We’re joined by Yoni Assia, Founder and CEO of eToro. The concept behind this world-leading social trading platform is users invest smarter by automatically copying the top traders in the community. With over 10 million users, over a trillion dollars traded on the platform just last year alone, this fascinating approach to trading is making huge waves. A decade after its original launch, eToro entered the crypto space with eToroX, their crypto exchange. More recently, they added cryptocurrencies to the growing list of assets that users can add to “Copy Trades.” Yoni shares his long-term vision in which he sees the tokenization of all traditional asset classes eventually taking place.
Topics we discussed in this episode
- Yoni’s background and how he first became interested in financial trading
- How Yoni and his brother came up with the idea for eToro
- The background of the Bitcoin community in Israel
- Yoni’s predictions for the finance industry
- How the power of tokenization paved the path for eToro
- What makes eToro unique compared to other crypto trading platforms
- eToro’s blockchain wallet
- The launch of the eToroX crypto currency exchange
- eToro’s views on custody of assets and DeFi
Sebastien: Hi, so we’re here with Yoni Assia. Yoni is the CEO of eToro. eToro is a social trading platform where users can create an account and trade stocks, bonds ETFs CFDs, crypto, and all other kinds of financial assets. The interesting thing about eToro is that it has a social trading element, which we’ll get to in this conversation, but first Yoni why don’t you tell us a bit about yourself and your background and how you became interested in financial trading.
Yoni: First of all, thank you for having me I’m Yoni the CEO and founder of eToro. I’ve been passionate about capital markets since I was very young. I started trading the markets when I was about 13 or 14. I got some shares to for my bar mitzvah from my father and started trading through my bank and really fell in love with the concept of you know capital markets and how the entire world is connected and I sit in my room in Israel and click a trade and then see that trade happening in the NASDAQ blotter. So I really fell in love during the.com bubble in the markets. I traded through I made a lot of money. I lost a lot of money and I fell through that in love in capital markets and wanted to have more people participate in the markets and have that same feeling of sort of ownership and collectivism together.
Sebastien: I think you’re the first person I’ve ever heard to say the words. I fell in love with capital markets, but what led you to found eToro after discovering this love and passion for financial markets.
Yoni: So I’ve been trading for a while. I’m also a computer scientist. So I’m a finance geek in my background and I did my masters in Computer Sciences and at the same time my older brother will who is my co-founder, always looked at what I do and said I have somewhat of an accountant hobby, that I sit in front of multiple screens lots of charts, spreadsheets and the user experience was horrible and then we started brainstorming about how can we make the user experience of trading and investing something that’s more accessible and more open for everyone to trade and invest and that’s really how we started eToro we started with the concept of simplifying financial trading for everyone to trade invest in simple and transparent way and throughout basically building eToro we found out that it’s not only about creating a great user experience to access the markets, but it’s also to find the user experience for people to learn and get educated from one another and that’s where we came with the concept of social trading because the best way to learn is to observe what other talented people are doing and potentially if possible copy them. That’s how you succeed in high school. So that’s how basically we started forming the concept of the social trading network where every single person on eToro when they opened the account automatically publishes all of their trading activities. So everyone can see what everyone is trading and then follow or automatically copy the top traders on the platform.
Brian: This is such a fascinating approach, when you guys started eToro did that exist before or how did you originally come up with this idea?
Yoni: When we started we launched eToro with a social layer around it that enabled people to create profiles and talk like in what people call today in exchanges troll boxes. And when we looked at the engagement of users what we saw is that the feature that they use the most was chat and then specifically to talk to one another about what they’re trading so we launched in 2007, our first year of operation with 2008 and then we launched the open book which basically was the platform which enables everyone to see each other in 2010.
Brian: Okay. Okay I’m still curious though. Do you remember the original idea of like copying trades. I mean, I guess it’s a somewhat obvious idea but not completely. So how did you originally decide on that feature?
Yoni: The feature really started from us showing everyone on the platform what everybody does. I remember we said here, you know the middle of the night talking about names. What should we call this concept of copy trading so we were definitely one of the first platforms to suggest that people can actually copy other people. It was an extension of the fact that we enabled people to see what other people are doing was to basically extend that so you can see somebody’s track record and say hey, I want to copy this guy with a thousand dollars and from that moment on you copies entire portfolio into yours and every time he trades he trades automatically the same time same proportion and same price in your account.
Sebastien: So what was the reaction to that? I mean, I can only imagine that some people maybe you know back in those days where social networks were just kind of getting off the ground and also people I think tend to have some whatever reluctance to share information about like some other financial wealth or saying things like this. Like how was it received then and then how has that conception sort of evolved over time?
Yoni: So I think it definitely evolved over time because we’ve seen significant growth over the past three years both around crypto and around copy trading. I think a lot of people when initially they joined and that’s also a big part of our network effect today that in took a relatively long time since we launched the product in 2011 to generate thousands of clients who have nice track record for long duration, which is relatively consistent and sustainable. So when you go through the platform you can see hundreds of thousands of accounts. And now in 2019 you can actually find thousands of accounts that have been profitable for three, four, even five years and you can see the entire history. So initially a lot of the challenges we had was about discovery and what is the right way to let people discover top Traders our initial thinking then was let’s try to basically create a list and let people sort the list and what we got is people very naively just sorting the list by gains and then choosing the ones who generated the most amount of gains and copy them and that turned out to be a very bad strategy. So we started doing a lot of analysis on who are the people that are customers should copy and we got to the conclusion that we should make it more like an app store first, try to figure out what you’re interested in and then let you find people who are similarly minded and also always sort of look at risk and reward at the same time. So for example today if you traded very high risk, we have a risk score so you guys can actually see the platform in your eyes. So anywhere we mention the returns the last twelve month returns we also mentioned the risk score which is basically the volatility of the portfolio. So today you can only copy people up to a risk score of 7 and people who are popular investors, which basically means other people are copying them in there getting paid for it need to manage that risk score and some extent need to actually lower it to 6 and below.
Brian: One of the questions that comes up here. So let’s say you have a hundred thousand active traders on there. Of course, you just purely from a statistical perspective, you’d expect that, you know, some of them even by pure chance if there’s no particular scale, right like would you know outperform others even over an extended time? So I’m curious like how do you know whether you know trader has just gone lucky again and again, and then ends up sort of floating to the top of eToro or whether there’s like genuine skill behind it.
Yoni: So you can see here what we’re using is we’re using a lot of filters today we’re actually also using machine learning. So we basically have about 24 +parameters whether it’s weekly drawdown number of trades, profitable weeks, profitable months, the stability of risk score etc, including how many people are copying them in the copiers change, then we take basically all of these parameters and we feed it into a machine learning algorithm and ask machine learning algorithms to basically rank people with the highest probability of generating profits in the future. Then we have an investment team who actually talk to these people and understand their strategy and those would be our popular investors. So we went from saying okay, let’s just put everybody out there and have one big list for people to list to a much more curated process where we have machine learning algorithms, we pick the top Traders and then we actually communicate and talk to those top traders to understand what they’re doing their strategies and also help them communicate those strategies to our customers.
Brian: This is so cool. Yeah, it’s basically like a crowdsourced way of like finding portfolio managers. Yeah, exactly. So let’s say you took who you chose last year as your or maybe two years ago as the top Traders on eToro, you know, how would those perform versus you know, like benchmarks of maybe well-known hedge funds or something like S&P 500.
Yoni: So we’re doing this. We actually have algorithms that pick top traders. So when you go into it, or you can actually choose for example this algorithm that every quarter rebalances based on basically logic or machine learning who are the top Traders on eToro and then you can see the track record of those algorithms across time. So we’ve been able to generate relatively sort of consistent double-digit returns across different asset classes, what’s really interesting is that those returns are also uncorrelated necessarily to One Market because the diverse between stocks, currencies, cryptocurrencies, ETFs, commodities. So it’s a very flexible portfolio across a lot of different assets. So you’re investing in top traders that get changed every quarter and then actually what they trade is not necessarily related to their performance, right? So you can invest in that copy portfolio that’s the name of the product and that copy portfolio could be fifty percent stock 1/4 and then 50% currencies and crypto another quarter.
Sebastien: That’s fascinating. We did get off to a bit of a quick start here because we wanted to talk to you about your early beginnings in the in the Israeli crypto space. So we’ll come back to eToro in a few minutes. But yeah, so, you know Israel has been I’ve also realized this even more having been there recently and met a lot of the folks there and a lot of our early guests on Epicenter were from Israel. And so Israel has always been sort of the center of innovation around the block chain space dating back as early as 2012 you know with Master coin and everything. So I’d love for you to talk about your involvement with that community in the early days of Bitcoin.
Yoni: Sure, so I started let’s call it playing around Bitcoin in 2010 and then found, you know the community growing here in 2011, very lucky to have bought for eToro some Bitcoins back then at Mount Gox for $5 and $10. And then when I saw Bitcoin for the first time, I really sort of fell in love with it the same way that I fell in love and capital markets because of the technology and how it worked. And since I’m very familiar with how traditional Financial Services work and how broken the current system of currencies in the Global infrastructure of finances. So when I started paying people with Bitcoin and sort of wandering around a Bitcoin Talk we started this concept called colored coins. And that sort of discussion started emerging on Bitcoin Talk and then we found out also another group which was the Master Coin Group which was sort of running in parallel and both concepts looked at the similar thing, which is how do you tokenize assets on top of the Bitcoin protocols on how do you use the Bitcoin blockchain in order to facilitate basically trading or P2P trading of dollars and euros and yen etc. And then I basically started offering bounties on BitcoinTalk for people to sort of expand on that vision of colored coins. And a lot of people reacted to that. There was a very big Google group back then that had a lot of the sort of OGs from 2012 and 13 who contributed to the dialogue of basically launching traditional assets or tokenized assets on top of the Bitcoin protocol and one of those people was also Vitalik who actually contributed to the project and came to Israel to work with us and wrote a significant part of the original colored coins white paper and eventually sort of came to the conclusion that the Bitcoin blockchain wasn’t meant for tokenization and sort of went on with Ethereum but I think back then a lot of people were excited. This was the early stages of understanding how can you use the blockchain for tokenization of assets, for clearing and settlement between different counterparts, that was really the initial concept of blockchain beyond Bitcoin.
Sebastien: So talking about Vitalik, you met him I believe around the end of 2013 and then he went on to found Ethereum in early 2014. What was your reaction to this idea that he had of launching a new blockchain to tokenize assets? How did you take that back then?
Yoni: There was an ecosystem back then the echo chamber of maximalism was very very strong. So I was the first or one of the first Investors in master coin when they launched Omni when again this was a you know, remember these were when Bitcoin was also cheap. I think we invested a hundred Bitcoin as eToro in to Albany and then took out two hundred Bitcoin after something like a couple of weeks. So this was really the early early days of ICOs. Back then a lot of the ecosystem was or maximalist and thought that a lot of the ideas that Vitalik said were not achievable. I was just hoping we could build something like that back then on the Bitcoin Network and that building a new blockchain is very complex. And potentially we could use the Bitcoin protocol but as Ethereum sort of started developing and we had a lot of the people involved in the colored coins project in eToro actually keeping in touch with the progress of Ethereum we basically started sort of seeing it emerge as a working blockchain. And while we’re seeing that still we had a lot of noises coming from the Bitcoin Community which surprisingly are still there those voices of maximalists saying that this will never work. So so I’d say it’s core. I you know, I thought Bitcoin was the only solution and tokenization need to happen on top of Bitcoin, but I think eventually when we started seeing smart contracts emerge in the concept of sort of Turing complete language running on the blockchain we thought you know, this is the decentralization potential opportunity for everything.
Sebastien: Okay, so then you went from being an obligatory maximalist which I guess everybody was back then because that’s all there was, to not so maximalist anymore believing that other platforms can also serve different purposes. Am I sort of characterizing your views here?
Yoni: I went down all the rabbit holes. I invested in like 25 different ICOs. So I love I love the concept of block chaining everything. I love the concept of the tokenization of traditional assets, I think decentralized finance is a huge opportunity and it’s not only it’s not decentralized finance as much as its replacing contracts with code. So replacing legal contracts with smart contracts, I think is a huge opportunity for finance today to create a lot of times financial contrasts between companies that are not even necessarily complex, but have several counterparties. It’s extremely hard to do and you need to go through Brokers and Prime Brokers and is the agreements again when you’re in the financial services industry, you find out how complex that industry is and I think smart contracts and decentralized finance and being able to look at open source code and having trade settle between multiple parties on the blockchain. I think that has an opportunity to completely transform the financial services industry.
Brian: Yeah, I know. Absolutely. I’m curious because I heard an interview before with you where that’s something where I really wanted you to go into a little bit more in depth. So when you say it could totally transform the finance industry. Can you go a bit in detail there? Like how is that going to play out?
Yoni: There’s a big question of how it’s going to play out because I think it’s like, you know looking at 99 or 2000 and how would the internet play out would be very hard to envision Facebook and Google back then but what is going to play out is that we’re looking today at about a hundred and forty trillion dollars of financial assets that right now are registered basically in local database in various financial institutions. I think that a significant part of that. I just saw our research talking about twenty five trillion by 2027 is going to transform into blockchain assets. And when I say blockchain assets, there’s the the single feature which I think for me was the aha moment starting dealing with Bitcoin is very simple. It’s your ability to self custody. So your ability to basically send and receive 24/7 any asset that you own and I think that’s a feature that’s going to become a requirement of most Financial Assets in the world. So today you can hold Financial Assets in multiple financial institutions, and they’ll just be closed for most of the day. They’ll be open for nine hours a day and you have some Financial Assets in financial institutions that you simply can’t really move easily between either different financial institutions or move them into your own custody. So when I say blockchain assets, I mean your ability from a technical point of view 24/7 to move those assets anywhere around the world.
Brian: So often when you hear people talk about, you know, the power of blockchain assets or like decentralized finance they think of like, okay the ability to have you know censorship resistance or maybe Financial access in developing countries. So when you talk about 24/7 transfer blockchain assets, what’s so revolutionary about that. Is it just a matter of you know, I want to trade in the evening and now I can or is there something more fundamental that it’s going to change when that happens?
Yoni: I think what really happens is it lowers significantly sort of the barriers to entry to participants if everything is on the same technology layer, right? So right now if you’re investing in multiple types of assets in different countries, it’s very hard for you to move all those assets and when you think about blockchain technology, it’s all around basically creating the same standards and protocols to transfer those assets. So censorship resistant is one thing it’s your ability to always move assets. I think that’s core for Bitcoin, but I think the other part is for all assets to basically run in a digital way. So for you to be able to move those assets to sell those assets. So today if you own stocks, it’s impossible for you you know, there’s nine hours a day when one specific stock market where you are works in probably you can’t move those stocks by the way. It’s also about time. So when you try to transfer stocks from one broker to another that’s a 5 to 20 days process. When you move Fiat money around the world in some places it’s T+2 or T+5 when you move an entire industry and say instead of something running in it takes it three days or five days to settle it settles in let’s say, you know the 15 second block of Ethereum you basically accelerate significantly the time of innovation, you accelerate the ability of basically more people to participate and for transactions to happen much much faster.
Sebastien: And I think this is where you know coming back to your point about we couldn’t have imagined what the internet would allow, you know, 10 years in Facebook or Google. I think this is where you know, we don’t really yet comprehend or can’t predict what having 24/7 opened financial markets where transactions are instantaneous where you don’t have you know, this T + 20 moving stocks between when broker to another like we don’t know what that will enable and this is I think where a lot of people are scratching their heads about where the space is heading.
Yoni: I think eventually it ends in a place where you’ll be able first to invest digitally in a lot of things that today are impossible whether it’s you know art, whether it’s contracts of talents, you’ll be able to buy five percent of an NFL players contract for the next three years, whether an equity in rev-share, in fixed income, you’ll be able to buy potentially fractional ownership of an apartment in the US or in Germany. So once you token are you digitize that ownership and you put it in basically one global platform, you’ll be able just to find a tremendous amount of things to buy and invest.
Sebastien: Yeah, I agree there.
Brian: I thought would be interesting to talk a little bit about so, you know, you became interested in Bitcoin and blockchain and saw the power of tokenization so early on at the same time, you’re already building your business of eToro, so if you can speak a little bit about kind of you know, how did those two interplay? Like, how did you think about bringing crypto into each other or maybe eToro or adopting crypto and how has that evolved from you know when you originally learned about Bitcoin and became involved there.
Yoni: So initially a lot I would say I saw a lot of skepticism around Bitcoin. So I was sort of a very much an enthusiast of Bitcoin and a lot of the people around me thought that you know, it’s a bit crazy internet money and cryptocurrencies crazy and potentially dangerous. So we had a lot of resistance and I think we worked throughout that resistance to be able to launch Bitcoin trading on eToro back in 2014 or late 13, which was a lot of work both with regulators. I think we were the only regulated financial institution in Europe actually offering a Bitcoin trading. So a lot of work was around that and then Mount gox happened. So just as we launch crypto trading on eToro for the first time Mount Gox happened and then a lot of people lost faith during that. I think that was the second crypto winter if the last one was the third one and then for a while from 2014 to 2017 there were very few people on eToro that actually treated crypto only about two percent of our users traded crypto, but because we kept sort of the relationship and sort of kept to look at Ethereum, then in March 2017 we were the first broker to actually list Ethereum as well when it was about I think it was six or eight dollars just before it started picking up. This was like four month where it went from $6 and $8 it went up to $400 and then we saw a huge wave of people around internet to came to explore cryptocurrencies. We started adding more cryptocurrencies into eToro from XRP to today 16 of the top cryptocurrencies trading on eToro. But back then in 2017 we were really at the right time, the right place to see a huge demand of people on the internet just looking for ways to access and to buy cryptocurrencies and I think the fact that they had the social network to talk to one another really enabled even lowering and more barriers to entry so still today. We’re one of the simplest platforms out there to buy cryptocurrency. So you can deposit funds very quickly, open an account with five minutes, verification is automated unlike some platforms where you might get have the verification take a couple of days, on eToro it’s instantaneous, within five minutes you can open an account. You can fund an account with a credit card or a PayPal in Europe, UK and Asia, so it’s a very simple fast way to buy cryptocurrencies, but I think the fact that people were able to see other people on the page. So like if you go into the Bitcoin page on eToro, you can see thousands of people basically talking about Bitcoin or about Ethereum or about XRP, for a lot of people that was an opportunity for them to suddenly talk to other people who are already investing in cryptocurrency, potentially from another country or from their own country.
Sebastien: So tell me about this crypto trading feature on eToro. What does it look like? How does it work? And how is it different from other crypto trading experiences say on you know, Kraken or Coinbase or something like that?
Yoni: Sure. So first of all, we’re multi-asset trading platforms. So you can on our platform buy stocks from 17 different exchanges from US Stock to European stock to Asian stocks, the same way you can actually buy currencies as well. Whether it’s Euros, Pounds, Yen, so we started eToro as a social trading platform to basically enable people to access a lot of various assets and we added crypto just as another asset on eToro so the same way you can actually buy Apple stock and you can buy everything with no commission. So there’s no ticket fees basically only eToro so you can buy Google stock at fractional share for $50 the same way you can actually buy Bitcoin for $100 or $1,000. So it’s a very simple way to basically invest in cryptocurrencies the same way that you can invest in stocks on the same platform. We then launched our block chain wallet back about a year ago, which enabled people to move the assets. So to transfer your Bitcoin from the trading platform into a multi blockchain multisig wallet where it’s on chain so you can actually when you move your Bitcoins from eToro, which the majority of assets are in cold storage and custody in eToro, when you move it to your eToro wallet you basically see your own crypto on the blockchain. You can go to a block Explorer and look at that address and then you can send and receive basically your Bitcoin, Ethereum, and all the other crypto assets through the wallet.
Sebastien: Okay, so is this is a feature that you launched a year ago?
Sebastien: Okay, because researching for this episode I asked a lot of our listeners and people around Epicenter what we should ask you in a lot of them brought up this idea that you know when you were buying crypto on eToro that it was locked in. Do you know why you know you have any idea why maybe people are confusing that or maybe have this perception that like your funds are basically locked on eToro?
Yoni: So first of all, when we originally launched crypto on eToro, then it was locked in and we just launched the wallet last year. We also so in the US for example, it also depends on which geography so the US we launched our crypto trading platform and the wallet basically at the same time, in Europe it’s been running for about a year. We’ve been gradually rolling it out for all of the different clubs. So if you are basically when you open an account in eToro you we have a club system. So if you have an account with more than 5,000 dollars, you are silver account. If you have an account with more than 250 thousand dollars, you are a diamond account and basically the duration from when you deposit funds into eToro and move them into the wallet depends on your club status and then in Asia or we haven’t rolled out the block chain wallet yet. Or the ability to transfer assets from the crypto platform onto the blockchain wallet.
Sebastien: Okay, understood.
Brian: Can you also dive into eToroX? So this is a more recent initiative where you launched a separate crypto currency exchange. Like why did you want to launch a you know an entirely separate product there?
Yoni: Sure, so eToroX is our crypto asset exchange. So again the core business of eToro is a trading platform which includes stocks commodities indices currencies ETFs and cryptocurrencies. And the experience is a very simple user experience that enables you to buy and sell very easily on the platform where we wanted eToroX to basically build infrastructure to enable us to tokenize assets and to issue them and list them on our own exchange so we can create price formation for new type of assets. So throughout the crypto rally we connected to about 15 different exchanges. So when you came to eToro and wanted to buy, it doesn’t matter if it’s one thousand worth of Bitcoin, ten thousand or or ten million dollars you could execute that what you see is what you get with the rate on eToro and we would basically go and aggregate the order books of about 15 other exchanges and then basically go to the market with those orders. What we created on eToroX we basically aggregated the same basically order book of multiple exchanges on to eToroX and also created basically 12 stable coins representing Euro, Dollar, Yen, Pound basically the top 10 Fiat currencies as well as gold and silver, so you can trade on eToroX both cryptocurrencies and actually are stable coins so you can trade Bitcoin versus 12 other stable coins and other cryptocurrencies and you can also trade stable coins versus stable coins like USDX versus Euro X or USDX versus gold on the eToroX platform and at that again takes me to our long-term vision, we believe in the future of tokenization of assets in order to transform our platform to a platform that works with tokenized assets rather than traditional assets. We wanted to build the entire stack of an issuance platform where we can tokenize assets and exchange where we can list those assets with an order book which basically means we create price formation so the price can basically people can understand how the price is formed of any market that we list on eToro x and then on top of that a trading platform that enables people to easily access those assets.
Brian: Okay, very cool. So that kind of brings up for me back something you mentioned before right when you talked about the power of blockchain assets, you know, you talked about the importance or the role of people kind of controlling their own assets being able to move them at any time, you know so far if you look at I mean, I guess it’s different with your wallet or I’m actually not sure but at least with eToro and eToro X you still have, you know, kind of custodial services or centralized services where you custody assets for people. So how do you see that evolving in the future? Do you see a contradiction here or do you think that in the future eToro will move more towards products where people can retain custody of their assets?
Yoni: Right. So I think that’s a great question. We had a lot of this internal dialogue when we launched and planned eToro X whether we want to build a decentralized version of an exchange or centralized version of an exchange. We felt that it’s a bit too early on DEX’s so when we built colored coins in 2013, we actually also built on top of the Bitcoin Network a decentralized exchange. So you could do atomic swaps of tokenized colored basically Bitcoins between one another. So I love the concept of decentralized exchanges. The problem is I don’t think the market is mature enough for those products from a user experience point of view. So what we’ve learned across time is one it takes time for markets to mature and for user experience to perfect itself so products are actually more and more usable and the other part is for decentralized exchanges to really work well there needs to be a lot of different assets on top of one specific blockchain because decentralized exchanges really work well when there are multiple assets on basically one blockchain and when we looked at building eToroX, we came to the conclusion that it’s still in its infancy and therefore there should be first a bridge between centralized exchanges. So creating liquidity in the traditional form between traditional markets, centralized services on top of crypto and then moving to what we call decentralized finance or basically non-custodial financial solutions. So one of the things that we are doing we have our blockchain labs, we recently announced a new programming language that we’ve developed called Lira and that’s a formal verification language to write basically financial derivatives options swaps futures forwards on top of the Ethereum network in a language that’s basically formally verified which basically means it’s a language that sort of mathematically is closed to prevent sort of bugs in to make it more efficient.
Brian: And what about DeFi? So you also mentioned DeFi before and you just the amazing power and I think the scale of opportunity to DeFi exists. How do you see that playing out do you think maybe you would sort of give access to DeFi investment opportunities through eToro and integrated that way?
Yoni: It’s something that we’re actually exploring right now is how to enable users of both eToro X and our wallet to be able to access DeFi products. It’s something that we have an entire team sort of working around how to integrate centralized basically products with DeFi products.
Sebastien: Okay understood. So I’d like to come back to this concept of social trading a little bit. We’ve touched on it earlier in the show. Why do you think that idea is so powerful why you know, I think you guys have over 10 million users and I’ve heard a figure that you know over a trillion dollars were traded on eToro just last year alone. Why are people so drawn to this idea of social trading?
Yoni: I think a lot of people are interested in financial markets many many more than the ones who actually trade the markets because people are still intimidated by the markets. They still are afraid of making decisions on their own. It is generally a very sort of it’s a very lonely feeling unless you’re really connected into the markets and in social trading where you can suddenly see what other people are doing and you can talk to them I think that lowers the barriers to entry. We lowered the barriers to entry through enabling people to see following automatically copy what others are doing because you don’t need to be a professional trader or an expert in order to see what somebody else does and define whether he’s good enough and copy him.
Sebastien: so by reducing this barrier to entry do you see either sort of conceptually or actually in practice. Do you see this as a risk in some way or does that open up the possibility for risky behavior?
Yoni: I think it’s the Superman quote “with great power comes great responsibility”. There is definitely a lot of responsibility that people need to take when they decide to trade with their own money or to risk their money or to invest their money. We have been working a lot on the platform to constantly educate users about the risks they’re taking so today based on how you define your profile on eToro we will open different features for you. So some people can’t trade leverage at all. Some people can’t copy other people based on the answers. No one can actually copy people with a risk score higher than seven. So we’ve done a lot of these because what we’ve learned is people need to be very well educated about the risks that they’re taking. Philosophically you can sort of divide the world into those who believe people should have the freedom to choose and to take risk and sort of the other half who says no, let only professionals manage money. So obviously philosophically eToro and we believe in the democratization of wealth management and that people should have access to the markets to make their own decisions, you know, whether it’s to move their assets or it’s to make their own decisions in what to invest in and I think capital markets works the best when retail investors actually invest in what they believe in rather than delegating all the money in the world to very few financial institutions.
Sebastien: Yeah, that’s an interesting point. So on this idea of education recently I saw some of your ads online and you know, they’re really funny and they’re they’re great and very creative. But do you think that when you know people see ads like Trade like a Steve for example, which is a pretty famous eToro a do you think it when people see that they have a notion of the risks because I could see that opening up possibilities where people like hey I can just copy this guy and I’m going to get rich quick. Do you think that you guys are doing enough to protect people from throwing their entire life savings into something that perhaps they’re not extremely educated about?
Yoni: So we are trying as best as possible to educate people about the risks because when we you open an account on eToro we will actually ask questions like what’s your salary and sort of liquid assets etc. We should be able to block you from losing more than you can afford to lose and that’s also a statement that sort of keeps recurring in how we educate people to understand risks is you know is don’t risk more than you can afford to lose and I think that’s very important when you look eventually at a lot of the eToro users a lot of novice users in eToro, a lot of them will start with $500 and $1000 and when you get to a point where you deposit $5,000 into eToro you actually get assigned an account manager who talks to you once once a month and they will make sure you understand the risks and you’re educated in the markets. So we definitely do a lot in helping people understand the risks. But again, as I said from a philosophical point of view, we believe people should be able to understand those risks and that actually learning about the markets and learning about those risks and how the markets operate is something that is very good for a financial future of a person.
Sebastien: Yeah, I think I would agree with that you learn by doing and sometimes perhaps you learn by failing. If you guys have the right fail-safes in place. I think that you know, you probably limit some of that risk. I mean when I went through the onboarding process, I thought it was really good. Like I’ve seen this on other websites as well where you do a very good job of trying to figure out what is the risk profile there and how does that evolve over time though? So let’s say that I’m on the platform and you know, I started as a rookie Trader and now Im making six figures and I’ve become educated investor over some time does the profile then evolve to allow that person to take on more risk etc?
Yoni: So again, the personalization of the platform is relatively complex because we operate in more than a hundred different countries and because the company is regulated in Australia and the UK in Europe now in the US as well. So basically what can you access in every region would depend on where you’re from, the stability and assessment of what kind of risks you can take and also where did you open your account in which of our regulated entities did you open an account? So you basically can get the variety, you know people in France would open an account in Europe and actually by default see French stocks on their platform. People coming in from ads around cryptocurrencies would actually go into something that’s more defaulted view towards crypto. We really try to segment our audience and understand what’s interesting for different types of users, people who are interested in stocks versus people who are interested in crypto versus people who are interested into commodities and try to personalize the platform to what would best fit them.
Sebastien: Yeah. I definitely sort of a victim of that because I’m based in France and I opened my account while I was in Germany and I can see only sort of like Commerce Bank and all these German stocks here and I think I’m think I’ve I’ve been I’ve been flagged as a German investor, which I don’t know if that’s good or not.
Yoni: So I think if you now deposit funds and choose that you’re French hopefully you’ll see more French stuff.
Sebastien: My French flag is now behind my eToro avatar.
Yoni: But I think you know the processes were constantly evolving the platform and try to personalize it more and more as we learn more about our clients we try to make the user experience more personalized.
Brian: I thought your comment was interesting before regarding the importance of having retail investors involved in the markets because I guess when you are trading during the.com, right it was a lot in the US, for example, I like lots of retail participation and then I think after that it sort of disappeared right now people maybe buy like ETFs or something like that seems to be little involvement. What’s the demographic and what do you think the impact of this is for eToro?
Yoni: So the average age on eToro is about 37, the majority of clients on eToro are 25 to 45 and we definitely see sort of that cohort of people more interested in tech stocks. So if you look at what our users are investing in they invest in a lot of the known brands so almost every person on eToro if you’ll go to see his portfolio and look at the various assets that they’re investing in you’ll see a lot of known brands because people invest in brands or companies who they use their products and I think that’s a very big difference between how financial institutions look at investing versus how people look at investing people look at investing because they’re interested in a specific company because they’re interested in their products. They believe in the sort of longevity of their product offering for a while and financial institutions generally analyze financials and the truth is probably somewhere in the middle. Nothing needs to be only from a financial point of view because then you couldn’t tell the difference, you know, if you looked at the world only from a numbers point of view, then it doesn’t matter what a company does to whether you want to invest to invest in its stock and you don’t want the world to be completely naive to say I love that company’s products and regardless of its financials I want to invest in that company. So the truth is somewhere in the middle, but I think that over the past 10-15 years it got a lot skewed towards the finance view of of let’s just analyze numbers and all companies are basically just their spreadsheets.
Sebastien: So I’m curious. Do you have a sense of how much wealth like we talked about this one trillion dollars in trades this year. You have a sense of how much wealth you’ve generated for customers and maybe you know, what’s like the coolest success story you’ve heard from a customer?
Yoni: So we have a lot of like the coolest success stories that we see of customers are our popular investors. So when you start trading on eToro other people can actually see your profile and then follow you or copy you and I’d say that the coolest success stories that we’ve seen are popular investors who start to get copied on eToro. Once you get copied on eToro you’ll get an email from our popular investor team to basically opt into the popular investor program where you can actually get paid to be copied and then we saw a lot of very cool success stories of people who actually got to a point where they could sort of quit their job because suddenly they made anywhere between 10 to 30/40 thousand dollars a month from us just by being copied by thousands of people and by tens of millions of dollars. So I think we saw that to almost an extreme during the crypto rally because people came into eToro and suddenly saw people generating 300/400 percent returns from trading cryptocurrencies, which is obviously hard for a lot of people so they sort of jumped on that wagon through that but a lot of the interesting stories are those who managed to sort of manage the risk in the drawdown of the market is sort of emerge as popular investors also after the crypto winter.
Sebastien: Okay, cool.
Brian: Yeah. I mean, this is so cool. I guess it brings us back to your previous point about this kind of like discovery of like portfolio managers. So the people who are really successful at this and you’ve had a lot of traders and eat or uses copy their platform. I mean in essence they’re kind of even though I mean, they’re almost like managing money right in a way.
Sebastien: But those aren’t taking any of the risk though.
Yoni: No, they’re taking their own risk. I mean, it’s the highest amount of risk they are risking their own money.
Brian: It’s the same as a manager. I mean, they’re investing other people’s money too, so in a way there are also not taking the risk. So what is the scale here? Like what are the biggest portfolios that get invested based on, you know some of these traders and their portfolio choices?
Yoni: It very much varies if you’re talking about the total amount of assets copying one trader, then the biggest ones are in the tens of millions of dollars. If you’re talking about what’s the range of people copying other people the average is a couple of thousands of dollars per copy.
Brian: Okay. Okay, cool. How does it work here in terms of both the business model for eToro but then also the business model for you know a trader that gets copied. Like how is it determined how much revenue is generated from that?
Yoni: First of all for the users it’s free, right. So when you copy someone it doesn’t cost you anything. If you go to a money manager, he might charge you a 2% management fee and a 20% carry if it’s a hedge fund. We basically don’t charge the users anything for it. So when you copy someone the management part is free for you. When underlying trades are happening in your account to do the trading activity is where eToro generates its revenues. So when you copy someone it’s good for us potentially because you just did one click but you copied someone potentially is more active and trades more frequently the markets. The person who you copied only gets paid from the amount of assets copying him. So his soul alignment is to have more people to copy him with more money, which aligns very well basically the customer and the person being copied. Now the person being copied falls under our portfolio management license, so we basically give an umbrella and basically take the data from our customer accounts to enable that portfolio management service in your account.
Brian: Is there also a risk here that like if I’m a trader who gets copied by many people that I have kind of an incentive to generate more trades because I get paid for for every trade?
Yoni: No because you don’t get paid for every trade. You only get paid for the total money copied.
Brian: Ah okay that makes sense.
Yoni: Okay, so we tried to create the incentive system in a way that aligns to the maximum the popular investor and their copiers and of course, we realize that within sort of the platform we should curate the platform and try to give constantly more and more tools for users to figure out who are the right people to copy.
Sebastien: What I meant to say by they’re not taking any risk is that the investors that are being copied that person doesn’t need to invest like 10 or 20 or 50 thousand dollars in their own portfolio they could be managing maybe like a hundred thousand dollars or maybe $500 some like that and then have like tens hundreds of thousands of dollars being followed by them right or copied.
Yoni: So there is you can see here. I’m sharing with you guys my screen that when you progress as a popular investor, there are a lot of different requirements. One of those requirements is how much money you have in your account. So in order to manage to basically have more than a hundred and fifty thousand dollars copying you will have to have more than 20 thousand dollars in your account.
Sebastien: Okay, so you need skin in the game.
Yoni: So you have to have skin in the game. You also get a lot of you know different benefits. So if you’re an elite trader you need to have skin in the game but you also need to lower your risk score significantly versus any regular traders on eToro.
Sebastien: Okay understood. So before we wrap up, I did want to talk a little bit about you know, the future, you know of trading and your vision for like where you’ll see the future of trading go and so traditionally people would, like people like my parents for example, like they have a financial planner and like they’re putting their money with this guy and they’re seeing every month and they’re like getting information from him about what kind of trades they should be making etc, where do you see this going and are these people just destined to you know be disrupted I guess by platforms like eToro. And is this the future or do you think that like these professions will still continue to exist moving forward?
Yoni: I think these professions will exist but I think they’ll then transform into much more an online advisor and online global advisor. So I think local financial advisors who don’t necessarily have the platforms to give the right service the right advice to a global audience I think gradually that will shift so if you think about your traditional again, and that really depends in different countries but there’s a couple of things, one you need to have access to the markets from the point of view of a customer. If you are now doesn’t matter, you know, Germany or France and your financial advisor can only advise you in buying German and French stocks, I think gradually everybody understands that the markets are global and you have to diversify your investments globally. Then the second part is I think our generation would expect most of their communication to be done through their mobile app rather than a face-to-face meeting and you’d probably want multiple people to be able to give you advice on on multiple subjects within one platform. And that’s sort of what we’re building on eToro. We want to eventually enable access to as many markets as possible. Ideally, you know one day markets that maybe don’t exist today for retail consumers like art or real estate but even now the global stock markets and then we want to give you through the mobile app access to people who understand all of these different markets. I think as a platform we will gradually grow also to the place where you can look at this more holistically from a managed account, today it’s still somewhere in between, you know you it’s easier to copy someone else then to choose stocks on your own but choosing who to copy is still a process. So we made that process easier by saying okay, here’s an algorithms to automatically pick the top traders for you, but there is still a gap between that and saying okay the system really understands your goals, how much money is in eToro versus other platforms and to help you make financial decisions that are really personalized to your needs and I think that for us is sort of the next stage of evolution and on the other part we’d love to also see more of the traditional financial advisers sort of on board into eToro.
Brian: Cool. Awesome. Well one last question, I’m curious about so we talked a bit about you know, kind of the future that’s coming if blockchain when you look at eToro and I mean you guys have already accomplished like such an amazing number of things in the year since you existed, but if you see this kind of this merging of these different trends like AI that you guys are leveraging and blockchain like what do you see eToro look like 15 or 20 years from now as a company?
Yoni: Wow 15 to 20 years. That’s a lot. So we see ourselves as a global investment house with you know, we have X amount of customers. I would definitely want to see us with more than a hundred million registered users by then with access to millions of various types of investments and powered by hundreds of thousands of popular investors across all those assets. So the vision of building a global digital investment house which enables millions of people to access the global markets and to collaborate and communicate around them is really what we’re starting to do and just scaling that into the same time that there is a huge paradigm shift of digitizing the entire financial services industry in our view is a huge opportunity.
Sebastien: Where do you see AI play in that? Do you have any idea of how you might be able to leverage AI?
Yoni: So we have a great machine learning team at eToro. So I’ll give you the different examples of what machine learning algorithms do for us. So one we mentioned before there is the top trader copy portfolios, right? So to automatically pick who are the top traders or who should our investments team talked to from the top traders to have them enroll into the popular investor program. Another one is we talked about personalization. So through basically having all of the data around the users around which banners they clicked which ads the saw which part of the platform’s they went in maybe which copy portfolio of or instruments they’ve basically visited on the platform we’re able to basically find the right content to deliver to them through both push notifications, emails, CRM and even through sort of you know, Google GDN or Facebook ads, right? So we’re able to personalize communication with a customer to what’s interesting for that customer and to optimize that to basically increase customer engagement with a platform. Other things again that are more forward-looking. I do think that AI eventually will replace a lot of the traditional financial or portfolio manager point of view, right? So you’ll be entering a lot of data about yourself, your goals, your objectives, your experience, your wealth into the system. I think eventually AI would be able to give you a better recommendation of how to manage your money across multiple people on eToro, multiple strategies on eToro and multiple assets on eToro better than any specific person. That doesn’t mean you wouldn’t want to still talk to a person either from a relationship point of view or somebody that can sort of understand better your needs and enter it into the system. But I think eventually a lot of the decisions in portfolio management, in investment management are going to be automated through AI.
Sebastien: That sounds like a very interesting future for you guys. And I want to thank you very much for coming on the show today was a really fascinating discussion and I’m really glad we could finally sit down and talk with you.
Yoni: Thank you I enjoyed it very much.