One of the Last Ones Standing

Feb 15, 2023

Dear Cake DeFi customers, partners, team members and anyone else following us over the past years.

It is my pleasure to share with you our company’s 2022 results from a bird's-eye view and then Q4 with all the usual details. Firstly, I would like to begin by briefly reflecting on the whole year from the perspective of the entire economy rather than that of the company.

All results are a combination of only three factors:

  1. The status quo where you start from
  2. The decisions you make going forward
  3. Good or bad fortune

Cake, along with the entire crypto industry, had one of its strongest years ever in 2022. Since our company was founded, markets have rallied continuously throughout 2019, 2020, and 2021. Our treasury was full, we had close to a billion dollars in customer assets, and we had big plans for 2022. Not only were we doing well, but so were our competitors. In 2022, we started from a very strong yet difficult position. Yes, our bank account was flush with cash, but everyone else's was as well.

Let us do the decision-making reflection afterward and look at the good or bad fortune part first. As far as crypto markets are concerned, 2022 has been one of the worst years in recent history. I felt that the aggressive rate hikes by the FED, which I believe are needed, dragged down most of the markets. This made 2022 not only one of the worst years for crypto, but also for the entire tech sector.

Most stocks went down by over 50% while most cryptocurrencies ended the year down 80-95%. During our first meetup of 2023, U-Zyn, my co-founder and CTO, and I did a 2022 reflection and 2023 forecast. You can watch it here:

In general, we can divide the year into four parts:

  1. Q1: The Fed hiked their rates aggressively, and the markets reacted. During this period, we were doing very well.
  2. Q2: Terra Luna, Celsius, BlockFi, 3AC and many more were collapsing. We still did well during that time, as our competitors' fallout helped us gain many customers. During that time, our customer base reached one million.
  3. Q3: Summer hopium that everything was going to be over soon. As a result of the 60-70% price drops, our revenue took a hit. It was the first quarter since Q2 of 2022 that was operationally negative.
  4. Q4: FTX and total crypto collapse. With most companies either going bankrupt or laying off large numbers of workers, everyone began to realize that this is not going to be a rapid recovery.

One might be tempted to conclude prematurely that this market crash meant bad fortune for us. With the 2022 results, I would agree on a short-term timeframe. Nevertheless, over the long term, it was a blessing. Our goal when starting Cake in 2019 was to make our products as transparent as possible. It was our belief that the future of crypto would be a mix of non-transparent yet user-friendly CeFi and transparent yet unfriendly DeFi. We called that CeDeFi.

As a result of keeping everything transparent, we were always able to align our interests with those of our customers. There was no blackboxing.  This prevented us from leveraging, rehypothecating, or otherwise utilizing customer funds –– practices that our competitors used in 2020 and 2021 to fill their pockets. The tide turned in 2022, bringing about the demise of almost all of our competitors. Even though we were also hit by the massive downturn of 2022, we are one of the last ones standing. In the future, I predict that regulation and transparency will be key for users.

Having been in this space for quite some time, U-Zyn and I had learned that crypto, like most in this world, moves according to seasons. Booms and busts can work in your favor if you recognize and utilize them appropriately. It's important to recognize that we had a crypto spring in 2019, a crypto summer in 2020, and an autumn in 2021. Currently, we are in the midst of a crypto winter, which began in 2022. It's hard to tell how long each season lasts, but you sow in spring, double and triple down in summer, and reap in autumn. In fact, we've done just that from 2019 until the end of 2021.

Throughout 2020 and 2021 we built, stayed focused, and… sold most of our company’s treasury into USD. Many of our own team members were concerned we would miss out on the biggest bull run in crypto history and our company would be left behind. Most of life is not determined by the best decisions you make, but rather by the worst ones you make. Even if you cross the road perfectly 999 times, if you run into traffic blindly just once, the other 999 times don't matter. This is how we approached our Treasury decisions. While we might not make the decision with the most upside, we would certainly not make the one with the most downside.

Let me share an anecdote from that time with an interesting twist: my past. In 2018, the media and people started focusing on a brief time in my life when I tried multi level marketing in 2012. There was nothing wrong with that.  Due to the fact that there were many scams in the crypto space that were built on multilevel marketing, people tried to discredit me by drawing parallels. In 2019, my ex-partners of a crypto company that had nothing to do with multilevel marketing ousted me, ran the company into the ground, and completely disappeared.

As the face of that company, many in the public mistakenly blamed me, ignoring the fact that it was actually them to blame (and Laura Shin from Forbes even uncovered in 2022 that my ex-partner was likely the Ethereum DAO hacker who stole billions of dollars:  

As a result of these fake rumors, we lost some potential lending partners, like 3AC, Genesis Trading, and Alameda Research, which we would have loved to work with in 2020. I still remember our Head of Partnerships telling me that he sees me as the company’s biggest asset and liability at the same time. This was tough to hear as I was giving my all to have the company grow, and having my past erroneously hindering our success frustrated me deeply. Only a small trading company in Singapore called Sparrow, who at first were very skeptical of us, were open to partnering up after U-Zyn persuaded them that everything we did was legitimate and the rumors spreading around me were completely untrue.

Fast-forward to 2022: Almost all these firms, with the exception of Sparrow, are insolvent or going through bankruptcy proceedings. Who knows what would have happened if these false rumors had not been around. So, yes, we  made some outstanding decisions over all those years, but we were definitely also lucky.

Let us now reflect on the OKRs we set at the start of 2022 and consider whether the status-quo, our decision-making or simply good or bad luck caused us to either miss or achieve them:

We did not achieve all of our 2022 OKRs. In part, this is due to our habit of setting highly aggressive OKRs that push each member of the team to perform at their maximum potential. If you set goals, set them big. Aside from that, the status quo at the beginning of 2022 was far too optimistic, and while I expected a tougher year from the entire environment, I do not think anyone expected it to be as bad as it was. We were definitely dealt a bad hand in 2022.

Nevertheless, there were a few decisions that we could and should have made differently. Overall, I think we are responsible for some misses, but I would divide controllable and uncontrollable factors as 25% (our own decisions) and 75% (bad fortune). I might seem to be pointing the finger entirely at outside factors, forgetting that the remaining fingers point right back at us. The truth is, I actually believe that we had an "ok year" in terms of how we executed and delivered; just not as outstanding as I would have liked at the start of 2022.

We didn't meet our first OKR, which was about our product development: we didn't revamp the app to version 2.0, but ended at version 1.5. One main reason for that was that it took us until Q3 to have our senior engineering and design leadership sorted out. In addition, we had to introduce new features such as a transparency page and overhaul our lending service due to market risks. Moreover, with Ethereum’s merge in Q3, we also wanted to offer fully transparent ETH staking, which was not planned for at the beginning of the year. I would split this 50/50 between factors that are within our control and those that are beyond our control.

We had mixed OKR 2 results, which were around our financials. They aren’t as bad as one might expect after seeing how bad other companies are doing. We achieved 64 million USD in net revenue and 34 million USD in costs, giving us 30 million USD in operational income. We did manage to stay operationally cashflow positive, mainly due to the results from the first half of 2022.  As of Q3, we are operationally negative, and it will be critical for us to turn this around in 2023. I would give this OKR a 90/10 split, where I think we were 10% in control of the outcome and 90% had to do with the market downturn and the extreme pessimism around crypto- and cashflow-platforms. One thing we could have done better would have been to restructure our marketing efforts way faster in Q3.

We had to completely abandon our OKR 3 target of going public. This was all due to the market collapsing and crypto regulation tightening up due to all the bankruptcies, making this a 100/0 split. We did even have a signed SPAC deal at 1.5 billion USD valuation at the beginning of Q2, but decided to step away from it. This can only be tackled once the crypto market has turned into spring and crypto regulation has been clarified.

Besides these reflections, I would like to add some further color to the year as a whole:

  • As of now, we have no concrete plans to go public, but we will continue with our audit and plan to be audited in 2022. In addition, this will provide our customers with the assurance that what we do is what we say it is.
  • Our gross revenue in 2022 was 228 million USD. This is down from 619 million USD in 2021.
  • Our cost of revenue was 164 million USD. The majority of this is rewards we paid to customers, which decreased from 398 million USD in 2021.
  • This leaves us with a net-revenue of 64 million USD, down from 222 million USD in 2021, and short of our goal of 100 million USD.
  • We had budgeted 50 million USD in expenses, but were able to limit our costs to 34 million USD. Even though it is double the 16 million in 2021, it is more than reasonable considering our double headcount (we grew from 80 to 160 team members) and our office cost (we moved into our own office in Q4).
  • This means we had an operational income (EBIT) of 30 million USD, which is down significantly from the 206 million USD in 2021. It is important to note that this income is entirely from the first half of 2022, since we have been operating negatively since Q3. I would like to see us turn this around from Q3 2023 onwards. Later on, I will share more about this in the 2023 preview.
  • Our treasury was affected by the falling crypto prices. While we try to keep the majority of that in USD for at least 3–4 years of runway, we still have to keep some in bitcoin, Ethereum and operational float. As of the end of 2022, our entire treasury was worth 151 million USD, down from 215 million USD at the beginning.
  • We have started getting cashflow from our USD in the treasury with low-risk treasuries and low-risk crypto yield on some of our crypto holdings. In general, we invest in low-risk assets with our Treasury and will do so again in 2023. The same is true for our venture fund, where we have made one NFT investment and one DeFi investment but have stalled any activities. In 2023, we will take a very cautious approach here as well, and rather err on the side of caution.
  • In terms of leadership, we have formed an executive team consisting of a CEO, a CTO, a COO, a CFO, and a CLO. Once we find an appropriate CMO, I am planning to add this person to this group as well, who will be responsible mainly for good company governance around financial, structural, operational and compliance.
  • Furthermore, we have created a leadership team, which is completely based in Singapore to ensure the core leadership execution is 100% aligned with our company’s needs. This group consists of the executive team plus our existing team members of VP of Compliance, VP of Research, VP of Product, VP of Product Engineering, VP of Partnerships and our newly hired VP of People, VP of Engineering and VP of Design. Aside from the CMO in the executive team, I am also planning on adding the VP of content to this group who will be a cornerstone to our marketing strategy going forward. Our experience within the company at the end of 2022 compared with the beginning of 2022 is night and day, which makes me optimistic about our team's future.
  • One key point I want to make is that company culture and big-picture-product decisions will remain with the founding team of U-Zyn and me. We intend to keep setting the organization’s general direction internally and externally.
  • We got a European license in Lithuania that will convert to the new MiCa license as soon as it is available.
  • In terms of product, I think we could have done better. I had already mentioned that in the OKR reflection. In part, this was due to the volatile market that required us to shuffle around with new transparency features and to change our lending approach to a transparent Earn service based on one-sided liquidity mining. We had many website outages during our growth spurt in Q1 and Q2, and it took some time to get the data dashboard back online. Moreover, we took a while to hire our VP of design and VP of engineering, which caused our Cake 2.0 launch to be delayed. We only caught up on speed again in Q4, so I am really optimistic about 2023.
  • From 2019 to 2021, our marketing efforts were obscured by the market's general strength. By leveraging key influencers and our referral program, we have driven significant growth. We are currently looking for a CMO, VP of Content, Head of Social, Written Content Lead, B2B Enterprise Lead and an Open-Source Marketing Lead: In 2023, we'll ramp up the performance review process for everyone once the team is stacked with more personnel.
  • Besides cutting our marketing budget from Q4 onwards, we also adjusted the sign-up bonuses and one-time referral bonuses. Those events happened slightly too late, and I take full responsibility. As a result of the marketing budget reduction, growth numbers declined. We were able to quadruple our customer base, but we fell short of our ten-fold target. It is my intention to keep the marketing budget tight, and only increase spending where we are confident we will make a profit.
  • The Legal, Compliance, Ops, Customer Service, Risk, and Finance teams have strengthened considerably, and our tightened processes are smoother, faster, and more efficient than ever before. Having a good structure is key, but a good business requires a good Product and Marketing team.
  • In Q4, Birthday Research launched a separate enterprise department focused on developing an enterprise custody solution, which was announced at the Singapore Fintech Festival in November. More on that in my 2023 preview.

Overall, I am very proud of our achievements in 2022, and I can tell you that we have grown beyond being a startup to a scale-up.

This brings us to the beginning of 2023. The status quo, as I see it, is that we are one of the last ones standing. We are deep in crypto winter, and I do not expect this to change in 2023. As a result, if our decision-making and execution in 2023 are at least somewhat good, we should be in an outstanding position for crypto spring, which will inevitably occur. Let me highlight the most important ones here:

  • From a company's perspective, getting back to being cashflow positive will be the most important aspect, regardless of the crypto prices. Positive sentiment and rising prices will undoubtedly help, but we can't count on these factors. Based on all predictions, I do not expect us to be cashflow positive in Q1, but rather later in the year. However, I intend to keep our expenses lower than what we spent in 2022, despite our team growing slightly. This seems feasible to me.
  • As a result of the massive crypto company collapses and the widespread mistrust in the market, the entire crypto industry will need to find product-market fit again. We have to offer customers something that they find useful. There are a number of ideas we intend to implement slowly over the course of 2023. For instance, we intend to add several new blockchains where we want to integrate various ideas of cashflow generation that may only exist for a short time, but are extremely profitable for customers. We are currently revamping our Lending product, which was shelved in Q4 of 2022 and paid for from marketing funds. Eventually, it will become a DeFi Yield service that generates on-chain returns in a transparent manner.
  • The Cake 2.0 mobile app will also be released in Q2, offering a new 1-stop user experience. This will allow our platform to be used by users who are not crypto-native.
  • We will continue to hire, mainly in the product and marketing departments. Our plans are to add around 50 more team members to grow from 160 to 210. One of my key focuses will be to maintain the startup culture while setting new performance review standards. A part of that will be to pay salaries only in cryptocurrency.
  • We held a small European Team Meeting at the beginning of the year, and are considering holding an Asia-bound Team Meeting in Q2. Generally, we will limit team members who are too far from either our Singapore-, Kuala Lumpur- or Europe-hub to maintain a hybrid work culture.
  • We will maintain a 3–4 year runway for our fiat treasury. We will continue to limit risk over going for returns when it comes to our Treasury. The current interest rates may allow us to get around 3-4% in returns, which means we could make an extra 4-6 million dollars that we didn't have in 2022.
  • Until we see a sustainable reversal of the market trend, we will keep our venture arm activities low. In 2023, we will primarily focus on investing in the DeFiChain ecosystem. As part of that, we have been building up a 30 million DUSD dToken portfolio since 2022:
  • In terms of licenses, we hope to obtain the Singapore license in 2023, after applying around three years ago. In addition, we are waiting for positive responses from a few other jurisdictions. Furthermore, we are monitoring the situation regarding a potential conversion of the Lithuanian license to a full European MiCa license. It is our intention to remain compliant while remaining license light. The Risk, Compliance and Legal team will keep a close eye on that as I expect a regulatory clamp down in 2023 due to all the crypto collapses in 2022.
  • In 2023, the Open-Source Birthday Research team will undergo some changes. First and foremost, it will feel that it is split into pure open-source and into the revenue generating enterprise team. In 2023, it will receive its own marketing department in order to build its branding and strength into one of the world's leading blockchain teams.
  • Birthday Research will focus on building the Quantum ERC20 bridge and MetaChain in Q1. Later in the year, the team will not only build projects on top of MetaChain, but also for various other blockchains to connect and drive these ecosystems. To increase community engagement, we may consider launching specific tokens around these projects. However, this decision will not be made until later in the year. In addition to building our own products, we plan to create a launchpad for incubating dozens of other projects and gaining massive TVL.
  • Our Enterprise Department, which has split off from OSS, and which will run separately going forward, will have its beta launch in Q1 with a main focus on Ethereum services. For that, we are launching a marketing campaign in Q1. Additionally, we are looking for a separate Marketing lead. As we expand even further in Q2, we aim to be a top enterprise custody provider by the end of 2023:

As in previous years, our targets and plans for 2023 are ambitious. We may not achieve them, but I would rather reach for the moon and land with the stars than never reach escape velocity. Thanks for all the trust you have given me over the years. This is not something we take lightly. I am absolutely thrilled to be aboard this rocket ship with you.

CEO and Co-Founder


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