Figure联合创始人：Figure如何成为一家100亿美元企业｜Mike Cagney

Very excited about this. We have Mike Cagney, who was previously the co-founder and CEO of SoFi, which hopefully many 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 have you been post-Miami?

I've been doing great, spending time in New York and enjoying the weather.

I feel like you're always great.

You know what? I like to look at the world as a half glass full.

Yeah, you and me both. Okay, so I think maybe a good place to start: We got drinks in Miami. We got Diet Coke in Miami.

Yeah.

I was 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 was using this blockchain stuff on the side to improve the efficiency of the company or make an extra percent here and there.

I was surprised to hear how much of a true believer you are in decentralized capital markets. Could you maybe walk me through this idea? And this was—no cameras were on us. You didn't have to actually say that. So, could you walk me through this idea?

Yeah, look, I think blockchain is a massively disruptive technology—maybe the most disruptive technology we'll ever have in our lifetimes—more than the internet, more than the spreadsheet, more than things that we generally attribute to significant disruption.

The idea of displacing trust with truth through native digital assets—and what that affords in terms of the way those assets are traded bilaterally and self-settle, and the way those assets can be financed through encumbrance of the asset and an asset-based lending construct through DeFi—to me, those are game changers. The potential for the industry is absolutely massive.

It's interesting because when I see all these people doing things at the periphery in blockchain, like Visa or DTCC, the reality is that blockchain disintermediates their entire business. Part of the challenge we've had with blockchain is that normally incumbents disrupt at the margin. But blockchain is so disruptive that there is no margin. It's a complete wholesale rebuild.

Then, certainly, we had 4 years of regulatory morass that basically killed a lot of development that we're now making up for. I think we're starting to accelerate in terms of what's happening, but there are still some necessary conditions for blockchain to be successful. The most important is that it's tiny.

When we look at it, we think about a DeFi protocol with $12 billion in stablecoins 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, "We've tokenized a billion dollars of stock." Well, it's a $133 trillion market-cap industry. We're still just this tiny, almost irrelevant pool. To become relevant, we're going to have to bring a lot of those TradFi dollars over.

1. How Do Blockchains Disrupt Capital Markets?

What is the strongest version of the argument if I said, "What does blockchain let finance do that it simply could not do with databases, APIs, and software?" How do you think about that?

Again, I think it goes back to 2 things: transactions and lending. On the transactional side, every marketplace is massively intermediated, right? When we trade stock, there are 7 parties that sit in between a buyer and seller. When we swipe a debit card, there are 5 parties that sit in between 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. 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. That accrues to the benefit 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 mentioned I'd co-founded SoFi. Part of why I was doing that was that I believed in this notion of connecting sources and uses of capital. The original thesis of SoFi was that we get alumni to invest in student loans, and there was a natural reason why they'd have that affinity. All these externalities would come out of it.

We were sort of a victim of our own success because the loan was so popular that it massively outstripped the pace at which we could acquire alumni capital. So, we went and got warehouses and started securitizing and doing all the normal capital markets stuff.

What blockchain is giving us a chance to do is a second shot at this. DeFi—the idea of being able to put up collateral where you know for certain that it is the asset, you can get true perfection, you can get a UCC lien on the asset, and there's a whole legal construct that's supportive of this—and being able to liquidate that asset changes the lending construct from "I'm underwriting the credit" to "I'm underwriting the volatility and liquidity of the asset." That massively opens up how financing markets work.

We've seen this in a microcosm with crypto financing. If we look at a platform like Aave, for example, you're seeing it with Figure's Democratized Prime, where we do it with loan participation. Starting with HELOC, now we have auto and small business, and soon we'll bring on receivables and other categories. I think that's going to change how finance works in terms of the financing side of the capital markets.

There are 2 types of Empire listeners. You've got the people who believe in crypto and the people who are, I'd say, sophisticated but skeptical. Maybe they work at JPMorgan or DTCC or something like this. They understand banks, clearing and settlement, custody, securitization, and lending. Maybe they don't understand crypto.

Why should they care about crypto at all? And maybe the second part of this question is that there are 2 types of disruptive technologies: things that improve the user experience and allow for new use cases, like the internet and AI, which is happening right now. 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 that the right way to frame it, or is it wrong?

I think Figure's been a great illustration or demonstration of what blockchain does. There are people who are critical of Figure who always say, "Oh, Figure's just a lender." And I'm like, "Show me a lender that operates at 50% EBITDA margins, right?"

We do that because of the massive efficiency we get from the technology. There's a sort of Rule of 40 for SaaS companies—a combination of EBITDA and growth. We're at 140, right? We're still in what I consider greenfield markets, with massive upside from growing off of that.

If you're sitting at a bank or a traditional intermediary, the reason you should care about this is that there's now a very clear, demonstrated proof point as to why this technology is going to matter and how it's going to change things. You can decide to lean in early and be a part of that, or you can be reactive to it. But it's coming.

What's been interesting is that now that blockchain is legal, the big banks are leaning in. I'm seeing more innovation coming out of Goldman Sachs than I am out of the old crypto industry because now they can lean in and do it, and they realize they can make more money.

Crypto itself is an important construct here because, as 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 stake as value across the validator ecosystem.

A lot of people don't understand that tie-in or association, but I'm talking about the value proposition of blockchain. That decentralization, which is core to that value proposition, only exists if you have a native crypto asset to support the decentralization of the network. That's why you should care about the whole ecosystem in that regard.

I think you hit on a really important point, which is what I don't think the blockchain and crypto industry have done a great job on: the front-end experience. I think the fintech experience in Web2.0 is still way better than almost anything you see in the Web3.0 world.

This is part of the problem we have, and it goes back to that point I talked about earlier: 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 a wallet, right? Get rid of the key-loss issues, get rid of the 24-word key phrase. There’s just stuff that we do that is very orthogonal to a traditional user. We’re not going to get SoFi customers and Robinhood customers to leave the super apps that those companies are building and try to come onto a self-custody, decentralized wallet with the current experience that we have.

2. Why Did Mike Build Figure?

Yeah. Did the idea for Figure come out of SoFi?

Yeah, it did. And again, it kind of goes all the way back to this idea of connecting sources and uses of capital, right? As I said, SoFi took a trajectory that was a very successful one, but was very different from the original intent of what we had. What we were able to do with Figure was reestablish that construct and reestablish this idea of DeFi lending.

Now, we couldn’t get there right away. In the beginning, one of the interesting things people don’t realize about Figure is that I had to leave money on the table with my loans because the hedge funds were like, “If we don’t have to deal 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 I’m originating loans on blockchain, and the hedge funds—all the original buyers—are having to deal with the blockchain. They all hated it. They hated the concept of it. They hated the idea of a wallet, all this stuff.

Oh, so you would make them set up a wallet. You weren’t—

Obfuscating.

Okay.

No. We were using the loans as a forcing function to get them to use blockchain. 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.” My capital markets people were like, “Let’s just forget about the blockchain and just build Figure 2.0, or SoFi 2.0.” And I’m like, “No, that’s not why we’re doing this. We’re doing this because there’s an enormous opportunity. In the beginning, it’s hard and there’s a lot of friction, but ultimately that will invert and we’ll get that efficiency.”

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 in the wholesale capital markets. 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.

You end up having to leave dollars on the table in the beginning to drive adoption, but then you hit that inflection point, and that’s where the real efficiency and the moat happens.

Yeah. Can we go deeper into that? If we take a HELOC—which you guys, that was the first market that you really dominated—and take a HELOC from origination to sale to financing to securitization in traditional finance, maybe walk me through what happens in the traditional system and then what happens in Figure.

Yeah. We could spend a whole day 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, put it on a spreadsheet, and send it over to your bank to finance it in a warehouse. The bank will let you send that spreadsheet over once every 3 to 5 days because you give them a spreadsheet full of loans, they give you a bunch of money, and then they spend 3 to 5 days figuring out if you lied to them about any of the loans. This is why you’ve had some very high-profile fraud cases, like Tricolor and First Brands, where they sent 2 spreadsheets out to banks and got twice as much money. That’s part of the inherent problem.

So how does that come to blockchain? On blockchain, the loan is on the chain, and there’s a digital perfection to the loan through something we have called DART, which stands for Digital Asset Registration Technologies. It gives you either a UCC-8 or UCC-12 digital perfection of the asset in real time. That is the representation of the asset; there isn’t anything else that has that asset, so there is no double pledging. There is no ability for me to sell a loan that I’m borrowing against, or what have you.

That dramatically reduces the amount of risk the warehouse lender takes, and it increases the frequency at 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 I’m not having to finance 3 to 5 days’ worth of loans before I send over a new spreadsheet. There are big efficiencies that come off of that. It reduces your cash needs. So that’s sort of the aggregation, right?

Then on the transactional side, in the construct 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 a jumbo mortgage, a student loan, or a personal loan—there’s no liquid capital market for that. Those loans all trade bespoke.

So I might do a deal with Apollo to sell them $500 million worth of loans. They’re going to ask for particular reps and warranties in that contract, and that’s different from what KKR is going to ask for. The resulting problem is I now have these 2 pools of loans that are not the same and they’re not fungible or homogeneous, right? There is no liquidity at scale. They’re just 1-off, illiquid pools of assets that come out of this origination process.

What we did is we said, “Well, look, we have over 380 partners that originate assets in the Figure ecosystem.” For mortgages, they all use the exact same technology. It doesn’t matter if it’s loanDepot, Guaranteed Rate, or Figure; everyone’s originating the asset the same way. 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 1 contract that everyone agrees to for the buying and selling of loans. So there’s no 1-off negotiation. When I first started, I tried to do this, and my capital markets team was like, “This is never going to work. No one’s ever going to agree to this.” It just got to a point where we had enough leverage, and we forced it.

That’s what I was going to ask: Why do they do this? Because it 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. At one point, a massive insurance company came to us and offered to pay us a 2-point premium on all our loans if we would underwrite to their box. And we said no, we’re not going to do that.

The sales guy walked out of the room. Very sad.

But you don’t do that because then it breaks the whole system. We lose the homogeneity, right? What we have is homogeneous assets and a common agreement to transact those assets.

The last piece of the equation is that we feed all the remittance of the assets into the pool in real time. I know for certain whether a loan is delinquent or performing because, typically, you trade a pool of loans and spend 2 weeks of diligence figuring out whether they are what was represented to you. Blockchain gives me truth over trust, right? I know in real time what the truth is in that transaction.

The combination of those 3 factors supports liquidity. 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. 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 historically has just been an unassailable process to try to do. It’s a critical step for us. That liquidity is very important.

And then, the third step, on securitization: you think about all the collateral that goes into securitization. The amount of audit and QC you have to do, and third-party review of loans—because of the immutability of the technology, blockchain eliminates a lot of the third-party review that you have to do to get your pools rated. So there are efficiencies that come out of that.

If you look at things like the calculation agent, which actually has to go through and calculate the cash flows and distribute payments to the bondholders, that’s a smart contract, right? You can do all that through technology.

But most importantly, what happened in 2008 was the market went bad. Normally, what you do with a mortgage securitization is, when the loan stopped performing, you go and work out the loans. You provide some payment plan or some concession, some reconciliation with the borrowers to keep them current. When you modify a loan, that’s a standard servicing process, 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.

The problem we had in 2008 was that no one knew where the bondholders were. Had those bonds been on a blockchain, we would have known every wallet address and been able to push an NFT to every wallet address to get a quorum: “Hey, we want to do this modification. It’s important. Will you let us do it?” We could actually drive that vote.

There was a very high-profile regulator, Sheila Bair, who was looking at what we were doing. She said, “Look, what you 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.”

It has really significant downstream technology benefits as it relates to the securitization side.

That’s really interesting. How does that impact—I was looking 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 live. The numbers—I think I’m getting these numbers right, so correct me if I get anything wrong—are $2.9 billion of marketplace volume, $1.6 billion of Figure Connect volume, and adjusted EBITDA margins around 50%.

The driver of this is that you guys have a technology platform that no one else has, partner growth, and an origination process that you’ve nailed from 20 years of doing this. What does this come from?

This is a really important point. It’s really important to understand Figure. When we took Figure public, Goldman, who was our lead, laughed in that transaction. We took Figure public twice because we did it once on the blockchain, which was a cool thing.

When we took it public the first time, Goldman was pushing us really hard to emphasize our loan origination system and how important it was. I was like, “The LOS? We give it away, so it doesn’t even drive revenue for us.”

You give away the loan origination system?

Yeah. And, by the way, anyone can build any loan origination system they want. I can make one that says, “If your name is Mike, you get a loan.” That’s a zero-cost origination system. Great, but no one’s going to buy that loan.

What Figure has as its moat is the capital market. That’s Connect. What we bring these 380 partners isn’t a better origination system or better technology, although it is better technology. 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. That’s key. That’s Figure Connect.

So, you’re saying the consumer loan marketplace is not a commodity. It’s the easier part to build. Figure Connect is the very hard part to build.

Yeah. This is the key focus point: by having this capital, if you’re an originator and let’s say you’re doing HELOCs and you’re really successful—you’re up to $200 million a month or $300 million a month—the capital markets will always shut down.

When they shut down, you can’t sell the loans, but you can’t turn off the funnel. Do you have a balance sheet that could take 2 or 3 months of production, which could be $1 billion, and absorb that?

When we were at SoFi, this happened to us all the time. We had $1.5 billion on the balance sheet, and we would periodically run out of money because the capital markets would shut down. What people who aren’t in the market don’t understand is that you have these warehouse providers and guarantors. No one will send you a wire when things are going crazy.

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 because you’re not getting any money.”

I don’t follow that.

Let’s say that I have a warehouse with Jefferies. Jefferies has a $1 billion warehouse for me, and I can pledge up to $1 billion of loans into that warehouse. That’s great. During normal times, it’s great to have that liquidity. You can send as many loans over there as you need to send over there.

When the capital markets shut down—and what I mean by that 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 because you won’t get a wire back.”

You can sue them, you can do whatever you want, but that’s somewhat immaterial at the time because you’re worried about your liquidity.

So, if you’re just a lender, then you can get—I don’t know a better word—you can get screwed by some of the folks who are warehousing these deals.

100%. The problem is that the more production you do, the more balance sheet you’re going to need and the more equity capital you’re going to need for when this happens. You can’t turn off your origination engine or you kill your franchise, so you’re in a very tough situation.

If I said, “I’m going to go all in on HELOCs or non-QM mortgages,” that’s great. But if I really want to do $1 billion of that, I probably need $1 billion of capital on the balance sheet, maybe $2 billion of capital. That has to grow basically linearly with your production, which means you never have margin expansion.

The only marketplace where you historically have had a guaranteed takeout has been Fannie and Freddie. You can always sell them a mortgage. You might not like the price they pay, but they will always buy it from you.

What we’ve done that no one else has been able to do is stand up an alternative liquid capital market. This was our deal with Six Street, where Six Street gave us capital to operate a guarantor. That guarantor functions like a private version of Fannie and Freddie.

We can create a liquid marketplace where, if you’re part of the Figure ecosystem—one of the 387 partners we have right now, or whatever the number is, and it’s growing every day—you have access to that capital market and that liquidity.

Do you know the volume of Figure Connect versus your loan marketplace? I’m trying to find it right now, but maybe you know it.

Figure Connect was, as you said, $1.6 billion out of the $2.9 billion in Q1.

Out of the $2.9 billion, okay.

Yeah. I think we guided to something like $4 billion this quarter.

From Figure Connect?

$4 billion overall, and I think at least more than 50% of that will be on Connect.

Okay, so you’re becoming less of a lender and more of a capital-markets company?

We don’t lend at all. I mean, we have a tiny little slice, but we’re not a lender. We’re a marketplace.

Does the market get this?

They’re getting it. It’s a slow process for us to talk to the market.

One of the challenges investors have is that there’s nothing that looks like Figure. You look across the market and ask, “Is Figure a SoFi?” No, it’s not, because we don’t have a retail customer franchise, nor do we have any aspiration to do that.

Is Figure Intercontinental Exchange? There are aspects of our business that are aspirationally trying to compete with ICE, but it’s not exactly the same thing. Investors struggle with the metric they should track.

Historically, they’ve tracked take rate. Take rate is a great metric for marketplace businesses where you have consistent revenue. Uber and eBay are good businesses where take rate is a metric you care about when thinking about the valuation of the business.

For Figure, it should be contribution margin, not take rate. Let’s say we can make 5 points on a $50,000 HELOC. The take rate is 5%, and we make $2,500. We can make 3 points on a $200,000 first-lien HELOC. The take rate is 3%, but the revenue is $6,000.

The key is that it costs us the same to get both those loans through the door. We make a lot more money at a much higher margin on 3 points on $200,000 than on 5 points on $50,000. On the surface, you’d say, “The take rate fell from 5% to 3%. That’s horrible.” But the contribution margin, EBITDA margin, and gross EBITDA went up, so that’s actually very good.

We need to do a better job educating the market about what it is we’re doing. We’re moving into the first-lien HELOC space because the first-lien mortgage space is 25 times larger than the second-lien traditional HELOC space. Our TAM is actually 25 times what we thought it was 6 months ago because we’re now competing and actually winning business in first-lien mortgages.

It feels like the asset for SoFi was the consumer. You could sell them more and more and more products. For Figure, it’s Figure Connect, or it’s the whole marketplace.

It’s the marketplace. But you hit on another super-important point. SoFi was born out of this concept of cross-sell and the super app.

Right? The point of SoFi was that we had these customers that we called HENRI's—higher earner, not rich yet.

Right. Right.

They were super valuable customers, and the idea was that we were going to build a relationship with them and be everything for them over time. We were going to be their bank, their broker, and their crypto platform. That made a lot of sense, and that still is the model that SoFi, Robinhood, and others are pursuing.

What Web3 opens up is a different kind of model, which is a wallet-centric, self-custody model. Today, the problem is that we have 2 ways that people access technology: We have the super app, and then we have the MetaMask and Phantom wallets, where I'm attaching to DeFi protocols but using the wallet to log in to someone else's protocol. The experience is inconsistent as I'm going from protocol to protocol.

What I think we need to do is blend these 2 together. We use a self-custody wallet, but the protocol should act as a true distributed application. 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.

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 just interfacing with them through the back end. How disparate or different is a DeFi construct? It's very simple. I'm putting up collateral and borrowing or lending against it. You can easily feed that through an API and create a consistent wallet experience.

I think that is a necessary thing we have to do to get those SoFi and Robinhood customers to come over, because then it'll look like what they have, but it's a much better deal for them. They control their data, they control their assets, and they control where they bank, where they broker, and where they do crypto.

Do they care about that?

Oh, yeah, they do. They're going to get the best deal by doing that, by being able to cut across. By the way, they're going to have AI agents in their wallet that are going to do it for them. You're just going to say, “Go get me the best yield where I have zero risk or minimal risk,” or “Go get me the best yield where I take this much risk.” Or, “Go find me the best venue to arbitrage Bitcoin,” whatever it might be.

You're going to have these armies of intelligent agents that sit in these wallets, basically take advantage of that dapp ecosystem, and create a huge amount of utility for the users.

Yeah. Sorry if I missed this. Do you have a wallet today?

So, this is a skunkworks project we're working on. You're going to hear more about it from us, but we are working on exactly this concept, including with a central AI agent. It comes with a set of skills: It can produce your 1099s for you, it can do tax-loss harvesting for you, and it can do a bunch of things out of the box that you don't have to train it up to do. Then there'll be things that you're going to train it to do as well.

Say more.

Well, I think that we have all the ingredients for a wallet that TradFi can embrace. We have Yields, which is a yielding stablecoin and fiat on-off ramp. Your dollars always earn.

We have Demo Prime, where most of my TradFi friends want to be, making 6% to 7% lending against Figure HELOCs, unlevered. We have Hastra, where you're looping out to mid-teens to 20% returns. We have Open, which is the first public equity, and now we have Open World as the second company to go on there. 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, travels with you. I'm working on different entities being able to accept that. You'll have this AI agent, and the AI agent will do everything from producing your 1099s at the end of the year based on all the activity that you've done to buying 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, 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.

And as I said, I think that's the right way for Phantom to look at it right now. What I think is that there's an intersection, as you said—a convergence—

Right.

—of these things, which is that you want the in-app experience that Robinhood has, but you want the self-custody and ability to choose a venue that Phantom affords you.

Right. Right. Yeah, you want the security of feeling like you're on Schwab, the user-friendliness of Robinhood, and access to all assets like a Phantom has. You want the creativity and ease of use of an AI agent.

Right.

And you don't want to have to memorize a 24-word key phrase.

It isn't actually a phrase.

That's right.

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 you'll have a card embedded in that. The card can do unsecured and secured lending. You're going to—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 going to have a very different lending ecosystem where, with a HELOC, you back it with your home, but why not back it with your assets?

Mhm.

You have the ability to lower your cost of funds because of that. So, credit will—and I use the term “agentic lending,” which everyone likes to use because it sounds pretty sexy, but it's algorithmic lending—be an integral part of this.

What do you think the future of banks is in this world?

I think this is the bank. If you can hold your cash in an asset that pays you interest backed by Treasuries, most people would agree that's either as good as or better than FDIC insurance.

You've got a card on it, so you have an easy fiat off-ramp, because the biggest issue we have with stablecoins right now is that we still can't go to Starbucks and buy coffee with them. Fine—put a card embedded in there, a credit card. At the end of the month, you can just roll your coin to pay that balance off, so you get the free float for the month. Or you don't—you finance it. And you have access to investment opportunities.

What's interesting, and the false dichotomy that comes out of the banking industry in all this, is that they're like, “You can't pay interest on stablecoins, because if you do, all these deposits are going to leave the bank.” The Treasury did a study that said $6 trillion would leave the banking system, and there are $18 trillion of bank deposits. So, that's a pretty big number.

As a data point, in late 2022, we had about $1 trillion leave the banking system because of the Fed raising rates, and it caused mass chaos in the capital markets. That whole thing I talked about—capital markets shutting down—happened in late 2022 and early 2023. They shut down because the banks all of a sudden weren't flush with deposits to fund these assets. They started selling the assets at fire-sale prices, and the market was falling apart.

The false dichotomy here is that we're all going to take our cash out of the bank in the form of stablecoins, but then we're all going to reapply that onto DeFi protocols to lend directly. We're going to take the bank away as the intermediary for capital. By the way, we might do affinity lending. We might lend to the area or geography where we are, to our school, to alumni from our work—whatever it might be.

We're going to build out a very different capital-allocation ecosystem that I think replaces the bank. In economics, there's a term called Pareto efficiency. It's where 2 parties agree to something where they're both better off. This is a classic Pareto example: The borrower will be better off, the lender will be better off, because the bank is a rent-seeking capital intermediary.

Tell me what you learned about customer acquisition and getting users from your time—probably more relevant from SoFi, I would guess.

With SoFi, it was very brand-centric.

Right.

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 B2B2C. Once you go retail, never, never go back.

Yeah. Yeah.

Well, it's not that I think retail's bad. Retail's just a different beast. We didn't want to compete with our customers. 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, because if you don't do it, we're going to do it.

But generally, we're not trying to do the same thing. Brand is 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. Your marketing people are like, “Well, I need to spend this much on brand,” and you're like, “What's the return?” They're like, “How can you measure it?” You know, it's brand. It's existential.

There's this constant push-and-pull tension, especially between finance and capital markets people and marketing people, as it relates to this. But you need a strong brand. The most important thing, and what I think most people miss around direct-to-consumer marketing, is context. You need to have as personalized an outreach and engagement as you can.

3. SoFi’s Superbowl Ads

I always laugh because of all the different strategies in the cold emails that people have. For a while, I was getting, “Hey, did you do this at the Stanford Graduate School of Business? Wasn't that great? Our security service...” And I'm like, “It's so contrived and clunky,” right? Versus, “Hey, this is really cool. I also participated, and if you ever have time...” Generally, marketing tries to do context, but it comes across as clumsy and contrived. If you can do good contextual outreach, you have massive adoption.

I was just—this is not relevant to Figure at all, but just a point of curiosity: was spending on SoFi Stadium a good use of money?

I didn't make that decision. I did the first 2 Super Bowl ads. Let me tell you about the Super Bowl ads, and I'll tell you what I think about the stadium.

The first Super Bowl ad we ran was this thing called “Great Not Great,” right? It was like, “Are you great enough to get a SoFi loan? Probably not.” So it was kind of antagonistic and a little divisive.

Why do you do that?

Let me go through it. We had an experience about a year before where Yahoo wrote this piece on SoFi and said, “SoFi gives money to rich people,” or lends to rich people. Rather than that having a negative impact on our funnel, it was one of the best days we'd had up to that point in the company's history because people were like, “Well, I want to be rich.” And, you know, I'm good enough.

That sort of antagonistic aspect proved to be a very effective top of funnel. So we ran this ad, and the critics ranked the ads—I think there were 32, or whatever it was—and we were number 31. Number 32 was this irritable bowel syndrome ad where this little dude's running through your colon and gets pooped out.

Yeah.

We were one ahead of that, below everyone else. But when that ad ran, our top of funnel blew up. Unfortunately, it happened during a period when the capital markets were shut down. We literally ran out of money in 2 days. We were lending out so much.

So what do you actually do there, just as a side tangent, when you run out of money? Do you have to turn off the loans, or do you race to get—

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. So that was a very interesting demonstration of how that works.

The next year, we ran a Super Bowl ad, and this ad should have been outstanding because it happened during overtime. It was this weird thing where the NFL didn't price it right. Basically, we only paid if the ad ran, and we paid less than we normally would have paid if it were run at that time. It was just this goofy thing because everyone was watching the game, right?

We ran this ad, and it was this feel-good message, like everyone's in this together and we're going to fix our finances. You couldn't even tell we ran an ad. Nobody cares. The funnel didn't even move.

Wow.

You learn a lot. One, you're not satisfying critics; you're trying to drive your funnel. And two, let the data show what you do. It doesn't matter what you think or what you feel. If you have to go to cocktail parties and people tell you that you had the 31st-performing Super Bowl ad out of 32, so what? You're running it to get loans, in our case.

I think you guys ran an ad 6 years ago. Remember the little block, the little block character?

Blocky.

Blocky was great. How did that go?

It was great.

Really?

People loved it. I think it was the first crypto ad I ever saw—or blockchain ad. I was like, “Oh my God, we're mainstream.”

It invoked a massive debate on Reddit because somebody who didn't understand what blockchain was said, “What a horrible representation of chains and a lender. You're going to be enslaved to them.” And then someone was like, “You mean blockchain?”

It had this huge debate on Reddit, in a community called Designs That Suck or something, and people were just going off on it.

So did it move the needle?

Oh yeah. People loved Blocky.

What are your thoughts on paid marketing these days?

I think marketing's kind of interesting because, with AI, your performance marketing can basically—90-plus percent of it should just be driven through AI. AI is going to do all your channel management and all your experimentation. Whether or not it does the actual copy, I don't know. You have to think about that, but it's an important medium.

When 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, which you could also say is air cover, but it has much more value than that.

I think earned media is always going to be a person-to-person activity. Your AI bot isn't going to reach out to The Journal and try to suggest a story. I think brand— a lot of that content creation, management, and testing can be AI-driven. And I think performance is going to be almost all AI.

Tying this all back to Figure, you're not in the consumer business. You're not in the retail business right now—or you kind of are a little bit. If you have a wallet, you're fully in the retail business again.

This is the big discussion we're having about, well, how do we do that business? Is that a Figure business? Is that a business independent of Figure that Figure's an owner of? We don't know yet how that plays out.

That's one of the big concerns that we have. Figure has no aspiration to build a consumer brand. Yet we need to solve this problem, and I think this is an existential problem for the industry. If we cannot get these dollars over, then we're going to be mired in irrelevancy.

Over from private databases into public blockchains?

Yeah, from TradFi. We need to service customers, but we also need the hedge funds and the asset managers.

But why do you need people to move onto blockchains?

Well, I have a DeFi marketplace, and my team that built Hashnote loves to talk about how it's the fastest-growing RWA token ever, the largest one across any blockchain right now. We're killing it. And it's $600 million.

Right. Right.

And I'm like, “Okay. Well, yeah, I do $1.6 billion, or whatever number I do. I do a billion-plus a month through our ecosystem.” And that's not a lot.

Then with Open, with the public equity network, we need a critical mass of users over there. That's retail and these traditional institutions that don't go over there naturally. To me, this is existential. You have Ondo with their, “Hey, we've done a billion dollars of tokenized 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.

Can you tell me how you make a decision like this internally?

A lot of what we do is—I take a lot of the zero-to-one stuff, and then Mike Tanenbaum, who's Figure's CEO, takes the one-to-100, right? I'll do a bunch of stuff at once. It's not spaghetti against the wall; there's a little more method to the madness than that, but I'm testing a lot of stuff.

If I get product-market fit and traction, then I can lay it up to him, and he'll go and run with it. Generally, that's how we approach it: I'm the laboratory person, and when things come out of the laboratory, I hand them over to him.

But decisions like where the wallet code sits—those are significant board discussions and management discussions about how we deal with that.

What do you think he'll do?

I can't say yet.

4. Tokenizing Equities

Yeah, fair enough. Let's talk Open.

Sure.

And maybe more broadly, just future public equity. Tokenizing equity is this big idea right now.

We can talk about both private markets and public markets. But maybe explain Open to someone who deeply understands public markets but doesn’t care about crypto that much.

Sure. If you think about the way traditional public markets work, you have DTCC as a registry. You have a centralized exchange like Nasdaq or the NYSE. You have the multiparty settlement process that I talked about earlier—the intermediation—and you have a post-trade ecosystem that exists because you have trade breaks, failure to deliver, and all the normal stuff that happens off of that.

Primarily, you have financing either through prime brokerage or through your individual brokerage relationship, which gives you margin subject to Reg T or X, whatever the margin constraints are. You also have a securities-borrow market, and generally the prime broker sits in the middle of the borrower and lender. When stocks are on what’s called special, meaning there’s a ton of borrow demand for them, the rate to borrow those stocks could be 20%, 30%, or 40%.

The lender rarely gets that because the prime broker sits in between. You get 3% to lend, they charge me 30% to borrow, and they pick up 27 points. They make a ton of money off of this, and they’re very careful not to show how much money they make off of it.

If you’re at a brokerage like Robinhood or SoFi—and I don’t know if this is true about SoFi, but it certainly is about Robinhood—if you have $1 of borrowing, they can lend all your stock out without your permission, and they get the economics from it. So you don’t get any of that benefit.

Contrast this with a blockchain-native ecosystem, where you originate the equity on-chain, so there’s no DTCC as a registry. You trade it in what is effectively a DEX that isn’t an alternative trading system, because U.S. securities can’t trade in a marketplace if it’s not a regulated venue. But it can be an on-chain ATS.

That introduces another element to it. Certainly, you have 24/7 trading, but what’s also important is that you no longer need a broker to connect you to the exchange. You can just show up with your wallet. You’re now on the exchange, whether it’s MetaMask, Phantom, or whatever else comes down the pike.

So, Open is the ATS? Just to make sure I get it right. Open’s the whole ecosystem. And you need an ATS inside of the ecosystem.

We have an ATS where you’re trading natively. You can trade 24/7, and you can access that marketplace through a wallet, not through an introducing broker. Most importantly, you take custody of the stock, so you can do things like cross-collateralize. You can lend in DeFi versus using traditional Reg T or X margining.

More importantly, you can stand up a stock-loan marketplace that’s transparent, where you get the economics even if you’re levered.

Mhm. Right?

And that is really the single biggest driver as to why you do this: the biggest driver of putting equities on-chain is so the shareholder can directly benefit from control of stock lending.

That’s right. Interesting. I’ve never heard it described like that.

Because the way most people are doing it, they can’t do that. That’s why you do it. You have to ask yourself, “Why would I do this?” The Nasdaq works fine. Nasdaq isn’t broken. Sure, there are 7 intermediaries sitting between a buyer and seller, but generally, you don’t see that when you trade. They do a pretty good job of obfuscating it in your execution.

Most people don’t even know what DTCC is. When you’re at Schwab, Robinhood, or SoFi, and they have a trade break on the back end, you don’t see it. You have to really get to the crux of why you would do this.

I’ll give you a great illustration of why the company would do it and why the investor would do it. When we went public, right before our lockup expired, there was a heavy amount of short interest on our stock because the expectation was that when the lockup expired, there would be a massive wave of selling, or people would want to take liquidity. This has happened to every company that’s gone public in the last year. It’s not unique to us.

The short interest on the stock was 85% of the float, and it was very special, in the sense that the borrow cost was very high. I heard numbers in the 30s in terms of what that borrow cost was.

You were paying 30% to short the stock? You had to pay over 30% to borrow the stock from someone to then short it?

Because people just didn’t like you?

No, no, no. I could have taken it personally, but no. It had to do with the lockup.

Think about this dynamic. Not only are you giving your long shareholders the benefit of that, you actually create a countervailing reason to be long the stock. Holding Figure at a 30% coupon is a very different decision than holding Figure at a 3% coupon.

As a company, when it seems like all the momentum is on one side—when people are trying to short you ahead of your lockup expiry—you can create momentum on the other side. Here’s why you own it: you’re getting that coupon. Today, you don’t get it. The prime broker takes it.

That’s fascinating. Okay, so let’s use Robinhood. Isn’t there an issue here, though, which is that the places where people trade stocks are incentivized not to put things on-chain because they get paid?

Yeah, but it’s the company’s decision. This is key for us.

Robinhood’s decision.

Robinhood’s decision. It’s Apple’s or Figure’s decision in our situation. It was Figure, and we decided to put the stock out there.

So if you put your stock on-chain, all the platforms eventually have to react to that.

Here’s the challenge and how we solved it. Normally, the challenge is, “I put my stock on-chain. Great.” You have this cold-start problem for a marketplace: How do you create liquidity? Why is there going to be any liquidity there? There’s no stock there. Why is there going to be stock there? There’s no liquidity.

What we figured out how to do was swap the stock exactly 1-for-1 with the Nasdaq security. You basically brought all the Nasdaq liquidity onto the blockchain on day 1. Jump is providing liquidity across both. They’re providing the same liquidity on the blockchain that they’ll provide on the Nasdaq, because they can just arbitrage back and forth.

Right.

The stock trades within a penny of one another across the 2 exchanges because of that conversion feature.

Do you think all equities go on-chain?

Whether it’s through us or through something else, it’s going to happen in the form that I just described: native issuance on-chain. It’s not going to happen by 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 stock-borrow market is completely transparent? Or maybe that gets into a topic about private blockchains.

I’m not a fan of private blockchains.

Or, sorry, privacy.

Privacy is a little bit of a different piece, which we can talk about. You eliminate the ability to naked sell, or naked short. Theoretically, you cannot do that today, but practically, it happens all the time. There’s some benefit to that in terms of market efficiency and eliminating market manipulation, which I think is a positive.

What’s the role of a broker in this world?

If I’m E-Trade, for example, and I’m looking at this world, I’m starting to think about how I have a wallet—or whatever it’s called—for my customers to interact here and on other venues while still maintaining the relationship. In particular, I’d want a priority way to lend into those customers and lend against their collateral.

I think it’s going to force this idea of converging to that center we talked about earlier: a self-custody wallet. I think there will be lots of self-custody wallets offered. It might be a common underlying architecture and infrastructure.

Whatever we do, we’ll end up private-labeling it so E-Trade could use it and make it the E-Trade wallet, but it would still be the same underlying infrastructure.

5. The Provenance Blockchain

Yeah, that makes sense. You guys built Provenance on, I think, the Cosmos chain.

Yeah.

If you had to go back again, would you build Provenance?

We certainly needed it at the time, and this ties into the privacy aspect. Provenance was ahead of its time in privacy. Provenance is a public chain: it's decentralized, open source, and proof of stake.

But there are certain things—if I put a loan on the blockchain, I can't put your address, Social Security number, and all these things that are in the loan on a public chain and let people see them. You don't want people going on a block explorer and seeing where I live and what my Social Security number is. So what we ended up doing was creating a structure where there's an encrypted object store.

When we originate the asset, all the information that has to be private goes to the encrypted object store, and a hash of that object gets written to the chain to validate it. Ownership and so forth are 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. I don't have access to it unless you give me that access.

That was critical, and no one was doing that at the time. It made a lot of sense for us to do it. The challenge now is: where does the economic value accrue? Is it the chain or the app?

I think about this a lot. I have equity now native on blockchain. If I hadn't had a blockchain at all and I was building one right now, that equity would be the staking asset, because it's already on-chain, it's native, and it has intrinsic value. That's actually a pretty cool concept, because now you have this equity that's giving you this continuous yield, which is the gas and network fees from the protocol.

You're saying Figure equity could have been the native asset—

Yeah, to secure the chain. That would have been cool. I'm still trying to figure out how I'm going to do that, because FGRS should be able to be used as a staking asset.

So you'll try to make Figure stock—

FGRS would be the staking asset on program.

Oh, that'd be really cool. Then FIGR gives you both the idiosyncratic exposure to Figure and the macro exposure to the broader blockchain ecosystem.

What’s stopping you from doing this? You have a token today.

You can't really undo a token. That's what I'm trying to figure out. How do I swap or tender it? Or can I have the two coexist? That hasn't happened before. You can do it, but it introduces some nuances.

I'm spending a lot of time trying to figure out how I land on this, because this one's actually very important to me.

When you do something like this, are you personally trying to figure it out, or do you have your team trying to figure it out?

I'm involved, and something like this is going to involve significant legal and regulatory hoops. We work with our internal counsel and our external counsel, and we go through a bunch of stuff. We've been able to do some pretty innovative things.

Yields was a very innovative solution that worked within the current regulatory structure. Open was very innovative, too. It didn't need clarity or anything else; it worked within the current structure. I'm doing something on prediction securities that I think is very innovative later in the fall, and again, there were a lot of hoops to jump through.

Have you thought about just building it on the EVM? There are a bunch of chains that are hot right now. There's Ethereum, obviously, and Solana. Canton's getting a lot of publicity. Hyperliquid is in the news every day.

I'm not going to do anything that's detrimental to the token holders on Provenance. If I didn't care, I would. As you can imagine, a lot of these L1s are constantly soliciting us and offering us a lot.

You could get $100 million to move over?

Yeah, sure. In fact, probably more than that. I just saw a deal where a chain is paying around $150 million for a similar type of company to Figure.

At the end of the day, even though I don't have a direct fiduciary responsibility to HASH holders, I have a moral responsibility to ensure that we steward them well.

What do you think of Canton?

I think it's interesting. I like Yuval, and obviously DRW is a big backer of it. DRW is a major player in our ecosystem. I'd say Jump is the bigger player, but don't make them mad at me for saying that.

I vacillate a lot on it. I don't like getting involved in the debate about whether it's a public or private network. It is what it is. At the end of the day, we're going to have multiple L1s.

I don't think this is a—part of the problem is that right now it's such a small pie that we're all fighting for this stupid small pie. What we need to be thinking about is how we make it 100 times bigger. Then we don't care what your share is versus my share, because on an absolute basis, we're all better off.

That's the mindset we need to have. Right now, it's like, "Great, I'm the one-eyed person in the land of the blind." There just aren't enough dollars there to move the needle for anybody. As an industry, we should be collectively working to bring these TradFi users over and build this ecosystem out. Then the whole pissing match over whose L1 is best goes by the wayside.

6. Being a Public vs Private Company

Yeah, very true. It strikes me that you're trying to do all these innovative things, both on the technology side and the financial side, but you're also a public company. How much does that get in the way of trying to do this stuff?

It doesn't get in the way too much. Being a public company has been a huge asset for us. It's helped us an enormous amount in partnership negotiations.

When you're a private company and you're like, "I'm a unicorn," or "I'm a $5 company," or whatever, people are like, "Nah, sure you are." When you're a public company, you are what you are, and everyone can see it.

It's helped us with some of the larger mortgage ecosystem players by bringing a level of credibility to the table and engagement that we didn't get when we were private.

What do public investors misunderstand about Figure?

I talked about the take-rate issue. They need to be looking at contribution margin, so that's one of them. I think they also need to understand the end game of what we're trying to do, because people hear about Hashgraph, Provenance, and Demo Prime, and they're like, "I can't even keep track of all this stuff."

On the last earnings call, we laid it out. We produced a deck that has a nice visual showing the whole thing.

Kind of give people the simple visual.

Yeah. We have debt capital markets, equity capital markets, and financing markets, and all 3 are synergistic. Ultimately, they get us to an overhaul of the capital markets ecosystem.

In preparing for this episode, the business seems more confusing than it is, I think, because you're trying to do things with infrastructure that doesn't exist. You have to 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.

It is a complicated business because the capital markets are complicated. Ultimately, that's what we're trying to display.

The other thing I want to talk about that we haven't discussed yet is that, because you do so much stuff on-chain, it kind of changes investor relations. How much of your business can analysts see on a day-to-day basis?

They can see production, the amount of loans that flow through the ecosystem, and Figure Connect daily. You could probably back into roughly 90% of the business.

There are a handful of people on Crypto Twitter who've already done that. They build models that feed directly into it through the integrated block explorer. By the time you make announcements, there's not a lot of surprise.

Is this a good or bad thing?

I think it's a very good thing. It dampens the volatility around earnings, that's for sure.

It dampens the volatility. It also—and, sort of paradoxically, I agree that companies shouldn't be compelled to do quarterly reporting, because they should be able to produce real-time visibility into their business.

Mm-hmm. And so, it begs the question: What is the benefit of a quarterly report from Figure when I can see in real time what’s happening on-chain? Again, I’m not going to see certain margin information and other things, but that can be released by the company on an episodic basis. You know exactly what’s happening in terms of core growth drivers on a block explorer. Is that also a problem?

No, I think it’s great. It’s a problem because people don’t always interpret it the right way, and I’ve got to go out and correct people about how to look at the blockchain.

It’s a problem in that you always run the risk of information asymmetry, and you want everyone to have the same information at the same time. But I can tell you that some of the analysts who are very focused on the blockchain ecosystem have definitely leaned in to figure out how they access this data.

How do you think investor relations changes?

I think there’s just a higher cadence of communication. Rather than looping up 20 calls with large investors at every earnings, they just come through pretty consistently. I’ll have investors send me a note: “Hey, I looked on the block explorer, and it looks like you’ve done this. Can we get on a phone call and talk?” That’s fine.

What multiple? I saw—I think it was Matt Siegel at VanEck—post about your Rule of 40, and you’re at 140.

140, yeah.

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 to use. I’m curious: What multiple do you think the market should use for you guys?

It’s a great question. Right now, I don’t get much of a blockchain halo benefit on our multiple. Our value is really driven by the profitability of the business. I think that, building into what we think we can do long term, even though margin and profit margin are important, it’s a very unique business that’s growing rapidly.

I think the multiple should be higher. I think most of my investors believe the multiple should be higher, but again, I think there’s a lot of education that has to happen to support that.

A founder thinks the multiple should be higher. Indeed. Shocking.

7. How To Fix Tokens

I was following when you guys split the company, which seemed like a total—I’m assuming—a headache internally.

Wasn’t fun.

Yeah, I can imagine. But then you recombined it.

Also wasn’t super easy, but it was less pain and less brain damage than separating it.

Yeah, I can only imagine. What does that teach us about tokens and what’s happening in the token market right now? I was watching when you guys split it pretty closely because then you have 2 forms of value for a company that’s very interconnected. My understanding is that investors don’t like owning a token or owning a vehicle of ownership that’s very dependent on another vehicle of ownership.

Especially when one is public and one is private.

Public, and then you don’t have a private one. This happens in tokens every day. This is pretty much all tokens that exist. You have a public token that is then dependent on a private labs entity. So, what does this teach us about tokens?

I think it’s a horrible model. There was—I won’t say who—one of my venture investors, back in 2021, asked me to diligence their FTX investment. I went and looked at it, and I said, “I wouldn’t do this investment.” It had nothing to do with the fact that I thought it was fraud or whatever, and obviously the headline numbers were phenomenal. But I said, “The problem is there’s this entity you’re investing in, FTX, and then there’s another entity you can’t invest in, Alameda. The management team is pulling economics from both.”

I’d seen an incident of this maybe a decade earlier with somebody I know who had a mutual fund business and a related ancillary business. The mutual fund business jammed all its expenses into the ancillary business to arbitrage the management payout, which is, by the way, a rational thing to do when you’re in that situation. I’m not faulting them, but I said, “This is just a bad situation. You don’t want to be in this situation.”

They ended up investing anyway and lost a lot of money, and so be it. But I think that dynamic is an untenable and horrible investor dynamic. You just don’t want that.

In Figure’s situation, 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-heavy and too heavy on crypto and everything else. So, I thought, “I’m going to split it.” The irony was I wouldn’t have been able to take the split version out either because, to your point, there were these interdependencies that the market absolutely hates. The public market would puke all over it. We were fortunate that we were able to recombine it and then take the recombined business out.

Circle goes public, and people like crypto again.

Yeah, it was interesting because we started our roadshow before they had gone public, and the Goldman bankers were like, “Mike, you really have to tone down the word DeFi. You don’t want to say DeFi. It scares everybody.” Then Circle goes out and rips, and they’re like, “Mike, you really want to emphasize DeFi. It’s very important.”

Yeah, you start to realize that these public markets trade just on narratives, like token SUI, too.

Yeah, that’s funny.

What do you think crypto people misunderstand about capital markets?

I think the biggest and most obvious initial thing is just the sheer size and scope of how big the actual capital markets are and how small they are in blockchain. As I said, $12 billion of stablecoin on a DeFi protocol is immaterial. That would be the biggest protocol out there, right? We need to get $100 billion and then $1 trillion over, and then we start living in relevancy.

The second is that everyone wants to create a security and doesn’t understand what a security is. I used to get this all the time. People would be like, “I’m going to do this, this, and this.” I’d say, “Great, that’s a security.” They’d say, “Well, no, it’s not.” I’d say, “No, that is a security, and you are going to be in trouble if you do that.”

What do you think happens with tokens? Does this all just converge into 1 asset?

Yeah. This is where I go back to HASH and FGRs. It should converge into 1 asset and build the alignment. There are a whole bunch of other problems that it solves, too.

I think that’s the way we’re going to go because where does a token derive value? There are 3 reasons it has value. It has governance, which has de minimis value. It has utility, which could have meaningful value but generally doesn’t. And it has economics, which is how much of the gas and network fees you get on transactions, or MEV, or whatever your economic model is.

The tokens are effectively tantamount to equity in a company that dividends everything out every day with no cost structure, or limited cost structure. So, they really should be treated as equity.

8. What’s Next For Crypto In 5 Years?

As we think about wrapping here, can you paint the world in 5 to 10 years? If you’re correct about all of this, what changes? What does the world look like?

I think you’re going to see a massive tipping point of movement on-chain, but it’s predicated on maintaining that air cover—whether it’s clarity of legislation or benevolent regulators—because it’s very easy for us to slip back to where we were and everything’s going to stop.

For the real dollars to move over, you have to solve things like what I’m talking about in terms of getting the SoFi customers and the funds over. But the banks have to lean in and move, too. They’re still trying to figure out what all this means, whether they should care, and they’re having the same discussions. I know this because I’ve talked to them about it: “It really isn’t relevant right now. There really aren’t enough dollars on here to make a difference for us. Why do we care?”

I think that’s a little short-sighted because I think we’re going to hit a tipping point and everyone’s going to have to care. So, maybe not in 5 years, but in 10 years, we’re going to see a wholesale transition of capital markets on-chain, subject to either clarity or some way to keep the current benevolent regulatory environment going.

What’s the biggest impact that CLARITY will have?

It’ll codify the current intentions of Chairman Atkins and Commissioner Peirce and others into law, and that’s defensible for us. The interpretations aren’t defensible.

Exemptive relief can be removed, right? The only thing that has permanency is law.

Right.

Anything we missed?

No, we covered a ton. I really appreciate it.

On the founder side, I just look up to everything you've been able to build. So, yeah, congrats on everything.

I appreciate it. Thanks for having me back.