Figure Co-Founder: How Figure Became A $10B Business | Mike Cagney

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. All right, everyone, welcome back to Empire. Very excited about this. We have Mike Cagney, who was previously the co-founder and CEO of SoFi, which hopefully many of you know, and today is the co-founder and exec chairman of Figure. So, Mike, welcome back.

Thanks for having me.

Yeah, good to see you. How you been post-Miami?

I've been doing great and spending time in New York enjoying the weather.

I feel like you're always great.

You know what? I like to look at the world as a half glass full.

Yeah, you and me both. You and me both. Okay, so I think maybe is a good place to start.

I was—

so we got drinks in Miami. We got Diet Coke in Miami.

Yes.

I was a little shocked to hear how much of a true believer in crypto you are. I assumed you were a capital markets finance person who's using this blockchain stuff on the side to, you know, I don't know, maybe improve the efficiency of the company or, you know, make an extra percent here and there. And yeah, I was surprised to hear how much of a true believer you are in just decentralized capital markets. Could you maybe walk— and this was, you know, no cameras were on us. You didn't have to actually say that. Could you walk me through this idea?

Yeah, look, I think blockchain is a massively disruptive technology, maybe the most disruptive technology we'll ever have in our lifetimes, more than the internet, more than the spreadsheet, more than things that we generally attribute to significant disruption. And the idea of displacing trust with truth through native digital assets and what that affords in terms of both the way those assets are traded bilaterally, self-settle, and the way those assets can be financed. In terms of encumbrance to the asset and having the asset-based lending construct through DeFi, to me, are game changers. And so the potential for the industry is absolutely massive. And it's interesting because when I see all these people doing things at the periphery in blockchain, right, like Visa or DTCC or these— like, the reality is blockchain disintermediates their entire business. And so Part of the challenge that we've had with blockchain is normally incumbents disrupt at the margin, but blockchain is so disruptive, there is no margin. It's a complete wholesale rebuild. And then certainly we had 4 years of regulatory morass that basically killed a lot of development that we're now making up for, and I think starting to accelerate in terms of what's happening. But there's still some necessary conditions for blockchain to be successful. And the most important is It's tiny, right? And when we look at it, you know, we think about, you know, a DeFi protocol with $12 billion of stablecoin on it. We're like, oh, that's massive. Well, that's completely irrelevant in the scheme of wholesale capital markets, right? Or when people are like, oh, you know, we've tokenized a billion dollars of stock. Well, it's a $133 trillion market cap industry. And so, you know, we're still just this tiny, you know, almost irrelevant pool that to make relevance, we're going to have to bring a lot of those tradfi dollars over.

Yeah. What is the strongest version of the argument? If I said, you know, what does blockchain let finance do that it simply could not do with databases, APIs and software? How do you think about that? Yeah.

So again, I think going back to two things, to transactions and to lending. So on the transactional side, every marketplace is massively intermediated, right? So when we trade stock, there's 7 parties that sit in between a buyer and seller. When we swipe a debit card, there's 5 parties that sit in between the buyer and seller on the interchange network. Blockchain has the ability to distill all those marketplace transactions down to bilateral, just buyer and seller. And so by disintermediating all those people that sit in the middle, you're freeing up trillions of dollars of what's just rent-seeking market cap. And that accrues to the benefit of the individuals transacting, but it also accrues to the benefit of the blockchain, to the ecosystem that's doing that disruption. On the other side of the equation, on the lending side, you had mentioned I'd started SoFi or co-founded SoFi. Part of why I was doing that was I believed in this notion of connecting sources and uses of capital. So the original thesis of SoFi was we get alumni to invest in student loans and there was a natural reason why they'd have that affinity and all these externalities would come out of it. And we were sort of a victim of our own success because the loan was so popular, it just massively outstripped the pace at which we could acquire alumni capital. So we went and we got warehouses and started securitizing and doing all the normal wholesale capital market stuff. But what blockchain is giving us a chance to do is a second shot at this. And DeFi, the idea of being able to put up collateral where you know for certain it is the asset, you can get true perfection, you can get a UCC lien on the asset, right? There's a whole legal construct that's supportive of this. And be able to liquidate that asset, it changes the lending construct from I'm underwriting the credit to I'm underwriting the volatility and liquidity of the asset. And that massively opens up how financing markets work. And we've seen this in a microcosm with crypto financing. We look at a platform like Aave, for example, and you're seeing it with Figure, with democratized prime, where we do it with loan participation, right? And starting with HELOC, now we have auto, now we have small business, and soon we'll bring on receivables and other categories. And I think that's, that's going to change how finance works in terms of the financing side of, of the capital markets.

Yeah. So two types of Empire listeners for the show. You've got the people who believe in crypto and the people who are, I'd say, sophisticated but skeptical, sophisticated capital markets folks but skeptical. Maybe they work at JPMorgan or DTCC or something like this. You know, they understand banks and clearing and settlement and custody and securitization and lending. Maybe they don't understand crypto. Um, why should they care about crypto at all? And, and, and maybe the second part of this question is, uh, there are two types of disruptive technologies: things that improve the user experience and allow for new use, you know, new use cases. The internet, AI right now is happening. Uh, the way that you describe crypto, it sounds like is more almost more of a backend thing, right? It strips out all these intermediaries and costs Is that the right way to frame it or wrong?

I think Figure's been a great illustration or demonstration of what blockchain does. So, you know, there are people that are critical of Figure always say, oh, Figure's just a lender. I'm like, well, show me a lender that operates at 50% EBITDA margins, right? And, you know, we do that because of massive efficiency we get from the technology and, you know, have been supporting, uh, you know, there's a sort of rule of 40 for SaaS companies of, you know, combination of EBITDA and growth. We're at 140. And we're still in what I consider greenfield markets and massive upside of growing off of that. And so, if you're sitting at a bank or at a traditional intermediary, the reason you should care about this is there's now a very clear demonstrative proof point as to why this technology is going to matter and how it's going to change things. And you could decide to lean in early and be a part of that, or you can be reactive to it, but it's coming. And what's been interesting is now that blockchain is legal, the big banks are leaning in. I'm seeing actually more innovation coming out of Goldman Sachs than I am out of the old crypto industry because now they can lean in and do it and they realize they can make more money. And crypto itself is an important construct here because I'm talking a lot about blockchain, but decentralized blockchain doesn't work without a cryptocurrency. You need something for that network. If it's proof of stake or proof of history, you need something to be able to stake up its value across the validator ecosystem. And so a lot of people don't understand that tie-in or that association, but I'm talking about the value proposition of blockchain, but that decentralization, which is core to that value proposition, only exists if you have a native crypto asset to be able to support the decentralization of the network. And so that's why you should care about the whole ecosystem in that regard. I think you hit on a really important point, which is what I don't think the blockchain and crypto industry have done a great job on, which is the frontend experience. And so, I think that the fintech experience, the 2.0, is still way better than almost anything you see in the 3.0 world. And this is part of the problem we have, and it goes back to that point I talked about earlier, which is we have to get these dollars over. The current ecosystem, the current wallet ecosystem in particular, I don't think is going to be able to move those dollars from TradFi onto DeFi. I think we need to do something on the front end. We probably need to get rid of the whole concept of wallet. right? And, and that notion, you know, get rid of the key loss issues, get rid of the 24-word key phrase. Like, there's just stuff that we do that, you know, is very orthogonal to a traditional user. We're not going to get SoFi customers and Robinhood customers to, to leave the super apps that are— that those companies are building and try to come on to a self-custody decentralized wallet with the current experience that we have.

Yeah. Did the idea for Figure come out of SoFi?

Yeah, it did. And again, it kind of goes all the way back to this idea of connecting sources and uses of capital. And as I said, so if I took a trajectory that was a very successful one but was very different than the original intent of what we had and what we were able to do with Figure is kind of reestablish that construct and reestablish this idea of DeFi lending. Now, we couldn't get there right away. And in the beginning, one of the interesting things people don't realize about Figure is in the beginning, I had to leave money on the table with my loans because the hedge funds were like, "If we don't have to deal with blockchain, we'll pay you more." And I was like, "Well, the only reason I'm doing loans is so—" Oh, wait, say that again. If you don't— Yeah. So I'm originating loans on blockchain and the hedge funds all have to do— The original buyers are all having to deal with the blockchain and they all hated it. And they hated the concept of it, hated the idea of a wallet, all this stuff.

Oh, so you would make them set up a wallet. You weren't obfuscating.

No, no. And we would— and we— because we were using the loans as a forcing function to get them to use blockchain. And they would say, look, I'm paying you 102 for these loans. I'll pay you 103 if I don't deal with this blockchain shit. And my capital markets people are like, oh, you know, let's just forget about the blockchain. Just big figure 2.0 or, you know, SoFi 2.0. And I'm like, no, that's not why we're doing this. You know, we're doing this because there's An enormous opportunity. And in the beginning, it's hard and there's a lot of friction, but ultimately, that will invert and we'll get that efficiency. And on the capital market side, we did. Went through the same thing with the DeFi side. In the beginning, what it cost us to finance on DeFi was actually higher than what it would be— it was mixed. In certain pools, it was higher than what it would be in the wholesale capital markets. That's now come down to a point where that's no longer the case. So know, you, you end up having to leave dollars on the table in the beginning to drive adoption, but then you hit that inflection point, and, and that's where the real efficiency and the moat happens. Yeah. Yeah.

Can we go deeper into that? So, so if we take a HELOC, which you guys— that was the, that was the first market that you guys really dominated. Um, you take a HELOC from like origination to sale to financing to securitization in traditional— maybe walk me through like traditional system, what happens and then what happens in Figure?

Yeah. So and we could, we could spend a whole day on the, on the dynamics and comparison of the two. Bring out the whiteboard. Exactly. We should. We could. So if you think about the traditional process of originating a loan, you originate the loan and then you put it on a spreadsheet, you send it over to your bank to finance it in a warehouse, and the bank will let you send that spreadsheet over once every 3 to 5 days because you give them a spreadsheet full of loans, they give you a bunch of money, and then they spend 3 to 5 days figuring out if you lied to them about any of the loans. And this is why you've had some very high-profile fraud cases like Tricolor, like First Brands, where they've sent two spreadsheets out to banks and got twice as much money. And that's part of the inherent problem. So how does that comp to blockchain? Well, blockchain, the loan is on the chain and there's a digital perfection to the loan through something we have called DART, stands for Digital Asset Registry Technologies. But it gives you either a UCC-8 or UCC-12 digital perfection of the asset real time. And that is the representation of the asset. There isn't anything else that has that asset. So there is no double pledging. There is no ability for me to sell a loan that I'm borrowing against or what have you. So that dramatically reduces the amount of risk the warehouse lender takes and it increases the frequency in which you can pledge those assets into the warehouse. That reduces the amount of equity capital you have to hold on your own balance sheet because, you know, I'm not having to finance 3 to 5 days worth of loans before I send over a new spreadsheet. And so there's big efficiencies that come off of that, reduces your cash needs. So that's sort of the aggregation point, right? Then on the transactional side, you know, in the, in the construct of, of whole loan sales, for example, there is no liquid capital market for whole loan sales historically. Other than Fannie and Freddie mortgages because Fannie and Freddie always have a bid and that guaranteed liquidity allows for a liquid marketplace for those loans to trade. But a jumbo mortgage or a student loan or a personal loan, there's no liquid capital market for that. And what happens is those loans all trade bespoke. So I might do a deal with Apollo to sell them $500 million worth of loans. They're going to ask for particular reps and stips in that contract, and that's different than the ones KKR is going to ask for. And the resulting problem is I now have these two pools of loans that are not the same and they're not fungible or homogenous. Right. So there is no liquidity scale that happens. They're just one-off illiquid pools of assets that come out of this origination process. So what we did is we said, well, look, you know, we have over 380 partners that originate assets on the Figure ecosystem for mortgages. They all use the exact same technology. So it doesn't matter if it's Loan Depot or Guaranteed Rate or Figure, everyone's originating the asset the same way. And so that homogeneity is a necessary but not sufficient condition to create a liquid marketplace. We have a capital market called Connect, and in Connect there's one contract that everyone agrees to for the buying and selling of loans. So there's no one-off negotiation. No, you know, and I tried to do this when I first started and, you know, my capital markets team was like, this is never going to work. No one's ever going to agree to this. And, you know, it just got to to a point where we had enough leverage, we forced it. And that's what I was going to ask—

why do they do this? Because it sounds good, but then the sales guy says, look, I've got a monster deal, they want this custom thing.

It happens all the time. And, and, you know, at one point, um, uh, massive insurance company came to us and, and offered to pay us 2-point premium on all our loans if we would underwrite to their box. There you go. And, and we said, no, we're not going to do that. And sales guy walked out the room. Yeah, very sad. And, and so, um, because— but you don't do that because then it breaks the whole system. We lose the homogeneity. And so, what we have is we have homogeneous assets and a common agreement to transact those assets. And then the last piece of the equation is we feed all the remittance of the assets into the pool real time. So, I know for certain whether a loan's delinquent, whether it's performing, because typically you trade a pool of loans, you spend 2 weeks of diligence figuring out, well, are they what was represented to me? Well, blockchain gives me truth over trust. So, I know real time what the truth is in that transaction. The combination of those three factors supports liquidity. And so we run a Marketplace Connect that, as far as I see, is the only liquid private credit capital market that exists outside of Fannie and Freddie mortgages, which are quasi-private. And so that liquidity is very important for us because it brings down the spreads at which the loans trade because they're liquid, not illiquid. It actually allows us to compete against Fannie and Freddie on a pricing basis, which which historically has been just an unassailable process to try to do. And so it's kind of a critical step for us. That liquidity is very important. And then the third step on securitization, securitization, you think about all the costs that goes into securitization. So the amount of audit and QC you have to do and third-party review of loans. Well, blockchain, because of the immutability of the technology, eliminates a lot of the third-party review that you have to do to get your pools rated. So there's efficiencies that come out of that. If you look at things like the calculation agent that actually has to go through and calculate the cash flows and distribute payments to the bondholders, well, that's a smart contract, right? You can do all that through technology. But most importantly, what happened in 2008 was the market went bad. And normally what you do with a mortgage securitization is when the loans stop performing, you go and you work out the loans, you provide some payment plan or some, you know, some reconciliation with the borrowers to keep them current. But, you know, when a modified loan and, you know, that's a standard servicing process that one does and it's actually critical during periods of stress. But once the loans go into a securitization, you can't modify the loans without consent from the bondholders. And the problem we had in 2008 was no one knew where the bondholders were. And so had those bonds been on blockchain, we would know every wallet address and be able to push an NFT to every wallet address to do quorum of, "Hey, we want to do this modification. It's important. Will you let us do it?" And actually drive that vote. And so there was a very high-profile regulator, it's actually Sheila Bair, who was looking at what we were doing. She said, "Look, What you have wouldn't have prevented the crisis, but you would've known where all the bodies were buried, right? And we would've gotten out of it a lot faster. And so, you know, so it has really significant downstream technology or downstream benefits as it relates to the securitization side.

Hmm. That's, yeah. Okay. That's really interesting. How does that impact the, I was looking at your Q1 earnings, so I don't know how much you can talk about I guess we already released them.

So it's already, it's already live. Yeah, I have all you want.

So the numbers, so 2.9 billion, just correct me if I get anything wrong, 2.9 billion of marketplace volume, 1.6 billion of Figure Connect volume. The adjusted EBITDA margins around 50%. The driver of this is that you guys have a tech platform that no one else has, that you have partner growth, that you have an origination process that you've nailed from, you know, 20 years of doing this? Like, what does this come from?

So, so it's a really important point. It's really important to understand Figure. So when we took Figure public, you know, Goldman, who was our lead left in that transaction— we took Figure public twice because we did it once on the blockchain, which is a cool thing. But when we took it public the first time, you know, Goldman was, was pushing us really hard to go and emphasize our loan origination system and, you know, how important it was. And I was like, like the LOS A, we give it away, so it doesn't even drive revenue for us.

You give away the loan originator. Yeah.

And B, anyone can build any loan origination system they want. I can make one that if your name's Mike, you get a loan. Well, that's a zero-cost origination system. Great. But no one's going to buy that loan. And so what Bigger has in the moat is the capital market. It's connect. And so what we bring these 380 partners isn't a better origination system or better technology, although it is better technology. But, but, you know, that's, that's not a long-term moat. You can replicate that technology. What we're bringing them that is very hard to replicate is a capital market where they can guarantee the ability to sell those loans. And that's key.

And that's Figure Connect. So you're connected. So you're saying, so you're saying the consumer loan marketplace, it's not a commodity, it's, it's it's the easier part to build.

Figure Connect is the very hard part to build. Yeah. And, and this is, this is the key focus point, which is by having this capital, because if you're an originator and let's say you're doing HELOCs, for example, and, and you're really successful, you're up to $200 million a month or $300 million a month. Well, the capital markets will always shut down. And when they shut down, you don't— you can't sell the loans, but you can't turn off the funnel. So do you have a balance sheet that could take 2, 3 months of production, you know, that could be a billion dollars and absorb that? And when we were at SoFi, this happened to us all the time, right? We had a billion and a half dollars on the balance sheet and we would periodically run out of money because the capital markets would shut down. And what, what people who aren't in the market don't understand is you have these warehouse providers, you have these guaranteed flow bars. No one will send you a wire when things are going crazy. And so even if they're committed to take your loans or committed to finance them, they'll call you up and say, don't send us anything because you're not getting any money. And I don't follow that. Yeah. So, so, so let's say that I have a warehouse with, with Jefferies, right? Jefferies has a billion-dollar warehouse for me. And what I can do is I can pledge up to a billion dollars of loans into that warehouse. Warehouse. And that's great. And during normal times, it's great to have that liquidity. You can send as many loans over there as you need to send over there. When the capital markets shut down, and what I mean by that is there's volatility in the market, there's concern, things stop trading or they start trading at very wide spreads, your warehouse providers, among others, will call up and say, "Hey, I know we have a contract to do this, but don't send us any loans because you won't get a wire back." back. And that's just how it works. And you can sue them, you can do whatever you want, but that's somewhat of an immaterial thing at the time because at the time you're worried about your liquidity.

So if you're just a lender, then you can get— I mean, I don't know a better word. You can get screwed by some of the folks who are warehousing these deals.

100%. And the problem is that the more production you do, the more balance sheet you're going to need, the more equity capital you're going to need for when this happens. Happens, right? Because you can't turn off your origination engine or you kill your franchise. And so, you're in a very tough situation. So, if I said, "Boy, I'm going to go all in on HELOC or non-QM mortgage or non-QM or what have you," that's great. But if I really want to do $1 billion of that, I probably need $1 billion of capital on the balance sheet, maybe $2 billion capital. And that has to grow basically linearly with your production, which means you never have margin expansion, right? And so, so what we've done for the industry is we, and the only marketplace where you do have a guaranteed takeout historically has been Fannie and Freddie, right? Because you can always sell them a mortgage. You might not like the price they pay, but they will always buy it from you, right? And so what we've done that no one else has been able to do is we've stood up an alternative liquid capital market. This was our deal with Sixth Street where Sixth Street gave us capital to operate a guarantor where that guarantor functions like a private version of Fannie and Freddie. And we can create a liquid marketplace where if you're part of that Figure ecosystem, you're one of those 387 partners that we have right now, or whatever the number is, it's growing every day. You have access to that capital market and that liquidity. Huh.

Do you know the— I'm trying to find it right now, but maybe you know it— the volume of Figure Connect versus your loan marketplace.

Yeah, well, Figure Connect was— I think you said it was $1.6 billion out of the $2.9 billion in—

Oh yeah, out of the $2.9 billion.

Okay. And then I think we've guided to— Oh, there it is. We got it as something like $4 billion this quarter. From Figure Connect? $4 billion overall, and I think at least more than 50% of that on Connect. Okay. Does the—

okay, so you're becoming less of a lender, more of a capital markets network.

We don't lend at all. We, I mean, we have a tiny little slice, but we're not a lender. We are, we are, we are, we're a marketplace. Marketplace.

Okay. Does the market get this?

They're getting it. Okay. And so it's kind of a slow process for us to talk to the market. And one of the challenges that, that investors have is there's nothing that looks like Figure. And so, you know, if you kind of look across, you're like, is Figure SoFi? Well, no, it's not. Because we don't have a customer, a retail franchise, nor do we have any aspiration to do that. Is Figure Intercontinental Exchange? Well, there's aspects of our business that aspirationally are trying to compete with ICE, sure, but not exactly the same thing. They struggle with what is the metric in which they should track. Historically, they've tracked take rate, which— Take rate is a great metric for marketplace businesses where you have consistent revenue. Uber and eBay are good businesses where take rate's a metric that you care about in terms of thinking of valuation for the business. For Figure, it should be contribution margin, not take rate. And the reason being is let's say that we make 5 points on a $50,000 HELOC, so the take rate's 5 and we make $2,500. Well, we can make 3 points on a $200,000 first lien HELOC. Stock and the take rate's 3%, but the revenue is $6,000. The key is it costs us the same to get both those loans through the door, right? So we make a lot more money at a much higher margin on the 3 points on $200,000 than the 5 points on $50,000. So on the surface, you'd say, oh, the take rate fell from 5 to 3. That's horrible. But the contribution and EBITDA margin and gross EBITDA went up. So that's actually very good. Interesting. And so we, we need to do a better job educating the market about what it is we're doing. And by the way, we're moving into this first lien HELOC space because the first lien mortgage space is 25 times larger than the second lien traditional HELOC space. And so, you know, our TAM is actually 25x of whatever you thought it was 6 months ago. Yeah, because we're now competing and actually winning business in first lien.

Yeah, it feels like the, the asset for SoFi was the consumer, right? And then you could sell them more and more and more products. And for Figure, it's Figure Connect or it's this— it's the whole marketplace.

It's the marketplace. But you hit on another super important point, which was, you know, SoFi was born out of this concept of cross-sell and the super app, right? The point of SoFi was we had these customers that we called Henry's, higher earning, not rich yet. That were super valuable customers. And the idea was we're going to build a relationship with them and we will be everything for them over time. We're going to be their bank, we're going to be their broker, we're going to be their crypto platform. And that made a lot of sense. And that still is the model that they're pursuing and that Robinhood's pursuing and others are pursuing. But what Web3 opens up is a different kind of model, which is a wallet-centric self-custody model. Model. And today, the problem is we have two ways that people access technology. We have the super app, and then we have the MetaMask and the Fantom wallets where I'm attaching to DeFi protocols, but I'm using the wallet to log into someone else's protocol. So, the experience is inconsistent as I'm going from protocol to protocol. What I think we need to do is blend these two together, which is We use a wallet, it's self-custody, but the protocol should act as true distributed applications. There should be an API or the equivalent of an API frontend on top of those protocols, and everything should drive out of your wallet. The wallet should be your cockpit. And so, when I go to these different protocols, I'm not going to a different UI/UX, I'm running it out of the wallet and I'm just interfacing with them through the backend. How disparate or different is a DeFi construct? It's very simple. Collateral, right? You know, I'm putting up collateral and borrowing against it or lending against it. Like, you can easily feed that through as an API and create a consistent wallet experience. And so I think that is, is a necessary thing we have to do to get those SoFi customers and Robinhood customers to come over, because then it'll look like what they have, but it's a much better deal for them because they control their data, they control their assets, they control where they, where they bank, where they broke, where they, where they do crypto. Do they care about that?

Oh yeah. They do?

Yeah, because they're going to get the best deal by doing that, by being able to cut across. And by the way, they're going to have AI agents in their wallet that are going to do it for them. Right, agree. Where you're just going to say, go get me the best yield where I have zero risk or minimal risk, right? Or go get me the best yield where I take this much risk or go find me the best venue to arbitrage Bitcoin, whatever it might be. And so you're going to have these armies of intelligent agents that sit in these wallets that basically will take advantage of that DApp ecosystem and be able to create a huge amount of utility for the users.

Yeah, do you, uh, sorry if I missed this, do you have a wallet today?

So this is a Skunk Works project we're working on. You can hear more about it from us, uh, but we are working on exactly this concept, including with a Center AI agent, which, you know, comes with a set of skills. Like, it can produce your 1099s for you, it can do tax loss harvesting for you, It can do a bunch of things out of the box that you don't have to train it up to do. And then there'll be things that you're going to train it to do as well. Say more. Well, it's like, I think that we have all the ingredients for a wallet that TradFi can embrace. So we have Yields, which is a yielding stablecoin as fiat on off-ramp. Your dollars always earn. We have Demo Prime, which Most of my TradFi friends want to be on DemoPrime and make 6-7% lending against figure HELOCs unlevered. We have Hastra where you're looping out to mid-teens to 20% returns. We have Open, which is the first public equity. Now we have Open World's the second company to go on there, but I have a list of companies that are going to come on, so you'll be able to connect to that through the wallet. We have a passporting function where your KYC, including your accreditation if you're accredited or what have you, travels with you, and I'm working on different entities being able to accept that. And so, and you will have this AI agent, and the AI agent will do everything from, as I said, produce your 1099s at the end of the year based on all the activity that you've done, to buy you tickets to San Francisco.

Wow. So this is a Phantom Metamask competitor?

I don't know if I'd call it a competitor. I don't even know if I'm going to call it a wallet.

Yeah. Well, Phantom, if you talk to Phantom, they would say their biggest competitor is not MetaMask, it's Robinhood. I think ultimately all of these converge into one thing.

Yeah, and as I said, I think the issue right now is, and I think that that's the right way for Fantom to look at it right now. What I think is there's an intersection, you said a convergence, of these things, which is you want the in-app experience that Robinhood has, but you want the self-custody and ability to choose venue that Fantom affords you. Right, right. Yeah.

You want the security of, you know, feeling like you're on Schwab. You want the user friendliness of Robinhood. You want the accessibility to all assets like, you know, like a Fantom has. You want the— I don't know, creativity and ease of use of an AI agent. Right.

And you don't want to have to memorize a 24-word key phrase that isn't actually a phrase.

That's right. If your wallet holds all of these things, Figure, Stock and What's your— the state? YLD— YLD— Yields. YLDs, crypto loan obligations. It's got your KYC. Can it also negotiate credit for you?

Of course. Yeah. Yeah. And you'll have a card embedded in that. The card can do unsecured and secured lending. You're going to, you know, because you have all those assets, be able to do cross-collateralization in a way that you've never been able to do before and get credit for that. So you're going to have a very different lending ecosystem where, you know, with a HELOC, you back it with your home. But, but why not back it with your assets and, and you have the ability to lower your cost of funds because of that. And so, so yeah, so credit will and, you know, again, credit and I use the term agentic lending, which everyone likes to use because it sounds pretty sexy. But, but, you know, it's algorithmic lending. Credit will be an integral part of this. Yeah.

What do you think the future of banks is in this world?

So I think this, I think this is the bank. So if you can hold your cash in an asset that pays you interest backed by Treasuries, right, that's— most people would, would agree that's either as good or better than FDIC insurance, right? You've got a card on it, so you have easy off-ramp fiat transaction because the biggest issue we have with stablecoins right now is we still can't go to Starbucks and buy coffee with them, right? So, okay, fine. Put a card embedded in there, a credit card. And, you know, at the end of the month, you can just roll your coin to pay that balance off. And so you get the free float for the month or not, or you finance it and you have access to investment opportunities. And what's interesting and sort of the false dichotomy that comes out of the banking industry and all this is they're like, "Oh, well, you can't pay interest on stablecoins because if you do, all these deposits are going to leave the bank." The Treasury did a study that said $6 trillion would leave the bank system, right? And there's $18 trillion of bank deposits. So that's a pretty big number. And just, you know, as a data point, in '22, late '22, we had about $1 trillion leave the banking system because of the Fed raising rates, and it caused mass chaos in the capital markets. So that whole thing I talked about, about capital markets shutting down, late '22, early '23, they shut down, right? And because the banks all of a sudden weren't flush with deposits to fund these assets, so they start selling the assets in fire sale prices and the market's falling apart. And so, but the false dichotomy here is, okay, we're all going to take our cash out of the bank in the form of stablecoin, but then we all are going to reapply that onto DeFi protocols to lend directly. And we're going to take the bank away as the intermediary for capital. And by the way, we might do affinity lending. We might lend to our area, our geography where we are, to our school, to alumni from our our work, whatever it might be, but we're going to build out a very different capital allocation ecosystem that I think replaces the bank. And in economics, there's a term called Pareto efficiency. It's where two parties agree to something where they're both better off. This is a classic Pareto example where the borrower will be better off, the lender will be better off because the bank is a rent-seeking capital intermediary.

Figure. Yeah. Uh, tell me what you learned about customer acquisition and getting users from your time. Probably, probably more relevant from SoFi, I would guess.

Yeah. So, so with SoFi, it was very brand-centric, right? And with Figure, we were very conscious that we weren't going to go after retail and build a strong brand because we knew we wanted B2B to C. Once you go retail, never, never do it again. Yeah. And, and well, and, and it's not that I think retail's bad, it is retail's just a different beast. And, um, And so, we didn't want to compete with our customers. And so, it was important for us not. Now, we still have a small direct-to-consumer platform at FIGURE, and we do that for a lot of experimentation. We also do that to keep everybody in line because you're like, "Well, if you don't do it, we're going to do it." But generally, we're not trying to do the same thing. But it's one of those— brand is so important and germane to the success of a retail platform, and it will drive people insane because it's one of the hardest things to quantitatively measure. And so, you know, your marketing people are like, "Well, I need to spend this much on brand." And you're like, "Well, what's the return?" They're like, "How can you measure it? You know, it's brand. It's like existential." And, you know, and so there's this constant push-and-pull tension that happens, especially between finance and capital markets people and then marketing people as it relates to this. But, you know, you need a strong brand The most important thing and what I think most people miss around direct-to-consumer marketing is context, right? Like you need to have as personalized of an outreach and engagement as you can. And I always laugh because you know all the different strategies that go through the cold emails that people have. And for a while I was getting, "Hey, did you do this at Stanford Graduate School of Business? Wasn't that great? Our security service, blah, blah, blah." And I'm like, it's so contrived and lumpy, right? It's, you know, versus, hey, you know, this is really cool. I, I also participated and, you know, and if you ever have time, like, you know, it just— and, and so, so generally marketing tries to do context, but it comes across as clumsy and contrived, right? And but if you can do good context, good contextual outreach, you have massive adoption. Yeah.

Was, uh, just— this is not relevant to Figure at all, but just point of curiosity is, was spending for the SoFi Stadium a good use of money?

Well, I didn't make that decision. I did the first two Super Bowl ads. And I can tell you, let me tell you about the Super Bowl ads and I'll tell you what I think about the stadium. So the first Super Bowl ad we ran was this thing, it was called Great, Not Great, right? And it was like, are you great enough to get a SoFi loan? Probably not. And so it was kind of antagonistic and a little divisive. And why do you do that?

Well, let me, let me go through it.

So, so, so we had an experience about a year before where Yahoo wrote this piece on SoFi and said SoFi, you know, gives money to rich people or lends to rich people. And, and rather than having a negative impact on our funnel, it had a— it was one of the best days we'd had up to that point in the company's history because people are like, well, I want to be rich, and, you know, so I, you know, and I'm good enough. And, and, and so You know, that, that sort of antagonistic aspect proved to be a very effective top of funnel. And so we run this ad and, and they, the critics ranked the ads from, and I think it was 32 or whatever it was, and we were number 31. And number, number 32 is this irritable bowel syndrome ad where this little dude's running through your colon and gets pooped out. Yeah. And, and, and, but we were one ahead of that and, you know, below everyone else. But when that ad ran, our top of funnel blew up and it unfortunately happened during a period where the capital markets were shut down. We literally ran out of money in 2 days. We were just lending out so much. So what do you actually do there?

Just as a side tangent.

When you run out of money? Yeah, yeah.

Do you have to turn off the loans or do you raise to get—

You can't. You can't. So you have to get money at really bad rates. Yes. And lose money on the loan. Sometimes, yes. Sometimes you're upside down. Down. And so that was a very interesting demonstration of how that works. And the next year we ran a Super Bowl ad and this ad should have been outstanding because it happened during overtime. And it was this weird thing where the NFL didn't price it right. And basically we only paid if the ad ran and we paid less than what we would normally would have paid if it would run it. It was just this goofy thing. Everyone's watching the game, right? We run this ad and it's this feel-good, like everyone's in this together and we're gonna fix our finances and you know, rawr. You can't even tell we ran an ad. There's like— And nobody cares. Nobody cared. Like the funnel didn't even move. Wow. And so, you know, you learn a lot about, like you can't go into it. One is you're not satisfying critics, you're trying to drive your funnel, right? And two is like, let the data show what you do. Doesn't matter what you think or what you feel or, you know, if you have to go to cocktail parties and people tell you you had the 31st performing Super Bowl ad out of 32. So what? Right. Because you're running it to get loans in our case.

Yeah. So you guys ran an ad, I think it was 6 years ago. Remember the little block? The little block character?

Blocky. Blocky. Blocky was great. How did that go? It was great. Really?

People loved it. And I think it was the first crypto ad I ever saw. And I was like, oh, or blockchain ad. I was like, oh my God, we're mainstream. —stream. So it was—

it, it, it invoked a massive debate in Reddit because somebody who didn't understand what blockchain was was like, what a horrible representation of like chains and a lender, and like, you know, you're going to be enslaved to them for the rest. And then someone was like, you mean block chain? And, and so it had this huge debate on— it was like Designs That Suck or something on Reddit, and, and people were just going off on it. But did it move move the needle. Oh yeah, yeah, yeah.

People love Blocky. So do you— what are your thoughts on paid marketing these days?

Uh, you know, I think, I think marketing is kind of interesting because I think with AI, you know, your performance marketing can basically, you know, 90+ percent of it should just be driven through AI. And AI is going to do all your, all your channel management, all your experimentation, you know, whether or not it does the, the actual copy or not, you I don't know. You have to think about that. But I mean, it's an important medium. And I think about marketing, I think about earned media, which is your air cover. I think about performance marketing, which is your acquisition. And I think about brand, which you could also say is air cover, but it has much more value than that. And I think earned media is always going to be a person-to-person activity. Your AI bot isn't going to go reach out to the journal and try to, you know, suggest a story. I think brand, you know, a lot of that content creation and management and testing can be AI-driven. And I think performance is going to be almost all AI.

Yeah. So tying this all back to Figure, you're not in the consumer business, you're not in the retail business right now, or you kind of are a little bit. If you have a wallet, you're fully in the retail business again.

So this is, this is the big discussion we're having about, well, how do we do that business? Is that Is that a Figure business? Is that a business independent of Figure that Figure's an owner of? We don't know yet how that plays out, but that's one of the big concerns that we have is Figure, we have no aspiration at Figure to build a consumer brand, yet we need to solve this problem. And I think this is an existential problem for the industry. If we cannot get these dollars over, then we're going to be middling and irrelevancy for the rest of it.

Over from private databases into public blockchains.

Yeah, from TradFi. right? We need the SoFi customers, but we also need, you know, the hedge funds and the asset managers.

But why do you need people to move on to blockchains? You just need people to—

like, well, I have a DeFi marketplace and, you know, like my team that built Hastra, you know, loves to talk about how it's the fastest growing RWA token ever, largest across any blockchain right now. You know, we're killing it and it's $600 million. right? Right. And I'm like, okay, well, yeah, I do a billion six or whatever number I do. I do, I do a billion plus a month through our ecosystem. And, um, you know, that's not a lot. And then with open, with the public equity network, you know, we need critical mass of users over there. And that's, that's retail and these traditional institutions that, that don't go over there, right? Naturally. So like, to me, this is existential. You Again, Ondo with their, hey, we've done $1 billion of SPV tokenized stock. Well, great. It's $133 trillion market cap. If we want to be in the trillions of dollars, we need to bring those users over.

Yeah. Can you tell me how you make a decision like this internally?

So a lot of what we do, I take a lot of the 0 to 1 stuff and then Mike Tannenbaum, who's the figure CEO, takes the 1 to 100. I'll do a bunch of stuff at once. And, you know, it's not spaghetti against the wall. There's a little more method to the madness than that. But, but I'm testing a lot of stuff. And if I get product market fit and traction, then I can lay it up to him and then he'll go and run with it. And so, you know, generally that's how we kind of approach it, which is, you know, I'm, I'm the laboratory person. And when things come out of the laboratory, I hand it over to him. But decisions like, where does the wallet co-sit? Those are significant board discussions and management discussions about how we deal with that. Yeah. What do you think he'll do? I can't say yet.

Yeah, fair enough. Let's talk open. Sure. And maybe more broadly, just future of public equity. So tokenizing equity is this big idea right now, both in— maybe we could talk both private markets and public markets. But maybe explain Open to someone who deeply understands public markets but doesn't care about crypto that much.

Sure. So if you think about the way traditional public markets work, you have DTCC as a registry. You have a centralized exchange like the NASDAQ or the NYSE. You have the multi-party settlement process that I talked about earlier, the intermediation. You have a post-trade ecosystem that lives because you have trade breaks and failure to deliver and so forth, all the normal stuff that happens. Happens off of that. And then primarily you have financing either through prime brokerage or through your individual brokerage relationship, which gives you margining subject to Reg T, U, or X, whatever the margin constraints are. And there's a securities borrow market, and that borrow market, generally the prime broker will sit in the middle of the borrower and lender. And so when stocks are on what's called special, meaning that there's a ton of borrow demand for them, the rate to borrow those stocks could be 20%, 30%, 40%. But the lender rarely gets that because the prime broker kind of sits in between and you get 3% to lend and they charge me 30% to borrow and they pick 27 points off and they make a ton of money off of this. And they're very careful not to show how much money they make off of this. And if you're at a brokerage like a Robinhood or, you know, or a SoFi, and you have a— I don't know if this is true about SoFi, it certainly is about Robinhood. If you have a dollar of margin, right, so if you have $1 of borrowing, they can lend all your stock out without your permission and they got the economics off of it. So you don't get any of that benefit. And so contrast this to a blockchain-native ecosystem, right, where you originate the equity on-chain, so there's no DTCC as a registry. You trade it in effectively a DEX that that is an alternative trading system because securities can't— US securities can't trade in a marketplace if it's not a regulated venue to trade.

I mean, I still need an ATS, but it can be an on-chain ATS.

It can be an on-chain ATS, and our ATS in particular is self-custody, self-settle, self-clear. So it functions exactly as a decentralized exchange would function. That introduces another element to it, which is, you know, certainly you have 24/7 trading, but what also is important is you no longer need a broker to connect you to the exchange. Exchange. So you can just show up with your wallet, right? And I'm now on the exchange, whether it's MetaMask or Phantom or, or, you know, whatever else comes down the pipe.

Open is the ATS, just to make sure I get it.

Open's a whole ecosystem.

Okay. And you need an ATS inside of the—

and we have, and we have, we have, we have an ATS, and we have— and, and so, so you have, uh, so we— you have an ATS where you're trading native. You, you can trade 24/7. You can access that market place through a wallet, not through an introducing broker. But most importantly, you take custody of the stock. And so you can do things like, one, cross-collateralize so you can lend in DeFi versus through traditional Reg T, URX margining. But more importantly, you can stand up a stock loan marketplace that's transparent and that you get the economics even if you're levered. And that is really the single biggest driver as to why you do —this.

So the single biggest driver of putting equities on-chain is so the shareholder can directly benefit from the control of stock lending. That's right. Interesting. I've never heard it described like that.

Because the way most people are doing it, they can't do that. But that's why you do it. Because you have to ask yourself, like, the NASDAQ works fine, right? NASDAQ isn't broken. And yeah, sure, there's 7 intermediaries between a buyer and seller, but generally you don't see that when trade. They do a pretty good job obfuscating that in your execution. And most people don't even know what DTCC is. And by the way, when you're at Schwab or Robinhood or wherever or SoFi and they have a trade break on the back end, you don't see it. You have to really get to the crux of, "Well, why would I do this?" And I'll give you a great illustration on this as to why the company would do it and why the investor would do to it. So when we went public, right before our lockup expired, there was a heavy amount of short interest on our stock because the expectation was when the lockup expired, there'd be a massive wave of selling order. People would want to take liquidity, blah, blah, blah. And this has happened to every company that's gone public in the last year. It's not unique to us. But the short interest on the stock was 85% of the float. And it was very special. Right, in the sense of the borrow cost was very high. And, you know, I, I heard numbers in the 30s, right, in terms of what that borrow cost was. So you were borrowing, paying 30% to short the stock, meaning I had to pay over 30% to borrow the stock from you to then short it, right?

Because people just didn't like you.

Well, no, no, no, no, I, I could have taken it personally, but no, had to do with the lockup. And, and, um, And so think about this dynamic where, you know, not only are you giving your long shareholders the benefit of that, you actually create this countervailing reason to be long the stock, right? Because holding FIGURE at a 30% coupon is a very different decision than holding FIGURE at a 3% coupon. And so, you know, as a company, when it seems like all the momentum is on one side, like people are trying to short you ahead of your lockup expiry, Well, now you can create momentum on the other side, right? Which is, well, here's why you own it because you're getting that coupon. Because today you don't get it, right?

The prime broker takes it. That's fascinating. Okay, so let's use Robinhood. Isn't there an issue here though, which is that the places where people trade stocks, they are incentivized not to put things on-chain because they get paid? Yeah.

So, but the thing is, it's the company's decision. And so, what, you know, and this is kind of key for us.

It's not Robinhood's decision.

It's not Robinhood's decision. It's Apple's or Figure's. Or Figure's in our situation, right? It was Figure. And we decided to put the stock out there.

And so if you put your stock on-chain, all the platforms eventually have to react to that and figure out how to—

So here's the challenge and how we solved it. So normally the challenge is I put my stock on-chain. Great. You have this cold start problem for a marketplace, which is how do you create liquidity? And like, why is there going to be any liquidity there? Because there's no stock there. Why is there going to be stock? There is no liquidity. So what we figured out how to do was swap the stock exactly one for one with, with the Nasdaq security. And so you basically brought all the Nasdaq liquidity onto the blockchain day one. So Jump is, is providing liquidity across both. They're providing the same liquidity on the blockchain that they'll provide on the Nasdaq. 'Cause they can just arb back and forth. And so the stock trades within a penny across the two exchanges because of that conversion feature.

You think all equities go on-chain? Yeah.

Whether it's going to be through us or it's going to be through something else, but it's going to happen in the form I just described, which is native issuance on-chain. It's not going to happen wrapping DTCC securities. It's not going to happen with tokenized SPVs. It's going to be actual native issuance on-chain.

What happens to short selling in a world where the borrow— where the stock borrow market is completely transparent? Or maybe that then gets into a topic about private blockchains.

But yeah, no. So, so well, and I'm not a fan of private blockchains.

Sorry, privacy.

Well, privacy is a little bit of a different beast, which we can talk about. But, but Like, what, what you do is you eliminate the ability to naked sell, uh, you know, and, and, or naked short. And, um, and while, while theoretically you cannot do that today, practically it happens all the time. And so there's some benefit to that, uh, you know, in terms of market efficiency and, and, you know, eliminating market manipulation that, you know, I think is a positive.

Um, what's the role of a broker? In this world?

So if I'm an E-Trade, for example, and I'm looking at this world, what I'm starting to think about is, well, how do I have a wallet? Or again, whether it's called a wallet or not, but how do I have that construct for my customers to let them interact here and other venues and still maintain the relationship? In particular, have a priority way to lend into those customers lend against their collateral. So I think it's going to force this idea of converging to that center we talked about earlier of self-custody wallet. But I think there will be lots of self-custody wallets offered. Now, it might be a common underlying architecture and infrastructure. Whatever we do, we'll end up private labeling so E-Trade could use it and make it the E-Trade call it, but it's still the same underlying infrastructure. But I think that's how I would look at it if I was in a broker's spot. Yeah, yeah, that makes sense.

You guys built Provenance on, I think it's Cosmos chain. If you had to go back again, would you build Provenance?

So we certainly needed it at the time, and this ties into the privacy aspect. So, Provenance was ahead of its time in privacy in that Provenance is a public chain. It's decentralized, it's open source, it's proof of stake. But there's certain things like if I put a loan on the blockchain, I can't put your address and social security number and all these things that are in the loan on a public chain to let people see. People going on a block explorer and seeing where I live and what my social is. And so, What we ended up doing was creating this structure where there's an encrypted object store. When we originate the asset, all that information that has to be private goes to the encrypted object store, and that object, effectively a hash of that object, gets written to the chain to validate it. Ownership and so forth is still tracked on the public chain. I can still look at your wallet address and see what you hold, But I can't go into the nuanced details of a loan, for example, even though it's on-chain. It just— I don't have access to it unless you give me that access. And so that was critical, and no one was doing that at the time. And so, you know, it made a lot of sense for us to do it. The challenge now is like, where does the economic accrue? Is it the chain or the app? Right. And And, you know, I think a lot about this. Like, like, I have equity now native on blockchain. Well, you know, if I had— if, if I hadn't had a blockchain at all and I was building one right now, that equity would be the staking asset, right? Because it's already on-chain, it's native, it has intrinsic value. Um, and, you know, that's actually a pretty cool concept, right? Because now you have this equity just giving you this continuous yield, which is the gas and network fees from the from the protocol.

You're saying the Figure equity could have been the native asset to secure the chain? Yeah, yeah, yeah. That would have been cool.

And I still, I'm still trying to figure out how I'm going to do that, right? Because FGRS should be able to be used as a staking asset. So you'll try to make Figure stock, but Provenance has a token.

It does.

This is the, this is the conflict. This is the problem. Okay. Yeah.

But in your dream world, you would have Figure stock.

FGRS would be the staking asset. Validated. Okay. Yeah. Oh, that'd be really cool. Yeah. And then FGRS means that it gives you both the idiosyncratic exposure to Figure and then the macro exposure to the broader blockchain ecosystem.

Hmm. Okay. This is very interesting. What's stopping you from doing this? You have a token today. Can't really undo a token.

That's what I'm trying to figure out how to do. How do I swap or tender or, you know, like Or, or can I have the two coexist, which hasn't happened before? You can do it, introduces some nuances. So I'm, I'm, I'm spending a lot of time trying to figure out, uh, how I land on this because this one's actually very important to me. Yeah. Yeah.

When you do something like this, are you, are you personally trying to figure this out, or do you have your team trying to figure it out?

Well, I mean, I'm involved, and, and, you know, like, like something like this is going to be a significant legal and regulatory hoop. And so, we work with our internal counsel, our external counsel. We go through a bunch of stuff and we've been able to do some pretty innovative things. Yields was a very innovative solution that worked within the current regulatory structure. Open was very innovative, also didn't need clarity or anything else. It worked within the current structure. I'm doing something on prediction, security prediction, that I think is very innovative. And, you know, later in the fall. And, and, you know, again, but there were a lot of hoops to jump through.

Yeah. Um, have you thought about just building it on—

I don't know.

Yeah. Or I don't know, there's like, there's a bunch of chains that are hot right now. Like there's Ethereum obviously, and Solana. Sure. There's, you know, Canton's getting a lot of publicity. Hyperliquid is, you know, in the news every day.

Like, yeah, I, I'm not going to do anything, um, that's detrimental to the token holders on provenance, right? So, you know, if, if I didn't care, I, you know, I— and, and by the way, as you can imagine, a lot of these L1s are constantly soliciting us. Yeah, you know, offering us a lot.

Could go get $100 million. Yeah, sure, to, to move over.

And, um, and in fact, probably more than that. I know, uh, there's a—

I— there's a deal I just saw which is, uh, a chain is paying like $150 million for like a A similar type company to Figure.

So yeah, so, and, um, you know, so, so, but at the end of the day, I, you know, even though I don't have a direct fiduciary responsibility to hash holders, I, I have a moral responsibility to ensure that, that, you know, that we steward them well.

Yeah. Um, what do you think of Canton?

So I, I think, I think it's interesting, you know, I like Yuval and, and, uh Obviously, DRW is a big backer on that. DRW is kind of a major player in our ecosystem, although I'd say Jump is the bigger player, but Don might get mad at me for saying that. I vacillate a lot on it. I don't like getting involved in the debate about whether it's a public or private network. It is what it is. And I think at the end of the day, we're going to have multiple L1s. And so I don't think this is a— I mean, the way I wish people would look at it is— and part of the problem is right now it's such a small pie that we're all fighting for the stupid small pie. And what we need to be thinking about is, well, how do we make it 100 times bigger? And then we don't care what your share is versus my share, because on an absolute basis, we're all better off. Off. Yeah. And that's kind of the mindset we need to get to because right now, you know, it's like, great, I, you know, I'm the one-eyed person in the land of the blind, right? You know, there just isn't enough dollars there to move the needle for anybody. And so, you know, we should as an industry be collectively working to bring these TradFi users over and building this ecosystem out. And then, you know, the whole pissing match as to whose L1 is best kind of goes by the wayside. Yeah. Yeah.

Very true. It strikes me that you are trying to do all these, I guess, very innovative, both innovative things, both on the tech side and the financial side. But you are also a public company. Does that— how much does that get in the way of trying to do this stuff?

Yeah, it doesn't get in the way too much, you know, and like being a public company has been a huge asset for us. It's helped us an enormous amount in partnership negotiations because when you're, when you're a private company and you're like, oh, I'm a unicorn I'm a $5 billion company or whatever. And people are like, yeah, sure you are. When you're a public company, you are what you are, right? Everyone can see it. And so it's helped us with some of the larger, certainly larger mortgage ecosystem players to bring a level of credibility to the table and engagement that we didn't get when we were private. Yeah.

What do you think public investors misunderstand about Figure?

Well, I talked about the take rate issue, which, you know, they need to be looking at contribution margins. So that's That's one of the ones. I think just understanding really the endgame of what we're trying to do because people hear about Hastra and Provenance and Demo Prime and they're like, "I can't even keep track of all this stuff." And so last earnings call, we laid it out. We produced a deck that has a nice visual that shows—

Got to give people the simple visual.

Yeah. We have debt capital markets, equity capital markets, and financing markets. Markets, right? And, and how all three are synergistic and all three ultimately get us to an overhaul of the capital market ecosystem. Yeah, yeah.

I mean, in prepping for this episode, uh, it's, um, the business seems more confusing than it is, I think, because you're trying to do things with infrastructure that doesn't exist. So you have to then build the infrastructure even though you're not in the business of infrastructure building. You have to do those things to support the business.

Yeah. And it is, it is a complicated business because, you know, the capital markets are complicated and ultimately that's what we're trying to displace.

Yeah. The other thing I want to talk about that we haven't discussed yet is because you do so much stuff on-chain, you— and it kind of changes investor relations in a sense. So how much of your business, how much of your business can analysts see on a day-to-day basis?

So they can see production, um, amount of loans that flow through the ecosystem and Figure Connect daily. So you could probably back up to roughly 90% of the business. So there's, there's a handful of people on crypto Twitter that have already done that. They've built models that feed, you know, with an integrated block explorer that feed right into it. Right. So, you know, by the time we do announcements, there's not a lot of surprise.

Right. So is this a good or a bad thing?

I think it's a very good thing. Makes the—

it makes the, uh, volatility— dampens the volatility around earnings. That's for sure. It dampens the volatility.

It also, and sort of paradoxically, I agree that companies shouldn't be compelled to do quarterly reporting, but because they should be able to produce real-time visibility to their business. And so, so it begs the question, well, what, what is the benefit of a quarterly report out of Figure when I can see real-time what's happening on-chain? Right. Now, again, I'm not going to see certain margin information and other things, but that can be released by the company on an episodic basis. But yeah, no, you know exactly what's happening in terms of core growth drivers on a block explorer. Yeah. Is that also a problem? No, I think it's great. Yeah. It's a problem because people don't always interpret it the right way. And I've got to go out and correct people about how to look at the blockchain. And it's a problem in that you always run the risk of information asymmetry. And you want everyone to have the same information at the same time. But I can tell you that some of the analysts that are very focused on sort of the blockchain ecosystem have definitely leaned in to figure out how to get access to this data.

How do you think investor relations changes?

So I think it's, you know, there's just a higher cadence of communication. So rather than, you know, looping up 20 calls with large investors at every earnings, you know, they just come through pretty consistently and, you know, and I'll have it on I'll have investors send me a note, be like, hey, I looked on Block Explorer and it looks like you've done this, you know, can we get on a phone call and talk? And, uh, you know, and it's fine. Yeah. Um, what do you—

what, what multiple? I saw, I think it was, um, Matt Siegel at VanEck posted about your guys's— the rule of 40, and you're at like 140. 140. Yeah. The, um, which is awesome. The only problem with that is you're not a pure-play SaaS company. No. So it's maybe not a perfect one-to-one. Of what to use. I'm curious, like, what multiple do you think the market should use for you guys?

It's a great question. Right now, I don't get much of a blockchain halo benefit on our multiple. So, you know, our value is, you know, really driven on the profitability of the business. And, you know, I think building into what we think we can do long-term, EBITDA margin and profit margin, Jason Yanowitz, you know, it's a very unique business that's growing rapidly. I think the multiple should be higher. I think most of my investors believe the multiple should be higher, but again, I think there's a lot of education that has to happen to support that. Yeah.

Founder thinks multiple should be higher. Indeed. Shocking. Yeah. So I was following when you guys split the company. Which seemed like a total— I'm assuming just the headache internally of that. I was, uh, wasn't fun.

Yeah, yeah, I can imagine.

But then you recombined it.

Also wasn't as super easy, but less pain, less brain damage than separating it.

Yeah, that's— I can only imagine. What does that teach us about tokens and what's happening in the token market right now? And, uh, because I was watching when you guys split it pretty closely, because then you have two forms of value for a company that's very interconnected. And my understanding is investors don't like owning a public— owning a token or owning a vehicle, uh, of ownership that's very dependent on another vehicle of ownership, especially when one's public. When one's public and then the other— yeah, no, it's right. So this happens in tokens though every day. This is pretty much all tokens that exist. You have a public token that is then dependent on like a private labs entity. So what does this teach us about tokens?

Well, I think, I think it's a horrible model. Yeah. And, you know, there, there was— I won't say who— one of my venture investors, um, you know, back in, in '21 asked me to, to diligence their FTX investment. And I went and I looked at it and I'm like, I wouldn't do this investment. It had nothing to do with the fact I thought there was fraud or whatever. And, you know, obviously the headline numbers were phenomenal. But I'm like, the problem is there's this entity you're investing in, FTX, and then there's another entity you can't invest in, Alameda, and the management team's pulling economics from both. And I'd seen an incident of this, um, you know, maybe a decade earlier with, um, you know, somebody I know who had a mutual fund business and a related ancillary business. And, you know, the mutual fund business jammed all their expenses in the ancillary business and, you know, to to kind of arbitrage the management payout, which is, by the way, a rational thing to do when you're in that situation. I'm not necessarily faulting them, but I said, this is a bad situation. You don't want to be in this situation. And they ended up investing anyway and lost a bunch of money and so be it. But I think that dynamic is an untenable and horrible investor dynamic. You don't want that. And in Figure's situation, I did this out of an act of desperation because I was trying to go public and the SEC would not let me go public because it was too blockchain and too heavy on crypto and everything else. And so if I'm going to split it— and the irony was I wouldn't have been able to take the split version out either because there was, to your point, these interdependencies that the market absolutely hates. And the public market would puke all over it. And so we were fortunate we were able to recombine it and then take the recombined business Circle goes public, people like crypto again. Yeah, well, it was, it was interesting because, um, you know, we started our roadshow, they had not gone public yet, and, and the Goldman bankers were like, Mike, you really got to tone down, you know, the word DeFi. You don't want to say DeFi, it scares everybody. And then, you know, Circle goes out and rips, and they're like, Mike, you really want to emphasize DeFi, it's very important.

Yeah, you start to realize that these public markets trade just on narratives like, uh, like tokens do too.

Yeah, that's funny.

What do you think crypto people, uh, misunderstand about capital markets?

I think the biggest and most obvious initial thing is just the sheer size and scope, right, of, of how big the actual capital markets are and how small they are in blockchain. And that, you know, as I said, like, like $12 billion of stablecoin on a DeFi protocol is immaterial. Yeah. And, but that would be the biggest protocol out there, right? And, and so, you know, we need to get $100 billion and then a trillion dollars over, and then we start living in relevancy. Um, but, you know, so I think that, that's the biggest. The, the second is everyone wants to create a security and doesn't understand what a security is. And so, you know, I, I get like— I used to get— this used to happen all the time. People would be like, I'm gonna do this, this. I'm like, great, that's a security. Like, well, well, no, it's not. I'm Nope, that is a security and you are going to be in trouble if you do that. And, uh, so anyway, what do you think happens with tokens?

Does this all just converge into one asset? Yeah, I—

and this is, this is where I go back to, you know, Hash and FGRS. Like, it, it should converge into one asset and build the alignment. And, um, and then there, you know, it solves a whole bunch of other problems. And, and so I think there's, there's that's the way we're going to go. Because the tokens, where does the token derive value? There's 3 reasons it has value. It has governance, which has de minimis value. It has utility, which could have meaningful value, but generally doesn't. And it has economics, which is how much share of gas and network fees do you get on transactions or MEV or whatever it is your economic model is. And that economic, the token's effectively tantamount to equity in a company that dividends everything out every day. With no cost structure, right, or limited cost structure. And so, you know, it really should be treated as equity.

Yeah. As we think about wrapping here, what do you, um, can you maybe paint the, paint the world in like 5, 10 years? If you're correct about all of this, what does, what, what changes? What does the world look like?

Yeah, I, I think you're, you're going to see a massive tipping point of movement on-chain But it's predicated on maintaining, whether it's clarity of legislation or it's benevolent regulators, maintaining that air cover because it was very easy for us just to slip back to where we were and everything's going to stop. And for the real dollars to move over, you have to solve things like what I'm talking about in terms of getting the SoFi customers and the funds over, but the banks have to lean in and move too. And they're still trying to figure out what all this means and whether they should care. And they're having the same discussions, and I know this because I've talked to them about, well, it really isn't relevant right now. There really aren't enough dollars on here to make a difference for us. Why do we care? And I think that's a little short-sighted because I think we're going to hit a tipping point and everyone's going to have to care. So I think Maybe not in 5 years, but in 10 years, we're going to see a wholesale transition of capital markets on the chain, subject to either clarity or some way to keep the current regulatory, the benevolent regulatory environment going.

Yeah. What's the biggest impact that clarity will have?

Well, it'll codify the current intentions of Chairman Atkins and Commissioner Peirce and others into law. And that's defensible for us. Yeah, you know, the interpretations aren't defensible. Exemptive relief can be removed, right? You know, the only thing that has permanency is law, right?

Anything we missed?

No, we covered a ton. I really appreciate it.

Congrats, man. I just on the founder side look up to everything you've been able to build. So yeah, congrats on everything.

I appreciate it. Thanks for having me back.