PoolTogether Community Podcast #45 with Gabe from Arcade.xyz

This is the PoolTogether Community Podcast. PoolTogether is the world's number one no-loss prize savings account. You can visit pooltogether.com to deposit.

You're listening to the PoolTogether Community Podcast. I'm your host, Hot Mike, and I'm here with Gabe from Arcade. Gabe, thanks for joining me and having me in this wonderful townhouse in SoHo. Thanks for being here for the Put Together podcast.

Yeah, thanks for having me here, Mike.

Yeah, Hot Mike. My name's Tim, but they call me Hot Mike because I thought it— no, no, no, I just said my name was Hot Mike, but my mic was hot and I was like, that's a great nickname. And so now I'm Hot Mike.

Okay,

but then it's confusing when I say, hey, I'm Tim.

Like Tamara Holland.

You can call me Tim. Let's be Tim. But we're at House of Muse, which is this, like, townhouse thing that they took over, and it's supposed to be like this— do you know anything about this place?

Nothing at all.

Oh, okay. It's supposed to be like a club, you know, like they're going to do like a Soho House or something like that, but for crypto specifically. So this is a pop-up. There's a pool. We should totally— next time we got to do a Pool Together podcast in a pool. I'm worried about electrocution. That's fine. But yeah, they got vegan food here and they gave us a room that's very echoey to do a podcast in. So listen, Gabe, I would love to know. I'd love to hear how people got into crypto because it helps me as I'm exploring crypto. And I think it helps a lot of listeners to the Pool Together podcast. who are normies, who are crypto curious, who want to save money and be safe and then explore. So how did you get into this thing, this crypto thing?

Yeah, so it was 2016. At the time, I was working a family business with my dad. It's a chain of pawn shops in Texas. So I was working in the shops. I was making loans against nonfungible physical assets like diamonds and Rolexes and purses and basically anything that didn't eat. And at the time also, I was a big poker player, so I was playing a lot of poker.

Sorry, you said anything that didn't eat?

That's correct.

What does that mean?

So basically anything that has like cost money to feed them, we wouldn't take that as collateral for loans.

Oh, it costs money to feed them. Oh, like pets?

Yeah, like, like we wouldn't take chickens as a loan, as loan collateral, right? So, but anything else like saying in a pawn shop is like, if somebody bought it once, somebody will buy it again. So that was kind of how we just thought about loaning against assets in real life. So I was doing that in 2016. I was also playing a lot of poker and on crypto poker, like the community within crypto poker, they were talking a lot about Bitcoin at the time, 2016. And so that's how I got interested in Bitcoin, started with Bitcoin. And then my dad sold the family business, the pawn shops, which I thought I was going to do forever. And that's when I started looking for jobs and really going down the rabbit hole of crypto. I knew I wanted to work in space. It had everything that I was really interested in, like economics, finance, math, computers, game theory. It was just all very interesting to me. So I knew I wanted to be in the space, and I spent like 6 months applying to different startups in the space. And I got lucky. I got a job at a company called BitGo, custodian for institutions. And so there I was, an entry-level sales guy selling custody and wallet solutions to hedge funds, exchanges like Bitstamp, venture funds, market makers, OTC desks. And yeah, that's kind of how I got my entry into the space.

So when you said pawn shops, I totally And thinking about Atlanta and the main character and his best friend, like, they need money. And so, like, I think he lost his iPhone or something. And so they, like, do a series of things to, like, trade up almost. I remember in youth group, I used to play this game where you get a plastic fork and you had to trade up to, like, a couch or either bigger or better. And, like, somebody brought a used car back and stuff. And so when I hear pawnshops and even when I think about crypto, It doesn't, for me, compute. There's like this business acumen, there's like this hustle that I do not have, that I want to have. And I really admire that when I watch like, you know, when I— like a pawn shop, right? So, um, can you just do— how do you— I'm really intrigued. I've never interviewed somebody who had a pawn shop. Like, how did you make that work? Like, how do you have a profitable pawn shop?

Yeah. So I was a third-generation pawnbroker. So my grandpa started the first shop in El Paso in 1947. So it was a generational business.

That had to hurt to lose it.

Definitely. Yeah. My dad was not happy having to sell the company. But basically my grandpa started, his name was Benny. He named the pawn shop Benny's Pawn Shop. Over the years, my dad took over in like 1980, expanded it to 8 more storefronts. And it kind of became like an El Paso staple, like Benny's Pawn Shop. Yeah, it's well known in the city. So it was just, it was a, you know, it was a longstanding business, had a good name and good business too.

Yeah. And just like any tips, like you said something about like, if somebody buys it, somebody's gonna buy it again, right? Like, like, how do you know, buy low, sell high? Like, did you have a specialty that you liked? Or you like, like, did you do trading cards? I don't know. Like, all this stuff just blows my mind.

Yeah, I mean, used to take everything over the years. I've been trading sports cards, taxidermy, a lot of diamonds, a lot of jewelry, wedding bands, electronics like TVs, even down to like a $5 tool. So pawn shops are basically like community banks. You don't need a bank account to get a loan at a pawn shop. So yeah, that whole thing was like the starting point for the idea of Arcade is when I got into NFTs, I knew that there was going to be a market similar to how pawn lending works. And so that's how we designed the protocol.

So did you have regular customers at the pawn shop that were like balling, that was just doing the whole, like, here, getting collateral, going out, and that's hustlers? What were they doing? Or you didn't ask questions?

Yeah, it's a mix. I mean, I think generally people see pawn shops as like like a lower income thing, which is not always true. Like, we had pawn shops in good parts of town in El Paso where I'm from, and we would have like middle income people just getting loans when they needed quick cash for like a week or 2 weeks or 3 weeks. And also it's used as sort of a last resort. Like, if I need to pay a bill and I don't have any cash, I can't get a loan, like, oh, there's something laying in my house that I can turn into cash by giving to a pawn shop, right? Yeah. So it was like things like that.

Yeah. And then poker. So you're also playing poker. So you got pawn shops, you got poker. Texas poker is notorious. I watch a lot of live streaming and stuff. Do you still play?

I don't play anymore. I don't have the desire to play as much anymore because I'm playing the same type of games with the company. Totally. So stakes are higher. I don't find free time to want to spend mental space playing 5 hours of poker. Yeah. But yeah, I used to love it. I used to go to Vegas. My dad's a poker player, so I grew up around it. When I was 21, I went to Vegas and I won like $15,000 playing blackjack for the first time, and I thought it was really easy. And so 2 weeks later, they invited me back, paid for my flight, paid for my room, food and everything, and within 30 minutes I'd lost everything. That's how that's how bad it was. So I booked the first flight out of there, and I learned a good lesson. Like it's not it's not it's not easy like that. You have to respect Vegas.

Well, that's why they flew you back. They wanted their money.

That's that's how it works.

Definitely. Oh wow! That's and and so even with poker, there's this like you know in person, there's always ways to game the system. There's always like house games. Like I I would be wary of house games. I'm wary of Online poker, because you're playing against computers a lot of times, there's always this— everybody finding that competitive edge, whether ethical or not. And so I would love to— I don't know. So I feel like crypto is analogous because even when I'm trading or trying to trade or trying to do anything, I'm always in the back of my mind thinking there's somebody with a better edge, there's somebody with an angle, there's somebody with better AI. on the other side of it. And so I don't know how you take that or experience that.

Yeah, I mean, for sure. I think the knowledge gap, information gap in crypto is wider than a lot of other industries. And so you have people that are in the know very well, and that's why I was really confident starting my own thing because I'd been in the space for a while talking to different companies and verticals across the entire space and learning how their businesses worked. Also seeing a couple of different operations, working at different startups, got to see how CEOs ran their companies and how the differences there. So I learned a lot about the industry working at these startups.

So, yeah, tell me how Arcade started. How did you get it off the ground? What was the impetus and how's it going now?

Yeah, so it was summer of 2020, like DeFi summer. is when I started getting into NFTs, and I started collecting some artworks from SuperRare, and a few of them sold for like 10x the price that I bought them at weeks later. I was like, oh my God, this is a real market. And it was a lot of fun. I'd never been an art collector before, but owning something that was scarce online really resonated with me. So I thought it would become a thing where there would be a new basic capital market forming for loans against this asset class. So with my bond background and lending, also my crypto background at BitGo, we also did lending there on the institutional side. I worked at a company called Curve, who was acquired by PayPal, worked with the same types of clients. So I knew the entire space. I knew who to reach out to on the VC side to raise capital. My co-founder and I decided April, I think, 2021, that we were going to go full time at this, quit our jobs. So we decided to raise a seed round, and that's when we started building a team and product development.

And so you launch— when did you launch?

We launched officially— we launched in January, at the end of January of 2022.

And you launched with like NFT collateralization? That's right.

Yeah. So it's a peer-to-peer marketplace for NFT-backed loans.

And how was adoption? Like, how was building the user base? Right. Because you've got— you need people to loan and you need people to borrow.

Yeah, exactly. So it's a 2-sided marketplace. We have a pretty big lender network. So some of the biggest lenders on our platform are like institutional lenders within crypto. We also work with a lot of high net worth individuals that are lenders that are bullish on these NFTs anyways. And so for defaults, they don't mind picking up the asset at a discount. We work with DAOs, with funds. So a lot of, a lot of lender demand because they can potentially pick up discounted assets and earn fixed, fixed, fixed rate yield within DeFi, which is, which is, you know, not so common. So it's those 2 things. And then the borrow side, it's kind of the same types of users. And we're seeing different use cases even in this bear market. Like, people are hedging their downside by getting loans. So if you get a loan on an asset, say you have a punk, you get a 100 ETH loan, and the value of that punk when you got the loan was 150 ETH, well, if the value of the punk drops to 80 ETH and you have a 100 ETH loan, you don't have to pay back that loan. You basically sold a put option. You bought a put option on that asset. So there's different use cases and real product market fit without token subsidizing everything. So we don't have a

token yet. So when you went out for business, for biz dev, just like user acquisition, it sounds like it's a lot of face-to-face or one-on-one high net worth individuals, institutions. You're going out and getting that money rather than going out to the masses or anything like that, right? At least on the lending side. On the borrow side, then you have— I mean, what, you had that money like, hey, look, if you have a bond, like, lend it here, and that drew it? Or did you also have to go out and handhold?

It was also a BD effort. So we operate an agency OTC desk where we just match counterparties. So if we have a borrower come to us, they give us their token IDs, we look at their OpenSea, we get valuations on the assets, and then we try and match them with the lender who has the appetite to lend against that collateral. So there is a lot of handholding happening. We've done about $27 million in loans since we started. Nice. But that's our way of bootstrapping the marketplace as things take off a little bit more organically.

So it's going to be like blue chip stuff. It's going to be like higher level stuff. I'm not so much blue chippy, but I'm the guy with the wrench in the pawn shop, right? I am the guy giving the $5 and we'll do this. So how does that work? Is that— it's still available, right?

Yeah, definitely. Like, our lowest loan has been like half an ETH. People get half ETH loans, 1 ETH, 2 ETH, 3 ETH. Like, we support collections that are lower value also. Just most of the assets that we support, lenders have appetite to lend against it. So a lot of these lower value collections, it's not really worth it for lenders to get into. Right. That's kind of how it is now. And I think as we integrate other chains and L2s, we'll start to see more lower value assets. But right now, all the value is probably— not all the value, but most of the value in NFTs today sit on Ethereum.

What's that default rate? Is that something you track or it's just part of the financial system where it's like, hey, this is a put and one person won, one person didn't win?

Yeah, I mean, our defaults are surprisingly low. They're under like 6%.

Even when they should have defaulted. Right. You find people who are like, no, I want that sentimental value or just like honor code.

Right. Yeah, exactly. So there's another element here of sentimental value, like online identity. Yeah. So there's guys that will be— there's guys that don't need to come back for their asset. They can buy cheaper on the open market, but they're tied to that PFP or RVs.

Sorry. Yeah, well, I mean, one of the things that I was thinking with PoolTogether— PoolTogether, uh, price savings account and, uh, really wholesome community. We use a lot of NFTs as, as, um, rewards for activity or, you know, just memory stuff, community call things, you know, collabs. But there's also the Poolie NFT, which was, um, which basically was a fundraise to help pool together, fight legal battles, pay their lawyer fees against a lawsuit, and raise a whole ton of ETH on that. And so everybody— there are 3 different levels. There was like a 0.1 ETH poolie, there's a 1 ETH poolie, and there's a 75 ETH poolie. And people bought these. And I was thinking on my way here, I was like, oh, that'd be really cool to lend to somebody with a poolie whatever they wanted, like within reason, just knowing that it's wholesome. Like, there's this whole, like, that honor code kind of thing. Like, hey, I'm gonna lend you for this poolie knowing that you're not going to default, because it's really not about the poolie, it's about the credit. Yeah, I don't know if that's a thing. Yeah, it's an interesting community, right?

It's an interesting point. I think that does happen. Like, there's times where the collateral is— they're not— it is a little bit credit-based. Like, they have this collateral that they can put up. Maybe it's not worth the entire loan, but the lender is, like, comfortable lending to this borrower. That happens with communities lending to their own users.

Yeah. But then as soon as I said it, as soon as you're explaining it, I'm like, oh, well, if I want to be nefarious, I'll just go pick one up on secondary. I have the belief, and then I'll just rug somebody. Now, I'm also in an NFT group buy. So Prism is a front end for Gnosis Safe, and it allows us to easily buy a bunch of as a group, just put our ETH into a pot and buy NFTs. So we have a bunch of NFTs that are worth way less than what we bought them for. And one of them, we have this one member, Richard, who just wants to collateralize everything, never wants to sell, never ever wants to sell, and just wants to take everything that we have. And I'm like, well, can we bundle it? So what about bundling? Is that a thing? Is that like a, you know, like you get some blue chips in there, you get some other things. Is that something that lenders would be interested in?

Yeah, we love bundling. of assets. So you can create a vault on Arcade that you own, and then you can deposit however many NFTs across however many collections into it and get a single loan on that portfolio. So we have had users do portfolio loans with 50 different assets in the loan.

And is there something like fractionalization loans? Like, I can lend you a piece of that. Is that even a thing?

No, we don't do any sort of fractionalization. Okay.

Yeah, I guess you could take like nouns are fractionalized things. You could take That, you know, or like the Azuki Bean Farmer, you can take one of that. That would be— but that's fractionalization that doesn't happen with Arcade.

Yeah, we find like borrowers on our platform that are, that are like real collectors, they, they don't want to like fractionalize their pieces. They like having it full and they like keeping it like— so, so, uh, we don't see much use case for fractionalization on Arcade right now.

Okay, okay, play favorites now. What NFTs are you digging?

What do you say? I'm a punk guy.

I

think punks are, you know, in 10 years gonna have, you know, $5 million floor. Um, so I think those are the grails of the internet.

Punks. Punk maxi.

I mean, I'm simple. I don't— I'm not hopping in Discords all day anymore. I don't really have enough time, like, to, like, follow all these new collections. But we have guys on our team that are deep in the weeds. So yeah, I keep it simple. I did have Couple of golden apes that we sold over the year, over the last year. But yeah, I'm just a punk guy.

Okay. So even as the project might move or be acquired or things like that,

sorry, is that

a question? Yeah. So to my understanding, and I could totally edit this out to make me look smarter, is like Yuga, right? Acquired punks.

Yeah.

And that, okay with that, you're fine. Yeah, right. But they could also, someone else could acquire it, right?

Yeah. Well, I think what Yuga did was they actually bought the punks from the Larva guys.

Right.

I think they get everyone all their IP rights, which is sure, right, which is different than I think how they treated the Bored Ape ones.

Right. Okay.

So yeah, I think I could be mistaken, but I think the members of the They're happy with how things are going, but it could

change.

It could change. Yeah, it could change. I think it's less likely that it will change. They have this guy Noah who used to work at Christie's, the NFT auctions there. Now he's like the representative for Punks. Yeah.

Okay, cool. So Punks only. I like that. Or other things are fine, but you're Punks. What are you excited about this year? If there's anything to be excited about.

Yeah, I think we're starting to see gaming has been hyped up quite a bit. We haven't really seen games take off where NFTs are super valuable. Once that does happen, that's going to be a massive market. We also did a loan of like a real life Rolex. So through this company called 4k.com, 4K Protocol. They basically turn real-world assets into NFTs. So they mint an NFT and that represents the ownership of that asset. So we made a loan against a Rolex. It's still collateralized on the app. And then I think macro tailwinds look really bad right now. So I'm a little bit bearish macro. So I think the next year, protocols that just survive and around for the next cycle and are actually building sustainable projects are going to be massive winners. So in the next year, it's just about survival.

So what does survival look like for Arcade?

Survival is continuing to build. Well, it's 2 things. I think one is still defining the category that we're in, which is NFT lending, and then it's being a leader in that category because we want to own that. We want Arcade Protocol to be the dominant protocol for NFT-backed However that evolves today, it's monkey pictures. It's hard, but NFTs will capture so much more value on the internet going forward. So however that looks like, we want to be front and center.

Why the name Arcade?

We were originally called PonFi, which tied back to my Pon background really well. I love that name. We had some investors that weren't too happy about it because of the negative connotation Pon has. But there was another PonFi, a Chinese PonFi that popped up that were doing a token. And so we just wanted to differentiate. And my co-founder Rob Masiello, we bought RK.xyz together before we even knew we were going to change the name. So we just decided to change the name.

Okay, so we can wrap up here. I really care about adoption. crypto. And I know that there's always the temptation for scope creep with startups, with building, right? Build for everybody and not for one thing and do all the things and then see what hits. But that's not necessarily the most strategic thing. And I think a lot of times, specifically for certain protocols, the mass adoption is not their audience. It's actually you need to go deeper into the crypto Not the crypto curious, but like the degens, right? Or the really advanced. So what does that primary audience look like for Arcade? Does it evolve? Do you double down? What does that look like?

Yeah, it's a really good question. I mean, what I think I'm focused on and the team is focused on is servicing the needs of the DeFi power users today. We want to be crypto native. We want to get the good assets on the platform. today, because that's signaling for tomorrow when the market does grow. So our goal is to get on all the high-value assets, the high-value users, the crypto-native users, just because that's where the puck is right now. That's where we want to be active. And I think that changes 2 years to 3 years out. There's a more kind of mainstream audience where wallets are more abstracted, like private keys are more abstracted for mainstream users. It all has to get a lot easier. But yeah, solely focused on the DeFi power user right now. That's who holds high-value NFTs.

And then for business development, are you looking at partnerships? Are you looking like— so you had the thing with the 4K with the IRL assets, but is that the name of the game too for Arcade? Can you get integrated into Coinbase or other things?

Yeah. So, I mean, the protocol that we built, smart contract, completely trustless, We want the protocol to be used no matter if it's through our front end or through an SDK that we have. So we built an SDK for others to plug into if they want to have their own front end or UI or just even get notified when there's an asset listing on the site. So yeah, we're building a brand around the protocol, which is Arcade, which is the app, but also just want the protocol to get used in general.

Are you guys hiring? How is hiring going for you in this economy?

Yeah, we actually are looking for a rockstar marketer. Growth marketer. Oh, nice. Sort of BD growth marketing, Twitter. That's the only spot we're hiring for.

Interesting. Everyone I talk to hires devs. That's the holy grail, is devs or design. Rarely do I talk to somebody that's like marketing, but I just think they're so much in build mode that marketing comes second or third.

Yeah, we have such a strong smart contract team, protocol team, engineers right now. A little bit. I think we have really good exposure in the market, but we just want to 10x our marketing and content and engagement. So that's what we're looking

for. And so one more time, who is that primary audience for that marketing? Who are they targeting? Who are they shitposting to on Twitter?

They're memeing for DeFi power users, for NFT collectors and others, for communities, for DAOs, for guilds, for whole space, but know how to prioritize it.

What does customer service look like? Because you said you're doing this OTC stuff and it's a lot of handholding. And I know that Richard, my friend Richard, loves to talk, ask questions and give you suggestions and stuff. That's also a marketing play as well. That's the customer service.

Yeah. So we're in constant contact with users, like in Telegram chats and Discord. We do live demos for people. We're very active on the side. Um, always, always asking for feedback too.

What's, what's an Arcade Maven called? Is there a nickname yet for like Arcadies?

No, we need to find one though.

Yeah, Arcadies. Okay,

let's pull out one.

Yeah, Poolers. We have the— yeah, it's, you know, kind of low lift, but we have Pooley, which is the bird, which is our mascot, and then Poolers. Um, people wanted Pool Boys, but that was like, no, we're Poolers.

I guess we need one.

All right. Yeah, we'll come up with that. Great. Well, Gabe, thank you so much for giving me some time on this busy week in New York City. And I really appreciate it. And I need to continue to wrap my head around— Richard's been on me about like, don't sell NFTs, collateralize. So I'm going to get it. I'm going to try the platform and see what I can do with my wrench.

Yeah. If you want to keep your wrench, just get a loan.

That's right. Fuckbox. Let's go. Cool. Thanks, man.

Thanks for having me on.

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