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Speaker 1: So the big question is this, how do investors like

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Speaker 1: us get access to the ideas, information, and most importantly,

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Speaker 1: the right people that give us the tools and information

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Speaker 1: we need to make conformed and educated decisions to have success.

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Speaker 1: That is the question, and this podcast will give us

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Speaker 1: the answers. This is Mark Moss, your host. Let's get

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Speaker 1: this started. Welcome to another episode of the Market Disruptors podcast.

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Speaker 1: Today we are joined by Zach Prince, who is the

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Speaker 1: founder and CEO of Block five, which is a crypto

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Speaker 1: lending platform. It fits within the crypto defied decentralized finance space,

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Speaker 1: and this is one of the most requested interviews that

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Speaker 1: we've had. If you follow the Market Disruptors YouTube channel,

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Speaker 1: you've seen we've done a few videos on putting one

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Speaker 1: dollar to work on multiple jobs. We call it the

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Speaker 1: velocity of money. It's the fastest way to get wealth

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Speaker 1: by taking one dollar and making it do multiple jobs.

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Speaker 1: And this is one way you can do that using cryptocurrency.

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Speaker 1: And of course, like anything, there's risks. And so today

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Speaker 1: we are sitting down with Zach. We are learning a

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Speaker 1: little bit of his background, how his background leads into

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Speaker 1: him running this company. But more importantly, we are asking

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Speaker 1: him the tough questions that you should be asking before

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Speaker 1: you ever used a platform like this. So it was

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Speaker 1: a great interview, answered a lot of questions. Um, I

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Speaker 1: definitely have a lot more awareness about the platform than

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Speaker 1: I did before, and we get into some interesting discussions

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Speaker 1: about where the future of the company, the future of

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Speaker 1: the space, and regulations and whatnot are headed. It's a

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Speaker 1: great interview and uh, let's get right into it, all right,

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Speaker 1: Welcome to another episode of the Market Disruptor Show. I

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

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

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

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

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Speaker 1: of money, unlocking capital, things like that, and they're right

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

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Speaker 1: the questions that you should be asking if you could.

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Speaker 1: And so anyway, welcome to the show's act. Hey, Mark,

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Speaker 1: thanks for having me. Yeah, so you know, we had

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Speaker 1: some conversations before and uh, and you're kind of tell

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Speaker 1: me a little bit how you got here with crypto

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Speaker 1: and into this company, and there's really some intersections with

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Speaker 1: what I talked about a lot. So give us a

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Speaker 1: little bit of background on who you are and how

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Speaker 1: you got here. Yeah. Sure, So, you know, first off,

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Speaker 1: thanks for having me. Uh. I was telling you right

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Speaker 1: before we hit record that I'm a big fan of

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Speaker 1: the content that you're putting out there. UM. My background

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Speaker 1: is that I've always worked in venture backed technology companies

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

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Speaker 1: was in the online lending sector UM at one company

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

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

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Speaker 1: offered an option for retail participation on the platform. UH so,

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Speaker 1: uh you could invest in consumer loans or commercial real

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Speaker 1: estate loans, or invoice receivables UM. And I was also

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Speaker 1: tracking other parts of fintech like grobo advisors and things

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

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Speaker 1: about it, you know, all the time, basically, and so

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Speaker 1: I started a little blog on the side, and that's

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Speaker 1: what led me to cryptocurrency UM. I bought my first

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Speaker 1: bitcoin at the end of UH. Found ethereum early and

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Speaker 1: then on the velocity of money topic. I was actually

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Speaker 1: in early seventeen UM planning on buying a property in

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Speaker 1: Texas that that was going to be a rental property.

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Speaker 1: And obviously, at that point in time, cryptocurrency prices had

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Speaker 1: gone up a fair amount, and I was feeling really

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Speaker 1: proud of myself for having made that investment, and I

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Speaker 1: was curious what the bank would think about those assets

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Speaker 1: and whether they would um prescribe any valued to them

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Speaker 1: in terms of their underwriting decision. And so I included

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Speaker 1: bitcoin and ether as line items on my financial statement

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Speaker 1: that I submitted to a bank that I was applying

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Speaker 1: for a loan for a property. Um. You know, not

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Speaker 1: only did they say we think of these as a

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Speaker 1: big fat zero in terms of how much they're worth,

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Speaker 1: but they also said, uh, well, we're gonna have to

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Speaker 1: put you through some extra compliance checks now we think

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Speaker 1: you might be involved in some illicit activity um, that

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Speaker 1: type of stuff, because there was a lot less awareness

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Speaker 1: about these types of assets back then than there is now. Um.

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Speaker 1: And that was when I had a lightbulb moment for

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Speaker 1: Block five. And basically the idea was that cryptocurrency was

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Speaker 1: going to continue to be a growing asset class. I

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Speaker 1: started believing tremendously in some of the you know, value

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Speaker 1: propositions that these assets have in terms of privacy, in

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Speaker 1: terms of global access to uh you know, venture capital

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Speaker 1: like returns, or just you know, novel assets that could

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Speaker 1: appreciate a lot of value, and eventually decided to start

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Speaker 1: a company around that idea in the summer of and

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Speaker 1: that's and that's block five. UM. We first started as

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Speaker 1: as a platform where you could borrow money supported by

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Speaker 1: the value that you had in cryptocurrency, because so kind

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Speaker 1: of checking that box that traditional banks don't check. And

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Speaker 1: we've expanded, you know, both the products and services that

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Speaker 1: we offer since then and also our vision for what

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Speaker 1: we think the company can become over time. Now, you

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Speaker 1: came from, like you said, fintech financial technology UM, and

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Speaker 1: you were working in the peer to peer lending space UM.

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Speaker 1: And did you transition straight from that into block fire? Yes,

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Speaker 1: So I worked at I worked at two different companies

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Speaker 1: in that space, One Orchard, where we were a data

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Speaker 1: aggregator and and technology provider to institutional investors that were

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Speaker 1: buying loans or lending directly to all of the major

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Speaker 1: platforms lending clubs so far, Prosper Funding Circle, et cetera.

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Speaker 1: I think we had around two hundred different online lenders

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Speaker 1: in our database and on our system, and then our

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Speaker 1: institutional clients were banks, large credit funds, large family offices,

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Speaker 1: all different types of institution capital that we're we're buying

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Speaker 1: loans from those places. And I also spent about two

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Speaker 1: years at a at a consumer lender called Zimbi that

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Speaker 1: uh finances large ticket retail purchases at the point of

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Speaker 1: sale for um individuals who have low FICO scores or

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Speaker 1: no FICO score because they're they're not a US citizen,

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Speaker 1: that type of thing, and then started blocked off. Do

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Speaker 1: you think this disrupts the peer to peer lending space?

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Speaker 1: I think that, um, there are you know, learnings from

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Speaker 1: peer to peer lending that can be applied to building

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Speaker 1: businesses UM in the cryptocurrency lending space. Uh, but I

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Speaker 1: think it's pretty different. So a lot of the things

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Speaker 1: that you know happened in in the peer to peer

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Speaker 1: lending world were based on credit scores or financing different

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Speaker 1: assets like real estate or invoices or equipment. UM. So

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Speaker 1: I actually think that structurally it's more comparable to like

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Speaker 1: like Burrokeridge landing, so you know, margin lending or liquidity

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Speaker 1: access lines from the you know, public equities worlds than

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Speaker 1: it is analogous to peer to peer lending structurally, I'm not.

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Speaker 1: I mean, I'm not super familiar with peer to peer

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Speaker 1: lending markets as I haven't been an active user. I'm

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Speaker 1: aware of it. I've done research on it. I know

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Speaker 1: how big it is, and even in other countries like

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Speaker 1: in China, got really big and got kind ahead of itself. UM.

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Speaker 1: But when you have companies that are kind of essentially

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Speaker 1: controlling that, are you really doing peer to peer like

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

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Speaker 1: or is it really kind of not so it's more

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Speaker 1: like portfolio lending or something. I think it depends a

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

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

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

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Speaker 1: ten percent of the loans that lending Club makes are

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

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

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Speaker 1: making that loan. And it's completely centralized in the sense

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Speaker 1: that lending Club is always making the loan. From a

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Speaker 1: regulatory perspective, lending Club is controlling the decision about who

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Speaker 1: gets approved for a loan and at what price? UM.

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

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Speaker 1: peer lending implementations UM that are different variations on that

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Speaker 1: on that same on that same theme. Yeah, it's just

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

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Speaker 1: black Way, I could loan or borrow, but it's not

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

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Speaker 1: with 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 ability 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. Now,

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Speaker 1: block fight kind of has two different products in a sense,

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Speaker 1: right where either one I could borrow money against my

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Speaker 1: crypto holdings, or two I could just park them and

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Speaker 1: receive like above average above market interest or something like that.

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Speaker 1: That right, that's that's exactly right. UM. So if you

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

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Speaker 1: five account and earn interest the same way that you

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Speaker 1: earn interest in a savings account from a bank, UM,

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Speaker 1: except without like FDIC insurance and some of those like

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Speaker 1: banking protections that exists from the federal government. UM. But

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

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

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

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

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Speaker 1: hold With block five. At the same time, you have

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

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

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Speaker 1: 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 trousers that you talk about in one of

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

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

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

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

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

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Speaker 1: we're talking about the concept of velocity of money where

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

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Speaker 1: into one account um and pull it back out while

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

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Speaker 1: to another job. So for example, I could take my crypto.

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Speaker 1: I could take my bitcoin UM that has gone up

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Speaker 1: a hundred and fifty this year UM, and I could

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Speaker 1: borrow against it. I'm paying four percent annually or four

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Speaker 1: and a half percent annually, but hopefully making a hundred

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Speaker 1: percent annually, and then I can redeploy that money into

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Speaker 1: now another asset. So for example, a piece of real

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Speaker 1: estate like like Zach you mentioned in Texas, I can

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Speaker 1: put into a piece of real estate now that hopefully

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

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Speaker 1: do a multiple jobs. So catching you guys up on

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

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Speaker 1: always say Warren Buffett said, right, if if we don't

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Speaker 1: learn how to make money when we sleep, will work

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

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

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

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Speaker 1: invested into a technology that needs to be developed. It's

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Speaker 1: gonna take years, so we want to total but being

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

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

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

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Speaker 1: you typically see coming in is that like institutions. Is

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Speaker 1: that retail people like, what do you see? Yeah, great question.

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Speaker 1: So we think of our core client as being retail UM.

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Speaker 1: So it's it's primarily individuals. We do have some small

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Speaker 1: corporates that are that are also clients. So for example,

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Speaker 1: a company that did an I c O and hold

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Speaker 1: some crypto on their balance sheet or mining operations UM,

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Speaker 1: we also have his clients. But the platform is really

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Speaker 1: built for retail, and we think of retail as being

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Speaker 1: our our core customer. There are things that we do

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Speaker 1: in the institutional market to facilitate the products that we're

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Speaker 1: delivering to our core retail client. So for example, when

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Speaker 1: we're lending dollars at four p um, that capital is

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Speaker 1: coming from an institutional lending facility that that that Block

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Speaker 1: five has um. When we're paying interest on bitcoin or

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Speaker 1: ether deposits, the interest is generated by Block five lending

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Speaker 1: bitcoin or ether two institutional borrowers. But we think of

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Speaker 1: those functions as being things that enable the delivery of

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Speaker 1: the products to our to our core retail customer. And

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Speaker 1: we have customers primarily in the US. Today, it's about

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Speaker 1: our client base is UH is here in the United

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Speaker 1: States and sent outside the US now, Um, is that

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

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

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Speaker 1: larger balances? Right, so like smaller accounts get more and

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Speaker 1: larger accounts get less? Is that right? That's that's correct.

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Speaker 1: It doesn't seem it seems like I should be getting

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Speaker 1: more for larger balances. Yeah. Uh. And 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 nason 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 UM and put

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

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Speaker 1: this was to institutions or h two particularly large holders

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Speaker 1: of cryptocurrency. But the limits right now are are still

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Speaker 1: pretty high from a retail perspective. So from for example,

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Speaker 1: on Bitcoin, you earn a six percent interest rate on

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Speaker 1: a deposit of up to twenty five bitcoin, which at

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Speaker 1: current prices is right around uh, just under a quarter

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

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

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Speaker 1: your more retail focused because you're a little bit more

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Speaker 1: diverse to fight. I see you have like, uh no

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Speaker 1: limits on when I can deposited withdraw, so I could

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Speaker 1: imagine a huge withdraw could really affect you. So maybe

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Speaker 1: by being more retail, keeping that mouth down, you're more

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Speaker 1: diversified against that. That's that's a great that's a great point,

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Speaker 1: and it's another factor of consideration from a risk management perspective. UM,

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Speaker 1: we benefit from diversification both in terms of our depositor

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

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

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

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

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

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

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Speaker 1: on your bitcoin in dollars or a crypto rewards credit card,

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Speaker 1: having more people on our platform they could also potentially

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Speaker 1: 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 two percent spread. Um, is there

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

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Speaker 1: or the other there's there's not as clear cut of

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

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Speaker 1: And 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 five 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, arbitraze 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. The still the stuff that the stuff

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Speaker 1: that people should hopefully 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 is that maybe

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

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

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

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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 connect UH. You know that

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

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Speaker 1: 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 probably 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 other noteworthy kind of venture institutional type

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

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Speaker 1: 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 Gemini UM. So the other

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

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Speaker 1: industry is is UH not having the private keys you know,

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Speaker 1: hacked or or stolen from yourself or uh the entity

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Speaker 1: that you're storing them with. UM. Gemini is our is

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Speaker 1: our custodial partner. They have insurance on all of the

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Speaker 1: assets that are held on their platform. They were the

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Speaker 1: first custodian to get a sack to audit, which is

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Speaker 1: like a bank level security UM audit, and they have

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Speaker 1: a perfect track record with with zero losses in terms

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Speaker 1: of custody billions of dollars of crypto for many years now. UM.

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Speaker 1: The last risk is probably the one that that we

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Speaker 1: could do a whole separate you know, thirty minute it

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Speaker 1: are an hour long show on if we wanted to

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Speaker 1: really get into the weeds of it. But it's that

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Speaker 1: credit risk part, just the big and there. And there's

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

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Speaker 1: counterparty risk that you're taking to Block five. So you know,

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Speaker 1: is Block five well capitalized enough to continue operating its business?

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Speaker 1: Does Block five have the proper safeguards and separations of

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Speaker 1: capital between our funds and our and our customers funds? Um,

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Speaker 1: that's one part of the risk, uh. And and the

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Speaker 1: other part of the credit risk is the pool of

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Speaker 1: borrowers that we're lending the crypto to. UM. Who are they,

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Speaker 1: how well capitalized are they? How much collateral are they

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Speaker 1: posting to Block five? UM? And so just to touch

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Speaker 1: on a couple of quick details on both of those points,

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Speaker 1: and then we can we can go deeper in it

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Speaker 1: or switch to another topic whatever you prefer. UM. In

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Speaker 1: terms of the Block five side, So we have a

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Speaker 1: number of operational and financial UH rails in place at

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Speaker 1: the company UM that would raise flags or prevent any

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Speaker 1: one person from taking actions that would blur the line

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

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

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Speaker 1: pool of barrowers that we're lending to our we have

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

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Speaker 1: managing director of Prime Brokeridge at Bank of America, Merrill Lynch,

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Speaker 1: who UH lent for you know, fifteen plus years there

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Speaker 1: and and never lost a penny, including throughout two thousand

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

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Speaker 1: board every barrower through both a counterparty credit risk framework

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Speaker 1: and then a required collateralization level UM. So, for example, UH,

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Speaker 1: if a borrower of cryptocurrency doesn't have a minimum net

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Speaker 1: worth of, as a general rule, fifty million UM, then

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Speaker 1: we would always require over collateralization, meaning we would lend

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Speaker 1: them a million dollars a bitcoin, but they give us

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Speaker 1: one point to five million dollars in the US d

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Speaker 1: or stable coin. And then in that scenario where we're

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

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Speaker 1: that's been operational for the us D lending side of

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Speaker 1: our of our product stack since January and we've uh,

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Speaker 1: you know an either product never had a late payment

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Speaker 1: or a loss or any legal issues. So our performance

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Speaker 1: has has been perfect today. Um, I'll positive I'm having

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Speaker 1: to drill in deeper. So UM it sounds like the

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Speaker 1: big risk on that would be if the market were

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Speaker 1: to crash so fast that you couldn't cover the collateral.

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Speaker 1: That could be a problem. Now you mentioned earlier that

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Speaker 1: you really want to focus on the main coins that

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Speaker 1: have a lot of liquidity. We did see recently with Polonias.

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Speaker 1: They had a problem right where one of their coins

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Speaker 1: had no liqual city and they lost a lot of money,

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Speaker 1: and then they basically socialized those losses that made everyone

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Speaker 1: take like a six haircut. Um, but you don't really

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Speaker 1: have that because you're working on more highly collateral or

433
00:24:10,440 --> 00:24:12,960
Speaker 1: highly high liquidity coins. But I guess that would be

434
00:24:12,960 --> 00:24:17,400
Speaker 1: one risk, right, Um, that's absolutely one risk. We actually

435
00:24:18,080 --> 00:24:23,040
Speaker 1: UH evaluated UH lending on on Polonias as as a

436
00:24:23,119 --> 00:24:26,520
Speaker 1: potential channel for us UH and couldn't get comfortable with

437
00:24:26,560 --> 00:24:28,280
Speaker 1: some of the assets that they had on there. So

438
00:24:28,440 --> 00:24:32,360
Speaker 1: fortunately we we got that one right, um. And from

439
00:24:32,400 --> 00:24:38,439
Speaker 1: a capital stacked perspective, right now, our our equity and

440
00:24:38,600 --> 00:24:43,720
Speaker 1: any employee contributions into the interest account our junior to

441
00:24:43,760 --> 00:24:48,879
Speaker 1: our customers funds. Um. So so as it stands today, uh,

442
00:24:49,080 --> 00:24:51,760
Speaker 1: we would, you know, we would kind of close the

443
00:24:51,800 --> 00:24:55,600
Speaker 1: doors at Block five before we socialized any losses into

444
00:24:55,880 --> 00:24:58,119
Speaker 1: our our pool of customer funds that are that are

445
00:24:58,119 --> 00:25:00,400
Speaker 1: in the interest account. So for example, what you had

446
00:25:00,440 --> 00:25:03,400
Speaker 1: done the Polonius deal, you had taken a six hair cut,

447
00:25:03,640 --> 00:25:05,560
Speaker 1: you're saying Block five would be ready to take that

448
00:25:05,640 --> 00:25:08,959
Speaker 1: loss as opposed to trying to push it into everybody else. Correct,

449
00:25:09,040 --> 00:25:11,359
Speaker 1: we would have eaten it. And uh, to give you

450
00:25:11,400 --> 00:25:14,280
Speaker 1: another data point which would be helpful. So like even

451
00:25:14,320 --> 00:25:19,360
Speaker 1: if we were lending on Poloni x um, that exposure

452
00:25:19,640 --> 00:25:25,000
Speaker 1: would be maximum five percent of our total lending activity.

453
00:25:25,800 --> 00:25:28,399
Speaker 1: So the haircut relative to Block five's pool of capital

454
00:25:28,440 --> 00:25:31,040
Speaker 1: that it's lending an aggregate would be uh, you know

455
00:25:31,119 --> 00:25:34,439
Speaker 1: five percent times sent. I can't do that math in

456
00:25:34,520 --> 00:25:37,080
Speaker 1: my head. Um, And then and then yes, we would,

457
00:25:37,440 --> 00:25:39,800
Speaker 1: we would. We would take that loss out of out

458
00:25:39,800 --> 00:25:43,440
Speaker 1: of our equity capital rather than socialize it. Got it now,

459
00:25:43,880 --> 00:25:46,720
Speaker 1: I'm guessing the funds are co mingled, so there's really

460
00:25:46,760 --> 00:25:51,040
Speaker 1: no separation there is that correct, Correct, everything's co mingled

461
00:25:51,119 --> 00:25:53,359
Speaker 1: once it hits Jim and I. The way the system

462
00:25:53,359 --> 00:25:56,240
Speaker 1: works is that we create a unique deposit address that

463
00:25:56,320 --> 00:25:58,440
Speaker 1: maps one to one with each one of our customers.

464
00:25:58,920 --> 00:26:03,160
Speaker 1: We monitor the block chain to record activity into anyone

465
00:26:03,240 --> 00:26:07,600
Speaker 1: customers account. But when crypto is sent to a customer's

466
00:26:07,680 --> 00:26:12,919
Speaker 1: unique address, it's instantly swept into a master custodial account

467
00:26:12,960 --> 00:26:16,480
Speaker 1: with Jim and I and then into cold storage per there.

468
00:26:17,160 --> 00:26:20,960
Speaker 1: Uh you know, treasury management function. Is there some sort

469
00:26:21,000 --> 00:26:24,199
Speaker 1: of like u c C filing or something that shows

470
00:26:24,200 --> 00:26:26,280
Speaker 1: that I have something there in case creditors were to

471
00:26:26,280 --> 00:26:28,960
Speaker 1: come in and shut down or something like that. Um,

472
00:26:29,000 --> 00:26:31,600
Speaker 1: there's not a u c C filing when you deposit

473
00:26:31,680 --> 00:26:36,880
Speaker 1: into the interest account. No, okay, but you did say

474
00:26:36,920 --> 00:26:40,359
Speaker 1: that that that all the lenders are senior to the

475
00:26:40,400 --> 00:26:43,120
Speaker 1: other debts, so in event of some sort of liquidation,

476
00:26:43,200 --> 00:26:48,359
Speaker 1: the senior would get the money first, I guess, right. Correct. Okay,

477
00:26:48,720 --> 00:26:50,960
Speaker 1: Well that's at least that's at least good. Um, but

478
00:26:51,040 --> 00:26:52,879
Speaker 1: good stuff there. Now, those are the tough questions. I

479
00:26:52,920 --> 00:26:55,000
Speaker 1: appreciate you for going into that like you said, we

480
00:26:55,040 --> 00:26:57,400
Speaker 1: could probably dig in deeper. But I think that's that's

481
00:26:57,400 --> 00:27:01,040
Speaker 1: pretty good. UM. I'm curious about the future of block buying.

482
00:27:01,640 --> 00:27:05,520
Speaker 1: So I've seen other platforms like Nexto for example, right

483
00:27:05,600 --> 00:27:10,639
Speaker 1: returning profits back to token holders. UM. Celsius has a token.

484
00:27:10,720 --> 00:27:14,000
Speaker 1: You guys don't have a token. UM, let's maybe talk

485
00:27:14,000 --> 00:27:16,800
Speaker 1: about the future. Is there some sort of profit sharing

486
00:27:16,840 --> 00:27:21,919
Speaker 1: in the down the road or token or something like that. UM.

487
00:27:22,720 --> 00:27:26,199
Speaker 1: Highly unlikely that that will ever have a token. UH.

488
00:27:26,320 --> 00:27:28,240
Speaker 1: If we if we did do something similar to that,

489
00:27:28,320 --> 00:27:31,560
Speaker 1: it would be more like UM, you know, offering access

490
00:27:31,680 --> 00:27:36,960
Speaker 1: to a subsequent equity UH funding around on a equity

491
00:27:37,000 --> 00:27:39,760
Speaker 1: crowdfunding platform like a bank to the future like what

492
00:27:39,880 --> 00:27:43,399
Speaker 1: Kraken just did, or or some of the others like

493
00:27:43,440 --> 00:27:48,359
Speaker 1: seed Invests, which is owned by Circle. UM. So you know,

494
00:27:48,440 --> 00:27:51,159
Speaker 1: no token. We think that that value should just be

495
00:27:51,280 --> 00:27:55,720
Speaker 1: passed through to you know, offering the best rates. UM.

496
00:27:55,720 --> 00:27:58,159
Speaker 1: What you'll see from us in terms of platform development

497
00:27:58,600 --> 00:28:02,080
Speaker 1: UH is continued improvement on the on the products that

498
00:28:02,119 --> 00:28:06,320
Speaker 1: we already have in terms of features and functionality and visualizations. UM.

499
00:28:06,440 --> 00:28:09,320
Speaker 1: And then we plan on launching two additional products over

500
00:28:09,320 --> 00:28:12,639
Speaker 1: the next year. UM. The first is the ability to

501
00:28:13,560 --> 00:28:18,200
Speaker 1: kind of do asset conversion on our platform, so for example, uh,

502
00:28:18,240 --> 00:28:21,240
Speaker 1: selecting the asset that you want to earn your interest

503
00:28:21,280 --> 00:28:24,879
Speaker 1: in regardless of what asset you've deposited. So for example,

504
00:28:24,920 --> 00:28:27,240
Speaker 1: you've deposited bitcoin, but you want to earn interest every

505
00:28:27,240 --> 00:28:31,000
Speaker 1: month in dollars or uh the other way around. Um.

506
00:28:31,080 --> 00:28:34,600
Speaker 1: And also just being able to uh manage a targeted

507
00:28:34,600 --> 00:28:38,440
Speaker 1: portfolio allocation within our platform versus having to move assets

508
00:28:38,480 --> 00:28:41,920
Speaker 1: off of our platform to uh, you know, exchange them

509
00:28:41,920 --> 00:28:44,840
Speaker 1: for other assets somewhere else. And then in the first

510
00:28:44,840 --> 00:28:47,440
Speaker 1: half of next year, we expect to launch a bitcoin

511
00:28:47,520 --> 00:28:51,360
Speaker 1: rewards credit card where you know, just swap airline miles

512
00:28:51,400 --> 00:28:53,760
Speaker 1: or normal cash back on a credit card out for

513
00:28:54,120 --> 00:28:57,880
Speaker 1: one percent cash back uh in in bitcoin, based on

514
00:28:57,920 --> 00:29:00,800
Speaker 1: how much you're spending on the card. So that's kind

515
00:29:00,800 --> 00:29:03,719
Speaker 1: of our you know, immediate roadmap that we're focused on.

516
00:29:04,200 --> 00:29:07,760
Speaker 1: Very cool, very cool. Um. What do you think about

517
00:29:08,440 --> 00:29:12,840
Speaker 1: regulations and how that puts risk for the company? Block

518
00:29:12,880 --> 00:29:15,360
Speaker 1: flight risk, not you know, creditor risk, as you said that,

519
00:29:15,440 --> 00:29:17,120
Speaker 1: so it's the fourth one that we didn't cover, but

520
00:29:17,160 --> 00:29:20,800
Speaker 1: regulatory risk, so um for those that have been living

521
00:29:20,840 --> 00:29:23,680
Speaker 1: under a rock to last twenty four hours UH Facebook

522
00:29:23,680 --> 00:29:26,760
Speaker 1: coin announced their coming out, and now several big governments

523
00:29:26,800 --> 00:29:31,920
Speaker 1: are saying no, you're not right, um right or something

524
00:29:31,960 --> 00:29:35,000
Speaker 1: like that. What do you think about that and what

525
00:29:35,080 --> 00:29:37,280
Speaker 1: kind of risk is that posed for you? Yes? So

526
00:29:37,320 --> 00:29:40,240
Speaker 1: I think, UM, I think we've taken a very different approach,

527
00:29:40,720 --> 00:29:43,960
Speaker 1: for example, than than UH than others like Celsius and

528
00:29:44,040 --> 00:29:48,120
Speaker 1: Exto who you mentioned. UM. You know, we came from

529
00:29:48,120 --> 00:29:51,040
Speaker 1: the fintech world, started the company in the summer of seventeen,

530
00:29:51,040 --> 00:29:53,480
Speaker 1: in the middle of the I c oh boom and

531
00:29:53,480 --> 00:29:55,360
Speaker 1: and one of the reasons, and they were multiple, but

532
00:29:55,440 --> 00:29:58,680
Speaker 1: one of the reasons why we elected to not finance

533
00:29:59,040 --> 00:30:02,920
Speaker 1: the company's operation by conducting a token sale was we

534
00:30:03,040 --> 00:30:06,959
Speaker 1: felt that would put a level of um regulatory uncertainty

535
00:30:06,960 --> 00:30:10,640
Speaker 1: and regulatory risk on on the company that wasn't necessarily

536
00:30:10,720 --> 00:30:16,160
Speaker 1: value add to our users. UM. So you know, we

537
00:30:16,320 --> 00:30:19,120
Speaker 1: The other thing that we did is we've had a

538
00:30:19,200 --> 00:30:21,440
Speaker 1: k y C and a m L policy from day one.

539
00:30:22,120 --> 00:30:27,880
Speaker 1: We have gotten licenses to operate the lending activities that

540
00:30:27,920 --> 00:30:29,920
Speaker 1: we're doing in the states that we need them from

541
00:30:30,000 --> 00:30:32,760
Speaker 1: day one, which you know, we've got some battle scars

542
00:30:32,800 --> 00:30:37,000
Speaker 1: from that from back in ten like explaining explaining why

543
00:30:37,080 --> 00:30:39,560
Speaker 1: making someone alone secured by the value in their bitcoin

544
00:30:39,640 --> 00:30:43,120
Speaker 1: wasn't illegal to you know, the state regulators of California,

545
00:30:43,200 --> 00:30:46,840
Speaker 1: for example. UM. But we hold lending licenses, we update them,

546
00:30:47,680 --> 00:30:51,920
Speaker 1: we're sharing information with with the necessary regulators. UM. So

547
00:30:52,000 --> 00:30:54,720
Speaker 1: we sleep pretty pretty well at night. Uh in terms

548
00:30:54,720 --> 00:30:58,280
Speaker 1: of the regulatory risk, frankly. Um But I think for

549
00:30:58,280 --> 00:31:04,960
Speaker 1: for the sector overall, Uh, yeah, for the sector overall. UM.

550
00:31:05,000 --> 00:31:08,320
Speaker 1: I feel like bitcoins in a great spot. I feel

551
00:31:08,360 --> 00:31:12,040
Speaker 1: like ethereums in a great spot, at least in the

552
00:31:12,160 --> 00:31:15,840
Speaker 1: US market. Maybe in other markets, especially markets that have

553
00:31:15,920 --> 00:31:19,080
Speaker 1: weaker currencies, they could be they could be a bit

554
00:31:19,120 --> 00:31:24,760
Speaker 1: more at risk. Um. And I think governments are really

555
00:31:24,760 --> 00:31:28,520
Speaker 1: not gonna like libra coin. Um And. And the reason

556
00:31:28,640 --> 00:31:30,760
Speaker 1: is that, like with with bitcoin in here, and they're

557
00:31:30,760 --> 00:31:33,719
Speaker 1: really they're really not, at least today trying to go

558
00:31:33,760 --> 00:31:37,200
Speaker 1: at the core of what a government currency is going

559
00:31:37,240 --> 00:31:40,880
Speaker 1: after um or at least they're not successful enough at

560
00:31:40,920 --> 00:31:43,400
Speaker 1: it yet for for a major government to think that

561
00:31:43,440 --> 00:31:46,880
Speaker 1: it's a risk to them. Uh. Whereas libra coin is

562
00:31:46,960 --> 00:31:50,440
Speaker 1: basically designed the same way as like the special drawing

563
00:31:50,560 --> 00:31:52,760
Speaker 1: rights of the I m F, where it's like if

564
00:31:52,800 --> 00:31:54,400
Speaker 1: something were to happen, the I m F would have

565
00:31:54,400 --> 00:31:57,280
Speaker 1: the ability to take the basket of currencies that it's

566
00:31:57,320 --> 00:32:00,400
Speaker 1: holding an issue a new currency, and that's basically what

567
00:32:00,440 --> 00:32:02,800
Speaker 1: Facebook is trying to do. And Facebook is already on

568
00:32:02,800 --> 00:32:07,040
Speaker 1: somewhat shaky ground because of the privacy and data stuff. UM,

569
00:32:07,120 --> 00:32:10,960
Speaker 1: So I think that one's gonna get I think it's

570
00:32:10,960 --> 00:32:13,840
Speaker 1: gonna have a lot of governmental challenges. It's obviously not

571
00:32:13,880 --> 00:32:16,040
Speaker 1: going to be decentralized from day one, which is another

572
00:32:16,880 --> 00:32:19,680
Speaker 1: which is another problem that it faces. But I think

573
00:32:19,680 --> 00:32:23,440
Speaker 1: that for bitcoin, UM, it's gonna be on a great path.

574
00:32:23,560 --> 00:32:25,600
Speaker 1: I think good things are going to continue to happen

575
00:32:25,600 --> 00:32:29,000
Speaker 1: in the US and other major markets. I think there's

576
00:32:29,040 --> 00:32:32,440
Speaker 1: gonna be this snowball effect that has continued even throughout

577
00:32:32,440 --> 00:32:38,200
Speaker 1: the bear market of institutional adoption UM, which ultimately, you know,

578
00:32:38,320 --> 00:32:41,600
Speaker 1: at some point in the future will lead to UH

579
00:32:41,800 --> 00:32:44,000
Speaker 1: government adoption in some way, shape or form, and you'll

580
00:32:44,040 --> 00:32:46,520
Speaker 1: have a central bank, a small one initially, You'll have

581
00:32:46,560 --> 00:32:49,360
Speaker 1: a central bank putting bitcoin on its balance sheet, and

582
00:32:49,360 --> 00:32:51,760
Speaker 1: then that's going to create this massive snowball. So you know,

583
00:32:51,760 --> 00:32:55,440
Speaker 1: I'm really bullish on on bitcoin. Yeah, yeah, I agree. Um,

584
00:32:55,440 --> 00:32:58,080
Speaker 1: it's it's interesting just to see the shake up in that.

585
00:32:58,280 --> 00:33:00,800
Speaker 1: And hopefully what I hope is that what the government's

586
00:33:00,800 --> 00:33:03,560
Speaker 1: wanted to crack down on libor coin, it doesn't um

587
00:33:03,600 --> 00:33:06,640
Speaker 1: some of that regulatory stuff doesn't spill over into a

588
00:33:06,680 --> 00:33:09,880
Speaker 1: bigger crypto. For that, we'll just have to wait and see. UM. So,

589
00:33:10,160 --> 00:33:12,480
Speaker 1: you know what, it's just good to have that conversation.

590
00:33:12,520 --> 00:33:15,160
Speaker 1: But I think, you know what, what I believe is

591
00:33:15,200 --> 00:33:19,120
Speaker 1: that volatility. It is like the difference of perception and reality.

592
00:33:19,200 --> 00:33:23,280
Speaker 1: So in everybody perceived bitcoin and crypto to be way

593
00:33:23,400 --> 00:33:26,000
Speaker 1: higher than it really was. The reality was the technology

594
00:33:26,040 --> 00:33:28,240
Speaker 1: wasn't there, and then then of course a crash and

595
00:33:28,280 --> 00:33:30,360
Speaker 1: now perceptions here. But what the reality is, it's gotten

596
00:33:30,400 --> 00:33:33,440
Speaker 1: way better. Right now we have more scaling solutions and

597
00:33:33,480 --> 00:33:36,440
Speaker 1: more adoption, and I think, um, and and then I

598
00:33:36,480 --> 00:33:38,280
Speaker 1: think that the perception needs to come back up, which

599
00:33:38,320 --> 00:33:40,080
Speaker 1: we'll see that price come up, which it already is.

600
00:33:40,320 --> 00:33:43,200
Speaker 1: And I think I think options like what block fire

601
00:33:43,280 --> 00:33:46,960
Speaker 1: is providing is going to help that because it doesn't.

602
00:33:47,680 --> 00:33:50,760
Speaker 1: It allows people an option without having to sell, and

603
00:33:50,800 --> 00:33:54,240
Speaker 1: so they can stay in, they can holdle and ultimately

604
00:33:54,320 --> 00:33:57,320
Speaker 1: that that should be good for the ecosystem, right yeah,

605
00:33:57,440 --> 00:34:00,000
Speaker 1: I mean I can tell you just uh, you know, firsthands.

606
00:34:00,000 --> 00:34:02,760
Speaker 1: Since we've launched the ability to to earn six percent

607
00:34:02,800 --> 00:34:05,320
Speaker 1: interests on your bitcoin, we've had people come to us

608
00:34:05,640 --> 00:34:08,759
Speaker 1: who don't own bitcoin yet and and they'll say, like,

609
00:34:09,120 --> 00:34:12,240
Speaker 1: you know, I'm not sure exactly how a bitcoin works,

610
00:34:12,280 --> 00:34:15,600
Speaker 1: but I know that I'm not earning six percent interest on,

611
00:34:16,480 --> 00:34:20,080
Speaker 1: you know, on other assets that I hold, So UM,

612
00:34:20,200 --> 00:34:22,319
Speaker 1: can I buy some through you? And we right now

613
00:34:22,360 --> 00:34:24,560
Speaker 1: we say, well, actually you should go to you know,

614
00:34:24,640 --> 00:34:26,560
Speaker 1: one of these other places to buy it and then

615
00:34:26,640 --> 00:34:29,239
Speaker 1: and then send it over to us. UM. But it's

616
00:34:29,239 --> 00:34:31,480
Speaker 1: a core you know, it's a core part of functionality,

617
00:34:31,520 --> 00:34:33,239
Speaker 1: and it might not be for everyone, it might not

618
00:34:33,280 --> 00:34:36,640
Speaker 1: meet everyone's risk tolerance UM, but it's it's definitely a

619
00:34:36,840 --> 00:34:40,799
Speaker 1: natural evolution of the ecosystem. I certainly love it. I

620
00:34:40,880 --> 00:34:43,200
Speaker 1: was like the first I was the first customer of

621
00:34:43,320 --> 00:34:45,480
Speaker 1: earning interest on my bitcoin. And a lot of the

622
00:34:45,480 --> 00:34:48,000
Speaker 1: products that we're building are based on things that you know,

623
00:34:48,600 --> 00:34:50,560
Speaker 1: I and others here on our on our team want

624
00:34:50,560 --> 00:34:53,399
Speaker 1: to use. So we're excited about it. Yeah. Well, like

625
00:34:53,440 --> 00:34:55,759
Speaker 1: you said when you started write your research kind of

626
00:34:55,800 --> 00:34:58,040
Speaker 1: lines up with what I talked about and it's about

627
00:34:58,680 --> 00:35:01,480
Speaker 1: having one dollar to multiple jobs and this is the

628
00:35:01,480 --> 00:35:03,520
Speaker 1: perfect way to do that. So, um, I think I

629
00:35:03,520 --> 00:35:07,160
Speaker 1: think it's great for the ecosystem overall. Um. Yeah, pleasure

630
00:35:07,200 --> 00:35:09,520
Speaker 1: to have you on a really good conversation. I love

631
00:35:09,600 --> 00:35:13,120
Speaker 1: that we kind of share some uh investment ideas kind

632
00:35:13,120 --> 00:35:15,920
Speaker 1: of the same. Um. There, and that's really cool. Um. So,

633
00:35:15,960 --> 00:35:18,799
Speaker 1: where would people go to learn more about block fire

634
00:35:18,840 --> 00:35:22,479
Speaker 1: to follow you? Yeah? Sure, so. Our website is block

635
00:35:22,520 --> 00:35:25,800
Speaker 1: five dot com. You can you can find me on Twitter.

636
00:35:26,280 --> 00:35:29,920
Speaker 1: I'm block five zach Um. And you know, if you

637
00:35:29,920 --> 00:35:31,680
Speaker 1: want to shoot an email, my email z a c

638
00:35:31,880 --> 00:35:35,440
Speaker 1: at block five dot com. We have chat on our website.

639
00:35:35,440 --> 00:35:37,960
Speaker 1: We've got a phone number on our website. We've got

640
00:35:37,960 --> 00:35:39,520
Speaker 1: a bunch of really smart people on the team that

641
00:35:39,560 --> 00:35:43,240
Speaker 1: are happy to take questions or just here people's feedbacks.

642
00:35:43,239 --> 00:35:45,439
Speaker 1: So don't hesitate to reach out. So you're not hard

643
00:35:45,440 --> 00:35:48,720
Speaker 1: to find it. It's not hard to find great. All right,

644
00:35:49,000 --> 00:35:52,080
Speaker 1: Well that's it for today, Thanks for joining in, Thanks

645
00:35:52,080 --> 00:35:53,399
Speaker 1: for having me. I hope to meet you in person

646
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Speaker 1: next week. Mark. Yeah. Hey, if you like this episode

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Speaker 1: of the Market Descriptors podcast, please help us take this

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Speaker 1: to the top of the podcast charts. Just please do

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Speaker 1: me a favor and rate, review and subscribe. Taking fifteen

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Speaker 1: seconds to just leave a quick review goes a long

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Speaker 1: way in helping us reach more people and disrupt more markets.

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Speaker 1: I really appreciate you listening, and I'll see you next

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Speaker 1: time on the Market Disruptors podcast