Figure Co-Founder: How Figure Became A $10B Business | Mike Cagney

Transcript

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. All right, everyone. Welcome back to Empire. Very excited about this. We have Mike Cagney who was previously the co-founder and CEO of SoFi, which hopefully many [music] of you know, and today is the co-founder and executive chairman of Figure. So, Mike, welcome back.

>> Thanks for having me. >> Yeah, good to see you. How you been post-Miami? Uh I've been doing great. Spending time in New York. Enjoying the weather. I feel like you're always great. Uh you you know what? I I I like to look at the world as a half glass full. Yeah, you and me both. You and me both. Um okay, so I think um maybe is a good place to start. I was So, we got drinks in Miami. We got Diet Coke in Miami. Yeah. Uh I was um a little shocked to hear how much of a true believer in crypto you are. I assumed you were a capital markets finance person who's using this blockchain stuff on the side to you know, I don't know, maybe improve the efficiency of the company or you know, you know, make it extra percent here and

there. Um and yeah, I was surprised to hear how much of a true believer you are in just decentralized capital markets. Could you maybe walk And this was, you know, no no cameras were on us. You didn't have to actually say that. So, you know, could you walk me through this idea? Yeah, look, I I think blockchain is is a massively disruptive technology, maybe the most disruptive technology we'll ever have in in our lifetimes, more than the internet, more than the spreadsheet, more than things that, you know, we generally attribute to to significant disruption. And the idea of displacing trust with truth, you know, through native digital assets and what that affords in terms of both the way those assets are traded bilaterally, self-settle, and the way those assets can be financed in terms of, you know, encumbrance to to the asset and you know, having the the asset-based lending

construct through DeFi to me are game-changers. And so, the potential for the industry is absolutely massive. And and it's it's interesting because when I see all these uh people doing things at the periphery in in blockchain, right? Like Visa or DTCC or these like the reality is blockchain disintermediates their entire business. And so, part of the challenge that we've had with blockchain is, you know, normally incumbents disrupted the margin. But block blockchain is so disruptive, there is no margin. It's a complete wholesale rebuild.

And then, you know, certainly we had 4 years of regulatory morass that, you know, basically killed a lot of development that we're now making up for and I think starting to accelerate in terms of what's happening. But there's still some necessary conditions for blockchain to be successful. And and the most important is it's tiny. Right? And when we look at it, you know, we think about you know, a DeFi protocol with $12 billion stablecoin on it and we're like, "Oh, that's massive." Well, that's completely irrelevant in the scheme of wholesale capital markets, right? Or when people are like, "Oh, you know, we've we've tokenized a billion dollars of stock." Well, it's a $133 trillion market cap industry. And so, you know, we're still just this tiny, you know, almost irrelevant pool that to make relevance, we're going to have to

bring a lot of those TradFi dollars over. Yeah. Um what is the strongest version of the argument if I said, you know, what does blockchain let finance do that it simply could not do with databases, APIs, and software? How do you think about that? Yeah, so again, I I I think going back to to two things, to transactions and to lending. So, on the transactional side, every marketplace is massively intermediated, right? So, when we trade stock, there's seven parties that sit in between a buyer and seller. When we swipe a debit card, there's five parties that sit in between the the buyer and seller on the interchange network.

Blockchain has the ability to distill all those marketplace transactions down to bilateral, just buyer and seller. And so, by disintermediating all those people that sit in the middle, you're freeing up trillions of dollars of what's just rent-seeking market cap. And that accrues to the benefit of of the individuals transacting, but it also accrues to the benefit of the blockchain, to the ecosystem that's doing that disruption. On the other side of the equation, on the lending side, you know, you'd mentioned uh I I'd I'd started SoFi or co-founded SoFi. Part of why I was doing that was I believed in this notion of connecting sources and uses of capital, right? So, the original thesis of SoFi was we get alumni to invest in student loans, and you know, there was a natural reason why

they'd have that affinity, and all these all these externalities would come out of it. And, you know, we were sort of a victim of our own success because the loan was so popular, it just massively outstripped the pace at which we could acquire alumni capital. So, we went and we got warehouses, and you know, started securitizing and doing all the normal also capital market stuff. But, what what blockchain is giving us a chance to do is a second shot at this. And And DeFi, the idea of being able to put up collateral where you know for certain it is the asset, you can get true perfection, you can get a UCC lien on the asset, right? There's a whole legal construct that's supportive of this.

And And be able to liquidate that asset, it changes the lending construct from I'm underwriting the credit to I'm underwriting the volatility and liquidity of the asset. And that massively opens up how financing markets work. We've seen this in a microcosm with crypto financing. You know, if we look at a platform like Aave, for example. And you're seeing it with Figure with Democratized Prime, where we do it with loan participation, right? And you know, starting with with HELOC, now we have auto, now we have small business, and and soon we'll bring on uh receivables and other categories.

And I think that's that's going to change how finance works in terms of the financing side of of the capital markets. Yeah. So, two types of Empire listeners for the show. You've got the people who believe in crypto and the people who are I'd say sophisticated but skeptical. Uh sophisticated capital markets folks but skeptical. Maybe they work at JP Morgan or DTCC or something like this. Um you know, they understand banks and clearing and settlement and custody and securitization and lending. Maybe they don't understand crypto. Um why should they care about crypto at all? And and and maybe the second part of this question is uh there are two types of disruptive technologies, things that improve the user experience and allow for new use ca- you know, new use cases, the

internet, AI right now is happening. Uh the way that you describe crypto it sounds like it's more almost more of a back-end thing, right? It strips out all these intermediaries and costs. Is Is that the right way to frame it or wrong? I think Figure's been a great illustration or demonstration of what blockchain does. So, it you know, there there people that are critical of Figure always say, "Oh, Figure's just a lender." And I'm like, "Well, show me a lender that operates at 50% EBITDA margins, right?" And you know, we do that because of massive efficiency we get from the technology and and you know, have been supporting uh you know, there there's a sort of rule of 40 for SaaS companies of you know, combination of EBITDA growth. We're at 140, right?

So, and and you know, and there's and we're still in what I consider greenfield markets and you know, massive upside of growing off of that. And so, you know, if you're sitting at at a bank or you know, at a traditional intermediary, the reason you should care about this is you know, there's now a very clear demonstrated proof point as to why this technology is going to going to matter and how it's going to change things. And and you know, you can decide to lean in early and be a part of that or you can be reactive to it but but it's coming. And you know, it's And And what's been interesting is now that that blockchain is legal, the big banks are leaning in. You know, I'm seeing actually more innovation coming out of Goldman Sachs than I am out of the old crypto industry. Um because you know,

now they can lean in and do it and they realize they can make more money. And and so and crypto itself is an important construct here because you I'm talking a lot about blockchain, a decentralized blockchain doesn't work without a cryptocurrency, right? You need something for that network if it's proof of stake or proof of history, you need something to be able to stake up as value across the validator ecosystem. And so a lot of people don't don't understand that tie-in or that association, but you know, I'm talking about the value proposition of blockchain, but that decentralization which is core to that value proposition only exists if you have a native crypto asset to be able to support the decentralization of the network. And so that's why you should care about the whole ecosystem in that regard.

>> I think, you know, you hit on a really important point which is what I don't think that the blockchain and crypto industry have done a great job on which is the front-end experience. And so, you know, I I think that the fintech experience the 2.0 is still way better than almost anything you see in the 3.0 world. And and this is part of the problem we have and it goes back to that point I talked about earlier which is we have to get these dollars over. The current ecosystem, the current wallet ecosystem in particular, I don't think is going to be able to move those dollars from TradFi on to DeFi. I think we need to do something on the front end. We probably need to get rid of the whole concept of wallet, right? And and

that notion. You know, get rid of the key loss issues, get rid of the 24-word key phrase. Like there's just stuff that we do that you know, is very orthogonal to a traditional user. We're not going to get SoFi customers and Robinhood customers to to leave the super apps that are that those companies are building and try to come on to a self-custody decentralized wallet with the current experience that we have. Yeah. Did the idea for Figure come out of SoFi? Yeah, it it it did. And again, it kind of goes all the way back to this idea of connecting sources and uses of capital, right? And and as I said, so if I took a trajectory that was a very successful one, but was very different than the original intent of what we had, and what we were able to do with with

Figure is kind of reestablish that construct, right? And and reestablish this idea of DeFi lending. Now, we couldn't get there right away. And you know, in the beginning, like one of the interesting things people don't realize about Figure is it in the beginning, I had to leave money on the table with my loans because the hedge funds were like, "If we don't have to do with blockchain, we'll pay you more." And I was like, "Well, the only reason I'm doing loans is so >> Say that again. If you don't Yeah. So so I'm origing loans on blockchain. And the hedge funds all have to do the original buyers are all having to deal with the blockchain.

And they all hated it. And you know, they hated the concept of it. They hated the idea of a wallet. Like all this stuff. >> Oh, so you would make them set up a wallet. You weren't >> obfuscating. Okay. Okay. >> No. And and we would And we cuz we were using the loans as a forcing function to get them to use blockchain. And and they would say, "Look, I'm paying you 102 for these loans. I'll pay you 103 if I don't have to deal with this blockchain shit." And my capital markets people are like, "Ah, you know, let's just forget about the blockchain and just big Figure 2.0 or, you know, SoFi 2.0." And you And I'm like, "No, that's not why we're doing this. You know, we're doing this because there's an enormous opportunity. And you know, in the beginning it's hard and there's a

lot of friction. And but, you know, ultimately that will invert and we'll get that efficiency. And and you know, on the capital markets side we did. We'll do the same thing with the DeFi side, right? In the beginning, what it cost us to finance on DeFi was actually higher than what it would be It was mixed. In certain pools it was higher than what it would be in the wholesale capital markets. That's now come down to a point where that's no longer the case. So, you know, you you end up having to leave dollars on the table in the beginning to drive adoption, but then you hit that inflection point and and that's where the real efficiency and the moat happens. Yeah. Yeah. Can we go deeper into that? So if So if we take a HELOC, which you guys That was the That was the first market

that you guys really dominated. Um you take a HELOC from like origination to sale to financing to securitization in traditional Maybe walk me through like traditional system what happens and then what happens in in Figure. Yeah. So in in we could we could spend a whole day on the on the dynamics and comparison of the two. >> the whiteboard. Exactly. We should we could. So if you think about the traditional process of originating a loan, you originate the loan and then you put it on a spreadsheet and you send it over your bank to finance it in a warehouse. And the bank will let you send that spreadsheet over once every three to five days because that you give them a spreadsheet full of loans, they give you a bunch of money, and then they spend three to five days figuring out if you lied to them about

any of the loans. And this is why you've had some very high-profile fraud cases like Tri-Color, like First Brands, where they they sent two spreadsheets out to banks and got twice as much money. And And you know, that's part of the inherent problem. So how does that come to blockchain? Well, blockchain, the loan is on the chain, and there's a digital perfection to the loan through something we have called DART, stands for Digital Asset Registry Technologies. But it gives you either a UCC-8 or UCC-12 digital perfection of the asset real time.

And that is the representation of the asset. There isn't anything else that that has that asset. So there is no double pledging. Um there is no ability for, you know, me to sell a loan that that I'm borrowing against or, you know, what have you. So that that dramatically reduces the amount of risk the warehouse lender takes, and it increases the frequency in which you can pledge those assets into the warehouse. That reduces the amount of equity capital you have to hold on your own balance sheet because, you know, I'm not having to finance three to five days worth of loans before I send over a new spreadsheet. And so there's big efficiencies that come off of that. Reduces your cash needs. So that's that's sort of the aggregation right? Then on the transactional side, you know, in the in the construct of of

whole loan sales for example, there is no liquid capital market for whole loan sales historically other than Fannie and Freddie mortgages because Fannie and Freddie always have a bid and that guaranteed liquidity allows for a liquid marketplace for those loans to trade. But you know, a jumbo mortgage or a student loan or a personal loan, there's no liquid capital market for that. And and what happens is those loans all trade bespoke. So, you know, I might do a deal with Apollo to sell them $500 million worth of loans. They're going to ask for a particular reps and steps in that contract and and that's different than the ones KKR is going to ask for. And the the resulting problem is I now have these two pools of loans that are not

the same and they're not fungible or homogeneous, right? So, there is no liquidity scale that happens. They're just one-off illiquid pools of assets that come out of this origination process. So, what we did is we said, "Well, look, you know, we have over 380 partners that originate assets on the Figure ecosystem. For for mortgages, they all use the exact same technology. So, it doesn't matter if it's Loan Depot or Guaranteed Rate or Figure, everyone's originating the asset the same way. And so, that homogeneity is a necessary but not sufficient condition to create a liquid marketplace.

We have a capital market called Connect and in Connect, there's one contract that everyone agrees to for the buying and selling of loans. So, there's no one-off negotiation, no You know, when I I tried to do this when I first started and and you know, my capital markets team was like, "This is never going to work. No one's ever going to agree to this." And you know, it just got to a point where we had enough leverage, we forced it. And That's what I was going to ask, why do they do this? Because it sound sounds good but then the sales guy says, "Look, I've got a monster deal. They want this custom thing." >> Uh-huh. It happens all the time. And and you know, there one point mass insurance company came to us and and offered to pay us two point premium in all our loans if we would underwrite

to their box. There you go. And and we said no, we're not going to do that. And >> Sales guy walked out of the room. Very Very sad. And and so But you don't do that cuz then it breaks the whole system. We lose the homogeneity, right? And so so what we have is we have homogeneous assets and a common agreement to transact those assets. And then the last piece of the equation is we feed all the remittance of the assets into the pool real time. So I know for certain whether a loan's delinquent, whether it's performing cuz you know, typically you trade a pool of loans, you spend two weeks of diligence figuring out well, are they what was represented to me? Well, blockchain gives me truth over trust, right? So I know real time what the truth is in that transaction. So the combination of those

three factors supports liquidity. And so we run a marketplace Connect that as far as I see is the only liquid private credit capital market that exists outside of Fannie and Freddie mortgages, which are quasi private. And so that liquidity is very important for us because it brings down the spreads at which the loans trade because they're liquid, not illiquid. It actually allows us to compete against Fannie and Freddie on a pricing basis, which you know, historically has been just a you know, an unassailable process to try to do. And and so it's kind of a critical critical step for us.

That liquidity is is very important. And then the the third step on securitization, you know, securitization, you think about all the class that goes into securitization. So you know, the amount of audit and QC you have to do in third party review of loans. Well, blockchain, because of the immutability of the technology, eliminates a lot of the third party review that you have to do to get your pools rated. So there's efficiencies that come out of that. If you look at things like the calculation agent, you know, that actually has to go through and calculate the the cash flows and distribute you know, payments to the bond holders. Well, that's a smart contract, right? You can do all that through technology. But most importantly, you know, what happened in 2008 was the market went bad and and

normally what you do with a mortgage securitization is when when the loan stopped performing, you go and you work out the loans. You provide some payment plan or some consult you know, some reconciliation with the borrowers to keep them current but you know, when a modified loan and and you know, that's a standard servicing process that one does and it's actually critical during periods of stress. But once the loans go into a securitization, you can't modify the loans without consent from the bondholders. And the problem we had in 2008 was no one knew where the bondholders were.

And so had those bonds been on blockchain, we would know every wallet address and be able to push an NFT to every wallet address to do quorum of hey, we want to do this modification. It's important. Will you let us do it? And actually drive that vote. And so you know, there was a a very high profile regulator so actually Sheila Bair who who was looking at what we were doing. She said look, what you have wouldn't have wouldn't have prevented the crisis but you would have known where all the bodies were buried, right? And we would have gotten out of it a lot faster. >> [snorts] >> And so you know, so it has really significant downstream technology or downstream benefits as it relates to to the securitization side.

Um That's yeah. Okay, that's really interesting. How does that impact the I was I was looking at your um at your Q1 earnings. So maybe I don't know how much you can talk about. I guess you can talk about what's already what's already live. Yeah. So the the number so 2. I think I'm getting these numbers right. 2.9 billion which is correct me if I get anything wrong. 2.9 billion of marketplace volume, 1.6 billion of figure connect volume. The adjusted even the margins around 50%. The driver of this is the that you guys have a tech platform that no one else has, that you have partner growth, that you have a origination process that you've nailed from, you know, 20 years of doing this?

Like, what what what does this come from? >> So, so this it's a really important point. It's really important to understand Figure. Um so, when we took Figure public, uh you know, Goldman, who was our lead, laughed in in that transaction. Cuz we took Figure public twice, cuz we did it once on the blockchain, which was a cool thing. But, when we took it public the first time, you know, Goldman um was was pushing us really hard to go and emphasize our loan origination system, and you know, how important it was. And And I was like, like, the the LOS, hey, we give it away, so it doesn't even drive revenue for us. >> You give away the loan origination. >> Yeah. Yeah. And And B, like, anyone can build any loan origination system they want. Like, I can make one that if your name's Mike, you get a loan. Well,

that's a zero-cost origination system. Great, but but no one's going to buy that loan. And so, what Figure has in the moat is the capital market, right? It's Connect. And so, what we bring these 380 partners isn't a better origination system or better technology, although it is better technology. But But, you know, that's that's not a long-term moat. You can replicate that technology. What we're bringing them that is very hard to replicate is a capital market where they can guarantee the ability to sell those loans. And that's key. And that's Figure Connect.

It's Figure Connect. >> So, you're saying So, you're saying the consumer loan marketplace is not a commod- It's It's the easier part to build. Figure Connect is the very hard part to build. Yeah. And And And this is This is the key focus point, which is by having this capital, because if you're an originator, and let's say you're doing uh HELOCs, for example, and and you're you're you're really successful, you're up to 200 million a month or 300 million a month, well, the capital markets will always shut down. And when they shut down, you don't you can't sell the loans, but you can't turn off the funnel. So, do you have a balance sheet that could take two, three months of production, you know, that could be a billion dollars and absorb that. And when we were at Silicon Valley, this

happened to us all the time. Right? We had a billion and a half dollars on the balance sheet and and we would periodically run out of money because the capital markets would shut down. And what what people who aren't in the market don't understand is you have these warehouse providers, you have these guaranteed providers. No one will send you a wire when things are going crazy. And so, even if they're committed to take your loans or committed to finance them, they'll call you up and say, "Don't send us anything cuz you're not getting any money." And I don't follow that. Yeah, so so so let's say that I have a warehouse with with Jefferies, right? Jefferies has a billion-dollar warehouse for me. And what I can do is I can pledge up to a billion dollars of loans into that

warehouse. And and that's great. And and normal, you know, during normal times, it's great to have that liquidity. You can, you know, send as many loans over there as you need to send over there. When the capital markets shut down, when and what I mean by that is is there's volatility in the market, there's concern, things stop trading or they start trading at very wide spreads, your warehouse providers, among others, will call up and say, "Hey, I know we have a contract to do this, but don't send us any loans cuz you won't get a wire back." Hm. And that's just how it works. And and you can sue them, you can do whatever you want, but that's somewhat of an immaterial thing at the time cuz at the time you're worried about your liquidity.

>> So, if you're just a lender, right? You're you're you're then you can get I mean, I don't know a better word, you can get screwed by some of the folks who are uh uh warehousing these deals. 100% and the and the problem is that the more production you do, the more balance sheet you're going to need, the more equity capital you're going to need for when this happens, right? Because you can't turn off your origination engine or you kill your franchise. And so, you know, you're you're in a very tough situation. So, so, you know, if if I said, "Boy, I'm going to go all in on HELOC or non-QM mortgage or or non-QM or what have you."

That's great, but if I really want to do a billion dollars of that, I probably need a billion dollars of capital on the balance sheet, maybe two million dollars of capital. So, and and that has to grow uh basically linearly with your production, which means you never have margin expansion. Right? And so so what we've done for the industry is and and the only marketplace where you do have a guaranteed takeout historically has been Fannie and Freddie. Right? Cuz you can always sell them a mortgage. You might not like the price they pay, but they will always buy it from you, right? And so what we've done that that no one else has been able to do is we've stood up an alternative liquid capital market. This was our deal with Six Street, where Six Street gave us capital to operate a guarantor, where that guarantor functions like a

private version of Fannie and Freddie. And we can create a liquid marketplace where if you're part of that Figure ecosystem, you're one of those 387 partners that we have right now, or whatever the number is, it's growing every day. Um you have access to that capital market and that liquidity. Huh. Do you know the I'm trying to find it right now, but maybe you know it. Um the volume of Figure Connect versus your loan marketplace? Yeah, well, Figure Figure Connect was as you said, it was 1.6 billion out of the 2.9 in Q1. >> out of the 2.9, okay. >> Yeah. Oh, okay. And then I think we've guided to we guided it to something like 4 billion this quarter. From Figure Connect? 4 billion overall, and I think at least more than 50% of that on Connect. Okay.

Does the Okay, so you're becoming less of a lender, more of a capital markets? We don't lend at all. We we I mean, we have a tiny little slice, but we're not a lender. We are we are we are we're a marketplace. >> Um does the does the market get this? They're getting it. And and so it's kind of a a slow process for us to talk to the market. >> Yeah. And one of the challenges that that investors have is there's nothing that looks like Figure. And so, you know, if you you kind of look across you like is Figure a SoFi? Well, no, it's not cuz we don't have a customer you know, a retail franchise and nor do we have any aspiration to do that.

Um the is Figure Intercontinental Exchange? Well, there's aspects of our business that aspirationally are trying to compete with. I sure, but but not exactly the same thing. And so, they they struggle with what is the metric in which they should they should track. And and historically, they've tracked take rate, which you know, and take rate is a great metric for marketplace businesses where you have consistent revenue. So, like Uber and eBay are good businesses where take rate's a metric to that you care about in terms of thinking of valuation for the business.

For Figure, it should be contribution margin, not take rate. And and the reason being is let's say that um we can we we make five points on a $50,000 HELOC, right? So, the take rate's five. And we make $2,500. Well, we can make three points on a $200,000 first lien HELOC. And the take rate's 3%, but the revenue's $6,000. The key is it costs us the same to get both those loans through the door, right? So, we make a lot more money at a much higher margin on the three points on 200,000 than the five points on 50,000.

So, on the surface, you'd say, "Oh, the take rate fell from five to three. That's horrible." But the contribution and EBITDA margin and and gross EBITDA went up. So, that's actually very good. >> And so, we we need to do a better job educating the market about what it is we're doing. And and by the way, we're moving into this first lien HELOC space because the first lien mortgage space is 25 times larger than the second lien traditional HELOC space. And so, you know, our TAM is actually 25x of what we thought it was 6 months ago. Yeah.

Because we're now competing and actually winning business in first lane. Yeah, it feels like the um the asset for SoFi was the consumer. Right. And then you could sell them more and more and more products. And for Figure it's Figure Connect or it's this it's the whole marketplace. It's the marketplace. But but but you hit on another super important point, which was you know, SoFi was born out of this concept of cross-sell and the super app. Right? The the point of SoFi was we we had these customers that we called HENRI's, higher earner not rich yet.

>> Right. Right, that were super valuable customers and you know, the idea was we're going to build a relationship with them and we will be everything for them over time, right? We're going to be their bank, we're going to be their broker, we're going to be their their crypto platform. And and that made a lot of sense. And and that still is the model that they're pursuing and that Robinhood's pursuing and others are pursuing. But what Web3 opens up is a different kind of model, which is a wallet-centric self-custody model. And and today the problem is we have we have two ways that people access technology. We have the super app.

And then we have, you know, sort of the MetaMask and the Phantom wallets where I'm attaching to DeFi protocols, but I'm using the wallet to log into someone else's protocol, right? So the the experience is inconsistent as I'm going from protocol to protocol. What what I think we need to do is blend these two together, which is we use a wallet at self-custody, but the protocol should act as true distributed applications. Like there should be an API or the equivalent of an API front end on top of those protocols and everything should drive out of your wallet. The wallet should be your cockpit. Mhm. And so when I go to these different protocols, I'm not going to a different UI UX. I'm running it out of the wallet. And I'm just interfacing with them through the back end. Like,

you know, how how how disparate or different are are is a DeFi construct? It's very simple, right? You know, I'm putting up collateral and borrowing against or lending against it. Like you can easily feed that through as an API and create a consistent wallet experience. And so, I think that is is a necessary thing we have to do to get those SoFi customers and Robinhood customers to come over because then it'll look like what they have, but it's a much better deal for them because they control their data, they control their assets, they control where they where they bank, where they broke, where they where they do crypto.

>> Do they care about that? Oh, yeah, they do. Yeah, because they're going to get the best deal by doing that, by being able to cut across. And by the way, they're going to have AI agents in their wallet that are going to do it for them. Right? Where you're just going to say, "Go get me the best yield where I have zero risk or or minimal risk, right?" Or go get me the best yield where I take this much risk. Or go find me the best, you know, the best venue to arbitrage Bitcoin. Whatever it might be. And and so, you're going to have these armies of intelligent agents that sit in these wallets that basically will take advantage of that dapp ecosystem and be able to create a huge amount of utility for the users.

>> Yeah. Do you Sorry if I missed this. Do you have a wallet today? So, this is a this is a skunk works project we're working on. You're going to hear more about it from us, uh, but we are working on exactly this concept including with a center AI agent, which, you know, comes with a set of skills like it can produce your 1099s for you, it can do tax loss harvesting for you, it can do a bunch of things like out of the box that you don't have to train it up to do. And then there'll be things that you're going to train it to do as well. Say more. Well, it's it's look, I I think I think that we have all the ingredients for for a wallet that TradFi can embrace, right? So, we have Yields,

which is a yielding stablecoin as fiat on-off ramp. Your dollars always earn. We have Demo Prime, which, you know, most of my TradFi friends want to be on demo prime and make 6 to 7% lending against figure HELOCs unlevered. We have Hastra where, you know, you're looping out to mid-teens to 20% returns. We have Open, which is the first public equity, and now we have a, you know, Open World is the second company go on there, but I have a list of companies that are going to come on, so you'll be able to connect to that through the wallet. We have a passporting function where your KYC, including your accreditation, if you're accredited or what have you, it travels with you, and I'm working on different entities being able to accept that. And so, and and you will have this AI agent, and the AI agent will do everything

from, as I said, produce your 1099s at the end of the year based on all the activity that you've done to buy you tickets to San Francisco. Well, so this is a Phantom MetaMask competitor. I don't know if I'd call it a competitor. I don't even know if I'm going to call it a wallet. >> Yeah. Well, Phantom, if you talk to Phantom, they would say their biggest competitor is not MetaMask, it's Robinhood. I think ultimately all of these converge into one. Yeah. >> And as I said, I I think the issue right now is it it and I think that that's that's the right way for Phantom to look at it right now. What I think is there's an intersection, as you said, a convergence >> Right. of these things, which is you want the in-app experience that Robinhood has, but you want the

self-custody and ability to choose venue that Phantom affords you. Right. Right. Yeah, you want the security of, you know, feeling like you're on Schwab, you want the user-friendliness of Robinhood, Yeah. >> to all assets like a, you know, like a Phantom has, you want the uh I don't know, uh creativity and ease of use of an AI agent. Right. >> And and you don't want to have to memorize a 24-word key phrase. It isn't actually a phrase. That's right. Um if your wallet holds all of these things, figure stock and what's your the stable YLD >> YLD shields. YLDs yields, crypto loan obligations, it's got your KYC, Can it also negotiate credit for you? Of

course. Yeah. Yeah. And and you'll have a card embedded in that. The card can do unsecured and secured lending. Um you're going to Yeah, because you have all those assets be able to do cross-collateralization in a way that you've never been able to do before and get credit for that. So, you're you're going to have a very different lending ecosystem where, you know, with a HELOC you back it with your home, but but why not back it with your assets? >> Mhm. And and you know, have the ability to lower your cost of funds because of that. So, so yeah, so credit will and and you know, again, credit And I I get I use the term agentic lending, which everyone likes to use cuz it sounds pretty sexy, but but you know, it's algorithmic lending. Um credit will be an integral part of this.

Yeah. What do you think the future of banks is in this world? >> So, I I think this I think this is the bank. So, if you can hold your cash in an asset that pays you interest backed by treasuries, right? That's most people would would it would agree that's either as good or better than FDIC insurance, right? You've got a card on it, so you have easy off-ramp fiat transaction cuz the biggest issue we have with stablecoins right now is we still can't go to Starbucks and buy coffee with them, right? So, okay, fine. Put a card embedded in there, a credit card. Um and you know, at the end of the month you can just roll your your coin to pay that balance off. And so, you get the free float for the month. Uh or or not.

Or you you finance it. Um and you have access to investment opportunities. And what what's interesting and and sort of the false dichotomy that comes out of the banking industry in all this is, you know, they're like, "Oh, well, you can't pay interest on on stablecoins cuz if you do, you know, all these deposits are going to leave the bank." Like the the Treasury did a study that said $6 trillion would leave the the bank system, right? And there's $18 trillion of bank deposits. So, that's a pretty big number. And and just, you know, as a as a data point in '22, uh late '22, we had about a trillion dollars leave the banking system um, because of the Fed raising rates.

And it caused mass chaos in the capital markets. So, that that whole thing I talked about about capital markets shutting down, late 22, early 23, they shut down, right? And uh, because the banks all of a sudden weren't flush with deposits to fund these assets. So, they start selling the assets in fire sale prices and the market's, you know, falling apart. And so, but but the false dichotomy here is, okay, we're all going to take our cash out of the bank in the form of stablecoin, but then we all are going to reapply that onto DeFi protocols to lend directly. And we're going to take the bank away as the intermediary for capital. And and by the way, we might do affinity lending, we might lend to a you know, our area, our geography where we

are, to our school, to alumni from our our our work, you know, whatever it might be. But we're going to build out a very different capital allocation ecosystem that I think replaces the bank. And and it's, you know, in economics there's a term called Pareto efficiency. It's where two parties agree to something where they're both better off. This is a classic Pareto example where the borrower will be better off, the lender will be better off because the bank is a rent-seeking capital intermediary. >> Yeah. Uh, tell me what you learned about customer acquisition and getting users from your time, probably probably more relevant from SoFi, I would guess. Yeah, so so with SoFi, it was very brand-centric.

>> Right. And with Figure, we were very conscious that we weren't going to go after retail and build a strong brand because we knew we wanted B2B to C. Once you go retail, Never never go back. >> Yeah. Yeah. And and well, and and it's not that I think retail's bad. It's retail's just a different beast. And um, and so, you know, we didn't want to compete with our customers. Right. And and so, it was important for us not Now, you know, we still have a small direct-to-consumer platform at Figure and we do that for a lot of experimentation. We also do that to keep everybody in line Um, cuz you know like well if you don't do it we're going to do it.

Uh but you know generally we're not trying to do the same thing. But but it's one of those you know brand is so it's so important and germane to the success of a retail platform and it will drive people insane because it's one of the hardest things to quantitatively measure. And so you know your marketing people are like well I need to spend this much on brand and you're like well what's the return? They're like how can you measure it? You know it's it's brand. It's like existential. And and you know and and so there's this constant push and pull tension that happens especially between finance and capital markets people and then marketing people as it relates to this.

Um but you know you you you need a strong brand. The the most important thing and what I think most people miss around direct-to-consumer marketing is context. Right? Like you need to have as personalized of an outreach engagement as you can. And you know and I I always I always laugh cuz you you know like all the different strategies that go through the cold emails that people have and you know for a while I was getting hey you know did you do this at the at Stanford Graduate School of Business? Wasn't that great? Our security service you know and I'm like it's it's so contrived and lucky right? And it's it's you know versus hey you know this is really cool.

I I also participated and you know and and if you ever have time like you you know it just and and so so generally marketing tries to do context but it it comes across as clumsy and contrived right? And but if you can do good context good contextual outreach you have massive adoption. Yeah. Was just this is not relevant to figure it all but just a point of curiosity is was spending for the SoFi Stadium a good use of money? Well I didn't make that decision. I did the I did the first two Super Bowl ads. And I can tell you let me tell you about the Super Bowl ads and I'll tell you what I think about the stadium. So, the the first Super Bowl ad we ran um was this this thing that it was called Great Not Great, right? And it

was like, "Are you great enough to get a SoFi loan? Probably not." And so, it was kind of antagonistic and a little divisive. Why Why do you do that, Ed? Well, let me let me let me go through it. So, so, so we had an experience about a a year before where Yahoo wrote this piece on SoFi and said, "SoFi, you know, gives money to rich people" or lends to rich people. And and rather than that having a negative impact on our funnel, it had a it was one of the best days we'd had up to that point in the company's history cuz people are like, "Well, I want to be rich." And you know, so I you know, and I'm I'm good enough. And and and so, you know, that that sort of antagonistic aspect proved to be a very effective top of funnel. And so, we run this ad and

and they the critics ranked the ads from in I think it was 32 or whatever it was, and we were number 31. And number number 32 was this irritable bowel syndrome ad where this little dude's running through your colon and gets pooped out. >> Yeah. And and and but we were one ahead of that, and you know, below everyone else. But when that ad ran, our top of funnel blew up. And and we and it unfortunately happened during a a period where the capital markets were shut down. We literally ran out of money in 2 days, right? We were just lending out so much. >> So, so what do you actually do there just as a side tangent? When when you run out of money?

>> Yeah, yeah. Do you have to turn off the loans or do you race to get You you can't. >> So, you have to get money at really bad rates. Yes. And lose money on the loans. Sometimes, yes. Sometimes, you're upside down. And um and so, so >> [clears throat] >> so that was a very interesting demonstration of of you know, how that works. And and the next year we ran a Super Bowl ad, and this ad should have been outstanding because it happened during overtime. And and it was this weird thing where the NFL didn't price it right. And basically, we only paid if the ad ran, and we paid less than we what we would normally would have paid if it were run at you know, it was it was just this goofy thing cuz everyone's watching the game, right? We run this ad and it's

this feel good like everyone's in this together and we're going to fix our finances and you know, you can't even tell we ran an ad. And nobody cares. Nobody cares. Like the funnel didn't even move. Wow. And so so, you know, you learn a lot about like you can't go into it with with one is you're not satisfying critics, you're trying to drive your funnel, right? And and two is like let the data show what you do. Doesn't matter what you think or what you feel. Or you know, if if you have to go to cocktail parties and people tell you you had the 31st performing Super Bowl ad out of 32.

So what, right? Cuz you're running it to get loans in our case. Yeah. So what I you guys ran an ad I think it was 6 years ago. Remember the little block, the little block character? >> Blocky. Blocky. Blocky was great. How did that go? It was great. >> Really? People loved it. And and I think it was the first crypto ad I ever saw and I was like, oh or blockchain ad. I was like, oh my god, we're mainstream. So it was it it it invoked a massive debate in Reddit because somebody who didn't understand what blockchain was was like, what a horrible representation of like chains and a lender and like, you know, you're going to be enslaved to them for the and then and then someone was like, you mean block chain?

>> [laughter] >> And and so it had this huge debate on it was like designs that suck or something on Reddit and and people were just going off on it. So >> So did it move the needle? Oh yeah. Yeah. Yeah. People loved Blocky. So do you what are your thoughts on paid paid marketing these days? I you know, I think I think marketing's kind of interesting because I think with AI, you know, your performance marketing can basically, you know, 90 plus percent of it should be just be driven through AI and AI is going to do all your all your channel management, all your experimentation. You know, whether or not it does the the actual copy or not, you know, I don't know. You you have you have to think about that, but um you know, I mean it it's it's it's an important medium. And

you know, I think about marketing, I think about earned media, which is your air cover. I think about performance marketing, which is your acquisition. And I think about brand, right? Which you could also say they're a cover, but but it's you know, it had it has much more value than that. And um I think earned media is always going to be a person-to-person activity. There's you know, your AI bot isn't going to go reach out to the journal and try to you know, suggest a story. I think brand, you know, a lot of that content creation and management and testing can be AI driven. And I think performance is going to be almost all AI. Yeah. So, tying this all back to Figure, you're not in the consumer business.

You're not in the retail business right now. Or you're you kind of are a little bit. If you have a wallet, you're fully in the retail business again. So, this is this is the big discussion we're having about well, how do we do that business? Is that Is that a Figure business? Is that a business independent of Figure that Figure's an an owner owner of? Like we don't know yet how that plays out. Um but that's one of the big concerns that we have is, you know, Figure we have no aspiration at Figure to build a consumer brand. Yeah. Yet, we need to solve this problem. And and I think this is an existential problem for the industry. If we cannot get these dollars over, then you know, we're going to be middling in irrelevancy for the rest of the

>> Over from private databases into public blockchains? Yeah, from TradFi, right? We we need we need to service customers, but we also need, you know, the the hedge funds and the asset managers. But why do you need people to move on to blockchains? You just need people to let Like you Well, I have I have a DeFi marketplace and you know, like like my my my team that built Hashport, you know, loves to talk about how it's the fastest-growing RWA token ever, largest one across any blockchain right now. You know, we're killing it. And it's $600 million. Right. Right. And I'm like, okay. Well, yeah, I do a billion six or whatever number I do. I do I do a billion plus a month through our ecosystem. And um, you know, that's not a lot. And then with open, with the

public equity network, you know, we need critical mass of users over there and that's that's retail and these traditional institutions that that don't go over there, right? Naturally. So, like to me, this is existential. You have You have Again, Andor with their their hey, we done a billion dollars of SPV token I stock. Well, great. It's a $133 trillion market cap. If we want to be in the trillions of dollars, we need to bring those users over. Yeah. Can you tell me how you make a decision like this internally? So, the the a lot of what we do, you know, I take a lot of the zero to one stuff and then Mike Tanenbaum, who's a figure CEO, takes the one to 100, right? So, I'll do a bunch of stuff at once and, you know, it's not spaghetti

against the wall. There's a little more method to the madness than that, but but I'm testing a lot of stuff. And if I get product market fit and traction, then I can lay it up to him and then he'll go and run with it. And so, you know, generally that's how we kind of approach it, which is, you know, I I'm I'm the laboratory person and when things come out of laboratory, I hand it over to him. But decisions like like where does the wallet code sit, you know, those are significant board discussions and management discussions about how we deal with that. Yeah. What do you think he'll do?

Uh, I can't say yet. >> Yeah, fair enough. Um, let's talk open. Sure. And and maybe maybe more broadly just future public equity. So, tokenizing equity is this big idea right now. Both in maybe we can talk both private markets and public markets. Um, but maybe explain open to someone who deeply understands public markets but doesn't care about crypto that much. Sure. So, if if you think about the way traditional public markets work, um you have DTCC as a registry. You have a centralized exchange like the NASDAQ or the NYSE. You have the multi-party uh settlement process that I talked about earlier, the intermediation. You have a post-trade ecosystem that lives because you have trade breaks and failure to deliver and

so forth, you know, all the normal stuff that happens off of that. And then primarily you have financing either through prime brokerage or through your individual brokerage relationship, which gives you margin um subject to Reg T or X, whatever the margin constraints are. And um and there's a a securities borrow market, and that borrow market uh you know, generally the the prime broker will sit in the middle of the borrower and lender, right? And so uh you know, when stocks are are on what's called special, meaning that that there's a ton of borrow demand for them, the rate to borrow those stocks could be 20, 30, 40% but the lender rarely gets that because the prime broker kind of

sits in between and you get 3% to lend and they charge me 30% to borrow and they pick 27 points off. And they make a ton of money off of this and they're very careful not to show how much money they make off of this. And if you're at a a brokerage like a Robinhood or or you know, or SoFi and you have a I don't know if this is true about SoFi, it certainly is about Robinhood. If you have a dollar of margin, right? So, if you have $1 of borrowing, they can lend all your stock out without your permission and they get the economics makes off of it. Yeah. So, you don't get any of that benefit. And so contrast this to a blockchain native ecosystem, right? Where you originate the equity on chain, so there's no DTCC as a registry.

You trade it in effectively a DEX that that isn't an alternative trading system because securities can't U.S. securities can't trade in a marketplace if it's not a regulated venue to trade and that's >> I need [clears throat] an but it can be an on-chain ATS. It can be an on-chain ATS and our ATS in particular is self-custody, self-settle, self-clear. So, it is a it functions exactly as a decentralized exchange would function. That introduces another element to it, which is um you know, certainly you have 24/7 trading, but what also is important is you no longer need a broker to connect you to the exchange. So, you can just show up with your wallet. Right? And I'm now on the exchange, whether it's MetaMask or Phantom or or you know, whatever else comes down the pike. So,

Open is the ATS? Just to make sure I get it right. Open's the whole ecosystem. Okay. And and you need an ATS inside of the ecosystem. >> have and we have we have we have an ATS and we have and >> [clears throat] >> And so, so you have so we you have an ATS where you're trading native. You you can trade 24/7. You can access that marketplace through a wallet, not through an introducing broker. But most importantly, you take custody of the stock and so, you can do things like one cross-collateralize, so you can you know, lend in DeFi versus through traditional Reg T or X margining. But more importantly, you can stand up a stock loan marketplace that's transparent and that you get the economics even if you're levered. Mhm.

Right? And and that is really the single biggest driver as to why you do this because >> biggest driver of putting equities on chain is so the shareholder can directly benefit from the control of stock lending. >> That's right. Interesting. I've never heard it described like that. >> Because the way most people are doing it you they can't do that. But that that's why you do it because you have to ask yourself like the Nasdaq works fine. Right? Nasdaq isn't broken. And and yeah, sure there's seven intermediaries sitting between a buyer and seller, but generally you don't see that when you trade. They do a pretty good job obfuscating that in your execution.

And so, you know, and and most people don't even know what DTCC is, right? And and by the way, when when you're at Schwab or Robinhood or wherever and or SoFi and and you know, they have a trade break break on the back end, you don't see it, right? And so so it it's, you know, you have to really get to the crux of why would I do this? And and, you know, I'll give you a great illustration on this as to why the company would do it and why the investor would do it. So, when when we went public, right before our lockup expired, there was a heavy amount of short interest on our stock because the expectation was when the lockup expired, be a massive wave of selling order or people would want to take liquidity, blah blah blah. And And this has happened to every company

that's gone public in the last year. It's not unique to us. But, the short interest on the stock was 85% of the flow, right? So, and and it was very special, right? In the sense of the borrow cost is very high. And, you know, I I heard numbers in the 30s, right? In terms of what that borrow cost was. And meaning >> borrowing paying 30% [clears throat] to short the stock? Meaning, I had to pay over 30% to borrow the stock from you to then short it, right? >> Because people just didn't like you. Well, no, no, no, no. It It had I could have taken it personally, but no. Had to do with the lockup. And and um And so, think about this dynamic where, you know, not only are you giving your long shareholders the benefit of that,

you actually create this countervailing reason to be long the stock, right? Because holding figure at a 30% coupon is a very different decision than holding figure at a 3% coupon. And so, you know, as a company, when it seems like all the momentums on one side, like people are trying to short you ahead of your lockup expiry, well, now you can create momentum on the other side, right? Which is, well, here's why you own it because you're getting that coupon. Because today, you don't get it, right? The The prime broker takes it. That's fascinating.

Okay, so let's use Robinhood. Isn't there Isn't there an issue here though, which is that the places where people trade stocks, they're incentivized not to put things on chain because they get paid. Yeah, so is it but but but the thing is it's the company's decision. And so so what you know and and this is kind of key for us. >> Robinhood's decision. >> Robinhood's decision. It's Apple's or or Figure's in our situation, right? It was Figure. And we decided to put the stock out there. And >> So if you put your stock on chain, the all the platforms eventually have to react to that and figure out how to So here's the here's the challenge and how we solved it. So so normally the the challenge is I put my stock on chain,

great. You have this cold start problem for a marketplace, which is how do you create liquidity? And like why is there going to be any liquidity there? Cuz there's no stock there. Why is there going to be stock there? There's no liquidity. So what we figured out how to do was swap the stock exactly one for one with with the Nasdaq security. And so you basically brought all the Nasdaq liquidity onto the blockchain day one. So Jump is is providing providing liquidity across both. They're providing the same liquidity on the blockchain that they'll provide on the Nasdaq cuz they can just arb back and forth.

>> Right. And so the stock trades, you know, within a penny of on across the two exchanges because of that conversion feature. Hm. You think all equities go on chain? Yeah. What whether it's going to be through us or it's going to be through something else, but but but it's going to happen in the form that I just described, which is native issuance on chain. It's not going to happen wrapping DTCC securities. It's not going to happen with tokenized SPVs. It's going to be actual native issuance on chain. What happens to short selling in a world where the borrow where the stock borrow market is completely transparent? Or maybe that then gets into a topic about private blockchains, but Yeah, no. So so it well, and I'm not a

fan of private blockchains. >> Or sorry, privacy. Well, privacy is a little bit of a different piece which we can we can talk about, but but like what what you do is you eliminate the ability to naked sell. Uh you know, and and or naked short. And um and while while theoretically you cannot do that today, practically it happens all the time. And so, there's some benefit to that. Uh you know, in terms of market efficiency and and, you know, eliminating market manipulation that, you know, I think is a positive. Mhm.

Um what's the role of a broker in this world? >> [sighs and gasps] >> I think I So, so, if I'm an E-Trade, for example, and I'm looking at this world, what I'm starting to think about is, well, how do I have a wallet? Or or or, you know, again, whether it's called a wallet or not, but how do I have that construct for my customers to let them interact here and other venues and still maintain the the relationship. In particular, have a priority way to to lend into those customers, lend against their collateral. So, I think it's going to force this idea of, you know, converging to [clears throat] that center we talked about earlier of self-custody wallet. Um but I think, you know, there will be lots of self-custody wallets offered.

Now, it might be a common underlying architecture and infrastructure. Like, for for, you know, whatever we do, we'll end up private labeling so you can, you know, E-Trade could use it, right? And make it the E-Trade wallet, but it's still the same underlying infrastructure. >> Yeah. Um but I think, you know, that that's how I would look at it if I was in a brokerage spot. >> Yeah. Yeah, that makes sense. Um You guys built Provenance on I think it's Cosmos chain. >> Yeah. Um if you had to go back again, would you build Provenance? So, we we certainly needed it at the time, and this ties into the privacy aspect. So, so, Provenance was was ahead of its time in privacy in that Provenance is a public chain, um you

know, it's decentralized, it's open source, it's proof of stake. Uh but, there's certain things, like, if I put a loan on the blockchain, I can't put your address and social security number and all these things that are in the loan on a public chain to let people see. Um you know, you you you don't people going on a block explorer and seeing, you know, where I live and what my social is. And so, so what what we ended up doing was creating a structure where there's an encrypted object store, and when we originate the asset, um all that information that has to be private goes to the encrypted object store, and that object of you know, factually a hash of that object gets written to the chain to validate it.

And and so, you you still have So, ownership and and so forth is still tracked on the public chain. I can still look at your wallet address and see what you hold, but I can't go into the nuanced details of a loan, for example, even though it's on chain. It just I don't have access to it unless you give me that access. And so, that was critical and and no one was doing that at the time. And and so, you know, it made a lot of sense for us to do it. The challenge now is like, where does the economic accrue? Is it the chain or the app, right? And and you know, I think a lot about this.

Like like I have equity now native on blockchain. Well, you know, if I had if if if I hadn't had a blockchain at all and I was building one right now, that equity would be the staking asset, right? Because it's already on chain, it's native, it has intrinsic value, um and you know, that's actually a pretty cool concept, right? Cuz now you have this equity that's giving you this continuous yield, which is the gas and network fees from the from the protocol. >> you're saying the figure equity could have been the native asset >> Yeah. to secure the chain. Yeah. Yeah. Yeah, that would have been cool. And I still I'm I'm still trying to figure out how I'm going to do that, right? Because FGRS should be able to be used as a staking asset. So, you'll try to make figure stock you'll but

Provenance has a token. It does. This is the This is the conflict there. >> okay. Yeah. >> Like in in your dream world, you would have figure stock >> FGRS would be the staking asset on program. >> Oh, that'd be really cool. Yeah. And and and then FGRS means that it gives you both the idiosyncratic exposure to figure and then the macro exposure to the broader blockchain ecosystem. Hm, okay. This is This is very interesting. Um what what's stopping you from doing this? You have a token to You have a token today.

Can't really undo a token. That's what I'm trying to figure out how to do. How do I swap or tender or, you know, what like or or can I have the two coexist, which hasn't happened before that you can do it introduces some nuances. So, I'm I'm I'm spending a lot of time trying to figure out how I land on this cuz this this one's actually very important to me. Yeah, yeah. When you do something like this in are you are you personally trying to figure this out or do you have your team trying to figure that out? Well, I'm in I'm involved and and, you know, like like something like this is going to be significant legal and regulatory hoop. And so, you know, we work with our internal counsel, our external counsel, you know, we go through a bunch of of stuff and and um

you know, we've been able to do some pretty innovative things. Like Yields was a very innovative solution that worked within the current regulatory structure. Open was very innovative. Also, you know, didn't need clarity or anything else. It worked within the current structure. I'm doing something on um prediction security prediction that I think is very innovative and you know, later in the fall and and you know, again, but there were a lot of hoops to jump through. Yeah. Um have you thought about just building it on Like the EVM?

Yeah, or I don't know. There's like there's a bunch bunch of chains that are hot right now. Like there's Ethereum obviously and Solana. There's, you know, Canton's getting a lot of publicity. Hyperliquid is, you know, in the news every day. Like Yeah, I I I'm not going to do anything that's detrimental to the token holders on Provenance. >> Right. >> So, you know, if if I didn't care, I I you know, I And And by the way, as you can imagine, a lot of these L1s are constantly soliciting us, you know, offering us a lot. >> get 100 million bucks? Yeah, sure. To to move over. And um And in fact, probably more than that. I know. Uh and There's a I There's a deal I just saw which is a a chain is paying like $150 million for like a a

sim- a similar type company to figure, so. Yeah. So, and um you know, so so but at the end of the day, I you know, even though I don't have a direct fiduciary responsibility to hash holders, I I have a moral responsibility to ensure that that, you know, that we steward them well. Yeah. Um what do you think of Canton? So, I I think I think it's interesting, you know, I like Yuval and and uh you know, and I and obviously you know, DRW is a big backer on that. DRW's kind of a major player in our ecosystem. Um Although I'd say JUMP is the bigger player, but uh don't make him mad at me for saying that. Um and uh

you know, I I I I I I vacillate a lot on it. I I don't like getting involved in the debate about whether it's a public or private network. Um it you know, it is what it is. Uh and you know, I think at the end of the day, we're going to have multiple L1s. Yeah. And uh you know, so I don't I don't think this is a I mean, the way I wish people would look at it is you know, and and part of the problem is right now it's such a small pie that we're all fighting for this stupid small pie, right? And what we need to be thinking about is, well, how do we make it 100 times bigger and then we don't care what your share is versus my share cuz on an absolute basis, we're all better off. Yeah. And that that's kind

of the mindset we need to can to cuz right now, you know, it's like, "Great. I I you know, I'm I'm I'm the one-eyed person in the land of the blind, right?" You know, there just isn't enough dollars there to move the needle for anybody. And so, you know, we should as an industry be collectively working to bring these TradFi users over and building this ecosystem out. And then, you know, the whole pissing match is to whose all one is best kind of goes by the by the wayside. >> Yeah. Yeah, very true. Um it strikes me that you are trying to do all these I guess very innovative both uh innovative things both on the tech side and the financial side, but you are also a public company. Does that How much does that get in the way of trying to do this stuff? Yeah, it it doesn't get in

the way too much. Um you know, and and like, being a public company has been a a huge asset for us. Uh it's helped us an enormous amount in partnership negotiations. Cuz when you're when you're a private company and you're like, "Oh, I'm I'm a unicorn or I'm a $5 company or whatever." And people are like, "Nah, sure you are." When you're a public company, you are what you are, right? And everyone can see it. And so, um it's helped us with some of the larger, certainly larger mortgage ecosystem players to, you know, bring a level of credibility to the table and engagement that we didn't get when we were private. Yeah. Um What do you think public investors misunderstand about Figure?

Well, I talked about the take rate issue, which, you know, they need to be looking at contribution margin. So, that's that's that's one of the ones. I think just understanding really the end game of what we're trying to do. Cuz, you know, people hear about Hashgraph and Provenance and demo prime. They're like, you know, what I can't I can't even keep track of all this stuff. And so, last earnings call, we laid it out, we produced a deck um that has a nice visual that shows >> Kind of give people the simple visual. Yeah, we we have we have debt capital markets, equity capital markets, and financing markets, right? And and how all three are synergistic and all three ultimately get us to an overhaul of the capital market ecosystem.

>> Yeah. Yeah. I mean, in in prepping for this episode, uh it's um the the business seems more confusing than it is, I think, because you're trying to do things with infrastructure that doesn't exist. So, you have to then build the infrastructure, even though you're not in the business of infrastructure building, you have to do those things to support the core business. Yeah. And and it is a it is a complicated business because, you know, the capital markets are complicated. And ultimately, that's what we're trying to display. Yeah. The The other thing I want to talk about that we haven't discussed yet is um uh because you do so much stuff on chain you in it it kind of changes investor relations in a sense. So, um

how much of your business how much of your business can analysts see on a day-to-day basis? So, they can see production, um amount of loans that flow through the ecosystem and Figure Connect daily. So, you could probably back into roughly 90% of the business. >> So, there's there's a handful of people on Crypto Twitter that have already done that. They build models that feed, you know, with the integrated block explorer, they feed right into it. So, you know, by the time we do announcements, there's not a lot of surprise. Right. So, is this a good or bad thing? I think it's a very good thing. Makes the It makes the uh volatility It dampens the volatility around earnings. That's for sure.

>> It dampens the volatility. It it also and and sort of paradoxically, I I agree that companies shouldn't be compelled to do quarterly reporting, but because they should be able to produce real-time visibility to their business. Mhm. And so, so it it begs the question, well, what what is the benefit of a quarterly report out of Figure when I can see real-time what's happening on chain. Now, again, I'm not going to see certain margin information and other things, but um you know, that can be released by the company on an episodic basis. But But yeah, no, you you know exactly what's happening in terms of core growth drivers on on um on a block explorer.

Yeah. Is that also a problem? No, I think it's great. Yeah. It's a it's a problem because people don't always interpret it the right way. Yeah. And I've got to go out and correct people about, you know, how to look at the blockchain. Yeah. Um and it's a problem in that, um you know, you always run the risk of information asymmetry. And you want everyone to have the same information at the same time. Yeah. But I can tell you that, you know, some of the analysts that are very focused on, you know, sort of the blockchain ecosystem have definitely leaned in to figure out how they access this data.

Yeah. How do you think investor relations changes? So, I I think it's, um you know, there's just a a higher cadence of communication. So, rather than, you know, looping up 20 calls with large investors at at every earnings, you know, they just come through pretty consistently and, you know, and I will I'll have it. I'll have investors send me a note be like, "Hey, I looked on block explorer and it looks like you've done this. You know, can we get on a phone call and talk?" And uh you know, and that's fine. Yeah. Um What do you what what multiple I saw I think it was um Matt Siegel at VanEck posted about you guys's the rule of 40 and you're like 140.

>> 140, yeah. The um which is awesome. The only problem with that is you're not a pure play SaaS company. No. So, it's maybe not a perfect one-to-one of what of what to use. I'm curious like what what multiple do you think the market should use for you guys? It it's it's a great question. Right now, I don't get much of a blockchain halo benefit on our multiple. Yeah. So, you know, our our value is is, you know, really driven on the the profitability of the business. And, you know, I think I think building into what we think we can do long term, even though margin and profit margin, um you know, it's it's a very, you know, unique business that's growing rapidly.

Uh you know, I I think I think the multiple should be higher. I think most of my investors believe multiple should be higher, but uh you know, again, I think there's a lot of education that has to happen to support that. Yeah. Founder thinks in multiple should be higher. Indeed. [laughter] Shocking. Yeah. Um, so you I was following when you guys split the company, which seemed like a total I'm assuming just a headache internally of that. I was uh Wasn't fun. Yeah, yeah, I can imagine. But then you recombined it. Also wasn't as super easy, but less pain less brain damage than separating it. Yeah, that's I can only imagine. What does that teach us about tokens and what's happening in the token market right now? And cuz I was watching

when you guys split it pretty closely because then you have two forms of value for company that's very interconnected. And my understanding is investors don't like owning a public owning a token or owning a vehicle uh of ownership that's very dependent on another vehicle of ownership. >> Especially when one's public public and private. >> public and then you don't you don't have a private. So this happens in tokens though every day. This is pretty much all tokens that exist. You have a public token that is then dependent on like a private labs entity. So what does this teach us about tokens?

>> Well, I think I think it's a horrible model. Um, you know, there there was I won't say who one of my venture investors um, you know, back in in '21 asked me to to diligence their FTX investment. And I went and I looked at it and and I'm like I wouldn't do this investment. It had nothing to do with the fact I thought that it was fraud or whatever and you know, obviously the headline numbers were phenomenal. But I'm like the the problem is there's this entity you're investing in FTX and then there's another entity you can't invest in Alameda. And the management team's pulling economics from both.

And and I'd seen an incident of this you know, maybe a decade earlier with somebody I know who had a mutual fund business and a related ancillary business and you know, the mutual fund business jammed all their expenses in the ancillary business and you know, to to kind of arbitrage the the management payout. Which is by the way a rational thing to do when you're in that situation. I'm not so like faulting them, but um you know, I said this is just it's a bad situation. You don't want to be in this situation. And and you know, they ended up investing anyway and lost much money and and you know, so be it. Um but I think that dynamic is is an untenable and horrible investor dynamic. Right?

You just you you don't want that. And in figure situation like I did this out of an act of desperation because I was trying to go public and the SEC would not let me go public because it was too blockchain and you know, too too heavy on crypto and everything else and so I thought I'm going to split it. And the the the irony was I wouldn't have been able to take the split version out either because there was to your point these interdependencies that the market absolutely hates. And you know, the public market would puke all over it and so you know, we were fortunate we were able to recombine it and then take the recombined business out.

>> Circle goes public, people like crypto again. Yeah, well it it was it was interesting because um you know, we started our roadshow they had not gone public yet and and the Goldman bankers were like Mike you really got to tone down you you know, the word DeFi. You don't want to say DeFi it scares everybody. And then you know, the circle goes out and rips and and they're like Mike you really want to emphasize DeFi. It's very [laughter] important. >> Yeah, you start to realize that these public markets trade just on narratives. Like like you know, token suitu. Yeah, that's funny. What do you think crypto people misunderstand about capital markets?

I think the biggest and and most obvious initial thing is just the sheer size and scope, right? Of of how big the actual capital markets are and how small they are in blockchain. And that you know, as I said like like $12 billion of stablecoin on a DeFi protocol is immaterial. Yeah. And but that would be the biggest protocol out there, right? And and so you know, we need to get a hundred billion and then a trillion dollars over and then we start living in relevancy. Um but, you know, so, I think that that's the biggest. The The second is everyone wants to create a security and doesn't understand what a security is.

And so, you know, I I get like I used to get I used to have them all the time. People would be like, "Oh, I'm going to do this, this, this." I'm like, "Great, that's a security." Like, "Well, well, no, it's not." I'm like, "No, that is a security and you are going to be in trouble if you do that." And uh so, anyway. What do you think happens with tokens? Does this all just converge into one asset? >> Yeah, I And this is this is where I go back to, you know, hash and FGRS. Like, it it should converge into one asset and build the alignment. And um and then there are, you know, it solves a whole bunch of other problems. And and so, I think there's there's, you know, that's the way we're going to go because the tokens, you know, where does a token derive value? There's

There's three three reasons it has value. It has governance, which has de minimis value. It has um utility, which could have meaningful value, but generally doesn't. And it has economics, right? Which is how much share of gas and network fees do you get on transactions or MEV or whatever it is your economic model is. And um you know, that economic, the tokens effectively tan amount to equity in a company that dividends everything out every day with no cost structure, right? Or or limited cost structure. And so, you know, it really should be treated as a equity.

Yeah. As we think about wrapping here, what do you um can you maybe paint the paint the world in like 5-10 years? If you're correct about all of this, what does what what changes? What does the world look like? Yeah, I I think you're you're going to see a massive tipping point of movement on chain, but it's predicated on maintaining, whether it's clarity of legislation or it's or it's benevolent regulators, like maintaining that air cover because you know, it's very easy for us just to slip back to where we were and everything's going to stop. And you know, for for the real dollars to move over, you know, you have to solve things like what I'm talking about in terms of getting the SoFi customers and

the funds over, but you know, the banks have to have to lean in and move, too. And you know, they're still trying to figure out what all this means and you know, whether they should care and you know, and they're and they're having the same discussions and I know this cuz I've talked to them about, well, it really isn't relevant right now, right? There really aren't enough dollars on here to make a difference for us. Like, why do we care? And and you know, I think that's a little short-sighted because I think, you know, we're going to hit a tipping point and everyone's going to have to care. So, I I think it maybe not in 5 years, but in 10 years, we're going to see a wholesale transition of capital markets on the chain.

Subject to either clarity or some way to keep the current regulatory uh the benevolent regulatory environment going. Yeah. What's the biggest impact that clarity will have? Well, it'll it'll codify the the the current intentions of of Chairman Atkins and Commissioner Peirce and others uh into law. And you know, that's defensible for us. Yeah. You know, the the interpretations aren't defensible. Exemptive relief can be removed, right? You know, the only thing that has permanency is law. Right. Anything we missed? Nah, we covered a ton. I really appreciate it.

>> on I just on the founder side look up to everything you've been able to build. So, yeah, congrats on everything. I appreciate it. Thanks for having me back.