Kevin O’Leary, chairman of O’Shares Investments who is also known as “Mr. Wonderful” in reality show “Shark Tank”, said he is excited about decentralized finance’s potential to disrupt traditional finance, but anticipates a long road for institutional adoption.
O’Leary, once skeptical of crypto, has become an active participant in the digital asset market. He now owns stakes in crypto exchange FTX, stablecoin operator Circle, and decentralized finance platform WonderFi , which is listed today on Canadian stock exchange Neo Exchange.
O’Leary also said he would invest in the private investment round known as PIPE in Circle, as it plans to go public through the merger with Concord Acquisition Corp
a special-purpose acquisition company (SPAC).
O’Leary is intrigued by DeFi’s prospect to lower the costs of foreign exchange transactions, he said. Decentralized finance (DeFi) refers to blockchain-based systems that operate without centralized intermediaries. As the systems eliminate the needs for middlemen, they aim to reduce transaction costs.
The DeFi market has witnessed an explosive growth – the total value locked on DeFi protocols amounted to $84 billion on Tuesday, August 31, a more than fourfold-increase from the number at the start of this year, according to data site DeFi Pulse. The surge comes with increasing regulatory attention. DeFi projects are not immune to regulatory oversight, Gary Gensler, chairman of the Securities and Exchange Commission, told the Wall Street Journal in an interview earlier this month.
“[When buying stocks in other currencies] I have to pay the FX traders to do the conversion and they add absolutely no value whatsoever. Zero,” O’Leary told MarketWatch in an interview.
“If the regulators in Switzerland, in England and in the Eurozone approved a payment system using DeFi, we could decimate the costs. We can eradicate them by 80%, 90%,” he added.
Skeptic to active player
O’Leary’s change in attitude towards crypto investing resulted from the more flexibility he observed in the regulatory side, he said. In 2017, he thought the regulators were completely not on board with the asset class. “I just didn’t want to get the taint of being some kind of a crypto cowboy.”
“I have done a 180 on that situation as the regulator has in some respects become more flexible, particularly in countries like Germany, Switzerland, England, Australia, New Zealand, Canada, places where I invest now,” he said. He also anticipates more wiggle room in terms of U.S.’s regulation over time.
O’Leary also started investing in crypto as a hedge against inflation. With inflation rates of over 2%, “I’m actually losing money holding cash,” O’Leary said.
Hurdles for institutional adoption
Despite his own participation, O’Leary said a broad institutional adoption of crypto still faces major hurdles, due to the lack of “press-the-button infrastructure” that are built in for other asset classes such as stock and bonds.
“When you go to your internal compliance [for investing crypto], their answers are always no,” O’Leary said. “They don’t need the headaches because they know it’s controversial.”
“Then you have to go to your external auditor and tell them what you’re doing long before you do it. They hate it too. Then you have to make sure that your compliance department is willing to produce the reports that you have to provide to the regulator. They don’t want to do that,” O’Leary added.
It took months for O’Leary’s team to set up the compliance infrastructure for investments in FTX and Circle. Until a compliance infrastructure is built in, broad institutional adoption could still be in the distant future, according to O’Leary.