The Hidden Cost of Faster Payments w/ Luka Ivicevic

Transcript

Passage of the stablecoin legislation drafted by the Senate dubbed the genius act because analysts say a wave of competition could complicate [music] things. >> Stablecoin issuers debut right here at the NASDAQ today. >> Welcome back to stable pulse everyone. My name is Dante Reminick here with us. We have Luca who is the co-founder of sugar and I'm really really excited for this episode because I have spent many many hours off camera and off my microphone with Luca asking him questions about what he does and sugar and and where everything is going and now we get to do the exact same thing but for all of you. So Luca, very very excited to have you here. As you know

from listening to this, we always start out with a section that we call bracketocious. The goal of this is to let you brag about yourself and I know 2 minutes ago you literally said word for word, I don't want to be a sleazy salesman and do a bunch of bragging but I'm going to ask you to to not. Um especially considering your background. So please be pleased. Tell us about yourself. Tell us about what you're building and we'll we'll dive in from there. >> Sounds good. Yeah, thanks for having me on. Um born and raised in in New York City. I moved to moved to Paris uh for my college studies. Did philosophy and computer science. As one does. The CS took me to Berlin in 2016. Um and I started

uh a neo bank called called Penta in that spring which was focused on small businesses. I got into fintech. I started that company 2 weeks before learning um what fintech actually means. I actually have never heard the term before let's say March of 2016. Um and then basically 2 weeks later I started a neo bank. Um I got into fintech just because I fell in love with N26's KYC. For those of you that that don't know, N26 is a large consumer neo bank. Um and I just thought wow, like the KYC is like the speed, the the slickness of it.

And so I just thought, you know, why hasn't anybody done that for small business? Um and so a buddy and I uh went out and um started the company. We ended up obviously, you know, hiring people that were much smarter than us, launched in 2018, by 2022 we have 60,000 small businesses, roughly 10% of the German market is banking with us or opening a bank account with us. Um and we sold the company in the summer of 2022. Um That was That was my fintech era. I then thought, like, what's the hardest thing I can possibly do after this? And I started a medical company to cure cancer and autoimmune conditions using big data and genomics, raised $10 million from my network, um served 3,000 patients, ran the company uh to several

million dollars in revenue. We actually cured about uh 500 people to a neutral zero in certain conditions. Um and then in the middle of of a fundraise and um 60 days after a record month, we shut the company down. We flat out ran against ran out of money. And so I shut the company down in 2024, took a bit of a break, and just thought about, like, what the hell do I want to do next? Um did some did some personal discovery of, you know, what do I like, what do I enjoy? I frankly hated working in healthcare. Uh and wanted to do something that was a bit closer to software financial services. And um to wrap kind of where what I'm building now is I just thought about credit as the last moat in financial services, I

think. I didn't want to compete with 15-year-olds on cloud building banks on on on bridge or now on WAP. So, I just thought, like, you know, what can I do that's like inherently really hard to do, which is credit? And um how do you place it in an inefficient market? So, I feel like wherever there's a high CAC, there's an efficient market. So, you take, for example, insurance or you know, mortgages, very high CAC industries. Um and I was like, how do I place credit in a place where nobody's really playing in credit? And so, I landed on the crazy aspect of if you want to move money, you need to post reserves.

And so, moving money actually requires credit, which I found insane. And there's a reason that the overnight funding rate exists, right? Between banks. And they actually borrow to be able to settle payments amongst themselves that are delayed in the settlement. But that problem has now moved down to fintechs and crypto companies and, you know, various other companies that need settlement financing. And so, there's I realized that nobody's basically attacking it. It's very hard to solve probably fintech and crypto's hardest problem, liquidity. And I set out and I'm building out Sugar, which solves the problem of pre-funding and reserves. So, it's a bit about me and what I'm building.

>> That's a lot to unpack. I can't believe I'm going to say this, but let's skip over the part where you tried to cure cancer. Um So, 2016, before the word neo bank, many, many years before the word neo bank would be uttered by anyone, you got attracted to the space because you liked a KYC flow. That is the nerdiest that I've ever heard in my entire life, Luca. Um but I'm glad that you did. So, you built a bank, a neo bank before a neo bank was a neo bank. You sold it. And now you're building out Sugar to bring, I guess, proper structure credit into into the market.

Tell me about why. Like, what is the problem that you guys are actually solving? I think a lot of the times people, when they look at a stablecoin payment, and this may be because the industry has so falsely repeated and repeated and repeated, "Hey, stablecoin payments is just, you know, you send stablecoins from here to there and you're settled and it's done." Obviously, it's a little bit more complicated than that. I'd like for you to sort of lift up the curtain on what a stablecoin payment actually looks like pragmatically, and where sugar is is solving a lot of the problems in there.

>> I guess stable coins help money move faster and that's that's the main selling point or USP of stable coins. But people still want to get paid in dollars or naira or euros, right? And so there's essentially a delay in going from on and off-ramping. So from dollars to stables to local currency, even if that's dollars again. Um there's also the question of treasury being moved from one place to the next. So even if that's money going from um A to B and then being on-ramped and then being off-ramped into local currency.

And so basically moving money as a whole, it stable coins the only thing it actually does solve is speed, but doesn't actually solve where pre-funding is. It just actually moves pre-funding to another place. Um and so if you're taking companies that do cross-border payments, they end up settling with some of their uh some of their providers, whether that's for local currency, in stable coins. So it's easier for them to collect and on the opposite hand they get the local currency. And so we'll help pre-fund or give them the capital so that they can settle instantly. I guess the the best way to look at this is that is money going to move faster by 2035?

And so money moving faster as a thesis requires pre-funding, whether that's on-chain or off-chain. And that's the thesis that we're going after. >> For our audience here, Luca, can you define pre-funding? Tell us about how it's used. >> Sure. So if if I owe you money, for example, and I want it to set to settle today, but you're based in Europe, the only way for me to do that is if my bank has already pre-funded or actually put the money ready in your European bank, right? And then therefore it's a ledger transaction, the money moves from one end uh to the next. And so the only reason that money could move instantly is if it's pre-funded somewhere. And so this concept is an age-old concept where banks have pre-funded each other. So,

let's say JP Morgan has pre-funded their Barclays account in the UK and there's millions of dollars that are going there every single day. And so, the money arrives in 1 to 3 days. Um but in the case where it's not pre-funded, it would normally take 7 to 10 days to arrive as money actually moves like mail does from bank to bank to bank ultimately to the destination. >> I think there's some way on this podcast that I should be able to to draw diagram this out on the screen. But uh for lack of better tooling right now, I'm going to try to paint this picture verbally and I want you to tell me if this is right or wrong or fill in any gaps here. So, a standard stablecoin payment often involves one leg of needing to move between an off-chain system and an

on-chain system. Whether that be off-ramping or on-ramping. And we've talked about this a lot in this podcast where the on and off-ramp or the first and last mile is often one of the hardest things to do in the space. Now, the typical way in which a stablecoin payment happens, if we look at an on-ramp for example, hey, I need to send money from uh you know, Nigeria to the US and you're going from Nigerian naira into USDC and then sending it over to to the US. The way that that actually works is first you need to get that fiat money from naira into someone's bank account.

This could be the issuer's bank account. If you're working directly with the issuer, this could be, you know, if you're a fintech, your bank account. And so, you need to get the fiat money in your bank account in order to release those stablecoins on the other side. Now, stablecoins are designed to be better, faster, cheaper, but the reality is that getting money from your client's bank account into your bank account from a fiat perspective is often times the most burdensome. And so, what you guys do is you say, "Hey, instead of waiting for a wire to go through, whether that be, you know, an hour to a few days, we can essentially provide credit, do the pre-funding for you, so that you can release those stable coins immediately.

Am I understanding that correctly? >> Correct. And I think there's a couple more steps where if it's outside of banking hours, if you're converting the naira into dollars, there's that step as well where you need to have liquidity or somebody willing to buy naira and in in exchange give you dollars or vice versa, take dollars and then buy naira. Um there's that famous example in India where buying INR and moving money inside and outside of the company cuz the capital controls is a huge issue. Everybody wants to basically attack that. And so a lot of companies, what they try to do, including OpenFX, is they'll actually create their own trading desk in order to essentially um control the flows between uh INR and dollars. But essentially all of this

requires liquidity. Um and I think by the way, I think this is like maybe 10% of the pre-funding issue. Like if you have RTP, so real-time payments in the US, that requires you to actually pre-fund the RTP account at the Fed. And so CrossRiver Bank would if you bank with CrossRiver Bank as your sponsor bank, they would say like, "Do you want to use RTP for your program? Yes, therefore pre-fund the RTP rails." And the way to pre-fund it is you wire the money into the RTP account. >> Interesting. Very interesting. >> in in the the whole thing is basically that it's it comes down to risk, right? Like if you offer an ACH program, you also need a reserve account or a pre-funded account because there is a chance of ACH fraud.

Right? And so that also requires pre-funding. And so anybody who uses a sponsor bank for their neo bank or their payments platform is required to post some sort of reserves and that's typically 3 days worth of volumes in a reserve or a pre-funded account to be able to move money. And so it it's not just stable coins. Essentially, any money movement requires a portion of reserves to be placed in one place. >> And so where does Sugar fit in here, right? If I'm using a standard bank and they require 3 days worth of of volume, I'm doing 100 million a day or whatever it might be, and I need 300 million dollars in volume sitting in an account, where do you guys fit in here?

Are you replacing that pre-funded account? Are you skipping the bank en- entirely? Where do you sort of fit in the stack? >> So, we'd either replace So, let's say let's say, for example, you have a credit card program at a sponsor bank. Um because you have a credit card program at a sponsor bank, and Rain is a good example of that, but we can even stick to the fiat use case, is that there is a chance that uh the credit card has fraud, chargebacks, the customer doesn't have the funds, you don't have the funds if the customer doesn't have the funds, and therefore the sponsor bank is going to say, "You have to post 3 days worth of volumes in this reserve account." Right? And 3 days worth of volumes, if it's a million dollars per day, that's 3 million, but if it's 5 million dollars per day, if

it's 15 million. So, it's a lot of money. And so, what happens is that your now operating cash or your venture capital that you heavily diluted on is now locked up in this account, 15 million dollars worth of it is locked up. And so, what we'll do is we'll come and say like, "Hey, we're going to free up that 15 million dollars, and we'll we're going to give you a loan based on that." >> Love it. Love it. That's that's super interesting, and I You've mentioned this word a few times, but I really want to dive a little bit deeper into it, and that word is risk, right? Banks require you to pre-fund as a function of passing on risk, right? You are operating a credit business. I imagine that risk haunts you in your sleep. Tell me a little bit more about how you think

about that in terms of the standard flows that you're seeing today, how you are building your business around that risk. It's a really unsexy, boring thing, but it's the backbone of what you do. So, tell me more about that. >> So, we've created something that we call volume-based financing. So, if you take the adjacent, which is revenue-based financing, you see somebody has done 100k in revenue per month and will therefore finance them 20% of that revenue, right? In case there's a dip or something along these lines. And you'll take the last 12 months of that revenue history to be able to finance them. What we do is something very similar, but just on the opposite end of the coin, which is volume-based financing.

So, if you're a payments company and your customers send, you know, $5 million per day from America to Brazil and from Brazil to, you know, South Korea, for example, um what we'll do is we'll underwrite your volumes and we'll say like, at what percentage of those payments have failed, what percentage of those payments have uh is there fraud, is there defaults, have not moved. Um in some cases, 100% of the money always arrives because it's treasury movement. The only issue is that moving 5 million from dollars to stables back to to local currency can take time or even moving dollars to local currency or in the local country can take time. And so, these companies will say, "Hey, I need $5 million because my customers are

demanding same-day settlement." And so, the whole thesis around settlement financing or pre-funding, for that matter, is that money increasingly is moving faster. So, I think the whole hypothesis of fintech is speed. And I think that's the only reason why like all of us essentially do well or all of us essentially find traction, um is because the thesis is that money will move faster by 2035 or 2030, right? And so, the faster money moves, the the more essentially requirement the more settlement um it actually requires or settlement financing, better said.

>> Okay. That's That's really interesting. And I think for me, what attracts me about Sugar is like credit is not new. This problem that you're solving, to your point, is not new. There are hundreds of billions, trillions of dollars that exist today in private credit funds. And traditional private credit funds, some of whom have been around for 100, 200 years. Why haven't traditional players in private credit seen, "Hey, you know, there's massive opportunities in fintech, stablecoin funding, whatever it might be." And why haven't they started attacking this market? It seems like a

lot of them are incredibly latent. Is it just they're old and lethargic, or is there a reason why Sugar is able to come into this space where no other, you know, traditional private credit fund will touch? >> So, I I get asked that often. It's like, "Why hasn't anybody done this before?" Um the the main reason is that the fintechs as an ICP or a fintech better said as a as an industry to this scale didn't exist until maybe 3, 4, 5 years ago. Like, there weren't hundreds, if not thousands, of fintech companies 10 years ago to the same extent that there are today.

And so, this is a new problem that a new group of customers are facing that haven't essentially faced before. And stablecoins realistically weren't a thing 3 years ago. Um they've popped up to be a thing maybe 2 years ago. Essentially, this year they really exploded, especially 2026, right? And so, 3 or 4 years ago it just wasn't a thing. So, essentially it's a new group of customers. The second aspect is that private credit is extremely slow. So, private credit will take 9 to 12 months to underwrite you. They'll ask you all sorts of questions that may be completely irrelevant relevant to what you're doing.

>> [snorts] >> If they do give you credit, you can only use it for a certain use case. You can't use it for every use case. Like, we've had customers reach out and saying, "Hey, I have a $100 million line of credit, but I need $5 to $10 million for pre-funding, and I can't use my line of credit for this." And so, pre-funding just as a concept is basically new to to everybody. Do you you're actively trying to kill pre-funding, which, for the record I think is a really really good thing. Do you face any resistance from like banks and other institutions that rely on pre-funding? Like is there any friction between the old way and the new way?

>> So, I don't I don't think we're necessarily trying to kill pre-funding and I don't think you can kill pre-funding. So, and the reason is is because there's fraud in place, there's like you could essentially keep kill pre-funding if everything is transacting 100% on chain and everybody only accepts money on chain. I think that we're very very far away from that future. Um but as a whole I think what we're trying to do is we're trying to alleviate the pressure of companies posting very large amounts capital in reserve accounts or in restricted accounts where they can't use your cash.

So, if my series A is 20 million and I have to put 10 million aside for pre-funding, A I've diluted 50% more than I should have. B I have 10 million dollars sitting there and now I can't use that for growth etc. And so our goal is like, how do you unlock this very large portion of restricted or pre-funded cash? >> So, do you think that most of your clients will have some level of pre-funding still even when using Sugar? >> I think that it depends on the use case and depends on the risk level. So, our goal is essentially to alleviate I think it's fair to say we do want to eliminate pre-funding um for companies as a whole,

but it doesn't change the fact that pre-funding is required if that makes sense. >> Yes, but the traditional model of pre-funding where I need to park a ton of capital in a bank account just to do just to you know, do the payments that my clients need, you're trying to kill that model. >> Yes, correct. That's exactly what we're trying to kill. >> Okay. So, that's what I mean when I say you're trying to kill pre-funding. >> Yeah, we're trying to eliminate the need for for fintech companies to have to post capital in pre-funded accounts. We're saying like you don't you never need to post this again, you never need to have it. We're basically going to completely kill this need.

>> And let's talk about the size and the breadth of of this issue. Who right now is doing pre-funding? Who right now feels this this problem? >> So, last year it was a 4 trillion-dollar problem. Um to some estimates a 25 trillion-dollar problem. Um all legacy banks face this problem as they're pre-funding different accounts um all across the world, right? Um who are we're facing in terms of let's say in our industry, it's neo banks that are using sponsor banks.

So, again, if you have >> So, everyone? >> Basically everyone, yes. So, if you have an ACH program or an RTP RTP program, a credit card program, you need to post reserves in these pre-funded accounts. So, anybody who's touching and moving money needs to basically post pre-funding. Um and that's kind of the whole thesis of it. It's it's a problem that everybody faces, everybody has the exact same problem, but nobody has solved it. And the only solution that there is to the market is equity. I'm going to raise a shitload of VC to cover that, but I'm going to dilute the hell out of myself, and then then I'm not going to own 80% of of the company. Um B, I can go to private credit, but it's going to take me 9 to 12 months to actually do it, and when I actually do raise the private

credit, it's restricted to only certain flows and I can't use it for everything. Our goal is like we're completely going to eliminate the need for you to post any pre-funded capital, and we're going to allow you to use it specifically for that reason, so you don't have to essentially over-dilute yourself, and you can scale your pre-funding needs. >> This is going to be a serious issue, Luka. I have about like 10 hours worth of questions for you, and we just simply do not have that amount of time. Um I want to transition to talking about what it takes for you to build a credit fund, right? Like I think the the radically oversimplified model is, "Hey, I'm I need a bunch of money to post this credit. So, I just need to go out and raise a lot." Obviously, there's a lot more that you're doing beyond that. What

do you spend your day-to-day doing when it comes to actually building out this type of a business model? >> So, we're not building a credit fund. Um I think previous attempts have been, "Let's build a private fund and let's finance these companies." I think that's a completely wrong approach. I think >> Why? >> Because the selling point of Fintech is speed. So, whether that's pre-funding so you can enable instant settlement, or whether that's a super quick KYC process, or a KYB process that today is now, you know, everybody's everybody has some sort of fast KYC process. What we do in Fintech is we sell convenience, and convenience is typically quantified as speed. How fast can you actually do something? Um and so, we're actually productizing this. Our goal is essentially help Fintechs, or underwrite

Fintechs within a couple of seconds, and essentially issue them credit within a couple of minutes. And so, we want to productize this process where we can you can go from signing up with us to getting credit for pre-funding within a matter of minutes. >> I I understand what you're saying, but the fact of the matter is you still need money to lend. >> Yeah. >> Correct? So, like there is there is You can say that you're not a private credit fund, but at the end of the day you You are still providing credit to people. Just so that I understand it correctly right? >> Yes, correct.

>> You're just taking it, bringing that into into the modern world where everything can be productized as as opposed to the way it's been done for the last, you know, many, many thousands of years, which is you build a relationship with a credit funder or banker, and then they lend that out to, right? I I've been reading a lot about like the the merchant banking uh tycoons going back to like you know, the the ancient Italians, the medieval Italians rather, to you know, European merchant bankers. And their entire businesses were run on relationships. It seems like what you're saying is like, "Hey, you shouldn't have to know a guy anymore. Use our API and we'll solve all your problems." Is that

Is that fair? >> So, what what I'm saying is you should be able to get credit and liquidity for pre-funding as quick as you can get a loan on a firm to buy your spouse a gift. Like, that's [laughter] That's how That's how quick you should be able to get pre-funding. Um, and so we operate a very similar model to Affirm or Klarna, where they do the credit raising in the background. They have all the capital to deploy to their customers and they make it super easy to buy now, pay later for certain payments.

Or certain products, better said. >> Interesting. Who Who else is doing this right now? Like, I You You've mentioned a few other people to me who who are doing this. Why is what you're building superior to the to the stuff that's in the market right now? Is it just, "Hey, we're actually productizing it where others are not?" Or do you have, you know, some more secret sauce there? >> Yeah, like I said, fintech is competing on versus TradFi. And so, when you're building a neo bank like Slash is not competing with Mercury. Um, and I see all these neo bank wars on X. And it's like, you guys are not competing against each other. Like, you guys don't get it.

Um, you're competing against like Wells Fargo and Citibank. That's like the primary focus. Our biggest competition is then uh, private credit. It's private credit and um, and to some extent equity. And so, it's understanding where again, we're productizing something. We're making it super easy. And previous attempts were private credit funds. And I just think that's the wrong approach. >> Is there different infrastructure required though to service these more modern FinTechs from like a risk perspective? Like if traditional institutions, whether they be banks, private credit funds, if they had the stones to actually go out and service these types of people, could they even do it?

>> Basically, insurance companies have the problem where they need where they need to make a settlement uh payout, that can take a couple of weeks or even a couple of months for them to pay out. And sometimes you need to pay out instantly. And so sometimes insurance companies need to essentially take a loan to be able to finance that settlement. >> Yeah, I mean the truth of the matter is like we talk a lot about instant payments. And the reality is like there's very very rarely a case where the payment is actually instant. As in the institutions behind that payment are settling the money instantly. Almost never happens, believe it or not. Like I think that a lot of FinTech over the last, we'll call it like 25 years, has been how can we create the the mirage, the illusion of, you know, faster payments or, you know,

more connectivity or whatever it might be, even though in the background it's just as much of a as it was before. And so I think like again, my mental model for Sugar is you guys are are taking a problem that almost every single payment company has, whether their users realize it or not, and giving them an alternative that's just a little bit more capital efficient and is probably a lot easier on their CFO and and when managing OpEx. >> Yeah, it's correct. It's a much more capital efficient solution and a faster solution to be able to move money faster.

Um but it's not only for faster money movement, it's also for restricted cash movement. So if So basically, if you have this ACH program as an example, you need to post 3 days worth of collateral in a reserve account. And so if your company's doing, let's say, payroll, you used to typically post 3 to five days worth of reserves in this in this account. And that could be, you know, single digit millions, it can be tens of millions that you need to post in a reserve account. And that [clears throat] locks up your balance sheet in case there is fraud or chargebacks. >> And so, I mean, you guys are primarily a risk management company at at this point. Like, I think in terms of like providing the credit, you sold in a really, really successful neobank.

Like, you're clearly a skilled operator. I don't think it's going to be that hard for you to get the money to loan out. It's a lot harder to productize that and everything from from like a a risk perspective. When it comes to like, you know, step one, two, three for for sugar here, how are you thinking about like your product roadmap? I mean, we just spent 20 minutes talking about how everyone needs this. And every, you know, every single payment company can use this. An insurance company can can use this. And a gambling company can use this. The world is your oyster, Luca.

How do you think about building a company that has so much open space to to run? >> I think the hardest part about what we're doing is productizing it. As I was saying earlier, it's a So, it's like, how do you underwrite a company instantly? And then, how do you service them in a way where you're protecting your funds and you're monitoring them um in a basically everyday, 24/7 type of way. Um and so, we're working on something now that we plan to launch in the coming weeks um that's actually going to solve exactly that problem. Um but yeah, that's basically the biggest biggest thing you have to work on is how do you productize Like I said earlier, how do you make a credit product for pre-funding as easy as getting money from a firm or client?

>> I think it's a lot harder than than you make it seem. Like, again, for the last many, many, many, many thousands of years, credit and the risk on that credit has primarily been a function of there is a human somewhere who is making a gut check, a judgement call on whether or not this is going to be a a worthwhile loan and whether the person on the other side of that credit or the other side of that loan is is going to give me my money back. That is how credit has worked for many many thousands of years and you are trying to fundamentally disrupt that and I think that you know that's your advantage in the sense that very few others are going to do it but it's also an incredibly difficult problem to solve.

>> I think that the difference between today and even 20 years ago is that we can monitor what the customer is doing 24/7. We can monitor their volumes, their balance sheet, where they're placing the money, where it's going and how much of it is moving. And so monitoring is actually the key USP or essentially key advantage that we actually have today. And surprisingly private credit and lenders actually don't monitor their customers uh well enough to be able to uh minimize risk. And so that's >> Is that cuz they don't have the tech to or they don't have the wherewithal to? >> They haven't implemented it. I mean there's plaid, there's alchemy, there's a ton of you know on chain and and fiat solutions to be able to basically monitor somebody's balances and what they do from let's say a business not necessarily a individual

um but also for individual where you can monitor and you can essentially um understand what they're doing with money. >> Yeah, I mean I think it's really important that people recognize that you are building a tech company first and foremost. Like yes, you give credit, yes, you can be in the flow of funds but excellence in that regard is only enabled by the tech that you have to build out that scaffolding. >> Yeah, I the the main thing that the main advantage a lender can have is monitoring.

So if you're able to monitor your credit risk 24/7 and ideally live you have the ability to essentially understand your risk and make moves in case there is a risk that you can prevent. And so, whether that's through a deposit account control agreement or a DACA where you can block the account, whether that's uh being able to send notices and ask the founders directly, "Hey, what's going on here?" Monitoring is key here. Otherwise, they appear in a month and say, "Hey, sorry, I lost your money." And so, the key difference to credit today versus 10 years ago is comes down to monitoring and control.

>> I think it's important to note here the tradeoffs that these founders are making to reduce this problem that you're solving. As in and correct me if I'm wrong, but if founders are okay with having someone see every single transaction and monitor to the level that you do just so that they can get credit and reduce the need for pre-funding, I think that that is a really, really big testament to how big and painful of a problem this actually is because I know a lot of founders who have been pitched companies where they don't want to give away any information, right? They want to keep all their transactions as private as they possibly can. They want to make sure that, you know, their data is locked up nice and tight. The fact that they're willing to let you monitor everything for the sake

of getting that credit line is incredible to me. >> So, I think I think it's worth I think it's worth clarifying like we're not we're not necessarily monitoring um you know, what they're spending their money on, who gets paid how much, etc. >> Yes, yes. >> What What we're monitoring or maybe I can like rephrase the whole thing is that the key thing for monitoring is be able to see like how are the volumes moving and how is how is the fraud and be able to monitor essentially what is the risk of the pre-funding that's that's moving through the rails. Um and so, that's something that we're essentially monitoring. I think we need to rephrase this this whole aspect of things where it's not necessarily like we're now monitoring like their salaries and how much they're getting paid, etc.

>> You're monitoring credit risk. >> We're monitoring credit risk specifically when it comes down to volumes. >> Yes, you're caring a lot more about the money coming in than the money going out. >> No, we care about the money coming in and out when it comes specifically in respect to to volumes. So, I just kind of want to avoid the whole idea [clears throat] that they were in the house taking like a huge privacy risk from monitoring everything. It's honestly what it is. It's like we're simply monitoring the volumes that are going in and out when it comes to what we're pre-funding. So. >> And we while we're on the topic of like how how painful of a problem this is. I I want to get a better understanding of like the the lengths that people are willing to go to reduce pre-funding. I mean,

when we talk about ramping, which is where you guys live right now is the the gap between on-chain and off-chain. The entire industry is like, "Oh, it's a race to zero." Right? Everyone is competing with each other on ramping rates. Everyone is trying to get the lowest rate possible. This is how people grow their business. They undercut the the next competitor on it. And, you know, throughout the entire industry, people are like, "Hey, ramping rates are going to zero." How do you think about that as someone who lives in the space between on-chain and off-chain and are sort of adding to to the cost of ramping?

>> I think that a dollar should be a dollar no matter if it's USDT C or USD, right? And so, I think that structurally speaking, I don't know if that's ever going to change in terms of the inherent cost. However, I do think that um if you compare that to let's say wires or ACHs, they also cost money. They maybe don't cost a basis point, which is a percentage, right? So, they're more of like a fixed cost, but I think that I as an acquisition tool, most companies are going to transition to on and off ramping being for free.

>> Yes, but to your benefit, a dollar now is worth more than a dollar in 3 days. >> What do you mean by that? >> You will allow money to move faster. Right? And if I can get that dollar now, I'm willing to pay a premium on on that to, you know, get that dollar. >> I think that the main selling point that neo banks have is that I will you're you're able to send money from America to whichever other destination instantly. And so, I think like Revolut basically pioneered a lot of that because it was a ledger transaction.

They said, "I can send money from A to B instantly as long as you're within the Revolut network." And then it was a ledger transaction, right? And you can be anywhere in the world. And so, that made complete sense and they had the money available. And that's essentially pre-funding, but that's essentially happening on a ledger and therefore it doesn't require pre-funding. And so, banks now globally have said or neo banks have said, "I now want to enable my customers to move money to another counterparty at a third-party bank and I want that to happen instantly." For that to happen instantly, you need to pre-fund. And whether that's in stables or whether that's in fiat on the opposite end, like most of our customers are actually keeping money pre-funded in banks across the world. So, if you're >> Multiple multiple banks.

>> Yes, seven, eight different banks, 10 banks, 15 banks. We have one customer that has 16 banks all across the world and they're working Yeah, they're working with 25 different wallets and 16 different banks because of different on-chain assets, off-chain assets, different different chains as a whole. Um so, yeah. >> Damn, that's that's insane. That's insane. I I was doing some reading and I was reading about how the amount of corresponding banks around the world has been plummeting over the last 20 years or so. Uh and I think that that's sort of a a testament to how the financial system is starting to be to be structured.

As you look at sort of trends in traditional finance and you know, where banks are opening up new branches and how they are looking at uh you know, stablecoin usage, do you see the opportunity for sugar as sort of a a finite thing within the ramping space or do you think like, "Hey, we're starting with a wedge in, you know, credit fraud and off-ramps, and then we can grow into XYZ things?" >> So, the big thesis is that money will move faster in 5 years from now than it than it does today. And for money to move faster, you essentially need to pre-fund um different accounts, right?

And so, we want to help companies completely eliminate uh that need. With that said, gambling companies have this problem. Um various adjacent industries have settlement problems. And so, I think that with money moving faster, it doesn't just come down to sending money from A to B, but it also comes down to settlement financing as a whole. And so, I think our initial wedge is definitely pre-funding for fintech or crypto companies, and I think there's basically an unlimited market there. Where I just do you see adjacent industries is definitely in settlement financing um for payments specifically. So. >> Tell me more about settlement financing.

>> So, settlement financing, for example, can be travel companies are a good example. So, if you work with Booking or uh Expedia, in order for you to book trips, you need to post a certain reserve with them. So, you say, "I'm going to post a million dollars, and that's going to give me credit to book a million dollars with the hotels or or or airlines, right?" And so, if your customers want to book $2 million, you need to post $2 million ahead of time in case that there is default from the customer from yourself because Expedia and Booking don't want to take that risk.

And so, essentially, that requires also settlement financing. And so, gambling companies have the same thing with reserves. It's a very similar use case. So. >> Yeah. I I think that and I hope that the audience has picked up on this by now, but the single through line throughout our entire conversation, Luka, is that people want money to move faster. And I think that that is a statement that is not going away anytime soon. I don't think you're ever going to walk up to a business and be like, "Eh, I don't really care. You know, maybe I want my money to move slower." Like, that's never going to happen, right?

People are always going to want their their money to move faster, and in order to do that, pre-funding needs to be figured out. Um stablecoins are an incredible tool not only for, you know, the the canonically cliche better, faster cheaper but I think also for dramatic steps in efficiency of of like back-end financial offices, and I think that you guys are just adding to that capital efficiency game that that people are using for for stablecoins. Um Who should they be reaching out to? Where can they reach out to? Why should they reach out to?

Give me the whole thing. >> If it's a company that has a need for pre-funding or reserves, we're happy to help them. Um they can reach out to me on X, uh l u k a i v i c e v. Um you're probably tagging me in the end. Um you can check us out at sugar.account.com. Um or you can follow us at use sugar on X. >> Awesome. Well, people can also message me, and I'll I'll connect you over to Luka. What I will say is that the man is currently drowning uh in in people wanting pre-funding cuz again, this is a a widely spread problem. But Luka, I appreciate you educating me and the audience on credit.

We're going to have to have you back as your business continues to grow and as you continue to do more cool stuff. But like I said, I appreciate you jumping on. For audience, I hope you learned at least a little bit. I learned a lot, and as always, stay stable. Thanks for listening to this episode of Stable Pulse. Be sure to like and subscribe for more of the latest news and insights from across the stablecoin and payments ecosystem.