Nimayi Dixit

On the impact of blockchain on fundraising and capital structures, trade finance and liquidity in supply chains, and the history and future of social, political and financial revolution.


Jason: I’ve been talking to Nimayi Dixit, who is a young person who has come out of business school and has been working in asset management. He is involved in the finance world in New York, and he has decided to kind of pivot into building a career in blockchain. I’ve been talking to him about what that’s like as a young person, seeing the future coming and deciding to build a life potentially within that world. He is currently working with Hexayurt Capital, which is a venture capital firm focused on blockchain. We have just been talking about how you had gone to business school, and all your training is essentially now being invalidated by blockchain.

Nimayi: I wouldn’t say all of it, but… One of the core components of finance education is around understanding capital structure and understanding what is capital structure. Essentially, any business that needs to operate needs financing: it has an ownership structure, some people are the owners of the business, some people lend money to the business and then the business has to pay that back. All of this gets wrapped up in this one concept called cost of capital, what does it cost the business to finance itself and its own operations. That cost of capital is very important, because if it’s very high, it essentially means your business is potentially too inefficient, or it’ll be very hard to keep the business running because it’s very hard for you to finance your activities, and without money you can’t really buy the things you need, buy the services # and the assets and all those things you need to run your business.

One of the projects that’s been really interesting that Mattereum has been involved with very closely is Sweetbridge. I’ve been learning as much as I can about this business, and one of the things that they’re trying to do is use the blockchain to… A very layman’s explanation is they’re trying to integrate elements of the global supply chain into a blockchain type of infrastructure. All the things that people buy come from somewhere and so they have to move through a supply chain, so there’s already an existing network that facilitates those things. Can we put that onto a blockchain? What might that do? What are the new possibilities that might be created by that? One of their ideas which struck me as pretty fascinating is to be able to… Any person who is conducting business has some asset. Could you use the blockchain to put up that asset as collateral into the blockchain itself and then produce liquidity out of that or create cash out of that? In the same way that people put up their house to get a mortgage, can you put up any asset you want, but instead of giving it to the bank you put it up into a blockchain and then extract some liquidity and some cash out of that.

Essentially, from my understanding, it’s kind of like lending to yourself, and when you lend to yourself you’re not going to charge yourself any interest, so this whole concept of cost of capital suddenly becomes… I don’t want to say completely irrelevant but significantly less significant. If that’s the case, then you could say that a good percentage of the finance education curriculum suddenly becomes kind of unnecessary, at least the way I see it.

Jason: Since you’re so close to the action, what do you see the new model that’s emerging being? What world is going to be emerging in the next five years?

Nimayi: I have no idea what it’s going to look like, but that’s the interesting thing about it. There’s this book that I read recently called The Quartet which talked about the four Founding Fathers in the American Revolution – James Madison, Alexander Hamilton, John Jay and George Washington – and what really struck me about that book was that this was a period of time in North America where small decisions, small compromises that were made in certain situations led to huge, lasting consequences that lasted for hundreds of years. You can imagine someone in one of these meetings or the ideas that were floating around at the time influencing some decision made in a meeting that slightly shifted the trajectory, and then the world moved steady state for a while in that way.

Jason: And you think that’s what’s happening right now in these blockchain conferences for instance?

Nimayi: Possibly, possibly. Anytime a new set of possibilities is created… If you think it’s going to be big, even if you believe 20% of the hype, and I think a lot of it is probably hype, but even if you believe 20% of the hype, there could be some significant changes that come out of this. It’s
always difficult to understand how history actually works, but you can understand it in this way, where there are these little pockets of inflection points at which certain things happen. Nobody really knows what’s going to come out on the other end, but little decisions made in this time could have lasting changes.

Vinay often talks about when the Internet was getting set up, the global Internet was being set up, someone or some group of people made the decision that domain names would be divided by country, and so essentially you imprinted the nation state map onto an Internet that didn’t necessarily have to be that way. Now, I don’t know what the regulations were at the time, how governments might have retaliated, I don’t know all the things that went into that decision, but somewhere along the way that decision was made, and the way the political structure is set up in the physical world suddenly got mapped on automatically into the virtual world. Did that decision have to happen, did it not have to happen? We don’t know. But it did, and you can see what the trajectory has been since then, and that’s much harder to change now that it’s been established.

Jason: Right. From my perspective, from viewing this world, it’s very clear to me for instance going to these blockchain conferences that right now it’s very similar to, from what I remember, the very early days of the Web, which was that these techno-utopians, all these people coming in and talking about how, and I remember this very clearly, talking about how the world was going to become smaller, we were going to become a global village, how the Internet was going to conquer the boundaries of nation states, that was a major theme… Obviously we’d just seen the fall of the Berlin Wall and so that was still in the air, the idea that we were going to become a one world community, and there was a lot of hope and utopian thinking.

I’m seeing the exact same thing right now in the blockchain space, and it’s clear to me that in the next couple of years… I’m seeing people talking about what can we do on the blockchain, what great technical ideas, what great social change ideas, what utopian ideas, what can we put on the blockchain, but the business model is not always there. It seems to me that big business is about to descend, whether that’s in the forms of the banks co-opting this into their existing systems, or that we will see the Amazons and Googles of the blockchain. And I think you’re totally right in that now is the inflection point, now is the time to embed as much as possible the utopian thinking into the technology itself before it’s scooped up.

Nimayi: Yeah, there’s a lot of threads there. First of all, we should probably address the idea that is utopia like a stupid thing to think about. Is it worth thinking about? I think it is. I think it’s worth thinking about what is wrong with the society that we live in, for each individual to do this and come up with how they think it could be made better, I think that is definitely a useful and maybe even necessary discussion. Because I know a lot of times, with many different people, if you bring up these topics, there tends to be a tendency to kind of push it away as almost nonsense, and I don’t think that’s to be the case.

That being said, going off of what you were saying about how in the 90s… I wasn’t around for these discussions, but how in the 90s there was a lot of the same kind of thinking about how can we leverage this technology to maybe decentralise society and empower individuals, etc., and you can see how that has played out. Yes, in many ways more people are able to voice their opinions more, etc.. But where do you spend most of your time on the Internet? You’re either going through Google or Facebook or Amazon. So centralisation has snuck in through the backdoor and it has happened. I was talking to someone the other day, and they had mentioned that… I don’t know this, but apparently a lot of people back when the combustion engine had been invented, a lot of people thought this was going to empower individuals, because now if you can have one of these things you can generate your own power and you can become more autonomous in your activity, but that clearly didn’t work out that way either.

Now, with the engine you need to have access to the components to be able to build it and that might require centralised infrastructure, but for things like software you just need a laptop and you need to be able to maybe access some servers. So there are some differences, but I feel like this story has happened before.

Jason: Yeah, it certainly has.

Nimayi: So the question is why is it that every time there’s a new set of possibilities that allow for the possibility of decentralisation or the empowerment of individuals against maybe larger centralised bodies or maybe more coercive entities, why is it that that never actually plays out the way it does? I’m sort of being a devil’s advocate here, in that maybe we should think about a little more deeply about why is it that these things haven’t played out the way that people back then expected them to play out, and why is it that this situation should be different? I’m sure there are ideas about this that have been discussed or answers to this question that have been given, I just haven’t come across any, so I’d be curious to know more about that.

Jason: Well, I think with Web 1.0 and 2.0, I think that both happened. With both the Internet and the miniaturisation of computer technology and the access to tremendous computing power, just phenomenal computing power for the average individual, where the average individual can now have a recording studio and can start a business from a laptop and a phone, and every type of possible device has now miniaturised into a few things, and have access to connect with everyone in the world… The utopian promise of the Internet in many ways has been fulfilled, in that it has empowered individual people in a way that was inconceivable 20 years ago. At the same time, it has centralised business more than it was before.

I remember in the 90s, just when the big media conglomerates started coming into power and how things started to get centralised at the corporate level, but it’s nothing like for instance Amazon controlling all of retail, that was inconceivable before this era. So I think both are going to happen. I think that the power of the blockchain… I think you’re perfectly right, in the sense that the small decisions we make now in how the blockchain is shaped… Because once the cat is out of the bag, it’s out of the bag, but if you embed the ideology in the technology # as it were then it becomes harder to… I like Vinay’s example of how the nation state was recreated in DNS records.

Alright, let’s take it down to more specific… Obviously a bunch of people are making small fortunes in cryptocurrency. What’s your view of that world up close? Is it a case of very computer literate people or financially literate people just investing in Bitcoin and Ethereum at the right time, or what’s happening? Are we seeing a whole trading community happening? Is this becoming a mature marketplace? Where do you think it’s going to go? Are we in a bubble? What are your thoughts?

Nimayi: Full disclosure, I don’t own cryptocurrency at the moment, I got in the game a little late. But in terms of who is winning, I think it’s sort of a mix of all the types of people you mentioned. From my perspective, what it seems like is the early adopters were people who were ideologically aligned with what Bitcoin represented; it seems more and more like the newcomers are people who are just trying to get in on the action in whatever way they can.

Jason: Do you think that’s going to be successful? Do you think that people will still be able to…

Nimayi: I don’t think that mindset is ever successful, at least… It’s always difficult to say you’re in a bubble before it actually bursts, but you kind of get the feel that this is probably a bubble, in that there’s a lot of fast money being made and lots of gigantic amounts… I mean, the popular ones that you see are like the DIO scam that happened, where enormous amounts of money were raised in what amounted to be a very poorly structured capital raising mechanism.

Jason: You think that was a flat-out intentional scam?

Nimayi: I don’t know too much about the details to say that it was a flat-out intentional scam, but it was clearly very quickly put together. I think that lack of thoroughness, that desire to let’s just get things running as fast as possible can create situations which are not stable. Those kinds of situations tend to create a bubble. You have this greater fool theory, where I’m going to buy this because I think I can flip it to someone else for more money and I can make a quick profit off of this. That’s what happened in the widespread way with houses during the mortgage crisis, that’s what happened with tech stocks in the 1990s… That sort of mentality is bound to fail, because you eventually inevitably run out of buyers, and when you do the price hits its peak, and then it collapses.

Jason: Do you have a sense on that time frame for that?

Nimayi: It’s too tough to tell. It’s like asking when will the hubris of people run out – I don’t know.

Jason: But for instance Bitcoin and Ethereum, do you think that they’re overvalued, or is there still growth that might happen?

Nimayi: That’s a good question. You can always have local maximums, where it could go down from here considerably and then raise up again. The basic thing is do they provide a utility that people find valuable? The thing that’s in a way impossible to separate but what you need to be able to separate is what is a speculative demand in these currencies and what is the actual utilitarian demand in the currencies?

Jason: That’s a core question, that’s the core question.

Nimayi: The speculative demand is what’s eventually going to get wiped out, that’s what metastasises and then eats itself. But the utilitarian demand, the demand that is derived from does this provide any of the value that I can’t get somewhere else for less, that’s stable; that’s how economies are supposed to grow, more and more people innovating and providing those types of things to the public. But there’s no way to slice that, I don’t know what component of that is real intrinsic value and what component of it is speculative. The one thing that is interesting about these tokens is a lot of them, the way that they are structured, they don’t really provide much in return for buying them other than “Help pre-buy these tokens so that we can raise a bunch of money, create this blockchain and then you can use the token to use our blockchain.”

If you look at other bubbles, say the tech bubble, when you bought a stock you were getting ownership stake in the business, that means you have a stake to the profits that the business… Essentially, you own a piece of the equity of the business. With these tokens, you’re not really getting… Some of them are constructed in a way where maybe you’ll get a discount on services or something of that nature. But these people who are buying them, the way it seems like they’re setting it up, the people are doing the ICOs, it’s like “We’re going to create a gate, and we’re not going to let you get through the gate unless you have this token that we give you,” and that’s an interesting dynamic. You can argue that the only other things that’s similar is taxes and governments. But other than that, I don’t know.

Jason: Of the existing chains, which ones do you think have clear long-term intrinsic value?

Nimayi: It seems like the basic function that Bitcoin seeks to provide, a lot of people find it valuable, but then there are questions about that around where is all the computing power located. The irony is it seems like this technology which was supposed to enable decentralisation in finance is sort of leading to a centralisation in its own support infrastructure, which is the proof-of-work servers… That’s becoming more and more expensive, to mine Bitcoin, and so fewer and fewer people are able to actually get in on that activity, which then creates centralisation of that activity. Does that create a danger to the system?

But what I think Bitcoin proves is that there is a pent-up demand for some kind of Internet, decentralised cash, some means of exchange which is not controlled by some third party, it seems to have revealed that that is very much desired. But obviously there are certain parties that don’t like that kind of thing.

Jason: Right, right. Then we get into the next big question, which I think really is the key question of how blockchain is going to be adopted, which is what are banks going to do? Are they going to use something like Ripple? Are they going to build something on Ethereum? Are they going to create proprietary blockchains? Are they going to change the structure of how they do business, or are they going to just figure out a way to co-opt and fold in blockchain to what they’re already doing? For instance, maybe create some type of digital payment system that they run and will use the blockchain, but it will still be controlled by a third party in this case.

Nimayi: Yeah. Again, I don’t know how that’s going to play out, that’s one of those key decisions that has to be made, and I don’t have access to the people who are going to make those decisions. I’ve heard of interesting ideas, I’ve heard of an idea of central banks issuing fiat on a blockchain. Would that work? I don’t know. Who would do the mining? How would trust be established in that system in a way that’s different from what he have now which is in the Fed we trust, which tends to be the trust model we have now. How would that be any different? Unfortunately, I don’t think I can give you a really strong answer on this either way, I don’t have a strong view about that.

Jason: Yeah, I don’t think anyone knows, but I’m wondering…

Nimayi: It does pose a danger I think to a lot of what banks do, so it’s a very important question to ask is how are they going to respond to it.

Jason: Do you have any sense of a time frame of when we may see that starting to emerge?

Nimayi: I think you’re seeing a lot of experimentation happening. I know that there’s the consortium R3, which is I think a consortium of several different large banks who want to conduct business together on the blockchain, I think JP Morgan has its own project that they’re trying to get set up… It’s clear that a lot of money is being invested in the technology and there’s a lot of interest. Regulation seems to be a little slower, because, from my perspective, ICOs are a totally new beast, so I can understand that the SEC is a little bit unsure. Like I said, it doesn’t really act as a security, because it doesn’t give you the benefits that you can get out of normal securities, which is access to a piece of some cash flow. ICOs generally don’t give you that. But at the same time, a lot of the people who are buying the ICO are buying it with the intent that “I’m going to buy this today so that I can sell it at a higher price tomorrow,” which constitutes an investment,” so I can understand…

But without regulation being very clear, it’s difficult to know how these big banks will proceed. Without regulation, will they just remain the experimentation phase? Will they actually implement serious business decisions and then change the way they do their business, or are they going to wait for the regulation to come in? I don’t know what sequence that unfolds in. My guess is the experimentation will happen around the fringes, certain activities might be put on the blockchain, but until the regulators explain to people clearly how is it that we think about these kinds of technologies and their use cases in finance, until that happens I don’t see how some of these larger banks take real strong initiative in using the blockchain.

Jason: So really it’s kind of a waiting game to see what the powers that be are going to do.

Nimayi: Yeah. Unfortunately, my answer is it depends.
Jason: This is the space we’re in with the blockchain, where there’s so many unanswered questions. People are building these incredible solutions, but we don’t really know what’s going to happen, both with the technology and with how people respond, and clearly that makes for a high-risk environment in which people are making money with investments, but in the big scheme we’re waiting to see what happens.

Nimayi: Yeah. It’s not a great way to make money, it’s very risky, but… I mean, we saw the same thing with the Internet, so if that’s an accurate metaphor, then you can imagine there will be some kind of local maximum, that it will come down. But there is some inherent value in this technology that’s going to play itself out. Pandora’s Box has been opened.

Jason: Yes, it definitely has – thank you very much for sharing your expertise!

Nimayi: Thank you – hopefully I said something interesting.

Jason: Yeah, that was a wonderful interview – thank you so much!

Nimayi: Thank you!