This Week in Startups - Tether: Crypto’s Black Swan? Plus Alternative Asset Roundtable featuring the founders of Masterworks, Fundrise & Rally Rd | E1232

Episode Date: June 15, 2021

Jason kicks off the episode with research into the claims against Tether Limited, the company behind USDT, the world's largest "stablecoin" and 3rd largest cryptocurrency (1:30). Then Jason is joined by 3 founders of Alternative Asset investing platforms (25:49), Chris Bruno of Rally, Scott Lynn of Masterworks, and Ben Miller of Fundrise. They discuss inflation, supply & demand, expanding company roadmaps (59:56) and more!

Hey, everybody, hey everybody. We got an amazing show for you today. We're trying something very new. We are going to do a roundtable today with three people in the alternative asset space. As you know, that exploded in 2020 with people being really interested in. Cryptocurrency, real estate, startups, equity crowdfunding, art, maybe NFTs, baseball cards. All of these alternative assets have exploded. And I thought we have a number of people in our orbit who are experts on this.

What if we put them all together in a roundtable? Not just similar to what I did with the All-In podcast with my friends who I play poker with. Now, these aren't my besties. These are people I know from the industry, including Raleigh Road's Chris Bruno. Now, Raleigh Road, as you know, has been on the program before. And Mark Suster, their investor, has been on the program. Very cool where you can buy fractional ownership in a Lamborghini or a Corvette or some famous car. And they've done other assets as well.

Masterwork, Scott Lynn, is on the program. He is now one of the largest art buyers in the world because he buys a Picasso or a Monet or a Basquiat or a Warhol and then he lets you buy in and buy shares of that artwork. And then we have fund rises Ben Miller on and they've been doing massive amounts of real estate investing. And the three of them are extremely smart and are at the forefront of this. And it's an amazing discussion. But before we get into that discussion, I wanted to kick off with a new story. And we've been waiting for what would cause the next bubble or this bubble to burst. In other words, what would be the next dot-com bubble or the real estate and the Great Recession

and the real estate collapse of 2008? We all believe this happens every seven to 15 years we get one of these. And at least in our lifetime, I've lived through three of them, three major ones, I should say. And it feels very bubbly right now. a lot of assets feel inflated. And in fact, we're doing an asset roundtable here, and some of those assets feel inflated. There is something that everybody in the cryptocurrency community

has been talking about for many years. And it seems to be bubbling up again. And sometimes when I feel this, I decide to go all in on it. And I did this with Nicola, the EV company that has lost a massive amount of value that felt like a scam. And I had the founder of that company

on the podcast and y'all were like wow jake how great interview you kind of put all this rope out there and this guy just kept wrapping it around his neck and then we had uh john carrie ru on the program after his first story about theranos and that story created a bunch of interest uh or him being his appearance on the podcast he told us later when he came on after the book bad blood came out he told us that he had more sources come forward after they saw his interview with me of course before that we saw Bernie Madoff. So I've watched different scams in our industry, and I've seen them unfold.

And I'm starting to get that spidey sense with tether. And the reason I'm getting this is because there's been a lot of great reporting on this stable coin. So it's incredibly complex. We're not going to be able to cover this in one episode. So I'm announcing today, this week in Startups Investigation, that will be a crowdsource investigation. We're going to have a number of guests on the program,

and we're going to get to the bottom of this. I should have probably done this. Theranos, which I knew was a scam. It was just obvious to everybody that this was like some sort of scam. So we're starting today, and we'll cover Tether every week on the pod until we figure out if this is a scam or this is not a scam.

Scam, not a scam. Tether is going to be our focus, and I'm going to need your help as the audience to start researching this, start finding information, and we're going to see if this is the next Bernie Madoff, if this is the next Elizabeth Holmes, or if this is reality. So today we're just going to explain what it is and basically what has people concerned, what are the red flags? And as I said, tether, super, super, super complex. All right, let's do the work. Let's get into it. This week in startups is brought to you by LinkedIn Jobs. A business is

only as strong as its people, and every hire matters. Post your first job for free at LinkedIn.com slash twist. Linode is the leading independent public cloud provider. Create an account and receive a $100 credit at linode.com slash twist. And Dell's Xbox products were built with entrepreneurs in mind. With increased mobility and longer lasting battery life, you can stay productive on the go. Sign up for a free IT consultation and a 5% off coupon at launch.com. Tether claims to be a stable coin. A stable coin is a virtual currency aligned with another asset. In this case, the U.S. dollar. And Tether claims they have a one-to-one ratio. Every tether equals a one U.S. dollar. That's the claim. And Tether currently has the third highest market

cap in all of crypto at $63 billion. Bitcoin is number one, obviously, at $750 billion, and Ethereum number two at $300 billion. Phil Potter, one of Tether's founders, founders, owners called Tether PayPal for the blockchain in an interview with what Bitcoin did in 2019. Tether's virtual coins are supposed to represent actual money and that you can redeem them at any time. And the idea is that stable coins would help build liquidity into crypto exchanges. What's a crypto exchange? That's a website where you can buy and trade cryptocurrencies like Coinbase. But there are many, many more coinbases in the world, and some of them are regulated in a very

deep, considered up and up fashion, and some of them are the Wild West. Basically, no different than, you know, Russian BitTorrent sites or, you know, unknown gambling sites on the web. So on the web, you could have very well-known e-commerce stores like Amazon, and then you could have really Fugazi ones that are selling, you know, counterfeit product. You could have the dark web and you could have the light web. You could have, you know, Bank of America in the same place you have some of these crazy crypto exchanges. And so simply put, if a crypto exchange cannot work with a bank and many of these Fugazi, shady, underground crypto exchanges,

which can be built with off-the-shelf software. You can buy white-label software, from what I understand, to just turn on your own exchange. Then you can pick your own rules, and you can have no office, and you could do this with a small number of people. In fact, one of the claims is that Tether only has 13 people. So if you were one of those exchanges

and you don't have access to bank accounts, you can accept Tether, because you know every Tether is going to be $1. It is pinned, and it doesn't change. Now, Bitcoin, it changes radically. You could have bought at 63 and then it went back down to 31. Now it's up to 40 and it's going to go all over the place. And that's a feature, not a bug, right? People are buying Bitcoin specifically because they want to see it appreciate and they want to take that risk. Stable coins, the opposite. So you have the Fugazi exchanges in the world that are doing money laundering,

ransom, dark pools of capital are trading with tether because they're stable coins and they don't have access to real banks. They don't want to do things like Know Your Customer, K-YC. And of course, all this pumping and leverage, that's all done by the Fugazi crazy exchanges. If you want to buy what they call alternative coins, before those alternative coins, get onto a Coinbase, which has a process for putting them on, which we talked about in the XRP episode where XRP was supposedly the company Ripple was trying to pay off exchanges to list them including Coinbase and

kind of trying to give them millions of dollars allegedly in the SEC complaint to get them to put it on the exchange. That's how valuable it is being on a real exchange. And the ripple episode, by the way, is 1156. So that's where these tethers come in. All these underground casinos exchanges are using tether. So people buy tether and then they make their trades. So currently there are over 60 billion tethers in circulation, according to our research on the web. And this is a very opaque space. and they should have $60 billion in USD to back it up. And that is according to Tether. At the start of 2020,

there were only 4.8 billion Tethers in circulation. And then from May 2020 to late May 2021, Tethers' year-on-year growth was 5801% from 8.8 billion to 60 billion, eclipsing that of all the rival stable coins combined, according to market intelligence from Mondo Vizion, whatever that is. Tether's daily trading volume, exceeded $195 billion in late May, according to Coin Gecko.

And all of this led to the New York Attorney General saying, what is going on here? And they started investigating in April 2019, the New York Attorney General's office sued I-FINIX, I-F-I-N-E-X, the parent company of BitFINIX and Tether, which people didn't know with the same company. They sued them in April 2019 for covering their losses. So from 2014 to 2018,

BitFinex allegedly placed over $1 billion, crypto capital because it was unable to find a reputable bank to work with. Crypto Capital was the Panama-based fiat banking platform that allowed users deposit and withdraw funds to fund cryptocurrencies. If this sounds familiar, this is a lot of what happened in poker. There were all these pop-up exchanges and ways to get money into bank accounts. Crypto Capital was then either lost or fled with 850 million of Bitfinex's money. This led the New York Attorney General to sue IFinex, the parent company of Bitfinex and Tether in April 2019. And they basically alleged that iPhonex had been co-mingling, basically blending client

and corporate funds between BitFinex and Tether to cover up the missing 850. This is exactly what happened with Fulteil Poker, according to different lawsuits, that they were co-mingling the customer accounts with the corporate account. So in other words, they were allegedly dipping into Tether reserves to keep the crypto exchange Bitfinex solvent without alerting investors to the issues. This is classic, classic fraud signaling. A lot of times you'll have people who manage other people's money and they are then gambling or, you know, buying stocks or doing other kind of behaviors with their client's accounts, which are not supposed to touch. So Bitfinex and Tether recklessly, this is the quote, Bitfinex and Tether recklessly and unlawfully covered up massive financial

losses to keep their scheme going and protect their bottom lines. Said New York attorney, General Letitia James in February. Tether's claims that it's a virtual currency that was fully backed by U.S. dollars at all times was a lie, said New York Attorney General Latisha James in February. So Bifenex and Tether Group said they admit no wrongdoing and they settled this claim and agreed to not do business in New York. So this is the red flag of red flags.

You already have one major jurisdiction not allowing them to participate. In May 2021, Tether provided a breakdown, and part of that settlement was also to produce some transparency, which the transparency does not feel very transparent, and that's what's causing the latest round of, is this actually a scam? Is this some sort of Ponzi scheme? Is there something Fugazi going on here? And because if you're, if Tethers are used for nefarious uses in part, like these crazy exchanges that can't get banked, that means tether is. kind of like poker chips from a casino that has loose ethics or morals and they're being used, you know, to buy and trade in other services and or, you know, items.

So there's something weird going on here. These quarterly reports were a term of their penalty with the New York Attorney General. So it's super unclear to people what's going on in these reports. And that's what's causing the latest brouhaha, if you will. Dell for Entrepreneurs is here to help you with all your hardware and software needs. Here are some of the exclusive benefits for Dell for entrepreneurs members. Entrepreneurs get free, expedited delivery, exclusive offers, and up to 6% back on rewards. You can finance your IT project with Dell financial services.

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Go to launch.com slash down. Launch.co. Go slash D.E.L. and sign up for a free IT consultation. and that 5% off coupon. Okay, let's get back to this amazing episode. So in May 2021, Tether provided a breakdown of their reserves from March of 2021, which included just under 30 billion or 50% of reserves in what's called commercial paper.

Now, commercial paper is a very, another opaque pool of capital. So now we've got like all these different weird opaque pools of capital. We have a settlement with the New York Attorney General and commercial paper. are basically short-dated investments similar to cash. So this would make Tether with $30 billion in this commercial paper, the seventh largest holder of short-term debt in the world. Let's let that sink in. So Tether is suddenly the seventh largest.

This is according to the Financial Times, which has now got their teeth into this. And another 18% is held in fiduciary deposits and more than 12% is in secure at loans. And nearly 10% is in corporate bonds funds. and precious metals. Cash made up only 2.9% according to the company's disclosures.

JP Morgan analyst said that Tether's large commercial paper holdings may suggest they're struggling to find a bank willing to take its cash as a deposit due to reputational risk concerns. So nobody knows what's going on here and then in the commercial space, people don't, in the commercial paper space,

the financial time stories was saying, hey, nobody knows who these people are, nobody sees them, And that's kind of weird too. And this relates to Bernie Madoff, where you had years, years of people shedding a spotlight on Bernie Madoff, and it took maybe seven,

eight years for the Bernie Madoff fraud to unravel. And one of the reasons it unravel was people are saying, he's getting all these like really consistent one to two percent returns a month. And it was too good to be true. And nobody sees any trades. So if he's got this much money and it's the largest hedge fund and, We're one of the largest, where are all the trades? And now we're having a similar moment here.

Now, again, we don't know. That's why we're calling this a this week in startup's investigation. So their alleged crypto market manipulation has been covered for years, including Financial Times, CNBC Coin Desk, and individual citizen journalists like BitFinext, which is a Twitter user and Amy Kasser, which will probably have them on the podcast soon, maybe do a little in depth with some of the people who are obsessing over this.

And typically whistleblowers are weird people. There were weird people like John Kerryru who just fought and fought. I don't want to say weird, like, as in not sincere in any way. But they're unique individuals who, when they see a fraud, want to just dig in, dig in, and we'll get into that part of this archetype, because there is a pattern here with scams. And that's a big part of what this investigation will be about for us here on this weekend startups. I did a tweet about the issue and about Bernie Madoff specifically, and I basically quoted from the Wikipedia page in 2000, 2001, and 2005,

Markopoulos alerted the SEC of his views, but each time the SEC ignored him or gave his evidence only a cursory investigation, Madoff was finally revealed to be a fraud in December of 2008, when the market collapsed and people tried to withdraw their money and couldn't. So is this going to be another pattern where Tether hits, some sort of moment where everybody wants to redeem, let's say there was a really massive collapse in, you know, the stock market and then it had a ripple effect to the crypto market or vice versa. The crypto market went down. Who knows? Any Black Swan event creates a contagion,

and then there's a run on Tether. Could that be the moment we find out Tether is a total fraud, scam, or shady in some way? We know it's shady already, but is it a fraud and is it a Black Swan is the question we're going to try to answer here. I need your help with that, obviously. So you can just at TWA startups and at Jason on Twitter as part of this investigation and use the hashtag Tether Investigation. We'll just make that the official hashtag and we'll all just talk about this because if it isn't a fraud, we should know. But I also tweeted about the fraud playbook. And in the case of a fraud, whether it's made off or it's Theranos, there's a classic playbook. attack the critics, obscure any inquiry, and claim you're being persecuted.

So we see a lot of the tether army attacking critics. We see a lot of obscureification of the inquiries going on. And I'm not sure if we've seen evidence of the claims you're being persecuted, like Elizabeth Holmes, Bernie Madoff, and even the founder of Nicola, Trevor Milton was our guest. And, you know, he was claiming he was, you know, like Jesus Christ being persecuted by people. unfairly. So in June 2018, Tether hired a law firm, not an accounting one, called Freach, Sporkin, and Sullivan, which attested they had $2.5 billion reserves to cover all the outside

Tethers, but this was not off-audited. And the bottom line is that audit cannot be obtained. Stuart Hoagner said Tethers General Counsel. The big four firms are anathema to that level of risk. We've gone where we think is the next best thing. In March 2021, Tether released a report done by more Cayman, an accounting firm from the Cayman Islands? Okay, no red flags there, started stating that Tethered had 35 billion in assets backing up 35 billion in Tethers. And this was not a full audit either. It didn't say what the assets were that covered this. Different folks on Twitter have already come back to me. There's a lot of theories here. We don't know which theory is true. We don't know what reality is. So this is a process. But Jacob King said, how the scam works.

can be printed, can print infinite amounts of worthless USDT. They can then inject this into Bitcoin, Ethereum, Lycoyne, and others to cost prices to pump. Notice how during the months they stop printing tether, the market moves sideways or dropped significantly. And this is, you know, and he put a chart there, where it shows when tethers are printed, you have this big spike. Now, I've heard a bunch of different theories here that when there's a dip, the tether folks want to buy, and that causes the market to go up because they're, buying, right? And so there's demand. Or that when it dips, they're doing this to pump the,

you know, to the value of Bitcoin, Ethereum and other things. And so this is going to be part of the investigation. It was originally, when you look at the background, sometimes that tells you everything you need to know that this is not rocket science. Tether was originally called Real Coin. It was started around 2012 and launched in 2014 by Brock Pierce, who I know, who is an eccentric individual. I would call those friendly. We've known each other for 20 years, but he has a bunch of strange things in his past. I'll leave it at that. And shortly after the launch, RealCoin rebranded as Tether and partnered with the

crypto exchange BitFinex. And to understand Tether, you need to understand the Bitfinex relationship. Bitfinex and Tether are both owned by a parent company called IFinex. Okay. Now, this is usually when there's a shell game going on, that's another red flag. Might not be, but the red flags are piling up here. and that is run by three characters that I think the consensus is that they are shady at best is kind of the vibe I'm getting from Twitter.

I'm not sure if that's how I feel. I've never met them, but they've all been MIA for about two years. And this reminds me of Elizabeth Holmes just being unwilling to show the technology. The CEO, J.L. van der Veld is a very secretive person, no interviews, no public appearances. The chief strategy officer, Phil Potter, he worked. at Morgan Stanley, the 90s lost his job

about bragging about his lifestyle according to a New York Times reporter and the CFO Giancaro DeVazini he was caught pirating and selling Microsoft software in Italy in 1996 and it wasn't like a small amount of pirating. There were over 25 counterfeit discs

that were seized. And so it's a super complex org from the New York Attorney General when you see these super complex organizations, again, a red flag. but the short shows that IFinex, Tether, and Bitfinex all have some group of shareholders in common. And Biffinx itself has been hacked at least three times. And in 2016, claimed they were the victim of the second largest hack in Bitcoin history.

So at the time, Bitcoin was at $580 and the stolen Bitcoin is worth $70 million. And that would make them worth almost $5 billion today. BitFinex never reveals the full details of that breach and they were unable to absorb the losses of a hack and announces all the customers will lose 36% of their assets to cover the losses across the board. In return, customers receive an IOU in the form of BFX tokens valued at $1 each, according to New York Times,

Nathaniel Popper, Coinbase got a better deal after threatening to sue Bitfinex. So it's all super complicated. We're going to need your help to unravel this. It's going to take time, just like, you know, the Elizabeth Holmes, Nicholas Aga, Theranos, all of these things. And Ron, they took years to sort themselves out, sometimes decades. Who knows if this is a fraud or not?

Who knows if this is a Black Swan or not? But let's try to figure it out together. Use the hashtag Tether Investigation and make sure you at mention TWA startups or at Jason. Let's do a little investigation here, make it a public investigation, and we'll open sources if Coffeezilla told me he's reporting on this in a recent episode or he's going to report on this. A lot of people, Financial Tams is obviously on it. A lot of people are talking about it. Let's just try to be a center of excellence to figure this out. And let's hope it's not a fraud or that if there are misbehaviors here, that it doesn't result in a contagion and a block swan-like

event. Okay, on to the episode. Today, many small business owners are busier than ever, don't I know it? And because they're so focused on managing and growing their business, they can't always spend time on one of the most critical functions. Some might argue the most critical function at any company recruiting. That's why LinkedIn jobs has made it easier to find and hire the best candidates for free. I can tell you I have had a tremendous experience finding amazing talent on LinkedIn because they put the jobs you're trying to fill in front of the right people, both active searchers and passive searchers. I have landed some amazing talent who weren't actively looking for a job, but LinkedIn put something in front of them that got

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And one of the most innovative things going on in the world today is alternative assets. What are alternative assets? Well, they're assets that maybe aren't traditional like the stock market, bonds, and the home you live in. When people talk about your assets, assets and asset classes. They're typically talking about those three things, maybe cash, maybe gold, or some other things in there.

But I think even gold might be considered an alternative asset. Well, one of the things we've all learned is that there are classes of investments that are much different than stocks, and stocks might be overheated. There's only 4,000 or so public companies. We have half the number of private companies than we had just, I think, two decades ago. What does that mean? for investors looking for a return on their investment.

It means they might need to look other places because those assets, like buying Amazon or buying Disney at this point, they might be fully valued or some might argue overvalued. Also, alternative assets bring with them rewards that may be non-financial. If you like to collect baseball cards, comic books, cars, invest in real estate, art, or startups, you might get an absolute joy out of selecting what car, classic car you're going to buy, or which piece of art you're going to invest in, or what startup founder you're going to get to meet next, or which real estate you're going to get to own a piece of and be able to look at it

and just enjoy architecture or maybe renovating it or being a landlord, etc. So I thought we'd do an alternative asset roundtable because I run something called the syndicate dot com which allows 8,000 people who are accredited investors to ingress in startups with me. And every month I share six deals and we get a ton of joy out of it. But a group of people have been doing something similar. And we have this parallel existence and I've had them all on the podcast. You know, you've seen them before. But we've never had a roundtable.

So we're trying something new today, just a little roundtable. and with me today is Chris Bruno. Chris, of course, is the founder and president of Rally Road. He previously ran Spotter from 2013 to 2018. And if you don't know about Raleigh Road, they sell shares in collectible assets, such as cars, trading cards, memorabilia, whiskeys, wines, watches, and more. And you can watch my interview with him on episode 920, a couple of years back. And they do this for any investor, both retail and accredited.

Welcome back to the pod, Chris Bruno. Thank you, Jason. Am I accurate in terms of my description of Rally Road? I thought it was fantastic, just as good as it was a few years ago. Perfect. So we understand what we're talking about here. How many offerings have you done on Raleigh Road? And I think you've been around for three years now or four?

We've been live for about three, a little over three years now. We've done upwards of 300 initial offerings at this point, across about 15 asset classes. Love it. So 300, three years in 30 months. It means you're doing about 10 a month. Fantastic. It means you're doing two or three a week. Also with me, I'm really fascinating guy.

I got to have a drink with when I was in New York right before the pandemic. Scott Lynn, he is the founder and CEO of Masterworks, which sells shares in Blue Chip artwork from people like Banksy, Picasso, Warhol. And again, retail and accredited investors. He was on this weekend startups on episode 2087. Scott, how are you doing? I'm doing great. and you're still in your beautiful

is that your loft or your office this is my home I mean my lord that looks like something out of like a Brad Easton Ellis novel or something look at how gorgeous those windows are your downtown looking uptown is that what I'm seeing downtown looking downtown oh downtown oh yeah

okay is that the Woolworth building behind you I think yeah it's all the Woolworth building yeah now how meant you launched or started selling I think it was between two and three years ago. Am I right? On the platform? Yeah.

I mean, I think when I was less on the podcast, I feel like we'd only done a couple of paintings at that time. I think it was one or two. So how many have you done so far? Yeah. Yeah. And I think we're up to 60 something now. 60 paintings.

These are all one to $20 million paintings. Amazing. The combined value of those 60 is getting close to a billion dollars over half a billion? No, no, no. I think it's like, I think A.U. right now is around 175. You know, this year we buy 400 million in art. Wow.

So you're at 175, but you're going at a break-neck speed. If you're even hit 400 million under management, means you're adding $10, $20, $30 million worth of art a month? Yeah, we're at about $30 million a month now. That is extraordinary. In terms of collectors, how many collectors in the world are adding $400 million a year to their collections? I mean, we, you know, we don't know.

In the art market, there's different types of buyers. I mean, we think we're the largest buyer, but there's this community of people that buy $100 million paintings who you probably heard of. So they may spend more. But we're probably a top buyer at this point. Remind me to ask you when we get into the roundtable about that Picasso or maybe Picasso of like the Da Vinci one or whatever it is,

that billion dollar pay tape. You can tell you're clearly not an art guy. Whatever that one was, I saw it in person. It looked terrible. It was like muddy and what is it? Which one was that? What painting was that?

The Da Vinci Salvador Bundy. De Salvovary. Yeah. And yeah. Not a fan. Saw it in person, but somebody paid a billion dollars for it or MBS, maybe paid $500. But I want to know all about that and how that happened.

And then for the first time on this week in startups, Ben Miller, who is the co-founder and CEO of Fund Rise, which has been around for a decade doing private real estate investing. Again, both retail. and accredited. Retail means you make under 200,000 a year, have under a million dollars net worth in the United States. Where they're about, you can look up the accreditation laws, which are changing, which will be one of the topics we'll discuss today.

Ben, welcome to the pod. Hey, hey, nice to have me. It is nice to have you. Yes, I agree. So tell me how much real estate you bought in the first half of this year. In 2021, what was the first six months like? How many offerings do you do? and what's the total value of the assets under management?

What did you do this year? Just give people a ballpark. We're probably buying about $100 million in real estate almost a week. What? Wow. That is truly significant. Yeah. I think we're the 20th largest real estate investor in the world back to this point.

Okay. So something is happening here in terms of the scale of this. Let's start with scale. Just going around the horn here, we had the pandemic, which meant people were staying home. We had the stock market becoming overvalued. We had stimulus and we had people's appreciation in the stock market, maybe making them look to make other bets.

How is the pandemic impacted everybody's business? I'll start with you, Chris, then go to Scott and then Ben. Chris, how has the pandemic changed things for you, if at all? I mean, it's been a dramatic change truthfully. You know, I think one, all of the trends that you're talking about are exactly right. So putting a focus on alternatives, I think that younger people becoming more self-directed and being excited about investments that resonate with them on a personal level has become more important. And then I just think attention, right? So there's, you know, there's such a, there was such a lack of

other things to do that focusing on a lot of the old hobbies, a lot of the things that people are excited about, a lot of nostalgia, doing things with the family. I think that became a learning opportunity as well as one for, you know, deploying capital in different ways. Maybe if it's not it on experiences, it's on things that, you know, resonate and feel experiential, but are, you know, net positive in terms of your, you know, your portfolio and your investing sort of, you know, competence. So it put a lot of attention on us and it's been, it's been, you know, triple digit quarter over quarter growth since sort of the beginning of the pandemic. Wow. So doubling quarter over quarter or more for your business.

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Go ahead and create account and receive a $100 credit right now. Are the assets themselves becoming more expensive, much more expensive? Let's talk a little bit about inflation there because we have fears of inflation, we have money printing going on, and is that also hitting the asset classes?

In other words, things that you may be syndicated, to use a word, in 2019, did they see massive appreciation by 2021? Yeah, a little bit different. We're in a lot of different categories, so different categories have sort of scale to different rates. Which one the most? You know, I'd say over the last year, sports cards and trading cards, sports collectibles has just been an insane place of growth.

So that really is seen probably the largest sort of. of uptick over that period of time. You know, comic books actually just an incredible category, rare books also that goes with it. In the last week, we've exited, I think, four individual comic books off the platform. You know, returns that sort of range from, you know, 10% on the low end to 40% on the high end in, you know, carrying times of three to nine months. So those are- How do you make that decision to sell after just three to nine months? Or is that you're saying people partially selling and it's still staying on the platform? No, no, these are full exits off the platform.

We integrate that decision making with the syndicate, you know, you to use your terms. So we poll our entire syndicate and get a taste for how they're feeling at any point in time and, you know, leverage that information very heavily in our decision to liquidate an asset. So, you know, that's been a- But you still ultimately make the decision and everybody in the syndicates along for the ride. Correct. And they trust you to make the great decision. So if they wanted to stay in it and you force them to take a 40% profit, forced them using air quotes here, because they agreed to do this, but to trust your decision making,

they just have to live with that. They're going to get the 40%. That's right. And not just our decision making, right? We have an incredible advisory board, people in that given, you know, in each given verticals.

So there's a lot of thought that goes into it, a lot of data that goes into it. Instead of selling out one of those comic books that went up 40%, why not put those shares up for sale to the rest of the Raleigh Road audience as opposed to clearing them completely? That's a lot of what's happening.

So our secondary market is pretty robust. point in terms of transacting in the securities, good price discovery, et cetera. I think that's an interesting feature. You know, it's one that's funny that we were talking about last week is, you know, in the case of an exit, perhaps there's a way to keep the people who who want the asset in the asset and keep the people who don't want the, you know, don't want the, who want the liquidation event to get that as well. So it's a really cool feature that we're actually kind of whiteboarding as we speak.

It's an interesting feature because you as the platform could charge a fee for, you, you would get carry on the 20, you would get, I'm assuming, 20% carry when they sold their shares? We don't charge any carry or any management fees on money under management. So it doesn't work. So you just get money from when you originate the deal. We get money when you originate the deal. And we also invest in every one of our deals to be aligned with our community. So we're happy, you know, to see positive returns when they come across the platform. The interesting thing in the venture business is if I was to sell some shares to other syndicate members, so if I had late stage syndicate members, members and the early stage ones wanted to sell their position in calm, let's say, I would get the 20% carry on that.

And then when the late stage folks sold again, I would get carried twice. So it would be a way to get the twice. And I would have earned that because of having set that up. Scott, what are you seeing in terms of appreciation from the 2019 class to 2021? Obviously, it's been bonkers. And then people seem to be understanding art as a class more. Is that correct? Yeah.

I mean, I think it's still very early days for understanding art. I mean, we have the leading research team in the art market to understand returns, correlation, etc. We published the first report of the city in 2019 on correlation between art and other asset classes, you know, concluding it's effectively an uncorrelated asset class. But most people's understanding is very, very early. If you look at art overall, and we specifically focus on what's called contemporary art, which is our created up to World War II, that segment has appreciated a 14% year for the last 25 years.

And it has a relatively low amount of volatility overall. So, you know, it pretty much appreciated it that during last year as well. So we haven't, you know, as a business, we've obviously seen the same thing that I think other platforms have, which is kind of a surging demand from retail investors to get to know the asset class or the asset class invest in specific offerings. But, you know, the asset class, at least from our perspective, continues to be pretty steady and perform pretty consistently.

How do you get paid as a platform? Our management fees are like yours, which is a 1.5% per year management fee and then 20% carry when the painting sells. Got it. So if you were to buy this $10 million dollar pating, one and a half percent, 150k a year over 10 years, $1.5 million. and does it cap out at a certain point or is it for every year? It doesn't.

I mean, you know, stating, maybe stating the obvious, but art doesn't produce income, right? So the way that we earn that one and a half percent fee is by issuing ourselves equity in the painting. Oh, got it. So we get shares in the painting for our management fee and then we get 20% of the profit when the painting sells. So if you hold on to it, you would own 10%, then you sell it. You would get 20% of the 90% if it doubled in value and it was a $10 million painting. you would get to 20% of 9 million, you would get that 1.8 million

and the investors would get the other 7, 6.2 or whatever it is, or 7.6.8, I think. 7.2. Yeah. I'm doing math quickly here. So that's a really great business for you because that one and a half gets you more ownership and then that keeps you aligned

and you'll make a great decision if you own 10% of the painting 10 years from now. Are you seeing people trade shares yet? Do you allow people to trade shares on the platform? Yeah, we launched trading markets actually during COVID. So we now have, I think it's still relatively small, about 20% of our investors with trading accounts, so something like I think 12 or 15,000 investors have trading accounts now.

So we're seeing good liquidity in the trading market, slowly growing over time. We always tell people to think of these still as three to 10-year, illiquid holds. But now there is, there is real activity on the secondary market so people can't get out, get out early if they want. Has anybody asked you, hey, you're going to do 400 million this year. Can I give you $4 million and be one percent of that? I'm thinking like an institutional investor of family office. Have you had those folks come in and say, listen, we trust your judgment. You pick what 40 pieces you're doing at a million dollars on average each or 20 pieces at $2 million,

whatever, or 10 million, whatever your number is that you're doing, we just want to have a percentage of what you buy this year or just put 10 million into it. Yeah, so we, like I mentioned, we have the leading research team in the art market. We've been working with firms like Goldman, Morgan Stanley, Bank of America, separately Merrill, separately U.S. trust, HSBC, just a long list of private wealth firms, as well as institutions to understand the asset class. Most research teams within these firms have have no idea how to think about art at this point. So we've been doing that for a couple years now. And I think a lot of those conversations are starting to lead to maybe conversations

around, you know, some sort of white label product to those firms. But I think we're, I think we're still a ways out from institutions in particular really recognizing art is a strategic asset class. Got it. Okay. And then back. I assume in the real estate market coming around the horn here, if you were in 2019 commercial real estate at the peak, you got slaughtered because of the pandemic. And then if you were in residential, you got absolutely, you know, incredible 30, 40, 50 percent returns over that two-year period. What's it look like in the real estate space? Right. So we were in residential. We have something like 18,000 apartments on our platform across the Sunbelt. So we got ahead of that

wave. And we're also now in single family rental. And so it's actually the pandemic whiplash that we're seeing. So we did pretty well during the pandemic. There was a lot of sort of normal, it was almost normal growth across the portfolio despite the pandemic in the Sunbelt for residential. And then at the end of it, it just has gone crazy.

And you're seeing like whether it's homes or apartments, rent growth, rent growth, organic rent growth, 10 to double digit. Year over year or over the two years? No, I mean, literally like, in the last 60 days. Wow.

What do we attribute that to? I've read this Wall Street Journal's story that a lot of private residences were getting bought by investment firms who are overbidding. Is it that there's just that crazy housing shortage? Or is it that rich people are buying two or three homes during this madness? And we're seeing inventory shrink even more. What's happening? It seems to be a confluence of factors.

So we're most focused on rental residential. so that can be apartment buildings or can be single-family housing that we rent. And I think it's a combination of inflation. Real inflation is actually happening everywhere. I mean, we have like thousands of homes we're buying and there's all a supply chain failure and there's you can't get a refrigerator in Texas. I mean, just absolute. So prices are up.

I think that there are a lot of people who decided to move back to the cities. Ah. All of a sudden, all of a one. So in Austin, Austin rent growth 14%. Right. In the last 60 days. 60 days. Wow.

Crazy. Yeah, it's crazy. So it's, so yeah, the key, this is like, I think all of us, you have to buy the right stuff. So if you are in, if you're a multifamily, if you're in residential in, like, uh, high growth places like Austin and Nashville and, and, uh, Dallas, like there's just been tremendous growth. And you just happen to not be in San Francisco in New York? Or did you have holdings there?

It wasn't an accident. Yeah. No, no. We got out of New York and say, Francisco. We have housing in San Francisco. We have a, we have an Dale City. We had like 150 home development. But it was just too expensive. We always just felt, we felt like it had gotten crazy and we just got out and sold everything back in like 16 and 17. So, I mean, prices matter. Yeah. Entry price certainly matters. And this is something we've been talking a lot about with our

syndicate. We've seen startups, you know, we invested in com, thumbtack, and Uber for 15 million million dollar valuations combined. Five million, four million, five million, I think. And now we're seeing people with less traction than any of those three startups have asking for $20, $25 million caps. Now, the exits are much larger, but, you know, if you look at the entry price, it actually makes more sense for us to wait until they get to product market fit and then pay, you know, $40 million, then pay $25 million when they haven't even launched

the product yet, or they're just in beta. I do think entry price matters. And I think looking at comic books cards that have appreciated massively, how do you start thinking about this inflation? Is it scary now to, you know, Christopher be buying cards or comic books at this time? And then how do you deal with that disconnect where you're selling in one case? Because you've had this massive appreciation, but you still want to build your collections and have offerings.

How do you, how do you snipe those? Yeah, and I think it's a great question. I mean, we've been very data-driven about it and very deliberate about it. And I think we've also been way ahead of the curve in a few of these different asset classes. In 2017, we were building an inventory of sports collectibles and sports cards. So a full, you know, year to two years before it really started to have its run up. We're doing that currently in some new classes that we think are going to be exciting for people and sort of have the next places where attention starts to go.

And then I think the other part is when you buy, quality. You know, I think in general across a lot of these different collectible, you know, asset classes, you see these periods of hyper sort of growth. And then, you know, maybe it gets a little bit too far, but the good stuff is really hard to replicate. And once it gets to a certain level, it doesn't tend to fall too far. So when we focus on the high quality assets, we focused on the top of the market, is less scary because, you know, there's one of few in many of these cases. And those one of few continue to have sort of perpetual interests from multi-generations across a lot of different periods of time. And that's held pretty consistently, you know, to date.

And today, I asked if anybody wanted to debut something and you were, you actually had something you wanted to announce today. So what a perfect time. Tell us, what is the latest vertical you're going to go after and you see an opportunity. Yeah. And so, I mean, for us, you know, intangible collectibles is something that I think is getting pretty exciting. And one of the first ones that that I'm excited about is actually domain names. Oh, yes. Yeah, so that's an asset class that, you know, has a lot of history of appreciation. Our cash flow producing assets, which I think is really sort of, you know, a particularly

fun, super comprehensible and definitely, you know, have some of those emotional sort of returns where, you know, it's really a way to sort of invest behind brands, companies, et cetera, and do so in a way that's correlated with the growth of that sort of category or with the, you know, underlying, you know, a company that owns the U.R. very much like the real estate business. And I think that's something that's going to be a lot of fun for us. I love the domain namespace. I still owe a mahalo.com and a day.com, A-D-A-Y-D-A-Y.com.

Well, if you're looking for some liquidity, you know, we've got some other things. That's right. You and I are working on another deal. I wanted to announce that today. I guess I can say it, right, that I'm considering putting my 16th Roadster ever made, the Tesla 16th Rooster with a new 300-mile battery pack in it on the platform and selling half of it and then you would take custodial of it

mainly because I'm looking at it as a collector I still want to have upside in it but I'd love to have another 50% of people have upside in, I'd love to get it out of my garage and just have you take care of it, not me. And then do you do the same thing where you get a little bit of a management fee

and get shares in the product as time goes on? We don't, we would purchase our shares alongside the community in the deal, so that's how we would have exposure to it. And we've been doing a really, I think great job monetizing our collection through the sale of merchandise and other sort of, I would say, like second order collectibles behind the investing. And so that's been a great

revenue stream. What's an example of that? You know, so we did the last, the last floor that Kobe played on, right, as a section of the floor. He signed it. It was the last floor he played on. And that was something where we did sort of a miniaturized version of that where investors, as they went through the process could purchase that if they got into the IPO. And so, you know, we sold, I think, you know, three or 400 of those on the back end of it. And that's a great revenue stream that actually first goes towards, you know, all the things that it costs, you know, the insurance, the maintenance, the storage. It offsets all of those costs.

And, you know, at some point I'm hopeful. And I think we've got a real line towards driving dividends from that business line for our investors. So the collection as a whole starts to become, you know, revenue generating. it already is, and then it will become hopefully profitable at some point. Amazing. And I think, Scott, you can't talk about specific offerings at Masterworks, but you did want to, or agree to tease maybe a little bit of categories that you're looking at?

Yeah. I mean, I'm happy to talk about, I guess, artist markets and how those have performed over the past year. So I think the most interesting artist market, from our perspective, has been the Banksy Market. So the Banksy Market has more than doubled over the past year. And we find his market really, really fascinating because, you know, Banksy doesn't have what we consider we define as cultural significance, meaning there aren't really institutions that collect Banksy's work. There's a dealer that he represents his market. But he's so disproportionately culturally relevant. Yeah.

So it's so interesting. So he's a pop culture icon, right? But the art market machinery doesn't really support him because. Is that because they don't have. He doesn't do galleries and he's kind of outside the system and he's an outsider? Well, he's anonymous, right? Like, nobody even knows his name. So it's difficult for the art world to really support him.

But is that because of Providence? They don't know that it's actually real or not and that that's a challenge? You know, it's not. It's interesting. There's a, there's a gallery, I guess, called pest control, which is really operated by by people that know him and are affiliated with him to authenticate all this work. So there's a good way to authenticate the work. But he's just never really been part of the art world.

But nonetheless, we've seen a lot of people who are not, what we would consider traditional collectors, come to the art market and buy Banks's work in a big way. A lot of them, frankly, today are crypto people. And we've never, you know, I've never seen that before. Like when $10 million painting sell or $20 million painting sell, they typically tend to sell to people who are already known entities are known collectors.

Got it. So we think that's a really interesting market. Yeah, it seems fascinating if you could start rounding up banksies and selling those or just anybody in that area. And believe it, people are cutting them off walls at this point.

Well, that's another thing is if you did cut a Banksy off of a wall and then try to sell it, the person who own the wall owns the wall, so you just stole the wall, but who owns the Banksy painted on the wall? I mean, it would argue that the person who owned the wall would own the Banksy then.

Yeah, the person who is that example, the person who owns the Wall owns the Banksy. Is that right? Oh my God, how crazy is that? Yeah, it's crazy right now, yeah. The Banksy is fascinating. How long has he been operating? And then are there risks with these anonymous artists? Well, so we would say yes, right?

we would say that if institutions don't collect artists, if galleries don't represent artists, they're kind of the market makers in the art world, right? They determine what's important. They determine what's culturally significant. They build deep collector bases so people, you know, people can, there's depth in the market, there's liquidity in the market. He doesn't have any of that. And frankly, Banksy also doesn't produce that much work, which is also why, you know,

you see things that are cut out of fences or walls selling for, for millions of dollars. But yeah, I mean, we think it's an interesting. Well, that's the opportunity. If it is anonymous, if it is hard to understand, that's literally my thesis for investing in startups is I want to invest in a contrarian way. When other people don't understand it and when it has slim chances of success, that means if it does succeed, it would be an extraordinary win.

If Banksy is not part of the establishment and he does succeed, the establishment then has to catch up and buy his work. And let's face it, this new group of NFT buyers and your platform is the new art market. You're creating, you know, a subculture within the art market. Are you not? Yeah. I mean, we're creating a, you know, whole new community of people who have never invested in our investing for the first time.

So, you know, if we spend $400 million in art this year, the really interesting thing from an art market perspective is that's all new capital going into the art market, which is interesting in itself. But going back to Banksy, when we first looked at his market, our research team, I think had his market, this is maybe a little bit over a year ago, at a 13% historical return. Fast forward to today, it's been over 100%.

So we saw signs of momentum, but we had no idea it was going to explode like it did. One of the great things about what you're doing at Masterworks is you could actually tell people this is, these are the risk factors. If you're buying a Monet or a Picasso, this is how it's done over this period of time. If you're buying, I don't know, a war hall, here's that short a period of time. And now if you want to be part of this avant-garde, outsider art movement or less established, well, you can take that risk and might be more risk, more upside.

It might be more risk, more risk and less upside, right? you could actually define that for people, can't you? Yeah, we can. And I'll use an interesting example. So Monet is probably the example that I like the most. So Monet's market is a top three market in the R market. Picasso is typically the largest. And then Monet and Warhol are typically second or third.

So Monet's market actually appreciates it around six or seven percent per year at this point. But his volatility or standard deviation returns is quite low. So if you look at his market on a sharp racial perspective, it's about 1.1, 1.2, which is very good. So Monet's returns are incredibly predictable over decades, which we find, we find very, very interesting. Most of our investors are looking for much higher appreciating artists, you know, double-digit returns.

But nonetheless, we think this market is interesting just because it's so large and so predictable. Well, I talked to you about this before. I don't know if I talked to this about you with you privately when we had drinks when I was in New York at the Beekman Hotel, or. if I talked to you about this on the pod, but since you have access to this and people have an appetite,

I would be much more interested in you saying, we're going to find 20 new artists and buy two pieces of each. We're going to buy 40 pieces at $50,000 each. And I would rather be part of that than any of this. So have you thought about doing a mutual fund type approach to new artists and giving us a collection of them?

Yeah, so we have a fun product coming out. over the next quarter that we'll do exactly that. It's basically an auto-diversify product across a number of our single-asset offerings. And you're right, there's definitely... I want the new ones. Give me the new ones. The highly speculative... Yeah, it's more fun too, right?

It's very hard for us. I mean, the amount of work that we spend on selecting paintings is pretty high. So, you know, dealing with the $100,000 was called Primary Market. It's just, it's, it's, see, but that's what I do for a living as a startup. With startups, I tell people, hey, listen, we're putting $500 to $3 million. These are very small amount of money, putting to very young startups with an 80% chance that it goes to zero. So we kind of just tell people that and then they can kind of work from that point forward. But, okay, I get it.

It's easier to just say, hey, Warhol is Warhol. Yeah. Ben, I guess similar question for you about new projects. Have you thought about any type of new assets? I don't know if you had one to debut today, but have you thought about new assets? There are things like mobile home parks or I'm on the board of an major investor and Blockable, which is creating their own new projects. Have you thought about buying dirt or starting?

projects or do you only have an appetite right now for, you know, establish revenue generating, you know, apartments, et cetera, and homes? And we, we go where the bottleneck is. I mean, that's how you typically money in real estate, you find where the shortage is. And so the shortage right now is supply of homes. So we have, like, partner with six home builders. And we are way up the supply chain, like three to five years out, financing land, buying land, building homes. of like 2,500 homes in our pipeline under construction. Wow. So you do that already.

And then how do you offer that as an offering? Yeah. It's part of essentially a single family rental strategy we launched just recently. When we had Goldman Sachs gave us a $300 million credit facility to sort of expand that. That just happened. And so like the capital markets are very inefficient around this part of the market. he said, like, the institutional player likes things that are known and the core asset classes are very expensive. So the ones that are sort of like office and core residential in San Francisco

in New York were pricing like $2,000 a square foot, right? And so we went off the supply chain. Yeah, I just, well, there wasn't, right? They turned out there was more downsides in retrospect. So, so we didn't, so, I mean, if you think about real estate, real estate is about huge macro trends. and so even though people think of it is... What are those huge macro trends that you look at? I'm curious. Yeah. I mean, they're going to seem really familiar to you

because they're actually not that far from technology. So remote work, I think, is going to be a huge driver real estate. Driverless is going to be huge driver of real estate. If you can live in Raleigh and buy a palatial home for 400 grand and leave New York, that's happening. And so it's driving the Sunbelt. like because I need to get the affordability we also get the quality of life

and weather so that's huge one we just launched and this is like which is why Nashville Atlanta and some of those places are just booming people can basically go to Nashville and or Atlanta and live like a king or queen and if you're doing remote work and you got a high speed connection you're good

that's the macro trend to end all macro trends forget about self-driving who knows people don't have to drive my God that's just huge. So does that mean the developers are racing to those areas? Or did the developers need somebody like you to say, hey, we have an appetite for you to build in this area? What drives it?

The developers are the sophisticated ones or the money is the sophisticated one? The money is usually the follower, for sure. I mean, money and the money even, the more institution will get, the more the money wants to actually see full lifecycle, full trades. It's sort of like, while big institutions don't usually go into early stage, they want to be in the later stage in tech. Same thing. But no, the people lead it.

That's the thing. It's not developers follow people. There's very few developers who sort of go there and say like if they build it and they will come. There's some done that. And usually they get hosed like what, you know, Caird Wharf and yeah, the sort of feed the famous stories that like usually the person who buys it from them after they've hit the skids or makes the money.

Ah, got it. So Austin, Nashville, these kind of places, you have this revolving line of credit Goldman gave you. You can work with a developer and say, yeah, let's make 100 homes or 100 doors or whatever it is in one of those areas. And then I as an individual could buy into that specific location or am I buying into a portfolio? What are you selling to individual investors? Yeah, we're buying. We're selling diversified pool. I mean, we're like, like you just said, you don't know which one.

pick and you know and reality is if we if we make 10 you know 3x in Austin but only you know one and a half X in Nashville what you want is just a stable result a good outcome so it's it's about i mean it's about making it like stocks right most people aren't stock pickers most people just invest into a diversified pool of of tech or of the whole s mp 500 if you can do that for real estate basically which wasn't really investable before we started funding rise, then you can get people into the alternative, your low cost, simple, and just easily. So, Scott, you had mentioned there's no way to make the money, money off the art. And then Christopher, you said there's actually tons of ways to make money off of some of the

alternative assets you're working on. Let's talk about that for a second. Scott, could you not take this, you know, Salvador, Mundi by Leonardo da Vinci that sold for 450 million, I know there's a bunch of lawsuits or whatever around it. Would that not drive massive amounts of interest and people paying to go to a museum to see it? And if but, you know, a million people paid $20 a year, you know, over 20 years it would pay for the cost of the painting. You make $20 million a year. I mean, look, you know, personally, I've lent paintings to museums for 15 years. I know most major museum director. And like one thing I can say is,

I don't see museums at any point in time in the future paying to rent paintings. It's just not how they think about the world. You know, nonprofits in general are very, very hard to deal with. You know, there may be opportunities to kind of rent them to commercial spaces, I guess. Lobby of a building, maybe, or some of the genre. I mean, there's been a handful of these startups in the art market that have tried it. You know, nobody's been successful. Nobody's really around today.

So I think there's, I think there's limited. opportunities, but we tell investors to assume that there's not at this point. But why wouldn't, but you have $400 million in art a year. Why wouldn't you create the Masterworks warehouse on the west side of Manhattan or in Brooklyn and allow people to come for $25 and have lunch and coffee and go see all these masterworks? Yeah, I mean, in New York, it's just, you know, you can go to the Whitney for free, you can go to the Met for free, you can, you know, I just think it's a, it's hard to cover operating expense with that business model.

Really? I don't know, man. It seems to me like some city who wanted to have more art in their city would just absolutely pay a ton of money to do this. What is your experience being Christopher over at Raleigh Road? Have you thought about, you know, I don't know how many cars you currently own, but how many cars do you currently own? And at some point, can you make a museum? ZM of cars. So we own about about 50 or 60 at this point. Got it. And they're like, you know, I think what Scott said is right, you know, like the business model has to make sense. We've seen the most, we've seen the most traction in sort of digital offerings and these sort of second order collectibles. And, you know, I think with the type of investors we have, the type of categories we're in,

there's a tremendous amount of demand for that, right? So, you know, we've got the, you know, the PSA 10, Wayne Gretzky rookie card, right? And, you know, I think we, I think we did our initial offering at around $800,000. A similar one just sold for three plus million dollars, right? And they're just so far out of reach for the ordinary person that having something to go with that investment,

I think, you know, really resonates. And it's something that, that we've seen people actually building a secondary market for the merchandise that we do alongside, you know, some of these offerings. Could you make a T-shirt of that card and put the R-A-Roe logo on it or do you not have the right to do that? Because that was one of the questions I had about NFTs. People said you own this NFT from people for whatever, 50, 60 million bucks, but you can't monetize it in any way.

Yeah. That seems crazy to me. What about baseball cards and, you know, cars and so like that? If you own that asset, you could charge people to come see it. Can you make a, could you make a t-shirt or a mug out of it? We don't charge people to come see it. We actually do operate. We'll pre-COVID and we'll be reopening soon a retail experience here and so-oh that we get people to come in.

We do exhibits and openings around each of the assets. But it's more about community than it is about monetizing that sort of, you know, that traffic in any way. And, you know, in terms of the monetizing the underlying assets, things like cards are a little bit more challenging because there is, you know, somebody with rights to those images. So somebody who took the photo owns the right. you don't own the right. Correct. So that a derivative work would not be a problem. But we do,

we do things that are original works of our own that are emblematic of it. And they are, you know, very highly valued by the community. So I think that's something that that's just been a great part to build, you know, the shareability of the platform, something that's great about letting people feel,

you know, a bit of that emotional return that you were talking about earlier that goes along with the financial return. And I think that's a lot about what collecting's about. And I think it's a lot about why we built this platform was to, you know, to open up those experiences to just such a broader group of people. So this is where I think domain names will be great for you because there is a business in leasing domain names and lease to buy. So if you buy a domain name for a million bucks, you can lease it to somebody for 10K a month with them having the right to buy at any time in the next whatever four years for 1.5 million. And you basically get two swings at the bat in order to make money from it.

I guess that's sort of what you're thinking, yeah? Exactly. Exactly right. Yeah, I'm super excited about that. Fascinating. And so when the market corrects, we could see people wanting to sell their shares or assets deflate maybe. How are we preparing people for that?

Ben, do you do any kind of, you know, sort of education for people of like how to look at the, you know, the ups and downs of real estate and how prepared are they for a pullback? I mean, the growth in sort of the monetary base rate, the quantitative easing they're doing, that I don't think they're going to take that money away out of the system. And so, you know, real estate is a real asset, and it typically tracks with inflation. So it's a good inflation hedge. So I don't, I would be surprised if there is a pullback in real estate prices. I think actually it's more likely to see a momentum in inflation.

and we see like a new ambient higher inflation rate. We're basically currently in negative real interest rates. And we borrow, we're borrowing, we bought an $82 million apartment building a couple days ago. We borrow 1.75%. What? Over what time here? It's floating.

Wow. So, so, and I know. Is that LIBOR minus one? Yeah. So, yeah, CPI was 5% this month. Explain what that means? rate. Oh, so the consumer price index basically how what the feds, what the government says the rate of inflation is. I don't know. I don't really believe it, but it's at least what the,

what the report is. You don't believe it that it's, it's probably higher. I think it's, I think it's been higher for at least the last 10 years. I mean, that basically there's just so many things. I mean, who in their life has school, nannies, housing that's actually getting less expensive? Like, not nobody. So I, I'm a little bit skeptical of the sort of public published numbers, but if you have a publicly published number of 5% inflation and you're borrowing at 1.75, right? Your negative, your interest rate's actually negative, like the bank's literally paying you to borrow, in that case, $50 million. So that's like a really good way to make money is to borrow at negative rates and then have 10% rent growth. Yeah, an absolute no-brainer.

As you guys get to scale, I'm curious, what are the opportunities if your business was doing 10 times the volume and 10 times the membership you had today? This is something I've been thinking about because over the last six years, the syndicate.com has grown 10x. And we've had to increase the number of offerings because they're filling up too quickly. And we've had to ask for additional allocations. I think we did six deals last month. Maybe this month we'll do eight deals. we're trying to hit consistently 10 deals per month in order to service those 8,000 accredited investors.

So just going around the horn here, Scott, if your business was 10 times bigger, could you be buying $4 billion in art? What would the world look like then? And do you think that's the reality over the next 10 years that you'll be doing 10 times what you're doing now in terms of the footprint? Yeah, so to us that that seems possible, right? Like, it's very surprising that we're still the only player that provides investment products in the art market, right? So we tend to think about our website community as a version 1.0 to helping investors gain access to the asset class.

But eventually, as you mentioned, fund products and other products sold to different types of distribution down the road to scale the business. So I think, you know, I would think of art. A lot of your listeners are very familiar with Bitcoin, right? So I would think of art as somewhat similar in that a lot of these artists have passed away. There's a finite supply of art left. And, you know, $4 billion out of $60 billion is maybe not hugely significant to the art market. I mean, it's very material. But to individual artist markets, it could be very, very meaningful.

So you could see prices rise depending on individual artists markets that we back as more capital comes in. And, you know, it's, I mean, a lot of these paintings that are buying today for one or two million dollars. We can definitely see those artists being $10 million plus artists in the future. So I think that's, I think that's just the reality of it is more and more capital comes into the asset class. And same question for you, Christopher. If this goes 10x from here, what would the do you think the business can go 10x from here? And then what would that enable you to do? What would the, what would the world look like for you? Most definitely. I mean, you know, we're in a lot of different asset classes. And collectively there, there's a tremendous amount of market cap.

there to be, you know, to be acquired. I think the other piece that's interesting is the exit market, right? So, you know, we're not only acquirers of things. We're also exiters of things. So at a certain point that may start to balance itself out where things go back to private owners and, you know, at the same rate almost as things are coming onto platform. But, you know, in terms of us, we're super focused on secondary market as well. And so, you know, the model is really predicated on seeing a substantial amount of growth in secondary market transactions, right? Like, you know, I think what Scott said before is right and probably about the same on our platform is we're seeing, you know, 20% of transaction volume happening in the secondary

market. You know, if you look at, you know, NASDAQ or something, you know, different types of financial marketplaces, you know, the turnover is, you know, 100x in a year, right, compared to the market cap of those markets. So I think that's, there's a lot of room for growth in the, in the transaction volume without necessarily having to grow primary issuance at some exponential rate forever. Yeah, I mean, being able to buy bigger and bigger assets is a way to have more liquidity as well in the marketplace.

So we went from a thousand dollar or maybe a $2,000 minimum on the syndicate for accredited investors. Now we're making a 4K because we can only have 250 investors in an accredited offering up to 10 million. And we've started to hit, you know, $2, $4 million, I think we've done a $3.7 million. million dollar deal. We had six million in demand, but, you know, we have a cap of 250 people. So we've had to raise the minimums. And that's another way to deploy more capital and have a bigger impact. And then I guess I'll end with you, Ben, on just how much growth is left in this

business for you. Right. I mean, like what I think others were saying, it's still early. The idea that a direct investor platform is how people will invest in real estate is how every other sector, e-commerce, you know, insurance. It's just the, it's just the transformation of how new demographics will, will enter an industry. So if I think about where we are now, 20th largest real estate investor in terms of deployment a year, you know, I think we'll be a third biggest real estate investor, you know, within maybe three years, three, four years, not far off. And the market penetration, right, number of people who own stocks, 100 million people own stocks, 16 million people own like a home that they rent. And so we have 170,000 active investors,

right? So to 10x that, it would still be a pretty small market penetration. Absolutely. Yeah. I mean, there's no reason we couldn't 10X the syndicate to 80,000. We have 8,000 now. I think probably Angelus probably has something in that regard. And I think Masterworks, you have 100,000 members or I don't know how many active? Yeah, 100. I think 170,000 now. Oh, wow. Amazing. And then how many people on Rally Road? I don't know. if you talk about that number, Chris? Yeah, about 300,000. Amazing.

And then how many of those are active? In any given month, you know, 30, 40%, percent. That's extraordinary. All right, listen, this has been amazing. Great alternative asset roundtable. Let us know if you liked it, you had to get in touch me, Jason at calicanus.com.

Highly recommend. Really getting educated on this class and spending a little time on masterworks. I.O. RallyRod is, are you rallyr-r-d.com? REL-R-D.com. Got it. And then Fundrise is FundR-I-S-E-com, correct?

Correct, funrise.com. There you go, funrise.com. Go check out the platforms. If you want to join mine, it's the syndicate.com. You can sign up if you're not accredited for now, but we don't do not accredited yet. But we might in the future. We're watching that. Accreditation laws might change as well.

And that's something I think everybody's monitoring, yeah? Absolutely. Yeah. Could be a big impact. other countries. Anybody can in London, where in the UK,

anybody can invest in these companies, other countries, Australia, very difficult Canada, I think makes it a little bit difficult. And nobody here is thinking

about making a coin to power their platforms, right? This doesn't, there's zero appealing about making a MasterWorks coin. You know, look,

when we started the business three years ago, that was, that was the idea. Really? Yeah, I don't know if, it's like you guys have heard,

but I still don't think there's a single regular offering that's gotten through SEC with blockchain language. I know the Republic was trying to do one I don't know, six months ago,

but to be honest, I think it's a net negative. Sophisticated investors don't view it positively. Although, you know, the crypto community obviously does, but...

Well, I mean, it's a religion for them. And the reality for accredited investors, Scott, I think is what we're doing works. Why would we add this level of

complication. Right. What is the upside? Like, I mean, I know that people in the crypto community are going to say an immutable blockchain or whatever, but that doesn't really mean anything, right? Yeah, I agree. Like, what does that mean to an arc buyer who bought 1% of a warhol? I agree.

That it's on an immutable blockchain. They don't care. I think nobody cares. And I think it's too complicated. Too complicated, nobody cares. So there are your two reasons for the crypto community. You've made it way too complicated. And two, like, provide some value.

Christopher, are you going to take a Superman or LeBron James card and, like, tokenize it? I mean, has a customer asked you for that? No, because what's the difference, right? If it's tokenized, if it's stored in a database, you know, we built a digital securities business, right? So it's, you know, it's still a regulated offering and it's, it's still got its provenance, and it's, I think it's a fantastic technology. But is it immutable? Is it immutable?

It is absolutely immutable, right? But is it on public blockchain? immutable with nobody in charge? I mean, that's the crazy stupidity of the crypto movement is that they think that their hammer fits every now. It literally means nothing to be public and immutable for this asset class. It's called a title policy in a real estate. It's a public immutable asset that tells you a ledger, like that you own this house.

So it's like, what's the problem? What's the problem you're solving with title? insurance. That's actually insured, right? So your blockchain is not insured, right? If you, I don't know exactly how you insured, but it's, it's it, what's the problem with blockchain is trying to solve? That's the thing I'm trying to understand. I can't, I can't, I'm, the crypto people have to wrap my mind around it. Like, what, what's, is the problem that the dollar is just, I guess, a fiat currency is over? But by the way, did Goldman release, uh, so I, I have friends with the, the, the CEO of ISG and they, he, I thought said they were releasing a pretty

comprehensive report on crypto Bitcoin this week. So, that would be interesting. So cryptoin 100,000 or Bitcoin 3, who knows? I mean, I think this is the reality. If somebody is listening to this in the crypto community and you're building the technology, not you're just like a crypto crazy person yelling and screaming on stage in Miami, but if you're actually a developer in the crypto space, put aside Bitcoin and that sort of toxicity.

but if you're just a crypto person, I think you have to look at what just happened on this roundtable. You have four people running the four largest best of breed for real estate, art, collectibles, and startups. Like we're talking about the Mount Rushmore here of alternative assets in this new space, not to be conceded here, but we're all putting nine figures to work plus. And we can't understand as technologists, as asset class,

managers, we can't come up with a reason to use it. We would love something innovative. We'd literally see nothing of value here. And I was open to it. I didn't lead the witnesses here. None of us, we all have the same exact reaction, which is what's the point? So if you're in crypto, there's your gauntlet. What is the effing point?

We can trade on these platforms. We have databases. We have developers. We have titles. We have LLCs. like, are you actually solving something? Like, give yourself a real hard look in the mirror if you're a crypto person or you're making some tokenized fund and ask yourself if you're doing it for like the virtue signaling of

being a crypto person or some religious reason or there is actually value to the consumer. I mean, I don't think any of our, does somebody want to put their tokens for a warhol in a wallet Scott and then risk losing it or would they rather you just have custodianship of it? I mean, yeah, they would just. rather us have custodianship of it. You know, our average investor invests, I think now, anywhere between $30,000 and $40,000 over their lifetime, depending on the cohort.

Yeah. You know, they're not, they're not, you know, they're kind of mid-sized investors. Yeah. They don't want to deal with this, Musuggan. What about you, Chris? Anything? Is there anybody who wants their Tesla Roadster number 16 on a blockchain?

No, but I mean, I'm interested in the NFT market. I think we're creating new types of collectibles, right? I think there will, I think there will be, as an asset class, I think it's fascinating. I think there are places where, you know, rarity and, uh, and cultural, like, significance will, will, will, will create longevity and value and create appreciative potential, right? Like, so I'm fascinated about that. I do agree with that. It's a place we want to be.

And, you know, speaking of intangible assets, I think it's one that, that will look at really seriously. Um, but I think we also have to, you know, we, we, we've created a trust layer with our platform and we have to be, I think, really careful about, you know, underwriting standards and the quality of the assets we bring and the, and the historical sort of, you know, view of appreciation and where, you know, where value is going to, going to be stored in the long run. So Scott, I'm sure people pitched you on taking your collection and then NFTing some of them and burning the original painting to make the

NFT go up in value like those crazy people did that time. But in all seriousness, making an NFD, would you have the right to make an NFT or a collection of NFTs based on an artwork you own? Yep, we actually don't have the right. So it's a misunderstood thing about copyright law, but, you know, we can buy a $20 million painting and we don't actually own

the copyright to it. So really, the NFTs that are happening today are primarily being happening, or primarily being created by artists themselves. Or the estate. So for somebody like Monet,

Yeah. Could anybody create an NFT of a Picasso-Wormone? You know, so I'll give you, I'll give you an example. So the Warhol Foundation recently agreed to, you know, quote-unquote, NFT, some of their, some of their rights, I guess, or their images of specific Warhols. And I know, you know, I know the former chairman of the Warhol Foundation, and they're very aggressive about how they think about copyrights,

protecting their copyrights, et cetera. So they're doing these NFTs without transferring the copyright. So you can buy the NFT, but you still don't get the copyright. You just get that digital asset for a million dollars. And the person who bought that Warhol, the same one also doesn't have the copyright. So if another medium comes out, they still have the right to it. If t-shirts are going to be made or a mural is going to be made or fine art prints, all that goes back to the original artist.

And then the great masters are in the part. public domain? Yeah, I can't remember the rule. I think it's after, I think it's 75 years, I want to say. 75 years after the life of the author of the artist. It's the Mickey Mouse rule because

Disney keeps getting it extended. It was originally like 50 years and they're like, oh, oh, Mickey Mouse is going to be in the public domain. We got to protect the mouse. All right, listen, this has been great. We'll see you all next time on this week in startups. Bye, bye.