On The Brink with Castle Island - Rene Van Kesteren (BlockFi) on how BlockFi handles risk (EP.180)

Episode Date: February 17, 2021

BlockFi Chief Risk Officer Rene Van Kesteren joins the show to explain how crypto lender and brokerage BlockFi engages in risk management. In this episode: Rene's career trajectory and the path that led him to joining BlockFi The mechanics of how BlockFi offers interest bearing accounts The borrowing and lending market structure How BlockFi thinks about counterparty risk The reason why rates on U.S. Dollars are higher for stablecoins vs. dollars in a bank account How margin calls work Differences and similarities in market structure in 'traditional' vs. cryptoasset markets The biggest misconceptions about BlockFi and crypto lending in general To learn more about risk management at Blockfi visit: https://blockfi.com/how-blockfi-handles-risk-and-security To learn more about BlockFi's products visit: www.blockfi.com  

Today in the podcast, I sat down with Renee Van Kestrin, the chief risk officer and head of global digital markets at BlockFi. We're investors in BlockFi, and I'm actually a personal customer of their products, so I'm clearly a big fan here. And one of the most common questions that I get asked about BlockFi is how does it work? How can they afford to pay 6% interest on Bitcoin? How can they afford to pay 8.6% interest on stable coins? So I got to ask this question a lot, and I wanted to have Renee on the show to talk a little bit about just how the model works. So how do the borrowing and lending functions work at BlockFi and within the industry, who's involved in some of these transactions, and what goes into managing risk on a platform like BlockFi?

And Renee comes from a long history and traditional finance. He's definitely uniquely equipped to manage a risk organization like the one that's in place at BlockFi. So I thought this would be a fun conversation. And I definitely think you'll enjoy it. So without further ado, here's my conversation with Renee Van Kestrin of BlockFi. Brought down by Bad Mortgage Investments, Lehman, which has 25. thousand employees will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been

threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of constituted easing. You print a couple trillion dollars, and all a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. So I'm very excited to have Renee, Venkestrin on the podcast. This is going to be your first podcast appearance. It's long overdue. I'm very excited that we have you on. And we're also doing audio today.

So thank you for doing this, Renee. Thanks for having that. I'm excited. I will put the disclosure out that I'm a customer of BlockFi. We're investors in BlockFi. So I'm very much a big fan. But one of the reasons I want to do this with you today, Renee, is that we get a lot of questions from people in our DMs, a lot of questions from our investors.

just around how exactly does BlockFi work? So I'm just excited to get into the nuts and bolts of it with you. And maybe before we do is just a way to introduce yourself, could you give us a little bit about your background and what led you to actually joining BlockFi? Absolutely. So prior to joining BlockFi, I was a managing director at Bank of Merrill Lynch, a legacy Merrill Lynch employee since, I don't know, 2004. I run an area where we did financing as part of the prime brokerage area, but all the financing I did were things that did not fit in PBE, like financing physical goals or concentrated stock positions, restricted stock, investments in hedge funds like limited partnerships, basically things that wouldn't go through a clearing system or things that fell out of the

risk parameters. Got it. It was a global team, a bunch of people in London and New York. And then what was the story? I know you were an advisor to Block 5 before you actually joined full time. So how did you meet Zach? And what was the story there? The live at a bank became very different after the financial crisis, 2007-08, it became all about complying and falling in line. That was not really what I, with my strongest qualities, I would say. So I decided to look around in sort of the 2014-15 timeframe where I have a technology background and wanted to go back into something with tech, fintech, I thought. So in 17, I went to friends of mine or venture capital friends, said, hey, if you know

a young guy, I've had a good plan, I can use my help. I love the intro. And that's how I got introduced to Zach. and we clicked and thought, hey, this is very interesting. Had done a little bit in Bitcoin before, but nothing in scale. Initially actually sort of dismissed it as nerd money and blockchain is something back off as who cares kind of thing. But as I learned more about it, as it was an advice of it, Jack, the first six months,

what is it, late 2017, second half of 2017, early 2018. I started learning so much about it, that's like, this is fantastic. I want to get involved. And then I advise Zach to hire me. Well, that's good advice. You guys are building quite a franchise. over there. When you first kind of, you talk about the reasons for being excited about the industry, was there any particular niche that really made a click for you that this is a real deal industry

that's going to be around for a while? Was it the Bitcoin thesis? Was it the Ethereum thesis? What kind of clicked for you? Yeah, actually for me, it was mostly around the clearing and settlement. That's also my background. So we can go over what prime brokerage actually means. I'll do it now. It's so easy. Prime brokerage is clearing, settlement and custody, financing, margin lending, and shorting. There's also another form of financing. And then the rest of prime brokers is other services like capital introduction, helping hedge funds raise money and consulting, helping hedge funds set up organizations and that kind of stuff. Clearing settlement was when I start learning more about Bitcoin and Ethereum at that time,

I was fascinated how quickly things settled without someone in the middle and that it could work. And just the speed and efficiency was just amazing to me. And I think that that's what we'll see play out over the coming years. Yeah, it's funny. That's what clicked for me too first. I wish I could say it was like I saw Bitcoin and it immediately clicked to me that that was non-sovereign money. But I just saw bearer assets being exchanged on the internet and just said, well, what if you

could do this with other types of assets? That was sort of what excited me in the first place. I mean, I'll remind it how with a GameStop, Robin Hood thing, that actually the clearing cycle is a real thing and there's actually risk been taken. So it was fascinating for me to see how you can take that out of the system and how you can move value around within minutes. I guess in Ethereum minutes in Bitcoin, probably 30 minutes if you want to have a couple of confirmations. Definitely. So people that are watching this probably know Block 5 from the interest

accounts, but you guys are doing a lot more than just that. So talk a little bit about the state of the business, products that you're offering right now. So if I have to explain Bitcoin to people, I start also with the interest account as sort of the beginning of everything. And then I walk you through what we do. So we get people to our platform that become users that will then lend us their Bitcoin, they give us their Bitcoin, we'll owe them the Bitcoin back plus a fee. And that what we do next is some of the Bitcoin will store and hold to the side in case people want to take out their Bitcoin because they don't want to have a block for any more for every reason. We let people convert their Bitcoin either by trading.

So you have Bitcoin. You want to own Ethereum. You can sell Bitcoin and buy Ethereum. We also let people borrow dollars against their Bitcoin or other digital assets. We built some other on and off ramps for ACH and wires and things like that. We work on the credit card product. All kinds of things on the sort of retail side, if you want to call it like that. I don't get involved as much from a development perspective.

So these are not my idea. Like taking credit for it, but it's not me. I do monitor the risk, obviously. So when someone wants to buy Bitcoin from us, I'll make sure that we have that Bitcoin to sell. If someone wants to borrow dollars from us, I'll make sure that there are dollars that we can lend out. Then the next thing is we do, as you people can see, deploy a few strategies around creating that yield. On some small scale, on the larger scale, we will be lending out Bitcoin and dollars to institutions. That's an awesome overview.

And so this kind of dovetails into your work as the chief risk officer and kind of head of global digital markets here. So people see this interest-bearing account. And I have to say, as a customer, it's probably one of the most delightful user experiences and anything I've ever used in cryptocurrency. Getting an interest on your Bitcoin every month and seeing that statement is just remarkable. But I have had people in my life that look at it and say, hey, 6% on Bitcoin. Like, this is too good to be true? Like, is this a scam? Like, what's actually going on here? So just explain to us how it works. How can you generate the 6%. We do a few things, but let's start with lending out Bitcoin. So there are institutions.

So we have proprietary trading firms that arbitrage the price between, say, whatever, I and Cracken. So these exchanges are marketplaces are not really connected. So unlike in regular equity markets, there's a best bid in offer. If you want to buy Tesla stock, you'll get the best bid an offer across all the exchanges in the United States. That does not exist in crypto. Crypto chains on thousands of places, 24-7, everywhere on the world. It's just not connected. And you have proprietary training firms that make that connection. So they said, look, I can buy Bitcoin at 47,500 here and sell it at the same time at 47,600 over there, they make $100. But coming back to this interesting feature of crypto that there is no clearing cycle,

they need to have the Bitcoin on both places and cash so they can actually affect that transaction. So it's very capital intensive. So unlike traditional markets like a stock, you can sell Tesla today. You actually do not have to come up with the Tesla stock for another two days. if you're a proprietary trading firm, you don't even need to locate that you can actually guarantee to get that stock in two days. So if you're a client like a hedge fund or a institution, whatever, you need to actually go call your broker, like, hey, I want to borrow 100 shares

with Tesla because I want to short it. You don't need to do it as a private training firm because you've got a market maker exemption, as that's called, so you can just sell Tesla and then maybe that same day you buy it and you never have to come in any money. That doesn't exist in crypto. You need to have it all at that moment you trade if you would trade between different venues. So that's one example, what people would use it. That's an interesting one. And I want to spend maybe a second or two on that. So this working capital constraint is something that is fairly obvious if you've used cryptocurrency. It's like, okay, of course, they're digital bearer assets. So if you're a proprietary trading firm, you're connected to all these exchanges, you need to pre-fund.

You need to have liquidity. And so absent just sitting on a pile, you'd have a real kind of working capital demand there. So is that primarily what you're seeing with that category of customer? It's part of it. And other thing we're saying is probably between derivative markets. So everybody heard of the basis trading. We do that on our own account as well. And we also finance others in that space. This is a transaction where you can sell a future at a higher price.

So say the one month delivery for March of Bitcoin on the CME, right? So you say, I'm willing to give you five Bitcoin. That's the size of the contract. I give you five Bitcoin on March, I don't know, 21st, whatever the last ride of the month is. you'll agree to deliver that for a certain price, say for $49,000 that you can buy Bitcoin today right now at $47,600. You make $2,000 in holding on for a month. I buy $5 Bitcoin right now, each $47,600. Wait one month and I can sell it for the $50,000 that I agreed for.

So we see people do that as well. If you do that, in general, you need to borrow cash to buy the Bitcoin because you need cash for it. And you need to borrow cash to make margin on the future that you sold. That we see, I would say that the client mix has changed over the past, almost a year now, maybe a little less than a year, where we're moving a bit. Propractor training firms are still there, but we see a lot more hedge funds coming into the space, both event-driven and sort of the macro funds. We all see the announcements.

It started off with Paul Trude Jones, and the whole story of loose monetary policy and Bitcoin has a hedge, an inflation hedge became very interesting. And now we have hedge funds that want access. into Bitcoin. So that's interesting. So you kind of start with this working capital demand, and then there are these arbitrage opportunities in the market that I guess my view on these, I'd be curious yours, is just that these will probably change over time. The grayscale one is really big right now, but we'll probably have other types of trades. How do you think about just the types of things that your customers are doing from a trading perspective? So I think right now a big

chunk is about access. So I always think about it if you have a hedge fund wants to go long, oil. Do you actually really want to go buy barrels of oil and put them in a warehouse? No, you buy a future. Or you can buy an ETF that follows oil. Gets you pretty much there. You have some cost. You save on the storage costs, but you now have financing costs around it. And somebody else might pass on other costs to you. I think that Bitcoin is a bit the same. It's still pretty hard for hedge funds in the United States. This has to comply with dot-franc rules about qualified custodians, all these things to hold actually real physical Bitcoin. I mean, they're getting better and more getting into that,

but most of them just say, okay, let me just go buy, subscribe for the Grayscale Bitcoin Trust. Or as you know, maybe plug our own product. We came out with our own version of L, the Block 5 Bitcoin Trust, subscribe for that. And then at some point, it's freely tradable. I can always trade out. I just have to hold it for six months or buy the future if I want to go along.

I think that hopefully answers your question about it. Yeah, no, that does. Another thing that people will ask, so kind of outlined a couple of the arbitrage opportunities and the working capital demand. What about short selling? Is that something that folks are doing on this side of the trade as well? We don't see it. So we don't have hedge funds coming to us, a macro fund. So what do you really want? So we've got a bunch of proprietor training firms that keep markets on us to make sure that, hey, I can only transact on Coinbase and I cannot transact on OKX. Great that a large proprietary and training firms keeps these price in check for me. That's worth it

to me. So we have that. Then we get sort of the event-driven people in that you just mentioned that said, oh, look, there's this arbitrage. I can subscribe for something at NAF. And then, so I can take one Bitcoin, subscribe for a fund at with one Bitcoin, get one Bitcoin worth of shares back. And at some point in the future, six months later, it transacted at 1.1 Bitcoin. So I made suddenly 10%. Now, I don't want the risk against the price of Bitcoin. So I'm going to short Bitcoin in that case. So that's where you see that shorting, but they're going along at the same time. So net net, they're not betting against the price of Bitcoin. They just want to have a strategy that have a certain payoff that doesn't matter about Bitcoin is.

Then you have obviously the basis trading, sort of the futures, the cash and carry type transaction. Hey, I buy the physical and I sell the future at a higher rate and I get paid for the storing and holding onto it for a month or two. In my mind, these last two, so the basis trading and the gray scale subscription are all transactions. around access. I'm creating a product that traditional funds can buy or traditional investors can buy a multifamily office can open up an account with whoever, JPMorgan, or interactive brokers to hold futures and can buy bigger futures. It's a lot harder for them to open up an account at Coinbase, for the matter, or Gemini, because it doesn't have the same controls for them. It's different. It's harder to put on your filings with the SEC that you're using, so much, a

go as custodian. It's much easier to say, hey, I'm using Fidelis custodian. And obviously, yesterday, the great news from Boni, and Boni's custodian. Those are very acceptable custodonts, particularly, again, to the more traditional allocators like a pension fund or endowment, and sense. Got it. That makes a ton of sense. And I want to get to sort of how you think about the risk management side, but maybe before we do, I want to talk about the dollar side of this, because that's a fascinating piece of this market as well. You guys started off lending, lending against Bitcoin. But let's talk about stablecoins. So people see this 8.6% interest on stable coins and it's just a US dollar. And so it's like, hey, is this too good to be true?

How in the world can I get 8.6%? Part of me almost wonders if you offered like 3% if it would be more popular because people would say, oh, that makes sense. But talk about why this exists as a kind of a market structure phenomenon on stable coins where you can generate that type of interest. Yeah, I think it's sort of almost why there is something like Tether. There's a lot of controversy around it, but it still works. It's been battle tested now for many, many years, and it's still around and it's still around the dollar. It has to do, in my thinking, that it's still hard for crypto companies to have a relationship with a U.S. Depository Bank. I was sort of always at the fringes of that. Can you have a relationship with Citibank going to take you on if you have a crypto? those chains, probably not still. And it's just hard to get good, cheap access to dollars in our system, in our Bitcoin crypto system still. And it's getting slightly better and better. And when it gets really good, then we will have to load away, I guess, for now. That's one of the most fascinating things about this industry is just how cash starved it is.

And I think part of it is also just that there's an insatiable appetite for dollars internationally too. And so that's feeding part of it, I think. Exactly. So this is also fantastic about crypto. Bitcoin in Beijing or London or New York is the same thing. It's exactly the same thing. Microsoft stock means nothing outside of the United States. It only exists in the United States in the US clearing system DTC with a big stock certificate somewhere at CD&CO that then has been put into the clearing system DTCC. So it's different. It's hard to open up a brokerage account to trade US stocks if you're not in the US. Bitcoin. Yeah, Bitcoin and public blockchain networks in general. And stable coins are fantastic. You can have dollar stable coins in Europe, no problem.

But go to European bank and try to open up a dollar account. They'll say no. You won't be able to do it. Sorry. So that's interesting. So I think we've kind of talked around a little bit about the business model. So you're lending out these assets. You're getting paid a rate of interest that exceeds the rate of interest that you're passing through to the retail customer in the interest account. So kind of a standard bank-like model there, classify. Obviously, the first thing that comes to mind is just the risk around the counterparties that you're lending these assets to. And so how do you think about ensuring that you don't have a bad event happening with one

of these people that you're lending to or one of these firms that you're lending to? I don't think it can be 100% certain that there will never be a bad event. Let's start with that. So you try to avoid having these bad events. And then if it happens, it will not destroy the contract. So you ask for a probability of the fault of the counterparty and then what happens if they go to the fault? It's a loss given the fault. So it's a very standard technology that most banks will use as well when they think about credit risk and counterfeit risk.

So we do things on the beginning. So to think about the probability. So look, this is also interesting about crypto again. And this is slowly changing now. But in the past, hey, I have a thousand Bitcoin. I can give it to say Gemini. or I can, and I just name this as a very large, publicly traded market-making firm, Virtue. At a large thing I'd say. Or I can lend it to virtue. And then the question is, what do I rather do?

Now, from the way I think about it, it's like, well, versus a publicly traded company, I get financials every time. Bitcoin means nothing to them. Like, it's tiny on what they do. If they will lose all the Bitcoin they have, and by the way, they don't really store Bitcoin. They are making market, so they actually want to move Bitcoin around all the time. for me to lend it to them probably seems like a better position than for me to put it in Gemini, even though Gemini is a bank and there's all this charters and regulate, whatever, but I still don't have public data on them or whatever. So that is one way of thinking about the creditors. So it's almost like a credit upgrade.

You have a publicly charter company that does a whole bunch of other stuff. It's not just crypto. On the other end, we have clients that we would not take any creditors to. So we have sufficient collateral. So it'd be almost quite similar on the retail side. When someone comes to us, I said, hey, I want to borrow dollars. We want over collateralization in Bitcoin. If someone comes to us on the institution's side and said, hey, I want to borrow Bitcoin.

We want over collateralization in dollar terms. And then there's a group in the middle. The group in the middle is probably an amount of counterparties the largest, but amount of dollars is not the largest. The largest is the virtue example I used. I just use as an example. That's why we do most of the work. So let's call that the tier two counterparties. That makes sense. And so when you think about these counterparties, you're talking about these large, on the first example, large firms that are making markets and other asset classes as well. They're well capitalized. And so I'd imagine that it's pretty easy for you to get a handle on what

their credit worthiness is. What's the challenge to you is the person who leads the risk organization, trying to understand some of these other organizations that may be a little bit smaller than the kind of the huge firms that are in the equity markets already? Correct. Those are a lot harder. So what you do is, as I said, so there is probably a higher likelihood of things going wrong, but we limit how much we lent them to such an extent that we can easily absorb it with our own capital. So that's one. Obviously, we don't want to have the loss. So what we do about that? Well, it's a bit about client selection. So make sure to have a minimum size, some transparent and see what they do.

If the client comes up to us and says, hey, I want to borrow money. Okay, that's great. But can we see some financials? This is the industry. Do we know them? Is there any connection that they have with us somewhere from our prior careers? We are now a pretty big company.

Pretty big network. So we should be able to get to people and understand where they are and where I'm from. We limited to what we understand. So in my prior career, I was very busy with market making firms, proprietary training firms and hedge funds. So I sort of get a reasonable understanding of what they are about. We hire credit analysts in that space. And we just stick to that.

And that's all very helpful. And then, you know, just limit the size. Like a hundred need to fail before we have a problem, not three. So do you kind of see this as just running a traditional playbook that you did in traditional markets and bringing it to a new asset class? Is it as simple as that? I have to admit, yes. So it's as simple as that.

There are a few variations on it. It's really incremental if you think about it. So, for example, crypto trades 24-7, and there's no such thing as a closing price. So if you go to a traditional brokerage firm on Tuesday morning, they use Monday night's closing price to make a margin call in the morning and you have till the end of the day to meet it, and then the next day they will liquidate you. So we don't have that. So you'll get a margin call on Sunday 3 a.m.

And we'll give you some time to cure it. And it could be only 12 hours, depending on the quality of the counterparty. And depending on the moves, if it keeps moving further. So you have a bit of that. I say a bit more real-time stuff that you, again, because of the way traditional movement or value through clearing systems is slower, you don't really have. I was going to ask you about that on the margin call side. So is that a real use case where you'll have overnight on a weekend where margin calls

will be triggered? How does that work? We connect with the counterparts that look, you know, margin call you always margin. In general, it goes via telegram or signal or whatever, or Slack or I think we have a couple more. And say, hey, you're a margin call. Can't please deliver this? And said, yeah, okay, got it. And then they send it over. And now, again, the nice thing is, is that this uses blockchain technology. So either they send us stable corn, so we don't need to wait until the next day. And there are a couple of banks that have

sort of an internal blockchain mechanism, signature and Silvergate. And many of our counterparties are connected on that. And they just move it that way. It's fascinating. It probably keeps a lot of people up at night. You've got to be a 24-7 operation if you're running one of these companies. It keeps us having a staff in Singapore. honest, but the staff does work Saturdays on this. But we try to have people sort of 12-hour shifts almost. It sounds like a lot, but it's not that you're like working hard for 12 hours either. There's a lot of breaks in between. That makes sense. That's sort of how we divide up the day. You came from a traditional market where you've been running these playbooks before.

Obviously, there are some differences in crypto. You have these exchanges in different jurisdictions, these are bearer assets. So what are the biggest risks to the model in your eyes and what keeps you up at night, if anything? Counterparties are not of the same quality and transparency, and it's hard to find an attachment point. And what do I mean at the latter? So if you face a traditional fund, a traditional hedge fund, so let's take Paul Trudea Jones since he's in crypto.

If he has a bunch of assets, most of his assets are in traditional markets. They can't leave the United States. But it's Bitcoin can, but we'll just attach ourselves to his other assets if we take credit to him. If you have a more traditional, say, you have a foundation. You have so many of them these days, but let's take one that comes to my five coin. They have a foundation, five coin. They got a bunch of ether or whatever, maybe, and they want to borrow.

They're a little bit like, okay, but they can just take it. They can just take a move to Venezuela, tip the prime minister or whoever and take up residency there, and how do I get to my stuff? So that sort of keeps me a bit up on that when you start looking into that spaces. and the best thing to do with that is just limited amount of exposure. And they just don't take credit. So in general, it says, give me that ether and put it in a wallet that blockfire controls. And then it's fine.

Counterparties, again, like we say you use BitGo, fireblocks, Gemini, all these things. It's very technical, technical layers, but not a lot of equity behind it. Using counterpointers like Fidelity or Bonie, you have a lot of equity behind it. So if they make an operation mistake, you say, look, You messed up. You owe me my big one back. And they will have cash somewhere to pay you. And I know that you're not the cybersecurity person, but people ask around custody risk.

And so what's the firm's thought on how to manage just digital asset custody? As you mentioned, I'm not the cybersecurity person, but we do have one, Adam Healy, which is great. I think he was back before and some other places in the space. He's also definitely worth one of your podcasts. I think if you haven't had them already, the way we divided up the world at the BlockFi is there is sort of the risk we sort of are willing to take because they're getting paid for that risk. So if I lend someone Bitcoin and he pays me an interest on that, I know that I'm lending Bitcoin and I'm going to pay. That's sit with me. All the risks that we actually do not want to

take. And as a matter of fact, we're paying. So if you have a custodian service, we paying the custodian, actually expect that there should be no problem with our Bitcoin. It should always come back. That sits more with Adam. That's how we look at it. So we have a pretty rigorous process around that. So we use As you know, like, for example, we need to hedge. So when a client wants to buy Bitcoin from us, we need to go source that they can buy it or hedge that. Or if we have a March 12, 13 event from a year ago, where we need to sell some Bitcoin to make ourselves whole on some loans, margin loans. We need to source liquidity. We have to do that through a marketplace.

So say we do it on Coinbase or we do it on Derbit or wherever we do it. We need to get comfortable that these platforms actually work. But we will be paying them. We'll paying them the fees, commissions, whatever we need to do. So we're the customer. We can dictate the terms. and do the research, hey, want to make sure that your guys don't lose a big one. So walk me through it.

That makes sense. And I'm glad you brought up March 12, because when we were looking at investing in Block 5, one of my biggest concerns or due diligence items was kind of unanswerable at this point. But it was how will the company perform if we have one of these crazy tail events where either the market goes up 50% or down 50% in one night. And then we had one afterwards. And so you guys stood up. Talk a little bit about that.

and how the firm managed through that. Maybe just give a little bit background on what happened in the market that day. It seems so far away, by the way, at this point, just when COVID started, by the way, and we were all sitting at home. I think what happened is in that environment, obviously it was a major seller for all kinds of assets across the thing. It's a dangerous time in a sense that your counterparties are with a lot of stress as well. So that is the time when a proprietary trading term will fail.

They don't fail when markets go up 20%, because they end always long somehow. So in that situation, we were liquidating mostly on the retail and somewhat on the institutional side. We did enter into some defensive hedging strategies during the time, unfortunately not before, but we came out with we had no real losses out of that. I think what happened was what I did learn about Bitcoin and the time. what I had not appreciate before is that when Bitcoin price goes down, there is this interesting thing called mining. And some of these miners actually stop because it doesn't make sense for them. Or they might not stop right away.

But the network gets a little slower. That becomes noticeable because if you want to sell Bitcoin, as we start out of discussion, if you want to sell Bitcoin, you need to have it at that place. So I now need to move Bitcoin from point A from our wallet into, say, Gemini to sell it. Okay, well, for that, I need the blockchain. And now the blockchain takes 12 minutes instead of 10. So now those five minutes actually look pretty long. It was very interesting.

And that actually sort of feeds a little bit on it too. That's why it's sort of overshoots than two. Because assets that are less liquid in general have this liquidity premium too. Suddenly Bitcoin became a little less liquid, which means that it should be trading a bit more of the discount to when it was more liquid. It was a fascinating time. I found that we learned a lot. And again, I started a little bit, we spoke a little bit about it,

but I didn't finish it on sort of, we got the proprietary training groups coming in to help us make markets and keep the bid off the tide across many, many different marketplaces. We got the event-driven guys coming in to sort of arbitrage a bit longer term. Their strategy is not in minutes, but the strategies in six months to a year. What we really want is the Paul Tudor Jones, the macro people to come in to say, okay, let me tell you what the prices of Bitcoin versus, or let me make a bet on the price of Bitcoin versus gold, stocks, U.S. Treasuries. kind of stuff. And hopefully we're seeing maybe that coming a little bit, as we see also adoption is huge. Big is very important in Bitcoin and Cryptone general. And they see a lot like the Tesla announcement, the micro-serners, all these people sort of considering it as alternative to

the dollar-set treasury. That will help us set a real floor in Bitcoin. Think of March 12, it feels like, okay, where is the floor? So, and when those kind of players come in, and as they are coming in, that fool will be there. And that will be very good. Oh, that would be great for the ecosystem. Yeah, as you were saying that, I was remembering the March 12th time period where you're hearing about people having transactions stuck in the mempool or sending screenshots of, hey, I actually sent this, like, don't do anything. Money's on its way. That'll be one that you probably won't forget anytime soon that day. No. It was an interesting three-way conversation with the trader desk and me and Jack, yeah,

Four of hours. So as this just industry continues to evolve and the market structure gets more interesting, do you see more traditional prime players coming into this market? We already seeing that. Our fastest growing client segments right now are hedge funds, traditional hedge funds. So we've seen another way. They're coming in. This is interesting stuff.

There's some appreciation for this technology is here to stay. That makes sense. you've been kind of following the industry for a while, and you hear about other platforms, and you hear about just how people think about the category of interest accounts. What would you say is the biggest misconception about blocks Vaz offerings that you would want to clear up? I'm going to speak a bit for the institutional side right now, because that's what I'm most involved in on the offering side. I would say that we used to be seen as a small player. And when people come to us now and we can actually move pretty big sizes around,

not just in borrowing and lending, but we're getting also pretty big in buying and selling and trading, which in our case is on and off ramp to our borrowing and lending platform. I think the misconception is that we can do size. And I think we're starting to prove now that we can. And you guys are getting more and more involved in some of the new derivatives products that are coming out as well, had a press release around the CME Ethereum product, I believe. Yeah. I think we were at first block trade.

That's what the team told me. It's exciting. So apart from kind of what's happening at BlockFi, what is the most exciting thing about the industry for you right now? It's an announcement from Boni and Tesla, that kind of stuff. The adaption seems to, it's almost like every day we get an interesting announcement. It used to be we were waiting it for a month or so. Not that long ago. That adaption is just, that's great.

I'm very excited about that. Well, it used to be that there was just like a press release about a labs project to do a private blockchain. But now we have people coming in and building custody businesses and some of the customers, that you guys are onboarding, I think would be shocking if people knew kind of the size and scale of them. So it's got to be crazy to see this every day. It's fantastic. Very excited about that. So, Renee, where can people follow you, get in touch with BlockFi? Where do you want to send people? I'm not a big Twitter user, I'll admit, unlike Zach. So LinkedIn is always good to get to me. I always answer there. I also answer if you send it to me at my BlockFi email, which is Renee,

R-E-N-E at BlockFi.com. That takes in general a day or two for me to get to you, but I'll do good to people. Well, I think it's awesome that you guys are being transparent as you always have been with how the business model works. I think that it's hard to understand just market structure if you're not in it every day. And so I think people just understanding how these interest accounts work and that you guys are good citizens on the back end and doing your homework and managing risk for people goes a long way. So thank you for telling us how it works. Thanks for having me. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.V.C. To listen to all of our podcast episodes, please go to

On the Brink-Podcast.com or just click on the tab in our website. Thanks for listening.