Transcript: Q&A Session 4 with 1291 Group about Digital Asset Wealth Management for High Net Worth Individuals

September 26, 2022
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In this 3-2-1 Q&A session #4, we have a very special guest Roger Chi joining us from 1291 Group from Singapore to talk about Digital Asset Wealth Management for the HNW (High Net Worth) individuals. Then we will discuss the 2 most critical twitter threads our readers need to be aware of, and finally we’ll analyze 1 DeFi hack and how Coinchange protects its users funds from such hacks. 

In summary, here is what you will be learning about:

Question 1. How is 1291 Group helping HNW individuals in the traditional finance space and the crypto space? 

Question 2. What is Private Placement Life Insurance? 

Question 3. How does the ownership of the crypto work with 1291 Group?

Question 4. Does 1291 group use a specific custodian for crypto?  

Question 5. Who is your ideal client and where people can contact you? 

Twitter Thread #1: Ethereum Merge Checklist for ETH Users

Twitter Thread #2: BlackRock will use Kraken’s CF Benchmarks 

DeFi Hack Analyzed: Compound ETH market frozen

Transcript From Our Guest Speaker Interview with Roger Chi, 1921 Group

Pratik: Roger thanks for joining me today, my first question to you is I want to know how the 1291 group is helping the crypto but first I want to know what the 1291 group is about and how you are helping the traditional space.

Roger: Great fantastic thanks for having me today. Yeah, I'd love to tell you a bit about 1291, to tell you about and yeah we can just dive into it so 1291 what do the nbers mean? It's the founding year of Switzerland so we're based in Zurich, with 12 offices around the world: Zurich, Geneva, Liechtenstein, London, Panama, Bogota, Sao Paulo, Mexico City, Dubai, and Hong Kong. I'm the CEO of the Singapore office and sort of what we do is we work with ultra-high net worth families globally and build what we like to call ‘Asset holding structures’. What does that actually mean in plain English? So historically if you're a wealthy family you held all your assets in a BVI or a Cayman Island Company or a Singapore company or a trust but now because of FACTA, because of CRS, because of the Pandora papers, and the OEC cracking down on these different things it's harder and harder for families to hold their assets and still get privacy, still get some asset protection, to get some legal tax optimization, to do some Next Generation estate planning and to have a cash component. And that's where we come in. We sort of build the next generation of an offshore company or a trust if you'd like.

Pratik: And that's your PATEC right you what you just said is p-a-t-e-c?

Roger: Correct and we always use a very simple framework as you correctly pointed out PATEC to sort of remember the benefits of what we do. So P for privacy, A for Asset protection, T for tax, E for Estate planning, C for cash and it's usually component of one of those five things that we're helping families with. If it's families from let's say a developed country, US, UK, Australia, Western Europe, it's usually about tax and tax optimization in a legal fashion. If it's about developing countries let's say it's from Asia, from Latin America, from Middle East, it's more about privacy and asset protection where these things are oftentimes key. And tax maybe a distant second. So that's sort of what we do and instead of how we help. We have clients from all over the world. I have clients from over 45 different countries. We're licensed globally as well. So  it's quite a unique sort of solution and toolbox that we do have. But we always sort of saw historically a lot of families around the world they wanted to keep their assets sort of privacy asset protected and that's sort of where we sort of came in.

I'd say right now  from our business 60% of our business really goes towards the private Banks, also the major private Banks and they oftentimes resell to their clients.W e also do a lot of work with the big four accounting firms. And we also do a lot of work with the big law firms of the world; so the bigger mckinsey's of the world teaching them on how to use these structures and having them propose these structures for their clients. And the last little book is that we do get some work from the trust companies as well just because trust under  around the world are sort of all under attack and so oftentimes they do need an additional structure underneath the trust to bring back the Privacy, bring back the asset protection and think about the tax optimization and sort of that's what we implement. It's important to note that out of our firm out of 35 Partners globally, 22 are tax lawyers. That's where we come from. The chairman, the vice chairman ,head of Asia are all Swiss tax lawyers. We have wealth planners from some of the major Banks so we have wealth planners from Julius Bear, Deutsche Bank, UBS, Citibank and there's a very big bank in Singapore called DBS and two years ago the global head of DBS wealth planning left DBS to join us. We have a lot of insurance expertise. The ex-head generaly for Pan New York runs our London office. The ex-head of Swiss Life Wilter Sunlife for North Asian Hong Kong offices with some ex-trustees. Myself, I spent 20 years with different family offices around the world. So we're using the structures for our families. And these structures I think,  I think Pratik for your context and for people I think coming from, let's say US or Canada  these structures will provide tax optimization. Basically it's tax deferral once you're in the structure you can trade your different assets you can trade the crypto and it's all being tax deferred.

Pratik: Okay yeah so what is this structure? Let's talk about what this structure is.

Roger: Sure, I think the favorite structure for people in the US and Canada we actually expect to use a derivative of a life insurance policy; it's called private placement life insurance. Private placement because the investors are private placement but life insurance because the underlying vehicles is a life insurance vehicle. So you put everything into these different structures, it looks like a life insurance policy, it is treated like a life insurance policy and because of that life insurance often oftentimes has  tax advantages to it.

Pratik: Okay so it's a PPLI that's the private placement life insurance.

Roger: Correct

Pratik: So a high net worth individual puts their assets be it traditional real estate, stocks or it could be crypto now and correct and then what happens?

Roger: So once it's inside once it's in this structure all the trades that you do are all legally what they call tax deferred. It accrues and taxes; I buy an asset for 50 I sell for a 100 you see there's fifty dollars of gains usually you might have to pay 25 taxes so 75 comes back to me I keep that 75 dollars. Underneath our structure the full 100 comes back so I can compound my gains much much faster. I think that that's quite advantageous. There's also other benefits to it in terms of reporting requirements. For reporting requirements oftentimes governments around the world are asking you to itemize your trades now and that obviously if you trade a lot that could be   quite a headache at the end of the year. In this structure you don't have to itemize your trades anymore. It's single line reporting at the end of every year. You just report back that you hold a life insurance policy with a cash surrender value 50 bucks and that's how you report. It's single line reporting, all consolidated,  it's all very efficient.

These structures I think  generally, our clients really start above the five million Mark. That being said I think we have some clients maybe as small as one or two million but the overall fees may be higher on a percentage basis. Usually we're charging under one percent but if it's on a smaller on a smaller book it may be higher in terms of the fees. But that being said, if you're early stage in some crypto Investments and you do think it's going to go 100x, it may make sense to put these structures sooner rather than later. And the one other caveat is, putting it into the structure is a taxable event but once it's in the structure it's all tax-deferred. So it makes sense to put these things in as early as possible.

For different countries like the US or Canada there are different rules we have to pay attention to. If you're in the U.S or Canada you need a licensed advisor in between you and your Investments.  But there's lots of digital asset managers who can help you manage your assets, that can give you that advice and you also need a diversified portfolio of these private investments. But beyond that I think the nitty-gritty we can sort of dive into it, but I think more importantly is that what we do did notice is about a year and a half two years ago was that a lot of the original investors in crypto they wanted privacy, they want asset protection. That's the original reason why they went to crypto. They didn't maybe fully trust currencies, they didn't fully trust governments, and so we took a look at our structures and we said, hey look this is actually could be quite interesting for them. And we had a lot of early clients early days. Maybe they had their coins let's say with Binance and Binance let's say five years ago was very famously saying we're not going to be anywhere and regulations don't really apply to us. You look at Binance today and it's hiring Regulators. They're running towards a regulators saying please regulate me. So it's a very different environment. All we're doing is we're just taking those initial needs of the crypto investors, privacy and the asset protection and we're just giving it back to the crypto investors.

So it's been proven to be quite popular. I would say right now only 5% of my business is probably crypto. 95% still traditional families and family offices who are seeking different structures to hold their assets.

Pratik: Okay, makes sense. So speaking of needs for crypto holders one of the biggest needs these days is ownership of the assets. Not your keys, not your coins is just floating around everywhere. So what happens when someone puts their assets in this structure? Do they still have the ownership or have they already renounced their ownership? Can they trade the assets? Can they put it in yield generating protocols? How does that work?

Roger: So it's a very very good question. Legally what we're doing is we're actually taking your assets we're transferring from yourself to the life insurance company. So legally on paper the UBO  (ultimate beneficial owner) is actually the life insurance company. They now legally own the assets. Well, they do give you back the life insurance policy and inside the life insurance policy are your assets. And in terms of control, it depends on the jurisdictions. So if you're in the US, you're in Canada, you do need a licensed manager to manage those Investments on your behalf. You appoint a licensed manager, the licensed manager has to run those assets for you. If you're in other countries, more developing countries, you can have a limited power of attorney back to you and there's oftentimes people have some control over different assets. It just depends on jurisdictions. Obviously life insurance is very jurisdictionally specific and that's why  we have 22 lawyers on our team because we can go through different Insurance to all different tax laws to make sure these things are legally compliant. And so that's sort of  the way you do it. Now that being said there are lots of licensed managers out there who do digital assets. Once it's in the structures you can deploy any way you want to. You can put it into DeFi, you can trade it, you can make early stage token Investments. There's a lot of flexibility in what you can invest in a crypto space.

Pratik: Okay and then custody wise do you use a custodian on the back end? Are you using a specific custodian like FireBlocks? Or where are the assets stored?

Roger: Yeah so I think it's quite open and it really depends on the asset manager that's helping to run the portfolio and also the client as well. So traditionally it's whatever they've been comfortable with. So if they've been using FireBlocks or using centralized exchanges, what may be that all stays the same. As a life insurance company they don't really manage that part of it. It's up to you, it's your responsibility to figure out what the best custodian is for you and they just provide sort of the structure for you to be able to put your assets into them and that's it.

Pratik: Got it where can people find you? Who is your ideal client?

Roger: So I think most of our clients are net worth let's say between 5 million to 200 million dollars. We have 12 offices as I mentioned around the world. You can always reach me at our website 1291group.com. My email address is chi@1291group.com. Coinchange.io is a partner of ours, you can also reach out to the Coinchange folks and they can redirect you towards us. But yeah so I think for any referrals from Coinchange what we do offer is we can do a quick half hour no-fee introduction and we can see if our structure may be fit for you. And depending on what you're doing and we have this an informational conversation and we can just talk a little bit about what we do and if it may fit. We're happy to point to the right offices that maybe able to help. So as I mentioned these structures are good for not just crypto investors but traditional investors as well and it sort of gives you the flexibility to go from crypto to let's say traditional stock and bond portfolio, to fixed income, to real estate and all the way back, right all within a tax deferred structure. And so it could be quite advantageous from a capital gains perspective. It could be quite advantageous from an income tax perspective so lots of different things that we can definitely help with and obviously we can definitely help on a privacy and asset protection as well and to really give to sort of help the crypto investors regain that privacy and asset protection which is I think is increasingly important.

And also another part of our business is doing Next Generation planning. There's always questions about in the crypto space like, “I've made this nice returns, how do I now give it to the Next Generation efficiently? So we have different structures so we can talk you through of how you efficiently can do that. Sometimes it's combined with other structures but  we can lead you through that.

Pratik: Okay great! Well, I don't think we have enough time to cover everything that you guys offer, you guys offer a lot. And if anyone is interested who's listening to this definitely reach out to us or reach out to 1291. Roger, thanks for joining us and speaking of partnership, I want everyone to know that we are releasing our research report on Institutional Asset of Choice and Adoption on September 29th, and it's a collaboration between 1291 and us and they are describing the Digital Wealth Management solutions for high net-worth individuals. So do check out the report once it's out. Roger thanks for joining us today.

Roger: Great, fantastic. Thanks so much for the time and thanks for having me.

1291 Group is offering a No-fee intro call for Coinchange users! Contact us if you are interested.

Two Twitter Threads You Need To Be Aware Of

Twitter Thread #1 

Mudit Gupta Tweets: Merge checklist for Ethereum users and the checklist has nothing! That’s right. Unless you are running ethereum node, you do not have to do anything.

Mudit Gupta Tweets 

By now everyone knows about the biggest on-chain event to happen in the history of crypto, the Ethereum blockchain’s transition from Proof-of-work (PoW) to proof-of-stake (PoS) should be happening Sept 15th! However, there is uncertainty on whether some members of the community would continue to use the PoW hard fork. 

Coinchange take: Coinchange will support the PoS chain as the majority of the protocols and stakeholders will operate there. Multiple centralized exchanges, stablecoin issuers, and DeFi protocols have signaled their full support for the merge while attesting that a PoW hard fork would not change their decision. The merge has been delayed several times as it is critical to get everything right since tens of billions of dollars are on-chain. So like Mudit said, DeFi users do not have to change anything but the node operators need to upgrade their software to support the merge. Coinchange is following the merge progress and has positioned itself to update the infrastructure accordingly.

Twitter Thread #2

BlackRock (BLK), which is the world's largest asset manager, will use CF Benchmarks’ bitcoin index for its new crypto offering. CF Benchmarks is a member of the Payward group of companies, which is the owner and operator of centralized exchange Kraken. This agreement has been in the works since 2021 according to CF Benchmarks CEO.  

Last month, BlackRock partnered with Coinbase (COIN), to make bitcoin directly available to its institutional clients (we covered this news in our second Q&A). Shortly after, BlackRock launched a spot bitcoin private trust for U.S.-based institutional investors.

CF Benchmarks CEO Sui Chung told CoinDesk “The launch of BlackRock’s bitcoin fund is a sign of how far crypto has matured as an asset-class”

Coinchange Take: This news regarding BlackRock venturing into the crypto space is not the first. This is showcasing that institutional demand is increasing since 2021. Evidenced by Sui Chung’s comment on the fact that institutions reaching out to CF Benchmarks now understand the fundamentals of Bitcoin and Ethereum and do not put them in the same basket. It is also evidenced by BlackRock making the right partnership and agreement to provide crypto services to its institutional client. Lastly, since 2021 we have seen a multitude of products and services catered towards answering institutions and business needs. We’ve research some of those firms that enable institutions to enter the crypto space in our upcoming Institutional Asset of Choice and Barrier to Entry report that will be published late September. 

Compound ETH Market Freeze Analyzed By Coinchange

Last week, Compound voted on-chain for implementation of a new oracle price feed for its market (moving from Uniswap v2 to Uniswap v3). The issue arose when the change was implemented as it resulted in essentially the ETH market being frozen. No more borrowing could occur since all borrow attempts would revert. The code had been previously audited by 3 audit firms (Dedaub, ABDK and Open Zeppelin) before voting took place. Once the issue was flagged, the decision was to revert to the previous oracle price feed contract that is still operational.

This is where the controversy or issue arises. Two paths are currently used to deal with such urgent issues in the space:  a protocols team could quickly revert to the previous working contract if they have full control over the protocol's smart contract via admin key. Second way of doing it is through governance process with multisig + timelock, which Compound uses. The full process takes at least 7 days to implement changes in the case of Compound and can take less or more than that depending on the governance process for the particular protocol. 

The voting already happened for Compound and the oracle reverting to the previous version happened on September 6th. No funds were stolen or lost in this process but the ETH market was not available for the 7 day period. 

Coinchange take: Those issues are common in the space, again audits are mere snapshots of the smart contract reviewed at one point in time. If changes happen after the audit, they can become voids of relevance. Also, the governance process for urgent matters like this one or other (pausing market due to extreme volatility for a token) are something that could benefit from a dedicated multi-sig which could enact changes faster. Coinhange analyzes the governance process and control over the protocol smart contract in its risk assessment framework, and as per our analysis, it is evident that ownership of the protocol via admin key only rather than multisig + adequate time lock duration are most probable to attacks leading to users loss of funds.  

This concludes our 3-2-1 Q&A Blog. We’ll see you in the next one, two weeks from now. Meanwhile, kick back and earn passive income using Coinchange. Sign up today!

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