ETH…This idea of going from ETH to WETH to compound and that’s all taxable between point A and point B… We have companies going at $100 million and they’ve just picked up a $98 million ghost capital gain that they’re going to have to pay capital gains on after just going into a pool to lend out money.”
And NFTs? If they’re deemed a collectible that’s another set of tax categories, Mr. White said.
Central bank digital currencies (CBDC) are well-suited to China’s diplomatic style, Mr. White suggested. The country plays a long game and their officials are strategic thinkers. They are years ahead of most other countries in developing a CBDC and could be posturing the digital yuan to become a digital reserve currency.
That’s bad news as they would likely include tracking mechanisms that could conceivably extend to cataloging individual purchases and even geolocation tracking, Mr. White suggested.
“In that case it concerns me that in fact a Chinese CBDC can be a massive use for censorship, government control and autocracy essentially,” Mr. White warned. “You can’t have a more powerful controlling mechanism than that.”
Each CBDC could be designed differently so they perform different functions in a global economy, Mr. White said. Look at Bitcoin, which is a value store, as opposed to Bitcoin Cash or Dash, which are more transaction-based. Monero is a privacy coin while Ethereum and Cardano are smart contract coins.
“The more we pretend there’s not all these very strict verticals around use cases the worse it is for everybody,” Mr. White said.
While we are currently at Web 3 Version 1, Version 2 is where other smart contract players will emerge, Mr. White said.
“No one wants Binance Smart Chain to be a winner,” he said. “No one wants a centralized platform to be a winner for DeFi. That’s antithetical to everything we’re talking about.
“The winner will be the best ecosystem. There will inevitably sidechains for specific business purposes. If we do want to be like the traditional trading mechanisms, the maker/taker bid/ask markets, which we don’t have in the crypto world right now…For those to get into the DeFi world there will have to be a smartchain that is doing that. There has to be a separate sidechain that supports peer-to-peer trading at the speed and specificity that NASDAQ does right now.”
There is a massive revolution in finance and the US should be scared, Mr. White said. Financial services and expertise are big exports for them and if the government does not provide clear and effective guidance the country’s leadership position is threatened as trillions move from traditional finance onto the blockchain.
“It is well underway, it is happening every day,” Mr. White said. “Companies are generally worried about doing that type of business in the US. They still do it but it is generally concerning to the point where a lot of our customers have multiple entities in the UK, the Caymans, wherever it is because it is so much clearer what the regulation is there.”
And for the love of all that is good, talk to people who actually know DeFi and not just the folks around the corner on Wall Street.
“I haven’t been asked to talk to the SEC to give my opinion,” Mr. White said. “The people they’re talking to have a vested interest in the world not dramatically changing and financial instruments not dramatically changing. The world has absolutely passed the US by. There’s tons of amazing things happening in other jurisdictions.
“It may be that businesses are waiting for the guidance from the SEC but startups aren’t. People driving the change here, they’re not waiting for the SEC. “
