The Blockchain Interviews with Dan Weiskopf: Mike Cagney | ETF Trends

Intro Vocals [00:00:01] You’re watching The Blockchain Interviews hosted by Dan Weiskopf. Each episode features interviews with leading industry experts so that viewers can have a deeper understanding of today’s quickly evolving blockchain marketplace.

Dan Weiskopf [00:00:20] Today, I’m joined by Mike Cagney, executive chairman of Figure, a truly innovative fintech company focused on the blockchain. Mike was also co-founder of SoFi. In this interview, I hope to really dig deep into how Mike has identified opportunities to disrupt and frankly, to innovate as well. Mike, thanks again for joining us today. Appreciate it.

Mike Cagney [00:00:50]  No, no thanks. Thanks for having me. Just one point of clarification. I’m still the CEO of Figure too. So you give me a title upgrade there, but CEO and Chairperson.

Dan Weiskopf [00:01:00] Oh, I apologize. Very cool. So you’re also the guy who executes to your point?

Mike Cagney [00:01:07] Indeed, indeed.

Dan Weiskopf [00:01:07] Yeah, yeah. So thank you. So let’s set table here. You know, Figure is so immersed in the blockchain with just really a small mission of transforming trillions of dollars, you know, in the financial services industry. Tell us your overview of Figure. So we understand where we’re going on this interview.

Mike Cagney [00:01:33] Sure. So we think about blockchain as having two really valuable aspects that lend itself to the disintermediate a lot of the intermediation within the financial ecosystem. So those two things are the ability to displace trust with truth, so you have certainty as to what it is you’re transacting to, and the ability to bilaterally transact without any intermediation, without counterparty risk or settlement risk. And when you bring these things together, you create marketplaces where you become completely agnostic who the counterparty is to that marketplace because you’re not requiring trust into that counterparty. And so if you think about the broad ecosystem, you think about lending and 13 trillion dollars of lending production, an enormous amount of cost and efficiency is tied up in that intermediation process. And, you know, to the tune of hundreds of basis points. If you think about payments and in particular interchange and the market cap that Visa, MasterCard, PayPal have dominating that vertical, they’re purely intermediaries in that transaction process, and blockchain provides a vehicle or a path to the disintermediate that out. If you go to exchanges, obviously an exchange by definition as an intermediated function in terms of sitting in between a buyer and seller and facilitating a transaction. And as you cut across public and private exchanges, you know you’ve got well over a trillion of market cap. And so we think we’re in this very, very interesting and exciting time where you actually have a viable path. And it’s not just a theoretical construct. And you know, in the case of Figure, we’ve de-risked a lot of this, and I’ll talk more about that in a moment, but you have a viable path on how you’re going to take trillions of market caps out of these traditional intermediary incumbents and that’s going to benefit or accrue into the blockchain ecosystem and to the broader ecosystem as well. And it’s doing that in the form of gas fees that you’re paying on blockchain in lieu of what you’ve been paying for intermediate transactions before. And so, you know, from our standpoint, we started this in 2018. Extremely high level of excitement and enthusiasm, but really three headwinds that we had to navigate through. One being that traditionally everything within the blockchain, especially within the DeFi construct, was Ethereum or Ethereum derivative. Obviously proof of work, Ethereum is a relatively expensive and slow way to transact. And that lends itself to some problems within the blockchain construct, but also the architecture of Ethereum. And in particular, if I do something like put a loan on Ethereum, what I’m putting on is the enforceable contract. And the issue is when that enforceable contract, let’s say in the context of Ethereum 2.0 distributed stakeholder blockchain, that enforceable contract’s going out to each of the validators the U.S. courts would say, well, that’s no longer a single, enforceable contract. And so you have issues in terms of data ownership around the construct of how the blockchains have been built. So we ended up building a chain called Provenance using the Cosmos SDK and the Tendermint consensus module. It’s public, it’s open source, it’s decentralized. We have a large amount of the gas fee, but we can’t vote it, so we don’t have any outside governance control, but that gas fee gives us a huge incentive to drive adoption onto the blockchain. But we built it in a way to address these three things. So speed and cost, obviously, but also controlled data, and that data controls is important both from API and recordkeeping standpoint, but also from an enforceability of contract standpoint. The second challenge we had off of this was there was no real way to represent Fiat on chain outside of the traditional stablecoins, USDC, USDT, some of that ecosystem. And the challenge, as we all know within the crypto universe, is there isn’t enough stablecoin within the blockchains to support even just crypto activity, let alone moving mortgages or payments or exchanges entirely on the chain. And so we really needed to find a way to get banks to lean in and start providing Fiat representation on chain. And so what we did originally with Provenance was what Circle and Tether did. You wire money to Figure we’d find your digital wallet, you transact bilaterally with our counterparty risk, but you’re taking a bigger risk. And we had to pull that out of the equation. So about four weeks ago, we did a transaction, which was kind of a seminal first across two different verticals. So we had 72 Figure employees, sell $8 million of Figure stock and a limit order book Secondary Market. And the Figure stock is entirely digital. There are no paper certs. It’s, you know, we use Provenance as a cap table. About 200 companies are using Provenance as a cap table right now, but effectively they were able to log on, put their stock up for offer, and then we had two institutional investors come in and bid to that stock and transact with those employees and settle real time, T instant. And this was a milestone transaction on two fronts, in that it was the first time there was a securities transaction where those securities were custodied on chain settled through a marketplace, and we did that through our broker dealer ATS exemption that we’ve gotten from FINRA and the SEC. But more interestingly, on that transaction, the buyers bought USDF, so effectively a digital Fiat marker directly from New York Community Bank so that intermediate to Figure and New York Community Bank created an insured deposit behind that USDF coin and effectively funded those buyers. Those buyers transacted with the sellers, the sellers and went to the bank to redeem back for Fiat or to hold the USDF. And this is the beginning of what is now called the USDF consortium. So there’s a group of banks that are setting the standards, the bylaws, the structure of how they’re creating a reciprocal coin, USDF, to facilitate transactions on the chain. And this does a couple of really important things, which is, one, it basically provides a conduit for unlimited Fiat on blockchain, right? You no longer have the constraints or limitations of what goes on, subject to the amount of credit risk that you want to take from one of the traditional stablecoin issuers. You’re going to have an enormous amount of Fiat available that the banks can deliver anytime that it’s needed. That obviously opens up the marketplace applications for blockchain, but it also creates a whole level of second order benefit payments and payment settlement, for example. So being able to move USDF between any two counterparties completely disintermediates out interchange, wire, ACH, cross border swift, right, you now have a mechanism to move value real time across a set of participating banks that have reciprocity of that token. You can build a whole set of applications around programmable money, so payable receivable marketplaces and supply chain finance marketplaces where you can manage the invoicing encumbrance such that when you SDF goes to relieve the invoice, it goes the appropriate holder of the right encumbrance of the invoice. So there’s this really cool stuff that’s going to come out of this, and we think it’s going to be a huge application. But that Fiat piece was a struggle that we had for years, right? I mean, literally, we just solved it four weeks ago, and we’re now at a point where it’s taking off rapidly. There is a ton of banks that are leading into this consortium. And you know, to be clear, we’re not part of the consortium. We can’t be, you have to be a bank to be part of it. So effectively, what we did is facilitated the technology, the integration into the ledger systems, so that banks can run this but effectively are not center stage on it, the banks are. And you know, the third application, or the third issue that we had starting off, was everybody liked blockchain back in 2018 and ’19 and ’20, ’21, ’22, but none of the banks wanted to be first movers on it. And so it was, while it was really cool, we’ll wait and see. And, you know, we realized that early on and said, OK, well, we’ll be a first mover. We’ll create a series of operating businesses to execute on chain, and these operating businesses are going to get the first order benefit of the fact that they’re early movers, they’re going to get some economic rent for that. But ultimately, what they’re really doing is de-risking the blockchain and crowding adoption. Because our view is what we own and hash is, which is the underlying utility token on Provenance, that’s going to be worth more than any of the operating businesses we’re ever going to be able to build on a standalone basis. And if you look at hash today, it’s at about 12.8 billion dollar market cap and we own 70 percent of it. And we think that’s nascent in terms of where it goes. And, you know, we’ve been very particular with hash, where the Providence Foundation hasn’t done the same kind of validator awards and incentive structure that traditional chains have done. Basically, if you’re using Providence, you’re using it because there is an economic reason to do it and there’s a whole bunch of people who are using it. We’ll talk about that today, for different purposes. But you know, we were first and it kind of created some challenges with the traditional venture community because they look at Figure and they’re like, Well, you’re lending business. And we’re like, Well, no, we’re not. I mean, yeah, we have a lending business that’s doing a billion of revenue this year, about 250 million of profit, but that’s not the point of Figure and say, Oh, you’re a payments business. And you know, well we’re there to facilitate payments and drive USDF adoption. Oh, you’re a marketplace business. Well, we are because again, we’re de-risking that use case and driving exchange applications or marketplace applications. But what we really are at the end of the day is a holder of a utility token on a blockchain that we think is going to ultimately win DeFi. And that’s really what the whole point is.

Dan Weiskopf [00:11:33] It reminds me of the movie “You’ve Got Mail”, right? Where you’re an internet company, well, yeah, you’re a book company like Amazon, and in the end, you’re facilitating change. And that’s the excitement here. How you’re doing it in Providence is really at the core of it all. And I get where you’re going on that. So, but, you’ve come through a path here, you know? How did you get into the lending side? You had to make an acquisition. Is that correct?

Mike Cagney [00:12:06] Well, we started off organically. So we, you know, obviously the bulk of the team that we have built SoFi originally. And so we, you know, we knew the loading space extremely well. And so we started organically and, you know, outside of mortgage. And what we did recently is we did a transaction with Homebridge where we basically brought Homebridge into the Figure fold. And the reason we did that was it was going to take us a while to build critical mass organically through our own mortgage business. It would take years to be able to build up to where Homebridge was in terms of production and the organization infrastructure that they have. And we felt again, there were kind of two drivers for this transaction, which was, one, we felt that we could go into a mortgage company and turn it into a fintech. And so, you know, outside of the context of blockchain, just really around technology, leveraging deep analytical, contextual outreach and cross-sell to drive super high lifetime value off of low acquisition cost, you know, customer channels. But the other and more fundamental motivation was we have an architecture for how we see the evolution of the lending ecosystem and, obviously, within the lending ecosystem, mortgage is the dominant asset class. You know, $13 trillion of loans out there right now, mortgage is $11 trillion of that. And so we had to be able to address that ecosystem. And so we built out a structure from point of sale to loan origination, to custody administration, to servicing the marketplace, to support any type of lending product. And what we wanted to do was drive a consortium effort into that lending ecosystem. And the challenge is, if we were purely a software provider, a technology provider trying to get the mortgage companies to line up and participate and lean in on this would have been, you know, the analogous herding cats. Just wouldn’t have happened. And so what we did is we said, Well, look, we’re going to buy a relatively large mortgage originator, and we’re a top 15 originator at this point, and we’re going to push our volume through and we’re going to get the economic benefit of this and we’re going to let anyone else wants to do it, do it with us. But the point of that is if you don’t want to step in, you know, I’ve got 30 billion in production, at least going through there in the next 12 months. If you do want to step in, you’re going to get the same upside that I’m getting. And we think what it looks like right now is we’ll build enough of a critical mass of consortium that, you know, it’ll be upwards of two to three to four hundred billion dollars of production that’ll go through this ecosystem in the next 12 months. And you know, that’s obviously hugely accretive for gas fees on Provenance, but it’s also really setting the guideposts for what lending is going to look like on chain. And we’ve done five, six, seven billion dollars of transactions on chain right now through traditional lending. We are the first to originate, you know, unsecured consumer loans and mortgages on chain. We were the first to finance someone to warehouse and securitize them, and we run a relatively deep marketplace right now for primary and secondary loan trading participation. But this is taking it to a whole new level in terms of scale, and we think this is going to crowd in a lot of the ecosystem because the economics, the first transaction that we did, we demonstrated about one hundred and seventeen basis points of cost savings from point of origination through deal execution using blockchain. And we think that there’s been transactions behind us, not done by us, but done by others, where have been upwards of 125 to 130 basis points. So there’s a really strong, compelling economic reason to lean in and leverage the tech.

Dan Weiskopf [00:15:45] You know, the whole premise of, you know, our investment philosophy is to focus in on the picks and axes. But what you’ve done is dig even deeper. And at the end of the day on the lending side, right, you’ve kind of focused in on a community bank side. And you know, candidly, to some degree, you may be a hero in that area because it seems like an area that is shrinking. I mean, I think there are something like 830 community banks going back to 2000, and now they’re just like 4500. And the number that are applying are–it’s even shrinking more right, like 27 have been filed for the last 10 years. You know, how did you come up with that as a strategy?

Mike Cagney [00:16:31] Yeah, so it’s a combination of factors, I think one is that we have a challenge around the money center banks because they, you know, the big four all want to do their own blockchain. They want to own their own technology. You’ve got JP Coin and Wells Fargo was trying to do a coin, you know, et cetera. And, you know, but they’re not really thinking about it in an open architecture, open loop ecosystem. They’re thinking about a closed loop where, you know, I, for one, have never figured out closed loop blockchain because in closed loop, you could run a database and have a much easier life. You know, blockchain is really specific to when you’re in an open loop construct and you need the certainty of an asset in the bilateral transaction ability. But you know, what had happened was we had a lot of regional banks coming to us and we ended up sort of serendipitously taking an investor in the last round. And they have an incredible ecosystem of bank LPs, and they leaned in and said, Look, these make LPs. They all want to talk to you and talk about what you’re doing. And you know, that’s how USDF started, right? NYCB was a relationship off that construct. And we said, Hey, how would you like to do this? And you know, this was a bank that has invested in technology in 30 years and all of a sudden is at the forefront of tech, you know, doing digital marker on blockchain. So you know what we’ve done with the regional banks is we basically said, Look, whatever technology you want from Figure, we’ll give you. So if you want to do loan origination on chain, we’ll give you the POS/LOS infrastructure to do that. If you want to do USDF on chain, we’ll give you the integration, the Pfizer rep I asked, Jack Henry, or whatever your ledger system is to do that. And you know, a whole series of technology that we think is best in class, that’s actually stronger than what’s in the money center banks right now, where we’re effectively contributing that into these regionals. And so you’re right, it creates this very interesting dynamic where all of a sudden this regional that’s been viewed as technology backwards now has better technology than JPM. And that’s kind of the point of what we’re doing. And ultimately, JPM and Wells and B of A, you know, they’ll come in and leverage this tech because we think it’s going to be ubiquitous. But you know, the path of least resistance was–I always say when you have to convince someone or sell someone on blockchain, you’re in a losing argument, right? You want to have them come in and say, All right, I want what you want or I want to do what you’ve done, how do I do that? Versus, like, convince me blockchain is a good thing. And you know, there’s not enough hours in the day to deal with the people who want blockchain and want to leverage the technology, so that’s what we focused on. But you know, there’s a huge audience among these regional banks, especially as they’re going through, you know, generational shifts in terms of management and leadership teams where, you know, they recognize it’s a do or die circumstance. And you know, USDF, I think, is a great example where we’ve said, look, central bank digital currency or JPM Coin are basically the death of your business model. And if you don’t get out in front of this with a way to represent digital marker across regionals, you know it’s unclear what your role in the banking ecosystem is on a go forward basis. And, you know, people could disagree with that. But we had a very strong view that’s the case and that’s created a lot of enthusiasm around the technology and the fact that it’s live, it’s in production, they’re seeing the benefit. The fact that we’re standing up point of sale loan origination infrastructure where banks that haven’t had great technology now have cutting edge tech. They can do the same thing we do–originate HELOC in five minutes originated a personal loan in two minutes, right? Whatever the time frame is, it’s a huge win for them.

Dan Weiskopf [00:20:28] Yeah, so doing a HELOC in five minutes versus a month.

Mike Cagney [00:20:35] 45 days. 45 days is the average right now.

Dan Weiskopf [00:20:37] Yeah, I mean, you know, this is a great example of real utility, right? And it’s far more than price. It’s changing the world, so we’re super excited about it. So along those same lines, so we talked about the lending side. Let’s talk a little bit more about how you’ve managed some really neat collaborations and partnerships in terms of Apollo and those relationships.

Mike Cagney [00:21:06] Yeah, I mean, what we’ve done with Apollo is they basically leaned in and said, Look, you know, we see these three verticals the same way you see them. We see the lending and securitization market as a trillion dollar opportunity. We see payments as a trillion dollar opportunity, we see the exchanges as a trillion dollar opportunity. So their view is we’ve de-risked and have scaled lending and, obviously through Athene, we’re doing stuff with them on the securitization front and so forth. What they’re now looking at is, OK, how do we accelerate what we’re doing on payments and exchange? So in exchange, for example, we’re going to be listing an Apollo master fund for the new flagship alts vehicle. It’ll be listed on the Providence Marketplace, or Figure”s marketplace on Provenance. They’ll do a primary raise and then provide secondary liquidity for it within that construct and in a way that doesn’t violate publicly traded partnership requirements or rules. And you know, I think this is the beginning of a wave of listing on blockchain, leveraging blockchain cap table. And then obviously, we’re talking to them about migrating their companies onto this as well to the extent that we can and as efficiently as possible for that benefit. And on the payment side, looking at where their companies are processing payments today, where they can leverage blockchain rails and USDF as a payment mechanism or vehicle. And I think making really interesting headway on both of those fronts and what Apollo’s now doing is saying, look, you know, we want to lean in and bring other private equity firms, other large venture firms into the equation with you, with us. And so it’s sort of a weird dynamic because we think, you know, traditionally they fight for a deal because it’s almost mutually exclusive, right? If Apollo’s in, then Sixth Street’s not going to be and you know, and if Apollo’s and Tiger’s not in, and whatever the case might be, and the reality is the way they’re looking at this construct is, they’re saying, No, you know what? We all benefit because Apollo owns hash and has a huge economic interest rate on hash just like Figure does. You know, we all benefit from ecosystem adoption. So we actually want to bring our peers and we want to collaborate with them and kind of give them access to technology and access to the thought leadership happening around blockchain to really drive an ecosystem that we think is ultimately going to be ubiquitous and win.

Dan Weiskopf [00:23:28] But just to be clear, this isn’t, like, elusive to anybody, other people can also participate in this, right? This is completely, I shouldn’t say completely, but this is regulated with a broker dealer.

Mike Cagney [00:23:42] Yeah, that’s right, that’s right, so within the exchange, there’s a broker dealer that sits on top of it, which is Figure’s broker dealer. But the way that we do that, or work with that broker dealer, is we’ll administer anyone’s marketplace and, you know, we charge de minimis economics to do that administration. So it’s not prohibitive in that context. So, you know, the secondary transaction that happened in that limited order book, you know, I think that was an 80 percent reduction in cost or expense versus a traditional private secondary marketplace because of the efficiencies that we have–a lack of paper movement, the lack of, you know, some of the overhead, you know, we definitely have a lot of pick and shovel infrastructure, to your point, around marketplace that we’ve invested with around KYC AML, and accreditation and so forth. So yeah, but the key is Provenance’s open source is public and anyone that wants to build on it can build on it. So what we’re doing is we’re giving technology to people to accelerate that build. And in some cases it’s turnkey technology, in some cases it’s SaaS technology, in some cases it’s source code people are taking and repurposing out. But we don’t care as long as we’re driving adoption and ubiquity, that’s the end game for us.

Dan Weiskopf [00:24:59] Now how did you get New York Community Bank to participate?

Mike Cagney [00:25:05] So you know Tom Camgemi, the CEO there, or incoming CEO there, is very focused on evolving the bank and getting it to be technology forward. And they’ve done a couple of interesting things. They did the Flagstar transaction, which is a really interesting endeavor for them to add that consumer line into the bank and then obviously tons of intersection with what we’re doing in mortgage and consumer as well. But you know, we were really talking about the ecosystem and laying out the vision of what we felt could happen with USDF. And I think, you know, he resonated right away and he realized look, the first movers here are going to earn a lot of rent. And I want to earn a lot of rent because at some point when it’s ubiquitous, I won’t earn a lot of rent. And so I’m going to lean in, I might as well get paid to do it. And so, you know, took the leap and jumped in. And they’ve been a phenomenal partner to work with. Obviously they’re a bank, and so we have to move at the pace that the regulators will allow them to move. And it requires a lot of education and a lot of transparency, but excited that we got that first transaction off. There’s a much larger transaction happening in early November where NYCB is providing that marker. So, you know, a lot of momentum over there.

Dan Weiskopf [00:26:27] Mike, have you always been an early adopter? You know, how is it that you’ve founded both SoFi and Figure?

Mike Cagney [00:26:37] Yeah. So I think that the general view is, you know, there so much broken in financial services. And you know, when we did SoFi, and we were thinking about what to do next, there was a venture capitalist that I have a huge amount of respect for, who sat down with me and said, Look, unless you’re going to do 100 billion dollar idea, don’t do it. And I kind of laughed at them because, you know, I mean, $100 billion? Like I’ll never build $100 billion company. I’m like, come on, like, how many $100 billion dollar opportunities are there? And he said, Just trust me, don’t do it until you find one. And you know, and then I started reading about blockchain and I just had this like, I didn’t understand what it was for the longest time, when I was at SoFi I never understood what it was. And, you know, and I just thought it was bitcoin. And you know, when I actually got my arms around trust versus truth and bilateral transactions and the extension of that into everything, right, from my standpoint, it’s going to disrupt everything. And you know, there’s reasons why it hasn’t yet, but I think what firms like Figure are doing are basically groundbreaking the path to do it and hopefully we’re successful and hopefully Providence’s becomes a dominant DeFi chain. But irrespective, you know, we’re at the cusp of what I think will be the most significant transformation of market cap from incumbent intermediaries into blockchain and the ecosystem built around that. And you’re talking about trillions of dollars, not hundreds of billions of dollars. And you know the reason Ethereum is worth what it’s worth–you know, the DeFi ecosystem, if you take bitcoin out of crypto, you’ve got at 1.4 trillion dollars of market cap. That’s because if it really is able to disrupt what’s out there, it’s worth at least that, right? And that’s why we’re really excited about what we’re doing. Because again, you just, you know, it’s not like there is a ready opportunity set, where you can hop into something this big. Like this is the biggest, most transformational opportunity set, it dwarfs whatever. And with SoFi we thought we could take on banking and transform the banking function, and I think the company has done a good job, and the current team there has done a good job facilitating that. But I think what we’re really trying to do here is change the way everything works. And so, you know, it’s just a much larger opportunity set. And it’s a pretty unique period to be involved in blockchain.

Dan Weiskopf [00:29:15] So, when you start talking about saving the system 100 basis points in lending, you know, with interest rates where they are today, that’s–I mean, it’s just massive.

Mike Cagney [00:29:30] Well, if you think about a mortgage ridge near right now, they probably run about a 250 basis point gross margin and about a zero basis point net margin. And so one hundred–fifty to a hundred basis points is life or death for them. And so it’s–and then, you know, it’s 50 to 100 basis points against trillions of dollars. And so, you know, it adds up pretty quick. I mean, I think people ask me, Well, why am I focused on lending for Providence? Because I think lending is easy thirty five billion year gas fees, that get paid in that blockchain to drive, you know, drive a lending ecosystem that’s still nets out, call it 70 plus billion to the ecosystem for using it.

Dan Weiskopf [00:30:14] You know, something I think we touched on, but maybe we didn’t drill deep enough. So transactions that go on your platform? It’s not T plus 2.

Mike Cagney [00:30:28] Right. So to clarify, Figure runs marketplaces on Provenance, but we don’t own Provenance, and anyone can build T instant marketplace on Provenance, but all our trades are T instant.

Dan Weiskopf [00:30:42] T instant, yeah.

Mike Cagney [00:30:43] So yeah, so the equity that was sold and I did a jab at DTC and Ice and Nasdaq on the last transactions that, hey, we just traded private company stock at T instant settle, right? Why are you still on T plus two? And you know, the DTC has this view that blockchain won’t work because you need to pre-fund every transaction, and you do have to pre-fund every transaction to eliminate counterparty and settlement risk, right? That’s how the two sides face off, and you can effectively encumber the Fiat and the asset and eliminate the settlement risk. But they operate under a false dichotomy because they’re assuming that money is coming in through Fedwire, not through stablecoin, because stablecoin nets indefinitely. Right? And so once you introduce stablecoin into the equation, you get a real time netting versus end of day netting, which is what DTC does, and you effectively create a T instant settlement system. DTC has got $50 billion of street capital it holds for settlement risk right now. All that goes back to the street. It charges a bunch of money for what it does, all that goes back to the street. And but what’s profound about this, and I think what people don’t truly appreciate, especially in the exchange construct, is, you know, blockchain exchanges, because they’re bilateral, it’s just you attaching your wallet to a decentralized exchange. There is no introducing broker, right? And so not only do you disintermediate Nasdaq, Ice, DTC, you disintermediate Schwab and Robinhood and Fidelity, like you don’t need a broker anymore because you can hold it in your wallet and then people say, Well, how do you get credit? Well, lenders would love this because you get perfect perfection to the security real time. And so you no longer have prime brokerage relationships. You just go out and say, I’ll lend you 50 cents on the dollar of Tesla stock, and that’s what you’re going to do. And I don’t know how to take your idiosyncratic risk when I do it. And so you actually create a much more egalitarian ecosystem for transactions where the securities sit in my own wallet. If I want to lend them, I’ll lend them, right. If I want to hold them, I’ll hold them. But there’s no longer an introducing broker that’s disintermediating me from the actual asset itself and that level of disruption, I don’t think people really, truly gotten their arms around yet.

Dan Weiskopf [00:33:03] Well, it’s just happening before us right now, right? And what you’re talking about is–liquidity is real time, right? You know, how’s the system doing right now? You check on the–

Mike Cagney [00:33:15] And this is what’s happened with crypto, which is crypto has migrated from centralized exchanges to decentralized exchanges. And you know, there’s a bunch of challenges with AMS on decentralized exchanges, but still, you know, that’s where the volume’s going. And that’s–I would, you know, if I’m in the securities industry, I would look at that as a bellwether as to what’s going to happen, which is, you know, people will just attach wallets to an exchange and trade and there will–there is no longer, you know, an introducing concept, a settlement concept. So like I would be thinking really hard. And so the irony is, all these brokerage firms are like, well, should we allow people to trade crypto and so forth? That’s not the right thought process. The process should be OK. Like what role do we play when there is no need for an introducing agent?

Dan Weiskopf [00:34:06] Yeah, it goes back to what you say, displacing trust with truth. Right.

Mike Cagney [00:34:12] Right.

Dan Weiskopf [00:34:12] People are going to do what they’re going to do and in the way with trust and truth, if it’s all transparent, people will figure it out.

Mike Cagney [00:34:23] Yeah, well, I just I think you’ve already seen people gravitate towards the direct, disintermediated decentralized exchange model on the crypto side, so I don’t know why there would be any expectations that people wouldn’t do the same migration on the security side?

Dan Weiskopf [00:34:42] So. Mike, you know, looking beyond fintech, if you would. We always try and ask two wildcard questions and you know, one of the wild card questions that we ask is, you know, what is the one thing that investors in the blockchain are not paying attention to today? You’re the guy who’s always ahead of the curve. Give us your views on what people should be paying attention to today that they’re not.

Mike Cagney [00:35:13] Yeah, I mean, I think people are paying attention to this, but I don’t think they’ve actually gameplanned what’s going to happen if it happens. I think there’s two huge externalities that are outside of any individual’s control and that’s, you know, the regulators coming in and saying nonbank issued stablecoins illegal and the SEC coming in and saying everything that you’re doing is a security, right? And the ramifications of what that means, and I think there’s absolutely conversations going on in Washington right now along the idea is if declared stablecoin illegal, what would happen? Would we create chaos? Would it fizzle out? But, you know, I think those are two things that are potentially coming down the pipe in some form or another. And I think people need to really think through what that means on a second, third level basis. You know, beyond the obvious of what happens when it happens immediately and where do things migrate to? Because they won’t go away. And you know, this is where, you know, for example, in biggest construct and I’m not talking my own book, but I actually have a broker dealer that can run exchanges of any crypto asset that’s now deemed a security registered on chain. So, you know, there’s ways that providers can step in and facilitate and move liquidity. But you know, those are like the big existential things. And I think we have also been somewhat, you know, somewhat, maybe, I don’t know the right word I’m looking for. But you know, everyone pushes this whole use case of title on chain or, you know, of other things that exist in the analog world. And, you know, I want to put them on chain. And the problem with title is even if title goes digital, there’s no one who has a natural incentive to do that business because what you’re doing is intermediating, a business that exists to nothing. And and the, you know, the analog stuff, and this is where I always like poke fun at IBM, like, you know, tracking your strawberries on blockchain and trying to put a Picasso on so I can own 10 percent of Picasso when I have no idea of you actually even have the Picasso or sold at 20 times over. Like, that’s dumb too. And it sort of goes against that whole original thesis of trust versus truth, you have an enormous amount of trust in those transactions. And when you need a lot of trust, the blockchain is not a good platform.

Dan Weiskopf [00:37:47] So should I assume that you’re not a big fan of an ETF that holds bitcoin?

Mike Cagney [00:37:55] I’m not a fan of an ETF that holds bitcoin. I mean, I look, I think it’s fine that they have it. I just think bitcoin’s become so ubiquitous from an ownership standpoint it’s just, you know, I think you’re better off transacting directly. I’d feel better that ETF was also custodied on chain and you had real time visibility into the underlying holdings and the cap table where, then, you don’t have trust anymore, right? And the point of this is like, think about what this does in the ecosystem. When you eliminate the need for a qualified custodian, you eliminate the need for a fund auditor, like there’s all these intermediary roles because you have to trust the manager. But with blockchain, you shouldn’t have to trust anybody if you do it right.

Dan Weiskopf [00:38:36] Yeah, I mean, the funny thing is, I guess with that question about whether an ETF should be wrapped in–or whether bitcoin should be wrapped in an ETF, you’re actually going backwards, you’re not going forward.

Mike Cagney [00:38:51] That’s right.

Dan Weiskopf [00:38:52] You know, because we’re here, we are today. You can do it all right on the blockchain. So beyond just finance, you know what other industries you think will be meaningfully impacted by the blockchain? Clearly, insurance is ripe.

Mike Cagney [00:39:10] Yeah. No. I think insurance is huge. I think identity is huge. You know, using a biometric to be part of your private key shard so that I can authenticate on transactions or on interface, I am who I say I am. I think, you know, within medicine, I think prescription usage, to deal with scrip duping is huge. You know, there’s some really interesting applications for an immutable trust versus truth platform, and they go way outside of the financial services. I think the issue is there’s such fertile ground of financial services with such big dollars involved. You know, it’s like, Well, yeah, I could I could use this to eliminate scrip duping, but I’m not sure that’s the best initial application I’d want to run into as an entrepreneur so, but yeah, I mean, like anything that’s native digital blockchain is going to have have a significant impact, too.

Dan Weiskopf [00:40:10] So what should I be worried about?

Mike Cagney [00:40:14] I mean, I think obviously from a regulatory standpoint, there’s a lot of uncertainties and externalities, as I said earlier, that we can’t control. I think, you know, from–and that’s really the existential threat that everyone has is, you know, will someone come in and shut this down? Because it actually should be something that regulators embrace because it’s an open ledger. It’s public, it’s–people are always like, Oh, you can use bitcoin for nefarious purposes like, well, you can, but you can see exactly what wallets used it. And, you know, as was demonstrated in the whole ransomware attack with the utility company, you know, they subpoenaed the wallet, got the private key and took the bitcoin back. There’s very little talk spoken about that part of it, right? It was, oh, they use bitcoin to pay the ransom. Well, yeah. And then they took the public ID of the wallet and got the money back. So it’s actually a regulatory friendly construct. But, you know, regulators can act irrationally, and that’s what I worry about more than anything else. I think you’re also going to get the incumbents. You know, if I was Visa and MasterCard, I’d be looking at this as a real existential threat to, between the two of them, 850-900 billion dollars of market cap. And you know, what do you do? And I think what will be really interesting is who is going to lean in and disrupt themselves and who’s going to just wait for the disruption to happen and ride it out as long as they can? And that’s, you know, we’ll see how that plays out over the coming couple of years.

Dan Weiskopf [00:41:51] Yeah, it brings up maybe a last point. You know, there has been some criticism of the speed with which bitcoin processes. That’s not the case for your system, your token, right?

Mike Cagney [00:42:07] Yeah. Providence can do 10000 transactions a second, no problem. And that’s 10000 transactions a second is peak load VISA holiday season. Right? So and yeah, and I see no problem. You can stand it up way beyond that to the extent that you want to stand it up to do that. But it’s, like, we’re way past the–proof of stake, we’re way past the technology impediment. You know, there’s still, as I said, as an architecture impediment that’s systemic to a lot of the chains. But you know, it’s not speed or cost. This is why bitcoin was a phenomenal invention, and obviously it’s become an incredibly effective store of value. It’s never going to be a medium to do micropayment transactions through, right? You’re not going to go to your corner store and buy a Coke with Bitcoin because you don’t pay like $270 to buy your $2 Coke. And so it’s just not going to work. But, you know, it is super cool from a technical standpoint and from an architectural standpoint in the application of store of value. But, you know, in terms of a real transformation of the financial ecosystem, and a lot of people would disagree vehemently with me on this, but you know, it’s not bitcoin that’s going to be the platform to do that disruption.

Dan Weiskopf [00:43:26] No, who knows which one it will be, right, and that’s that’s our position. This is all an evolution, but not for the transaction, bitcoin’s not going to be that, I would agree with you. So, Mike, thanks so much for spending the time with me. I look forward to seeing your company grow. I meant to ask you at some point, you know, how many people are under the Figure umbrella?

Mike Cagney [00:43:49] Yeah, so the Figure umbrella, excluding the mortgage company, is about 450 people, and then with the mortgage company, that’s another twenty five hundred. So, you know, across the board close to three thousand. And you know, and obviously, you know, growing like crazy. So every day they give me new headcount numbers and I say that’s a lot of overhead, I got to pay for it. But it just means I gottta grow revenue faster than the expense base is growing.

Dan Weiskopf [00:44:19] It just means a lot of success. So thank you for your time. I look forward to talking to you further in the future, and be well.

Mike Cagney [00:44:29] Thanks for having me. I appreciate it.

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