Millionaire Ex-Banker Who Hates Banks Starts a DeFi Firm in Russia

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Alexander Lebedev is not your usual Russian millionaire. 

A KGB officer in the Soviet Union, prominent banker in the post-Soviet Russia and out-of-favor millionaire under President Vladimir Putin, Lebedev is now hitching his wagon to cryptocurrency. A big part of crypto’s appeal is it is supposed to bypass the same banking industry that made Lebedev rich.

“For 20 years, I’ve been investigating fraud in banking,” he said. “And I thought it would be wrong to miss such a chance [to do transactions] without those crooked auditors, banks, lawyers. It’s a great story.”

Lebedev met this CoinDesk reporter in his office with a view of the Moscow skyline and art pieces on every wall. He wore gray sweatpants with white sneakers, sat rocking on a soft bean bag chair and was ready to set off for another meeting as soon as his secretary gave word. 

He usually invests in fiat-funded businesses, he said, but today he’s talking about his new crypto enterprise, a “smartbank” taking advantage of decentralized finance (DeFi) named InDeFi.

Lebedev joins the growing ranks of fiat-world capitalists falling in love with the blockchain and cryptocurrency industry, including giants like Tesla’s Elon Musk and Twitter’s Jack Dorsey, among others, and the Russian oligarch Vladimir Potanin

From banker to anti-bank

Lebedev was named a billionaire by Forbes back in 2012 (he contests this label). He was owner of the National Reserve Bank and has a colorful political past, having been part of various political parties in Russia. Although a former KGB officer, Lebedev earned a reputation as a liberal tycoon, supporting Russian independent newspaper Novaya Gazeta and the last Soviet leader Mikhail Gorbachev’s charity foundation. 

He also owns British newspapers The Independent and The Evening Standard, managed by his son Evgeny, which helped the family into the U.K. elite. However, in 2008, a small Russian newspaper owned by Lebedev published a story saying President Putin had an affair with the Olympic champion ice-skater Alina Kabayeva. The article started the tycoon’s downfall in Russia, journalists Andrei Soldatov and Irina Borogan wrote in their book “The Compatriots: The Brutal and Chaotic History of Russia’s Exiles, Emigres, and Agents Abroad.”

Following police raids on his bank, an assasination attempt and a criminal case for being involved in a fist fight during a TV show, Lebedev ended up selling his banking business and shares in Russia’s leading airline company Aeroflot. His wealth shrunk to $400 million in 2014. He blamed his troubles on running afoul of Russia’s powerful secret service, the FSB, which he criticized for corruption, in an interview with Forbes in 2019.

He also loudly criticized the global financial establishment, calling the industry of offshore tax havens and tax-avoiding practices “the global financial aparteid.” 

And this is what brought him to crypto. 

Lebedev’s argument is that established financial institutions, in addition to making cross-border transactions excessively onerous, sometimes facilitate fraud instead of preventing it. His belief has been recently validated by the so-called FinCEN files scandal, showing that the world’s most reputable banks helped transfer trillions of dollars for criminal entities.

“My approach to crypto: We should eliminate banks as a structure,” he said. “Crypto eliminates this system that is facilitating fraud.”

In Lebedev’s view, crypto can not only prevent money laundering better than existing anti-money laundering mechanisms that, he believes, don’t work, but it can also be used to more efficiently launder stolen or otherwise hidden funds. This money laundered through crypto would at least re-enter the economy, which would be a net benefit, he said. 

“There are a lot of Federal Security Service and police generals [in Russia] who keep billions in cash in their mansions’ cellars,” Lebedev said. “And they will never get caught, so that money would stay out of circulation. So why not let them launder [the] money through crypto and let [it] serve the needs of Russia? I’m getting on a disputable territory here,” he adds. 

Andrei Soldatov, the co-author of the book about Lebedev, among others, believes the ex-banker might be expecting to benefit from crypto in two other ways.

“For a while now, Lebedev has been in a tough situation. He’s ambitious but has to operate within very narrow boundaries drawn for him by the Kremlin. Of course, he would be happy to widen those boundaries,” Soldatov said.

Lebedev built his entire career based on being helpful to the Kremlin, Soldatov added, implying the ex-banker could be able to help the government address cryptocurrency issues if needed.

Russia’s authorities have been mildly interested in crypto over the recent years. Last summer, president Putin signed a law regulating issuance and circulation of digital securities, which mentioned cryptocurrency as a type of property. A draft bill regulating taxation of crypto is currently waiting for passage in the national parliament. In the meantime, Russia’s central bank is on its way to pilot a prototype of the national digital currency, the digital ruble.

DeFi game

For now, Lebedev is excited about decentralized finance (DeFi) and wants to marry it with traditional, fiat-based business in his InDeFi startup. A company with an Estonian license but based in Moscow, InDeFi is currently offering deposits in DAI, BUSD and USDT stablecoins

Clients are rewarded by interest their deposits accrue on platforms like Compound and Venus, although part of it is taken by InDeFi, and also receive the project’s own reward tokens, IDF, which is now traded (but not whitelisted yet) on BSC-based DEX PancakeSwap with a price 2.25 BUSD for one IDF token. 

Lebedev says InDeFi has a proprietary method for boosting rewards as an incentive to DAI holders to use his company rather than deposit their funds into Compound directly. The white paper does not reveal any particular profit-boosting mechanics, said Sergei Tikhomirov, postdoctoral researcher studying blockchains at the University of Luxembourg, in providing an overview of the project. 

“It’s not clear from the website and white paper how exactly the project can guarantee profit and why it states that ‘negative profit is impossible’,” Tikhomirov said. “Profit requires risk taking, but it’s not clear what risks are in play here. At the moment, it’s impossible to evaluate the prospects of this project,” he added. 

InDeFi CEO Sergey Mendeleev, founder of the Estonia-registered crypto exchange Garantex, told CoinDesk the project uses a set of DeFi tools, including deposits, farming and flash loans, under the umbrella of a single smart contract, which allows it to minimize the number of transactions and trading fees. 

The smart contract in question was audited by Pessimistic blockchain audit firm (the audit cites the project named DeFireX, which joined InDeFi and contributed their tech work to it, Mendeleev said). 

Among the issues, the auditors said that “the project has no documentation,” so it’s “sometimes unclear for the auditor what is the intention of the code, is its behavior correct, and whether the architecture of the project is appropriate.” More information will be published on the website later, Mendeleev told CoinDesk.

He also said that more products are to be launched, including investing in traditional, brick-and-mortar companies with crypto.

InDeFi was launched in December, and reported raising $3,5 million in DAI from investors including Lebedev and Mendeleev. The money was put on Compound, the interest earned was put into the project development and investors got their investments back, with a bonus of IDF tokens, Mendeleev said. Before the launch, Lebedev pledged to invest up to $15 million of his own funds into the new enterprise.

There is currently no know-your-customer (KYC) process on the website, although the team is now working on implementing that, Mendeleev said. There are also no geographical restrictions so far: Both Lebedev and Mendeleev claim they have no control over the money as funds get “deposited on the blockchain.” However, they admit that private keys for the smart contract depositing DAI are managed by several people involved in the project. 

Back to fiat

Lebedev wants InDeFi to become a vehicle for crypto fundraising, starting with the company he invested in a couple of years ago: a Russian motor-boat building firm called Emperium. Lebedev expects the boat company to go public one day. But in the meantime, he’s ready to play with crypto fundraising. 

Investors would be able to put their crypto into Emperium and in exchange would receive the project’s tokens. In the future, the tokens will be exchanged for company’s shares, the announcement said. 

Lebedev admits he is dipping his toes into the crypto industry without totally exiting the familiar fiat world.

“I feel more comfortable if my clients’ money would be both on Compound and in some cool fiat project,” he said.

Although crypto has matured quite a bit recently, Lebedev said, he still doesn’t feel completely comfortable in that space:

“I want to take something from crypto, enhance my understanding of crypto and get back into fiat."

Regulation and Society adoption

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