Leaders of Modern Finance – Leading a Finance Function in the Web3 Economy ft. Rakib Azad

On this episode of the Leaders of Modern Finance podcast, host Ken Boyd is joined by Rakib Azad, SVP of Finance at Chainalysis Inc.

Getting His Feet Wet

Chainalysis Inc. is principally a software company within the Web3 and cryptocurrency space. This is a notoriously complex industry requiring an in-depth industry knowledge of both tech and finance. In order to emerge as a competent leader in this space, Rakib spent the first two decades of his career broadening his knowledge and honing his skills before bringing it all together in his current role as Senior Vice President of Finance at Chainalysis. 

He began in the consumer retail space. In this environment, financial management is relatively straightforward. Revenue is a direct result of product sales and cost-of-goods is a combination of labor, factory overhead and materials. While the details are more complex, the broad strokes make for a simple introduction to financial management. He admits that this wasn’t the most enjoyable phase of his career, but he credits the consumer retail world with teaching him how to get involved on the operational side of the business. 

At the advent of the tech boom, Rakib moved to New York to join a B2B SaaS business. This new position offered him dual learning opportunities: it provided him with a broader financial education as well as a crash course in the tech startup industry. With his love for business, Rakib was able to devote himself fully to the mechanics of the industry. He was able to learn about the principles of SaaS products and the tech industry, as well as gain an understanding of how software companies differ from retail companies in their management needs.

Rakib describes his career before Chainalysis as a pyramid, each step adding a more detailed layer on top of a sturdy foundation. Consequently, Rakib felt ready to take on the complex responsibilities of his new position.

Getting to Know Web3 and Cryptocurrency

Understanding the challenges Rakib faces within the cryptocurrency market requires an understanding of the product itself. Cryptocurrency, at its most basic level, is a fully digital peer-to-peer currency that operates outside financial institutions such as banks. Cryptocurrency transactions take place without the middleman. In many ways, it’s like digital cash, with only the buyer and seller involved in any given transaction. The currency itself is held by the user at all times and never deposited into a bank. A crypto wallet is very much like a physical wallet, staying in the user’s ‘virtual’ pocket at all times. The currency remains in the owner’s full control with no limits as to the amount of “cash” held at any given time.

The technology undergirding this digital currency is known as a blockchain: a read-only, append-only ledger that keeps track of all transactions involving a particular currency. It is essentially a giant activity log, with the most recent entries at the end of the ledger and providing a chronological report of all currency activity. It is available for review by all members on the blockchain. This provides the trust required to create a functional currency and solves the problem of double-spending that doesn’t occur with other currencies due to their physical nature. Each cryptocurrency has its own blockchain, although the basic technology underlying each one is the same.

Blockchain technology also enables the use of smart contracts. A smart contract, despite what the name implies, is not actually a legally binding document, or a contract of any kind. Instead, it’s a tiny box of code that can be hosted and transmitted on a blockchain. These smart contracts, or boxes of code, can contain all manner of things, from data and information to tiny applications and computer programs. It’s these smart contracts that are the building blocks of Web3.

Web3 is a reimagined Internet where data is stored immutably on a blockchain. It survives not on a single server, but across a network hosted by all the users of the blockchain. Since smart contracts allow for data and functioning applications to be hosted on the chain, Web3 imagines a world where users are their own bankers, realtors, financial traders and database managers. Ideally, this democratizes an otherwise elitist financial system and allows anyone with an internet connection to engage in the economy in a way currently reserved only for those with robust assets.

Despite the possibilities, Web3 poses unique challenges for financial leaders.

Managing a New Economy

For Rakib, there are some important things financial leaders need to keep in mind when engaging with the cryptocurrency market and the implementation of Web3.

Firstly, cryptocurrency is vastly different from any other comparable currency. Fluctuations in its value are far more varied and frequent. Therefore, it functions more as a speculative asset than as a currency. To manage these assets effectively, modern financial leaders should treat cryptocurrency as akin to buying and selling stocks rather than moving dollars and cents around.

Secondly, because of their relative newness, cryptocurrencies and the blockchain technology they’re tethered to are largely unregulated. Bitcoin, the first viable cryptocurrency, came into being after the 2008 financial crisis and has existed for only about 15 years. Regulation simply hasn’t caught up to the technology. Therefore, managing these assets requires an extra dose of caution and quality control. There are few protections against abuse of the system and fraud is not easily remedied. When dealing with clients in this space, Rakib advises adding an overabundance of guiding structures to protect both the financial managers and their clients. Since government regulation is largely absent, businesses must go out of their way to create their own internal regulations.

Lastly, because the technology behind Web3 is so new, and because the industry itself is still in its infancy, rapid change is inevitable. Leaders in this space must maintain a level of flexibility in order to adapt to this quickly evolving industry. This is essential not only to maintain the level of competency required to perform well as a business but also to stay relevant in a highly competitive industry. The cryptocurrencies and blockchains now in existence are constantly competing to outdo each other in their technical capabilities and their ability to push Web3 technology forward. Keeping a competitive advantage requires continual growth and professional development, both on the part of the financial leader and their organization.

Despite the many complexities and challenges of blockchain technology, Rakib has high hopes for the industry itself as well as the financial leaders at its helm. This growing tech niche is capable of transforming the financial system in a way that does away with its elitist tendencies. A flexible financial leader can earn the first-mover advantage by continuing to learn about, and evolve with, the digital world around them.

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