Public Key Podcast

Fan Tokens and SportsFi: Alexandre Dreyfus – Ep. 89

January 9, 2024 | by Chainalysis Team

Episode 89 of the Public Key podcast is here. Fan Tokens and SportsFi might be very new terms to those in the crypto industry. In this episode we have Alexandre Dreyfus (CEO, Socios.com + Chiliz) explain how the biggest sporting brands in the world are embracing blockchain technology and accelerating fan engagement through the newest phenomenon in crypto, Fan Tokens.

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 89.

Public Key Episode 89: Fan Tokens are newest way to engage fans of major sporting teams on the blockchain

Fan Tokens and SportsFi might be very new terms to some in the crypto industry, but probably not to the biggest soccer and football fans around the world.

In this episode, Ian Andrews (CMO, Chainalysis) learns everything about Fan Tokens from Alexandre Dreyfus (CEO, Socios.com + Chiliz) who are working with premier league soccer clubs, F1 racing teams, NFL and UFC partners.

Alex discusses the concept of Fan Tokens and their growth in the sports industry and how they allow fans to have a voice and vote on decisions related to their favorite sports teams. 

He also highlights the importance of regulation and compliance in the industry, as well as the challenges of security and user experience. He expresses optimism about the future of Fan Tokens and the potential for further innovation in the space, including challenging regulatory landscapes like in the USA.

Alex touches on how Fan Tokens differ from traditional NFTs and how his team is exploring a non-custodial platform in order to give users more autonomy. 

Quote of the episode

“And to give you some fun fact, Paris Saint-Germain fan token in August, 2021, so we are at peak bull markets, so it’s a bit unfair, but still there is Leo Messi that left Barcelona and joined PSG. During three days, the PSG token was trading a billion dollar a day on all the platforms and was more traded than Bitcoin in Brazil.” – Alexandre Dreyfus (CEO, Socios.com + Chiliz)

Minute-by-minute episode breakdown

  • (2:23) – Alexandre’s background in online gaming and poker and the emergence of regulation in the industry
  • (4:43) – Explanation of how Fan Tokens work and how they provide value to fans and teams
  • (13:20) – The goal of opening the ecosystem for developers to build on fan tokens
  • (15:40) – Fan Tokens vs. NFTs 
  • (19:24) – The global regulatory landscape and the need for compliance and education of regulators
  • (27:32) – The rewards and risk of launching non-custodial platforms for average users
  • (29:13) – Security concerns in the sports token industry 
  • (33:05) – The outlook for entering the US crypto market in the future 
  • (35:02) – Excitement about new SportFi features and decentralization

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Ian:

Hey, everyone. Welcome to another episode of Public Key. This is your host, Ian Andrews. Today I’m joined by the CEO of Socios.com and Chiliz, Alex Dreyfus. Alex, welcome to the program.

Alexandre:

Hi, Ian. Thanks for the invitation.

Ian:

Your background is fascinating. You started in the world of online gaming, online poker, if I’m not mistaken. And have since built your way into the cryptocurrency and specifically the world of fan tokens, which is a fascinating area that I think’s actually seen some great growth over the last couple of years. Tell us about your early career. How did you get into the world of online gaming?

Alexandre:

So I’m a Web 1.0 or Web 0.5 at first, actually I’m French, as you can hear with the accent, but I’ve been a geek, I mean since I’m six. I got my first computer when I learned how to write and read. And then in 1995, 1996, I created my first internet company. And since that time more or less, created several. And in 2004, moving into the online gambling, first sports betting and then online poker. Sports betting because of regulation, it’s actually a very interesting topic when you compare crypto and gambling.

But in Europe in 2003 there was a big case that a little more or less an online sports betting company to serve every users in every European countries, and that became the boom of regulated online sports betting. And so in 2004, moving into that space and then evolved into the online poker space, offshore, onshore, became regulated in several countries and eventually actually sold my business as the platform, especially to a US listed company that is still, I guess number one or number two in land-based casino industry in term of service provider. And so spend a lot of time as well in the US to understand how regulation works and lobbying and everything.

Ian:

Well, it’s an experience as an American that was so unusual to me, where when I was growing up, the timeframe you’re talking about, if you wanted to gamble, there were basically two places in the United States you could go. You go to Las Vegas or you could go to Atlantic City. And that was it. There was no idea of being able to walk down the street and go place a bet in a betting parlor. And I can remember the first time I went to London and I think the first time I went to Paris in the UK, Ladbrokes.

Alexandre:

Yeah. Ladbrokes.

Ian:

It’s like a retail outlet. You just walk down High Street and you walk in place a bet on whatever the Premier League game is happening that day. So your timing of creating this business was when that suddenly became international, where you could serve an entire European market, which must have just been incredible as it was moving online rather than this retail model.

Alexandre:

No, definitely. It’s interesting, every country is obviously different. In France actually, we never had this retail shop or barely had this retail shop. It was mainly UK as you said, Spain, Italy especially, a bit Germany who had a proper sports betting culture. And I’m a strong believer that the regulation of sports betting and the fact that it became regulated in most of countries help the sports to become bigger. And there is even an argument that I think I recalled 10, 15 years ago having read that the reason that the NFL was so successful, it’s because of fantasy in the US, and the fact that you were able to not bet, but kind of bet on that legally.

And that was very interesting. And I think sometimes even though, and it should be regulated and it should have limits and they are abuse and you have to be careful. Yet the fact that it became a digital product help to grow the, let’s say underlying asset, which is the game itself. So you being able to bet on the outcome of an event, make the event more interesting to watch and therefore has more value from a broadcaster perspective, et cetera.

Ian:

It’s absolutely true. I live in a city in the United States where our American football team has been terrible since I was young, almost unwatchable in many years. And if it weren’t for fantasy football, I wouldn’t pay attention to the NFL at all. Because you just don’t have that local franchise that you really care about. It’s an interesting connection too to the project you’re working on now. Talk about what a fan token is and why does anyone want one? Because I sense there’s maybe a similar concept around engagement here as there is with something like fantasy sports or betting.

Alexandre:

So five, almost six years ago, actually it’s going to be six years ago now, we created Chiliz and we created more or less Socios.com. The idea was very simple. 99% of sports fan are not in the stadium, not in the city, not even in the country of the team they’re supporting in general. And the question was what can you create that is both valuable for a fan and scalable for a team? So when you look at the revenue stream of a sports property, the main one is a sponsor, is TV rights, then it’s sponsoring, then it’s ticketing and match day, and then you have merchandising. This revenue stream of more or less have a ceiling. You cannot double them every year, you cannot increase, except in the US it’s okay, but in the rest of the world you cannot increase the price of the ticket.

People will go on strike. And so you need new revenue stream. What can you sell to fans all over the world? We think that recognition of being a fan, recognition of being a super fan and having a voice is actually valuable. So we created the concept of fan tokens, which in today’s world you could call that as a DAO in a way, you could call that as a membership program, as a social file, whatever you want to call it. The reality is, we created the concept of membership tokenized program let’s say, that allows you as a fan anywhere in the world to own a Paris Saint German, which is one of the top soccer team in the world or in Europe or FC Barcelona or Arsenal.

You own one of these fan token, as long as you own that in the wallet, you can vote on decision of the club. Sure, you’re not going to vote on what’s going to be the player or what’s going to be the business decision, but everything in the middle, which is fan related, is valuable to ask their fan for. And so we started with that idea. We signed two teams, Paris Saint German, Juventus in Europe in 2018. And fast-forward today, we are on more than 300 people, we have a hundred plus sports team more or less all over the world and in many sports.

Ian:

It’s amazing. I was looking on your website and it’s not just European football, you’ve got Formula 1 teams like Alfa Romeo and Aston Martin. You’ve even got some American sports teams like my local Washington Commanders and the New England Patriots. When you go to have a conversation with Paris Saint German, what did they say when you first approached them about creating this fan token? Does it make sense to them? Is it already lined up to their business model or are they like, “Alex, come on crypto, blockchains, why would anybody want to do this?”

Alexandre:

So first of all, in the us, as much as we have the Commanders and Patriots, and actually we had 88 teams in the US, we signed 27 NBA teams and 13 NFL teams, but we never launched any token due to the lack of guidance and clearance of regulation, let’s say in the US. So we were never able to recover our investment there. So we lost a lot of money when FTX collapsed, it killed the regulatory momentum that there was at some point last summer, I mean 18 months ago. And so we lost a lot of money there. And so for now we are not active anymore even on that side of the world. In term of when we approach in summer ’18, we approach thousands of let’s say European teams. Of course, we were already post peak end of ’17, early ’18, Bitcoin touched 19,000 I believe, or 20,000 and then it was already done back to 13,000 or 7K, I’m not sure.

And so we talked to people that looked at us like, “What is this? What are they talking about?” And I’m usually not afraid to sell that publicly. We talk to people that thought that, “Hey, let’s take the money these guys are offering us and they will go bankrupt anyway in two years. As long as they paid us upfront, it’s fine.” And we actually delivered, we actually way over delivered. And so eventually what became our biggest asset was the fact that we were not, I hope charlatans, we were not people trying to pitch a scheme that was not relevant. We really understood, we came from the sports space and the tech and the sports space. We didn’t come from the crypto space at all. At that time and still today, I don’t trade, I don’t own crypto myself except the one we launched. And we were very much aligned in the vision that these sports property need legitimate partner to help them guide them in the Web 3.0 space.

And I think we managed to build that company at least up to today. And then yeah, it’s the egg and the chicken. The more you sign, the more you sign and you create what we call a network effect, because every team, I mean the sports world is a very small world, so everybody talked to each other. So when they got to know that, “Oh yes, these guys are legit and they made the 500K for us or a million dollar or more.” People trusted us rightfully, hopefully, and that’s why we’re still working with all of these brands and we’re still investing and building the ecosystem around that.

Ian:

So if I’m at FC Barcelona, we have this conversation, I say, “Alex, you’re a great guy and you’re paying me upfront. So I like that business model, zero risk for me.” What happens next? How do you actually create the fan tokens? And I think you’re running your own blockchain, right?

Alexandre:

Yes.

Ian:

You’re not deploying on Ethereum or something else like that. But take us through what happens after we agree we want to start a project together.

Alexandre:

So it’s a long journey. So I’ll say we have almost three different tech product connected. One, we have the minting of the fan token. It’s kind of easy, it’s a smart contract, you code it, you mint it, great down, it’s free mind. So for example, FC Barcelona, they have 40 million fan token issued or minted, and there is a vesting schedule. It’s very similar to traditional, let’s say crypto asset, et cetera. Then you have the utility platform. The utility platform is called Socios.com. It’s not available in the US, but it’s called Socios.com where you can buy a custody. So it’s a custodial platform, hence regulatory framework around what we are doing. But you own your fan token of Barcelona, 110, 100. If you own your fan token there, that’s where all the voting and the gamification happens. So that’s where you can vote on the decision that the club is asking.

So we develop a whole platform for that. That’s where you can earn and redeem your VIP tickets, your money can’t buy experiences. You can even now have some auctions on some jersey and stuff like this. So the whole fan engagement experience is built in a very much Web 2.2, let’s say platform called Socios.com where all the fan tokens are available, they’re also tradable there. And that goes to the third layer, which is the blockchain. The blockchain originally was more or less a private chain called Chiliz Chain. I mean now we call it Chiliz Legacy Chain. Was a private Ethereum fork where only exchanges and socials were connected. And then it became since not a year, but six or nine months, it became like a permissionless chain. It’s still an Ethereum, but it’s a BSC fork, let’s say it’s an EVM chain. The idea was not to reinvent the wheel, the idea is not to change the world, the idea is not to be the fastest blockchain, but it’s to be the blockchain that is dedicated to the sports and entertainment space.

And now the chain is almost the main focus of what we’re trying to invest in, because for the last five years, most of the utility of these fan tokens were provided by us and the club. The club through us or through the club. And that was our strength, I believe for the first five years. That’s why we got 2.2 million users and we managed to grow the way we managed to grow. But we realized as well that there is a limitation in the fact that we need to give more power to developers, we need to open that ecosystem. We call that internally fan token everywhere. And I was in Korea two weeks ago. There, for example, Paris and German is very famous because there is a Korean player.

So my dream is that when you go to a Nike shop, which is the main sponsor of PSG, you will be able to get a 5% discount or whatever reward, benefits, gamification rewards because you have that PG token. But we can’t really scale that in every countries. Every countries has different partner, e-commerce platform, whatever. So we more or less wanted to really open the whole ecosystem so developers can build tools with the biggest IPs in the world. And most of chain are fighting to get valuable content. For us, it’s the other way around. We do believe we have valuable content, now we need to onboard developers and projects, even though I hate that word, to actually build the utility outside of us leading that.

Ian:

Yeah, it’s an amazing architecture. I mean it’s probably one of the most useful projects in the broad crypto blockchain ecosystem. I look at a lot of them. So the setup that you’ve got here is pretty amazing. I actually saw a tweet that I think you posted recently where someone had launched a DEX on top of the chain that you didn’t have anything to with, you weren’t sponsoring these folks, they just created it on their own.

Alexandre:

So we have Chiliz Labs, which is a different entity, which is funding and giving grants to developers. We had our first hackathons in Istanbul during ETH Devcon 10 days ago. It was cool to see because it was the first time for us. But yeah, we saw that DEX Sunday night, I received a message on Slack and then I looked at it. So I tweeted about it. I do say to people to be cautious because again, we’re not sure who’s behind and what they’re doing, but we’re going to review that.

But that’s what is interesting for us is, we spend so much efforts onboarding and being successful at onboarding the biggest brand in the world. And I believe we are good at that from a corporate perspective. We are good at getting big brands and giving trust to these brands. But now we need to rely on more people to develop features, utility, innovation on top of what we are doing. There are a lot of DEX, DeFi lending protocol coming on the cheese chain that’s going to spice up a little bit just for the sake of the argument, this cheese chain and the assets that are on the chain.

Ian:

Now as a user, if I’ve got my fan token or maybe multiple fan tokens, is there a secondary market? Can I decide I’m done with the team, I hate that they traded a player or they lost an important game and I want to sell my fan token off. Can I do that?

Alexandre:

Yeah, that’s what exploded. So we launched our first token, I guess early 2020, and the trading component, yes, training component came, I don’t know, mid 2020, not sure. And so these fan tokens are fungible asset, I would hate to use that word, but let’s say they’re cryptocurrencies because they’re fungible, except that for me, they are more asset than currencies because you are not buying anything with it. You are just getting benefits, not financial of course, but you’re getting utility benefits by holding these tokens and using them in the utility platforms. And these tokens are tradeable. They’re tradeable on Binance, they’re tradeable on OKX, they’re tradeable on every outside of US, every more or less, every single big exchanges Bybit, Bitget, in Brazil, Mercado Bitcoin, in Turkey, Paribus, in Korea, UPbit. So not all of them of course, but you have a basket of let’s say 10 to 15 that are more or less listed everywhere. And they’re traded significantly because that’s what it’s supposed to be.

And to give you some fun fact, Paris Saint German fan token in August, 2021, so we are at peak bull markets, so it’s a bit unfair, but still there is a Leo Messi that left Barcelona and joined PSG. During three days, the PSG token was trading a billion dollar a day on all the platforms and was more traded than Bitcoin in Brazil, for example.

Ian:

Wow.

Alexandre:

Was interesting, and it was a revenue stream of course for us, was a revenue stream for the club. And we had few example this. One thing that we are careful the way we say it, but it’s interesting, it’s as a category or as an asset class rather, fun tokens are actually way more traded than NFTs today. People don’t know that, people don’t really look at it. People think sometimes it’s gimmicky, yet it has at least in our eyes, way more utility than 99% of NFTs, that’s for sure. And it’s way more traded. Now, let’s be realistic. We are comparing apple and oranges, trading a fungible and trading a non fungible asset is really different in term of volume and everything. But it is interesting.

Ian:

It’s interesting that you said it’s a fungible asset. I would’ve assumed that it was built on the same spec as an NFT. Because I would assume there’s a limited supply of the fan tokens and they’re each unique and different, but you’re saying no that they’re actually not.

Alexandre:

No, there is a limited supply. So as I said, Barca has 40 million. Paris Saint German, it’s 20 million, UFC, I’m not sure. Formula 1 is probably 10 million, Formula 1 teams, it’s probably 10 million. This was calculated back in ’18 about how many… It was based out of the fund base. So we created a formula that based on the fan base and the potential fans that will come in the next 10, 20 years on the platform, we made a multi-tier ladder and that’s how we created that. And they are fungible because the irony of NFTs is NFTs are non-fungible, which it’s their trend, but it’s their flaw as well.

Because the fact that they’re non-fungible make them less tradable and therefore less liquid and therefore less valuable. We also seen that you can have a Bored Apes, I think Bored Apes, it’s like 10,000 NFTs or something like that. So I think the way we see NFTs as of today, it’s kind of a rich club thing where you have 8,000 people, 10,000 people. But from a mainstream point of view, when you have a brand that exists for a hundred years and has literally a hundred million fans or 200 million fans, not that you can reach them easily, but the reality is you need to build a product or an ecosystem that at some point maybe in 50 years will be able to reach that.

Ian:

Yeah. So you don’t want to create the artificial scarcity that exists in a lot of the NFT projects because you’re actually trying to reach everyone that’s got an interest in the fan club.

Alexandre:

Yeah. You do want scarcity because if there is no scarcity, there is no value. And especially in sports, there is a limited amount of seat in a stadium, there is a limited amount of jersey available. There is a limited amount of how you can watch this. So everything in sports is about limitation, it’s about giving a value out of it. And it’s the same in crypto, in funnel engagement, you create a product that is not available to anyone, that has their own limits of course, because you cannot scale.

For example, we do some cool stuff. For example, there is a football soccer team in Turkey, which is one of our biggest market where the fans were able to choose the number on the jersey, in the back of the jersey. So they signed a new player and the fans are the one who decided which number between the two numbers is going to be a flocked on the jersey. This kind of thing is it never happened before. And I like to say that even though it’s very arrogant from us, but I’m French, so I’m allowed to be. It’s we pushed football club, we pushed sports property to give more to their fans because of the investment we’ve made towards them. And that’s very valuable for everybody today.

Ian:

It’s pretty incredible to extend that level of engagement. It seems like something that is, it’s a new feature of being a fan if you actually get to participate in the governance of the club somehow.

Alexandre:

And there are some of the clubs we’re working with are actually listed company. You have Juventus, club is a listed company, and that’s what is interesting. There is an argument how many times you’ve heard and read, “Oh, that’s amazing. You could create a token and you own a piece of the club and because you own a piece of the club, you can vote.” Well, first of all, this is securities, number one. If you own a real piece of a club that’s securities, which is fine, but it’s a different topic. Now if you really do securities out of a football club, well it’s more or less an IPO and that already existed for the last 40 years. You can today buy a share of Manchester United on the New York Stock Exchange, but what a share of Manchester United gives you in term of right? Nothing. It give you the right to say, “Hey, I own a share.” But you cannot vote anything. You don’t have any special benefits as a fan.

So the irony of fan token is you will always have the traditional governance and ownership layer, obviously, which is everything would be regulated at some point, but this one is the securities one. And then you have a more lower governance slash engagement layer, which is I hope, fan tokens, where you do have a voice on a more scalable way towards the teams that you like. And this voice comes with some benefits, comes with disclaimers, comes with regulation, regulatory framework of course, depends on the country, but that’s what’s very interesting.

Ian:

We’ve touched on regulation a few times. Obviously, I tried to actually create an account on the platform, but I’m in the United States, so I wasn’t allowed to access it, which I was sad about. Outside of the situation in the US, what is the reception to what you’re building here? In Europe, is this sort of accepted or are you still out on the edges of how the regulation is set up today?

Alexandre:

So we are one of the, so-called crypto project that has really a global footprint. So we have six people full-time internally from regulatory and legal department. So it really depends. So for example, in Brazil, which is our second market, in Brazil, crypto and Bitcoin in general is pretty much legal. Exchanges are legal. There is a regulatory framework from an AML perspective of course, but you don’t need a license to operate in the country. But if you go back on the equivalent of I think CFTC more than SEC actually, but let’s say the equivalent of CFTC, SEC in Brazil is called CVM. You have the superintendent of the CVM who tweeted, it was very weird because we didn’t expect that. Who tweeted in September of this year, made a video of him, a selfie video talking about fan tokens and how they’re relevant in the country to help the teams to generate revenue and to help the fans to be closer to their team.

So that’s the ultimate kind of dream country where the regulator talk about the product itself, because in Brazil we work with the top 10 biggest teams and we are huge there. In most of countries actually, let’s say we take Europe, we call that registered. It’s not really a licensing mechanism, but it’s a registration in many countries in Europe where it’s needed, for example in Italy, in Spain, everywhere we have a team and I will take the example of Portugal. In Portugal we work with the biggest sports team, a team that is like by 60% of the country, it’s called Benfica. When we signed that deal, which I believe was in November ’21, it took us a year to actually eventually launch the token because we had to ask the permission of the Banco de Portugal to make sure that both the issuing of the token and the operating of the trading platform or the utility platform was okay under the regulatory framework.

And normally we actually apply to be registered as a platform there. And the Banco de Portugal actually responded after a lot of exchanges, that we don’t need to register, which is what in US you call that non-action letter. It exists only with CFTC, it doesn’t exist with SEC. And so we’ve done that in every single country. In Malaysia for example, when we launched a token of the biggest team as well, we actually asked the permission to the local regulator and we got the same thing. So in every country we either get regulated like in Italy, in Spain, in Lithuania and other place, either we ask permission to do regulator, either we do nothing because we cannot do anything.

Ian:

It’s got to be a huge overhead on the business to do that in every single country as you’re going around the world.

Alexandre:

Yes. So the thing is, I mean the answer is obviously yes. The difference from us and from most of so-called crypto entities is, because we come from the online gambling industry, when we build our business, our mindset was already to work as a regulated entity. So every tool we’ve built, everything we’ve ever done, always was, and I hope always was with a pre requirement that we’re going to be regulated one way or another and we need to act as a regulated entity. So we didn’t come with the naive utopia of Web 3,0 where everything should be decentralized and there is no regulation, blah, blah, blah. Not at all.

And that’s why sometimes, probably we didn’t succeed as much as some traditional decentralized company, not company, but project because we were too… For us, when you work with the teams in the IP, the brands we are working with, we cannot afford to fuck it up. Excuse my French. So there are some things that we were not able to do even though other could have done it. So we have to be very careful of that. But in the long term, it pays and that’s also why the teams and the sports property enjoy or at least feel confident to work with us, is because we take this very seriously.

Ian:

Yeah, I mean that’s the biggest headwind I think right now across the broader crypto and blockchain industry is that, the people on the outside, they’re interested, but they’re very concerned. Not everybody’s taken the same strides that you have when it comes to compliance and regulation, and they don’t see that maturity and it’s like, “Well, this is just a risk to my business for something that maybe doesn’t have a return.” And so…

Alexandre:

I just want to add something on this. Because we had, for example, a very famous soccer player, a football player, one of the top three guys who has, I don’t know, 400 million fans. And they ask themselves, “Hey, should we launch a token?” We didn’t want to launch a token for them because we don’t believe in social token and individual tokens. But one thing was interesting for that, I love the guy, what the agent said to us, “Hey, we don’t want to launch that token as well because if that token goes down 30% Adidas or Nike, who gives me 20 million a year suddenly is going to ask me a discount because the brand or the fan sentiment is down.” And so there is an argument that the difficulty for so-called Web 2.0 Or more, how do you call that? Brick and mortar businesses, how do you embrace crypto and blockchain without damaging your existing business? And that’s a very interesting point.

Ian:

It really is. I hadn’t thought about this, a personal token being an index on your value to society. How interested are your fans in you. As you get older later in your career, you lose a step on the pitch, suddenly your value starts trading down. That would be a very sad moment.

Alexandre:

But that’s actually, that’s the reason we don’t do individual tokens because people die, people retire. So there is no utility, there is too much risk of insider trading. It’s not like a corporation, so we like to work with brands, corporation who have a marketing department, a legal department, and whoever will die eventually in the team, the team will still survive anyway. So that’s the reason we focus on that actually.

Ian:

So if I’m coming to sign up and I want to buy my first fan token, let’s say I was not in the US, you have a know your customer program, I have to show my ID, and then you have a nanny money laundering transaction monitoring team. You’re kind of looking after everything in that secondary sales market?

Alexandre:

Yeah. So because we come from online gambling, especially online poker and sports betting, and because we also based, I’m based in Malta for the last 17 or 18 years, so here in Malta we have I think 13% of the GDP of the country is made by sports betting company. So most of Europe, top European betting company are actually based in Malta historically for the last 20 years. So we have a pool of talent in term of KYC, transaction monitoring and compliance and money laundering, et cetera, anti-money laundering. That is very valuable. And so for us, indeed, when you create an account, it depends of the country. If you’re in Turkey, in Brazil, in Mexico for example, or in Europe, you have a different set of rules. So we had to develop a platform that based off where you are will react one way or another based on the local regulation.

And sometimes it’s going to become a bit frustrating because for example, NFTs in Europe, you can buy NFTs, you can trade NFTs, and you don’t need KYC, you don’t need AML. And so you don’t even need theoretically, let’s say age verification, let’s say there is, but there is an argument that it’s easier to play dirty if you wanted to with NFTs than it is with traditional crypto assets that are fungible. And in our case, depends on the country. For example, in UK because of the new FCA rules, you cannot spend your first euro or your first pound if you haven’t been KYCed and if you haven’t answered, I don’t know, I think it’s six questions out of 24 that are randomly picked up. And I believe as well that you cannot deposit your first euro or pound before a 24 hours cool down period, which is a little bit crazy, but it is the rules, so we have to follow the rules.

In continental Europe, it’s a little bit different. In Turkey, it’s different, in Malaysia it’s different. For me, what’s going to be interesting and frustrating and challenging is, we need to start to educate regulators about two kind of views of crypto. One is the trading part, the other one is the utility part. And should I, if I’m a fan of Paris Saint German or Barcelona, I just want to spend 50 euro in order to acquire this token and to vote on the decision of the club and do stuff with tickets. Should I KYC myself fully? KYC for 50 euro knowing that you cannot trade it or it’s not a medium of exchange, you cannot redraw whatsoever at that point. So it’s literally a transaction that is one way. And should I give my full identity card and whatever other things that are requested? It’s challenging.

So the problem we’re going to face in the next two, three years is, every single thing that touch crypto will be put in the same basket that is trading, yet there will be more and more utility platform and tools that should not require that deep KYC at first. Don’t take me wrong, as soon as I spend more than 50 euro or 200 euro, or as soon as I can trade or withdraw. So the platform becomes a medium of exchange, yes, of course I need to be KYCed before that, but when I just want to consume the utility of the asset I just bought, for that, I believe we should build new rules. And nobody ever has done that for the time being.

Ian:

Yeah, I haven’t seen that. In fact, what I’ve seen a lot of the rules being rolled out over the last year have a threshold of zero as the value point anything greater than zero… Right?

Alexandre:

Which by the way doesn’t exist in gambling, which is a little bit ironic, because in most of sports betting and online casino and online poker ad and countries, you could see an ad right now of DraftKings and FanDuel in the US you can see an ad of Ladbrokes, you create your account, you put 200 pound, 500 pound, thousand euro immediately, and then you have 15 days, 30 days to validate your account, et cetera. So you can spend already, actually you can spend and lose if it’s the question, immediately. And it’s true in the US as well, by the way, I think so. In most of states at least.

And crypto went, because of the toxicity of the narrative and the risk that it carry, which is true, it went super to the other extreme. But I don’t think it fit the utility narrative and I hope one day it’ll change a little bit. And that’s where there is from a regulatory point of view, there is a question about non-custodial utility platform where eventually people does the custody of their own asset and therefore we, Socios or someone else, can just take care of the utility, which is obviously a non-regulated product. And that’s going to be interesting I think in next 18 months to see how we can mix that.

Ian:

It’s so hard to do noncustodial platforms though, right? For the average user, the average sports team fan, right? Get a wallet, manage the security around that wallet. That seems like a huge challenge, right?

Alexandre:

Listen, I’m the only guy probably that you to have interviewed that doesn’t have MetaMask. So me, I need easy stuff. I need a MPC wallet where I don’t want private keys. Again, I’m not in crypto to evangelize the world about decentralization, I’m in crypto for the sports space. So we looked, and Socios will launch next year, not in the US but in the rest of the world, we will have a non-custodial wallet and we’re going to try to focus on that. But the tech is done by third party where the security is what we call multi-party computing or something like that, NPC and where you can just have an email or you can just have your Twitter account or whatever to have access and to sign transaction. And that’s cool. There is still the fiat component at the beginning. How do you fund your account because this has to be KYC one way or another, but there are more and more tools in all fairness that makes this way more mainstream even for a guy like me. And that’s what we need to push.

Ian:

Yeah. What about security? I would have to imagine valuable tokens, less technically savvy user base maybe than a typical crypto exchange. Really big brands participating. You’ve got to be a fairly high value target if I’m putting myself in the shoes of a [inaudible 00:38:20].

Alexandre:

Don’t jinx it, please, don’t jinx it. I mean, I guess still, no, we were not really because we had this kind of private chain, but now that Chiliz Chain is a fully permissionless chain, it’s our biggest risk and that’s very stressful, obviously we are trying to alienate nobody, we love everybody. The amount of the assets or maybe in a way, at least for the time being, they’re very low. So maybe it’s not the best target for the time being, but hopefully one day it’ll be, it’s a good problem to have. Of course, we have to be careful. We have to be careful the way we handle it.

And it’s the scary part. Now that reality is not that we became what is the chain became more decentralized. It’s a risk from the governance point of view, it’s a risk that is on every asset on the chain. It’s not really the risk anymore as an issuer like we can be. The platform, obviously it’s a risk as well, but hopefully we will become more and more non-custodial as well. But yeah, that’s the non cool part of that business, is being a potential target of white or black hack. And that’s an issue.

Ian:

I would imagine that from your days in the online poker world, this had to be, you had to face similar challenges in that world?

Alexandre:

Yeah, definitely. So there was no crypto, there was only, so-called fiat money. So for that angle, the money actually in the online gaming, the problem was not money in, money out, was the fact, I will always remember that in my life, so 2005, 2006. So we had a sports book. We were doing a regulated sports book actually from the UK. We had a license in the UK, et cetera. And we cover, I don’t know, hundreds of sports and there is this Polish football matches, I think they were Polish, I don’t want to say something wrong. And 10 minutes before the beginning of the match, at that time the live beating didn’t exist. 10 minutes before the beginning of the match, you have a gang of 10, 12 people that deposit money with actually wallets. Actually back in the years there were wallets called Neteller or Moneybookers, which are digital wallets, not crypto, but digital wallet like PayPal, more or less equivalent of PayPal.

And they deposit the money there, they win because the match was rigged and then they withdraw the money 10 minutes after the match. So this is typically the kind of attacks that used to exist, and it still exists actually in the sports space. And so you had to have tools to monitor that “hey, if the guy made a deposit more than this, you have to block the withdrawal for 24 hours so you can make verification.” Then you have to check that the result that you enter or it’s an API that you enter for is the accurate one, was there a suspicion of rigging, et cetera.

So that was for the sports betting. In poker, it’s even worse. In poker, the danger was the fact that people use stolen credit card to deposit money in a poker room. Then they play on a table with some friends, they lose their money to their friends on the cash game table, the friends, we draw that money legitimately. And then you get 30 days later the cashback of the credit card company and you paid the other guys. So all of these tools and smell, I would say that you need to be educated about to protect yourself. It’s same but different. But eventually it’s always the same scheme.

Ian:

I’ll be honest, it sounds way harder than securing things in crypto. I mean,-

Alexandre:

That Is for sure. Yeah, for sure.

Ian:

Having a professional football team throw a match and having people wagering against that, knowing the result was coming, I mean that’s a hard thing to defend against. That’s not technical security, that’s some serious social engineering. What do you think about the US market? Do you anticipate being able to come back to the US at some point in the future? What’s your outlook here?

Alexandre:

Sorry, can you repeat?

Ian:

Yeah. What is your outlook on the American market? You think you’ll be able to come back to the US at some point?

Alexandre:

Yes, I guess so. I mean, US is interesting because you could probably argue that it’s one of the most innovative country in term of innovation, yet sports betting, regulated sports betting and regulated poker, regulated gambling was more or less the latest countries out of all the western countries in the world. And by 10 years or 15 years, if you look at UK or even a few others. Then in crypto you can see that there is a cleanup happening right now and probably it’s healthy one way or another. So I’m pretty bullish, not bullish, but I’m pretty confident that regulation and clear guidance and framework will happen post November next year.

And so 25 should be a year where you’ll have hopefully a clear guidance about what you can do. Because what you cannot do is pretty clear right now. It’s more or less everything, but what you can do is not clear. And so I think for us, by that time, hopefully we would have proven like we did in the past, that we are a good partner to work with sports property. As I said, we spent more or less 80 million working with some US sports team in order to prepare an upcoming regulation that unfortunately never came. So we lost a lot of money, and we are confident that at some point in the next two, three years, we will be able to reinvest one way or another. And if we can’t, that’s fine as well. The rest of the world is good enough.

Ian:

Well, that’s terrific. My customary closing question. As you look to the next year and a half, beyond the US market, everything else in your business, what’s getting you really excited? What do we have to look forward to on the roadmap?

Alexandre:

For us, it’s really about new, we call that SportFi. So you have GenFi, DeFi, SportFi, so it’s all the new SportFi features that third party or us one way or another, are going to be able to launch, promote or support. That’s the main thing I guess next year and a bit more decentralization actually. And as I said at the beginning is, I’m a Web 1.0 guy, we are a Web 2.2 company. I hope to be a Web 2.5, 2.6 by the end of next year as a company. And I think it’s just enjoying the ride, offering better product to the fans, offering better product to the teams. That’s really what we are pushing.

Ian:

Wow, that sounds exciting, Alex, thanks so much for joining us on the podcast. This has been fantastic.

Alexandre:

Thanks again.

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