Cadena & Bitcoin: Future Unfiltered

excited to welcome to the stage Mr. Kevin Bell. Kevin, thank you, Tim.

I'm super excited to be here.

Good evening. Is it evening wherever in the world you are?

It's 3:30 in the afternoon here.

Oh, even better.

Yeah, works well.

So for those that are not familiar, um, you might be a newer face, uh, to some Cadena Bitcoin. Cadena in Spanish means chain. Am I getting it right so far? Absolutely.

Yeah, perfect.

And what, what is Cadena Bitcoin? What, what are you guys doing over there?

Yeah, so Cadena Bitcoin is, uh, a new con— a new marketplace for borrowing and lending Bitcoin. And so we just launched last week. The language we use around borrowing and lending isn't perfect because we're taking you know, vocabulary from the same banking rails that brought us agriculture and railroads, and we're trying to apply that to the digital economy. So, you know, the product requires a bit of explanation. One way to think about it also would be hedging Bitcoin exposure with smart contracts. And so we have a peer-to-peer platform that allows clients to lend and borrow Bitcoin And maybe I should back up and just say that Cadena Bitcoin is a registered Bitcoin service provider in El Salvador. It's also a no-KYC platform, so it's a username and password access. There's no fiat on-ramps or off-ramps, so everything we do is on the Bitcoin blockchain.

Wow. I mean, that's a statement. Can you kind of take us through a little bit? I know at least I appreciate a little bit of your background, both maybe personal and professional, your journey to Bitcoin, and then we'll kind of get into some of, some of the, the details with present day. I just, I think it's endlessly fascinating to hear people's stories and, and kind kind of give some color around, like, the—

yeah, no, it's— I think it's a good story. I think it's a good story, so it's worth, you know, uh, so most of my career was in the foreign exchange business, and so that's an over-the-counter market. It's a spread business. Kind of counterintuitively, the smaller clients, you're taking a much larger spread, but the business is really about crossing the bid-ask spread. Often as possible. And so there's some risk-taking that goes along with that. So that's kind of one side of it. But then, because it's an over-the-counter market, there's a really big settlement risk issue or counterparty risk. So, you know, if we're doing a trade and I'm giving you $11 million for €10 million, one of us has to let go of that money first. And so that creates a a significant risk. And, you know, I think one of the things that attracted me to Bitcoin initially was the idea that you had programmable money and you could really manage that risk. And so, you know, all kinds of colorful characters in the foreign exchange world, uh, you know, with one firm, uh, what I learned— and so before crypto trading to date myself, uh, often people would trade currencies online and, um, you know, use leverage and other things and, and, you know, in some ways maybe gamble, entertain themselves with this type of product. And, you know, what I came to learn, uh, was that a lot— some of the exchanges in this space would basically just take the other side their client's position because they knew that the client eventually had to close that position to take money out of the platform. And so, you know, from a risk management point of view, you would have these exchanges with, you know, $50 million positions that would be offside, and everybody— if everybody asked for their money back at once, it wasn't there. But, you know, somehow the business operated. And, you know, I think we've seen some of that kind of creep into the, uh, to the Bitcoin space. There was a firm in Canada called Quadriga many, many years ago, you know, amassed all kinds of funds for the idea that they were buying Bitcoin. And then when people wanted the actual coins, uh, you know, the principles disappeared. And so, you know, foreign exchange, I think about from kind of settlement risk and market risk perspective, but my experience was really helping, you know, commercial corporate institutional clients hedge foreign exchange exposures and deal with global macro risk. And so I left that world, uh, in 2015 and then went, uh, to kind of explore the world of personal finance. Uh, I opened a mortgage brokerage, and so that kind of segues very nicely into the problem that we're trying to solve. And really, there's You know, from my perspective, two issues with the mortgage business. One's kind of a technology issue, and, you know, the technology is a lot of paperwork. The matrix requires, you know, identification, income documents, liability information, assets, and a credit report to get a mortgage approved. If that goes well, we appraise the house. If that goes well, we send them to an expensive lawyer. If there's any expensive problems with any problems in the process, we have expensive judicial processes and time, everything can get resolved. And so that's kind of one, you know, I don't know, way to see banking now. And then the second problem is really an economic problem. And, you know, I think the Bitcoiners, uh, understand this problem as well as anybody. But, you know, in that world, winning is essentially the bank creating money out of thin air, giving it to somebody so that they can invest in a non-productive asset that they quite likely overpaid for. And, you know, nobody can figure out why their kids can't buy a house. And so, you know, I think this Bitcoin thing, uh, solves quite a few problems related to that. And then, you know, maybe, maybe a bit more on the journey. I'm Canadian, so I had taken out a bunch of cash from the bank machine during COVID um, you know, as we do in preparation with the toilet paper and hand sanitizer. And I found this sitting in my desk a few years later, and I was going back and forth to Ottawa, so I was giving cash directly to the truckers. And then, uh, comrade Trudeau started freezing everyone's bank accounts who had donated to this protest. And so I was very fortunate that I had given cash, and that was kind of, uh, you know, dumb luck. And I think I'll say— and, and so for me, that really kind of cemented this issue with counterparty risk. It really flipped it on its head for me because I thought, you know, if everything's in the bank, it's safe and I don't need to worry about it. But, you know, turns out that's not always the case. And, you know, that's not just a case for Canada, that's an international issue. And, you know, I know in the United States they have banking and debanking issues also. Um, and then, you know, I have the CFA, so from a modern portfolio perspective, I've been thinking a lot about Bitcoin. And if you have these assets, you have a bond that's giving you this return and has this standard deviation, and stocks give you this return and this standard deviation. If we introduce another asset into that system that has, you know, a substantial, uh, different profile from a risk-return perspective, by adding that to a portfolio, we're going to increase the risk-adjusted return of that portfolio. And You know, that is what they teach you in finance. Um, and so, so, you know, I, I'm kind of stunned and still waiting for, you know, all of TradFi to really grasp this concept. And to me, it's unclear whether that, you know, if it's not 15 years, is it 20? Is it 25? Like, at what point do you take your head out of the sand and, you know, realize that this thing is actually real and, and pretty important. And, uh, yeah, so that's, that's my, my story.

Got it. Can you walk through like the foreign exchange markets, mortgages, like other existing Bitcoin lending solutions in this space and how all that kind of like— yeah.

And so I came to this kind of naturally. So I moved to Costa Rica a few years ago from Canada. And, you know, I have two assets. I have a house and I have Bitcoin. And if I wanted to borrow money, uh, it's really expensive not being a resident to be able to borrow against a house in a Latin American country. And so I was looking at the options to use my Bitcoin as collateral. And, you know, still I think they fall into two main categories, and one is this centralized solution where you're sending your coins to a custodian who is holding on to the coins and then giving you fiat, and, uh, you hope you get it back at the end. And so to me, that was really a non-starter, uh, kind of didn't fit with the Bitcoin ethos, didn't fit with what I thought was possible with programmable peer-to-peer money as I understood it. And so, you You know, my rabbit hole from there involved reading a bunch of things Nick Szabo had written about smart contracts and trying to figure out what was possible. You know, I think the other thing I'll say I discovered in this process is there's this, you know, people seem to think there's a trade-off between the programmability of Bitcoin and security. And, you know, I would just say that Bitcoin is what it is, and there's, uh, a lot of programmability that has not been explored at all. And so, uh, you know, we were able to do something in terms of developing credit markets for the Bitcoin economy. And so, you know, the other thing I'll say about credit markets, I think people often in the Bitcoin space, maybe not the reading a bunch of things Nick Szabo had written about smart contracts and trying to— the other thing I'll say I discovered in this process is there's this, you know, people seem to think there's a trade-off between the programmability of Bitcoin and security. And, you know, I would just say that Bitcoin is what it is, and there's a lot of programmability that has not been explored at all. And so, uh, you know, we were able to do something here that I think is going to have a lot of application in terms of developing credit markets for the Bitcoin economy. And so, you know, the other thing I'll say about credit markets, I think people often in the Bitcoin space, maybe not the Treasury space, can be a bit wary of credit. But credit is what actually helps grow the economy. I mean, in Costa Rica, they don't have established credit markets. Their GDP per capita is a third what it is in Canada. In the US, you have established credit markets, the most liquid in the world, and you also find the most innovative companies and the highest GDP per capita. So from my perspective, credit markets are essential to growing the Bitcoin economy. And when I looked at those solutions, which to me seemed like, you know, TradFi businesses built on Bitcoin, uh, it just seemed to me that there had to be a better solution than that.

And how did that whole process work from there has to be a better solution to where we are today?

Yeah, yeah, it's, it's a great question. And so It's a bit over a year process. You know, the first 4 or 5 months we're talking to different people who wanted to build a solution, you know, on some type of second layer, some type of sidechain, you know, or again with a custodian. And so really, you know, the hardest part for me was finding the team of Bitcoin programmers to to make this a reality. And as soon as we connected, I think we were, you know, pretty clear that this could be done. In July, at the beginning of July, we put out an MVP really just to test the technology between friends and family. And it worked. It was a bit of an ugly app, but— and then last week we put out kind of a 1.0 version of the technology kind of a nicer front end, hopefully people think, um, greatly improved, uh, experiences with an iOS app and an Android app. We added loan-to-values, and so we had a 50% loan-to-value product and an 80% loan-to-value product and a 30-day, 90-day, 180-day, and 365-day loan. Now. And so again, I'm using the word loan as, you know, a bridge to TradFi.

Got it. If there was a better word, what would it be?

Yeah, I, you know, I'm open to suggestions, um, but, but really, you know, for us now, you know, we put a lot of work into building this marketplace, and now it's working. And, you know, we're talking to a number of different, uh, you know, exchanges, liquidity providers, and people who have interest in, in adding liquidity on both sides of the market. And, you know, from my perspective, uh, you know, there's really, again, this traditional market where people are using these Bitcoin-backed loans, sending them to a custodian and paying, I don't know, 12% interest. Uh, with those solutions, they also face liquidation risk, which is not an issue with our product at all. So there's no margin calls, no liquidations during the terms of the loan. Um, and, and, you know, so that's one side is people looking for leveraged Bitcoin exposure, maybe treasury companies, maybe whoever. And then on the other side of the market, there's a number of people who are looking for yield. And often, you know, in this space, a lot of that seems to be, you know, I'll call them alts to be nice, but, you know, on that side of the market. Got it.

Where do you see Kadena like 12 months from now?

Uh, boy, it's a good question. You know, uh, one day at a time is, is kind of how we take things here, and like doing the most important thing that we need to focus on today. Um, you know, I, I do think there's a lot of interest in kind of this digital credit idea, and you know, what I'm proposing is an alternative view of kind of trading, you know, tradfi audited paper claims held by a third-party custodian. Um, and we're dealing with Bitcoin directly. And so, you know, I recognize that in that world people have alternatives to borrow money in a margin account, uh, and a number of other ways. But, you know, I would just point out that that is a different a different underlying security.

Got it.

Um, I can, I can walk through a loan if that's helpful. And yeah, absolutely, it's kind of, uh, you know, but I, I mean, it's two transactions. What, what the result is, is two transactions on the Bitcoin blockchain. And so, you know, I'll just walk through an example. If we had a 1-year loan at 50% loan to value. And so if I'm the lender in this case and I want to charge 10% interest, um, and maybe just to explain the site, um, the contract sizes are standard 0.1 Bitcoin contract size. So the way we have it set up, it's a $12,000, you know, $11,000 depending on the, the day, um, Originally, we had a 1 Bitcoin contract size but wanted to make it accessible. So we still have that running in the background. In addition, we've created a 0.01 Bitcoin contract size. And I think we'll, you know, once we have some liquidity in the market, offer those. But, you know, using an example of just say 1 Bitcoin, $100,000 Bitcoin price for simple math. I'm the lender, uh, I'm putting in 1 divided by 1.1 of that, which is 0.454545 Bitcoin. Um, and what I'm— and it's easiest to understand this product from the lender's perspective. And so today I'm putting in $45,454 worth of Bitcoin, and a year from now when this contract settles, I'm going to get $50,000 worth of Bitcoin. And so from the borrower's perspective, they're— again, it's a peer-to-peer situation, so they're literally opposite sides of the same coin. The borrower in this case is putting down 0.545454 Bitcoin at the beginning in the, in the funding transaction, and then for the settlement of the trade after a year, what they're going to receive is whatever remains after the lender has received their $50,000. And so, you know, it's just the— this time-locked, uh, on the Bitcoin blockchain collateral pool that is sitting securely and waiting for a price to determine how it's going to be paid out between the borrower and the lender. And so, you know, my hope in, in offering this product is that we can, you cut out a lot of middlemen in the financial universe. And now, you know, what this provides me as somebody who has Bitcoin is now I can, you know, hodl Bitcoin, I can leverage my Bitcoin exposure, or if I have fiat liabilities, I can generate fiat income from the Bitcoin. And so, you know, I'm, you know, everyone's their own bank now. In the Bitcoin economy is how I would describe that. And so walking through the technology, the app is to sign the transactions. As far as I'm aware, we've built the first commercially available app that allows for signing of adapter signatures. If anyone else has one, please let me know. I'm interested in talking. And so what's happening is the clients are signing the funding transaction initially, and they're also signing 5,000 transactions of what could possibly happen on the back end. And once the— there's an oracle involved. Once the oracle attests to the price, whichever collateral, whichever settlement needs to take place is what gets published on the Bitcoin blockchain.

Got it. Awesome. I guess I'll throw it over to you for like closing thoughts and where, where can people find you, find the, the firm, and, and, and any other touch points that are important to, uh, to shout out?

Yeah, of course. Um, on Twitter, or X correctly, uh, Cadena Bitcoin, uh, cadenabitcoin.com. And you can email me at kevin@kadena.com. Uh, really interested in connecting with, you know, I had the opportunity to go to Montreal last weekend and connect with the Bitcoin community. And, uh, you know, the Bitcoin community is definitely the best community. So, uh, you know, happy to talk to anybody who has questions, who's, you know, can provide support, liquidity, uh We're really looking to spread the word and our message of love and decentralization at this point. And so, you know, I really appreciate the platform, Tim. It's super helpful to be able to get the word out and have, you know, people like you spotlight innovation taking place in the sector.

Absolutely. Thank you, Kevin, for your time and joining us today, and we look forward to following along and catching up with you from time to time.