WEBVTT - Crypto Backed Loans with BlockFi | Zac Prince 0:00:14.320 --> 0:00:17.119 All right, welcome to another episode of the Market Disruptor Show. 0:00:17.360 --> 0:00:21.400 I am here with founder and CEO of Block five, 0:00:21.560 --> 0:00:24.680 Zach Prince, and Block five is one of the fast growing, 0:00:24.720 --> 0:00:27.960 maybe leaders in this crypto lending space. We've been talking 0:00:28.000 --> 0:00:33.160 about recently about the decentralized finance, talking about velocity of money, 0:00:33.280 --> 0:00:35.479 unlocking capital, things like that, and they're right in the 0:00:35.520 --> 0:00:37.960 space and we're gonna dig in ask him the questions 0:00:38.000 --> 0:00:41.040 that you should be asking if you could. And so, anyway, 0:00:41.240 --> 0:00:44.960 welcome to the show. Zac Hey, Mark, thanks for having me. Yeah. So, 0:00:45.040 --> 0:00:47.479 you know, we had some conversations before and uh, and 0:00:47.479 --> 0:00:49.080 you're kind of tell me a little bit how you 0:00:49.200 --> 0:00:52.160 got here with crypto and into this company, and there's 0:00:52.200 --> 0:00:54.440 really some intersections with what I talked about a lot, 0:00:54.480 --> 0:00:56.360 So give us a little bit of background on who 0:00:56.400 --> 0:00:59.360 you are and how you got here. Yeah. Sure, So, 0:00:59.680 --> 0:01:01.920 you know, first off, thanks for having made uh. I 0:01:02.000 --> 0:01:03.720 was telling you right before we hit record that I'm 0:01:03.720 --> 0:01:06.959 a big fan of the content that you're putting out there. Um. 0:01:07.080 --> 0:01:10.000 My background is that I've always worked in venture backed 0:01:10.040 --> 0:01:13.440 technology companies and and most recently, prior to starting Block five, 0:01:13.840 --> 0:01:16.920 I was in the online lending sector. Um at one 0:01:16.959 --> 0:01:20.480 company that aggregated data for institutional investors across all of 0:01:20.520 --> 0:01:23.680 these different online lending platforms, and a lot of these 0:01:23.680 --> 0:01:29.160 platforms offered an option for retail participation on the platform 0:01:29.440 --> 0:01:33.120 UH so UH you could invest in consumer loans or 0:01:33.160 --> 0:01:36.920 commercial real estate loans, or invoice receivables UM. And I 0:01:36.959 --> 0:01:39.800 was also tracking other parts of fintech, like grobo advisors 0:01:39.800 --> 0:01:43.000 and things of that nature, and all my friends were 0:01:43.000 --> 0:01:45.640 asking me about it, you know, all the time, basically, 0:01:45.720 --> 0:01:47.760 and so I started a little blog on the side, 0:01:49.440 --> 0:01:53.520 and that's what led me to cryptocurrency UM. I bought 0:01:53.520 --> 0:01:58.080 my first bitcoin at the end of UH found ethereum 0:01:57.720 --> 0:02:02.040 um early and then on the velocity of money topic, 0:02:02.080 --> 0:02:06.360 I was actually in early seen UM planning on buying 0:02:06.400 --> 0:02:09.200 a property in Texas that that was going to be 0:02:09.400 --> 0:02:12.680 a rental property. And obviously, at that point in time, 0:02:12.720 --> 0:02:15.760 cryptocurrency prices had gone up a fair amount, and I 0:02:15.800 --> 0:02:19.280 was feeling really proud of myself for having made that investment, 0:02:19.720 --> 0:02:22.800 and I was curious what the bank would think about 0:02:22.840 --> 0:02:26.840 those assets and whether they would um prescribe any value 0:02:26.919 --> 0:02:29.320 to them in terms of their underwriting decision, and so 0:02:29.360 --> 0:02:31.840 I included bitcoin and ether as line items on my 0:02:31.880 --> 0:02:33.920 financial statement that I submitted to a bank that I 0:02:33.960 --> 0:02:37.399 was applying for a loan for to virus property. UM. 0:02:37.440 --> 0:02:39.240 You know, not only did they say we think of 0:02:39.280 --> 0:02:41.040 these as a big fat zero in terms of how 0:02:41.120 --> 0:02:43.960 much they're worth, but they also said, uh, well, we're 0:02:43.960 --> 0:02:46.480 gonna have to put you through some extra compliance checks 0:02:46.520 --> 0:02:49.240 now we think you might be involved in some illicit 0:02:49.280 --> 0:02:52.440 activity UM, that type of stuff, because there was a 0:02:52.440 --> 0:02:55.280 lot less awareness about these types of assets back then 0:02:55.320 --> 0:02:57.800 than there is now. UM. And that was when I 0:02:57.800 --> 0:03:00.040 had a lightbulb moment for block Fire, and basically the 0:03:00.320 --> 0:03:04.440 idea was that cryptocurrency was going to continue to be 0:03:04.520 --> 0:03:08.680 a growing asset class. I started believing tremendously in some 0:03:08.800 --> 0:03:11.400 of the you know, value propositions that these assets have, 0:03:11.520 --> 0:03:15.919 in terms of privacy, in terms of global access to uh, 0:03:15.960 --> 0:03:18.440 you know, venture capital like returns, or just you know, 0:03:18.760 --> 0:03:22.720 novel assets that could appreciate a lot of value, and 0:03:23.440 --> 0:03:25.560 eventually decided to start a company around that idea in 0:03:25.560 --> 0:03:29.519 the summer of seventeen and that's and that's block fie UM. 0:03:29.600 --> 0:03:33.600 We first started as as a platform where you could 0:03:33.639 --> 0:03:36.960 borrow money supported by the value that you had in 0:03:37.000 --> 0:03:40.320 cryptocurrency because so kind of checking that box that traditional 0:03:40.320 --> 0:03:42.960 banks don't check. And we've expanded, you know, both the 0:03:42.960 --> 0:03:45.440 products and services that we offer since then and also 0:03:45.480 --> 0:03:47.960 our vision for what we think the company can become 0:03:48.000 --> 0:03:51.440 over time. Now, you came from, like you said, fintech 0:03:51.520 --> 0:03:54.640 financial technology UM, and you were working in the peer 0:03:54.640 --> 0:03:59.840 to peer lending space UM. And did you transition straight 0:03:59.840 --> 0:04:03.880 for them that into Block five? Yes, So I worked 0:04:03.880 --> 0:04:05.800 at I worked at two different companies in that space, 0:04:05.920 --> 0:04:10.760 one Orchard, where we were a data aggregator and and 0:04:10.840 --> 0:04:15.760 technology provider to institutional investors that were buying loans or 0:04:15.840 --> 0:04:20.000 lending directly to all of the major platforms Lending Club, 0:04:20.120 --> 0:04:23.200 so FI, prosper Funding Circle, et cetera. I think we 0:04:23.240 --> 0:04:26.919 had around two hundred different online lenders in our database 0:04:26.960 --> 0:04:30.640 and on our system. And then our institutional clients were banks, 0:04:30.880 --> 0:04:35.359 large credit funds, large family offices, all different types of 0:04:35.360 --> 0:04:38.360 institutional capital that we're we're buying loans from those places. 0:04:38.760 --> 0:04:40.800 And I also spent about two years at a at 0:04:40.800 --> 0:04:44.360 a consumer lender called ziby that UH finances large ticket 0:04:44.400 --> 0:04:48.120 retail purchases at the point of sale for UM individuals 0:04:48.160 --> 0:04:52.360 who have low FICO scores or no FICO score because 0:04:52.360 --> 0:04:55.280 they're they're not a US citizen, that type of thing, 0:04:55.279 --> 0:04:58.400 and then started block five. Do you think this disrupts 0:04:58.400 --> 0:05:04.000 the peer to peer lending space? I think that, um, 0:05:04.040 --> 0:05:08.119 there are you know, learnings from peer to peer lending 0:05:08.160 --> 0:05:13.159 that can be applied to building businesses. Um in the 0:05:13.240 --> 0:05:17.799 cryptocurrency lending space. Uh, but I think it's pretty different. 0:05:17.880 --> 0:05:20.080 So a lot of the things that you know happened 0:05:20.080 --> 0:05:22.119 in in the peer to peer lending world, we're based 0:05:22.160 --> 0:05:26.640 on credit scores or financing different assets like real estate 0:05:26.960 --> 0:05:32.520 or invoices or equipment. Um. So I actually think that 0:05:32.640 --> 0:05:37.599 structurally it's more comparable to like like brokerage lending, so 0:05:37.800 --> 0:05:41.280 you know, margin lending or liquidity access lines from the 0:05:41.720 --> 0:05:45.080 you know, public equities worlds than it is analogous to 0:05:45.279 --> 0:05:49.360 peer to peer lending structurally, I'm not. I mean, I'm 0:05:49.360 --> 0:05:51.760 not super familiar with peer to peer lending markets as 0:05:52.000 --> 0:05:55.039 I haven't been an active user. Um, I'm aware of it, 0:05:55.080 --> 0:05:57.039 I've done research on it. I know how big it is, 0:05:57.080 --> 0:05:59.400 and even in other countries like in China, got really 0:05:59.400 --> 0:06:02.400 big and got kind ahead of itself. But when you 0:06:02.480 --> 0:06:04.840 have companies that are kind of essentially controlling that. Are 0:06:04.839 --> 0:06:07.159 you really doing peer to peer like a person to 0:06:07.240 --> 0:06:10.520 person and someone's in the middle managing that or is 0:06:10.560 --> 0:06:13.920 it really kind of not so it's more like portfolio 0:06:14.000 --> 0:06:17.600 lending or something. I think it depends a little bit 0:06:17.640 --> 0:06:22.400 on the implementation from the platform. So for example, like 0:06:22.480 --> 0:06:24.680 on lending Club, which is the largest peer to peer 0:06:24.880 --> 0:06:29.159 lending platform in the US UM currently, only about ten 0:06:29.200 --> 0:06:32.760 percent of the loans that Lending Club makes are financed 0:06:33.160 --> 0:06:36.520 peer to peer, meaning there's a retail individual on the 0:06:36.560 --> 0:06:39.559 other end who's providing the capital that goes towards making 0:06:39.600 --> 0:06:42.880 that loan, and it's completely centralized in the sense that 0:06:43.320 --> 0:06:47.360 lending Club is always making the loan. From a regulatory perspective, 0:06:47.839 --> 0:06:51.239 lending Club is controlling the decision about who gets approved 0:06:51.279 --> 0:06:54.400 for a loan and at what price UM. And then 0:06:54.440 --> 0:06:57.719 there's other types of you know, peer to peer lending 0:06:57.760 --> 0:07:02.279 implementations um at our different variations on that on that 0:07:02.400 --> 0:07:04.960 same on that same theme, Yeah, I was just curious 0:07:04.960 --> 0:07:07.640 how this model kind of fits because obviously, with black 0:07:07.760 --> 0:07:10.520 y I could loan or borrow, but it's not peer 0:07:10.560 --> 0:07:12.040 to peer, right, So I'm kind of going in with 0:07:12.040 --> 0:07:13.720 the company and then the company is kind of acting. 0:07:13.760 --> 0:07:15.680 So I guess it's similar to what the P twop 0:07:15.840 --> 0:07:19.240 industry is doing. But the good piece of it, which is, 0:07:19.640 --> 0:07:22.480 you know, I constantly state, you know how, the importance 0:07:22.480 --> 0:07:24.840 of being an investor because we need those returns. And 0:07:25.360 --> 0:07:27.360 with P two P or what you guys are doing, 0:07:27.400 --> 0:07:30.640 you're really giving people the option to to loan to 0:07:30.680 --> 0:07:34.920 make money right above above average interest. Yeah, that's exactly right. 0:07:34.960 --> 0:07:37.440 I mean, the exciting thing about peer to peer lending 0:07:37.440 --> 0:07:40.920 and about UM you know, one of block five's products 0:07:40.960 --> 0:07:43.000 that that enables you to earn interest on your crypto 0:07:43.040 --> 0:07:46.239 holdings is that it's a channel to make more money 0:07:46.280 --> 0:07:50.560 that didn't necessarily exist before. UM. The things that people 0:07:50.600 --> 0:07:52.760 got excited about from the peer to peer lending sector 0:07:52.760 --> 0:07:59.080 were the opportunities for portfolio diversification and income generation. Uh, 0:07:59.280 --> 0:08:03.080 and the bill to access those um even with you know, 0:08:03.360 --> 0:08:07.120 a one thousand or five thousand or ten thousand dollar investment, 0:08:07.360 --> 0:08:11.200 and that simply just didn't exist before that industry came around. Yeah. 0:08:11.280 --> 0:08:14.200 Now block fight kind of has two different products in 0:08:14.200 --> 0:08:17.440 a sense, right where either one I could borrow money 0:08:17.480 --> 0:08:21.200 against my crypto holdings or two I could just park 0:08:21.280 --> 0:08:24.480 them and received like above average above market interest or 0:08:24.520 --> 0:08:28.520 something like that. That right, that's that's exactly right. UM. So, 0:08:29.320 --> 0:08:32.720 if you have bitcoin or ether, you can open up 0:08:32.720 --> 0:08:36.360 a block fight account and earn interest the same way 0:08:36.400 --> 0:08:40.520 that you earn interest in a savings account from a bank, um, 0:08:40.559 --> 0:08:43.920 except without like f d i C insurance and some 0:08:44.040 --> 0:08:48.920 of those like banking protections that exist from the federal government. Um. 0:08:49.000 --> 0:08:51.840 But you earn interest in the asset that you've deposited. 0:08:51.840 --> 0:08:54.640 The interest is paid every month, and once the interest 0:08:54.760 --> 0:08:57.320 is paid to you, it becomes part of your balance 0:08:57.520 --> 0:09:01.560 and therefore your earning compound interest on the balances that 0:09:01.600 --> 0:09:04.200 you hold with Block five. At the same time, you 0:09:04.280 --> 0:09:09.079 have the ability to borrow US dollars against the value 0:09:09.120 --> 0:09:12.640 of that cryptocurrency that you have with Block five at 0:09:12.720 --> 0:09:16.080 rates as low as four point five percent per year UM. 0:09:16.120 --> 0:09:19.480 And when we do that, those loans are structured as 0:09:19.920 --> 0:09:23.360 interest only loans. UH. So, if you, you know, borrow 0:09:23.520 --> 0:09:27.040 ten thousand dollars at at four point five percent a year, 0:09:27.400 --> 0:09:30.199 your monthly payment would be you know, four and fifty 0:09:30.240 --> 0:09:33.840 dollars divided by twelve uh and then you can pay 0:09:33.840 --> 0:09:35.720 back the principle either at the end of that term 0:09:35.960 --> 0:09:38.360 or at a later date. And the reason I mentioned 0:09:38.360 --> 0:09:44.040 that structure is because for certain types of investing, specifically 0:09:44.080 --> 0:09:46.560 cash flow type investing in some of the velocity of 0:09:46.600 --> 0:09:48.920 money barbage rousers that you talk about in one of 0:09:48.920 --> 0:09:51.920 your other videos, where you're borrowing it for and investing 0:09:51.960 --> 0:09:55.720 in something that earns ten that interest only repayment structure 0:09:55.720 --> 0:09:58.360 can be really valuable in terms of getting incremental leverage 0:09:58.360 --> 0:10:01.840 from the cash flow that you're producing. Yeah, So for 0:10:01.880 --> 0:10:04.280 those of you on the podcast that maybe haven't watched 0:10:04.280 --> 0:10:06.280 the videos, we're talking about the concept of velocity of 0:10:06.280 --> 0:10:09.360 money where one dollar can do multiple jobs. So I 0:10:09.360 --> 0:10:12.240 can put into one account UM and pull it back 0:10:12.240 --> 0:10:14.480 out while it's still parked their earning interest, and then 0:10:14.480 --> 0:10:17.400 put it to another job. So for example, I could 0:10:17.400 --> 0:10:20.120 take my crypto. I could take my bitcoin UM that 0:10:20.400 --> 0:10:23.160 has gone up a hundred and fifty percent this year UM, 0:10:23.200 --> 0:10:26.559 and I could borrow against it. I'm paying four percent 0:10:26.840 --> 0:10:29.640 annually or four and a half percent annually, but hopefully 0:10:29.679 --> 0:10:32.880 making a percent annually, and then I can redeploy that 0:10:32.960 --> 0:10:35.640 money into now another asset, So for example, a piece 0:10:35.640 --> 0:10:38.360 of real estate like like Zach you mentioned in Texas, 0:10:38.400 --> 0:10:39.920 I could put into a piece of real estate. Now 0:10:39.920 --> 0:10:43.080 that hopefully I'm making seven on that. So now that 0:10:43.240 --> 0:10:46.080 one dollars do a multiple jobs. So catching you guys 0:10:46.160 --> 0:10:49.319 up on the velocity of money. Now, I love that concept. 0:10:49.800 --> 0:10:52.880 I always say Warren Buffett said, right, if if we 0:10:52.880 --> 0:10:54.480 don't learn how to make money when we sleep, will 0:10:54.520 --> 0:10:55.960 work till the day that we die. So it's all 0:10:55.960 --> 0:11:00.480 about putting that money to work. And totally is makes 0:11:00.559 --> 0:11:04.520 perfect sense because of the app because crypto is all 0:11:04.559 --> 0:11:08.000 about invested into a technology that needs to be developed. 0:11:08.000 --> 0:11:10.360 It's gonna take years, so we want to hodel. But 0:11:10.440 --> 0:11:14.480 being able to unlock that value UM is important. So 0:11:14.880 --> 0:11:17.200 you have those two different products, who are the people 0:11:17.360 --> 0:11:19.760 that would want either one of those products? And who 0:11:19.760 --> 0:11:22.079 do you typically see coming in? Is that like institutions? 0:11:22.160 --> 0:11:24.600 Is that retail people? Like what do you see? Yeah? 0:11:24.679 --> 0:11:27.480 Great question. So we think of our core client as 0:11:27.600 --> 0:11:32.960 being retail UM. So it's it's primarily individuals. We do 0:11:33.080 --> 0:11:36.880 have some small corporates that are that are also clients. 0:11:37.480 --> 0:11:39.920 So for example, a company that did an I c 0:11:40.040 --> 0:11:42.280 O and hold some crypto on their balance sheet or 0:11:43.360 --> 0:11:47.319 mining operations UM. But we also have his clients. But 0:11:47.600 --> 0:11:50.120 the platform is really built for retail, and we think 0:11:50.120 --> 0:11:53.520 of retail as being our our core customer. There are 0:11:53.679 --> 0:11:57.319 things that we do in the institutional market to facilitate 0:11:57.360 --> 0:12:00.000 the products that we're delivering to our core retail client. 0:12:00.000 --> 0:12:03.600 It so, for example, when we're lending dollars at four 0:12:03.640 --> 0:12:10.040 point UM, that capital is coming from an institutional lending 0:12:10.120 --> 0:12:13.800 facility that that that Block five has UM. When we're 0:12:13.800 --> 0:12:19.000 paying interest on bitcoin or ether deposits, the interest is 0:12:19.080 --> 0:12:23.720 generated by Block five lending bitcoin or Ether two institutional borrowers. 0:12:23.720 --> 0:12:25.920 But we think of those functions as being things that 0:12:26.440 --> 0:12:28.559 enable the delivery of the products to our to our 0:12:28.559 --> 0:12:32.600 core retail customer. And we have customers primarily in the 0:12:32.640 --> 0:12:36.160 US today. It's about our client base. Is uh is 0:12:36.400 --> 0:12:41.280 here in the United States? Outside the US? Now? Um? 0:12:41.880 --> 0:12:44.160 Is that is it because that you're more retail focused? 0:12:44.200 --> 0:12:47.480 I think on your terms, do you pay like less 0:12:47.559 --> 0:12:50.800 interest on larger balances? Right? So like smaller accounts get 0:12:50.840 --> 0:12:54.040 more and larger accounts get less? Is that right? That's 0:12:54.080 --> 0:12:56.600 that's correct. It doesn't seem it seems like I should 0:12:56.640 --> 0:13:02.040 be getting more for larger balances. Yeah, and in traditional markets, um, 0:13:02.160 --> 0:13:08.040 you absolutely do. Um. The differences about the cryptocurrency market 0:13:08.120 --> 0:13:11.840 right now that that drive that are that, Uh, the 0:13:11.880 --> 0:13:16.520 market to borrow cryptocurrency is nasan and undeveloped, and there's 0:13:16.559 --> 0:13:19.800 not a risk free rate of return that exists on 0:13:19.840 --> 0:13:23.800 bitcoin the same way that there is on a fiat currency. UM. 0:13:24.160 --> 0:13:27.640 So when we initially launched the product that enables you 0:13:27.679 --> 0:13:30.640 to earn interest publicly in March um we saw an 0:13:30.640 --> 0:13:33.000 influx of deposits and in general right now, if you 0:13:33.040 --> 0:13:37.360 just looked at the entire market of cryptocurrency and said, okay, 0:13:37.400 --> 0:13:39.560 how many people are interested in earning interest and how 0:13:39.640 --> 0:13:42.280 many are interested in borrowing, you would have an imbalance 0:13:42.360 --> 0:13:45.080 there where there's a lot more interest in earning the 0:13:45.160 --> 0:13:48.120 interest than there is interest in borrowing in that asset, 0:13:48.160 --> 0:13:50.600 at least today, because the market is still nascent. So 0:13:50.640 --> 0:13:52.839 the reason we implemented that structure is that we wanted 0:13:52.840 --> 0:13:55.960 to be able to offer an attractive interest rate to 0:13:56.040 --> 0:14:00.920 as many unique customers as as possible and put a 0:14:00.960 --> 0:14:03.880 little bit of a gating factor on how attractive this 0:14:04.080 --> 0:14:10.480 was to institutions or two particularly large holders of cryptocurrency. 0:14:11.040 --> 0:14:13.719 But the limits right now are are still pretty high 0:14:13.760 --> 0:14:17.240 from a retail perspective, So from for example, on Bitcoin, 0:14:18.160 --> 0:14:22.200 you earn a six percent interest rate on a deposit 0:14:22.240 --> 0:14:25.920 of up to twenty five bitcoin, which at current prices 0:14:26.000 --> 0:14:28.960 is right around uh just under a quarter million U 0:14:29.000 --> 0:14:31.520 S dollars equivalent, and on Ether it's a hundred ether, 0:14:31.680 --> 0:14:35.960 which is um around. So you kind of want to 0:14:36.200 --> 0:14:38.920 your more retail focus because you're a little bit more diversified. 0:14:38.960 --> 0:14:41.800 I see you have like, uh, no limits on when 0:14:41.800 --> 0:14:44.920 I can deposited withdraw, so I could imagine a huge 0:14:44.960 --> 0:14:47.960 withdraw could really affect you. So maybe by being more retail, 0:14:48.000 --> 0:14:52.200 keeping that mouth down, you're more diversified against that. That's 0:14:52.360 --> 0:14:54.360 that's a great that's a great point, and it's another 0:14:54.600 --> 0:14:58.560 factor of consideration from a risk management perspective. UM we 0:14:58.680 --> 0:15:01.240 benefit from diverse k and both in terms of our 0:15:01.320 --> 0:15:05.240 depositor base and in terms of our borrowing base. UM 0:15:05.280 --> 0:15:09.120 the other factors that we plan on launching additional products 0:15:09.120 --> 0:15:12.480 in the future. So from a UM you know, corporate 0:15:12.520 --> 0:15:15.720 business development perspective, at Block five, we benefit from having 0:15:16.400 --> 0:15:19.080 more users on the platform because when we launch things 0:15:19.080 --> 0:15:22.560 in the future, like you know, the ability to earn 0:15:22.680 --> 0:15:26.640 interest on your bitcoin in dollars or a crypto rewards 0:15:26.680 --> 0:15:29.360 credit card. Having more people on our platform that could 0:15:29.360 --> 0:15:33.160 also potentially use those subsequent products, is really valuable to us. Yeah, 0:15:33.480 --> 0:15:35.080 makes sense, makes sense. I want to get into that 0:15:35.120 --> 0:15:37.520 a little bit more later, but I want to ask 0:15:37.600 --> 0:15:40.920 one other question, so again, back onto, back onto the 0:15:40.960 --> 0:15:43.880 velocity of money, having one dollar to multiple jobs. I 0:15:43.920 --> 0:15:46.040 talked about like a whole life insurance vehicle where I 0:15:46.080 --> 0:15:48.520 could make eight percent borrow against the four or a 0:15:48.600 --> 0:15:50.440 house where I could borrow back out at four but 0:15:50.480 --> 0:15:53.280 I'm making ten. So there's that arbitrage spread. Now, I 0:15:53.400 --> 0:15:56.480 notice you you pay the difference of what I can 0:15:56.480 --> 0:15:58.600 borrow against or what I can earn. There's about a 0:15:58.600 --> 0:16:02.040 two percent to whatever percent spread. Um, Is there an 0:16:02.080 --> 0:16:04.320 arbitrage play or no, I have to choose one or 0:16:04.360 --> 0:16:09.800 the other. There's there's not as clear cut of an 0:16:09.880 --> 0:16:13.800 arbitrage play as in the examples that you describe. And 0:16:13.840 --> 0:16:17.720 the primary reason is that, UM, it's two different currencies. 0:16:17.720 --> 0:16:19.840 So we've got bitcoin in dollars in the in the 0:16:19.880 --> 0:16:22.880 block fire example versus just dollars in the example of 0:16:23.280 --> 0:16:26.120 you know a house where you're making other investments. UM. 0:16:26.960 --> 0:16:30.800 And the other reason is that when you're borrowing dollars 0:16:30.840 --> 0:16:33.680 from blocked by the collateral that you're using to secure 0:16:33.760 --> 0:16:38.800 those dollars that you're borrowing is not still earning interest. UM. 0:16:38.880 --> 0:16:43.000 But you know there are you know, arbitrage opportunities that 0:16:43.000 --> 0:16:44.920 are that are created on the fact that you know, 0:16:44.920 --> 0:16:47.880 we're paying interest on crypto and on the fact that 0:16:48.040 --> 0:16:50.560 you can get access to USD from a velocity of 0:16:50.560 --> 0:16:55.040 money perspective. Got it? Okay, good, Now we'll get into 0:16:55.200 --> 0:16:59.160 some tough questions, right, the stuff that the stuff that 0:16:59.200 --> 0:17:01.720 people should hopeful to be asking and and uh, like 0:17:01.760 --> 0:17:03.840 you said, you saw some of my videos and and uh, 0:17:03.880 --> 0:17:07.480 I wanted to kind of talk about UM. I talked 0:17:07.520 --> 0:17:09.760 about the lending aspect, and I said, hey, you know, 0:17:09.800 --> 0:17:12.280 obviously there's risk. Everything in life has risk, Right, If 0:17:12.320 --> 0:17:13.720 I do something, there's risk. If I don't do something, 0:17:13.720 --> 0:17:18.639 there's risk. UM And so what are UM I guess 0:17:18.680 --> 0:17:20.800 some of the risk that people would have obviously would 0:17:20.800 --> 0:17:22.720 be giving their money up. Now, as you mentioned giving 0:17:22.720 --> 0:17:25.240 it to a bank, there's fd I C insurance because 0:17:25.240 --> 0:17:28.080 they're holding my deposits. Now there are risks, the risk 0:17:28.119 --> 0:17:30.480 are very low, which is why the interest rate is 0:17:30.520 --> 0:17:33.720 super low. Obviously, now I'm going to get a higher 0:17:33.720 --> 0:17:36.720 interest rate return. But I would imagine there's higher risk. UM. 0:17:37.000 --> 0:17:39.280 Can you talk about some of those that maybe people 0:17:39.280 --> 0:17:41.440 should be aware of and what you do to kind 0:17:41.440 --> 0:17:45.159 of d risk that. Yeah, absolutely so UM. At a 0:17:45.240 --> 0:17:47.159 high level, you can bucket the risk into in the 0:17:47.320 --> 0:17:51.000 three separate categories. So there's UH, fraud risk, security risk, 0:17:51.080 --> 0:17:56.399 and credit risk. UM. The fraud risk is UH. You know, 0:17:56.440 --> 0:17:58.359 anyone who's followed crypto for a while, it might be 0:17:58.400 --> 0:18:01.440 familiar with like the big cone. UH. You know that 0:18:02.119 --> 0:18:03.959 for for better or worse, there have been some, UM, 0:18:04.640 --> 0:18:08.240 some shady characters in the cryptocurrency industry. There's been some scams, 0:18:08.720 --> 0:18:10.359 and there have been, you know, quite a few of 0:18:10.359 --> 0:18:12.520 those scams that had to do with this concept of 0:18:12.520 --> 0:18:15.760 like earn one percent interest per day, that type of thing. 0:18:16.280 --> 0:18:19.360 It sounds right, if it sounds good to be true, 0:18:19.359 --> 0:18:23.840 it absolutely is. We're definitely you know, I can I 0:18:23.880 --> 0:18:26.960 can guarantee that there's a zero percent risk that UM, 0:18:27.240 --> 0:18:31.399 that that we are in that bucket UH. And you 0:18:31.440 --> 0:18:33.400 know the way that you can verify that is by 0:18:33.400 --> 0:18:35.919 simply looking at the types of investors and backers that 0:18:35.960 --> 0:18:39.239 we have for the company. UM. Groups like Fidelity and 0:18:39.320 --> 0:18:44.520 Galaxy Digital and and other noteworthy kind of venture institutional 0:18:44.520 --> 0:18:47.720 type investors who you know obviously put us through a 0:18:47.720 --> 0:18:51.360 ton of diligence before before they make any of those investments. UM. 0:18:51.560 --> 0:18:56.040 Second risk security risk. UM we mitigate the security risk 0:18:56.240 --> 0:18:59.399 largely via a partnership with Jim and I. UM. So 0:18:59.480 --> 0:19:01.159 the other thing you have to be cognizant of in 0:19:01.200 --> 0:19:05.439 the cryptocurrency industry is is uh not having the private 0:19:05.520 --> 0:19:09.280 keys you know, hacked or or stolen from yourself or 0:19:09.760 --> 0:19:13.840 uh the entity that you're storing them with. UM Gemini 0:19:13.960 --> 0:19:17.320 is our is our custodial partner. They have insurance on 0:19:17.359 --> 0:19:19.520 all of the assets that are held on their platform. 0:19:19.880 --> 0:19:22.560 They were the first custodian to get a sack to audit, 0:19:22.600 --> 0:19:26.000 which is like a bank level security UM audit, and 0:19:26.040 --> 0:19:28.560 they have a perfect track record with with zero losses 0:19:28.600 --> 0:19:30.960 in terms of custody billions of dollars of crypto for 0:19:31.000 --> 0:19:34.840 many years now. UM. The last risk is probably the 0:19:34.880 --> 0:19:37.840 one that that we could do a whole separate you know, 0:19:38.000 --> 0:19:40.760 thirty minute or an hour long show on if we 0:19:40.800 --> 0:19:42.399 wanted to really get into the weeds of it. But 0:19:42.440 --> 0:19:45.320 it's that credit risk part, just the big money and there, 0:19:45.440 --> 0:19:47.760 and there's two components to the credit risk. So there's 0:19:48.000 --> 0:19:50.880 UM the counterparty risk that you're taking to Block five. 0:19:51.359 --> 0:19:54.680 So you know, is Block five well capitalized enough to 0:19:55.400 --> 0:19:59.520 continue operating its business? Does Block five have the proper 0:19:59.680 --> 0:20:04.199 say guards and separations of capital between our funds and 0:20:04.240 --> 0:20:07.960 our and our customers funds UM. That's one part of 0:20:07.960 --> 0:20:10.320 the risk UH. And and the other part of the 0:20:10.320 --> 0:20:13.399 credit risk is the pool of borrowers that we're lending 0:20:13.440 --> 0:20:17.280 the crypto to UM. Who are they, how well capitalized 0:20:17.280 --> 0:20:20.639 are they, how much collateral are they posting to Block 0:20:20.720 --> 0:20:24.000 five UM? And So just to touch on a couple 0:20:24.040 --> 0:20:25.800 of quick details on both of those points, and then 0:20:25.840 --> 0:20:27.879 we can we can go deeper in it or switch 0:20:27.920 --> 0:20:31.239 to another topic whatever you prefer. UM. In terms of 0:20:31.280 --> 0:20:35.000 the Block five side, so we have a number of 0:20:35.359 --> 0:20:42.000 operational and financial UH rails in place at the company 0:20:42.240 --> 0:20:46.280 UM that would raise flags or prevent any one person 0:20:46.400 --> 0:20:50.560 from taking actions that would blur the line between our 0:20:50.600 --> 0:20:55.360 customers funds UH and our own corporate you know, equity 0:20:55.440 --> 0:20:59.840 capital UM. And then in terms of who the pool 0:20:59.840 --> 0:21:02.480 of a wards that we're lending to our UH, we 0:21:02.560 --> 0:21:06.560 have a team UM that's that's headed up by a 0:21:06.600 --> 0:21:09.679 former managing director of prime brokeridge at Bank of America 0:21:09.760 --> 0:21:13.879 Merrill Lynch, who uh lent for you know, fifteen plus 0:21:14.000 --> 0:21:17.320 years there and and never lost a penny, including throughout 0:21:17.600 --> 0:21:20.320 two thousand and eight and two thousand nine. UM. And 0:21:20.359 --> 0:21:23.520 we on board every barrow. We're through both a counterparty 0:21:23.520 --> 0:21:28.120 credit risk framework and then a required collateralization level. UM. 0:21:28.280 --> 0:21:33.639 So for example, uh, if a borrower of cryptocurrency doesn't 0:21:33.680 --> 0:21:36.760 have a minimum net worth of as a general rule, 0:21:36.840 --> 0:21:42.600 fifty million UM, then we would always require over collateralization, 0:21:42.760 --> 0:21:45.480 meaning we would lend them a million dollars a bitcoin, 0:21:45.800 --> 0:21:49.119 but they give us one point to five million dollars 0:21:49.760 --> 0:21:52.840 in USD or stable coin. And then in that scenario 0:21:52.880 --> 0:21:56.120 where we're overcollateralized with dollars, we're using the same risk 0:21:56.160 --> 0:22:00.240 management system that's been operational for the us D ending 0:22:00.280 --> 0:22:04.920 side of our of our product stack since January, and 0:22:05.119 --> 0:22:08.680 we've uh, you know an either product never had a 0:22:08.760 --> 0:22:13.119 late payment or a loss or any legal issues. So 0:22:13.320 --> 0:22:17.320 our performance has has been perfect today. UM, I'll positive, 0:22:17.359 --> 0:22:20.080 but I'm having to drill in deeper. So UM it 0:22:20.119 --> 0:22:22.560 sounds like the big risk on that would be if 0:22:22.600 --> 0:22:25.480 the market were to crash so fast that you couldn't 0:22:25.520 --> 0:22:28.240 cover the collateral. That could be a problem. Now you 0:22:28.320 --> 0:22:30.840 mentioned earlier that you really want to focus on the 0:22:30.880 --> 0:22:33.240 main coins that have a lot of liquidity. We did 0:22:33.240 --> 0:22:35.879 see recently with Polonias they had a problem right where 0:22:36.200 --> 0:22:39.840