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Speaker 1: All right, welcome to another episode of the Market Disruptor Show.

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Speaker 1: I am here with founder and CEO of Block five,

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Speaker 1: Zach Prince, and Block five is one of the fast growing,

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Speaker 1: maybe leaders in this crypto lending space. We've been talking

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Speaker 1: about recently about the decentralized finance, talking about velocity of money,

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Speaker 1: unlocking capital, things like that, and they're right in the

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Speaker 1: space and we're gonna dig in ask him the questions

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Speaker 1: that you should be asking if you could. And so, anyway,

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Speaker 1: welcome to the show. Zac Hey, Mark, thanks for having me. Yeah. So,

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Speaker 1: you know, we had some conversations before and uh, and

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Speaker 1: you're kind of tell me a little bit how you

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Speaker 1: got here with crypto and into this company, and there's

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Speaker 1: really some intersections with what I talked about a lot,

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Speaker 1: So give us a little bit of background on who

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Speaker 1: you are and how you got here. Yeah. Sure, So,

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Speaker 1: you know, first off, thanks for having made uh. I

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Speaker 1: was telling you right before we hit record that I'm

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Speaker 1: a big fan of the content that you're putting out there. Um.

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Speaker 1: My background is that I've always worked in venture backed

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Speaker 1: technology companies and and most recently, prior to starting Block five,

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Speaker 1: I was in the online lending sector. Um at one

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Speaker 1: company that aggregated data for institutional investors across all of

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Speaker 1: these different online lending platforms, and a lot of these

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Speaker 1: platforms offered an option for retail participation on the platform

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Speaker 1: UH so UH you could invest in consumer loans or

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Speaker 1: commercial real estate loans, or invoice receivables UM. And I

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Speaker 1: was also tracking other parts of fintech, like grobo advisors

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Speaker 1: and things of that nature, and all my friends were

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Speaker 1: asking me about it, you know, all the time, basically,

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Speaker 1: and so I started a little blog on the side,

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Speaker 1: and that's what led me to cryptocurrency UM. I bought

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Speaker 1: my first bitcoin at the end of UH found ethereum

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Speaker 1: um early and then on the velocity of money topic,

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Speaker 1: I was actually in early seen UM planning on buying

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Speaker 1: a property in Texas that that was going to be

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Speaker 1: a rental property. And obviously, at that point in time,

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Speaker 1: cryptocurrency prices had gone up a fair amount, and I

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Speaker 1: was feeling really proud of myself for having made that investment,

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Speaker 1: and I was curious what the bank would think about

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Speaker 1: those assets and whether they would um prescribe any value

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Speaker 1: to them in terms of their underwriting decision, and so

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Speaker 1: I included bitcoin and ether as line items on my

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Speaker 1: financial statement that I submitted to a bank that I

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Speaker 1: was applying for a loan for to virus property. UM.

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Speaker 1: You know, not only did they say we think of

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Speaker 1: these as a big fat zero in terms of how

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Speaker 1: much they're worth, but they also said, uh, well, we're

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Speaker 1: gonna have to put you through some extra compliance checks

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Speaker 1: now we think you might be involved in some illicit

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Speaker 1: activity UM, that type of stuff, because there was a

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Speaker 1: lot less awareness about these types of assets back then

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Speaker 1: than there is now. UM. And that was when I

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Speaker 1: had a lightbulb moment for block Fire, and basically the

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Speaker 1: idea was that cryptocurrency was going to continue to be

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Speaker 1: a growing asset class. I started believing tremendously in some

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Speaker 1: of the you know, value propositions that these assets have,

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Speaker 1: in terms of privacy, in terms of global access to uh,

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Speaker 1: you know, venture capital like returns, or just you know,

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Speaker 1: novel assets that could appreciate a lot of value, and

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Speaker 1: eventually decided to start a company around that idea in

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Speaker 1: the summer of seventeen and that's and that's block fie UM.

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Speaker 1: We first started as as a platform where you could

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Speaker 1: borrow money supported by the value that you had in

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Speaker 1: cryptocurrency because so kind of checking that box that traditional

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Speaker 1: banks don't check. And we've expanded, you know, both the

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Speaker 1: products and services that we offer since then and also

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Speaker 1: our vision for what we think the company can become

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Speaker 1: over time. Now, you came from, like you said, fintech

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Speaker 1: financial technology UM, and you were working in the peer

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Speaker 1: to peer lending space UM. And did you transition straight

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Speaker 1: for them that into Block five? Yes, So I worked

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Speaker 1: at I worked at two different companies in that space,

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Speaker 1: one Orchard, where we were a data aggregator and and

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Speaker 1: technology provider to institutional investors that were buying loans or

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Speaker 1: lending directly to all of the major platforms Lending Club,

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Speaker 1: so FI, prosper Funding Circle, et cetera. I think we

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Speaker 1: had around two hundred different online lenders in our database

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Speaker 1: and on our system. And then our institutional clients were banks,

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Speaker 1: large credit funds, large family offices, all different types of

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Speaker 1: institutional capital that we're we're buying loans from those places.

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Speaker 1: And I also spent about two years at a at

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Speaker 1: a consumer lender called ziby that UH finances large ticket

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Speaker 1: retail purchases at the point of sale for UM individuals

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Speaker 1: who have low FICO scores or no FICO score because

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Speaker 1: they're they're not a US citizen, that type of thing,

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Speaker 1: and then started block five. Do you think this disrupts

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Speaker 1: the peer to peer lending space? I think that, um,

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Speaker 1: there are you know, learnings from peer to peer lending

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Speaker 1: that can be applied to building businesses. Um in the

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Speaker 1: cryptocurrency lending space. Uh, but I think it's pretty different.

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Speaker 1: So a lot of the things that you know happened

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Speaker 1: in in the peer to peer lending world, we're based

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Speaker 1: on credit scores or financing different assets like real estate

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Speaker 1: or invoices or equipment. Um. So I actually think that

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Speaker 1: structurally it's more comparable to like like brokerage lending, so

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Speaker 1: you know, margin lending or liquidity access lines from the

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Speaker 1: you know, public equities worlds than it is analogous to

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Speaker 1: peer to peer lending structurally, I'm not. I mean, I'm

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Speaker 1: not super familiar with peer to peer lending markets as

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Speaker 1: I haven't been an active user. Um, I'm aware of it,

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Speaker 1: I've done research on it. I know how big it is,

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Speaker 1: and even in other countries like in China, got really

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Speaker 1: big and got kind ahead of itself. But when you

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Speaker 1: have companies that are kind of essentially controlling that. Are

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Speaker 1: you really doing peer to peer like a person to

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Speaker 1: person and someone's in the middle managing that or is

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Speaker 1: it really kind of not so it's more like portfolio

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Speaker 1: lending or something. I think it depends a little bit

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Speaker 1: on the implementation from the platform. So for example, like

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Speaker 1: on lending Club, which is the largest peer to peer

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Speaker 1: lending platform in the US UM currently, only about ten

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Speaker 1: percent of the loans that Lending Club makes are financed

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Speaker 1: peer to peer, meaning there's a retail individual on the

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Speaker 1: other end who's providing the capital that goes towards making

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Speaker 1: that loan, and it's completely centralized in the sense that

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Speaker 1: lending Club is always making the loan. From a regulatory perspective,

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Speaker 1: lending Club is controlling the decision about who gets approved

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Speaker 1: for a loan and at what price UM. And then

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Speaker 1: there's other types of you know, peer to peer lending

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Speaker 1: implementations um at our different variations on that on that

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Speaker 1: same on that same theme, Yeah, I was just curious

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Speaker 1: how this model kind of fits because obviously, with black

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Speaker 1: y I could loan or borrow, but it's not peer

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Speaker 1: to peer, right, So I'm kind of going in with

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Speaker 1: the company and then the company is kind of acting.

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Speaker 1: So I guess it's similar to what the P twop

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Speaker 1: industry is doing. But the good piece of it, which is,

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Speaker 1: you know, I constantly state, you know how, the importance

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Speaker 1: of being an investor because we need those returns. And

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Speaker 1: with P two P or what you guys are doing,

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Speaker 1: you're really giving people the option to to loan to

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Speaker 1: make money right above above average interest. Yeah, that's exactly right.

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Speaker 1: I mean, the exciting thing about peer to peer lending

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Speaker 1: and about UM you know, one of block five's products

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Speaker 1: that that enables you to earn interest on your crypto

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Speaker 1: holdings is that it's a channel to make more money

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Speaker 1: that didn't necessarily exist before. UM. The things that people

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Speaker 1: got excited about from the peer to peer lending sector

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Speaker 1: were the opportunities for portfolio diversification and income generation. Uh,

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Speaker 1: and the bill to access those um even with you know,

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Speaker 1: a one thousand or five thousand or ten thousand dollar investment,

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Speaker 1: and that simply just didn't exist before that industry came around. Yeah.

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Speaker 1: Now block fight kind of has two different products in

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Speaker 1: a sense, right where either one I could borrow money

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Speaker 1: against my crypto holdings or two I could just park

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Speaker 1: them and received like above average above market interest or

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Speaker 1: something like that. That right, that's that's exactly right. UM. So,

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Speaker 1: if you have bitcoin or ether, you can open up

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Speaker 1: a block fight account and earn interest the same way

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Speaker 1: that you earn interest in a savings account from a bank, um,

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Speaker 1: except without like f d i C insurance and some

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Speaker 1: of those like banking protections that exist from the federal government. Um.

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Speaker 1: But you earn interest in the asset that you've deposited.

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Speaker 1: The interest is paid every month, and once the interest

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Speaker 1: is paid to you, it becomes part of your balance

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Speaker 1: and therefore your earning compound interest on the balances that

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Speaker 1: you hold with Block five. At the same time, you

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Speaker 1: have the ability to borrow US dollars against the value

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Speaker 1: of that cryptocurrency that you have with Block five at

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Speaker 1: rates as low as four point five percent per year UM.

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Speaker 1: And when we do that, those loans are structured as

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Speaker 1: interest only loans. UH. So, if you, you know, borrow

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Speaker 1: ten thousand dollars at at four point five percent a year,

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Speaker 1: your monthly payment would be you know, four and fifty

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Speaker 1: dollars divided by twelve uh and then you can pay

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Speaker 1: back the principle either at the end of that term

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Speaker 1: or at a later date. And the reason I mentioned

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Speaker 1: that structure is because for certain types of investing, specifically

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Speaker 1: cash flow type investing in some of the velocity of

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Speaker 1: money barbage rousers that you talk about in one of

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Speaker 1: your other videos, where you're borrowing it for and investing

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Speaker 1: in something that earns ten that interest only repayment structure

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Speaker 1: can be really valuable in terms of getting incremental leverage

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Speaker 1: from the cash flow that you're producing. Yeah, So for

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Speaker 1: those of you on the podcast that maybe haven't watched

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Speaker 1: the videos, we're talking about the concept of velocity of

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Speaker 1: money where one dollar can do multiple jobs. So I

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Speaker 1: can put into one account UM and pull it back

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Speaker 1: out while it's still parked their earning interest, and then

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Speaker 1: put it to another job. So for example, I could

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Speaker 1: take my crypto. I could take my bitcoin UM that

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Speaker 1: has gone up a hundred and fifty percent this year UM,

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Speaker 1: and I could borrow against it. I'm paying four percent

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Speaker 1: annually or four and a half percent annually, but hopefully

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Speaker 1: making a percent annually, and then I can redeploy that

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Speaker 1: money into now another asset, So for example, a piece

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Speaker 1: of real estate like like Zach you mentioned in Texas,

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Speaker 1: I could put into a piece of real estate. Now

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Speaker 1: that hopefully I'm making seven on that. So now that

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Speaker 1: one dollars do a multiple jobs. So catching you guys

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Speaker 1: up on the velocity of money. Now, I love that concept.

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Speaker 1: I always say Warren Buffett said, right, if if we

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Speaker 1: don't learn how to make money when we sleep, will

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Speaker 1: work till the day that we die. So it's all

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Speaker 1: about putting that money to work. And totally is makes

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Speaker 1: perfect sense because of the app because crypto is all

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Speaker 1: about invested into a technology that needs to be developed.

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Speaker 1: It's gonna take years, so we want to hodel. But

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Speaker 1: being able to unlock that value UM is important. So

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Speaker 1: you have those two different products, who are the people

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Speaker 1: that would want either one of those products? And who

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Speaker 1: do you typically see coming in? Is that like institutions?

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Speaker 1: Is that retail people? Like what do you see? Yeah?

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Speaker 1: Great question. So we think of our core client as

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Speaker 1: being retail UM. So it's it's primarily individuals. We do

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Speaker 1: have some small corporates that are that are also clients.

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Speaker 1: So for example, a company that did an I c

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Speaker 1: O and hold some crypto on their balance sheet or

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Speaker 1: mining operations UM. But we also have his clients. But

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Speaker 1: the platform is really built for retail, and we think

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Speaker 1: of retail as being our our core customer. There are

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Speaker 1: things that we do in the institutional market to facilitate

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Speaker 1: the products that we're delivering to our core retail client.

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Speaker 1: It so, for example, when we're lending dollars at four

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Speaker 1: point UM, that capital is coming from an institutional lending

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Speaker 1: facility that that that Block five has UM. When we're

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Speaker 1: paying interest on bitcoin or ether deposits, the interest is

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Speaker 1: generated by Block five lending bitcoin or Ether two institutional borrowers.

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Speaker 1: But we think of those functions as being things that

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Speaker 1: enable the delivery of the products to our to our

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Speaker 1: core retail customer. And we have customers primarily in the

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Speaker 1: US today. It's about our client base. Is uh is

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Speaker 1: here in the United States? Outside the US? Now? Um?

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Speaker 1: Is that is it because that you're more retail focused?

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Speaker 1: I think on your terms, do you pay like less

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Speaker 1: interest on larger balances? Right? So like smaller accounts get

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Speaker 1: more and larger accounts get less? Is that right? That's

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Speaker 1: that's correct. It doesn't seem it seems like I should

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Speaker 1: be getting more for larger balances. Yeah, and in traditional markets, um,

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Speaker 1: you absolutely do. Um. The differences about the cryptocurrency market

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Speaker 1: right now that that drive that are that, Uh, the

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Speaker 1: market to borrow cryptocurrency is nasan and undeveloped, and there's

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Speaker 1: not a risk free rate of return that exists on

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Speaker 1: bitcoin the same way that there is on a fiat currency. UM.

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Speaker 1: So when we initially launched the product that enables you

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Speaker 1: to earn interest publicly in March um we saw an

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Speaker 1: influx of deposits and in general right now, if you

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Speaker 1: just looked at the entire market of cryptocurrency and said, okay,

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Speaker 1: how many people are interested in earning interest and how

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Speaker 1: many are interested in borrowing, you would have an imbalance

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Speaker 1: there where there's a lot more interest in earning the

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Speaker 1: interest than there is interest in borrowing in that asset,

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Speaker 1: at least today, because the market is still nascent. So

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Speaker 1: the reason we implemented that structure is that we wanted

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Speaker 1: to be able to offer an attractive interest rate to

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Speaker 1: as many unique customers as as possible and put a

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Speaker 1: little bit of a gating factor on how attractive this

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Speaker 1: was to institutions or two particularly large holders of cryptocurrency.

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Speaker 1: But the limits right now are are still pretty high

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Speaker 1: from a retail perspective, So from for example, on Bitcoin,

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Speaker 1: you earn a six percent interest rate on a deposit

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Speaker 1: of up to twenty five bitcoin, which at current prices

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Speaker 1: is right around uh just under a quarter million U

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Speaker 1: S dollars equivalent, and on Ether it's a hundred ether,

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Speaker 1: which is um around. So you kind of want to

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Speaker 1: your more retail focus because you're a little bit more diversified.

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Speaker 1: I see you have like, uh, no limits on when

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Speaker 1: I can deposited withdraw, so I could imagine a huge

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Speaker 1: withdraw could really affect you. So maybe by being more retail,

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Speaker 1: keeping that mouth down, you're more diversified against that. That's

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Speaker 1: that's a great that's a great point, and it's another

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Speaker 1: factor of consideration from a risk management perspective. UM we

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Speaker 1: benefit from diverse k and both in terms of our

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Speaker 1: depositor base and in terms of our borrowing base. UM

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Speaker 1: the other factors that we plan on launching additional products

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Speaker 1: in the future. So from a UM you know, corporate

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Speaker 1: business development perspective, at Block five, we benefit from having

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Speaker 1: more users on the platform because when we launch things

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Speaker 1: in the future, like you know, the ability to earn

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Speaker 1: interest on your bitcoin in dollars or a crypto rewards

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Speaker 1: credit card. Having more people on our platform that could

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Speaker 1: also potentially use those subsequent products, is really valuable to us. Yeah,

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Speaker 1: makes sense, makes sense. I want to get into that

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Speaker 1: a little bit more later, but I want to ask

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Speaker 1: one other question, so again, back onto, back onto the

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Speaker 1: velocity of money, having one dollar to multiple jobs. I

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Speaker 1: talked about like a whole life insurance vehicle where I

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Speaker 1: could make eight percent borrow against the four or a

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Speaker 1: house where I could borrow back out at four but

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Speaker 1: I'm making ten. So there's that arbitrage spread. Now, I

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Speaker 1: notice you you pay the difference of what I can

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Speaker 1: borrow against or what I can earn. There's about a

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Speaker 1: two percent to whatever percent spread. Um, Is there an

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Speaker 1: arbitrage play or no, I have to choose one or

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Speaker 1: the other. There's there's not as clear cut of an

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Speaker 1: arbitrage play as in the examples that you describe. And

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Speaker 1: the primary reason is that, UM, it's two different currencies.

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Speaker 1: So we've got bitcoin in dollars in the in the

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Speaker 1: block fire example versus just dollars in the example of

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Speaker 1: you know a house where you're making other investments. UM.

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Speaker 1: And the other reason is that when you're borrowing dollars

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Speaker 1: from blocked by the collateral that you're using to secure

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Speaker 1: those dollars that you're borrowing is not still earning interest. UM.

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Speaker 1: But you know there are you know, arbitrage opportunities that

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Speaker 1: are that are created on the fact that you know,

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Speaker 1: we're paying interest on crypto and on the fact that

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Speaker 1: you can get access to USD from a velocity of

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Speaker 1: money perspective. Got it? Okay, good, Now we'll get into

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Speaker 1: some tough questions, right, the stuff that the stuff that

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Speaker 1: people should hopeful to be asking and and uh, like

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Speaker 1: you said, you saw some of my videos and and uh,

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Speaker 1: I wanted to kind of talk about UM. I talked

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Speaker 1: about the lending aspect, and I said, hey, you know,

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Speaker 1: obviously there's risk. Everything in life has risk, Right, If

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Speaker 1: I do something, there's risk. If I don't do something,

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Speaker 1: there's risk. UM And so what are UM I guess

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Speaker 1: some of the risk that people would have obviously would

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Speaker 1: be giving their money up. Now, as you mentioned giving

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Speaker 1: it to a bank, there's fd I C insurance because

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Speaker 1: they're holding my deposits. Now there are risks, the risk

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Speaker 1: are very low, which is why the interest rate is

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Speaker 1: super low. Obviously, now I'm going to get a higher

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Speaker 1: interest rate return. But I would imagine there's higher risk. UM.

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Speaker 1: Can you talk about some of those that maybe people

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Speaker 1: should be aware of and what you do to kind

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Speaker 1: of d risk that. Yeah, absolutely so UM. At a

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Speaker 1: high level, you can bucket the risk into in the

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Speaker 1: three separate categories. So there's UH, fraud risk, security risk,

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Speaker 1: and credit risk. UM. The fraud risk is UH. You know,

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Speaker 1: anyone who's followed crypto for a while, it might be

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Speaker 1: familiar with like the big cone. UH. You know that

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Speaker 1: for for better or worse, there have been some, UM,

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Speaker 1: some shady characters in the cryptocurrency industry. There's been some scams,

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Speaker 1: and there have been, you know, quite a few of

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Speaker 1: those scams that had to do with this concept of

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Speaker 1: like earn one percent interest per day, that type of thing.

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Speaker 1: It sounds right, if it sounds good to be true,

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Speaker 1: it absolutely is. We're definitely you know, I can I

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Speaker 1: can guarantee that there's a zero percent risk that UM,

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Speaker 1: that that we are in that bucket UH. And you

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Speaker 1: know the way that you can verify that is by

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Speaker 1: simply looking at the types of investors and backers that

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Speaker 1: we have for the company. UM. Groups like Fidelity and

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Speaker 1: Galaxy Digital and and other noteworthy kind of venture institutional

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Speaker 1: type investors who you know obviously put us through a

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Speaker 1: ton of diligence before before they make any of those investments. UM.

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Speaker 1: Second risk security risk. UM we mitigate the security risk

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Speaker 1: largely via a partnership with Jim and I. UM. So

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Speaker 1: the other thing you have to be cognizant of in

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Speaker 1: the cryptocurrency industry is is uh not having the private

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Speaker 1: keys you know, hacked or or stolen from yourself or

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Speaker 1: uh the entity that you're storing them with. UM Gemini

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Speaker 1: is our is our custodial partner. They have insurance on

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Speaker 1: all of the assets that are held on their platform.

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Speaker 1: They were the first custodian to get a sack to audit,

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Speaker 1: which is like a bank level security UM audit, and

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Speaker 1: they have a perfect track record with with zero losses

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Speaker 1: in terms of custody billions of dollars of crypto for

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Speaker 1: many years now. UM. The last risk is probably the

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Speaker 1: one that that we could do a whole separate you know,

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Speaker 1: thirty minute or an hour long show on if we

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Speaker 1: wanted to really get into the weeds of it. But

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Speaker 1: it's that credit risk part, just the big money and there,

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Speaker 1: and there's two components to the credit risk. So there's

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Speaker 1: UM the counterparty risk that you're taking to Block five.

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Speaker 1: So you know, is Block five well capitalized enough to

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Speaker 1: continue operating its business? Does Block five have the proper

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Speaker 1: say guards and separations of capital between our funds and

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Speaker 1: our and our customers funds UM. That's one part of

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Speaker 1: the risk UH. And and the other part of the

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Speaker 1: credit risk is the pool of borrowers that we're lending

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Speaker 1: the crypto to UM. Who are they, how well capitalized

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Speaker 1: are they, how much collateral are they posting to Block

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Speaker 1: five UM? And So just to touch on a couple

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Speaker 1: of quick details on both of those points, and then

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Speaker 1: we can we can go deeper in it or switch

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Speaker 1: to another topic whatever you prefer. UM. In terms of

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Speaker 1: the Block five side, so we have a number of

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Speaker 1: operational and financial UH rails in place at the company

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Speaker 1: UM that would raise flags or prevent any one person

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Speaker 1: from taking actions that would blur the line between our

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Speaker 1: customers funds UH and our own corporate you know, equity

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Speaker 1: capital UM. And then in terms of who the pool

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Speaker 1: of a wards that we're lending to our UH, we

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Speaker 1: have a team UM that's that's headed up by a

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Speaker 1: former managing director of prime brokeridge at Bank of America

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Speaker 1: Merrill Lynch, who uh lent for you know, fifteen plus

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Speaker 1: years there and and never lost a penny, including throughout

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Speaker 1: two thousand and eight and two thousand nine. UM. And

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Speaker 1: we on board every barrow. We're through both a counterparty

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Speaker 1: credit risk framework and then a required collateralization level. UM.

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Speaker 1: So for example, uh, if a borrower of cryptocurrency doesn't

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Speaker 1: have a minimum net worth of as a general rule,

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Speaker 1: fifty million UM, then we would always require over collateralization,

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Speaker 1: meaning we would lend them a million dollars a bitcoin,

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Speaker 1: but they give us one point to five million dollars

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Speaker 1: in USD or stable coin. And then in that scenario

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Speaker 1: where we're overcollateralized with dollars, we're using the same risk

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Speaker 1: management system that's been operational for the us D ending

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Speaker 1: side of our of our product stack since January, and

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Speaker 1: we've uh, you know an either product never had a

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Speaker 1: late payment or a loss or any legal issues. So

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Speaker 1: our performance has has been perfect today. UM, I'll positive,

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Speaker 1: but I'm having to drill in deeper. So UM it

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Speaker 1: sounds like the big risk on that would be if

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Speaker 1: the market were to crash so fast that you couldn't

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Speaker 1: cover the collateral. That could be a problem. Now you

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Speaker 1: mentioned earlier that you really want to focus on the

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Speaker 1: main coins that have a lot of liquidity. We did

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Speaker 1: see recently with Polonias they had a problem right where

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Speaker 1: one of their coins had no liquidity and they lost

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Speaker 1: a lot of money, and then they basically socialized those

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Speaker 1: losses and made everyone take like a sixteen percent haircut. Um,

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Speaker 1: But you don't really have that because you're working on

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Speaker 1: more highly collateral or highly high liquidity coins. But I

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Speaker 1: guess that would be one risk, right, Um, that's absolutely

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Speaker 1: one risk. We actually UH evaluated UH lending on on

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Speaker 1: polonia x as as a potential channel for us UH

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Speaker 1: and couldn't get comfortable with some of the assets that

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Speaker 1: they had on there. So fortunately we we got that

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Speaker 1: one right um. And from a capital stack perspective, right now,

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Speaker 1: our our equity and any employee contributions into the interest

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Speaker 1: account our junior to our customers funds um. So so

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Speaker 1: as it stands today, UH, we would you know, we

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Speaker 1: would kind of close the doors at block five before

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Speaker 1: we socialized any losses into our our pool of customer

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Speaker 1: funds that are that are in the interest account. So

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Speaker 1: For example, you had done the poloniax deal, you had

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Speaker 1: taken a six hair cut. You're saying Block five would

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Speaker 1: be ready to take that loss as opposed to trying

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Speaker 1: to push it into everybody else. Correct, we would have

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Speaker 1: eaten it. And uh to give you another data point

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Speaker 1: which would be helpful. So like, even if we were

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Speaker 1: lending on poloni x, um that exposure would be maximum

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Speaker 1: five percent of our total lending activity. Uh So the

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Speaker 1: haircut relative to Block five's pool of capital that it's

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Speaker 1: lending an aggregate would be uh, you know five percent times.

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Speaker 1: I can't do that math in my head. Um. And

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Speaker 1: then and then yes, we would, we would. We would

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Speaker 1: take that loss out of out of our equity capital

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Speaker 1: rather than socialize it. Got it. Now, I'm guessing the

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00:24:23,400 --> 00:24:26,280
Speaker 1: funds are co mingled, so there's really no separation there

433
00:24:26,359 --> 00:24:30,200
Speaker 1: is that correct? Correct, everything's co mingled once it hits

434
00:24:30,240 --> 00:24:32,479
Speaker 1: Jim and I. The way the system works is that

435
00:24:32,840 --> 00:24:35,399
Speaker 1: we create a unique deposit address that maps one to

436
00:24:35,480 --> 00:24:38,199
Speaker 1: one with each one of our customers. We monitor the

437
00:24:38,200 --> 00:24:43,840
Speaker 1: blockchain to record activity into anyone customer's account, but when

438
00:24:44,160 --> 00:24:48,040
Speaker 1: crypto is sent to a customer's unique address, it's instantly

439
00:24:48,160 --> 00:24:52,000
Speaker 1: swept into a master custodial account with Jim and I

440
00:24:52,440 --> 00:24:56,399
Speaker 1: and then into cold storage per their uh you know,

441
00:24:56,400 --> 00:25:00,240
Speaker 1: treasury management function. Is there some sort of like uh

442
00:25:00,400 --> 00:25:03,119
Speaker 1: you SEC filing or something that shows that I have

443
00:25:03,240 --> 00:25:05,159
Speaker 1: something there in case creditors were to come in and

444
00:25:05,160 --> 00:25:11,480
Speaker 1: shut down or something like that. Who there's not. Um,

445
00:25:11,560 --> 00:25:14,160
Speaker 1: there's not a U c C filing when you deposit

446
00:25:14,200 --> 00:25:19,400
Speaker 1: into the interest account. No, okay, but you did say

447
00:25:19,440 --> 00:25:22,879
Speaker 1: that that that all the lenders are senior to the

448
00:25:22,920 --> 00:25:25,680
Speaker 1: other debts, so in event of some sort of liquidation,

449
00:25:25,760 --> 00:25:31,439
Speaker 1: the senior would get the money first. I guess, right, correct. Okay,

450
00:25:32,000 --> 00:25:34,240
Speaker 1: Well that's at least that's at least good. Um, but

451
00:25:34,280 --> 00:25:36,119
Speaker 1: good stuff there. Now, those are the tough questions. I

452
00:25:36,160 --> 00:25:38,320
Speaker 1: appreciate you for going into that. Like you said, we

453
00:25:38,320 --> 00:25:40,680
Speaker 1: could probably dig in deeper. But I think that's that's

454
00:25:40,680 --> 00:25:44,280
Speaker 1: pretty good. Um. I'm curious about the future of block buying.

455
00:25:44,920 --> 00:25:48,560
Speaker 1: So I've seen other platforms like next so for example,

456
00:25:48,680 --> 00:25:53,479
Speaker 1: right returning profits back to token holders. Um Celsius has

457
00:25:53,520 --> 00:25:56,840
Speaker 1: a token. You guys don't have a token. Um, let's

458
00:25:56,840 --> 00:25:59,480
Speaker 1: maybe talk about the future. Is there some sort of

459
00:25:59,480 --> 00:26:02,359
Speaker 1: profit share in the down the road or token or

460
00:26:02,400 --> 00:26:07,680
Speaker 1: something like that. UM, highly unlikely that that will ever

461
00:26:07,760 --> 00:26:10,560
Speaker 1: have a token. UH if we if we did do

462
00:26:10,640 --> 00:26:13,520
Speaker 1: something similar to that, it would be more like UM,

463
00:26:13,560 --> 00:26:17,760
Speaker 1: you know, offering access to a subsequent equity UH funding

464
00:26:17,880 --> 00:26:22,119
Speaker 1: round on a equity crowdfunding platform like a bank to

465
00:26:22,160 --> 00:26:25,879
Speaker 1: the future like what kracking just did, or or some

466
00:26:25,960 --> 00:26:28,399
Speaker 1: of the others like seed Invests, which is owned by

467
00:26:28,440 --> 00:26:33,359
Speaker 1: Circle UM. So you know, no token, We think that

468
00:26:33,359 --> 00:26:36,679
Speaker 1: that value should just be passed through to you know,

469
00:26:36,800 --> 00:26:39,959
Speaker 1: offering the best rates. UM. What you'll see from us

470
00:26:39,960 --> 00:26:44,199
Speaker 1: in terms of platform development UH is continued improvement on

471
00:26:44,240 --> 00:26:46,240
Speaker 1: the on the products that we already have in terms

472
00:26:46,280 --> 00:26:50,080
Speaker 1: of features and functionality and visualizations UM, and then we

473
00:26:50,119 --> 00:26:54,119
Speaker 1: plan on launching two additional products over the next year. UM.

474
00:26:54,160 --> 00:26:57,960
Speaker 1: The first is the ability to kind of do asset

475
00:26:58,040 --> 00:27:02,119
Speaker 1: conversion on our platform, so for example, UH selecting the

476
00:27:02,160 --> 00:27:05,359
Speaker 1: asset that you want to earn your interest in regardless

477
00:27:05,359 --> 00:27:09,320
Speaker 1: of what asset you've deposited. So for example, you've deposited bitcoin,

478
00:27:09,359 --> 00:27:11,320
Speaker 1: but you want to earn interest every month in dollars

479
00:27:11,480 --> 00:27:14,879
Speaker 1: or UH the other way around. UM. And also just

480
00:27:14,920 --> 00:27:19,640
Speaker 1: being able to UH manage a targeted portfolio allocation within

481
00:27:19,680 --> 00:27:22,119
Speaker 1: our platform versus having to move assets off of our

482
00:27:22,160 --> 00:27:25,840
Speaker 1: platform to uh, you know, exchange them for other assets

483
00:27:25,880 --> 00:27:28,840
Speaker 1: somewhere else. And then in the first half of next year,

484
00:27:28,880 --> 00:27:32,480
Speaker 1: we expect to launch a bitcoin rewards credit card where

485
00:27:32,840 --> 00:27:35,600
Speaker 1: you know, just swap airline miles or normal cash back

486
00:27:35,640 --> 00:27:39,560
Speaker 1: on a credit card out for one cash back uh

487
00:27:39,640 --> 00:27:42,840
Speaker 1: in in bitcoin, based on how much you're spending on

488
00:27:42,880 --> 00:27:45,200
Speaker 1: the card. So that's kind of our you know, immediate

489
00:27:45,280 --> 00:27:49,840
Speaker 1: roadmap that that we we're focused on. Very cool, very cool. Um.

490
00:27:49,880 --> 00:27:54,119
Speaker 1: What do you think about regulations and how that puts

491
00:27:54,200 --> 00:27:57,320
Speaker 1: risk for the company? Block flight risk, not you know,

492
00:27:57,359 --> 00:27:59,080
Speaker 1: credit or risk as you said that, So it's a

493
00:27:59,119 --> 00:28:01,600
Speaker 1: fourth one that we didn't cover, but regulatory risk. So

494
00:28:02,080 --> 00:28:04,600
Speaker 1: um for those that have been living under a rock

495
00:28:04,640 --> 00:28:07,760
Speaker 1: the last twenty four hours, uh facebook coin announced their

496
00:28:07,760 --> 00:28:10,520
Speaker 1: coming out and now several big governments are saying no,

497
00:28:10,600 --> 00:28:16,800
Speaker 1: you're not right, um right or something like that. What

498
00:28:16,960 --> 00:28:18,760
Speaker 1: do you think about that and what kind of risk

499
00:28:18,840 --> 00:28:22,560
Speaker 1: is that posed for you? Yes, so I think, um,

500
00:28:22,800 --> 00:28:25,760
Speaker 1: I think we've taken a very different approach, for example,

501
00:28:25,800 --> 00:28:28,800
Speaker 1: than than uh than others like Celsius and next so

502
00:28:28,840 --> 00:28:32,639
Speaker 1: who you mentioned, um, you know, we came from the

503
00:28:32,680 --> 00:28:35,479
Speaker 1: fintech world. Started the company in the summer of seventeen

504
00:28:35,480 --> 00:28:37,920
Speaker 1: in the middle of the I c oh boom and

505
00:28:37,920 --> 00:28:39,800
Speaker 1: and one of the reasons, and they were multiple, but

506
00:28:39,880 --> 00:28:43,120
Speaker 1: one of the reasons why we elected to not finance

507
00:28:43,520 --> 00:28:47,360
Speaker 1: the company's operations by conducting a token sale was we

508
00:28:47,480 --> 00:28:51,400
Speaker 1: felt that would put a level of um regulatory uncertainty

509
00:28:51,400 --> 00:28:55,080
Speaker 1: and regulatory risk on on the company that wasn't necessarily

510
00:28:55,200 --> 00:29:00,600
Speaker 1: value add to our users. UM. So, you know, we

511
00:29:00,800 --> 00:29:03,560
Speaker 1: The other thing that we did is we've had a

512
00:29:03,640 --> 00:29:05,880
Speaker 1: k y C and a m L policy from day one.

513
00:29:06,560 --> 00:29:12,200
Speaker 1: We have gotten licenses to uh operate the lending activities

514
00:29:12,240 --> 00:29:14,200
Speaker 1: that we're doing in the states that we need them

515
00:29:14,200 --> 00:29:16,800
Speaker 1: from day one, which you know, we've got some battle

516
00:29:16,840 --> 00:29:21,440
Speaker 1: scars from that from back in like explaining explaining why

517
00:29:21,520 --> 00:29:24,000
Speaker 1: making someone alone secured by the value in their bitcoin

518
00:29:24,080 --> 00:29:27,600
Speaker 1: wasn't illegal to you know, the state regulators of California,

519
00:29:27,680 --> 00:29:31,280
Speaker 1: for example. UM. But we hold lending licenses, we update them,

520
00:29:32,120 --> 00:29:36,360
Speaker 1: we're sharing information with with the necessary regulators. UM. So

521
00:29:36,440 --> 00:29:39,120
Speaker 1: we sleep pretty pretty well at night, uh in terms

522
00:29:39,160 --> 00:29:42,760
Speaker 1: of the regulatory risk frankly, UM, but I think for

523
00:29:42,760 --> 00:29:48,680
Speaker 1: for the sector overall, uh, Yeah, for the sector overall.

524
00:29:48,880 --> 00:29:52,400
Speaker 1: Um I feel like bitcoins in a great spot. I

525
00:29:52,440 --> 00:29:56,360
Speaker 1: feel like ethereums in a great spot, at least in

526
00:29:56,400 --> 00:30:00,120
Speaker 1: the US market. Maybe in other markets, especially market that

527
00:30:00,200 --> 00:30:03,360
Speaker 1: have weaker currencies, they could be they could be a

528
00:30:03,400 --> 00:30:08,880
Speaker 1: bit more at risk. Um And. I think governments are

529
00:30:08,920 --> 00:30:12,600
Speaker 1: really not gonna like libra coin um and. And the

530
00:30:12,640 --> 00:30:14,960
Speaker 1: reason is that, like with with Bitcoin and the hereum,

531
00:30:14,960 --> 00:30:18,000
Speaker 1: they're really they're really not, at least today, trying to

532
00:30:18,040 --> 00:30:21,320
Speaker 1: go at the core of what a government currency is

533
00:30:21,360 --> 00:30:25,160
Speaker 1: going after um or at least they're not successful enough

534
00:30:25,200 --> 00:30:27,720
Speaker 1: at it yet for for a major government to think

535
00:30:27,720 --> 00:30:31,080
Speaker 1: that it's a risk to them. Uh. Whereas libra coin

536
00:30:31,280 --> 00:30:34,480
Speaker 1: is basically designed the same way as like the special

537
00:30:34,560 --> 00:30:36,600
Speaker 1: drawing rights of the i m F, where it's like,

538
00:30:37,040 --> 00:30:38,760
Speaker 1: if something were to happen, the i m F would

539
00:30:38,800 --> 00:30:41,560
Speaker 1: have the ability to take the basket of currencies that

540
00:30:41,600 --> 00:30:44,719
Speaker 1: it's holding an issue a new currency. And that's basically

541
00:30:44,720 --> 00:30:47,120
Speaker 1: what Facebook is trying to do. And Facebook is already

542
00:30:47,160 --> 00:30:50,040
Speaker 1: on somewhat shaky ground because of the privacy and data stuff.

543
00:30:50,560 --> 00:30:55,240
Speaker 1: Um So I think that one's gonna get I think

544
00:30:55,240 --> 00:30:58,160
Speaker 1: it's gonna have a lot of governmental challenges it's obviously

545
00:30:58,240 --> 00:31:00,120
Speaker 1: not going to be decentralized from day one, which is

546
00:31:00,160 --> 00:31:03,920
Speaker 1: another which is another problem that it faces. But I

547
00:31:03,920 --> 00:31:07,920
Speaker 1: think that for bitcoin, UM, it's gonna be on a

548
00:31:07,920 --> 00:31:10,200
Speaker 1: great path. I think good things are going to continue

549
00:31:10,200 --> 00:31:13,600
Speaker 1: to happen in the US and other major markets. I

550
00:31:13,600 --> 00:31:16,200
Speaker 1: think there's gonna be this snowball effect that that has

551
00:31:16,240 --> 00:31:21,640
Speaker 1: continued even throughout the bear market of UH institutional adoption UM,

552
00:31:21,680 --> 00:31:24,360
Speaker 1: which ultimately, you know, at some point in the future

553
00:31:24,400 --> 00:31:28,440
Speaker 1: will lead to UH government adoption in some way, shape

554
00:31:28,480 --> 00:31:30,880
Speaker 1: or form. You'll have a central bank, a small one initially,

555
00:31:31,120 --> 00:31:33,120
Speaker 1: but you'll have a central bank putting bitcoin on its

556
00:31:33,120 --> 00:31:36,280
Speaker 1: balance sheet, and then that's going to create this massive snowball.

557
00:31:36,360 --> 00:31:39,360
Speaker 1: So you know, I'm really bullish on on bitcoin. Yeah, yeah,

558
00:31:39,400 --> 00:31:42,200
Speaker 1: I agree. UM, It's it's interesting just to see the

559
00:31:42,200 --> 00:31:44,920
Speaker 1: shake up in that and hopefully what I hope is

560
00:31:44,920 --> 00:31:46,560
Speaker 1: that what the government's wanted to be cracked down on

561
00:31:46,640 --> 00:31:50,600
Speaker 1: libracoin it doesn't UM, some of that regulatory stuff doesn't

562
00:31:50,640 --> 00:31:53,360
Speaker 1: spill over into a bigger crypto. For that, we'll just

563
00:31:53,400 --> 00:31:55,520
Speaker 1: have to wait and see. UM. So you know what,

564
00:31:55,600 --> 00:31:57,920
Speaker 1: it's just just good to have that conversation. But I think,

565
00:31:58,560 --> 00:32:01,880
Speaker 1: you know what, what I believe is that volatility. It

566
00:32:02,040 --> 00:32:04,320
Speaker 1: is like the difference of perception and reality. So in

567
00:32:05,360 --> 00:32:08,719
Speaker 1: everybody perceived bitcoin and crypto to be way higher than

568
00:32:08,720 --> 00:32:11,480
Speaker 1: it really was. The reality wasn't the technology wasn't there,

569
00:32:11,800 --> 00:32:14,120
Speaker 1: and then then of course a crash and now perceptions here.

570
00:32:14,160 --> 00:32:15,960
Speaker 1: But but the reality is it's gotten way better. Right

571
00:32:16,040 --> 00:32:19,120
Speaker 1: now we have more scale and solutions and more adoption,

572
00:32:19,520 --> 00:32:21,800
Speaker 1: and I think, um, and and then I think that

573
00:32:21,840 --> 00:32:23,600
Speaker 1: the perception needs to come back up, which we'll see

574
00:32:23,600 --> 00:32:25,479
Speaker 1: that price come up, which it already is. And I

575
00:32:25,480 --> 00:32:28,880
Speaker 1: think I think options like what block Fire is providing

576
00:32:29,560 --> 00:32:33,280
Speaker 1: is going to help that because it doesn't it allows

577
00:32:33,320 --> 00:32:36,080
Speaker 1: people an option without having to sell, and so they

578
00:32:36,080 --> 00:32:39,560
Speaker 1: can stay in, they can holdele and ultimately that that

579
00:32:39,600 --> 00:32:42,600
Speaker 1: should be good for the ecosystem. Right yeah, I mean

580
00:32:42,640 --> 00:32:45,080
Speaker 1: I can tell you just uh, you know, firsthand. Since

581
00:32:45,080 --> 00:32:48,120
Speaker 1: we've launched the ability to turn six percent interest on

582
00:32:48,160 --> 00:32:51,000
Speaker 1: your bitcoin, we've had people come to us who don't

583
00:32:51,000 --> 00:32:54,280
Speaker 1: own Dickcoin yet and and they'll say, like, you know,

584
00:32:54,880 --> 00:32:57,800
Speaker 1: I'm not sure exactly how a bitcoin works, but I

585
00:32:57,840 --> 00:33:01,680
Speaker 1: know that I'm not earning six percent interest on you know,

586
00:33:01,960 --> 00:33:05,479
Speaker 1: on other assets that I hold so, um, can I

587
00:33:05,480 --> 00:33:08,040
Speaker 1: buy some through you? And we right now we say, well,

588
00:33:08,080 --> 00:33:10,000
Speaker 1: actually you should go to you know, one of these

589
00:33:10,000 --> 00:33:12,080
Speaker 1: other places to buy it and then and then send

590
00:33:12,120 --> 00:33:15,000
Speaker 1: it over to us. UM. But it's a core you know,

591
00:33:15,000 --> 00:33:17,120
Speaker 1: it's a core part of functionality, and it might not

592
00:33:17,160 --> 00:33:20,080
Speaker 1: be for everyone, it might not meet everyone's risk tolerance. UM,

593
00:33:20,200 --> 00:33:24,160
Speaker 1: but it's it's definitely a natural evolution of the ecosystem.

594
00:33:24,600 --> 00:33:26,960
Speaker 1: I certainly love it. I was like the first I

595
00:33:27,040 --> 00:33:29,640
Speaker 1: was the first customer of earning interest on my bitcoin

596
00:33:29,680 --> 00:33:31,479
Speaker 1: and a lot of the products that we're building are

597
00:33:31,480 --> 00:33:34,520
Speaker 1: based on things that you know, I and others here

598
00:33:34,520 --> 00:33:36,280
Speaker 1: on our on our team want to use. So we're

599
00:33:36,320 --> 00:33:39,080
Speaker 1: excited about it. Yeah. Well, like you said when you

600
00:33:39,080 --> 00:33:41,400
Speaker 1: started write, your research kind of lines up with what

601
00:33:41,480 --> 00:33:44,480
Speaker 1: I talked about, and it's about having one dollar do

602
00:33:44,560 --> 00:33:47,280
Speaker 1: multiple jobs and this is the perfect way to do that.

603
00:33:47,400 --> 00:33:49,320
Speaker 1: So UM, I think I think it's great for the

604
00:33:49,400 --> 00:33:52,920
Speaker 1: ecosystem overall. UM. Yeah, pleasure to have you on a

605
00:33:52,920 --> 00:33:55,560
Speaker 1: really good conversation. I love that we kind of share

606
00:33:55,640 --> 00:33:59,480
Speaker 1: some uh investment ideas kind of the same UM there

607
00:33:59,520 --> 00:34:01,640
Speaker 1: and as really cool. UM. So where would people go

608
00:34:01,680 --> 00:34:06,040
Speaker 1: to learn more about block fire to follow you. Yeah, sure, so.

609
00:34:06,480 --> 00:34:09,640
Speaker 1: Our website is block five dot com. You can you

610
00:34:09,680 --> 00:34:13,920
Speaker 1: can find me on Twitter. I'm I'm block five zach Um.

611
00:34:14,000 --> 00:34:15,719
Speaker 1: And you know, if you want to shoot an email,

612
00:34:15,760 --> 00:34:18,359
Speaker 1: my email z A C. At block five dot com.

613
00:34:18,440 --> 00:34:20,960
Speaker 1: We have chat on our website. We've got a phone

614
00:34:21,000 --> 00:34:23,440
Speaker 1: number on our website. We've got a bunch of really

615
00:34:23,480 --> 00:34:25,239
Speaker 1: smart people on the team that are happy to take

616
00:34:25,320 --> 00:34:28,480
Speaker 1: questions or just you know, here people's feedbacks, So don't

617
00:34:28,480 --> 00:34:30,759
Speaker 1: hesitate to reach out. So you're not hard to find it.

618
00:34:31,080 --> 00:34:34,319
Speaker 1: It's not hard to find great. All right, Well, that's

619
00:34:34,360 --> 00:34:37,400
Speaker 1: it for today, Thanks for joining in, Thanks for having me.

620
00:34:37,440 --> 00:34:50,600
Speaker 1: I hope to meet you in person next week. Mark. Yeah,