“Satoshi Nakamoto solved one of the hardest problems in computer science: distributed trust. It showed a way to build an application such that the data’s decentralized. I would argue that crypto can’t succeed if Bitcoin doesn’t succeed.”
Asiff Hirji and Kyle Samani describe their crypto journeys and how they’re engaging with the blockchain-powered technology. Samani talks about why he was drawn to Ethereum and Hirji explains why he left his role as COO at Coinbase to join Figure, a start-up that uses crypto rails in the home equity lending space. Both guests offer their concerns around misguided crypto regulations in the US, particularly after China’s recent banning of decentralized cryptocurrencies.
Asiff Hirji is the President of Figure Technologies, Inc. (‘‘Figure’’), a blockchain-based home equity lender since January 2020. Kyle Samani is a Managing Partner at Multicoin Capital, a thesis-driven investment firm that invests in cryptocurrencies, tokens, and blockchain companies reshaping trillion-dollar markets. Prior to joining Figure, Mr. Hirji served as President and COO of Coinbase, Inc. (‘‘Coinbase’’), where he helped significantly grow the company’s revenue and valuation.
As a former engineer, Kyle leads technical thesis formation and diligence. He is the more outwards facing partner, owning relationships with entrepreneurs and other investors. He is widely recognized in the crypto ecosystem for his writing and system-level analysis.
LISTEN AND SUBSCRIBE
SPEAKERS
Asiff Hirji
President
Figure
Kyle Samani
Managing Partner
Multicoin Capital
TIMESTAMPS
0:00 - Intro
3:27 - Entry into crypto
8:42 - Value of Ethereum
12:40 - Using crypto for home equity lending
17:30 - Interesting use cases for blockchain applications
24:30 - Impact of securitized crypto products
28:50 - Ethereum competitors
32:45 - Using crypto payment rails
36:45 - Concerns around crypto regulations
40:51 - China’s ban of decentralized crypto
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello, everyone. And welcome back to SALT Talks. My name is John Darsie, I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series that we started in 2020 with leading investors, creators, and thinkers. And our goal on these talks is the same as our goal at our SALT Conferences, which we're excited to resume here in September of 2021 in our home city of New York. But that goal is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.
John Darsie: (00:46)
And if you've been a recurring listener or watcher of our SALT Talks, you know of our enthusiasm for the crypto or the digital asset space, and we're very excited to bring you our latest episode of our digital assets series with two fantastic founders and executives in that space. Those two guests that I'm referring to are Asiff Hirji and Kyle Samani. Asiff is the president of Figure, which is a blockchain-based home equity lender. And prior to joining Figure, Asiff was the chief operating officer and president at Coinbase. Prior to that, he was an operating advisor at Andreessen Horowitz, chief restructuring officer of Hewlett-Packard, and served as the president and COO of TD Ameritrade.
John Darsie: (01:32)
Asiff also held senior leadership positions at TPG Capital, Saxo Bank, Hewlett-Packard, and Bain Capital, and is served on a number of public and private boards, including Citrix Systems. Kyle Samani is the co-founder and managing partner at Multicoin Capital, which is a thesis-driven investment firm that invests in cryptocurrencies, tokens and blockchain technology. In his current role, Kyle helps identify market opportunities and sets the strategic direction of the firm.
John Darsie: (01:59)
Prior to Multicoin, Kyle co founded Pristine, which is an enterprise software company that enables desk-less workers with solutions for smart glasses. And under his leadership as CEO, Pristine grew to millions in revenue and raised over five million in venture funding before being acquired by Upskill in 2017. Kyle is based in Austin, Texas, and holds a degree in finance and management from NYU Stern, and has been programming since he was about 10 years old, definitely way ahead of me on that one.
John Darsie: (02:30)
But hosting today's talk is me. Again, I'm John Darsie, I'm a managing director at SALT as well as a director of business development at SkyBridge Capital, which is a global alternative investment firm. That was about eight billion in assets. We also were the first [for-React 00:02:45] fund and the first fund of hedge funds to make a direct allocation into Bitcoin. And we currently have about $500 million of exposure into Bitcoin in our flagship products. But I want to start off, Asiff, I read a little about your bio, but I want to hear more from the horse's mouth.
John Darsie: (03:02)
You were at TD Ameritrade, you were the president and COO. You also have worked at some of the most respected investment institutions in the world, Bain Capital, TPG, Andreessen Horowitz. What convinced you as somebody that has this diverse background that it was time to dive head first into the crypto space, into the digital asset space that you did at Coinbase and now at Figure?
Asiff Hirji: (03:25)
Thanks for inviting me to this. Look, I've been an operator, entrepreneur, investor in fintech for over 30 years. I started initially in things like direct banks and insurers. And I would tell you, I'm a software engineer by background, so to me, very simplistically, we've been to two waves and we're now going to the third wave of innovation in financial services. The first wave was we went off mainframes and onto distributed computing, protocol-led, Internet1, great businesses being built including things like Ameritrade and so on. Basically, what we did was we made it self service.
Asiff Hirji: (03:55)
We took things that you had to go into a bank or a teller to do and we made them self service on the internet with a web browser. And that lowered costs and increased inclusion, but fundamentally, it didn't alter the cost structure. The next thing we did was when we went from distributed to mobile cloud, and that made things like the phone ubiquitous, it made lots of different types of products available. Again, all you did was you took the application and shoved it further out towards the user. It lowered some costs, but still didn't fundamentally attack the cost structure of financial services.
Asiff Hirji: (04:26)
We're now about to go through the third wave, and that's from mobile cloud to decentralized, or blockchain, if you prefer. And for the first time, we're actually affecting where the data is. The data is no longer on a central computer somewhere, the data is now distributed out to the users. You control your own data, Kyle controls his own data, I control my own data. And the fundamental thing that blockchain does is it gets rid of the intermediaries. The financial services system we have today is built such that you have to have a whole bunch of trusted intermediaries in every transaction, because that's the only way you can ensure that if I want to pay you, John, some amount of money, that my bank takes it from my account, sends it through the pipes to your bank, who then ultimately gets it to your account.
Asiff Hirji: (05:08)
And every single intermediary along the way there charges a fee. With blockchain, you can have peer-to-peer, bilateral, risk-free, real-time settlement. And that means I can send you money as easily as it would be for me to send you an email. As long as I have your address, I can send it to you and there's no settlement risk, and it just settles. And that means that the cost structure crashes for financial transactions. And so that's why I'm excited about crypto in general, which is, I think it'll fundamentally rewrite the way we do financial transactions. It'll make financial services more or less free. So this whole concept of the un-banked and under-banked will go away because you'll have financial inclusion.
Asiff Hirji: (05:45)
And best of all, you will be able to create this with far less capital being deployed, far less complexity, and you'll get rid of a number of the issues that we've had most recently with things like say the GameStop situation, or what happened with Robinhood, etc. None of those things can happen in a bilateral, risk-free settlement mechanism that crypto allows.
John Darsie: (06:05)
And Kyle, you come from a programming background, an engineering background. What was your Eureka moment as a young man deciding that you wanted to make crypto or digital assets your career?
Kyle Samani: (06:18)
Yeah. In early 2016 after I had stepped down from Pristine, I was trying to figure out what I wanted to do next with my life. I had studied finance at NYU and always had an interest in the intersection of software and finance. I started playing around with some of the Stripe's API, this is like February, March, 2016. And I got to the limit of them pretty quickly, which is basically Stripe made it really easy to accept credit card payments as a merchant. And I remember I had some ideas I was struggling with, and one of the ideas I remember I had is that I wanted to do something where as a user, I could go to a website and I could receive payment as a user quickly, like within five to 25 seconds, depending on my identity or some action I conducted or something.
Kyle Samani: (07:04)
And I just assumed that Stripe was the payments company, top dog. I just assumed that Stripe made it really easy as a consumer, you can get paid reasonably quickly. And what I learned real quickly after digging into Stripe's API's is that, A, that's, that was wrong. And that even still to this day as a consumer, if you go to a website, getting paid is very, very difficult. Paying is okay, I wouldn't say it's great, typing in a credit card and paying is okay, but getting paid sucks, and I realized that limitation.
Kyle Samani: (07:35)
I discovered about Ethereum and it dawned on me quite quickly that with Ethereum, I could go to any website and I could get paid theoretically in seconds. And then I started exploring what else you could do with Ethereum, and I realized that it was fully programmable extensible money. And when that light bulb went off, it struck me as a very, very important idea in technology. And so over the course of 2016, I started reading and learning about the space and investing my own money and time. By the spring of 2017, I had developed a full time internet hobby and made a decision to do that professionally instead of just personally.
Kyle Samani: (08:08)
And so I made the decision to launch multi point in May of '17 and we launched our hedge fund on October 1st of '17.
John Darsie: (08:15)
And we often come at these talks through the lens of Bitcoin as most people's gateway drug into crypto or DeFi, but you're not a Bitcoin-first evangelist within the crypto space, you're much more Ethereum first. And then obviously, Multicoin, you guys are investing in series of protocols. What did you like about Ethereum and what didn't excite you about Bitcoin? And to this day, how do you look at the differences between those two platforms?
Kyle Samani: (08:44)
Generally speaking, a lot of those sources of confusion, both inside of crypto and among new folks who are getting into crypto is the split between what I'll call the money crypto people and the tech crypto people. The money crypto people tend to have an econ background or tend to be focused on libertarian ideals of sovereignty and ownership and central-banks-inflated monetary base and all those kinds of things. Those were obviously the first people to get into crypto because that's what espoused Bitcoin.
Kyle Samani: (09:17)
And the tech people have only gotten into crypto more recently building on top of Ethereum and now on top of some of the newer smart contract platforms like Solana and some other ones as well. I've never had a strong background in economics or never had dove and into the history of central banks and all those things, so the Bitcoin value proposition to me just never resonated. I knew what Bitcoin was in 2012, I just didn't care. Ethereum struck me as important because I understood that I could program money in ways that Stripe could not let me do. It wasn't 10% better than Stripe, it was infinitely more extensible than Stripe. And so that's what pulled me in into the space.
Kyle Samani: (09:59)
Since then, the space has evolved even more, and we can do all kinds of things that I couldn't have imagined then, and now these systems are coming and scalable and we're seeing the next wave of things that you can do that are truly crypto native, things like social tokens and NFTs that weren't even conceivable a few years ago.
John Darsie: (10:17)
Right. Go ahead.
Asiff Hirji: (10:20)
Let me have some perspective on that. I was one of the original Bitcoin believers and I still am, that's what got me into it. And I would tell you that as a software programmer, and I do have a finance background, but whoever he, she or they were, Satoshi solved one of the hardest problems of computer science, it was how to do distributed trust. When I was at Watson Labs way back when, this is one of the issues we used to try and beat our heads against the wall against that we couldn't come up with a solution. They came up with a solution, and it's pretty ingenious. But more than that, they showed a way to build an application such that the data is decentralized. That's the fundamental breakthrough.
Asiff Hirji: (11:01)
And all the other things that came along, whether you're a Ethereum believer or a Solana, it doesn't matter, they would not have been possible without Bitcoin. And I would argue, and maybe this is not a popular point of view, crypto can't succeed if Bitcoin doesn't. And that's because the Bitcoin, if you think of crypto for the average person, if you said crypto, they would think Bitcoin, they don't think something else if they think of crypto at all. And to have the single largest asset in the space, the one that the started the space then fail is not going to be helpful for the industry.
Asiff Hirji: (11:33)
It's not like the internet where you could say, "Oh, AOL introduced the masses to the internet, and then it's okay that AOL failed because we had the rest of it come along." To me, it's not the right analogy. So a couple of things in my mind, one is Bitcoin is super important. It solved one of the biggest problems and showed us how to build applications in a way that we hadn't thought before. I believe it's a store of value, I believe it'll continue to innovate with stuff being built on top and beside it. But I think that it has unleashed all the other innovation that Kyle is talking about.
Asiff Hirji: (12:06)
We wouldn't have had NFTs, we wouldn't have had all these other things without Satoshi, again, whoever he, she or they were, having created the breakthrough in the first place.
John Darsie: (12:16)
And also tell us about Figure. So you were a president and COO at Coinbase, you were responsible for a lot of early to mid-stage growth. You left prior to the direct listing, but you were responsible for a lot of the growth there. And you probably had your pick of the litter in terms of where you could go next in the space, you chose Figure. Tell us about what Figure is and why you chose that.
Asiff Hirji: (12:40)
I go back to, I really think that blockchain or crypto should be fundamentally rewriting the way we do financial services. And it is, if you look at DeFi, but DeFi is aimed at people who are already long crypto. DeFi is bringing traditional financial services products to people who are already long crypto, it is not showing people like you and I and others who are using traditional financial services how to use crypto do those things better. Do you understand the difference?
John Darsie: (13:11)
Yeah.
Asiff Hirji: (13:12)
So if you're a long crypto DeFi's great. If you don't have crypto at all, so far, blockchain has had no impact on you at all, unless it's a speculative asset class. And for blockchain or crypto be successful, it needs to be as ubiquitous as the internet. We shouldn't be able to imagine living life without it if that's really going to be successful. So one of my biggest frustrations at Coinbase was that most of the projects that came to us while they espoused that they were doing something in financial services for the masses, etc, what they really were was token speculation. When you got right down to it, they really weren't doing anything real.
Asiff Hirji: (13:47)
And so I went looking for, who is using blockchain to at scale make financial transactions, everyday financial transactions better? And Figure was the only company I found. And what Figure is doing is, it takes very simple financial transactions that we do every day, like I want to borrow money to buy a house, or I want to borrow money to pay off my credit card, or I want to make a payment to a person, etc, and it's built how to do them on blockchain. So it's taken these really immensely complex, capital-intensive processes and boiled them down to things that happen in minutes with minimal capital requirements.
Asiff Hirji: (14:24)
And we're not doing it because we're trying to be the biggest lender in the world, we're doing it to show the lending industry it can be done. We were able to originate mortgages at double the margin of any other provider in the space, we're able to do home equity lines of credit instantly, whereas it's normally a 45 to 60-day process. And now, we have the largest players in the space looking at our technology wanting to adopt it, and that's what we're after. We're after them trying to adopt it and bring out the solutions to the masses with lower capital and much lower costs. That's the promise of crypto and that's what we're trying to push.
John Darsie: (15:00)
Why did Figure star with home equity lending as a product? Was it a proof of concept in order to expand to a more institutional audience to demonstrate that proof of concept? Why did they start there?
Asiff Hirji: (15:12)
We needed something that had both sides of the market. We needed something that the consumers needed and that the financial markets would then buy. So you could choose a lot of things. And then we wanted something that you could actually control end-to-end to begin with. And so a home equity line of credit is actually a good product that way. If I was traditionally a lender like a SoFi or whatever, I would originate, say $100 million worth of these loans, and then I would go to the market and say, "I want to securitize this." I would represent what that package looked like in terms of FICO scores and loan to value and geographic distribution, I'd get a bunch of bits.
Asiff Hirji: (15:50)
I'd pick a winner. They would hire an auditor, they would audit my loans. 60 to 90 days later, the transaction would finally settle. In the meantime, all my loans are tied up and capital's being consumed, the buyer's got their capital tied up. A hugely expensive process. We don't do any of that because when we originate a loan now, we get the credit score company to stamp the score to the blockchain. When we get a valuation, we get the valuation company to stamp the valuations on blockchain.
Asiff Hirji: (16:15)
There's no more auditing anything, you as an investor can sit there and say, "Hey, I want California. I want CLTV less than 80. I want FICO over 720. Only loans that match that show up in the end because we're replacing trust with truths on the blockchain. And if you want them, you can bid on them in the open market and you buy them. And so we've turned the 45 to 90-day capital-intensive process to a capital in advance of origination process. It's capital light. That's just in one product.
John Darsie: (16:45)
It almost reminds me a little bit of the early days of Amazon, where Jeff Bezos chose books as his proof of concept. "Okay, I'm going to master the logistics around delivering books, the commodity that everyone knows and likes. And then once I do that, I'm going to, I'm going to expand this technology to a whole different suite of products.
Asiff Hirji: (17:03)
Exactly. Exactly right.
John Darsie: (17:06)
Kyle, at Multicoin, you guys do multiple things. You invest into liquid tokens, but you're also investing into project builds on top of it, a lot of the blockchains that you're investing in. What are some of the most compelling use cases you've seen? In addition to talking about something like Figure, what are other really interesting use cases you've seen for blockchain-based applications?
Kyle Samani: (17:29)
Yeah. I'll touch on an example here that's very real-world and tangible. And then if you want, we can go into some of the more abstract, weird less tangible things. So we are the lead investors in a thing called Helium. Helium was one of our largest positions and we're super excited about it. Helium is new business model for deploying and managing wireless networks. So what does that mean? If you think about Verizon or AT&T today or any of those big telecoms, they're extraordinarily capital intensive.
Kyle Samani: (18:01)
They have to go identify where they want to have towers, they have to rent the land, they have to work with tower companies, they have to work with city governments. They have to hire armies and armies of people, get them trucks, get them much of hard hats and equipment. They drive around, they install all this equipment, they run a bunch of back haul. It is extraordinarily capital intensive, and they have to do it at large scale, like doing one city alone is not enough because people expect their phones to work wherever they go, so you have to do large, large geographical coverage.
Kyle Samani: (18:29)
The only way to do that is to then raise a tremendous amount of debt financing and then lock in your customers into two-year contracts so you have some guaranteed revenue that the underwriters will lend against, basically. And it's obviously a very centrally coordinated and top-down. Helium is basically the exact opposite of that. The vision of the Helium is any Joe Shmoe at home, either a consumer in their home or a small business owner can buy a hotspot, which is about yay big, plug it in the wall, put next to the window, plug in electricity, plug in ethernet and then create radio waves, and any device walking around nearby can access those radio waves and pay per byte of data.
Kyle Samani: (19:07)
And if you think about this model, you take the two largest sources of costs, which are labor and land, and you send both of those costs to zero. You just outright remove those costs from the system. And so this is really disruptive to the cost structure model of telecom. We were fortunate to lead the last round of Helium in 2019, and they started rolling out the Helium network later in 2019. Today, there's over 60,000 hotspots live around the United States and Western Europe and China, another 500,000 hotspots have been back ordered, but not yet shipped.
Kyle Samani: (19:42)
And you just see this network really rolling out. And so this is the kind of thing that we're really excited about, is using these decentralized technologies as a way to incentivize people all over the world, we don't know each other, don't trust each other, to all do some collective action and produce some net positive results as a result of that coordination. And the best part of this whole system is, the whole thing is not centrally owned and managed. Helium Inc mean could go out of business today and the blockchain would keep running, all the systems would keep running. It's a truly decentralized system.
Kyle Samani: (20:15)
That is the new kind of crypto-enabled business model that we think is super exciting. That just you can't map this to the traditional Web 2 type business models at all.
John Darsie: (20:27)
It's fascinating. So now I want to hear your weird abstract application.
Kyle Samani: (20:32)
Yeah. DeFi is the first segment of that. As Asiff noted today, this DeFi ecosystem has a fair bit of press coverage. There's probably $50 billion or so of capital sloshing around in it right now. It is circular, the DeFi ecosystem is mostly people levering up to speculate on more DeFi things. That is okay, that is not bad in and of itself. It's the Wild West, and the first thing people did was take leverage because that's what people do in financial markets. And what level up on is they leveled up on other DeFi crypto things. But now they're proving that this stuff works and you're going to start to see it expand into more regulated institutional offerings over the next few years.
Kyle Samani: (21:15)
So DeFi is section number one. I won't harp on it too much more. I think some of the newer cutting edge areas that we think are super interesting are things like social tokens and NFTs, and I think these things go together in some interesting ways. Social tokens are my favorite thought area at the moment. What is the social token? You may ask. There's no strict definition, but I'd say loosely, the idea of a social token is having a token that is in the name of a person or a group.
Kyle Samani: (21:46)
So it could be Kylecoin or Asiffcoin.
John Darsie: (21:49)
SALTcoin.
Kyle Samani: (21:50)
Huh?
Asiff Hirji: (21:50)
SALTcoin.
Kyle Samani: (21:50)
It could be SALTcoin.
John Darsie: (21:54)
We're working on that.
Kyle Samani: (21:55)
You can get it be whatever. You can have David's get a coin, you can have Red Hot Chili Peppers' coin. I don't really care. Pick your entity or organization that today doesn't really have an asset that represents value and their utility around them, and give one of them to those people. Obviously, one thing you're going to say is, what do you do with these coins? And the answer today is, I don't really know. But I do know that people are creative and they're going to do all kinds of weird wacky stuff with them. And I do think it's going to become a normal part of society where... It might not be everyday people, I don't know if my mom is going to have her own coin, she probably doesn't care.
Kyle Samani: (22:33)
But I think for anyone who has a public presence on the internet, it's just like everyone has an Instagram or a Facebook or a Twitter, it's going to become part of the public discourse on internet society. And creators and celebrities are going to do interesting things with their coins. So the obvious things are like, "Hey, if you own X number of coins, you can get lunch with me. You get access to movie premieres and stuff like that." Those kinds of things are relatively obvious and will happen over the next six to 12 months. I think there's going to be a bunch of creators though that starts to do really interesting things.
Kyle Samani: (23:06)
Like, for example, these TikTok hype houses, I wouldn't be surprised if you know those creators, you get three of them and say, "Look, if you own X number of each of our coins, you can come be in our next TikTok video, and you can use that to launch your own TikTok career and then develop your own brand identity from there. And the way that these things are going to get remixed, I think this is going to be super interesting and fascinating. The design space for social tokens is incredibly broad and interesting and is going to unlock the intersection of human creativity and finance in a way that it has never intersected before.
John Darsie: (23:38)
So Asiff, going back to Figure, you guys demonstrated the use case for blockchain technology with this home equity products. On March 11th, you had your first securitization, it was an ABS securitization. Maybe prior to that, banks were saying, "Oh, this blockchain thing sounds kind of interesting, but do we really need it? We have traditional databases. We have traditional ways that we gather information about the underlying loans and assets and the securitizations." Did that trigger some sort of aha moment for banks that that's led to a different level of interest?
John Darsie: (24:13)
And let's say for example, we had Figure during the global financial crisis or prior to the global financial crisis, how would Figure had changed the way we analyzed different securitized products and would it help prevent potentially the crisis?
Asiff Hirji: (24:29)
Two really good question. Securitization was a milestone, and third-parties went and looked at it and said, "Hey, compared to a regular securitization, not including the ratings, which is even more expensive, this saved over 120 basis points compared to a regular securitization." Now, you think about how big the securitization market is, 120 basis points on that is a very, very big number for the industry. So we got a lot of interest in that. And it's just some of the very basic things that are different. So if you're using blockchain, for a normal company originating loans, running a warehouse, you warehouse loans before you get ready to securitize them.
Asiff Hirji: (25:07)
If I've got a provider of the warehouse, that provider of the warehouse has three to five people managing the exposures in the warehouse to make sure I'm not overrunning the geographic distribution I'm supposed to be in or the FICO scores or whatever, and I've got two or three people doing that. We have none of that with blockchain. It's a smart contract. The smart contract basically says, "Here are the rules that govern the warehouse." That's it. If the rule set is right, you can't overrun the warehouse with stuff that you're not supposed to. And so those three to five people go away on both sides. It's just one very simple example.
Asiff Hirji: (25:37)
And so we've got to the point where when we originally started, we had hedge funds as the primary buyers of the loans we originating. Now, it's major banks, credit unions and pension funds who are the major buyers of all these things. And secondly, it was hedge funds that were providing the financing. Today, the financing is provided by the Wall Street banks, all the big ones, including JP Morgan. If you had said two years ago, Jamie Dimon's bank who said Bitcoin was a sham was providing a warehouse on blockchain, people would've laughed you out the building. But that's what they're doing.
Asiff Hirji: (26:12)
So what's happened in terms of the adoption. And to your second question, because the servicing data is all, again, on blockchain, our servicing data is real time and it's real time available to anybody. As long as you have the loan ID, you can look up the performance of the loan real time. When we had the COVID correction just over a year ago, we actually had hedge funds who were buyers of our loans using our real-time data to look at the performance. They were using it to ARB MBSs is on the market because they could see how well our loans performing relative to others.
Asiff Hirji: (26:47)
And by the way, our loans were outperforming first lien Fannie. That's how well they were performing because we had the real-time data and we're able to manage them in real time. And so again, you go to a blockchain-based system, it is less capital consumptive, it is much more real time, it is hired there for credit quality and higher credit performance. There's no reason to not do it this way. And that's all we're trying to do. We don't go in saying to people, "We have a blockchain-based system, are you interested?" We go in and say, "We have a system for loan origination, sales and service that saves you over 150 basis points, is real time and requires less capital. Are you interested?" It just happens to be on blockchain.
John Darsie: (27:29)
It's an example of the COVID correction that really resonates with us at SkyBridge. We had heavy exposure to the structured credit space, that entire market broke down on a technical place-
Asiff Hirji: (27:39)
Correct, it froze.
John Darsie: (27:40)
All these intermediaries, and one decides to do something out of the ordinary and it freezes the entire market. We are very transparent with our investors, we're marking things to market. The entire market froze, so we're telling people, "Our assets are marked down 25%." Fundamentally, they're not impaired. We don't think really at all, or definitely not to that extent. But if you remove all those intermediaries and you create a more efficient, transparent system, you make a lot of people's lives easier, including ours when communicating to clients around March, April of 2020.
John Darsie: (28:14)
But Kyle, you talked about how you really got jazzed about crypto through a Ethereum. You said, "Wow, this is taking what Stripe has done with this API and putting some leverage onto that." But there's other blockchains that compete with Ethereum. Ethereum obviously has as created tremendous network effects has become the go-to platform for NFTs and other tokens, but there's other blockchains that are out there doing similar things that in a lot of ways might be more efficient or better constructed. What are some other competing blockchains with Ethereum that you think stand out?
Kyle Samani: (28:49)
Sure. We're going to get loud public investors in a blockchain called Solana where we've been early investors. They started R&D back in early to mid 2018. Solana network has been live now for about 16 months or so. The reason why we've been so excited about Solana is they have from inception, been focused on two things, one enabling on-chain limit order books, and two, really focusing on scaling these systems. One of the interesting thing about Ethereum from is the market cap of Ethereum today is 250 billion plus or minus, and the number of daily transactions on Ethereum is about one and a half million.
Kyle Samani: (29:31)
So if you just think about that math, of any system you know whether it's Facebook or Twilio or Uber or whatever, any of these systems, the market cap per daily user on Ethereum is truly... It's at a totally different level. It's very, very high market cap per daily user. Now, these things aren't apples to apples comparisons because they're obviously different and what they do is different, so you can't rely too heavily on a direct comparison, but they really... The number of users there is actually a lot smaller than you would think, given the hype and given the market cap.
Kyle Samani: (30:06)
Our theory has been that you have to scale these things to get you to 500 million daily users plus, and the Solana team has provided an incredible alternative approach to scaling these things where you can write code now and know what's going to work in six months and in 18 months and in 24 months, and you know how it's going to scale. And so we've made a big bet there. And in the 15, 16 months since this thing has been live, we've seen a number of pretty interesting developers take advantage of this, and the most notable of which is called Serum.
Kyle Samani: (30:41)
Serum is a new order book, it's a decentralized exchange. It's conceptually similar to Coinbase or FTX or these other things. But it runs natively on a blockchain. If you think about the financial markets, look at equities, look at FX markets, look at commodities, look at any of these things, the way that all of these liquid assets trade is they trade on order books. You've got market-makers quoting spreads and quoting liquidity, and obviously, you're adjusting the prices as new information comes out and whatever. And that's how finance works. And there's a reason that it works that way because it's the right way to price assets.
Kyle Samani: (31:17)
The challenge in Ethereum has been because of the throughput limitations, you just can't run an order book on Ethereum, and everyone has agreed that that doesn't really work. And Solana has been architected, that was the goal from inception was to run an order book on-chain. And they've now proven that's possible. It's not as performant as the NASDAQ or New York Stock Exchange, and I don't want to claim that it is, but it's close enough that you can get global permissionless order books for any arbitrary asset. And that works now, and you can see it live now, and that's already trading 50 to a million dollars per day on Serum right now, and that's been growing at a nice, steady clip.
Kyle Samani: (31:53)
We really think that the key primitive heading an order book available is going to be the most important financial construction as we think about scaling these systems to billions of people.
John Darsie: (32:04)
So if I want to go to payments, as we've talked about, Figure started with HELOC loans, and use that as a proof of concept and has gone out and done securitizations now, and is getting heavy institutional interest, but also has ambitions to solve this blockchain for payments issue, which is one of the holy grails for the industry about how to really potentially move off of those Visa, MasterCard rails to deliver point of sale credit. Could you explain to people who are less familiar what that means, what the implications of that are, and whether it is realistic to move off of those traditional credit card rails and why a point of sale credit is a better solution.
Asiff Hirji: (32:45)
Yeah. Look, if you and I walk into a merchant and we take out a credit card and swipe it, there's actually at least seven or eight intermediaries who take part in that transaction between my paying for something and the merchant receiving the money that I'm trying to pay them and me receiving the goods. And again, each of those intermediaries takes a cut, and the poor merchant depending on the size is paying somewhere between 100 to 300 basis points on that transaction. It's super expensive. And most of the merchants are paying at the upper end of that in terms of a fee. And a lot of that goes to, again, back to the complexity that we've built into the Visa-MasterCard system.
Asiff Hirji: (33:23)
And not only does is it really expensive, but the way Visa-MasterCard works because it's a credit product, I the merchant, I'm not actually guaranteed that I'm getting the value for the transaction because the consumer can claim that there's fraud or something else, and then I get a charge back. And so it's a hideously expensive process for the merchant. Studies show that a merchant on a $100 is maybe clearing something between 87 and 95, depending on what they're doing and how often they get charged back, etc. So go back to, what does blockchain do really well? Blockchain does real-time bilateral settlement between two parties, no intermediaries.
Asiff Hirji: (34:03)
So if I went into the merchant and I could pay with stable coin into their wallet, from my wallet to their wallet, it settles instantly, there is no risk anymore that there's going to be a charge back. There is no fee other than the blockchain processing fee itself, which is orders of magnitude lower than the 300 basis points that Visa, MasterCard, etc, are charging that merchant. You take just a tremendous amount of cost and complexity out of that system. So we have built a service we call Figure Pay, which is a challenger bank, so think Chime or Dave or whichever your favorite is, meets buy now pay later, say something like a firm meets merchant acquisition, so think Square.
Asiff Hirji: (34:43)
So it's got a card, you can use it at any merchant, but if it's a Figure Pay merchant, it's not the 300 basis points, it's more or less free, and it uses QR codes, just like they do all over Latin America and China, it's running entirely on blockchain. And if you were a fintech, not only can you leverage this product to offer payment services to your customers, but you can also offer banking services, because the core banking functionality is provided by the blockchain, there is no core. So if you're a bank, one of the biggest costs you have is your core banking system, which is probably antiquated written in COBOL 15, 30 years ago. And again, all of that goes away using blockchain.
Asiff Hirji: (35:24)
And so we have four or five of these businesses lending being the most mature, pay being somewhere in the middle, and we have some that we're incubating. Pay is now getting traction like lending was, say two years ago. Lots banks looking at it, lots of fintechs looking at it, lots of retailers are looking at it as a superior way of providing that merchant acceptance credit card type functionality, also banking functionalities to customers, again at a much lower cost all over Europe, all over your smartphone, all on blockchain rails.
John Darsie: (35:54)
Yeah. And we're investors in Chime and Klarna, so we understand that story intimately well. I want to talk about regulation. Elizabeth Warren, everybody on Wall Street's favorite Senator, she's both anti the establishment too big to fail financial system, banking system, but she's also been a loud critic of crypto, of blockchain. She recently issued a letter to SEC chair, Gary Gensler saying, "By July 28th," I don't know how she picked that date, "I need to have answers on how we're going to regulate crypto." Are you concerned, I'll start with you, Asiff. Are you concerned about irregulation being this existential threat to the development of this crypto ecosystem and blockchain technology and cryptocurrencies? Or how do you see regulation in the United States shaking out?
Asiff Hirji: (36:45)
I think regulation is a big risk. I think if you look at what China's doing with fintechs that are listing in the US, let alone anything else, the Bitcoin hash rate, if the regulators really are serious about lowering costs and increasing financial inclusion, and that's what they claim they are, if they're serious about that, they have to be pro crypto. I believe the reason that they're not pro crypto is because they don't understand it. And they view it simply as an asset class, which is the wrong way to think about it. And not only an asset class, but a highly speculative asset class, which will only end in their minds badly for most investors.
Asiff Hirji: (37:23)
And so that's why when I was at Coinbase, we started a bunch of things that tried to educate regulators and educate our legislatures about what crypto is and what it can do. And those things are making progress slowly, but they're making progress. And so I believe there is a mismatch between the level of understanding within regulators and their perception of what crypto is versus where crypto is actually trying to go. Are there things in crypto, which are which are scammy? Yes. Will some people lose their money? Yes. But that doesn't mean that all of crypto is scammy or that there is no real value underneath it.
Asiff Hirji: (38:03)
For a lot of what we do every day, there is a better crypto solution that is lower costs and will drive more inclusion for people who are currently excluded from the system.
John Darsie: (38:14)
Kyle, when you're evaluating investments, whether it be in liquid tokens or companies that are developing on different blockchains, how do you evaluate regulatory risk? And what's your outlook for regulation in the US?
Kyle Samani: (38:29)
Building off Asiff comments here, it's definitely a real risk, and there's no one in the world you can forecast how the political winds are going to change both in the executive branch, as well as in Congress and how that's going to filter into the SEC, the CFTC and other regulatory bodies. Those things are actually impossible to predict on any medium to long horizon term. I would say though, I'm just generally an optimist. If you look back at the history of the internet, there's been a lot of moments where people thought it wasn't going to take off, where the CIA and NSA tried to ban encryption.
Kyle Samani: (39:07)
There was that whole debate, there's been others over the years. If you look back at the early history of Bitcoin, say circuit 2010 to 2014 or so, there were a lot of real concerns that governments were going to just shut this thing down as a threat to monetary systems and stuff. And actually now, it's being in a meaningful way, embraced by a number of governments US and others. And so I'd say, I'm just generally a techno optimist on most of these things. And I think specifically, if you look at just wealth creation and obvious lifestyle creation of software and smart phones and computers over the last 25 years, literally everyone in the world understands just how powerful that forces has been.
Kyle Samani: (39:49)
I think general interest is in letting innovators innovate and do things. Obviously some folks like Senator Warren like to yell things on national television, but I'm generally quite optimistic that that's not going to... It may cause some bumps here and there, but I don't think it's going to present an existential crisis of any form.
John Darsie: (40:14)
Do you think it's a Bitcoin issue, but it's also a broader issue for crypto that China is now basically completely exited the entire cryptocurrency experiment? They said, "You know what, well, at least decentralized cryptocurrencies and blockchain technologies." With the DD listing issue that you referenced earlier, Asiff, they're becoming very paranoid about data. And so they want to control every bit of data that passes through that country in and out. And so they're obviously going to prioritize the digital yuan. Do you think China's adversarial stance towards crypto is going to hamper development of the space? Asiff, we'll start with you.
Asiff Hirji: (40:53)
I think that just like every technology, there are two ways or three ways you could use it, some of which are not great. And China is showing us that there is a dark side to crypto, which is you can use it to further the totalitarian state. So should there be central bank, digital currencies? Maybe. Maybe. But China's basically said, "Our currency will be digital because that lets us further enhance the surveillance state because now you cannot get the fiat unless you have a digital wallet and I issued it to you, so I the Chinese government know exactly who you are, and I can track everywhere you spend it. And if I don't like what you say or what you do, I can block it."
Asiff Hirji: (41:35)
Now, that is the evil twin, if you want to think of it, of crypto in almost every sense because crypto is trying to be decentralized, it's trying to empower the end consumer. It's trying to give data back to people so that they can control the privacy settings of it, etc. But that same technology has been used in a very different way in China. My guess is there's been more and more technological separation between the Western and China, and I personally believe that will continue. I don't think it's a threat to Bitcoin or Ethereum, or any of the other projects that we've mentioned here on this show, but I do think that it's a very different application of the same technology with a very, very different outcome, which is not great for humanity at that point.
John Darsie: (42:26)
Kyle, how do you look at the China issue?
Kyle Samani: (42:30)
It doesn't impact us in a meaningful way on a day-to-day basis. They've shut down mining is the big thing that's happened. Motivations are a few fold, but I think that the most cynical interpretations are overstated, at least of that particular action. It does feel like China's generally moving towards a surveillance state, Orwellian future, that seems to be happening. Although, I don't take it for granted that is actually the outcome that we're going to get, although it's a reasonable probability outcome. When we think about crypto and the opportunity in China, there's two angles we think about.
Kyle Samani: (43:12)
One is developers and then there's users. Most developers who are building novel crypto things who are based in China or leaving China just for personal safety reasons, which is pretty smart thing to do. A lot of them go to Taiwan, Singapore, Hong Kong, pick your locale nearby, and that's pretty common. And so that has really created problem for us as a firm. The other question then of course is users for these things. If you look at who is using DeFi today, it's actually overwhelmingly not Americans, it's overwhelmingly people in Asia, Southeast Asia is a massive market and has almost no press coverage in the United States. China is a massive market.
Kyle Samani: (43:51)
And the reason is because obviously people in these countries are trying to opt out of their fiat systems and of their payment rails that they are more or less subject to from birth onwards. And so those people are very interested in experimenting with these technologies, trying them, figuring out what they can and can't do so that they can opt out of the local regimes. And given what we've seen there in the last few years, I'm quite optimistic that we'll continue to be true. It may become more legally risky for folks in China, specifically unclear how exactly how that's going to play out.
Kyle Samani: (44:27)
But there's just across Southeast Asia and China, you've, call it, two billion or so, two and a half billion people, who for the most part are trying to opt out of their local financial systems. And that market is just astronomically large. And so we continue to spend a large percentage of our time and energy both understanding what developers are doing there as well as understanding the way that consumers are using these technologies in China and elsewhere.
John Darsie: (44:54)
Well, Asiff and Kyle, it has been a pleasure to have you on. We'll leave it there, save it for your next appearance, everything else we can talk about here today for your next appearance on SALT Talks. We hope that you'll be able to join us in person in September, we're bringing back our in-person Salt Conferences in New York. There's also the Block Works Digital Asset Summit going on at the same time. So we're excited to have just a really large ecosystem of players in the space, and from the institutional world, we're somebody that's a newer entrant into the space from a SkyBridge perspective, and really excited about all the potential that it holds.
John Darsie: (45:25)
And like I mentioned earlier, Bitcoin has been our gateway dragon and we're excited to be involved alongside the things you guys are doing in the space. But thanks so much for joining us here on SALT Talks.
Kyle Samani: (45:34)
Thanks for inviting us.
Asiff Hirji: (45:35)
Thanks for inviting us, John.
John Darsie: (45:37)
And thank you everybody for tuning in today's SALT Talk with Asiff Hirji from Figure, and Kyle Samani from Multicoin Capital. A reminder, if you missed any part of this SALT Talk or any of our previous SALT Talks, you can access them on our website On Demand at salt.org/talks, or on our YouTube channel, which is called SALT too. We're also on social media, Twitter is where we're most active. We're @saltconference. We're also on Linked, Instagram and Facebook as well. And please spread the word about these SALT Talks, we love educating people, especially on the topic of crypto and digital assets.
John Darsie: (46:09)
So again, share this episode with your skeptical uncle when it comes to crypto. On behalf of the entire SALT team, this is John Darsie, sounding off from SALT Talks for today. We hope to see you back here again soon.