TFTC: A Bitcoin Podcast - Tales from the Crypt #39: Zac Prince

Episode Date: August 22, 2018

Join Marty as he sits down with Zac Prince, co-founder of Blockfi, to discuss using Bitcoin as collateral, Fed policy, the fulfilment one gets from working in Bitcoin, and much more. Follow Zac: @BlockfiZac Follow Brad: @BradMichelson Follow Marty: @MartyBent Link to blogpost on taxes we discussed: https://blog.blockfi.com/cryptocurrency-tax-101-intro-to-capital-gains-and-crypto-tax-treatment/

what is up freaks welcome back to tales from the crypt it's your boy marty bent on a tuesday night it's the eve before my big move i'm moving tomorrow it's uh it's weighing on me because i got to record this go pack a little bit more move and then record tomorrow night uh so this is a good uh break for me in the stressful process i i've said many times that moving is probably a top three worst activity in the world and i've done it way too many times philly south carolina back to philly chicago new york brooklyn uh it's not fun so i'm excited to be having this conversation i've got two two guests with me tonight uh the founder and biz dev manager at BlockFi here in New York City. I want to introduce you all to Zach Prince

and Brad Mickelson. Welcome to the podcast, guys. Thanks for having us. How's it going? It's going great. Thanks for coming on. This is the first time I've had two people on at the same time since the Brothers of Burn, so it's a good little change of pace here. It's usually one-on-one. I like this setup a little bit more. A little variance of conversation. It's very professional. that's what we strive for here at tales from the crypt uh we strive to be the most professional podcast with with the most vulgar language the question is how much professional help do you have for your move because that makes it better or worse none zero yeah not even gonna you know

what we've got so we're moving into a studio we're we're small living we went from a studio to a one bedroom we hated the one bedroom like back to a studio so we don't have much to move and again i've moved so many times that i have this process down pat and i don't need to pay anybody to do it and it's a good workout i'm actually in a in a fat camp right now my brother my cousin we have to work out four times a week so tomorrow's move counts as a as a workout so maybe you should drink more bourbon and less beer tonight um that's true that's true as well so let's jump into this you guys are block fi um uh personal lending using bitcoin and other cryptocurrencies as collateral which is an incredible uh incredible utility that you guys

are providing to to the community it's a it's a step in the direction of making bitcoin more mainstream in my opinion um but before we jump in to block fi this is tales from the crypt zach in particular what is your tale how'd you get into bitcoin when'd you find it where were you what was your mindset sure so it goes for me all the way back to 2015 at the time I was working in fintech at a company that did a lot of different things all in the online lending sector and I was at a meetup somewhere and somebody in the meetup said I've been buying a lot of bitcoin I think you should look into it and I was like all right hot tip when is it see where this goes it was after it came down from a thousand okay so this is like 2014 2015 2015 i checked the

price on my phone i was like all right it looks like it's come down a little bit maybe it's a good time to buy created a coinbase account bought a little bit of bitcoin kind of forgot about it but then like a month later i checked the price again and it was at 450 and i sold it and thought i was the most badass trader that had ever lived on the planet of earth because i was up 50 in 30 days and it's like nice you're the man i had that swag at one point yeah like a month or two later i checked the price again and it's at 700 and i'm like you're an idiot um so from there you know i bought bitcoin again i started just getting really personally interested in going down the proverbial rabbit hole in my spare time at a certain point in 2016 my girlfriend was like you talk about

this stuff way too much to me and I don't want to talk about it so you need to start going to some meetups or meeting some other you know just people that you can talk about this with because I'm not that into it I know what that's like and so I started doing that and uh and I saw a bit of a transition occur from the end of 2016 to early 2017 where the audience at this meet at these meetups in New York City changed from being uh you know maybe more of the the freaks that you refer to when you when you uh you know intro the podcast which is not a bad thing at all it's fantastic but we're all freaks in our own way exactly early 2017 right around the time the enterprise ethereum alliance got announced and i had bought ether towards the end of 2016

the the audience changed and there were venture capital investors there were some guys in suits some bankers uh some some more entrepreneurs and i was like this is going mainstream it's going to get huge and i was investing more all along the way and then i had an experience in april of 2017 where i was trying to buy an investment property in texas where i'm originally from and i was feeling so proud of myself for having bought bitcoin and ether when they were worth less than they were at that time that i listed them on my financial statement that i submitted to the bank that i was applying for a loan with to buy this investment property this is actually a bank that i worked with before so they knew me a little bit

but they freaked out they i got a phone call like the day after i submitted it and my loan officer was like zach i showed your financial statement to my compliance team and they think you might be involved in some illicit activity that's ever fun i know you have a job and you make good money but we think you're doing some some illegal stuff on the side because you have bitcoin and it's only used by drug dealers and terrorists and money launderers and at this point was it in your coinbase account or you're like showing like trezor reserves or something like that i just filled it out on a form yeah um you know i think uh i think at the time it was you know i had like trezor who are these people to

assume the worst you know it's first united bank i'll call them out first united bank and I think their headquarters is in Selma, Texas. And they didn't like it. And ultimately, I was still able to get the loan, but I had to submit a financial statement without Bitcoin or Ether listed on there. And that was kind of my light bulb moment for BlockFi, combined with the fact that I just became a huge believer

in the ecosystem and the impact that it was going to have on the world and my experience in alternative lending and fintech. And I thought that there was going to be a large need for debt and credit products in the ecosystem and pretty quickly decided that i just needed to start a company around this idea yeah that's uh that's incredible like that's funny like you had like a lot of people i talked to on this podcast they have real world problems where like their life gets uh disrupted by by an incumbent uh system and they just say hey fuck it i'm gonna

build around this and that seems like what you're doing and actually something i'm very interested to hear tonight is sort of your view on the traditional consumer lending landscape because obviously you worked at what is it orchard platform and yeah so i was at i was at two different companies so one called orchard platform uh orchard was we were basically in the middle of the online lending ecosystem so um we had data products technology products we had a broker dealer, an RIA, an ATS. We worked with Lending Club, SoFi, Prosper, Funding Circle, all the big online lenders, and then also institutional investors who are buying loans or lending to those platforms. And I learned a lot in there about, you know, what works in different lending

models, but also there's some analogies that I've started to make in my own head to kind of boom and cycles so when i first started orchard it was maybe 2011 2012 ish and at the time the idea was peer-to-peer lending is going to just completely destroy banks and they're not going to exist anymore and there were huge conferences where everyone was like dude we are taking over the fucking world like goldman's done wells fargo is done we were just fresh out of the financial crisis, like we got to kill these guys. And that was really exciting. Um, but what ultimately ended up happening is the model quickly shifted from being peer to peer to, well, actually, if Goldman's going to give us money at LIBOR plus 5%, we'll take it because retail investors are kind of hard

to deal with. And, you know, they don't give us a billion dollars in one shot. They give us a billion dollars in you know thousands or tens of thousands of smaller checks and so you saw the the funding model of these platforms evolved from being retail focused to institutional focused and then you also saw that the ecosystem didn't completely get rid of banks it actually just created a more diverse and robust lending ecosystem overall because it complemented what the banks were doing and filled in a couple of areas that the banks weren't supporting very much So it's still a big ecosystem. Like I saw a stat the other day that 36% of the consumer loans that were made in the last quarter of the last year were from online lenders, like Lending Club and SoFi. And that's 36% of consumer loans that wouldn't have been made if those companies didn't exist because banks aren't willing to do them for a lot of different reasons. and the analogy to the to the crypto world and i'm excited to talk to you about this because i

think i have maybe a slightly different opinion than some others and and especially one about uh the dollar and and what some of the implications are of this technology to the dollar um but but i think the story that comes from that is that it's okay if it doesn't completely destroy everything that already exists and it actually just complements it. Everybody can win. And the thing that I want to talk to you about on the dollar side is, so we've been thinking a lot about right now we only lend in the US, but 40% of the loan applications we receive at BlockFi are from international companies or international individuals. And so in thinking through how are we going to address that segment of the market,

one of the biggest questions is how are we going to get them the money and how are they going to pay us back. And the easiest way to do it would actually be to use, you know, crypto rails and some type of stable coin. And so as we were thinking through this, I'm thinking through the use case on the individual side. And I was kind of like, well, if I live in, you know, name your country with bad monetary policy, do I want to hold Bitcoin? Or if I could hold a dollar in the same way that I could hold Bitcoin and actually believe that it's going to be worth a dollar would i rather hold the dollar i think i might rather hold the dollar a lot of the time definitely i'd probably want to hold some bitcoin too but i think i i think i'd like to hold

the dollar and you remind me of uh murad mamadab right now oh yeah yeah is this his argument i should meet him because i've been thinking through this a lot well murad thinks there's going to be a transition period between when bitcoin uh transitions from the store of value to a unit of account eventually like that he believes that'll happen i do too i think that'll take decades possibly a century but in the meantime while bitcoin is transitioning to that and it's still very volatile there will be stable coins that that sort of suck up that value but with that being said i'm always i always go back and forth to stable coins usually back on stable coins because to me stable coins are are susceptible black swans of swan events they're

only stable until they're not like nothing is ever technically stable in this goddamn universe we live in and like so you're basically just under a lot you're real excuse me you're uh relying on the underlying assets that make that coin stable being stable as well which is like so i would love to to hear sort of what what you think from like a stable coin perspective like what are your favorites like how do you see plant like tether i think is the perfect stable coin hey one tether equals one us dollar i think that's perfect yeah i mean so we're we're definitely for our use case at block five more attracted to stable coins that are actually backed by a dollar in a bank account ideally as verifiably as possible um i don't think that we're going to be able to

gather enough information about uh tether to pass muster with some of our investors that we have now or want to attract in the future. But platforms like TrueUSD or the forthcoming USDC from Circle seem like they could be a completely different story. So we're attracted to those. We're attracted to the digitization of assets in a bank account or assets in the traditional sense of the word. And we're actually building out a pipeline of debt and credit type products

that exist in the traditional world that we will potentially tokenize the first being the cash flows from the loans that we're issuing to individuals so so we're also kind of you know from a self-interested perspective looking at okay if there's a tokenization process that works particularly well for just a one-to-one dollar backed coin why couldn't it also work for treasuries for bonds for you know other types of sound like a money market fund sound like you're on a big pomp tip too that's like uh talking with uh anthony pompliano yeah we're fans of pomp i mean um i think one of the really exciting things about crypto is the level of access that it provides for anyone in the world can buy a bitcoin if they have a connection to the internet and if

the same thing were true for other assets there's another podcast i listen to called animal spirits It's more kind of like mainstream investing. But they had a user question the other day that was this guy from Columbia. And he was like, hey, I can't buy U.S. equities. I can't buy U.S. bonds. I basically have access to, you know, with the amount of money that I have, I basically have access to the Colombian stock market, which has, you know, 15 or 20 stocks.

What should I do? You know, and so like... So it's opening up markets to these types of people. Yeah, it's an accessibility play, right? Like, why shouldn't everyone in the world be able to buy not only Bitcoin, but other stuff? And I think that's really, really powerful. And then to tie it back to BlockFi, when you think about what we're doing in terms of creating debt and credit products, what I get really excited about in terms of what we could potentially do in the next couple of years is

Bitcoin and other assets like it are the most accessible and financeable assets that have ever been created in the world. And so if we can make loans to someone in Argentina or Zimbabwe or name your country with bad monetary policy at sub 10% interest rates in a few years, like that is so powerful. You bring credit to parts of the world that have never had it at an affordable rate before and this is actually you just you just scooped me there one of my bullet points one of my topics oh man i'm so sorry to speak about with you you didn't let me bring it up you brought it up yourself but you got a tweet out the other day if you take accessibility into account crypto may be the most financeable consumer asset the world has ever seen which i think is like a fascinating

a fascinating thought like a fascinating thought experiment to run down like the only question is at this point is what is the the design the perfect design to getting to that tokenized world like what is the infrastructure what is the protocol and and from a design perspective from a ux from a architectural perspective like what is the best approach at this point so what are you guys seeing at blockfi like do you do you like the erc20 or erc791 structure whatever it may be on on ethereum are you waiting for sort of more infrastructure to get built out on top of bitcoin to be a lightning network and third layers or something like whatever stocks doing at t0 or yeah so we're just like that we're we're waiting we um we have a i would say a general

bias and affinity towards ethereum uh consensus ventures let our seed round or you know big supporters of the work that uh they're doing and ethereum is doing in general um it's not time for us to start creating these things yet we feel like the time for us to you know go to the market and say hey invest in our tokenized debt security will be after we've already established ourself as the lowest cost fastest most reliable lender in the crypto market at least in the u.s market um so we're not quite ready yet uh and we're and we're watching uh and and learning so what uh obviously ethereum not ethereum buys but you you like the ethereum structure what else are you looking at outside of that um not much not much to tell you the truth

um but we're but we're not we're not looking earnestly right now yeah okay um i have had some conversations with the team at securitize i think what i think the work that they do is a bit more focused on the uh regulatory fundraising and then also on the technical side a little bit but i think they use ethereum i'm not i'm not 100 sure um but it seems like they from from the limited number of conversations that i have that we've had it seems like they have the most uh actual use cases that they've implemented so far whereas everything else like in the tokenized security market today it's kind of like yeah it's coming yeah well and that's like so that's one thing and that's why i like that you guys are starting slow and started with a core

competency competency which is using bitcoin as collateral like which is like simple and just makes sense out of the box but figuring out how how to tokenize these and listen like i so you're talking to somebody who's shit on the whole ico landscape ethereum like the whole tokenize the world mentality and it's not it's not because i think it's a bad idea i think just the timing is off like we need to build out these protocols like again going back to time preference it's going to take a while to build out the secure protocol level and then build out the functionalities on the second level to become interoperable with the protocol level so you can basically hash data every 10 minutes if you need to sort of figure out how to tokenize this and i think it's

so as much shit as i talk i do think this is the way we should go in the future i just again it's a timing thing for me and i like that you guys are taking a wait and see approach um and it's just interesting to see especially now or the depths of the like the worst bear market since you first got in and uh or since right after right before you got in and uh it's interesting to see how people are reacting to like the price price uh plummets uh if you ask me like yeah i mean it's brutal i mean on on the uh on the utility token side i think um a lot of people predicted it and it's kind of expected but it'll be really interesting to see you know it'll be really interesting to see what happens over the next six months it'll be interesting to see how much

you know i i believe that we're entering a phase of bitcoin decoupling from the rest of the market a bit oh yes it'll it'll be especially it was like yeah it'll be interesting it'll be interesting to see how long that trend continues it'll be interesting to see how ethereum fares in a market where there are a lot more competitors um it'll be interesting to see how their you know scaling solutions are uh implemented see that's that's my biggest worry with ethereum in particular so i have a tweet out there i think it was the black swan was it anti-fragile it was one of telep's books one of the inserto books uh i've said this on this podcast before but one of the inserto books there's like a passage in it where it's like the reverse of the lindy effect so the

lindy effect like the longer you survive the more likely you'll be be surviving into the future um and like the reverse of that is if you set a goal for yourself for a team which ethereum is transitioning to proof of stake and sharding uh like so casper actually came out like casper the original implementation spec came out like three years ago and the way vitalik and crew marketed ethereum out of the gate they were like we'll transition to pos like in the first 18 months and then that changed and now so ethereum launched in 2015 or 2014 2015 so we're three years into it already double their original schedule now the earliest transition to proof of stake sharding is like 2021 i think the latest estimates have been and so nassim taleb in his book it's

like every time your your project's deadline is extended into the future you can basically expect it to be extended like a time and a half into the future so the longer it takes these guys to transition to proof of stake sharding the longer like the longer so the more they push it back the longer it will take to happen that's what i meant to say so the more and more they push it back the longer it will take to happen and transition to this and in the meantime like they they are centralizing in an in a node fashion like they're the way they're like the amount of nodes they have on the network is centralizing because they have so much data like infura i'm not going to make you guys jump into the details of this but like infura

runs a lot of the servers that that people are running nodes and transactions through so for me it's like they have they have to do it quickly if they're going to do it do it successfully before they become too centralized but is that like does that worry you at all like stuff like that so in general i struggle to say a bad thing about ethereum or any of the other projects that are legitimately going after that use case um i think it's still so early that uh that you've got to try a lot of things and you've got to aim big and we'll see it happens um me personally on the decentralization versus centralization component i'm not that worried about it so i i think i'm maybe a little bit unique uh as like a hardcore you know bitcoin

slash crypto believer in that i'm like super open with my data i'm not really worried about anybody like stealing my, my PII or my information or my money. Um, I feel like a lot of our systems work. And so, and I also, I also feel like a system, a system completely without trust will be less efficient than a system with some trust. Exactly. And so the, if the question is like would it worry me that somebody's coming more centralized becoming more centralized i would say it doesn't worry me but that's just like me personally i do think it would worry a lot of people who have that as a you know something that uh they care a lot about i'm just not one of them no and i would i would agree to the fact but it's like the deep question you have to dive into is

what essentially needs to be decentralized so like that's why i don't care about ethereum doing smart contracts in the world computer like go for it like make like i talked to my buddy santiago siri last we met for coffee and he was talking about how easy it is to write contracts with solidity like and as a programmer it's like awesome to build on but for me what really has me slip up in my mind is like there shouldn't like all right that's cool and i love that but ether eth the token should not have that that value if it's centralized like it's not censorship resistant peer-to-peer it where it's moving towards a non-peer-to-peer uh sort of way with node centralization and so that's one thing like for me it's like yes if you want to build

smart contracts on ethereum like do it like they can work out but like maybe like insert a very sound decentralized like hard to disrupt money like bitcoin is slow and cumbersome i would argue for a reason because it should be very hard to change and and so i think there's like a confusion and a bifurcation between move move fast and break things making capabilities with smart contracts and stuff and the move extremely slow and conservatively with bitcoin where it's like hey this is a completely decentralized not completely yet but the most decentralized out of everything let's make sure we keep it that way and that's what gives the underlying bitcoin token its value and so i i just come i come

all right i reach a a sort of confliction within myself when like talking about the value of the underlying token uh verse what the programming language and the capabilities of the platform are I think it's way more clear for Bitcoin, right? Like I come from a primarily a sales and business development background. If you, if you ask me to sell someone on like the addressable market and odds of success for Bitcoin of achieving it versus Ethereum or other smart contract platforms, I could sell the Bitcoin one way easier. I think one of the interesting questions, and we should, we should make sure not to

dovetail too much and touch on some of the things you mentioned we want to talk about earlier. Yeah, definitely. um one of the 26 minutes in we got time we got time here zach one of the uh one of the interesting questions and i think it might have been drew who who tweeted this when it comes to that addressable market for for smart contract platforms is like how subversive do you want to be exactly i thought that was really interesting like it's like okay if you're gonna if you're gonna do it there's a lot of demand for gray markets and black markets and if you can if you

can facilitate uh that type of activity then it's really big but you've you've kind of got to make the decision right like you've either got to do it or not yeah because the trade-offs are huge like if you trade-offs are huge if you do it it's very cumbersome and the nice thing about bitcoin is it just doesn't care exactly it can be subversive and not subversive it can be subversive and fully regulated by the cme at the same time so would you say did anything from like college or like before you got into lending like push you or was it just like you were like holy shit this is like a new completely brand new asset that we can into crypto yeah i like risk you know i've kind of always been drawn to um to the extent that the odds are stacked in your favor uh at least a

little bit i i'm the type of person that's more attracted to something that has a hundred x upside potential but a low probability than a you know 20 return potential but a high probability that barbell it's just kind of in my it's in my dna i guess yeah um so i so i like that and crypto really embodies that but it also has it also has this social impact uh perspective so i guess one thing that did happen to me in college i was i got a scholarship to teach at a university in honduras for a summer oh yeah and i was i was teaching at this university it was like week three of our summer session and we're walking to school one day and there's a huge protest in the street like we couldn't cross the main street that we normally cross to get to our school

and the reason was the military had showed up at the president's house that morning taken him out of his bedroom flew him to costa rica and took over the country there's a military coup manuel zelaya um was the was the president at the time and we called the person who was uh you know our our sponsor at the school and we're like what should we do and they were like get the fuck out what i was like 20 years old or something i know i was young i was in college and we're like okay but one of the things that was kind of eye-opening for me that was the first time i traveled internationally not just for a kind of like pure vacation with other adults reason and you know like people people in countries with bad economies have it really

really hard we are so spoiled and the democratization of finance perspective of crypto is really really attractive to me because it it makes no sense that um you know wherever you're born and whatever monetary policy that country has dictates so much of like what your upside in life is exactly it's just that's just not the way the world should be at some point in the future and the faster it changes the better it's some people are handed the shit on the stick right from birth and it's nothing of their own doing it's just the systems are born into this a big theme on this podcast and that's what again that's something that drives me towards bitcoin too it's like hey if we have this universal standard of money aka bitcoin where you really don't need

forex uh you don't need forex costs and taxes and stuff like that make everything easier make everything more fair like it just fucking makes sense in today's days isn't it yeah and we'll tackle remittance first right like yeah the rails for remittance are so bad um i have a uh a former colleague who's the cfo at a previous fintech company i worked at who went to a he's now the cfo at a at a you know remittance traditional remittance company and he's basically leading the charge to find some type of blockchain or crypto rail to use because they they charge people like eight percent it's ridiculous like eight percent it's like people are still using like western union money grab it's like a 10 or 20 minimum or something you know so if you send 50

bucks you still hit the minimum and then it's 20 sorry that's so messed up it's like it's absurd because it's not like obviously we have better ways now like you it does not cost 20 to send that money it's literally bits in a fucking machine going from one end to the other it's just a question of how long it takes exactly so i believe block fi is helping usher in that future that we'd like to see right now we're just lending to like wealthy crypto people in the u.s but we'll get there no that's what like that's what i talked about with drew like that's where you start like it's like cell phones in the 80s like uh like it's not unfortunate it's just the way tech works like the rich get access not get access to it first or the first to adopt it because they have so much

discretionary income it's like hey let me fuck around with bitcoin it's like oh i wound up turning into a lot of money like i need to either use this or collateral or store it so i'm gonna need products for that and what you guys are doing from a from a collateral standpoint is one of the first products that makes sense for this for this demographic of of holders hodlers yeah and i think another thing that's important to go back to the beginning in terms of what happens to the traditional system when something comes to disrupt it specifically for crypto is that the more that banks regulators traditional institutions get involved in my view the higher likelihood of success that we have and really shortly maybe a month or two after i started blockfi last summer

with my co-founder flory uh bank of america merrill lynch released their first report on crypto and one of one of the things i remember that one of the things that was mentioned multiple times in the report was you know the common bank sentiment of if no one lends against it it doesn't have any value and banks aren't going to be lending against crypto anytime soon they have to first figure out how to custody it custody it which is going to take approval from you know six different regulatory bodies who aren't going to say yes to that anytime soon they have to learn how to custody it they have to learn how to move it around and then maybe they'll lend against it and we're a long ways away from that so you need companies like block fi like unchained to step in

and facilitate uh that functionality of bitcoin having enough value for companies to lend against it and what's kind of funny is that it's actually a lot easier for a bank even a big traditional bank to lend money to BlockFi as a corporate entity who's built up this track record of making these loans than it is for them to just do it themselves. So I think that, I don't know if it's six months or a year or two years from now, but we were the first crypto lender to raise money from institutional investors with the Galaxy deal.

I think we'll also be the first to raise money from a bank. And I think that the more banks that are involved, whether it's just providing traditional bank accounts for, for companies that are active in the crypto space or lending to companies like BlockFi or eventually custody and crypto, the better because that makes that, that means that just means it's like not going away. Well, first of all, congrats. That's an awesome accomplishment.

Yeah, thanks. and second of all so this is like sort of quasi derivative exposure for these guys for the banks would you say like well they're lending you money obviously they're getting some think of it like on the back ends yeah i mean it's it's kind of like a uh private slash miniature securitization so you know if if blockfi has a pool of loans worth 10 million dollars and the bank wouldn't make those loans themselves, but they might be able to look at the performance history of other loans that look like it and say, Hey, we'll lend you $5 million based on this $10 million pool of loans that you have. And then we have to do some other math in terms of putting other counterparties

in there using our equity capital that we've raised from venture investors. And, and basically it all kind of works out and um and the end result is that we're able to pass through cheaper costs because banks you know for better or worse get free money effectively and so their cost of funding is really low so when you're any type of alternative lender you either want to get to the the top of the mountain being uh bank funding or tapping the securitization market with like a triple a rated uh securitization and your cost of funds is like libor plus you know 200 pips 300 pips slowly but surely bitcoin reaches its tentacles into the incumbent financial system and says hey you're gonna like me no matter what you're gonna have to deal with us

and that's why i like what you guys are doing it's like hey you're entangling yourself in the incumbent system and saying you're working with us it's gonna be good for you in the long run you might not like it now but we're going to entangle you so you can't get out of this in the future yeah and the good news is um they want to so we're actively having these conversations and um and they want to get involved it's not easy for them to get involved that's what um they need to check a lot of boxes like they have a lot of rules they have a lot of lawyers they have a lot of compliance people but if you can if you can build something that checks the boxes and it's just that there's a box that you maybe haven't checked before here but like all the

other ones are the same then it can work well that's what so that's what i understand about the industry and the lending industry like it's very laissez-faire from from like a licensing perspective like a lot of states are like hey if you have the capital you can start this business is it it's obviously it's the banks have handcuffs they can't get into this for certain reasons but if you're like a startup lending in collateral service uh it's easier from a regulatory perspective is that correct so so the primary reason that banks stopped doing a lot of consumer loans uh was that the management of it just wasn't worth their time there's a few things that went into that calculation one was they don't have the best

technology so they can't spin up a website create a loan origination process that's fully automated and you know do it without like five people at the bank printing out a piece of paper and stamping something so making a small loan for a bank sometimes costs more than the amount of money that they're going to make okay um so that was one part there was also some you know regulatory stuff uh related to you know how their risk is measured and how the government checks whether or not they're in compliance with the new rules uh coming out of 0809 but for fintech companies that are lending i wouldn't say it's necessarily really easy but it's it is clear exactly so it's clear what rules you need to play by and you basically have

two options you can either go state by state so similar to exchanges getting uh you know uh mtl slash msb licenses um there are lending regulations that are on a state by state basis if you're lending at low enough rates certain states kind of say hey you're lending below 10 have at it you know you don't even need to like apply and tell us who you are you can just you want to lend money to our you know the the great people of our of our state at nine percent like by all means please do it other states say we don't care what rate you're lending at we want to know who you are what your product is we want to make you pay fees to get a license and and review everything. So that's one approach is you go state by state. Another approach is you partner

with a bank and you originate through their charter, which is what all the big fintech companies like SoFi and Lending Club and others do. They have these bank partnerships where technically at the point of origination, the loan's not from SoFi, it's from, you know, XYZ Bank. And there's a few of them that, you know, kind of specialize in this activity. um so it's not it's not necessarily that it's easy i think you know compared to at least like nine months ago what some of like the crypto mindset was around regulation like oh we started doing this thing and we had this idea but like it turns out we have to be you know compliant with this stuff and that's fucked up we at at blockfi like we've we've done this before so we kind of

just went into it you know eyes wide open and we just expected that the baseline was you have to have state lending licenses or a bank partnership you have to register with finsen and and have a you know kyc and aml program with policies and procedures and training for all your employees and so it's just kind of like what we viewed as standard done it you should probably mention we the most lending licenses in the u.s as well brad coming in with that hot shameless plug so what's that mean that means that we have the largest footprint for lending in the u.s right now which is really exciting oh yeah like what do you mean by largest footprint like you can yes like you're the biggest loan originator or so i think if you if you if you look at a map of the

u.s and you look at where you're exposed in the lenders okay where lenders who are lending money backed by crypto are active uh block five's map would have like the most states with the light on okay so let's dive in the mechanics of it what are the core competency products and services that you offer uh multi-question multi-faceted question here So what's your product suite right now? Like simple product suite out of the gate. Where are you seeing the most action and who are you helping the most? So right now it's pretty simple.

We just have one product. It's a U.S. dollar loan backed by Bitcoin or Ether as collateral. And the people that we're helping the most, it's a mix, but it's all crypto asset owners. it's all people who believe that the value of crypto is going to go up over time and it's largely people who understand well they have an embedded capital gain so they bought it at a lower price than it's at now and they understand that if they sell it they're going to have to pay taxes on the gain and they're probably not really interested in doing that right now because they think it's going to be worth more in the future hyper bitcoinization man that jubilee

well what could be better for people that believe in hyper bitcoinization than the ability to borrow and shitty fiat yeah borrow and shitty fiat use that as your spending money and hold on to your precious bitcoin so yeah like this is the most appeasing thing product to me personally that i've seen in a while uh so let's this is one thing i forgot to touch on with roof so how do the mechanics of these loans work particularly if let's say i take out a ten thousand dollar loan use bitcoin as collateral but obviously bitcoin is very volatile price is going to either go up and down uh after i take the loan out so how how does the interaction with block five work post loan depending on the bitcoin price so bitcoin price goes up versus if it goes

down at, uh, what do you need to do with your collateral in those cases? Sure. So, so when you start the loan right now at BlockFi, we will lend up to 35% of the Bitcoin value initially. So if you have $10,000 worth of Bitcoin, we will lend you up to $3,500 secured by that Bitcoin. It's important to note that any upside appreciation in the value of Bitcoin is our borrowers, not BlockFi. So Bitcoin goes to, if that Bitcoin turns into $20,000, $30,000, $50,000, that's our client's money, not ours. If Bitcoin at $10,000, if the $10,000 worth of Bitcoin declines by 50% and is now worth $5,000, we have a margin call. So the way the margin call works at BlockFi is there's a 72-hour window where our clients have the option

to either add more collateral, pay down the principal in USD, or take no action. If they take no action and at the end of 72 hours the price is still at or below $5,000, we will initiate a partial collateral liquidation. Okay. And we'll rebalance the loan-to-value ratio back to 50. so some of the questions we've received before have been like okay you're lending me less than

the bitcoin is worth if you have to sell some of the bitcoin because i hit a you know liquidation point does that mean you're just taking it all and the answer is no uh we always you know the amount that we lend to our clients is the amount that they owe us and the bitcoin that they posted as their bitcoin in the scenario where we're selling some of the bitcoin we're using however much is received from selling the bitcoin to pay down the loan and then the loan is paid down and the bitcoin is still theirs i'm trying to think where i want to take this because it's interesting because this is a huge like valuable service for big hodlers obviously is that your biggest client base right now and how receptive are people to this because right now people

with big bitcoin holdings are like oh should i sell it like when it was in 20 000 in december like should i sell it and i feel like people aren't abreast to the fact that services like block fine unchained exists like you do not have to sell your bitcoin to to realize the gains that you've gained on that bitcoin you can use that as collateral it is risky so here's what i'm trying to get out of here who are like the best types of people to utilize block fi uh like people who don't want to sell like some lucky lucky early investors in bitcoin who may not have the best cash flow on uh in their in their real lives like they might not have the best jobs but they were lucky enough to buy a lot of bitcoin in the past how could they leverage their bitcoin with you

guys to sort of take themselves to another level. So what you just described is exactly the type of person that is an ideal client for BlockFi right now. Um, and, and who it makes the most sense to consider using a product like ours or unchained. Um, the product will become more applicable to more people over time as the interest rate comes down. But today it's especially applicable to, individuals or companies that are crypto rich and not necessarily cash poor, but with less cash than they would like to have to achieve a asset diversification that is ideal for whatever is going on in their life or business. And that asset diversification component is important because what we see is that you know some people some of our clients are using these loans to make

you know everyday purchases or cover general expenses but more frequently what we see is that it's a wealth management type of tool so wealthy people have been borrowing against stocks real estate, other types of, uh, you know, collateral since debt existed, it can be a very effective, uh, wealth generation mechanism. Um, and the most common use case that we've seen from individuals who are borrowing from block five is real estate related. So, and I think the reason for that is that if you are kind of over, if you look at your personal financial profile and you say wow i've got a lot of crypto relative to everything else but you don't want to sell it because you know it's going to be worth more in the future but it'd be nice if you had a little

bit more stuff in your portfolio that was just kind of like rock solid like a rental home or you know a portfolio like the reit index from vanguard the blockfi option could be really great for you and there's tax benefits when you use the proceeds of a loan to invest in stuff really i didn't know this so there's this there's this thing called the investment interest expense deduction and basically what it what it does is if you use the proceeds of a loan to invest in something the interest that's charged to you is deductible from other capital gains or investment income in the same tax year. So what that means is, for example, if you're an individual in New York, and let's say your effective tax rate is 40%, which is common in New York, especially

in Manhattan, you've got federal, state, and city taxes. If you use the proceeds from a loan to invest in something, you can deduct the interest expense from other investment income or capital gains. So assuming you have investment income and capital gains that is greater than the interest that was charged to you, you can think of your interest expense as being, you know, whatever it is, minus 40% because you get this tax deduction. So your after-tax cost of a loan from BlockFi is you know the rate you're charged minus 40 so we charge we charge you know 12 interest rate you need to get out in front of this and start marketing this like harder like well that's why we hired brad and he's here but he's not talking much i never knew that no but in all seriousness

like we've been we've been very under the radar and we've grown a lot but purely from word of mouth and since we made the galaxy net announcement a few weeks ago or a month ago now we want to get ourselves out there more and uh now we're trying to do that you're helping i don't know if this is going to help at all i don't want to make any i don't want to make any promises but um no it's fascinating though because that's one thing like i didn't even know that like i didn't know that like i can leverage my bitcoin in that way which is huge there's advantages to it so let's say you sold some bitcoin this year also you probably have a tax bill exactly so let's jump into this what are the pros and cons to selling your bitcoin as opposed to putting it up as collateral to get

a cash loan like well the the the pro it depends on who you are so the the it's all based on whether or not you believe bitcoin is going to be worth more in the future like if you think if you think bitcoin is going to be worth less in the future getting a loan from a company like block fi is never a good idea you should just sell it yeah if you think it is going to be worth more in the future and you think that you're that the composition of your personal assets is not ideal and you've done the math on every time you sell bitcoin here's how much in taxes you have to pay then it just becomes a math equation and and we've helped a lot of clients to you know they write into us and they say you know they kind of tell us a little bit about their situation

and we have you know just a super talented team of people um largely with banking finance fintech and and you know engineering backgrounds and we're happy to say like if you want to give us some numbers like we already have a some like pre-built formulas we can like do we'll do the math for you so that you can see like you know here's what happens and that's incredible and that's like again and so that's what like people people think value is going to accrue to these blockchains like right at the protocol level but they don't realize there's like second order effects to the value of these type of assets which is what you're providing one question i have is like what's the average duration of your loans is do you find it's more longer term or like two to

three years three to five or is it more like 12 month loans so so right now uh we're doing all one year loans okay with no prepayment penalty so if someone wants to use it for less than a year they can the maximum term we're extending is one year and that's for two reasons um on the client side of the equation we believe that costs uh the the cost for these loans at blockfi and and at our competitors is going to come down aggressively over the next few years yeah it's a competition competition it's just competition you know experience uh performance data on the platforms that are doing this costs are going to come down so locking yourself into something that's super long-term doesn't make sense well it's not that it doesn't make sense

it's fine just understand that you shouldn't you shouldn't do it and then not look around a year from now yeah because you might be able to refinance it at a much lower rate and if you are able to refinance it at a much lower rate you should understand how that would work with the lender that you're choosing because for example if someone doesn't allow you to have flexibility in terms of how you refinance you might have to come up with the entire principle in usd that you borrowed to free up your crypto to be able to refinance it we've actually uh seen that happen a bit with another lending business and people trying to refinance to block five so So it's an important consideration.

The other reason we're doing max one-year term loans right now is that we are just super oriented around effectively raising institutional debt capital. Okay. And we believe that the more things we can do that enable institutions to check all those boxes except the one box that they haven't checked before, which is crypto, the better.

Because that means we're going to get a lower cost of capital faster and ultimately block by getting a lower cost of capital just flows through to our clients that's crazy you guys have found a niche man do you feel like you found like a diamond in the rough but this type of this type of niche market area in this specific sector like to me it doesn't feel like a diamond in a rough because i like i come from lending and i'm obsessed with crypto but it definitely is like when i talk to other people about what i do they're like niche bro but at the same time i feel like there's something to say for having a product that's recognizable to people from traditional finance into crypto finance like there always has to be those

bridge services and i think block buy really is one of those well and i would agree completely and that's one thing that somebody with the finance like tarp on this too much on this goddamn podcast but somebody with a finance background myself like i am in bitcoin for like fuck the central banks like i think we should have sound money but and other people sort of throw out uh throw out the baby with the bathwater like all banking is associated with central banking where i am in this for sound money like at the end of the day and banking will be built on top of sound money the problem with today's society is that banking is built on a unsound money i would argue and a lot of people have negative connotations towards banking services

and bankers and bringing banking type services to bitcoin where i would argue like no like we want this like if it's built on a sound money a sound foundation it's okay it is ethical and it is reasonable and it makes sense to actually grow your economy and so that's one battle i've been trying to figure out how to how to sort of fight not fight but sort of manage on the front lines like there's a difference between banking on top of fiat currencies and banking on top of sound currency well frame it like what makes bitcoin stronger what makes bitcoin stronger like exactly having having the cma the cme approve uh you know trading of bitcoin futures having banks lend to companies that are lending against bitcoin having countries like japan say yes all good

bitcoin's all good like it's just all good and their gdp grew 0.3 percent like would you rather have those data points and that additional interaction with the bitcoin ecosystem or not and i think like you would definitely rather have it you definitely rather have it yeah and there's like there's like that contingent of like punk rock bitcoiners are like no we're gonna fuck the man completely like no banks it's like all right let's take a step back like these services are sort of needed at a certain extent like you need to be able to lever up it's just you don't want the underlying currency to be so levered up that it it's a 72 trillion dollar like derivative market or something like that whatever whatever the derivative market is for u.s dollar-based

derivatives right now like that's when it gets out of hand what people don't realize is like if you have a sound base monetary system you can build derivatives off of that and they will be the risk will be controlled uh commensurately with with the sound money that's underlying it and yeah it's super close to gold and there's lots of things that um if you if you haven't worked in gold markets and and i haven't i've learned all this stuff so i'm not i'm not an expert but there's there's lots of things that are analogous that didn't necessarily hurt gold but i think that bitcoin is kind of like gold plus plus plus oh yeah and so you know concepts like in gold in the gold markets there's allocated gold and unallocated gold and allocated is like you've

got your bar you know what the number is on what shelf at what vault you've got an unallocated you've got one of two keys and unallocated is like we've got a gold bar for you here but it's mixed in with all our other gold bars exactly and having those things

having an ETF for gold having other things for gold didn't kill gold gold's 7 trillion still 6.5 and the one thing I fall back on gold is the old adage uh an ounce of gold in roman times could buy a good tunic and also gold now i'll buy a nice suit

like gold has held its value comparatively speaking for thousands of years four thousand years like you could buy a good ass suit in roman times as a tunic back then probably want to look as good in a mark as you would in an armani suit today but you can you have the same purchasing power over time and that's what people so that's like one thing in bitcoin this is completely tangential to what we're diving into but like one thing in bitcoin is a lot of people like eventually bitcoin will become the unit of account so people keep trying to price it in u.s dollars but i'm like let's start thinking about bitcoin and purchasing power like thinking about bitcoin is like in a couple years like one house like maybe in a decade like a good bit of land maybe

in two decades like you can buy a whole fucking city like stop thinking of it priced in dollars and start thinking about like purchasing power i don't know if you guys have any thoughts on that but that's just like a tangent i just think it's going to be so interesting and i'd be pumped if all that stuff happens because right yeah so let's get cosmic here we're uh we're drunk enough in the podcast so we can get cosmic like so how do you guys see this changing the world like in a macro sense like what what is like your currency consolidation what do you mean by that so what i mean is how many currencies are there in the world right now i don't even know the answer

whatever it is it's too many 220 countries i don't know if every country has a currency not everyone has a currency not everyone has a currency maybe there's i know 50 when i worked at a futures fund we traded like 22 pairs max yeah so maybe there's 20 that matter and 60 that exist yeah i think the 40 that don't matter and maybe some of the ones that do matter are gone right like you don't need them anymore and if you can deliver the other currencies including bitcoin which i think becomes one of the major ones via the internet like at a certain point people are just going to be like you know we don't want xyz currency we're just going to switch to the other thing and you'll have the same types of uh uprisings that you had that

we're powered by information flowing through Facebook and other stuff and toppling dictators. You'll have those same things, but it'll be, uh, economic based uprisings and it's, and it'll touch, it'll touch the countries that are most affected by poor monetary policy and

being, you know, having a currency that doesn't matter first and that will just kind of propel Bitcoin and other crypto assets forward. And that's the crazy thing about it. It's like the emerging markets are finally getting their fuck you moment on the grand stage. Like they can say, hey, we're going to start this domino effect. Like you can either follow us or fall behind.

Because as a retail investor, as an American retail investor, I'm like, so I come from like an economics background. And I just so, I don't want to say presciently, but just so happen to take a elective in economics class. my senior year of high school which was the fall of 2008 and like become enamored with like how our economy works like i i was lucky to have a teacher who was very adept and very focused focused on the problem and was really sort of like hey guys like as a 17 year old like looked us in the eyes was like this is not right like you should probably try to figure out what's going on in our economy So I went to college as an econ major with, like, a know-your-enemy type mentality. And, like, after going through it, it's like, to me, it's obvious.

It's like, hey, like, you cannot print. I don't know if you saw the thread I wrote over the weekend, but I wrote a thread on the Fed's policy leading up to 2008 and post-2008. the inconsistencies and the uh the sort of the inconsistencies and the the like welching by the like by ben bernanke and crew in general like so in 2004 he ben bernanke was i don't know if he was the fed chair yet or if he was like a top governor but he was taking uh taking credit for quelling the volatility in the markets with the great moderation it's what they called from like 2001 to 2008 or like 2002 to 2008 where like everything petered out uh economic growth was pretty steady housing prices were going up pretty steadily and in 2004 steadily pretty rapidly actually

but bernanke wanted to take credit for that he was like monetary policy has led us to this great moderation where things are great but what he didn't realize is he's just suppressing volatility and that volatility was released in 2008 and if you so parker shout out to my boy parker lewis in austin you know parker i'm from texas i don't know parker but i like shout outs to austin parker parker lewis is an austin boy uh he wrote this incredible paper it's private uh he sent it to me but he basically dissected the fed minutes from 2008 to only until 2012 because the fed released them four years later or yeah or six years later actually so he was only he wrote this paper earlier this year it was like up until 2012

the minutes and you look at the inconsistencies of what they were saying like hey we're going to implement this policy to affect the economy in this way and we'll have this results and you realize like their their cause and effect mental models were so off they have no idea what they're doing so for me i'm literally like i so i went from high school fall 2008 financial crisis to college to study economics working at a managed futures fund following the central banks and like you literally have no idea what you're doing and that's why i'm in bitcoin now is because all right we need the stable base to sort of base future economic uh decisions off of and people don't realize and that's that's a big theme of this this podcast is that people don't realize

how their money works and how it is affected by bureaucrats and academics that are basically experimenting with models that they created in college and they think will make the world a better place but in reality make it much worse off that was a tangent i don't know two things Number one, to me, that is one of the most exciting things that's happening in this space is that really young, really smart people are saying, what's monetary policy and how do we think about it and how are we going to change it and build around it and build something better? Like, that wasn't happening before Bitcoin. It wasn't happening. it was like oh you want to go do econ lame why don't you do tech and work at facebook that was the vibe right it was like yeah that was the vibe now uh it's kind of brought it to

the the forefront of you know just general like ambitious young people's mind share and good stuff comes out of that like if you have a bunch of really smart people working on something good stuff is going to come out about it there's one area where i where i slightly disagree with you and i'm gonna do it because we're drunk and it's fun to disagree jump in i and this might be because i'm a little older so you're like high school 2009 i'm college 2009 yeah senior in high school so i'm a little older i am scared shitless of something going wrong with the dollar and i maybe you said earlier like it's a hundred years or you said it's going to be a while and so like maybe i'm gone and

it doesn't matter so like not my problem but that is the reserve currency of the world the entire global economic system for better or worse the reality is it's built on the it runs on the dollar right now and i struggle to see how we can peacefully transition without causing blockchains or war with it yeah i know but like how do we how do we peacefully transition man and like the transition sucks and it and it now believe me that's what i see so like i i hope it happens like i i i hope that it happens i just hope that it's like a smooth process along the way because you know what creates a smooth process is apathy it's like literally people lose so much faith in the central banks and the integrity of the u.s dollar it's like they become apathetic like all

right so let's face it let's face it like so i talked about this with nick quarrell last week like the u.s dollar yes comparatively speaking it is the strongest currency in the world comparatively speaking like you are not it is the state all that all that matters is comparatively because we live in the real world we live in the real world so so the best the best system the best system that's ever existed and been seen is the best system up to this point but that's not to be like confused with the fact that that system can become bastardized by following the saying like we are doing what the japanese did 20 years ago like we're doing yeah we're doing avonomics avonomics like just 20 years later and we're late to the party and basically what this

is why i hate i don't want to get into trade wars at all this is why i hate trump's trade war is because all trade wars are basically a race to make your currency as devalued as possible to make exports as cheap as possible to make sure your economic activity is up and i think so the world of currencies in particular like you're always going to have that hodgepodge of like uh like the british pound was the reserve currency of the world and the u.s dollar took it over there's always going to be that revolving door until you get a single borderless currency like a la bitcoin where you sort of don't need to have that fight anymore but if we're talking about regime change and stuff like that the u.s dollar has been on this tip for a century and a

half almost two centuries like if we're looking at historical this is i know and this is the interesting question right so like you i could make an argument that the world is more connected than ever before the world economy has never been as big as it is now and there's never been a currency that's had as much dominance in a globally connected economy than the u.s dollar and it's and it's scary for me to understand how it loses its dominance but on the flip side i agree with you that it looks like japan right and and the decisions of people have a huge impact on this stuff they have a huge impact like people don't realize it's all psychological at the end of the day it really is so one of the dreams that i have and this is going

down a bit a rabbit hole that's slightly unrelated to bitcoin cosmic is i want to so i'm from texas originally and i want to open up this like tex-mex breakfast taco slash uh salsa dancing family fun center in brooklyn and and part of what's behind that is like i completely believe that borders need to become more accessible to you know like like the free flow of people should hopefully catch up to the free flow of information and money and yeah exactly information and capital and i think that for the u.s specifically if we don't switch to that kind of mindset where it's like hey if we're at you know 300 million people or whatever the number is like 10 years from now we're screwed we're japan right like economic growth is largely driven

by demographics and if the demographics aren't moving the right way then it's really hard to get the economic growth and so then like you know with my bitcoin hat on i'm like sweet do that because i'll take over but with my with my what's going to just like generally happen to the well being of like most of the people that i know it's heavy dude it's heavy it's really heavy and it's when you're talking to somebody like i just want a little bit of both right right you want a little bit of both you want you want everybody to be all right i want like the swirl ice cream cone vanilla and chocolate no but it does like i'm slapping my head here but like it it bothers like befuddles me as well

where it's like i want this and because and the biggest problem with me is that like you can see it you can literally see the cycle that is ruining people's lives that is a consumerist short-termist type of mentality where people are taught to spend spend spend and that's uh that's an emagulation of the debt society that we grow in it like we are literally at a point from a federal from a federal reserve standpoint where the fed cannot raise rates above three percent or they will bankrupt the whole country so they are incentivized to print more money and they will they will feds blame that are not printing more money they're creating more reserves unless demographics move in their favor man well hey well that's the whole point

demographics only move in their paper in their favor if people are let in not let it not let well let in but are given the chance to to build themselves up in the system and i would argue that right now the fed policy is sort of again it's it's pushing towards a fast consumption like consume consume consume right away high time preference where where they need to print money to pay back this debt they need to get the the interest payments on the debt like right away like bang bang bang and they're not they literally back themselves into a corner where they're not allowed to think without with a low time preference because of how much debt they've accrued like it is past the threshold where

it is we need to pay back this debt and to do that we literally need to put more and more people into debt but here's the thing i feel like i just left so so we're going deep and i love it and i feel like we left we're 17 and we got we got a while i feel like we left this podcast and we went over to like joe rogan's podcast where they get real deep all the time i've been called joe rogan a bitcoin podcast are you fucking serious no that's incredible um i i think we're i think the fed has set us up in a way i got it we cannot we cannot i don't think we can come back from this no but here's the thing like how do we transition to bitcoin without having as big as disruption in the traditional economy now here's the thing so if you owe the bank a million dollars

the bank owns you if you owe the bank a trillion dollars you own the bank and if the bank has a shitload of guns and weapons it owns you regardless of what's going on with how much money you owe the bank and the bank is the u.s and the u.s owes all the other powerful countries of the world a trillion dollars or multiple trillions of dollars 22 trillion that's what we're up to and so so if the house of cards fails and the debt becomes too expensive then these countries are looking at their reserves getting massively depleted it's not something that they want to happen and on top of that we still have the strongest military in the world so as as unfair and messed up as that is it's the reality of the situation yes but it's only the

reality of the situation until it isn't so right now you have countries like china and russia that are beginning like what makes the dollar there's no chance no chance look at the numbers what makes the dollar the reserve currency of the world the petrodollar yeah the saudi arabia makes the dollar the reserve currency of the world and that's not going anywhere in my mind it's such a refreshing conversation speaking with you guys because it seems like you get it like all right we don't need to create a protocol for every type of new money that needs to exist we just need to create opportunities for people to take advantage of the the wealth they've accrued and and preserve that and leverage that leverage that more importantly like using it to lever up and make something more

of yourself by the smart decisions you made instead of selling your bitcoin and trying to lever up at 1x you can lever up at 2 or 3x yeah exactly when are you going to get nick batia on the show he i mean nick nick and i bffs we need to meet in person i told him i was like i'm not gonna come here until he was in new york he's a family man he's got a wife and a daughter uh on the west coast he was telling me exactly he's on the west coast he was like i won't be able to get here until like next year and then like a couple weeks ago he's like my wife was like you want to go on tails from the crypts you can go like towards the end of the year he should be on i've talked to him so smart i think the work that he's doing is so valuable and we are

so we already run full validating a full validating node for Bitcoin we haven't we haven't started testing the lightning network yet but we're going to soon it just makes so much sense

it makes so much sense and one thing so a lot of the fun around the lightning network is people what's the fun I haven't even heard it I mean people will be like you're just remaking the banking system on Bitcoin it's like no you're not remaking the banking system in the way that people don't understand how interest rates are are bestowed

upon the market right now like they're literally bestowed upon a market by individuals whether it be the the 12 governors of the federal reserve bank or the five people that meet to decide library every day like it is bestowed upon the market with lightning network interest rates it is based off the economic activity like it is literally emergent from the system it is not bestowed upon it at all so so to one of your themes the reason i just laughed was not because of what you were saying it was because i had a friend who made some money on bitcoin who called it liber the other day when he was talking to me and when you just said libor i i thought back to that moment but that's an example of the trend that this is enabling which is people are questioning

and learning what are these things right like and if they call it libra the first time that's fine yeah at least you're thinking about it at least you're figuring out what is that well people don't understand like the mechanisms that made our traditional financial system work like the gold fix the gold fix table was like you literally had four people deciding the price of gold or the interest rate on gold lending every day it doesn't make any fucking sense like this makes more sense because it's completely emergent. You know you can borrow money backed by your gold cheaper than the Fed funds rate?

How can you get cheaper than the Fed's fund rate? Is that 75 bps right now? At its lowest point in the last 10 years, Fed funds rate was at, what, 25 bps? The gold market, the lending market for gold is a ass-backwards lending market. And the reason it's ass-backwards is that the funders are people that believe in gold.

And so you have people who will lend against gold who are so happy to take on the risk of someone might not pay me back and I'll get to take their gold that they'll do it at a cheaper rate than the Fed funds rate. How much cheaper? Like one bit? It depends on the time. So it depends on the time, it depends on market sentiment. But there have been moments where you can borrow, backed by your gold, money cheaper than the cost that the U.S. government pays to borrow money.

I never knew that. It's insane. I didn't know it either until I started a Bitcoin lending business. I was like, how does this work in gold? And then I read it and I was like, it's completely backwards from what you would think about how lending markets work. So let's dive into this. Like how much have you learned from starting this business? Not that much.

So I started learning about the gold lending market, read a few papers, did a little bit of research and then basically stuff started happening with BlockFi and between like needing to do a lot of work related to BlockFi and trying to maintain some semblance of a personal life. I had to stop going down the gold lending market rabbit hole. But, But there's a lot of things about gold.

And I think one of the things that would serve Bitcoin advocates better when talking to traditional market investors about Bitcoin, one of the things that would serve them better is to say, what do you know about gold? And the first question to investors, and I do this all the time when we're talking to institutional investors, they're like well why is there even a market for this it's so stupid how do you handle the volatility and to the first question why is there a market for this i say do you know how big the

market for gold is in nine times out of ten the answer is no i don't know how big the market for gold is and then you say well it's seven trillion and they're like oh that's a pretty big amount of money that's yeah yeah that's a good amount of money that's pretty big how do you handle for volatility well did you know that outside of the the gold lending market which is different than every other lending market in general especially as a retail individual but also as a company the cheapest asset to borrow against is usually liquid equities publicly traded liquid equities That's like the cheapest asset to borrow against cheaper than mortgages, you know, like whatever the, whatever the mortgage rate is, like take a hundred, take 1% off of that. And that's how much you can borrow money from interactive brokers at or private wealth managers.

If you're borrowing against the portfolio of stocks, the risk for a lender in lending against stocks is that there's gaps in the market all the time. There's gaps in the market every day. there's gaps in the market from market close to market open every company puts earnings out in between market close and market open that's how it works so tesla you know closes at 300 and opens at 330 or whatever whatever they're going private at 420 they're going private at 420 bitcoin trades 24 7 and it's a and it's a global market there there are some gaps gbtc and stuff you know but you know what there's not you know what there's not there is no information asymmetry in the bitcoin market when compared to stocks so a lot of people know things

about stocks that other people don't know you either work at the company or you know you pay you pay these knowledge networks to talk to people who work at the company with bitcoin like the information there is no insider information it's in the wide open you can see the economic look at the data like it's there it's a public blockchain and so we make the case all the time to these institutional investors that like one you don't know how big this market could be because you're just not asking yourself what you should benchmark it against and two you think it's risky because it's volatile but lending against liquid assets is the least risky form of lending there is and that's why it's priced that way

and the bitcoin market is a uniquely liquid asset to lend against because there's a lack of information asymmetry and because the market operates 24 7 and then you know what these what these like big finance guys really like is when you kind of like one-up them and like the mental like jockeying of like institutional finance then they're kind of like oh that guy was smart maybe we should give him 200 million bucks well it makes sense right like like it is a 24 7 365 liquid market like and that's like coming from like a future's perspective like if something would gap up overnight like i have to get to the office like sweating like sucks if you're a trader exactly exactly you don't you want to trade what do you want to trade

public equities or bitcoin public equities all day i want to work from nine to four monday to friday and take holidays off exactly bitcoin uh-uh no it's not possible it's not possible that's why i stopped trading bitcoin it was literally it was too hard man ignorance on my health it was like i cannot be staying up and ah it's a beauty we have a whole new capital formation system via bitcoin and so let's bring this back to block fi right now you have bitcoin as collateral for loans which is incredible first iteration of a product what do you guys have going like what are your ideas going for what is in your product suite in 10 years a decade from now what do you envision block by growing to that's so far uh in the future but some of the some of the

things we're prioritizing are lowering the cost so we we based on our knowledge of the market we are the cheapest lender against bitcoin or ether that exists today we intend to maintain that position we are going to expand to cover international markets outside of the u.s whereas today we're just in the u.s we are going to diversify the product suite probably first into a line of credit type product so loan is a little bit rigid right like it's like you take this amount of money pay me back on this time frame what if it were a line of credit where you could just say i'm gonna store some collateral with block fi and then whenever i want to draw on it i'll draw on it also credit cards so one of the things that i would like love to do and i think

will have a huge impact on adoption is create a credit card powered by the traditional credit scoring system and traditional bank funding mechanisms where instead of earning fiat cash back you're in bitcoin cash back like there's a lot of bitcoin people that would love that and a lot of people who are like i don't know if i want to spend my money on bitcoin but if you gave it to me as cash back like hell yeah i'll take it how would you would you have to build like a liquidity pool bitcoin to to provide that cash back or would it be no we would just we would just do we would just do cash back the traditional way and then you're talking once it has never had a credit card you should definitely get a credit card talking to somebody who's never had a credit

card you and your girl are gonna want to buy a house at some point oh yes i mean my girl has a credit card i do not i'm i'm in and this is something i get yelled at a lot for i do not like that i do not like going like in the credit my student loan debt's enough uh why am i an asshole for not having a credit card please tell me i am an because because because it basically because we live in a capitalist debt fueled system where it's actually more beneficial for you to have a credit card than not and i'll give you the simplest reason why take however much money you spend every month say it's a thousand dollars i'm to say it say it's a hundred thousand because you look super rich so you spend a hundred don't laugh at me

like that you spend a hundred thousand dollars you spend a hundred thousand dollars every month right now because you don't have a credit card you're doing it on a debit card or with cash yes if you did it with a credit card you would actually only spend 98 000 a month you know why because we've designed this beautiful system that gives you two percent of your money back when you spend money and you can like knock it but like the math is the math makes sense yeah so so that's why you're an asshole for not having credit cards now i'm coming to this realization i actually shouldn't admit that i just got my first credit card very low uh very low credit limit but i'm using it to it i mean look i don't recommend that

anybody ever carry a balance on a credit card if you're carrying a balance on a credit card you're doing it wrong yeah you set up auto pay you pay on the on the second to last day that you can and you pay it off in full every month you take your two percent cash back and then and then when you want to take your girl to you know xyz caribbean island or you know wherever you go for vacation you spend the points we're taking a carnival spend the points spend the points spend the points on the cruise i mean but in all seriousness like no i'm just getting abreast the points right now i feel like i've missed out luckily i'm you didn't you well luckily you didn't miss out the capitalist system is still just churning man you can get a hundred thousand

point sign up bonus like right now and it's and it's basically like a thousand dollars of free money it's really good so so there's it's too good to be true though but it's it is true yeah but it's true until it isn't so that's the whole thing with our yeah but that doesn't make any sense why not school me it is true until it isn't it's true right now we can only accrue that debt until there's a tipping point where it's like all right we're not gonna be able to pay back no but you just got to understand how the system works and here's how the system works with credit cards with credit cards they pass on the cost to the merchant so the credit card lobby was really smart when they were getting set up in the early days they were like all right let's let's build

some moats around like our ecosystem customers don't care about chargebacks at all customers don't care because why would i care i actually love it like i get a fraudulent charge or something happens every five years i'm like i didn't spend that somebody stole my credit card yeah boom it's great it's great it's great for consumers um and you get the points you know merchants eat the fee so to take it back to bitcoin there could be an angle where you say hey we're going to undercut the credit card companies like a bitcoin can find a way to make payments as fast and as user-friendly of a method as credit cards but the merchants pay 25 bps instead of like the the one to three percent that they pay now that is hugely valuable you just described lightning network right yeah

and that's why we're so pumped about it yeah have you guys been experimenting with lightning at all i have not i have i have zero technical skills my engineers the tech team at blockfi who's so talented they like laugh at me every day and i play into it because i i hope that it's endearing um like you know like sending the bit types uh i don't know if they do or don't but i should you're right i should it's uh the best meetup in new york do you guys do you feel again like so going back to like mission driven stuff do you feel like fulfilled by this work i guess i would say i love it man like i i couldn't be happier we work really really hard um there's nothing i'd rather be doing and that's a refreshing feeling you know it's a refreshing feeling to wake up and

be like you know what we just raised 50 million dollars from galaxy and we need to raise another like 10 in the next month and then another 200 like in the next quarter and then like you just got to keep raising money which is my my i think primary job as a ceo i have other jobs but that's my main job like don't run out of money have enough money all the time and it's not easy but i love it and i'm like super pumped like there's brad and the rest of the people on our team who are similarly working very hard and we have so much cool stuff that we can make happen so much cool stuff that we can make happen what is your uh what is your like your ideal goal by the end of block five like block fives product suites build out you guys are solidified like just like

simple fucking money product moving into the future so simple i want to be lending money to people in countries that have horrible monetary policy at rates that are analogous to what it costs to borrow money against like amazon stock in the u.s if you're a rich person right now I want to lend money to people in hyperinflationary environments, backed by Bitcoin, backed by Ether, at 5%. If I do that, I'll be like, nice, man. Let's dive into this, how this will help capital formation. What gateways do you think this will open? Opening entrepreneurs outside of the U.S. to this type of funding.

what are the the possibilities the credit doesn't exist in a lot of these places exactly credit doesn't exist for retail people so when i say and i would argue they probably had better ideas because they're the worst problems that they need to solve yeah i mean it's like you know you you've seen there's some data out there from like kiva and other organizations about how microfinance impacts communities and how if you if you extend even really small amounts of credit to people economic activity grows and what i was trying to convey with that tweet that you mentioned earlier about how bitcoin or crypto is the most financeable asset yeah if you take accessibility into account crypto may be the most financeable consumer asset the world has ever seen that's

right like what could what could someone in argentina own that would enable someone in new york who's connected to the best debt capital market system that the world has ever seen to lend to them prior to bitcoin the answer would be nothing that there's nothing that person with less than a thousand dollars to their name can buy that would enable someone from the u.s with institutional funding to lend money to them at a low rate nothing and now the answer is bitcoin and that's huge it's huge it's beautiful it's and this is freaks something you need to realize like this is a new door opening for a new possibility for the whole world and that's one thing i feel bad like people don't realize the gravity of the situation that we're in i don't think

um but we are we're near we've gone deep we're near two hours in i don't want i've got to go home i don't want to repeat i don't want to start repeating myself about anything but again like i am fascinated by it because you guys are enabling a new type of i want to see yeah you're enabling a new type of economy a new type of access you're enabling a new type of access to the world economy that has never existed before and that fascinates me it's exciting and i'm happy for you that you guys are a part of it uh you're a part of it too man this is the most professional podcast we've ever been on but most professional i'm literally wearing a dazed and confused t-shirt it's also my first podcast no but this is great thanks so much for having us on man it's not over yet

no but seriously uh i'm happy to be on the front lines with you guys like do you have like a parting note a parting pitch a parting anything for the freaks out there like what would you say to them like from your experience coming up to now uh do you have advice for people do you have like what have you learned do you have a parting note for anybody sure my parting note is if you're still listening to this podcast after we've been talking for two hours number one thanks number two if there's any way i could potentially help you shoot me an email and i will because it's a long podcast this is right on zach at blockfi.com zac zac no k no ch no k no ch just zac at blockfi.com i'll help you out because i'm impressed with your podcast listening

durability oh thank you well zach i don't want you to shit on the podcast too much all right This is the average duration of the podcast. I'm not shitting on it. We can get around like two hours. I'm not shitting on it at all. I'm just saying it's hard, man. No, it's hard. People don't have that much time.

They don't. They don't. That's why you got to listen at one and a half speed. And I've been on a no-carb diet, and the only carbs I've been drinking are alcohol. So I got a little inebriated tonight. I appreciate you. I feel great. I appreciate you hanging in with me the night before my big move.

I'm drinking some alcohol with me when's the house warming that's a great question probably a week from tomorrow a week from tomorrow you guys are invited address redacted but I'll get you a

well potted cactus it's the best house warming gift I've ever received you know why I'm a plant killer it doesn't die you can't kill it doesn't need water it just stays there looking pretty i will kill this cactus in a week dude i was you

dude i was you like five years ago someone gave me a cactus and i was like i was like that's a perfect housewarming gift we've had we've had five plants in the last year and all died you know what bring the cactus to me you have to like really really try yeah you have to really really try to look at this cactus with score you have to you have to intentionally kill it like you have to be like hey cactus i'm going to kill you now if you just neglect it it's it thrives it's sort of like my viewership you know this is an incredible two hours zach and brad that was your last thought brad do you have a last thought i think you should also invest in some succulents that succulents suck i've turned

into the succulent whisper in our apartment i killed i the last succulent i got it literally had like little bugs flying around it like it infected our part yeah yeah so i had to throw that out i highly recommend trader joe's succulents trader bros good succulents and if you're looking to buy wine great deals absolutely gentlemen the pleasure has been all mine tonight thank you for uh putting out my drunk shit and uh diving into these conversations likewise you freaks out there check out block fi uh especially if you are a hodler out there looking to leverage your bitcoin that's again going back to this like this whole conversation is about being able to use your bitcoin in ways that you didn't think were possible before like you can lever up and become

a better investor with products via block fi i would argue that what you guys are doing is leaps and bounds above what people are trying to do at the protocol level with other tokens like this is what you guys are doing provides more utility than any other than any like coin with a protocol can produce you are producing real economic activity and i thank you for that we're trying to give bitcoiners more money and i can't hate that you can find me at marty bent on twitter at zach block fi at block fi zach at block fi zach zac no h no k no h no k and brad at brad michaelson and no a and that's michaelson m-i-c-h-e-l-s-o-n and go check them out at BlockFi.com

I'm your boy Barty Bent subscribe to my newsletter rate this podcast not terribly rate a good rate maybe four stars

four stars I'll take four stars I love all you freaks peace and love boom