Sophia Zhao (Yale SOM 17), Digital Currency Specialist at HBUS, Blue Ivy Ventures, and Tsai CITY
Sophia Zhao is Director of Business Development and Institutional Sales at HBUS, an advanced digital currency trading platform and the exclusive U.S. partner of Huobi, one of the world’s largest digital currency marketplaces. Ms. Zhao is also a Venture Associate with Blue Ivy Ventures, a Yale Alumni Interviewer, and a Startup Mentor at Tsai Center for Innovative Thinking at Yale (Tsai CITY). Previously, Ms. Zhao worked at Galaxy Digital, a diversified, multi-service merchant bank dedicated to the digital assets and blockchain technology industry. She is a graduate of the Yale School of Management.
The Politic: How did you get involved?
Sophia Zhao: When I was studying at Yale’s School of Management, part of our course work involved partnering with business leaders to help solve their problems. My group was helping a venture capital fund source deal flows in the technology sector for its investment considerations. We looked at artificial intelligence, machine learning, AR/VR, autonomous vehicles, and finally, blockchain. And I recall my teammate, Marco, was so excited and enthusiastic about blockchain as the next big thing, and he exclaimed that Bitcoin was undervalued at $1000 (this was back in February 2017).
I was incredulous. But, the more I read about the technology, the more I became educated in its potential to become the “base layer” that powers everything we do. I often draw the parallel of blockchain’s emergence to that of cloud computing in 2010 or 2011, where people started to access their software, computing power and files over the web instead of their desktop. And now we have all sorts of Saas, IaaS, and PaaS that businesses run and depend on. I’m optimistic that, with so many uses cases for blockchain technology, that it will become an integral part of how we live and work in the Web 2.0 or even 3.0 paradigm.
As for myself, having worked with entrepreneurs and CXOs in the traditional sectors, I want to contribute directly to an innovative movement such as this one that will make a positive impact.
It’s interesting– I’ve heard most of the innovation at Yale comes from the Yale Law School.
I took Professor Rebecca Crootof’s Technology Law course in the Spring of 2017. That was a really cool course for me because I came in with the purpose of finding definitely guidance and definite answers, but I actually left with more questions. Every week, we examined new and disruptive technologies such as autonomous vehicles, robotics, autonomous weapons, social media, Big Data analytics etc. We discussed the interplay of law, technological design, norms, and the market as modalities of regulation, and the legal implications of other political, economic, and social impacts associated with legally disruptive technologies. Then, we celebrated the end of the course by watching the last episode of Black Mirror season three at Yale Law over pizza and pop.
Best use cases for positive impact?
There are so many applicable scenarios for blockchain. Since I work at the intersection of crypto and Finance, I feel blockchain will revolutionize our financial services particularly in the way in which we transfer money. Blockchain itself is pretty much a growing list of record that is linked by cryptography. Each block on the blockchain contains a cryptographic hash of the previous record and a timestamp. Thus a blockchain is resistant to modification of the data which is irreversible once a block is produced. I think that’s huge!
When we process payments to a counterparty, it will be faster, cheaper, and more secure since information stored on the chain is quickly verifiable, there’s no multi-layer middleman, and data storage is decentralized. Ripple is a prominent player in the space championing a frictionless experience for sending and receiving money globally via blockchain technology, and it’s powered by a powerful network of the biggest brands, who are helping to build and grow this new system.
What’s good about an immutable ledger?
I feel the immutability of the ledger increases accountability and prevents fraud, because once the transaction is coded onto the chain, it’s impossible to reverse it. This allows for convenient audit or regulatory oversight. Furthermore, since recorded transaction is decentralized and visible to everyone, blockchain increases transparency as well.
What’s your current job?
I’ll give you the background. After graduation, I consulted for blockchain startups that were raising capital through initial coin offerings (ICOs) before joining two big brands in the crypto space. One was Galaxy Digital, a New York-based merchant bank dedicated to digital assets, it’s led by Mike Novogratz, a Wall Street veteran with Goldman and Fortress Investment on his resume. I was on the advisory team supporting a portfolio of startup clients in strategy, token economics and capital raise. It was a great experience learning so much about the industry and be connected with all sorts of players in the ecosystem including miners, financiers, projects etc, and build a network of investors and deal flow that cover North America and Asia.
And the second brand is with HBUS, an US-compliant, San-Francisco based cryptocurrency exchange that’s the exclusive US-partner to Huobi Global, one of Asia’s top 3 crypto exchanges with daily trading volume of $800 million USD. I’m currently the Director of Business Development and Institutional Sales, leading our business development initiatives including partnership and token listing as well as institutional sales targeting institutional customers such as crypto hedge funds.
I really enjoy what I do because I feel that I’m bridging the traditional finance world with the new digital asset world, and it’s fascinating to work with clients from Wall Street who took the plunge into the crypto pool. Overall, I’m lucky to have the exposure to both the primary and secondary markets.
In my spare time, I’m a Startup Mentor with Tsai Center for Innovative Thinking at Yale (Tsai CITY). I coach student technology startups on business model and strategy. I’m also a Venture Fellow with Yale Blue Ivy Ventures, where I help build community, source deals, and conduct due diligence. I’m hoping to come across a blockchain deal so I can bring my experience and network. Ultimately, I want to be an expert in this field, so that I’m Gandalf to your Frodo, or Obi Wan to your Luke Skywalker.
How many startups have you helped with through Tsai CITY?
So far, two. One of them is an augmented reality startup that focuses on building detailed AR tour for museums and historical sites in Boston and Rome, and I was helping the Founder with business strategy, monetization, and how to scale.
I also coached a blockchain startup that is building a reward platform to incentivize students to volunteer at non-profit organizations. Students then can redeem their reward tokens for goods and services among participating vendors. The Co-Founders and I worked on several issues: 1) What’s the token economics considerations when assigning a monetary value to the reward token? Does 1 hour of volunteering = 1 token? 2) If there is indeed a monetary value assigned to the reward token, wouldn’t this effectively turn “volunteering” into a “paid work”?
The bigger question, of course, is whether this business idea really needs blockchain. There are different ways of approaching a problem, and it’s been an interesting experience for me working with students on exploring innovative ways in addressing real-world challenges.
What’s something we haven’t talked about that you find interesting in this space?
Definitely regulation, or the lack of clarity of it. From 2017 to 2018, I call it the irrational exuberant period (thank you Professor Robert Shiller), regulators must have been cringing and grinding their teeth watching this Wild Wild West: Scammers raised money through issuance of aircoins, criminals laundered money anonymously on blockchain, crypto exchanges stole from customers, etc.
In the wake of all this, businesses, particularly cryptocurrency exchanges, are now proactively working with the regulators to become more compliant, trustworthy, and secure. In the U.S., trading crypto is regulated by many different agencies at both the federal and state levels. Crypto assets under the definition of “securities” are regulated by the SEC.
In order to operate in the U.S., the U.S. Treasury Department Enforcement Network (FinCEN) deems businesses that are buying or selling crypto to customers, or on behalf of customers, as money service businesses. These businesses are thus required to register with FinCEN and be compliant with Anti-Money Laundering laws (AML), Know Your Clients (KYC) laws, and other U.S. federal anti-money laundering requirements.
Traditional financial institutions are not going to make a huge stride into this space unless they feel confident with the level of accountability and security of assets. One piece of recent news is that Grayscale Investments will move $2.7 billion in crypto assets into Coinbase’s custody. This is very encouraging and would not have happened if Coinbase were lacking a BitLicence under New York State law, and if Coinbase were not working to ensure they hold similar fiduciary standards as a national bank.
Furthermore, I find it interesting that crypto exchange products are becoming more sophisticated and professional given the demand from ex-Wall Street professionals that have entered into the space. They want to see a trading platform that’s similar to what they’ve used on Wall Street, they expect custody solutions, fund administration support, and to be able to use algos, etc.
To what extent do you think regulation is stifling innovation, and to what extent do you think regulation is necessary?
That’s a million-dollar question. I think if we regulate without education, we’ll stifle innovation; but, if we regulate with an open-mind to learn and then act, we can help shape regulation in a thoughtful manner that allows innovation to flourish.
It’s great to see companies proactively talking to and working with the regulators. For example, Mark Zuckerberg addressing top law maker’s concern about Facebook’s Libra project and subsequently deciding to put the launch on hold until all concerns are addressed. Or the Winklevoss twins launching the first regulated stablecoin on their regulated cryptocurrency exchange after working closely with the regulators.
They lead great examples to help mature the crypto finance industry and encourage more institutional players to come into this space. We’re not just beholden to innovation; regulators and innovators are working together to structure a system that makes sense for everyone.
I would encourage everyone to be open minded and to have patience with blockchain and cryptocurrency. This is a nascent technology and still a very young industry. Let’s continue to learn and explore its potential, and make a positive impact together.