Unchained - Lessons From A Successful Tokenization Project & What Market Structure Reveals About Trump-Linked WLFI’s False Promises: Bits + Bips - Ep. 986

Episode Date: December 20, 2025

In this double-header episode of Bits + Bips, Steven Ehrlich first speaks with Figure CEO Mike Cagney about why most tokenization projects fail, how Figure built an onchain mortgage replacement, and why he believes big banks may now be leading blockchain innovation. Then, Jason Brett joins the show to explain how an upcoming crypto market structure bill could expose President Trump’s World Liberty Financial as centralized, and why that matters for DeFi, regulation, and the industry’s credibility. Sponsors: Uniswap Mantle Host: Steve Ehrlich, Executive Editor at Unchained Guests: Mike Cagney, Co-founder and CEO of  Figure Technology Solutions Jason Brett, Former Banking Regulator With FDIC Links: Unchained: Inside Robinhood’s Big Super App Plan: ‘There’s Still a Lot of Work to Be Done’ Coinbase Launches Stock Trading and Prediction Markets How the GENIUS Act Creates a Built-In Advantage for Banks and Deposit Tokens Timestamps:  🚀 00:00 Introduction  🧠 1:48 What is a HELOC? 💡 4:48 How Figure is turning HELOCs into a mortgage replacement ⚡️ 7:58 How Figure issues loans from origination to disbursement 📍 11:28 Why Figure uses a blockchain  ⚠️ 12:15 Cagney explains how liquidity poses a challenge for many tokenization projects 🧏‍♂️ 13:10 Why the real value proposition is in DeFi and how Figure is bring $1 billion on-chain 📃 14:14 Cagney reveals Figure's preferred DeFi platforms  💥 16:09 How the GENIUS Act could drive assets onchain  ⚡️ 17:46 How Figure is working towards stablecoin settlement of loans 👀 23:40 Why Cagney says the big banks are doing more disruptive work than the likes of Coinbase ⚖️ 27:53 What Cagney is advocating for around DeFi in DC and his litmus test for decentralization  ❕️ 31:30 Why Cagney believes anonymity is not necessary for decentralization CLIP 💡 33:32 How Cagney deals with the pressures of going public 🧠 34:32 Why Cagney has taken a different philosophical approach to Robinhood and Coinbase  💥 37:05 Cagney explains what it takes for tokenization projects to succeed 41:55 Intro 45:51 If crypto finally gets rules, what then? 49:39 Frozen wallets: the DeFi dealbreaker 55:51 Has the White House picked a DeFi side? 56:36 Why this goes beyond “ethics” 58:49 If Trump’s DeFi fails the test… then what? Learn more about your ad choices. Visit megaphone.fm/adchoices

There isn't this panacee of money on blockchain that you can't get to anywhere else. Money is really smart and it can get to whatever it wants to. It doesn't need the blockchain to do that. And so in the beginning, you're introducing something different that introduces friction. And so, you know, in the beginning, it isn't that it's cheaper for me to finance XYZ on blockchain or trade PDQ on blockchain or whatever it might be. It's actually, you know, in a lot of circumstances, it's going to be more difficult to do it. But in the long run, it will make sense. Hi, everyone. Welcome back. My name is Steve Arlick. I'm the executive editor at Unchained, and in this particular segment is going to be the bits and bips, the interview.

Are you a builder who needs to add on-chain trading to your product? The Uniswap Trading API from Uniswap Labs offers plug-and-play access to some of the deepest liquidity in crypto. It's on-chain execution at an enterprise level. More liquidity, less complexity. Visit hub.uniswop.org to learn more. I'm here with Mike Cagney, founder and CEO of Figure. And we're here to talk about figures, I think really terrific year, successful IPO. And they've really found product market fit with regards to putting HELOC loans on their own blockchain called Providence. I wanted to speak with Mike to kind of get a sense of what the year has been like for him. Now the tokenization has become a very hot topic again, sort of, what helped him succeed when, frankly, a lot of tokenization products or projects that

have been around over the last 10 years have failed and kind of what the future of tokenization means for his business. So welcome, Mike. Thanks for joining us. Thanks for having me. Great to speak with you again. So, yeah, let's just, it's funny, sometimes when I talk to people about figure most people in crypto probably don't own homes yet, they don't know what a HELOC is. And when I use that term, they look at me like I'm speaking gibberish. So can you just briefly explain what a HELOC is and why it's a product that's very well suited to be tokenized? Sure. So a HELOC stands for home equity line of credit and it's effectively an open-end mortgage.

So generally, when we think about mortgages, we think about getting a 30-year fixed-rate mortgage and you're paying principal and interest every month. At the end of 30 years, you pay the loan off. A helock is also a mortgage. It's secured by your home. But it's open-ended. So, you know, I might have a $100,000 helic. I might pay $50,000 down and then I can borrow the $50,000 back up again. And a lot of people think of helic as a second lien product. So there's a mortgage and then behind that there's a helic.

But one of the fastest areas of growth that we found is helic in the first lien position. So using it instead of a mortgage. And one of the things we've been able to do over time is get the rate on that. Helock in first-leaning position to be comparable to Fannie and Freddie rates for conventional mortgages. And this has been a huge advantage for us in mortgages under, say, $300,000. Because the way the industry has evolved to do a Fannie Mae or a Freddie Mac eligible mortgage costs about $13,000. And so if it's a $200,000 mortgage, $13,000 is six and a half points. There isn't a market you can sell the loan in for six and a half points.

because of the efficiencies we captured through blockchain and the capital markets that we built out through blockchain, cost us less than $1,000 to reduce that mortgage. And so, you know, we have over 250 partners now that use our technology to originate loans, including 10 of the top 20 mortgage companies. And the fastest area of growth is HELOC and first lien position for these sub-300,000 dollar balances. And we think that's an area that has huge opportunity. You know, it's almost greenfield because no one was doing those loans before because you couldn't do them profitably. So even though it's in the mortgage space, which we think is relatively saturated and competitive, you know, that's actually a greenfield domain that we've been able to lean in on and grow. Gotcha. Maybe, forgive me, maybe you can just explain that a little bit more.

I'm familiar with Helox. I have one on my home. But it's really kind of taken out as maybe just an emergency fund in case I need something or if I know people take them out if they want to perhaps do an addition on their home or some type of renovation. And but it's always, again, like a backup plan or a secondary source of funds. Can you just explain really what it means for it to be almost like an actual mortgage replacement? Because I frankly hadn't heard that before. Yeah. And that was why when we started Figure, we wanted to bring a tangible solution to market.

And we chose credit. We said we could originate aggregate, securitized assets on blockchain, say, 85 basis points of cost. And we needed a credit vehicle we could originate that, you know, I knew that it would be a Herculean task to convince the buy side to start using blockchain, the sell side to start using blockchain. And so I didn't want to fight it out with SOFi on personal loans or rocket on first-leam mortgages. And the area to me that I thought was, was relatively untapped, was home equity line of

credit, because historically it's been used for exactly the reason why you have yours, right? It's, it's the rainy day line of credit. And I can tell you, in the lending world, you don't like lending to people when it's raining out. You're like lending it to it when it's sunny out. So what always stuck with me when I was at SOFI, we would sell huge pools of unsecured consumer loans. and our borrowers tended to be prime. They tended to own owns. They tended to have a decent amount of equity in the home. And the question we always got from the capital markets was, why aren't they taking a helock?

Why aren't they taking a second? Like, why are they taking this unsecured loan? You know, the rate's much higher. The reality is they're doing that because the process was so much easier, right? We could underwrite an unsecured loan in a couple of minutes and fund literally that day versus the helock process, which was the same as the mortgage process, which was 45 days of misery, right? You're producing income statements and tax returns and all this stuff. And so we felt that if we could bring the personal loan efficiency into the HELOC marketplace,

we could actually get people who wanted to take the loan out for immediate purpose. And so what's unique about this HELOC is when you take $100,000 helic from us, we're dispersing $100,000 to you. Now, you can pay that down and pay it back up. open line, but it's a fully dispersed laminated origination. And so it's really oriented more towards an immediate use case, right?

Not, you know, I'll draw out when I need it. And again, what's interesting is, is the first lien product, so using the HELOC and first lien, that's actually prevalent in other countries. Like Australia, that is what an Australian mortgage is. It isn't a 30-year fixed product.

It's an open line that you draw against your because it's cheaper to do that than on an unsecured basis. And so, you know, we felt that we would have a lot of appetite for it. We also felt it had some virtuous credit signaling because if you had a borrower who could take an unsecured loan or, you know, put their home up as collateral and get a lower rate, whether they're going to pay the loan or not, you know, which one they choose tells you a lot of that. And so, you know, it ended up being a great asset class for us to start with because nobody was doing it the way that we do it. And it really provided a lot of incentive for the by side of

lean in and start taking that loan down. Okay. So let's just, again, because I want to make sure everyone watching and listening stays with us for the whole conversation, can you just briefly walk me through like the lifecycle from, I guess, origination to disbursement to I guess the loan being sold through your blockchain to your capital market partners so that everyone kind of has a visualization in their mind of how this works. Yeah, I'll do that. And then I'll talk about some of the challenges that we had early on because of blockchain.

And I think this is illustrative of why a lot of these RWA projects haven't taken off because of some of these challenges. And I can talk through how we navigated that. But basically, what we do is we ingest the data from the loan. So credit, title, property, income directly into the blockchain. And by the way, one correction that, you know, we use a blockchain called Providence, which we built, but we don't own. It's a public chain. So it's public blockchain. And the importance of that is the blockchain is immutable. And so what happened in 2008 was a bunch of lenders got in trouble because they would go in and modify loan documents, modify income numbers, modify loan to value numbers.

And it created a lot of uncertainty. And the rating agencies coming out of that said, you know what? But going forward to get a AAA rating on a mortgage deal, we have to audit every loan and it's $500 a loan. That's the scope of the audit. Well, because of the way we ingest data into blockchain and the immutability that the rating agencies have lowered our requirements down to 20 to 30% of the loans and about $100 a loan. And so this manifests to, you know, a couple million dollars of savings per securitization transaction per AAA rated deal. which is about 50 basis points, you know, in terms of the cost of the life cycle. But effectively, we originate the asset native on chain. So the loan is on the blockchain.

We pledge that asset into a warehouse provider, like a Goldman, for example. Although this is changing because we're starting to use defy. We could talk about that as well. But we've pledged into a warehouse provider. And one of the things that I'd been pushing Goldman on for years was, look, you should take the loans on on chain you should use dart which is a registry service that we have to encumber those loans because the the way we've historically done warehouse pledging is is you know I sent a spreadsheet to the to the bank full of loans they send me a bunch of money and then they

spend five days figuring out if I lied to them or not right and sometimes they can't figure that out and the tricolor was a great example of this where there was a massive amount of fraud well you can't have that fraud on blockchain and when Goldman finally started using it and realized, hey, we don't need to spend five days. We know immediately whether you give us loans or not. We've de-risked this transaction, meaning not only can we get you the money faster, we could actually give you more money, meaning we make more money. And we don't have a staff that has to do all this reconciliation. You know, they really leaned in and embraced it. And, you know, our warehouse providers and partners all leverage that now. But we aggregate these loans up. And then ultimately,

they're sold into either portfolio buyers like insurance companies or they're securitized where they're aggregated and turned into into debt. The servicing subsequent cash flows all happen on chain. And the importance of this is, you know, we think about like why do we use blockchain. There's three reasons why we use it. One is we get some transactional efficiencies at the top, like the AAA rating costs or the warehouse pledging costs. you know, we've been able to capture over 100 basis points of efficiency out of that. We get liquidity, but liquidity doesn't come on its own. There's a misrepresentation of blotching that, you know, if I put something on blotching,

it becomes liquid. And obviously, that's not what happened. You know, for liquidity, you need ubiquity and homogeneity and market making and all these other things. I know. Oh, you've spoken. Oh, it's funny. I know when we spoke in the past, like, that was the issue that plagued many other tokenization

projects. Like, you can do the initial issuance, but then you don't have this liquidation. secondary markets. Yeah, 100%. And this is why there's a lot of projects that are, that are well intended, you know, putting private company stock on blockchain. Well, of course, you could do that, but there isn't a reason that it's going to trade persistently, right? Or putting an office building on blockchain. Well, sure, you can do that, but who's going to trade it? And, you know, I think I've joked with you before. This is why I don't get invited to RWA conferences because I always say these are stupid ideas. But the,

but the construct is we've created a liquid market because all the remittance data, the principal and interest payments come into the blockchain. And so I have a pool of loans that are all like have a common agreement in terms of buying and selling and that I see real time whether they're performing or not. And that's created liquidity. So if you go to Coin Gaco, for example, I think we're the 11th largest crypto asset by a market by TBL. So they were behind Doche coin and they had a Cardana last I looked at somewhere in that neighborhood. And but you see our volume every day. And it's, you know, hundreds of millions of dollars of loans that trade because of this efficiency that we create in this liquid marketplace.

But the real value prop to me is DFI. And it's connecting sources and uses of capital directly. And what we started doing last year is we started saying, well, look, what do we bring some loans over to DFI? Because DFI historically has been crypto, right? Because for, for DFI lending to work, the asset has to be liquid. This is another limitation that folks have and don't fully understand because you're doing an asset-based loan. So you're not underwriting the asset.

You're actually underwriting how liquid it is, how volatile it is, and what the advantage rate is. So we brought $10 million of loans over and financed them cheaper than we could in our warehouse. And we brought another $10 million over and did it again and brought $100 million over doing it now. Now we're going to bring a billion dollars over. And we're going to start migrating more and more of the capital structure. to decentralized finance. And go ahead. When you say defy,

I'm curious if you could just be a little more specific on which platforms. I mean, is it just like open defy or I know like groups like Avey compound that. I mean, they have like institutional like Walt Garden versions of defy. Right. So we have a defy platform called democratized prime, which is open, although KYC'd.

but we recently launched on Solana a platform called Hastra. And Hasra is effectively an open protocol that people buy wrapped yields on Hasra, which is our yielding security, but wrapped in Salana, pledged into Hastra. Hasra applies capital into our DFI protocol to generate yield. And then that staking token can be looped on Camino or traded on radio. So it is actually in the broad DFI ecosystem. It's not in a walled garden.

And what's interesting about that is that activity lowers mortgage rates for U.S. consumers. So you think about, you know, in Camino, they prevent U.S. users from participating. So we have a bunch of non-U.S. capital that is participating in actually lowering the cost of mortgages to U.S. consumers coming through this DFI construct, which is why DFI is so important to me. I think, you know, one of the things I've been doing recently is advocating for the market structure bill around protections for defy. And, you know, what I can bring to the table that's a little unique from some of my peers is tangible use cases to senators, how this helps their constituents. So, like, Wernock, you know, from Georgia on the Democrat side, we funded over a billion dollars of loans in Georgia and his constituents saved money because of DFI. right? And so we've been advocating very hard on that front.

But effectively what I think ultimately happens is I think you're going to get a migration out of bank deposits on the Genius Act because of the stable coin legislation. I think that money gets reapplied into defy. And I think what you're going to see is assets move from the bank, assets and liabilities move from the bank balance sheet onto a defy protocol. And that's what I'm most excited about. I am too. And we're going to talk about that in a lot more detail.

But first, we just have to take a quick break to hear from some of our sponsors. Hey, founders and developers. If you're looking to bring on-chain trading to your product, wallet, or platform, check out the new Uniswap Trading API from Uniswap Labs. It's your plug-and-play gateway to global on-chain liquidity. No deep crypto experience required. And no need to manage complex integrations or on-competitive. maintenance. With the Uniswap Trading API, you'll get enterprise-grade on-chain execution,

combining both on-chain and off-chain sources for the most competitive prices. Simply put, more liquidity, less complexity. And this isn't just any API. It connects directly to the Uniswap protocol, which has securely processed over $3.3 trillion in total volume with zero hacks. So stop worrying about liquidity infrastructure and focus on building your product. Get access to the same liquidity that powers billions and swaps through one powerful API. Visit hub.uniswap.org to learn more. Okay, Mike. So before we left off, you started getting into what's happening in D.C.

And sort of how it's important to get legislation right in order to kind of clear the pathway for products like yours that have product market fit. But first, I just want to ask one other quick question about the mechanics of how this works before we get into that. stable coins. When people, when investors, you issue the money in Fiat dollars, I guess, to the HILAC participants. When, when people buy the tokenized security, the token of securities when you securitize the loans, are those done in Fiat or are they done in stable coins? And I know that you recently launched your own yield bearing stable coin. You actually registered it with the SEC. But when I checked, I saw uptake is still small. It's early. I think it was like $3.4 million market cap. I think it's, I think we're at a couple hundred million in market cap right now. So you might have been looking at some stale data. So it's growing, it's starting to take off.

And what we're doing is, if you think about our ecosystem, there's loan funding, which we're still funding in Bauer Fiat, unless users will like to be funded in Stable. There's the pledging to the warehouse where we're now migrating that to using Stablecoin. So rather than when I pledge the loans, Goldman, sends me a wire for dollars. I'm starting to pledge the loans and golden sending me yields, which is our stable coin, our yielding coin. There's loan sales, which were also migrating to stable coin settlement. So, you know, I sell Apollo $200 million dollars of loans or sending me $200 million of stable coin. Again, yields. And the securitization is kind of the last leg where

what we'll start doing in 26 is issuing those securitization bonds native on chain. because today we don't. Today, other than some limited exceptions where we have done some on-chain issuance, generally we've been issuing those securities in traditional form, you know, as DTCC registered securities, what you'll start seeing in 26 is, is blockchain native issuance, and that will then allow for stable coin settlement. So there's no asynchronous process of a wire versus the security settlement. So, you know, reducing the post-trade audit and reconciliation expense.

And which stable coin? Is that your stable coin or is it USDC? So we use yields within our ecosystem, although yields is convertible into USDC 24-7. And so, you know, that marketplace is always open. But we tend to use yields because it affords us some benefits that traditional stables don't afford, including the interest that pays. Gotcha. And I am curious, too, I mean, given how much you work with Wall Street banks, I mean, what kind of conversations are you having with them about their own stable coins now that we're in kind of a post genius world, even though the law hasn't been fully enacted yet, and tokenized deposits, which from my perspective, I know all the benefits of stable coins, but for like regulated financial institutions, tilconized deposits seem to be a much more capital efficient tool. Maybe there's additional savings there that could be passed over to your customers.

Yeah, I'm not I'm not sure how valuable the tokenized deposits are and only in the sense of the way I look at the stable coin ecosystem is, you know, stable coin is not proliferated the way that that we expected it to because it doesn't really have utility. Right. I can't go to Starbucks and buy coffee with stablecoin. And so that limitation, you know, both limits its use cases and also limits its disruptive capability. and value creation capability. The Genius X is going to change that. And what we're seeing is J.P. Morgan leaning in pretty heavily around the idea of building a new payment rail or payment infrastructure. You know, they just moved J.P. coin off of their proprietary blockchain, which was a forked version of Ethereum onto base, which is, you know, obviously an L2 EVM.

But they're going to move it into broader Ethereum main net, I'm sure. and you know you're you're going to see what I think is is J.P. Chase versus the rest of the world. And you know, J.P. Chase looks at interchange and says, look, we've got an issuing processor, an issuing bank, Visa MasterCard, Merchant Acre, a merchant bank. Why do we need the issuing processor visa and the merchant acquirer? Like, why don't we just have an issuing bank us and a merchant bank us and we trade on RRAL? and I think they're going to lean in and do this, and I think it's going to bring utility at least into that version of coin. And I think if I'm a regional or super regional bank, this should be an absolutely terrifying idea to me

because they're going to come out for my liabilities and they're going to get it, because they're going to be able to offer stable coin value that I can't do. And a tokenized deposit isn't a defensive mechanism to that because I'm not going to be able to use it as utility, right? I'm not going to be able to go buy Starbucks coffee with a tokenized deposit. So, you know, I think that the rest of the banks have to think about, you know, do we build around a common coin that's a little bit like hurting cats trying to get, you know, every other bank to lean in to do that. We think yields is an actually interesting opportunity for the banks to lean in in and support because, you know, yields is defensive against JP coin because it pays interest. and yields, we can hold treasuries or bank deposits,

so we can keep the liabilities of the bank from their customers on their balance sheet. And so there's a value prop off of that. So I think it'll be really interesting to see, you know, how this evolves. But what I can tell you is, you know, the sell side in particular, the big banks, the Goldman's, the Morgan Stanley's and certainly the JPs,

they are moving into blockchain and doing, in my mind much more innovative and disruptive work right now than, you know, the coinbases of the world are. And this has been interesting to me to see. And I saw this firsthand because, you know, we haven't asked one about issuing figure stock native on blockchain. We put it out a couple weeks ago and we're hoping that we do this. I call it a second IPO, although it's all secondary. It's not primary. But doing it in January. And, you know, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, speed at which the large institutions, if you look at the S-1, JPM and Morgan Stanley are on the cover. They're underwriting the deal, right? I was sort of Goldman and Morgan-Stand. I had a brain cramp

they're saying JP. Goldman and Morgan-Standley are on the cover and they're underwriting the deal. And, you know, they understand the potential disruption of this and, you know, eliminating DTCC, eliminating NASDAQ, you know, replacing prime brokerage with defy. You know, this is a wholesale replacement of an equity capital market piece. But, you know, the, you know, the, the traditional blockchain players or crypto players, I don't think understand or have been as aggressive leaning into this opportunity set. And, you know, that's been a little bit surprising to me, but, but maybe not because I think, again, with the legalization of blockchain and crypto, you know, I kind of view it. When I started SOFI, I went to the very first lend it,

and it was like the bar scene out of Star Wars, right? It was a weirdest group of people that you ever see and you know it was just insane and two years later it was just all suits and so i think we're at the all suits inflection point that's about to happen in blockchain there's been a lot of people lamenting about this on on crypto twitter um but i think i think it's actually we're at that point and it's going to happen right i guess that's good but for me that's been i don't think i've worn a suit in years since i i don't even think i can fit in any of mine anymore i hope i hope no one gets married or dies because those two reasons I'd break it out. Yeah, and yeah, most of the time, even when I wear a jacket underneath, it's probably like

filled up the Eagle shorts or something like that. All right, so let's go back to the regulation, because I know you started talking about that. You've been going to D.C. a lot and sort of like, it seems like really making the case to help ensure that the Senate in particular gets market structure right, particularly when comes to defy, which is a very thorny issue. So maybe you could expand a little bit more on what you've seen and heard there. Yeah. I mean, in our situation, there's three things that we're advocating for when one is around the ability to settle non-currency or non-security transactions with yields a security off a regulated framework. So not having used an ATS or National Market Exchange.

One is the modernization of the transfer agent rules where, you know, historically transfer agents have been forced to do best effort to get name and address. We think wallet address is sufficient because it's really just a way to drive quorum. But more relevant is the protection of defyme as a peer-to-peer transaction, not a security offering. And, you know, I think that what I've heard, there's a lot of frustration on the hill around people coming and saying, oh, this is defy, this is defy, when it, in fact, is not defy. There's a centralized actor or player and they're really just trying to avoid security registration and you know use as a shortcut for that um i i i don't you know certainly the stuff we're advocating for that's that's

not what we're trying to do we truly do run a up here to peer um lending transaction marketplace when i say run it it's it's a smart contract that sits out that's that's that's effectively governed governed by everyone who just it was a i don't know for you and slips right where if we say you run up here to peer it's a you create it i guess up here to here. Yeah. And that's, yeah, and so, so we, we do that at the behest of hash holders, which are, you know, that's utility token of provenance and, and they can vote us out of not having anything to do with that protocol, it's, it's, it's, you know, we don't own it per se. And the SEC has taken the position that that is, you know, effectively protected transaction. It doesn't fall under securities regulation.

But that's the position, right? That's not the law. And so what we need to do is get legislation codified for that protection, such that we don't lose it in the case that, you know, Chairman Atkins leaves and someone else comes in with a differing view. What do you see is kind of like the litmus test or the lines of delineation between a true peer-to-peer DFI protocol and another project that engages in DFI theater or stage dressing?

Yeah, I think it's all around intermediation. So if at any point you are touching the transaction between party A and party B, that's not a decentralized transaction, right? So, you know, a true bilateral transaction doesn't require an remediation. And, you know, to a second degree, it's the governance of the mechanism that connects those parties where, you know, if you have exclusivity to that governance, that's also not decentralized because you can change how it works and so forth. So it really needs to be, you know, the community that that votes for and controls and administers those. smart contracts. And that doesn't mean you can't earn economic off it, right? Smart contract can say, I'm getting 2% of every transaction. And again, the community could vote to modify that or change that. But those are, those are to me the core litmus tests. And again, I think the challenge in D.C.

is you're having to bring a lot of folks up the curve on the education side because they haven't had to think about this in the prior four years and now they're immersed in it. And also, you know, as I said, one of the things I'm really advocating for is giving tangible use cases to a lot of the senators in terms of how DFI is benefiting their constituents, how it's reducing their loan rates. And the extensibility of that, you know, way beyond the mortgages that we do into almost every type of credit. Yeah. I don't want to belabor this point, but this is a very hot issue right now, as you will know. What about voting power? I'm curious, like, how much hash or voting power figure has on Providence? And if you do anything like some projects do to maybe restrict the amount of governance that you're allowed, or the amount of voting power you're allowed to deploy on a particular proposal. And I actually just forgot what my second question was.

Oh, yes. Some people might be confused how a defy protocol that does AML KYC users can also be decentralized. So maybe talk to those two items, please. Yeah. And the second one's a great question. But let me talk to the first one. So as you wrote, we built providence. And at one point, we had the majority of the token.

But in that case, it wasn't decentralized. We effectively distributed back to the foundation or burned such that we now have 20% of the token. And my expectation is that we will do a series of actions that burn another, you know, 25% to 50% of that. So, you know, we're already a minority holder of. utility token to the to the to the to the protocol so we can't influence quorum but our goal would be to get down you know at the 10% level or even slightly below that not through sales but through some some burning function as it relates to activity that we do within the ecosystem the the second point that you raise I think people confuse decentralization and anonymity and I don't I don't view those

things as the same right so decentralization is there isn't a single point that is, you know, intermediating transactions or driving the structure of terms of the transactions. It's a community quorum that effectively does that. So I could build the smart contract with the subsequent management and adjustment of that smart contract's done through quorum. That smart contract could require that you have a KYC certificate in your wallet to participate in that ecosystem.

And there's nothing orthogonal to define doing that. and the community could vote to not require that. You know, again, it's different functions. But I don't think that that decentralization and anonymity are the same thing. And too often they get conflated in blockchain and in crypto. And some people feel, you know, we'll die on that hill. And I just don't think that's the hill to die on. Okay.

No, I appreciate that. Interesting. So let's look a little bit ahead. what's life been like now as a public company? How are you deploying all those funds that were raised? And I'd like to just get a sense from you on kind of what you see as the TAM for Helox. But your background as, I mean, as the founder of SOFI is in broader consumer lending.

I have to imagine you have a lot of plans and thoughts on ways to sort of leverage the playbook that you've built here into other forms of credit provisioning. Yeah, so, and a couple of interesting points. I mean, one is I think it's great being a polar company. And, you know, you have to deal with the fact that the market votes on whether they like you or not every day. And so I just don't look at the stock. And I just think about things of very long-term time horizon. So, you know, that's, I've been relatively robust in dealing with that.

That's good. You buy the crypto investors as a general rule some anymore. Yeah. And, Jeff, well, you know, I, look, you know, figures are the very, beginning of a long journey and if you own figure you're looking at this as a long-term opportunity, not as a near term flip. And so, you know, it really doesn't matter what happens to the stock price day over day. It matters, you know, what happens in five, 10 years in terms of our ability to execute into things that are accretive and transformative. And I think we're doing that. And I think that, you know,

certainly within the mortgage sector and especially now that we're competing in first lien mortgage, you know, that's a three trillion dollar a year industry. And so largest credit, segment in the world. And that one, you know, I feel very, very confident in our ability, especially that sub three, $300,000 vertical to continue to make inroads against Fannie and Freddie. And, you know, I think it's pretty crazy to think about a blockchain native mortgage company out executing Fannie Mae and Freddie Mac in the firstly mortgage space. But, you know, we've been able to do that. And, you know, again, I think we'll continue to do that. But philosophically, and I'm glad you brought up so far, because, you know,

When we build SOFI, we thought a lot about this super app construct, right? And the whole value is cross-sell. We get this customer in and they're super high value. And we're going to be their lender, but we're also going to be their banker and their broker or their wealth manager and all these other things. And that's certainly the extension that Robin Pitt has taken in their ambitions to be super app. And I think, you know, Coinbase announcing stock trading yesterday, albeit, you know, in the old antiquated way, not the new cool way. You know, everyone wants to, or a lot of folks want to migrate towards that super app. I've taken a different philosophical approach that, you know, we'll talk more about as we get into 26, which is, I believe that rather than the centralized construct, I think it's sell custody wallets and distributed applications.

And I think, you know, you and I will carry all the relevant information we need, you know, whether it's our assets or liabilities or identity or KYC, what have you, in our wallet. And we will choose what venue we trade equity on, what venue we trade crypto, on what venue we borrow against assets, what venue we lend against assets as distributed apps. And so, you know, what you really want to do is build some combination of the best wallet experience plus the best D-app experience and compete in that vertical, recognizing that you don't have this control of the customer anymore. The customer is going to have this ability to exercise democracy. in terms of where they go. But to do that,

you know, right now our wallet experiences in crypto are not great. And, you know, they can be very intimidating. They can be very non-intuitive. They can be very cumbersome. And so, you know, I think there's some work that needs to be done around the wallet experience. But, you know, the idea of taking my wallet

attaching to a Dax that's trading securities, you know, could be an alternative trading system. and not requiring an introducing broker, right, not needing Robin Hood or Schwab to use that account to access the marketplace, but just access it directly with my wallet. That's a very powerful introduction and disruption to the market. And that's one of the things we're pushing hard on in terms of our equity offerings is allowing such market access. And we think that's a precedent that other companies are going to fall behind us on. Gotcha. All right. So as we get ready to wrap up here, I wanted to get your sense of, I mean, just broader tokenization landscape. I forget how vague it is, like outside of just stable coins, but there's stable coins. There's money market funds. There's treasuries. Now there's stocks. I'm sure you're well aware. There's a few different credit, like structured credit funds that have also been tokenized. I think from some of your own business partners.

Like, what do you make of all this? And I know you mentioned before, you have some lessons learned that from your own experiences and from what you've seen other tokenization projects do that didn't really get that escape velocity. Like, what do you think needs to happen for all the hype to sort of really manifest itself properly this time? Yeah. So, look, I think thus far, I would argue, and of course, on bias in saying this, that there really hasn't been a lot of successful tokenization of RWA other than what we've done in the consumer credit side. And the reason I'm saying that is, you know, you can look at a Biddle, for example, and okay, Biddle has, I don't know, $3.5 billion of A&A minute right now, which as a money

fund is insignificant, right? You know, you don't make money in a money market fund until you have about $100 billion of assets. And so, you know, it's just not a material thing. And, you know, like Apollo's A-Cred, well, there's a couple hundred million dollars in A-Cred on blockchain, well, that doesn't even begin to move a needle for Apollo, right, in terms of what that is. And I think what a lot of people don't realize, and kind of going back to those three value props I talked about earlier, for figure to get loans on chain, we had to leave a lot of money on the table along the way. So we had to have a long-term perspective. So in the beginning, the hedge funds that came to us to start buying loans said, hey, I'll pay you more if I don't

have to deal with blockchain. Literally, they would have paid me more money per loan if they didn't not to deal with the blockchain. And I'm like, the only reason I created a lender was to get you guys on the blockchain. So no. And at one point, one of the big insurance companies came to us and said, I will pay you more if you underwrite to my underwriting box, not to the market underwriting box. And we said, well, that's going to get rid of the homogeneity asset. That'll impact liquidity. No, we're not going to do that. We're going to get paid less and we're going to do what we're doing. Because we knew at some point, we'd hit the inflection point where blockchain was actually an asset, not a liability. But the reality is, you know, when you start off right now, it's a liability.

There isn't this panace of money on blockchain that you can't get to anywhere else. Money is really smart and I can get to whatever it wants to. It doesn't need the blockchain to do that. And so in the beginning, you're introducing something different that introduces friction. And so, you know, in the beginning, it isn't that it's cheaper for me to finance XYZ on blockchain or trade PDQ on blockchain or whatever it might be. It's actually, a lot of circumstances going to be more difficult to do it. But in the long run, it will make sense, right? And for us, we hit that inflection point, you know, a year and a half two years ago.

And, you know, our third quarter numbers, we did 160 million of revenue. We were somewhere in that neighborhood, but we did $90 million of net income. And, you know, that net income margin was because of blockchain efficiencies that weren't there three years before, right? And we only expect those efficiencies to get bigger over time. So, you know, that's the challenge that you've got. And there aren't a lot of projects that can mean in and commit to leave those dollars on the table up front, you know, over the course of two, three, four years to get to that inflection point. Gotcha. I'd love to know the names of those firms that tried to pay you more to not use blockchain.

But I'm guessing you will not disclose those names. I was very particular not to you in that. Metra's either for competitive reasons or to save them the embarrassment like that. All right,

so to wrap up, I'm just any, any final thoughts, big plans, expectations for 2026 that we haven't talked about yet. No, I mean,

look, the big one is getting figure equity on chain and I think we'll have some fast followers of other companies behind us and, you know, true blotching native security

is no DTCC, trading on decks. finance through defy, I think this is the future. And we're taking everything that would be able to prove on the credit vertical. And now we're extending that into the equity vertical. And that'll be one of the big focus points for 26. Gotcha. All right.

Well, Mike, thanks for joining me on Bits and Bips, the interview. We'll have to have you back sometime next year. And thanks to everybody for watching and listening. And Mike, thanks again for joining us. Thanks for having me. Welcome to everyone. My name is Steve Erlich and I'm executive editor at Unchained. I am here now with contributing writer Jason Brett. Welcome Jason. Hi Steven. Nice to be here. Mantil is launching the global hackathon 2025 to accelerate the future of real-world assets.

With a $150,000 prize pool backing from a $4 billion treasury and direct access to buy bits 7 million plus users. This is the ultimate ecosystem for builders. So you wrote a really interesting article yesterday, sort of talking about, frankly, I think a big, hairy question that many people in crypto want to pretend does not exist. And that is what's going to happen when Donald Trump's world liberty financial runs headfirst into the market structure bill? There's been a lot of discussion, a lot of controversy around the bill, particularly with how it is going to treat DFI protocols and more specifically how it's going to define DFI protocols. And your story lays out in considerable detail why World Liberty Financial, although claims to be DFI,

decentralized finance, is pretty much anything but. So why don't, why don't you tell us about your story. Absolutely. And, you know, what's so interesting to me, this was probably the most interesting story I got to do this year because, you know, going into the Trump administration, you heard a lot about, with the Biden administration, about sort of the gray areas of the market structure bill and just the whole ecosystem. And people wanted rules of the road to go by. And so it put a lot of people in jeopardy. A lot of people were in jeopardy legally. A lot of things had to be figured out in the courts because, you know, there wasn't really any laws that apply to this ecosystem. So now going in with this story, everyone's very focused on the ethics,

the ethics concerns of how the president of the United States is focused on building a business. And unlike, you know, hotels and resorts where the business is already under laws, we don't really have laws yet for our sector. So in a sense, the president's operating or his business is being operated in a gray area. And the result is, well, what happens if the market structure that's past? And interestingly enough, Chairman French Hill of the House Financial Services Committee made a comment as a retort to sort of the Democrats saying, this is unethical, we need ethics in the bill, and saying, look, the ethics will be by actually having rules of the road

that everyone can play by. So what we did in this bill was take that a step further and say, okay, here's the Clarity Act that Hill and other Republicans worked on and got passed out at a very bipartisan way and is now being worked on in the Senate that has indeed one particular bright line rule that makes it pretty evident that if you just look at the facts, including what's on the website of World Liberty Financial, and apply it to market structure, it probably wouldn't be necessarily classified in what we should say is

not as a defy platform. But what that means in terms of market structure is that the tokens would be regulated by the SEC as a securities token, it could graduate at some point to the CFTC, right, and become a decentralized platform. And there might be other people in the crypto system, other companies that have the same dilemma as the Trumps do, which made it really interesting as a litmus test really for the Trumps, but also for the whole industry, is how do you prepare for market structure? You know, we want these rules of the road. But then once we have a law that says, Stephen, you know, this is what decentralization is, and this is what it isn't. It's, it's, it's. It's, it's, it's, it's,

You either have to restructure your business or just follow the rules of the road. Your framing of that conversation, of that sort of the introduction to the article was, was really interesting. But let's, and I think, I mean, I want you to go through next and sort of talk about all the different ways that World Liberty Financial is actually centralized. But I think maybe the biggest one to start off is just that it doesn't really operate yet. I mean, it's building out a tech stack. I guess it licensed that that's the right word. the sort of like the lending contracts, the smart contracts from Ave, the biggest defy lender that there is.

But at this point, I think their only product is USD1, the stable coin. It's not actually offering any trading or lending, et cetera. So it's very much in its embryonic stages, which would make sense that it's centralized. But you go through a number of different ways why it is entirely controlled by the the Trump family and a few key insiders. So maybe talk about that. Yeah. So, you know, when you look at what the Clarity Act lays out, the first main concept is how much percentage insiders have control over. So when you look at the way the tokens are structured in recent reporting and it's even disclosed in the website of World Liberty Phi, it says that Trump

and his family still own, you know, 22.5 billion tokens. And Trump, the president, personally, holds approximately 15.75 billion tokens. I haven't even, didn't even explore this down the article, Stephen, but something that's just fascinated me for a while is, is our president actually voting on a governance, any of these governance proposals in World Liberty, you know, while being president? Or does he have to give that right to somebody else? Because he does have all these tokens that can vote with the World Liberty Five governance token. And that's primarily what this governance token is supposed to do, is there's certain ideas that can come up with the tokens like to go on the Avi protocol and then there's voting. The issue, and there is claims, and Zach Wickoff talked about it, you know, on a token 2049 with Donald Trump Jr. That look, you know, this gives it people, you know, to sort of weigh in on a particular protocol.

It really is just how the protocol might work. But when you look deeper at the way the company structured and what's clear in the fine print is if there's a vote that let's just say it's decided that they don't like the insiders don't like the outcome, they have a right to overrule the vote. So it's sort of like voting of a president of the United States and tampering with voting. And I'm not trying to put like a political spin on it, but I'm saying the whole premise of defies is if we all have this vote, if you had a few tokens, Stephen, and you vote a certain way. and what you voted on wins, but then some people, you know, behind the curtain can just change that vote. That's not really in the spirit of defy. And I think that's what bothers a lot of people about this particular project in the space. And you talked about it earlier, and it's a very hard and delicate thing because it may bother them.

But he's the president of the United States and the White House has a seat at the negotiating table, at least giving feedback on whatever the House and Senate is doing. So a lot of these crypto associations can't really necessarily, you know, scream at the mountaintops, hey, this isn't Defi. I think the point is, is that if you simply look at what market structure is proposing, the bright line test of the 20%, the idea that you can overrule a governance vote, it isn't just necessarily it's not with the principles that people in the space and Defi have been fighting for. It's that those two elements alone make it pretty clear that it's a controlled organization. And I think perhaps maybe the most concrete example of all this is the millions of dollars of WLF tokens that they froze that belong to Justin's son. It's kind of an interesting story because, I mean, Justin's son, as we all know, is a somewhat controversial figure in the crypto industry. And he also has very close ties with Trump and the Trump family.

I mean, back when WLF was launched in, what was it, September or October last year, they felt, they were very close or in danger of not reaching, I think, what at the time was like a $30 million minimum investment round, which seems ludicrous now. But back then, I think that was the number. And they weren't going to make it. And Justin Sun, who is a billionaire several times over, essentially helped get them over that finish line. and the rest is history. But I guess fast forward to about a year later. And the WLF tokens, which were initially not transferable, became liquid.

And it, correct me if I'm wrong, but it seems like Justin, as the story goes, was moving some tokens between wallets, or maybe he was rumored to be moving something to an exchange and they were frozen by the company. And I actually spoke with Justin over the weekend And I mean, confirmed for me that they are still frozen and he cannot get them back. I know that, yeah, I mean, to me, that that screams centralization.

If one body can kind of unilaterally just decide to revoke someone's access to their tokens. I'm curious what you think. Yeah, I've thought about this too. And by the way, I've heard both Donald Trump Jr. and Zach Whitkoff on stage, Steve, they're very particular about the way you pronounce their token. It's WL-Fi. So it's the WL-Fi token. And when we look at this token, you know, Justin's son had moved quite a bit because

the way the token unlocked structure worked is some of the quote-unquote insiders or early investors like Justin's son, they had an unlocked period. The Trump family's actually under stricter rules. Their tokens aren't unlocked for quite some longer time. So when Justin's tokens became unlocked, he moved some of them to an exchange. She used to be the Hwobie Exchange. And then he was going to potentially sell them. Or the question was, was he going to sell them?

Was he going to manipulate the price of the token? It seemed like he was going to dump. He was afraid who's going to dump? And so, you know, again, I only, I chuckle only because crypto, the whole spirit of this is supposed to be this free market without these controls in place. And if he had this right to maybe sell the tokens, he could have done that. But that was stopped. And then he was blacklisted.

And that, you know, brought a lot of ire from the crypto. industry like you know Zach ZBT who who sort of mentioned you know if we're going to start just freezing you know wallets in the middle of a defy system that's just that's a worst problem than anything when it comes to decentralization now they had blacklisted wallets before um I'm sensitive to this point for the Trump family and the administration to the degree whether you think they should be running a crypto business while he's president or not is I think in a way they had to do KYC, Stephen, because if you're president of the United States, you have to make sure that the wrong people aren't part of your program or if someone,

the really bad actors are trying to influence it. I know there's a lot of talking points and Democrats make noise all the time, is the president being bribed or whatever, but it was going to that famous dinner, how much of vetting when you had to do KYC. So there's this idea of we can all be anonymous, but let's just say, this, you know, Satoshi Nakamoto couldn't really be president in the United States. And so with his obligations as president, I think they've had to do these KYC controls. But it, but that, but that again calls into the question of you're trying to run a business

that other people have been working on in the industry who run it sort of as true defy. This is sort of a mixed version and, and, and has grown in billions of dollars of value in a very short time. You talked about how they rolled out the USD one stable. point, you know, the values for the Trump's right now is somewhere average around $3.7 to $4 billion. It's doubled his wealth. So you have somebody very new to our ecosystem, but very well known. And, you know, kudos to the president. He's used his name and he's made a lot of money in an industry, which is a lot of the way he's made money in hotels and resorts is through that Trump name.

But, of course, if you're just building and you happen not to have that name, it feels like a little bit of an unfair fight. that market structure could equalize. And again, that's why this became so interesting because right now the White House in the middle of negotiations on a bill that could apply laws that could specifically, you know, handcuff his business or have to, they'd have to reorganize that business. And it's not a small amount of money. It'd be impacting them in the billions of dollars. And we're going to explore that in much more detail in a second.

But first, we need to take a brief pause to hear from some of our show's sponsors. Mantle has entered a new phase as the distribution layer connecting TradFi and on-chain liquidity. To accelerate this vision, the Mantle Global Hackathon 2025 is inviting developers to build scalable RWA and DFI products. Why build on Mantle? It's an ecosystem built for builders. You get direct access to ByBits 7 million plus users for potential listing exposure, support from the $4 billion Mantle Treasury, and mentorship from top VCs like Spartan and Anamoca brands. With six tracks, prioritizing RWA's and RealFi, and a $150,000 prize pool plus grants,

this is your chance to deploy on a high performance modular L2. Register now. The link is in the show notes. All right, Jason, so we're back. I really just want to hit on two quick points before we wrap up. One, I'm curious if you're aware of any feedback from the White House about how to handle this defy issue when it comes to market structure. You've reported in the past, and we've seen from plenty of other sources, how the White House has really pushed back on any sort of ethical constraints that would limit the way that the president and his family close advisors could profit from this industry.

But have they done anything or even Patrick Witt, I guess the, I forget the exact title, but basically the, David Sacks is underling to handle crypto. Executive Director of the President's Council on Digital Assets, yeah. Thank you. That's a better title than Underling. Can you talk about, have they given any signals on how to handle Defi or how they'd like to see Defi handled when it comes to market structure? You know, I haven't heard specifically how any of that feedback came in as far as through

official White House channels and Patrick Witt. who of course has, you know, a number of stakeholders, right, who, but, but, but, but defy itself has already been at the center of controversy around market structure, mainly because the defy, um, contingent in our industry has been looking to make sure they're protected in the market structure bill and not unnecessarily swept, swept under, you know, centralized rules. And there's been, you know, hard pushback from some Democrats who want to see, you know, like validators and miners and other people be part of that, um, you know, part of that market structure. So it's already a sore point. I think, you know, there's general

concerns from Senate Democrats that come up about the ethics and what, you know, Trump is doing as president. What I would say for right now with Trump is that this is about, it's, to me, it's less about ethics and it's more about the aspect of, you know, when this bill is formed and goes to the White House to sign, you know, how is it going to actually impact, you know, the financials award Liberty fight? And then there's going to be a ramp up period. And I guess I say that, Stephen, because what's important for people to understand about this story and why people in crypto need to think about it is if it takes a while to get market structure done, when we finally implement it, by 2008, you might have a new president. And if you have a new president that's a Democrat,

and you don't have a market structure in place, then you're in a gray area again. And then it's all about going to the courts. And it's like we've recycled everything we had to go through with Gensler. I'm sure that's the last thing Trump wants. So to me, there's an incentive, I would think, on the White House's part, or at least on Trump's part, to want to get this bill done, not just for the rest of the industry, but also so there's protections under those laws. Yeah, I guess so. I mean, that certainly makes sense. But I do want to push you a little bit.

Because when push comes to shove, I guess it remains to be seen what will happen. And we probably should have said this a little bit earlier, but you reached out to both the World Liberty Financial Team and the White House for comments. And neither one. The White House did not respond at all. And the World Liberty Financial team did not respond before publication. And we haven't heard from them after publication either. But when push comes to shove, if Donald Trump and his family claim the world liberty financial is decentralized, but the rules of market structure suggest that they are centralized, like, what do you think that might mean for the credibility of the bill in general? And like, I mean, I don't know if this is too forward of a conversation, but like, could you imagine a world where the SEC perhaps investigates?

World Liberty Financial for not fraud, but just like circumvention of securities laws. Yeah, I mean, those are, you're right to push on that, Stephen. I think, you know, the White House should answer these questions. So should World Liberty 5, but the White House, because Trump is, is at least maybe a silent owner, at least through or controls this particular network, I think, you know, getting an understanding of what that means and what it means. And what it means if you're saying something is decentralized, you're putting that out there as a platform, maybe it's not an SEC concept about the securities. If you analyze it, maybe that would be the result. But at the same time, you're going to have, like, maybe it's an FTC thing, right? You know,

federal about your, you know, fair marketing of what you're doing. And these are hard questions to ask, but it makes it even harder your question because, you know, the old SEC with a Democratic appointee as Gary Gensler probably would go after, you know, these questions and want to understand it better and possibly even, you know, file a Well's notice. But crypto was beat up so much as an industry and Trump kind of won because of the crypto industry. And then he appointed Paul Atkins, who's a pro-cropto guy who's heading the SEC. And I'm sure does a fair and judicious job, but it's very difficult, right? Because he's been appointed by Trump. The SEC is supposed to be at the end of the day, you know, an independent. regulator. And, you know, I think about that a lot, like as far as making these decisions, what's best for the economy, what's best for the market. And so the question is, how much independence does the SEC have to go after them? So like so many things, right, that Trump has done where maybe you could say there's justifiable reason for an agency to go after him. In reality, Stephen, is that really going to happen? So yes, I think the SEC under the last administration probably

would send an inquiry by now and do an investigation. I understand is this really a centralized or is the World Liberty Financial a token. But I you know in the new world that we live in right now you're you're just not going to see that from practical point of view. I don't think. Yeah. I guess we'll have to wait and see what happens with the development of world liberty financial LF5 the token and and and most importantly market structure. And I guess if I if I could before we is Stephen, I think the important thing is just how um, you know, knew this all is that we're totally uncharted territories because we've never really had a president that's done active business before so not only do we have a president that's in the commercial sector

this is a new commercial sector with developing laws where his white house is involved in making the law and at the same time he's running a business in it so there's just so many we've just never had this as a country yeah yeah it reminds me of a conversation i had with tim misad the one of the former CFTC chairman, I guess last year. And he said something to the effect of when Jimmy Carter was running a peanut farm, he wasn't working on peanut legislation. Yeah. Anyway, Jason, terrific story for, I would highly recommend everybody read it on unshane.com. There's a lot more detail than what we're able to cover in this interview. And please tune back next time for for more conversations from Unchained on Air.

Have a good day.