Episode Twenty Two
The "Door" to Crypto:
Jeth Soetoyo of Pintu
8 June 2021
Welcome to the 22nd episode of Season Two of the Indo Tecko podcast. Selamat datang semuanya! I'm Alan Hellawell, Founder of tech consultancy Gizmo Advisors and Venture Partner at Alpha JWC Ventures. The single most requested topic from our audience since the beginning of this year has been crypto and blockchain. Indeed, there now seems to be a blockchain-based alternative to almost every process and procedure the world over. As a result, it is very clear that we all need to become better versed in increasingly ubiquitous cryptocurrencies and the supporting blockchain paradigm. In conferring with a number of leading investors and evangelists in the field, we were connected with Pintu ("door" in Bahsa Indonesia), an Indonesia-based platform focused on first time cryptocurrency buyers. Today's guest, Jeth Soetoyo, founded Pintu early last year. We hope our discussion today with Jeth serves to broaden our audience's understanding of crypto and blockchain. Thanks for joining us today. Jeth.
Thank you so much for having me, Alan. Really a pleasure to come on today and share more about the broader market for crypto but also a little bit about Pintu. And hopefully, this could be used as a springboard for a lot of other entrepreneurs or participants to come into this space. So thank you for inviting me.
Fantastic. Now, Jeth, during this podcast, I have one big request. I'm going to ask you to use as much common English as possible, as I think many of our listeners, like myself, lack even a basic understanding of blockchain and crypto, and are even more hopeless when it comes to tracking the mile-a-minute evolution of this space. Are you willing to agree to that term?
JETH SOETOYO 1:55
Of course. I'll try to use as many layman terms as possible.
Fantastic. I'd like to begin as we often do, which is your own account of how you eventually came to found your current business Pintu? Where did you begin to take an interest in blockchain and Bitcoin? And how did this lead you to found Pintu?
JETH SOETOYO 2:16
Sure, Alan. So my journey started in 2016, 2017. At that time, like many other people, I started my journey by investing in trading and cryptocurrencies. And after a certain point, I realised that there wasn't any great platform in Indonesia, especially to purchase cryptocurrencies. And so that's where the genesis of Pintu started. A lot of the platforms out there were more catered towards pro users, and the niche user base who are more experienced with cryptocurrencies. And so my own experience of dealing with crypto gave me the entryway to start thinking and imagining about what Pintu might be in the future.
Fantastic. Well, this leads me naturally to my next question, Jeth. Why does Indonesia need Bitcoin?
JETH SOETOYO 3:01
That's a great question, Alan. So I think historically speaking, Indonesians have generally been under-investing. As a percent of the population penetration of investments sits at about 1% to 2%. And beyond that, I think for Indonesians, they've always been only exposed to local financial products; whether it be bonds, securities, or equity; and other types of financial products. So they've never been able to invest alongside the whole world. And so I think the concept of being able to participate and invest in an asset class like crypto, whereby everyone around the world is investing in the same asset class, it's just a very strong narrative. For the first time ever, Indonesians can invest alongside the whole world. And I think that for a lot of Indonesians is just a very interesting and powerful concept.
Absolutely. I think exposing Indonesia to the same financial tools as the rest of the world is quite a mission. Now, Jeth, how much of Pintu's mission and business model actually relates exclusively to Indonesia? And to what extent in your mind, do we view ourselves more simply, as a member of a more global and seamless Bitcoin order, and we really just happen to be based in Jakarta?
JETH SOETOYO 4:16
That's a great question. It's very similar in terms of when you ask about Internet companies. Because by default, you're basically plugged in to a global network. Similarly, in cryptocurrencies and in blockchain, you're basically plugged in to a global financial network. And so whenever we think about our role in this, we always have to think globally. Part of our company's principle is to become a global company as well. Now, along that journey, users need to start at a certain point. And so we do see ourselves in the beginning phase of our own journey as a company to help customers and solve their first problems, which is the on ramp and off ramp into the crypto ecosystem. And the role of Pintu is basically to open up and become the gateway for people to come into crypto. So that's the role that we're playing. And every country has different wants around regulation and around integration into the existing financial system. So our focus currently is in Indonesia, and helping people onboard and onramp into this blockchain and crypto ecosystem. But beyond that, we do see ourselves developing products that could potentially cater to the whole world.
Understood. Now Jeth, you also founded Rupiah Token. And the tagline reads, "Boosting global acceptance of Indonesian Rupiah through blockchain innovations." Can you explain this further?
JETH SOETOYO 5:39
Sure. Rupiah Token essentially is a stable coin; a one-to-one asset-backed crypto asset, whereby we basically maintain the same amount of Rupiah assets in the bank account as the number of tokens in circulation. And so with the Rupiah Token, what we're trying to solve is basically the ability to offshore the Rupiah. Currently, the Rupiah is an onshore currency. And so you can't have access to that in banks or in the financial system across the world. But with the Rupiah Token, now, you can actually, so to speak, move through Rupiah anywhere around the world on top of an open blockchain that's permissionless and that's global. So we do see applications in cross-border transactions. I think this becomes very interesting when you start talking about, whether it be remittance or trade financing, there's a multitude of applications here that we see the potential for Rupiah Token.
Understood. Now, Jeth, why is it important to "boost the acceptance of Indonesian Rupiah worldwide" as we mentioned in our literature?
JETH SOETOYO 6:43
That's a very interesting question. And I think it goes back to the role of government. Every government around the world wants to maintain sovereignty over their own currency. And this is very important; to be able to manage their monetary policy within the country. With the advent of cryptocurrencies, managing your onshore currency becomes a little bit more difficult because of the role of cryptocurrencies. And today, we already see a lot of Indonesian users, and actually use us around the world, use these USD stable coins for means of payments or transactions. Now, I think from the perspective and the lens of the government, this becomes a problem because it undermines their ability to manage their monetary policy. So our role with the Rupiah Token is actually one that is also borne out of national pride. We want to be able to transact and use Rupiah for transactions on an open and permissionless network. And in doing so, we also want to help the government maintain their ability to manage their currency and have sovereignty over their currency.
Understood. So you may have partially answered my next question. Rupiah Token is the issue of IDRT, which you describe as "a crypto asset on the Ethereum blockchain that is backed fully by Indonesian Rupiah." You also mention that you can always redeem one IDRT for one Rupiah giving it a stable price. So what is the purpose of it being crypto, if IDRT seems to be pegged to the Rupiah?
JETH SOETOYO 8:12
That's a great question. And I think, when you come to think about it, cryptocurrencies is one part and blockchains are another. For us, we do see that cryptocurrency is an asset class on its own. But not everyone is ready for cryptocurrencies or not every use case can use cryptocurrencies, because of the nature of cryptocurrencies and the volatility around their price. For a lot of other use cases we use for daily transactions or for means of economic activity, you just cannot use cryptocurrencies, because they're just too volatile. So you do need a form of an asset that is stable in terms of value. And so that's part of the big reason why we started Rupiah token. And so if you also extend it: why do we need to build it on top of the blockchain? Well, we do it because we do believe that the blockchain is in its own self, a much better way, and a much better infrastructure, for the financial system. We have a deep belief that the blockchain is just way more efficient to manage transactions, but also provides a central ledger for you to record those transactions. And so you can build a lot of cool applications on top of the blockchain that integrate directly into the Rupiah Token. For example, just last year, we worked with Sablier, which is a project that allows you to stream money. And so what that opens up is that people, let's say, working across different borders could receive their salary and IDRT, in Rupiah or Token, by the minute or by the hour instead of getting their salary at the end of the month. And that is just one example of a use case. But there's just a multitude of use cases whether it be borrowing and lending, whether it be forex and derivatives. It just opens it up to so many different applications for the Rupiah. One other example if I can also elaborate is the FX market. I think for the longest time the Rupiah-USD contracts were very much traded in Singapore. But with the Rupiah Token, you can open up the potential and possibility for people to trade IDR-USD in a decentralised way, and have the transparency to be able to do that. Because most multinational companies now hedge their exposure to the IDR through these banks in Singapore. So potentially having an IDR-USD pair, working on top of a decentralised project, people can have access to that in a much more global way, and in a transparent way,
Far more applications than I would have even imagined. So that makes a lot of sense. Jeth, I would be remiss in not asking you this: what are the potential abuses of Bitcoin in Indonesia? And how do we guard against that?
JETH SOETOYO 10:50
That's a great question. And I think this is a question that's on the top of mind for a lot of regulators around the world, not only in Indonesia. Because when you work on top of an open and permissionless network, it just makes it easier for bad actors to do illegal activities. If you look back into the earlier age of the internet, a lot of people used it for illegal activities, whether it was porn or other types of activities. And so with an open and permissionless network for money now, you also attract a lot of illegal actors, whether it be people who will launder money or terrorists. There's just a lot more freedom for them to move around money. And so what's at the top of mind for a lot of regulators is what is called the "travel rule", or the ability to tag personal information on to each transaction that moves throughout the network. I think that is something that the government and regulators around the world are trying to implement now. And that adds transparency and a layer of hurdle for illegal actors to come in. Beyond that, companies like us and exchanges around the world, we also do active anti-money laundering (AML) and transaction monitoring on our system. So we look for certain, let's say, patterns and transactions that could be identified as either risky or questionable, in terms of the reason that they're doing it. So we flagged those, and then that goes through additional CDD (customer due diligence) compliance measures. And so companies like us are aware that sometimes our platforms are used for illegal activities. But we very much also want to support regulators, and also make sure that the transactions going through us are not illegal.
Let's round out that question. What is our broader relationship with the regulator? And do we expect a steady stream of new guidelines and licences coming out of the Indonesian Commodity Futures Trading Regulatory Agency, or "Bappebti", and/or the Ministry of Communication Informatics going forward?
JETH SOETOYO 12:45
We're actually very lucky Alan in Indonesia. Indonesia is one of the countries that are very much forward looking in terms of cryptocurrency regulation and crypto asset regulation. So the way the government looks at crypto is very similar in terms of how they look at the capital markets. The government does want to see a separation of role in the future between the role of a brokerage, the role of an exchange, a custodian and a clearing house. So that is the framework by which they're looking at regulating crypto assets and crypto asset trading. And so, as of day, they have issued brokerage licences. And as you may know, the government is also rolling out the exchange licence coming up soon. So that is what is in play now. And something to also give the viewers at home a little bit of context; the reason why crypto assets are managed under the Ministry of Trade and Bappebti is because Indonesia classifies crypto as a commodity instead of a financial product. So it falls outside the jurisdiction of the Bank of Indonesia, or OJK, the Indonesian SEC. So that's why we work closely with the Ministry of Trade. For the viewers out there who are not Indonesias, Bappebti is the Indonesian equivalent of the CFTC, the Commodities Futures Trading Commission.
Now, Jeth, what demographics, industries and verticals do you expect to embrace crypto most vigorously in Indonesia?
JETH SOETOYO 14:12
That's a great question. Because when you talk about blockchain applications, you get a wide ranging variety, and a buffet of options, all the way from supply chains to whatever now that's hot in the market. But going back to the fundamentals of blockchain; blockchain essentially is a ledger. And so if you think about a ledger and what applications are most useful for open ledgers, you come back to finance. And that's sort of the thesis from which we also think about blockchain, and also the applications that make sense. I think finance will take off. I think that is the most logical and makes most sense for a lot of people. And that's also part of the reason why you see the emergence of DeFi. DeFi is a term that's abbreviation for decentralised finance. Now with DeFi, anyone around the globe can engage with these DeFi apps, and perform financial transactions without any intermediary in between, and from anywhere in the world. So platforms like Aave allow you, for example, to borrow and lend. And an application such as Uniswap allows you to do decentralised exchanging of tokens. And I think for a lot of people, that is a very powerful concept. Now you have the ability to do these financial transactions without any intermediary. And the whole world can participate in that. And I think that is very powerful. Especially if you think about it, in the past FinTech companies have always been local. And they've always been local because of 1) regulatory reasons, and 2) you need to integrate yourself into the local financial system. Now with this alternative financial system, you can really build a product to serve the whole world. And I think that's just very interesting.
Absolutely. And so, Jeth, what age demographic do you think will be your biggest customer base?
JETH SOETOYO 15:55
Alan, you'd be surprised. You'd think that most of our customers are aged 20 to 30. But we're starting to see a lot more customers above 30, and above 40. And it's very interesting to see because I think at the end of the day, you also have to take a step back and look at the macro economic condition of the whole world. Now we're going through currency debasement. And second of all, I think interest rates are moving towards zero. So there's really not that much yield in banks. So a lot of people, whatever your age group is, everyone's looking for higher yields. And crypto in the last couple of months provides that yield. So we do see a lot of interest coming in from older age groups as well.
Understood. Jeth, what do you feel would be the one or two developments that would most powerfully spread the popularity and use of crypto in Indonesia?
JETH SOETOYO 16:46
That's a great question. At the end of the day, I think we also have to think about every human's basic instinct. I think now, what's driving a lot of interest into crypto is greed and speculation around prices. That's why we also see a lot of "altcoin" projects (cryptocurrencies other than Bitcoin), whether it be "Shiba Inu Coin", or SafeMoon, gaining a lot of popularity. And a lot of it is also driven by these financial influencers on TikTok or on some of the social media apps. So definitely investing and trading is one of the big key driving factors of adoption now. But I do also see a lot of people innovating beyond that, whether it be in decentralised finance, because now you can borrow and lend at higher interest rates, for example. That is also very attractive for a lot of people. And also another segment of the market that has gained a lot of popularity are NFT's, or non-fungible tokens; which essentially allows you to digitise ownership of art, digital art, or music or whatever it is on the blockchain and claim ownership over it. I think the idea behind it is to replace certification of ownership, putting it on top of a ledger that is transparent. I must say, it won't stop piracy. Piracy is a separate problem on its own. But this just allows you to be able to claim ownership and ensure that you are rightfully the true owner of this digital product.
Understood. So would there be a major milestone or indicator of the successful growth of crypto in Indonesia over the next five years, that we might see and say, "ah, there's been great progress"?
JETH SOETOYO 18:20
Just very high level: we do want to see higher penetration of crypto ownership in Indonesia. I think now it still sits at about 1% to 2% maybe closer to 2% of the population now. But if we do look abroad at the ownership, it is much higher. I think similar to equities and stocks. If you think about equities and stocks as well, Indonesia is still very low in terms of ownership compared to countries like the states. We would love to see more blockchain developers who are "crypto-first" and developing some of these DeFi apps. I think now you probably can count with your fingers the amount of people who can actually develop some of these blockchain apps. So we would love to see like a global app coming from Indonesia. I think that would be something that we would be proud of. And I think beyond that, we would also love to see potentially some venture companies focused solely on crypto, on blockchain. We do see this as the next paradigm in terms of innovation beyond the internet. And I think it requires a venture company that solely focuses on this asset class.
Now, Jeth, what are the common business models in our part of the crypto space? How are players most commonly making their money? Or in other words, why have leading VCs invested in the space? What are they expecting in terms of business models?
JETH SOETOYO 19:36
Sure, I think this industry is very similar. You can almost think about it as a parallel to the financial industry. If you think about the financial industry, there's basically two revenue streams. You either get your revenue from fees, whether it be on transactions or trading; or you get your revenue from the net interest margin between borrowing and lending. And so within the crypto space, I think the predominant revenue generator, are those two revenue streams.
Understood. Now Jeth, a lot of the focus on Bitcoin, Etherium and other types of cryptocurrency has been on their extreme volatility. What would you say to the individual investor about this aspect of this asset class?
JETH SOETOYO 20:18
That's a great question Alan. I think it goes back to two parts. I think this is also an industry that is not as regulated as the capital markets. Within the capital markets, the exchanges are very much regulated. And so government actually puts in certain regulations to limit the amount of downside or volatility in the markets. For example, in Indonesia, I think, above a 10% or 20% move, the stock exchange will actually halt trading. In crypto markets, we don't actually have that. It's basically a free market where people can trade however they want. And it's basically purely driven by supply and demand. So the market structure allows for this high volatility. And I think beyond that, you also have a lot more retail traders compared to institutional investors in crypto. And so with retail, the money tends to come in and out much quicker compared to institutional investors. And so that's also part of the big reason why you get a lot of these big swings in the market. And I think the third part is that liquidity is not as much as in the capital markets. And with crypto markets, the liquidity for a given crypto pair a lot of times is still below a billion dollars in terms of trading volume. And so if you're coming in with a large position, it would easily move the price up or down for a specific crypto asset. And so these three factors lend to its volatility. And so for end users, the way I think about it is that the crypto asset is just another asset class. You have stocks, bonds, and gold and now you have crypto. So for the individual and retail investor, I do think portfolio management is important and diversification is important. I think you should allocate part of your portfolio to crypto, maybe start on a smaller amount, either 1% or 5%, whatever you're comfortable with. And as you build your knowledge, also, potentially, you can also build your position in crypto. So I think the way you manage the volatility is by managing a portfolio and managing the diversification of your assets.
That makes sense, Jeth, what are the most exciting elements of the Pintu roadmap over the next two to three years?
JETH SOETOYO 22:22
That's a great question, Alan. I think as we do evolve, we do see the rollout of multiple products beyond investment and trading. We do see crypto as an asset class on its own. And just like any other asset class, I think we could build financial products around crypto; whether it be options, futures, and different types of derivatives or just simply like borrowing and lending. So we do see the potential to roll out a lot of different financial products that are based on crypto. That's how we think about the future of Pintu.
Fantastic. Well, we're looking forward to watching the future play out. And Jeth, I have to say this has been one of my more productive sessions in trying to understand a paradigm which both demands new thinking from at least myself, and is moreover, just evolving so quickly. So thanks a lot for so patiently outlining such things as the basic concepts, the emerging use cases, what Pintu is doing now and what it plans to do in the future, and what it all means to Indonesia. Thanks again for joining.
JETH SOETOYO 23:23
Thank you so much for having me Alan. And I hope to speak to you again soon.
Fantastic. We hope our listeners have enjoyed today's episode. As always, please consider sharing any feedback that you have about the Indo Tekno podcast with us. Terima kasih telah mendengarkan. Sampai jumpa lagi!