Tony Cai is the CEO of Atomic Finance, a DeFi company building a simple-to-use mobile experience where Bitcoin holders can earn yield on Bitcoin without giving up custody.
This is their first product in an ecosystem of Bitcoin DeFi products they’re looking to build, as part of their mission to build “sound financial infrastructure for sound money”. They are based here in Toronto which is cool.
Urgen Kuyee (UK): Hi Tony, thank you so much for doing this.
Tony Cai (TC): No problem.
UK: Let’s start with your background. Where did you grow up, which school did you go and what did you do before Bitcoin?
TC: I grew up in Vancouver, BC and for the better part of my childhood and youth, I had normal career aspirations. Get into a good school, land a stable job as an engineer or a programmer. With this mindset, I went to the University of Waterloo for computer science.
There was when I first got my first exposure to Bitcoin and crypto. In 2017, I ended up becoming roommates with this guy who wouldn’t shut up about Bitcoin and crypto and the power that it had to really shake up our financial system and the economy. For myself though, my reason for buying my first bit of Bitcoin was a lot less glorious than all that. I heard other people had been getting rich off of this stuff, so it was just your classic case of FOMO.
Well – that same guy, Matt, ended up becoming my co-founder for Atomic.Finance, and convinced me to drop out of Waterloo to go down the rabbit hole and build something truly impactful for the bitcoin space and bitcoin holders.
UK: Got it. Got it. I first bought Bitcoin in 2017 as well when the price of Bitcoin was at the highest in 2017, over $25,000. Today, the price has ballooned way above 25K. I bought a small amount of Bitcoin in 2017, less than $1000 just to see how this new technology works. Since COVID happened last year in March and we witnessed trillions of fiat money being printed out of thin air, then, I got deep down the Bitcoin rabbit hole and bought more Bitcoin. Okay. Why don’t you talk to us more about Atomic Finance? How is it different from other DeFi products?
TC: Sure! So at Atomic.Finance, we’re building a simple-to-use mobile experience where Bitcoin holders can earn yield on Bitcoin without giving up custody. The main difference from other DeFi products is that for the first time, we have a non-custodial Bitcoin financial product that focuses 100% on bitcoin where the entire product is built natively on the Bitcoin blockchain.
For Matt and I, we actually spent a lot of our earliest days on the crypto scene building on Ethereum, and Ethereum-based DeFi products. That being said, over time, especially in the macro environment we see today like you said governments moving to print trillions of dollars to stimulate the economy – we came to realize that in the ecosystem, Bitcoin was really the asset and ecosystem that had by far the best chance to move the needle. We see it as the soundest money known to man – the asset that has the most sound monetary policy, the most decentralized (and it’s not even close), and most resilient to any nation state bad actors. It’s the asset with the most clear value proposition and it was clear to us that Bitcoin was going to remain the largest crypto asset for as long as we’re around.
The biggest issue with Bitcoin that we saw however, was that even though it was the soundest money out there, it didn’t have any sound financial infrastructure around it. If you wanted to do anything financial with Bitcoin – you had to compromise. Compromise on self-custody, compromise on privacy, compromise on transparency , and compromise on your control. While Bitcoin is this extremely anti-fragile asset, Bitcoin financial tools were one of the main things that seemed to invite fragility to the system. That’s why we set out to change that – to build sound financial infrastructure for sound money. And this yield product is the first step.
Back when we were building in the ETH DeFi space, common perception in the Ethereum space prefers to paint Bitcoin as some antiquated technology with little to no developer activity, whose primary value proposition is being stored as pet rocks by a group of close-minded maximalists in cold storage. But as we dug further, we discovered that there was infrastructure being built on Bitcoin that provides the ability for folks to build Bitcoin-native non-custodial financial products. This includes things like DLC’s (discreet log contracts) and RGB on Lightning. These are some of the foundational technologies and infrastructure that Bitcoin DeFi, and Atomic.Finance is being built on.
You can check out this blog we put up late last year outlining in more detail the reasons why we decided to make the switch from ETH DeFi to Bitcoin.
UK: I go on atomic.finance. Then, I click on “Get Beta Access” and join the waiting list. What happens next? How long is the wait? How many have signed up so far? I just signed up, I believe my position in the waitlist is like 2300.
TC: Yeah, the waitlist is almost at 4K at the moment – definitely a lot more interest than we were initially expecting to be honest! Really been surprised how
We’ll be rolling out the very first invites to our closed beta mid April! The initial closed beta will be quite small – only 30 or so people, but once we get that going, iron out any remaining issues and receive initial feedback, we’ll continue rolling it out to more folks in our waitlist.
UK: Awesome. Let me ask you this, this happens everywhere I think, someone could easily use a burner email and move up the waitlist, right. How do you guys respond to that?
TC: Hahaha, great question! We made sure that if someone was signing up through a referral link, they would have to verify their email address afterwards so that it would make it a lot harder for folks to game the system.
UK: Understood. I deposit one Bitcoin with you guys. But you guys never take custody of my Bitcoin right. Like you guys will never touch my Bitcoin that I deposited. How does this work? Can you double click on this process?
TC: Sure. One thing to remember when you’re earning yield on something like Bitcoin is that there is never yield that is completely risk-free. This includes Atomic.Finance yield strategies.
With Atomic, the way yields are generated are through these things called covered calls. As Dan Held puts it, a covered call is “an option trade which has the owner of the underlying asset (in our case, BTC) sell their upside above a certain price (“strike”) in exchange for a payment (“premium” aka yield).”
As an example, say I sell a 1 BTC $120,000 covered call expiring at April 30th for a premium of 0.01 BTC. In this case, I’m depositing 1 BTC which is the amount I’m trying to make yield on, the strike price is $120,000. So the bet that I’m making here is that I think BTC will be below the strike price – $120K, on April 30th. If BTC price remains below $120,000, I collect the original 1 BTC back plus the 0.01 BTC premium. If it’s a month between now and April 30th, then that translates to a 12%APR yield during that one month period.
If bitcoin’s price is higher than $120,000 on April 12th (which means it would’ve needed to at least double in a month), say it’s at $125,000 – you’ll still have to sell that 1 BTC at $120,000. In that situation, you’re selling 1 BTC at $120,000, while it’s actually trading at $125,000 – meaning you’ve lost out on $5K of the price upside of BTC in that period. This price risk is the risk you take while earning yield in a covered call. Meanwhile of course, in fiat terms, you would’ve still made a healthy gain.
It’s up to you to choose the amount of risk you want to take. The riskier the position (meaning the closer the strike price is to the current price), the higher the yield. For those interested, you can check out Dan Held’s section here on covered calls if you want more examples.
The way we’re able to allow users to do these strategies without users handing over custody is through these things called discreet log contracts. I won’t get too deep into the nitty gritty technical details of how they work here but essentially they’re a form of “smart contract” that runs on the Bitcoin base layer blockchain that can pay out to 2 counterparties depending on some external data feed in the real world. This is super important in the context of an option, as it relies on BTC price to determine the payouts between the two counterparties.
With centralized lending platforms, when you hand over your bitcoin to them, you take on counter-party risk, custodial risk, risk around their risk management systems, all of which is opaque and impossible for anyone outside the company to assess. Things can be humming along with no signs of issues and then all of a sudden, the company goes bankrupt and all your bitcoin gets wiped out alongside it. This was what happened last year with Cred. With yield strategies like in Atomic – it’s not a free lunch either, there’s risk in the form of price risk – you have to make a risk/reward tradeoff and choose strategies that give you an appropriate amount of BTC price upside and yield. Good thing with price risk is that it’s a form of risk that is 100% transparent and verifiable. Especially in bitcoin where many of us pretty much check the price religiously.
UK: I concur. We do check the price like everyday.
TC: Exactly. It takes a bit more work on the part of the Bitcoin holder, a bit more thinking, and timing as well (since there are times where yields will be higher across the board and lower as well). But our job with the product is to make that whole process as simple and transparent as possible, without you ever needing to give us custody of your bitcoin. It’s all about allowing folks to earn yield in a way where they get to maintain full sovereignty and control over their money.
UK: It’s still early but what will the Annual Percentage Yield (APY) look like if I deposit my Bitcoin with Atomic Finance? Are we looking around the 4-6% range?
TC: We’ll put out more content about this in the future! Like I mentioned above, the yields that someone can earn will depend on the risk that they’re taking with price. The riskier the position (meaning the closer the strike price is to the current price), the higher the yield. Some of the lowest risk strategies can expect to be around that 4-6% APR range.
TC: I think the first rule of being a Bitcoiner is to not disclose how you’re storing your BTC right? Let’s just say hardware wallet is probably the way to go.
UK: Fair. Where do you learn more about Bitcoin?
TC: Mostly podcasts and Bitcoin Twitter – these can be a goldmine. The Bitcoin Standard is also an amazing book that I encourage everyone to read.
UK: The Bitcoin Standard was one of the first books I read as well. Great book to learn more about Bitcoin. I did notice Atomic Finance is backed by Morgan Creek. I am a huge fan of The Pomp Podcast. When do you plan to appear on his show and rep Toronto man.
TC: All in due time. Pomp has been an amazing mentor and investor for us. He has a wealth of knowledge about building companies, especially in the Bitcoin space. Maybe after our open beta rollout!
BHW: What advice would you give your 20 year old self?
TC: Get into bitcoin NOW!
UK: Love it. Where can people find you on the internet? Where can people learn more about Atomic Finance?
UK: Thank you so much for your time today Tony.
TC: No problem.
This interview has been edited and condensed. Thanks to Tony Cai for his contributions, all errors are mine.