Speaker 1: All right, welcome to another episode of the Market Disruptor Show.
Speaker 1: I am here with founder and CEO of Block five,
Speaker 1: Zach Prince, and Block five is one of the fast growing,
Speaker 1: maybe leaders in this crypto lending space. We've been talking
Speaker 1: about recently about the decentralized finance, talking about velocity of money,
Speaker 1: unlocking capital, things like that, and they're right in the
Speaker 1: space and we're gonna dig in ask him the questions
Speaker 1: that you should be asking if you could. And so, anyway,
Speaker 1: welcome to the show. Zac Hey, Mark, thanks for having me. Yeah. So,
Speaker 1: you know, we had some conversations before and uh, and
Speaker 1: you're kind of tell me a little bit how you
Speaker 1: got here with crypto and into this company, and there's
Speaker 1: really some intersections with what I talked about a lot,
Speaker 1: So give us a little bit of background on who
Speaker 1: you are and how you got here. Yeah. Sure, So,
Speaker 1: you know, first off, thanks for having made uh. I
Speaker 1: was telling you right before we hit record that I'm
Speaker 1: a big fan of the content that you're putting out there. Um.
Speaker 1: My background is that I've always worked in venture backed
Speaker 1: technology companies and and most recently, prior to starting Block five,
Speaker 1: I was in the online lending sector. Um at one
Speaker 1: company that aggregated data for institutional investors across all of
Speaker 1: these different online lending platforms, and a lot of these
Speaker 1: platforms offered an option for retail participation on the platform
Speaker 1: UH so UH you could invest in consumer loans or
Speaker 1: commercial real estate loans, or invoice receivables UM. And I
Speaker 1: was also tracking other parts of fintech, like grobo advisors
Speaker 1: and things of that nature, and all my friends were
Speaker 1: asking me about it, you know, all the time, basically,
Speaker 1: and so I started a little blog on the side,
Speaker 1: and that's what led me to cryptocurrency UM. I bought
Speaker 1: my first bitcoin at the end of UH found ethereum
Speaker 1: um early and then on the velocity of money topic,
Speaker 1: I was actually in early seen UM planning on buying
Speaker 1: a property in Texas that that was going to be
Speaker 1: a rental property. And obviously, at that point in time,
Speaker 1: cryptocurrency prices had gone up a fair amount, and I
Speaker 1: was feeling really proud of myself for having made that investment,
Speaker 1: and I was curious what the bank would think about
Speaker 1: those assets and whether they would um prescribe any value
Speaker 1: to them in terms of their underwriting decision, and so
Speaker 1: I included bitcoin and ether as line items on my
Speaker 1: financial statement that I submitted to a bank that I
Speaker 1: was applying for a loan for to virus property. UM.
Speaker 1: You know, not only did they say we think of
Speaker 1: these as a big fat zero in terms of how
Speaker 1: much they're worth, but they also said, uh, well, we're
Speaker 1: gonna have to put you through some extra compliance checks
Speaker 1: now we think you might be involved in some illicit
Speaker 1: activity UM, that type of stuff, because there was a
Speaker 1: lot less awareness about these types of assets back then
Speaker 1: than there is now. UM. And that was when I
Speaker 1: had a lightbulb moment for block Fire, and basically the
Speaker 1: idea was that cryptocurrency was going to continue to be
Speaker 1: a growing asset class. I started believing tremendously in some
Speaker 1: of the you know, value propositions that these assets have,
Speaker 1: in terms of privacy, in terms of global access to uh,
Speaker 1: you know, venture capital like returns, or just you know,
Speaker 1: novel assets that could appreciate a lot of value, and
Speaker 1: eventually decided to start a company around that idea in
Speaker 1: the summer of seventeen and that's and that's block fie UM.
Speaker 1: We first started as as a platform where you could
Speaker 1: borrow money supported by the value that you had in
Speaker 1: cryptocurrency because so kind of checking that box that traditional
Speaker 1: banks don't check. And we've expanded, you know, both the
Speaker 1: products and services that we offer since then and also
Speaker 1: our vision for what we think the company can become
Speaker 1: over time. Now, you came from, like you said, fintech
Speaker 1: financial technology UM, and you were working in the peer
Speaker 1: to peer lending space UM. And did you transition straight
Speaker 1: for them that into Block five? Yes, So I worked
Speaker 1: at I worked at two different companies in that space,
Speaker 1: one Orchard, where we were a data aggregator and and
Speaker 1: technology provider to institutional investors that were buying loans or
Speaker 1: lending directly to all of the major platforms Lending Club,
Speaker 1: so FI, prosper Funding Circle, et cetera. I think we
Speaker 1: had around two hundred different online lenders in our database
Speaker 1: and on our system. And then our institutional clients were banks,
Speaker 1: large credit funds, large family offices, all different types of
Speaker 1: institutional capital that we're we're buying loans from those places.
Speaker 1: And I also spent about two years at a at
Speaker 1: a consumer lender called ziby that UH finances large ticket
Speaker 1: retail purchases at the point of sale for UM individuals
Speaker 1: who have low FICO scores or no FICO score because
Speaker 1: they're they're not a US citizen, that type of thing,
Speaker 1: and then started block five. Do you think this disrupts
Speaker 1: the peer to peer lending space? I think that, um,
Speaker 1: there are you know, learnings from peer to peer lending
Speaker 1: that can be applied to building businesses. Um in the
Speaker 1: cryptocurrency lending space. Uh, but I think it's pretty different.
Speaker 1: So a lot of the things that you know happened
Speaker 1: in in the peer to peer lending world, we're based
Speaker 1: on credit scores or financing different assets like real estate
Speaker 1: or invoices or equipment. Um. So I actually think that
Speaker 1: structurally it's more comparable to like like brokerage lending, so
Speaker 1: you know, margin lending or liquidity access lines from the
Speaker 1: you know, public equities worlds than it is analogous to
Speaker 1: peer to peer lending structurally, I'm not. I mean, I'm
Speaker 1: not super familiar with peer to peer lending markets as
Speaker 1: I haven't been an active user. Um, I'm aware of it,
Speaker 1: I've done research on it. I know how big it is,
Speaker 1: and even in other countries like in China, got really
Speaker 1: big and got kind ahead of itself. But when you
Speaker 1: have companies that are kind of essentially controlling that. Are
Speaker 1: you really doing peer to peer like a person to
Speaker 1: person and someone's in the middle managing that or is
Speaker 1: it really kind of not so it's more like portfolio
Speaker 1: lending or something. I think it depends a little bit
Speaker 1: on the implementation from the platform. So for example, like
Speaker 1: on lending Club, which is the largest peer to peer
Speaker 1: lending platform in the US UM currently, only about ten
Speaker 1: percent of the loans that Lending Club makes are financed
Speaker 1: peer to peer, meaning there's a retail individual on the
Speaker 1: other end who's providing the capital that goes towards making
Speaker 1: that loan, and it's completely centralized in the sense that
Speaker 1: lending Club is always making the loan. From a regulatory perspective,
Speaker 1: lending Club is controlling the decision about who gets approved
Speaker 1: for a loan and at what price UM. And then
Speaker 1: there's other types of you know, peer to peer lending
Speaker 1: implementations um at our different variations on that on that
Speaker 1: same on that same theme, Yeah, I was just curious
Speaker 1: how this model kind of fits because obviously, with black
Speaker 1: y I could loan or borrow, but it's not peer
Speaker 1: to peer, right, So I'm kind of going in with
Speaker 1: the company and then the company is kind of acting.
Speaker 1: So I guess it's similar to what the P twop
Speaker 1: industry is doing. But the good piece of it, which is,
Speaker 1: you know, I constantly state, you know how, the importance
Speaker 1: of being an investor because we need those returns. And
Speaker 1: with P two P or what you guys are doing,
Speaker 1: you're really giving people the option to to loan to
Speaker 1: make money right above above average interest. Yeah, that's exactly right.
Speaker 1: I mean, the exciting thing about peer to peer lending
Speaker 1: and about UM you know, one of block five's products
Speaker 1: that that enables you to earn interest on your crypto
Speaker 1: holdings is that it's a channel to make more money
Speaker 1: that didn't necessarily exist before. UM. The things that people
Speaker 1: got excited about from the peer to peer lending sector
Speaker 1: were the opportunities for portfolio diversification and income generation. Uh,
Speaker 1: and the bill to access those um even with you know,
Speaker 1: a one thousand or five thousand or ten thousand dollar investment,
Speaker 1: and that simply just didn't exist before that industry came around. Yeah.
Speaker 1: Now block fight kind of has two different products in
Speaker 1: a sense, right where either one I could borrow money
Speaker 1: against my crypto holdings or two I could just park
Speaker 1: them and received like above average above market interest or
Speaker 1: something like that. That right, that's that's exactly right. UM. So,
Speaker 1: if you have bitcoin or ether, you can open up
Speaker 1: a block fight account and earn interest the same way
Speaker 1: that you earn interest in a savings account from a bank, um,
Speaker 1: except without like f d i C insurance and some
Speaker 1: of those like banking protections that exist from the federal government. Um.
Speaker 1: But you earn interest in the asset that you've deposited.
Speaker 1: The interest is paid every month, and once the interest
Speaker 1: is paid to you, it becomes part of your balance
Speaker 1: and therefore your earning compound interest on the balances that
Speaker 1: you hold with Block five. At the same time, you
Speaker 1: have the ability to borrow US dollars against the value
Speaker 1: of that cryptocurrency that you have with Block five at
Speaker 1: rates as low as four point five percent per year UM.
Speaker 1: And when we do that, those loans are structured as
Speaker 1: interest only loans. UH. So, if you, you know, borrow
Speaker 1: ten thousand dollars at at four point five percent a year,
Speaker 1: your monthly payment would be you know, four and fifty
Speaker 1: dollars divided by twelve uh and then you can pay
Speaker 1: back the principle either at the end of that term
Speaker 1: or at a later date. And the reason I mentioned
Speaker 1: that structure is because for certain types of investing, specifically
Speaker 1: cash flow type investing in some of the velocity of
Speaker 1: money barbage rousers that you talk about in one of
Speaker 1: your other videos, where you're borrowing it for and investing
Speaker 1: in something that earns ten that interest only repayment structure
Speaker 1: can be really valuable in terms of getting incremental leverage
Speaker 1: from the cash flow that you're producing. Yeah, So for
Speaker 1: those of you on the podcast that maybe haven't watched
Speaker 1: the videos, we're talking about the concept of velocity of
Speaker 1: money where one dollar can do multiple jobs. So I
Speaker 1: can put into one account UM and pull it back
Speaker 1: out while it's still parked their earning interest, and then
Speaker 1: put it to another job. So for example, I could
Speaker 1: take my crypto. I could take my bitcoin UM that
Speaker 1: has gone up a hundred and fifty percent this year UM,
Speaker 1: and I could borrow against it. I'm paying four percent
Speaker 1: annually or four and a half percent annually, but hopefully
Speaker 1: making a percent annually, and then I can redeploy that
Speaker 1: money into now another asset, So for example, a piece
Speaker 1: of real estate like like Zach you mentioned in Texas,
Speaker 1: I could put into a piece of real estate. Now
Speaker 1: that hopefully I'm making seven on that. So now that
Speaker 1: one dollars do a multiple jobs. So catching you guys
Speaker 1: up on the velocity of money. Now, I love that concept.
Speaker 1: I always say Warren Buffett said, right, if if we
Speaker 1: don't learn how to make money when we sleep, will
Speaker 1: work till the day that we die. So it's all
Speaker 1: about putting that money to work. And totally is makes
Speaker 1: perfect sense because of the app because crypto is all
Speaker 1: about invested into a technology that needs to be developed.
Speaker 1: It's gonna take years, so we want to hodel. But
Speaker 1: being able to unlock that value UM is important. So
Speaker 1: you have those two different products, who are the people
Speaker 1: that would want either one of those products? And who
Speaker 1: do you typically see coming in? Is that like institutions?
Speaker 1: Is that retail people? Like what do you see? Yeah?
Speaker 1: Great question. So we think of our core client as
Speaker 1: being retail UM. So it's it's primarily individuals. We do
Speaker 1: have some small corporates that are that are also clients.
Speaker 1: So for example, a company that did an I c
Speaker 1: O and hold some crypto on their balance sheet or
Speaker 1: mining operations UM. But we also have his clients. But
Speaker 1: the platform is really built for retail, and we think
Speaker 1: of retail as being our our core customer. There are
Speaker 1: things that we do in the institutional market to facilitate
Speaker 1: the products that we're delivering to our core retail client.
Speaker 1: It so, for example, when we're lending dollars at four
Speaker 1: point UM, that capital is coming from an institutional lending
Speaker 1: facility that that that Block five has UM. When we're
Speaker 1: paying interest on bitcoin or ether deposits, the interest is
Speaker 1: generated by Block five lending bitcoin or Ether two institutional borrowers.
Speaker 1: But we think of those functions as being things that
Speaker 1: enable the delivery of the products to our to our
Speaker 1: core retail customer. And we have customers primarily in the
Speaker 1: US today. It's about our client base. Is uh is
Speaker 1: here in the United States? Outside the US? Now? Um?
Speaker 1: Is that is it because that you're more retail focused?
Speaker 1: I think on your terms, do you pay like less
Speaker 1: interest on larger balances? Right? So like smaller accounts get
Speaker 1: more and larger accounts get less? Is that right? That's
Speaker 1: that's correct. It doesn't seem it seems like I should
Speaker 1: be getting more for larger balances. Yeah, and in traditional markets, um,
Speaker 1: you absolutely do. Um. The differences about the cryptocurrency market
Speaker 1: right now that that drive that are that, Uh, the
Speaker 1: market to borrow cryptocurrency is nasan and undeveloped, and there's
Speaker 1: not a risk free rate of return that exists on
Speaker 1: bitcoin the same way that there is on a fiat currency. UM.
Speaker 1: So when we initially launched the product that enables you
Speaker 1: to earn interest publicly in March um we saw an
Speaker 1: influx of deposits and in general right now, if you
Speaker 1: just looked at the entire market of cryptocurrency and said, okay,
Speaker 1: how many people are interested in earning interest and how
Speaker 1: many are interested in borrowing, you would have an imbalance
Speaker 1: there where there's a lot more interest in earning the
Speaker 1: interest than there is interest in borrowing in that asset,
Speaker 1: at least today, because the market is still nascent. So
Speaker 1: the reason we implemented that structure is that we wanted
Speaker 1: to be able to offer an attractive interest rate to
Speaker 1: as many unique customers as as possible and put a
Speaker 1: little bit of a gating factor on how attractive this
Speaker 1: was to institutions or two particularly large holders of cryptocurrency.
Speaker 1: But the limits right now are are still pretty high
Speaker 1: from a retail perspective, So from for example, on Bitcoin,
Speaker 1: you earn a six percent interest rate on a deposit
Speaker 1: of up to twenty five bitcoin, which at current prices
Speaker 1: is right around uh just under a quarter million U
Speaker 1: S dollars equivalent, and on Ether it's a hundred ether,
Speaker 1: which is um around. So you kind of want to
Speaker 1: your more retail focus because you're a little bit more diversified.
Speaker 1: I see you have like, uh, no limits on when
Speaker 1: I can deposited withdraw, so I could imagine a huge
Speaker 1: withdraw could really affect you. So maybe by being more retail,
Speaker 1: keeping that mouth down, you're more diversified against that. That's
Speaker 1: that's a great that's a great point, and it's another
Speaker 1: factor of consideration from a risk management perspective. UM we
Speaker 1: benefit from diverse k and both in terms of our
Speaker 1: depositor base and in terms of our borrowing base. UM
Speaker 1: the other factors that we plan on launching additional products
Speaker 1: in the future. So from a UM you know, corporate
Speaker 1: business development perspective, at Block five, we benefit from having
Speaker 1: more users on the platform because when we launch things
Speaker 1: in the future, like you know, the ability to earn
Speaker 1: interest on your bitcoin in dollars or a crypto rewards
Speaker 1: credit card. Having more people on our platform that could
Speaker 1: also potentially use those subsequent products, is really valuable to us. Yeah,
Speaker 1: makes sense, makes sense. I want to get into that
Speaker 1: a little bit more later, but I want to ask
Speaker 1: one other question, so again, back onto, back onto the
Speaker 1: velocity of money, having one dollar to multiple jobs. I
Speaker 1: talked about like a whole life insurance vehicle where I
Speaker 1: could make eight percent borrow against the four or a
Speaker 1: house where I could borrow back out at four but
Speaker 1: I'm making ten. So there's that arbitrage spread. Now, I
Speaker 1: notice you you pay the difference of what I can
Speaker 1: borrow against or what I can earn. There's about a
Speaker 1: two percent to whatever percent spread. Um, Is there an
Speaker 1: arbitrage play or no, I have to choose one or
Speaker 1: the other. There's there's not as clear cut of an
Speaker 1: arbitrage play as in the examples that you describe. And
Speaker 1: the primary reason is that, UM, it's two different currencies.
Speaker 1: So we've got bitcoin in dollars in the in the
Speaker 1: block fire example versus just dollars in the example of
Speaker 1: you know a house where you're making other investments. UM.
Speaker 1: And the other reason is that when you're borrowing dollars
Speaker 1: from blocked by the collateral that you're using to secure
Speaker 1: those dollars that you're borrowing is not still earning interest. UM.
Speaker 1: But you know there are you know, arbitrage opportunities that
Speaker 1: are that are created on the fact that you know,
Speaker 1: we're paying interest on crypto and on the fact that
Speaker 1: you can get access to USD from a velocity of
Speaker 1: money perspective. Got it? Okay, good, Now we'll get into
Speaker 1: some tough questions, right, the stuff that the stuff that
Speaker 1: people should hopeful to be asking and and uh, like
Speaker 1: you said, you saw some of my videos and and uh,
Speaker 1: I wanted to kind of talk about UM. I talked
Speaker 1: about the lending aspect, and I said, hey, you know,
Speaker 1: obviously there's risk. Everything in life has risk, Right, If
Speaker 1: I do something, there's risk. If I don't do something,
Speaker 1: there's risk. UM And so what are UM I guess
Speaker 1: some of the risk that people would have obviously would
Speaker 1: be giving their money up. Now, as you mentioned giving
Speaker 1: it to a bank, there's fd I C insurance because
Speaker 1: they're holding my deposits. Now there are risks, the risk
Speaker 1: are very low, which is why the interest rate is
Speaker 1: super low. Obviously, now I'm going to get a higher
Speaker 1: interest rate return. But I would imagine there's higher risk. UM.
Speaker 1: Can you talk about some of those that maybe people
Speaker 1: should be aware of and what you do to kind
Speaker 1: of d risk that. Yeah, absolutely so UM. At a
Speaker 1: high level, you can bucket the risk into in the
Speaker 1: three separate categories. So there's UH, fraud risk, security risk,
Speaker 1: and credit risk. UM. The fraud risk is UH. You know,
Speaker 1: anyone who's followed crypto for a while, it might be
Speaker 1: familiar with like the big cone. UH. You know that
Speaker 1: for for better or worse, there have been some, UM,
Speaker 1: some shady characters in the cryptocurrency industry. There's been some scams,
Speaker 1: and there have been, you know, quite a few of
Speaker 1: those scams that had to do with this concept of
Speaker 1: like earn one percent interest per day, that type of thing.
Speaker 1: It sounds right, if it sounds good to be true,
Speaker 1: it absolutely is. We're definitely you know, I can I
Speaker 1: can guarantee that there's a zero percent risk that UM,
Speaker 1: that that we are in that bucket UH. And you
Speaker 1: know the way that you can verify that is by
Speaker 1: simply looking at the types of investors and backers that
Speaker 1: we have for the company. UM. Groups like Fidelity and
Speaker 1: Galaxy Digital and and other noteworthy kind of venture institutional
Speaker 1: type investors who you know obviously put us through a
Speaker 1: ton of diligence before before they make any of those investments. UM.
Speaker 1: Second risk security risk. UM we mitigate the security risk
Speaker 1: largely via a partnership with Jim and I. UM. So
Speaker 1: the other thing you have to be cognizant of in
Speaker 1: the cryptocurrency industry is is uh not having the private
Speaker 1: keys you know, hacked or or stolen from yourself or
Speaker 1: uh the entity that you're storing them with. UM Gemini
Speaker 1: is our is our custodial partner. They have insurance on
Speaker 1: all of the assets that are held on their platform.
Speaker 1: They were the first custodian to get a sack to audit,
Speaker 1: which is like a bank level security UM audit, and
Speaker 1: they have a perfect track record with with zero losses
Speaker 1: in terms of custody billions of dollars of crypto for
Speaker 1: many years now. UM. The last risk is probably the
Speaker 1: one that that we could do a whole separate you know,
Speaker 1: thirty minute or an hour long show on if we
Speaker 1: wanted to really get into the weeds of it. But
Speaker 1: it's that credit risk part, just the big money and there,
Speaker 1: and there's two components to the credit risk. So there's
Speaker 1: UM the counterparty risk that you're taking to Block five.
Speaker 1: So you know, is Block five well capitalized enough to
Speaker 1: continue operating its business? Does Block five have the proper
Speaker 1: say guards and separations of capital between our funds and
Speaker 1: our and our customers funds UM. That's one part of
Speaker 1: the risk UH. And and the other part of the
Speaker 1: credit risk is the pool of borrowers that we're lending
Speaker 1: the crypto to UM. Who are they, how well capitalized
Speaker 1: are they, how much collateral are they posting to Block
Speaker 1: five UM? And So just to touch on a couple
Speaker 1: of quick details on both of those points, and then
Speaker 1: we can we can go deeper in it or switch
Speaker 1: to another topic whatever you prefer. UM. In terms of
Speaker 1: the Block five side, so we have a number of
Speaker 1: operational and financial UH rails in place at the company
Speaker 1: UM that would raise flags or prevent any one person
Speaker 1: from taking actions that would blur the line between our
Speaker 1: customers funds UH and our own corporate you know, equity
Speaker 1: capital UM. And then in terms of who the pool
Speaker 1: of a wards that we're lending to our UH, we
Speaker 1: have a team UM that's that's headed up by a
Speaker 1: former managing director of prime brokeridge at Bank of America
Speaker 1: Merrill Lynch, who uh lent for you know, fifteen plus
Speaker 1: years there and and never lost a penny, including throughout
Speaker 1: two thousand and eight and two thousand nine. UM. And
Speaker 1: we on board every barrow. We're through both a counterparty
Speaker 1: credit risk framework and then a required collateralization level. UM.
Speaker 1: So for example, uh, if a borrower of cryptocurrency doesn't
Speaker 1: have a minimum net worth of as a general rule,
Speaker 1: fifty million UM, then we would always require over collateralization,
Speaker 1: meaning we would lend them a million dollars a bitcoin,
Speaker 1: but they give us one point to five million dollars
Speaker 1: in USD or stable coin. And then in that scenario
Speaker 1: where we're overcollateralized with dollars, we're using the same risk
Speaker 1: management system that's been operational for the us D ending
Speaker 1: side of our of our product stack since January, and
Speaker 1: we've uh, you know an either product never had a
Speaker 1: late payment or a loss or any legal issues. So
Speaker 1: our performance has has been perfect today. UM, I'll positive,
Speaker 1: but I'm having to drill in deeper. So UM it
Speaker 1: sounds like the big risk on that would be if
Speaker 1: the market were to crash so fast that you couldn't
Speaker 1: cover the collateral. That could be a problem. Now you
Speaker 1: mentioned earlier that you really want to focus on the
Speaker 1: main coins that have a lot of liquidity. We did
Speaker 1: see recently with Polonias they had a problem right where
Speaker 1: one of their coins had no liquidity and they lost
Speaker 1: a lot of money, and then they basically socialized those
Speaker 1: losses and made everyone take like a sixteen percent haircut. Um,
Speaker 1: But you don't really have that because you're working on
Speaker 1: more highly collateral or highly high liquidity coins. But I
Speaker 1: guess that would be one risk, right, Um, that's absolutely
Speaker 1: one risk. We actually UH evaluated UH lending on on
Speaker 1: polonia x as as a potential channel for us UH
Speaker 1: and couldn't get comfortable with some of the assets that
Speaker 1: they had on there. So fortunately we we got that
Speaker 1: one right um. And from a capital stack perspective, right now,
Speaker 1: our our equity and any employee contributions into the interest
Speaker 1: account our junior to our customers funds um. So so
Speaker 1: as it stands today, UH, we would you know, we
Speaker 1: would kind of close the doors at block five before
Speaker 1: we socialized any losses into our our pool of customer
Speaker 1: funds that are that are in the interest account. So
Speaker 1: For example, you had done the poloniax deal, you had
Speaker 1: taken a six hair cut. You're saying Block five would
Speaker 1: be ready to take that loss as opposed to trying
Speaker 1: to push it into everybody else. Correct, we would have
Speaker 1: eaten it. And uh to give you another data point
Speaker 1: which would be helpful. So like, even if we were
Speaker 1: lending on poloni x, um that exposure would be maximum
Speaker 1: five percent of our total lending activity. Uh So the
Speaker 1: haircut relative to Block five's pool of capital that it's
Speaker 1: lending an aggregate would be uh, you know five percent times.
Speaker 1: I can't do that math in my head. Um. And
Speaker 1: then and then yes, we would, we would. We would
Speaker 1: take that loss out of out of our equity capital
Speaker 1: rather than socialize it. Got it. Now, I'm guessing the
Speaker 1: funds are co mingled, so there's really no separation there
Speaker 1: is that correct? Correct, everything's co mingled once it hits
Speaker 1: Jim and I. The way the system works is that
Speaker 1: we create a unique deposit address that maps one to
Speaker 1: one with each one of our customers. We monitor the
Speaker 1: blockchain to record activity into anyone customer's account, but when
Speaker 1: crypto is sent to a customer's unique address, it's instantly
Speaker 1: swept into a master custodial account with Jim and I
Speaker 1: and then into cold storage per their uh you know,
Speaker 1: treasury management function. Is there some sort of like uh
Speaker 1: you SEC filing or something that shows that I have
Speaker 1: something there in case creditors were to come in and
Speaker 1: shut down or something like that. Who there's not. Um,
Speaker 1: there's not a U c C filing when you deposit
Speaker 1: into the interest account. No, okay, but you did say
Speaker 1: that that that all the lenders are senior to the
Speaker 1: other debts, so in event of some sort of liquidation,
Speaker 1: the senior would get the money first. I guess, right, correct. Okay,
Speaker 1: Well that's at least that's at least good. Um, but
Speaker 1: good stuff there. Now, those are the tough questions. I
Speaker 1: appreciate you for going into that. Like you said, we
Speaker 1: could probably dig in deeper. But I think that's that's
Speaker 1: pretty good. Um. I'm curious about the future of block buying.
Speaker 1: So I've seen other platforms like next so for example,
Speaker 1: right returning profits back to token holders. Um Celsius has
Speaker 1: a token. You guys don't have a token. Um, let's
Speaker 1: maybe talk about the future. Is there some sort of
Speaker 1: profit share in the down the road or token or
Speaker 1: something like that. UM, highly unlikely that that will ever
Speaker 1: have a token. UH if we if we did do
Speaker 1: something similar to that, it would be more like UM,
Speaker 1: you know, offering access to a subsequent equity UH funding
Speaker 1: round on a equity crowdfunding platform like a bank to
Speaker 1: the future like what kracking just did, or or some
Speaker 1: of the others like seed Invests, which is owned by
Speaker 1: Circle UM. So you know, no token, We think that
Speaker 1: that value should just be passed through to you know,
Speaker 1: offering the best rates. UM. What you'll see from us
Speaker 1: in terms of platform development UH is continued improvement on
Speaker 1: the on the products that we already have in terms
Speaker 1: of features and functionality and visualizations UM, and then we
Speaker 1: plan on launching two additional products over the next year. UM.
Speaker 1: The first is the ability to kind of do asset
Speaker 1: conversion on our platform, so for example, UH selecting the
Speaker 1: asset that you want to earn your interest in regardless
Speaker 1: of what asset you've deposited. So for example, you've deposited bitcoin,
Speaker 1: but you want to earn interest every month in dollars
Speaker 1: or UH the other way around. UM. And also just
Speaker 1: being able to UH manage a targeted portfolio allocation within
Speaker 1: our platform versus having to move assets off of our
Speaker 1: platform to uh, you know, exchange them for other assets
Speaker 1: somewhere else. And then in the first half of next year,
Speaker 1: we expect to launch a bitcoin rewards credit card where
Speaker 1: you know, just swap airline miles or normal cash back
Speaker 1: on a credit card out for one cash back uh
Speaker 1: in in bitcoin, based on how much you're spending on
Speaker 1: the card. So that's kind of our you know, immediate
Speaker 1: roadmap that that we we're focused on. Very cool, very cool. Um.
Speaker 1: What do you think about regulations and how that puts
Speaker 1: risk for the company? Block flight risk, not you know,
Speaker 1: credit or risk as you said that, So it's a
Speaker 1: fourth one that we didn't cover, but regulatory risk. So
Speaker 1: um for those that have been living under a rock
Speaker 1: the last twenty four hours, uh facebook coin announced their
Speaker 1: coming out and now several big governments are saying no,
Speaker 1: you're not right, um right or something like that. What
Speaker 1: do you think about that and what kind of risk
Speaker 1: is that posed for you? Yes, so I think, um,
Speaker 1: I think we've taken a very different approach, for example,
Speaker 1: than than uh than others like Celsius and next so
Speaker 1: who you mentioned, um, you know, we came from the
Speaker 1: fintech world. Started the company in the summer of seventeen
Speaker 1: in the middle of the I c oh boom and
Speaker 1: and one of the reasons, and they were multiple, but
Speaker 1: one of the reasons why we elected to not finance
Speaker 1: the company's operations by conducting a token sale was we
Speaker 1: felt that would put a level of um regulatory uncertainty
Speaker 1: and regulatory risk on on the company that wasn't necessarily
Speaker 1: value add to our users. UM. So, you know, we
Speaker 1: The other thing that we did is we've had a
Speaker 1: k y C and a m L policy from day one.
Speaker 1: We have gotten licenses to uh operate the lending activities
Speaker 1: that we're doing in the states that we need them
Speaker 1: from day one, which you know, we've got some battle
Speaker 1: scars from that from back in like explaining explaining why
Speaker 1: making someone alone secured by the value in their bitcoin
Speaker 1: wasn't illegal to you know, the state regulators of California,
Speaker 1: for example. UM. But we hold lending licenses, we update them,
Speaker 1: we're sharing information with with the necessary regulators. UM. So
Speaker 1: we sleep pretty pretty well at night, uh in terms
Speaker 1: of the regulatory risk frankly, UM, but I think for
Speaker 1: for the sector overall, uh, Yeah, for the sector overall.
Speaker 1: Um I feel like bitcoins in a great spot. I
Speaker 1: feel like ethereums in a great spot, at least in
Speaker 1: the US market. Maybe in other markets, especially market that
Speaker 1: have weaker currencies, they could be they could be a
Speaker 1: bit more at risk. Um And. I think governments are
Speaker 1: really not gonna like libra coin um and. And the
Speaker 1: reason is that, like with with Bitcoin and the hereum,
Speaker 1: they're really they're really not, at least today, trying to
Speaker 1: go at the core of what a government currency is
Speaker 1: going after um or at least they're not successful enough
Speaker 1: at it yet for for a major government to think
Speaker 1: that it's a risk to them. Uh. Whereas libra coin
Speaker 1: is basically designed the same way as like the special
Speaker 1: drawing rights of the i m F, where it's like,
Speaker 1: if something were to happen, the i m F would
Speaker 1: have the ability to take the basket of currencies that
Speaker 1: it's holding an issue a new currency. And that's basically
Speaker 1: what Facebook is trying to do. And Facebook is already
Speaker 1: on somewhat shaky ground because of the privacy and data stuff.
Speaker 1: Um So I think that one's gonna get I think
Speaker 1: it's gonna have a lot of governmental challenges it's obviously
Speaker 1: not going to be decentralized from day one, which is
Speaker 1: another which is another problem that it faces. But I
Speaker 1: think that for bitcoin, UM, it's gonna be on a
Speaker 1: great path. I think good things are going to continue
Speaker 1: to happen in the US and other major markets. I
Speaker 1: think there's gonna be this snowball effect that that has
Speaker 1: continued even throughout the bear market of UH institutional adoption UM,
Speaker 1: which ultimately, you know, at some point in the future
Speaker 1: will lead to UH government adoption in some way, shape
Speaker 1: or form. You'll have a central bank, a small one initially,
Speaker 1: but you'll have a central bank putting bitcoin on its
Speaker 1: balance sheet, and then that's going to create this massive snowball.
Speaker 1: So you know, I'm really bullish on on bitcoin. Yeah, yeah,
Speaker 1: I agree. UM, It's it's interesting just to see the
Speaker 1: shake up in that and hopefully what I hope is
Speaker 1: that what the government's wanted to be cracked down on
Speaker 1: libracoin it doesn't UM, some of that regulatory stuff doesn't
Speaker 1: spill over into a bigger crypto. For that, we'll just
Speaker 1: have to wait and see. UM. So you know what,
Speaker 1: it's just just good to have that conversation. But I think,
Speaker 1: you know what, what I believe is that volatility. It
Speaker 1: is like the difference of perception and reality. So in
Speaker 1: everybody perceived bitcoin and crypto to be way higher than
Speaker 1: it really was. The reality wasn't the technology wasn't there,
Speaker 1: and then then of course a crash and now perceptions here.
Speaker 1: But but the reality is it's gotten way better. Right
Speaker 1: now we have more scale and solutions and more adoption,
Speaker 1: and I think, um, and and then I think that
Speaker 1: the perception needs to come back up, which we'll see
Speaker 1: that price come up, which it already is. And I
Speaker 1: think I think options like what block Fire is providing
Speaker 1: is going to help that because it doesn't it allows
Speaker 1: people an option without having to sell, and so they
Speaker 1: can stay in, they can holdele and ultimately that that
Speaker 1: should be good for the ecosystem. Right yeah, I mean
Speaker 1: I can tell you just uh, you know, firsthand. Since
Speaker 1: we've launched the ability to turn six percent interest on
Speaker 1: your bitcoin, we've had people come to us who don't
Speaker 1: own Dickcoin yet and and they'll say, like, you know,
Speaker 1: I'm not sure exactly how a bitcoin works, but I
Speaker 1: know that I'm not earning six percent interest on you know,
Speaker 1: on other assets that I hold so, um, can I
Speaker 1: buy some through you? And we right now we say, well,
Speaker 1: actually you should go to you know, one of these
Speaker 1: other places to buy it and then and then send
Speaker 1: it over to us. UM. But it's a core you know,
Speaker 1: it's a core part of functionality, and it might not
Speaker 1: be for everyone, it might not meet everyone's risk tolerance. UM,
Speaker 1: but it's it's definitely a natural evolution of the ecosystem.
Speaker 1: I certainly love it. I was like the first I
Speaker 1: was the first customer of earning interest on my bitcoin
Speaker 1: and a lot of the products that we're building are
Speaker 1: based on things that you know, I and others here
Speaker 1: on our on our team want to use. So we're
Speaker 1: excited about it. Yeah. Well, like you said when you
Speaker 1: started write, your research kind of lines up with what
Speaker 1: I talked about, and it's about having one dollar do
Speaker 1: multiple jobs and this is the perfect way to do that.
Speaker 1: So UM, I think I think it's great for the
Speaker 1: ecosystem overall. UM. Yeah, pleasure to have you on a
Speaker 1: really good conversation. I love that we kind of share
Speaker 1: some uh investment ideas kind of the same UM there
Speaker 1: and as really cool. UM. So where would people go
Speaker 1: to learn more about block fire to follow you. Yeah, sure, so.
Speaker 1: Our website is block five dot com. You can you
Speaker 1: can find me on Twitter. I'm I'm block five zach Um.
Speaker 1: And you know, if you want to shoot an email,
Speaker 1: my email z A C. At block five dot com.
Speaker 1: We have chat on our website. We've got a phone
Speaker 1: number on our website. We've got a bunch of really
Speaker 1: smart people on the team that are happy to take
Speaker 1: questions or just you know, here people's feedbacks, So don't
Speaker 1: hesitate to reach out. So you're not hard to find it.
Speaker 1: It's not hard to find great. All right, Well, that's
Speaker 1: it for today, Thanks for joining in, Thanks for having me.
Speaker 1: I hope to meet you in person next week. Mark. Yeah,