It was a packed house at the Ethereal Summit in Tel Aviv last Sunday. With Ethereum founder Vitalik Buterin and ConsenSys CEO Joseph Lubin in town, it was easy to see why.
Another mainstay of the digital assets market was also at the event - eToro CEO and founder Yoni Assia.
Launched just over a decade ago, eToro - which was originally called RetailFX - initially focused on providing traders with access to the currency markets.
Since then, the broker has grown massively, with its customers now able to access a variety of asset classes as well as a social trading service.
Cross asset class pollination
Assia’s firm has been particularly active in the past two years. After receiving $100 million in funding in 2018, the company launched its own cryptocurrency exchange, eToroX, and started offering commission-free equities trading in the UK.
Finance Magnates caught up with Assia for a brief chat at the Ethereal Summit, and we started our conversation by discussing the new commission-free trading service.
“Equities trading has been growing rapidly on our platform over the past couple of years,” said the eToro CEO. “We’ve seen triple-digit growth, and there’s also a lot of cross-pollination there in terms of people who come for equities and move on to trade other asset classes.”
That ‘cross-pollination’ is important. As Finance Magnates reported last month, stocks trading, with higher compliance and data costs, is not a big money-maker for most brokers - unless you’re Robinhood and sell all of your order flow to HFTs.
According to Assia, stocks trading alone is working well for eToro, but it’s also helping to bring more people on to the company’s wider platform.
“We see commission-free trading as a great way to give a basic service and then to have more people enter the eToro platform and access more of our services,” said Assia.
“About 50 percent of clients that use our equities offering will go on to trade in other products, whether that’s crypto, ETFs or CFDs.”
Less leverage, longer customer lifecycle
Assia’s firm has stood out in the retail trading market over the past twelve months, not just because of its new product launches but because of the market conditions in which it has managed to bring those new services to market.
Since the European Securities and Markets Authority introduced leverage and marketing restrictions last August, the majority of brokers have seen declines in revenue and left them, as a senior executive at one firm put it, “anxious to get all the business they can.”
Assia told Finance Magnates that, though eToro has felt some impact from those regulations, the group’s sizeable customer base and range of products has meant it was better able to withstand the fallout from ESMA’s rules.
“We do see regulators imposing leverage restrictions across the globe,” said eToro’s CEO. “Generally that’s a good thing, but I think people who do understand the risks of trading should be able to continue accessing higher leverage.
“For us, because we have 11 million customers and have been offering a number of products, aside from FX and CFDs, for several years, I think the transition was easier.
“And from a customer lifecycle point of view, the regulations were actually very positive. We’re seeing customers stay with us for a significantly longer period of time than they had [prior to ESMA’s regulations being put in place].”
Eating traditional finance
Turning away from regulatory concerns, Assia discussed in some detail eToro’s latest project - Lira.
An open-source platform, Lira provides users with a simple piece of code that allows them to create crypto derivatives. Using the code, I could, for example, create a Bitcoin futures contract with someone I know as the counterparty.
“Lira is an open-source programming language for money,” said Assia. “It allows you to write, in a simple form, complex financial contracts.
“For now we’re open-sourcing it, getting feedback and running it like an academic project. Eventually, we want to put those contracts on to the eToroX ecosystem and let people create and trade in them.”
Lira is undoubtedly a nifty piece of innovation. But selling derivatives contracts to retail traders is not.
And as Finance Magnates reported in July, cryptocurrency firms seem to be staggering into the retail margin trading market without realizing how much most respectable regulators in the world hate it.
That being the case, I asked Assia whether he feared a regulatory backlash - particularly if eToro acts as a market maker for those instruments.
“First of all, we’ll definitely be providing Liquidity on those derivatives contracts,” said Assia.
“The derivatives market is not going anywhere; it’s worth more than $500 trillion. Yes, it’s more of a market for institutions, and there’s always going to be a split between that and the retail sector.
“But we see this as a long-term process where Blockchain eats traditional finance. Lira is part of the infrastructure that will facilitate that process - yes it can run on the retail Ethereum blockchain, but it could also fit on to JP Morgan’s network too.”
eToro providing JP Morgan with technology? Crazier things have happened. And it was with that final comment that our interview ended.
Assia, complete with a unicorn-adorned t-shirt, had a panel to rush to. Vitalik Buterin, it seems, is more interesting to speak to than a Finance Magnates hack.
