theCUBE + NYSE Wired: Crypto Trailblazers | Mike Cagney, Figure Markets

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Mike Cagney

Founder & Chair

Figure Markets

play_circle_outline Figure's evolution from direct-to-consumer lender to technology provider using blockchain

play_circle_outline Creation of standardized marketplace, Figure Connect, for asset origination and liquidity

play_circle_outline Exploring Blockchain Technology: Revenue Growth and Cost Reduction in Figure's Business

play_circle_outline Opportunities for individuals to get involved with Figure and blockchain technology.

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Mike Cagney, Figure Markets

Mike Cagney

Founder & Chair Figure Markets

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>> Hello, welcome to theCUBE here in our Palo Alto Studios. I'm John Furrier, host of theCUBE. Welcome to our Crypto Trailblazer series, a two-day digital event here at theCUBE with our partners at the NYSE Wired community, Brian Baumann and team. It's the Silicon Valley, Wall Street connection, tech and finance integrated together. And today we're kicking off with Mike Cagney, chairman and former CEO of Figure and CEO of Figure Markets. Give a quick overview of Figure, you guys are really kind of bringing a lot to the table, recent news got a joint venture with Sixth Street. A lot of conversations around changing the game around stability, liquidity. You start to see liquidity come in as the maturity keeps evolving. Take a minute to explain what Figure's doing right now.

Mike Cagney

>> Sure. So, Figure started back in 2018, we were the first to originate consumer loans on blockchain. We were the first to securitize blockchain assets in 2020. And then in '23 we were the first to do AAA-rated securitizations. And along the way we emerged and changed from being a direct-to-consumer lender to effectively a technology provider. So we have over 140 third parties that originate assets native to blockchain through Figure's tech. And that tech ensures homogeneity of assets and leverages the immutability of blockchain to reduce audit, QC, and third-party review expenses. So for example, every securitization since 2008 requires 100% of the loans to be audited, it's 500 bucks a loan. Because of the way we use blockchain, we get AAA rating with 20% of the loans audited and 100 bucks a loan, and we've been able to extract some pretty significant cost savings using blockchain. And one of the things that we worked on over the last couple of years is building a standardized marketplace, because traditionally with private credit, everything is bespoke. So I originally had $500 million in loans and I sell them to Apollo and then I hope they either re-up or KKR comes in behind them to buy those loans. And you live hand to mouth, and that's a tough situation to be in as an originator, requires a lot of balance sheet capital, a lot of equity. And so what we've been very, very focused on is standardization and liquidity. And what we've done over the last couple of years is stood up a marketplace called Figure Connect, where all the originators who use Figure technology can contribute and sell loans to a set of buy-side and sell-side institutions that are buyers within that ecosystem with a common loan purchase agreement, common documentation. And because of the immutability of blockchain and the certainty of blockchain, we've been able to run things like bid wanted in competition, offer wanted in competition, marketplaces in this ecosystem where we've never been able to do that with private credit before. Everything was always these very high friction, difficult transactions in one-off bespoke pools, and now we've created this commoditization. So we were really, really excited a couple of weeks ago to announce that we stood up a guarantor for this ecosystem, so effectively something that functions like a Fannie Mae or a Freddie Mac, guarantees the performance of the credit, and supports a to-be-announced security marketplace for the originators and for the security buyers. And so what we're doing is basically a Web3 version of the GSE ecosystem. We're using blockchain to create a marketplace where originators have certainty and liquidity, the same that they do in a GSE ecosystem. And where buyers have effectively a look through to the guarantor and rated securities that they combine in advance.

>> Talk about the liquidity numbers there. What are we talking about in terms of scope? Can you scope kind of like the origination of this, where does it go?

Mike Cagney

>> Sure. So we've done-

>> What are some of the numbers?

Mike Cagney

>> Yeah, we've done over $43 billion in blockchain-native transactions on the lending side and on the security side. We're currently adding between $500 to $600 million a month of locked value on the blockchain. We're the largest real world asset player by a significant margin. And not a lot of folks know that because of where we play, but what we've been able to do is pull in a lot of the TradFi ecosystem into this. So we did an announcement last week about a solution we have called DART, which is effectively a registry service on blockchain for mortgages. And we talked to the fact that Goldman, Jefferies, Deutsche Bank, Texas Capital, are all using DART in this construct. Now, a year ago we'd never be able to say that because regulars wouldn't let us. And this year they all want us to talk about how progressive they are in the blockchain technology side. So we're really leading in and trying to build, as I said, a Web3 ecosystem that ultimately we think is competitive to the GSEs.

>> I want to get into the Figure Connect. I just love this platformization of what you're doing, it brings some confidence and certainly scale to the equation, but I want to first get into the market drivers. As we see the evolution and the maturization still got a long ways to go, it's going fast, what is the driver for you? Because you go back just a few years ago, it's like, "Oh, we're going to replace the banks." And now you're starting to see the transformation of the real-world money come together, so there is an integration, there's a segue happening in real-world finance. Could you just lay out the drivers and define this ecosystem components? Is it integrated? Is it fully stacked in? How the piece parts work? Just lay out the landscape for us because you're seeing kind of an intersection of the mainstream systems crossing over. Lay that out.

Mike Cagney

>> So I think what you're going to see with blockchain is actually a wholesale replacement of the technology that we're used to and a wholesale replacement without technology static. So if you look at Figure as an example, we originated an asset native to blockchain. A lot of people talk about tokenizing an asset, taking a DTC security for example, or an office building in Topeka, which is a ridiculous blockchain use case by the way, but people talk about it. And putting it on blockchain, the idea is that, "Oh, we're going to get liquidity, we're going to get transparency." Those things don't work. Unless you have a native digital asset that starts its life on chain where you know for certain you can get rid of all the trust, you know for certain what the truth of that asset is, you can directly encumber that asset from a lending standpoint. That's where you really begin to unlock value and that's what we focused on. And I give a great example of this going back to the DART analogy I talked about a little while ago. I used to send Goldman a spreadsheet every five days with a bunch of loans on them and they'd send me a bunch of money in a warehouse in advance of that, and then they'd spend five days figuring out if I lied to them or not. And what you have with blockchain is I can give them certainty. They know immediately whether those loans have been double pledged, whether they're performing, whether they exist, and that's allowed us to increase the cycle in which we pledge into the warehouse, but it's also reduced their counterparty risk back to me. And so one of the challenges that we've had with blockchain is it is so destructive. And when I see DTC running blockchain experiments or Visa running blockchain experiments, I kind of laugh because if blockchain was really pervasive, none of those things would exist. And so it's so disruptive that it's a challenge in actually bringing it to market, but I think the last four years have been very difficult from a regulatory standpoint. And as I said, we've done over $40-some billion of transactions on chain and pulled in a lot of the track by ecosystem into that. I'm very excited about the next four years and I'm not sure we're going to get regulatory tailwinds, and that's unclear so far, but we're not going to have the same headwinds we had for the last four years. And I think that's going to open up a lot of innovation, a lot of disruption.

>> I mean, the headwinds have been really high-velocity, I would say hurricane winds. At least, it's kind of like normal winds, normal headwinds if anything. I want to get into something you mentioned around the spreadsheet, the Goldman, and the back and forth. One of the things in your platform you guys talk about is truth. In free markets, in an ideal scenario, prices should drop at this truth, there's no middleman. So I want you to talk about how that figures into the system that you're building because in the system with on-chain, and if you have full visibility into the truth, in essence that should actually be a freer market. There shouldn't be any other distractions. So can you explain the truth equation, how you look at that, and then where the truth gets masked in the other systems? I mean you'll have all kinds of things. What's declining? What's rising? There's no baseline. On the chain, it's straight truth.

Mike Cagney

>> Yeah. Look, I think it's a thing about level of disruption, take interchange as an example. This is one that people often don't associate with blockchain, but it's a great blockchain use case. When I swipe a debit or a credit card at a terminal, there's five parties that sit in between me and the ultimate seller of whatever it is I'm buying, and they each take a little bit of economic out, and blockchain has the ability to distill a transaction down bilaterally just to the buyer and the seller. So for example, using something like Stablecoin, I can do a direct bilateral transaction, buy something from you, riskless, real-time settlement. And by disintermediating those five players, those five players represent trillions of dollars of market capitalization. That ultimately accrues back to both the technology as a disruptor, but ultimately the buyer and seller as participants in the marketplace. We could talk about stock trading as well. You're obviously in a topical position to talk about that. There's seven parties that sit in between a buyer and a seller. You can distill that down to two and you free up a lot of economic. And so what you get out of this is not only taking economic rent and returning it to the buyer and the seller, you get a more transparent market, a more liquid market, a market that can function 24/7. And there's a lot of advantages that come out of the technology.

>> A lot of efficiencies there. Great point. I think I want to get that on the table because I think a lot of people get confused by all the moving parts. When you break it down to the bare bones, it's literally just truth on the chain, so it's really efficient. I want to get into some of the innovations you're looking at because as liquidity comes into the market, we're seeing potentially IPOs, you're seeing a lot more money flow coming in, which means the ecosystem will come up. Can you talk about the role of innovations? What are the key things that need to be in place and sacred to the transaction? Stablecoins has come up as a real critical piece of it, you got a credit ecosystem through the platform you're building, so you got participants, you got a two-sided marketplace going on. What is the key things that need to be in place to be, I mean I'll use the word sacred, but locked in?

Mike Cagney

>> Yeah, I think there's a couple of things. I think you hit on one really important one, which is Stablecoins. We need a way to represent fiat on blockchain and that's critical for everything that we do. Obviously, you do a transaction, a transaction almost always is against currency, whether it's dollars or euros or pounds or what have you. And so the challenge that we've had historically with Stablecoins is Stablecoins are considered crypto, US banks have not been able to touch crypto. Now, that will change as we come into the legislation, hopefully into the August recess where we'll get clear definitions and rules around that. But one of the things that we did in the short run is we actually got effective with a public fixed income security native to blockchain, fixed dollar price, continuous yield, registered with the SEC, buys only money market eligible securities. And the key is it's freely transferable peer to peer, so I can take $50 of it out of my wallet and move it directly to your wallet. It's called YLDS or yields. And for anyone that's interested, it's issued by Figure Certificate Company. You can read the S-1 on EDGAR. And we think that kind of innovation is going to provide a foundation not just for basic things like collateral and treasury management, but for applications like cross-border remit and payments where it provides a rail to do something very disruptive to what traditionally has required lots of intermediation. Cross-border remit requires nostro and vostro accounts, payments requires that five-party interchange I talked about earlier. So this is providing some ability to displace that. And, again, the challenge is that's displacing a lot of market cap and so it's not an easy thing to do to go in and drive that disruption, but I think it's going to happen and I think it's going to happen in part because unlike what we've talked about in traditional disruption, at least in the first innings of blockchain, the banks are going to play a critical role. So this isn't disrupt the banks. Certainly with SoFi, that's what we used to say, "Don't bank SoFi." In this situation, the banks are critical players here. But what will happen over time is the lending paradigm is going to change because if you have truth that you talked about earlier, I know that an asset is yours, I know I can encumber it, I can encumber it with a UCC section eight security perfection for example. I have the ability to lend to that asset and not have to look through to the counterparty. And this is something we call democratized prime brokerage where we see an ecosystem springing up where we can all lend or borrow against securities or against assets native to blockchain on a perfected basis, and basically disrupt the prime brokerage intermediary. And this is where I think the ecosystem ultimately lands. And this is the most disruptive thing about the ecosystem because lending is the biggest financial driver for all the sell side firms. And so it'll be interesting to see how they lean in and participate in that disruption.

>> What are the key enablements? I mean, I want to get to the folks that aren't in the weeds, not inside the ropes. You got a lot of people super enthusiastic about what's happening. Obviously, the climate's different and we're feeling good about that, but as you look at the next few years, you're going to see a lot of formation. You mentioned some of those kind of core building blocks, but as you look at people want to get in and either be a participant, one, get value, understand that truth and say, "Hey, I got more growth than I thought because other systems might not be able to value things because of the distractions and other data that might mask that." What are some of the enablements that are going to come from this? If the lending, if the credit stuff and the stable coins kick in, what do you see happening? Connect the dots for us because I'm looking at maybe future value saying, "Okay, I want to participate in a highly liquid, highly transparent, accurate marketplace of numbers. I don't want to have to go through middlemen and other things." And what's going to be enabled? Disruption is great, but what's the enablement of it?

Mike Cagney

>> Yeah, I think there's two dynamics that are going to happen and they're very synergistic to one another. One roots back to the Stablecoin discussion we just had, which is if I have a yielding coin that I can self-custody, if I can go to Starbucks and buy coffee with it, then the question is why do I have a bank account? And I think this is the beginning of the movement of narrow banking, which is the flight of deposits, liabilities out of the banking ecosystem into self-custody transaction interface. And if that happens, the question is, "Well, who picks up the lending that the banks did with those liabilities?" And that's where I think you go to this democratized prime construct where anyone who has capital can lend directly against anyone who needs it. And so I think those two dynamics are already in play. They're already happening. We see interesting aspects of DeFi and things like figure markets are on platform, Aave, and Compound, and others, but they're a very small scale at this point. They'll get much, much larger. But I think that ultimately is the end game and that's hugely disruptive. Now, the way people are going to get participation into this, right now, there's a dearth of public Web3 companies. There really isn't a way to put public capital, public equity capital into a Web3 play. I think over the course of this year you will see true Web3 companies go public. I think the regulatory environment was prohibited last year with the SEC. I think it's supportive this year and I think you'll begin to see what I would say is the beginning of a Web3 magnificent seven. Just like we have it in Web2, I think we'll have a Web3 cohort start to form this year and provide the ability for people to get that exposure to the public blockchains.

>> Yeah, that's great, great point. I can say I can feel it. I mean, I'm not a data person on what's going on the day-to-day, but I can feel that just generationally we're years in, you feel like it's about to explode in growth just on timing of what people are working on. So people have been kind of cranking away on some stuff, your work you're doing. And so as things kind of coalesce, you're going to see that. One point about narrow banking made me think about, so I want to ask you, because I think confidence is a big term. What are the keys in your mind to confidence for people saying, "I see the big seven coming or magnificent crypto seven," whatever you call them, "They're going to be winners." So people want to see that. What's the confidence driver or points that need to be locked in? Enthusiasm, check, we got that. Confidence, what is the confidence variables and then what does success look like?

Mike Cagney

>> Yeah, I think that what you're also going to see over the course of this year with changes in regulation is a lot of entering from TradFi players into Web3 tech, but I think they're going to approach it in a centralized way. So if you look at a Coinbase or a Binance, those are centralized exchanges and it's sort of orthogonal that blockchain is a premise of decentralization that the tokens play on these decentralized platforms. There's no doubt that entities like ICE, for example, are going to push for national crypto exchanges and create that consolidation, that centralization. No doubt that Bank of New York's going to come into crypto custody, no doubt that J.P. Morgan is going to issue JP Coin on public chain. At least in my mind, there's no doubt about any of those things. And so the question is how do people like ourselves compete? And obviously, we're no stranger to competing against large institutions. We did that with SoFi, that we were very successful, and we've done it with Figure as well, been very successful there. But I think the key for us is decentralization is what ultimately matters, self-custody is what ultimately matters. It's crazy to me that people still trade on centralized crypto exchanges after FTX. And the whole premise is we should be able to be in a decentralized self-custody construct for everything that we do. And that's where you no longer have to trust anybody, you know what you have because you own it, you hold it, and the industry will give you all these boogeymans about, "Oh, you're lose your keys, you lose your crypto." We're way past that from a technology standpoint at this point. Those things don't happen with MPC wallet and other technology that we have. And so I think building this ecosystem on fundamental truth versus centralized custody is a fork that's going to happen this year, and I think ultimately the decentralized path wins.

>> Yeah, that's a great point. A lot of people don't know that little nuance in the mainstream between self-custody and centralized banking or centralized holdings. And you mentioned narrow banking, and stable coins, self-custody. Those are to me three major things. How does that come together as a trailblazer? I mean, you're plowing the fields, you're getting stuff in your face, but now it starts to clear out, Mike, and the industry is starting to see a clear line of sight, self-custody, narrow banking, Stablecoins. What's that future look like? What's going to happen next?

Mike Cagney

>> Look, I mean, one of the challenges that we have with blockchain is it's an industry that never loses an opportunity to shoot itself in the foot. And we've had lots of issues. The volatility of Bitcoin over the past week, the hack of the exchange a couple of weeks back, the Libra coin before that. It's just an ongoing set of high-profile circumstances that have happened that people point to and say, "See, it's too volatile. It's a sham. It's Brooks and criminals." But at the same time, there's a big cohort of us that have just been building and building really cool and good stuff. And Figure's been able to extract over 100 basis points of cost out of the securitization process, so you think about a business with 600 basis points of gross margin, 100 basis points of cost reduction is huge in terms of contribution margin, profitability. And we've been able to build a business that has significant revenue momentum, significant profitability on the back of using this technology. And I think you're going to see more of that this year. You're going to see more real applications that are sustainable, sustainable because they make economic sense, because people, they make more money either through higher revenue, reduce cost, or better efficiency. And that's what we're going to see this year, and I'm super excited about what '25 and '26 unfold for us.

>> Well, I really appreciate you coming on theCUBE here remotely, even to our Palo Alto, we got the NYSE studio there. Final point, just put a plug in for what you're excited about with Figure and also how do people get involved? I mean, you guys are seriously building out some good stuff. There's a cohort of people coming online that have made money or making money and making money for others. Narrow banking's happening, stable coins is rising. You're to see the digital currency coming. How do people get involved? What would you recommend and put in the plug for Figure?

Mike Cagney

>> Yeah, sure. Look, I think there's a couple of different ways to get involved. One is go on to Figure Markets and buy yields, and own a stable coin that yields and send it to your friend and just start playing around with that ecosystem and seeing how it works. And it's incredibly effective and efficient, and I'd really encourage folks to do that. We would hope that we would be part of that cohort going public over the next year. And so I think as you get opportunities to allocate into public equity, hopefully we're one of those potential opportunities. And then everything we do, we do on a blockchain called Provenance Blockchain, which is going through a significant tokenomics overhaul right now, but I'm extremely bullish on. It's the largest, what people call RWA platform, real world asset platform, within the Web3 ecosystem, and excited to be building on there.

>> Great stuff, great evolution, love the platform, very portable, very scalable, truth in capital. Mike, thanks for coming on. Continue to trailblaze in the industry. And, again, it's just getting started and more people should be jumping in and participate. Self-custody, decentralization creates freedom, and also gets the transparency, which eliminates all the fog. Mike, thanks so much for coming on. I really appreciate it.

Mike Cagney

>> Thanks for having me.

>> All right, cheers. I'm John Furrier here in the Palo Alto Studios for the Crypto Trailblazer series. It's a two-day digital event. We're talking to all the leaders in the industry who are building the future, the bridge to the future. It's continuing to go, its maturization of the entire ecosystem in this new era, Web3, blockchain, cryptocurrency, token economics, all going down. It's changing the game. Just like AI changes the game on one side, you got the infrastructure on the other all kind of coming together. Thanks for watching.

Mike Cagney, Figure Markets

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>> Hello, welcome to theCUBE here in our Palo Alto Studios. I'm John Furrier, host of theCUBE. Welcome to our Crypto Trailblazer series, a two-day digital event here at theCUBE with our partners at the NYSE Wired community, Brian Baumann and team. It's the Silicon Valley, Wall Street connection, tech and finance integrated together. And today we're kicking off with Mike Cagney, chairman and former CEO of Figure and CEO of Figure Markets. Give a quick overview of Figure, you guys are really kind of bringing a lot to the table, recent news got a joint venture with Sixth Street. A lot of conversations around changing the game around stability, liquidity. You start to see liquidity come in as the maturity keeps evolving. Take a minute to explain what Figure's doing right now.

Mike Cagney

>> Sure. So, Figure started back in 2018, we were the first to originate consumer loans on blockchain. We were the first to securitize blockchain assets in 2020. And then in '23 we were the first to do AAA-rated securitizations. And along the way we emerged and changed from being a direct-to-consumer lender to effectively a technology provider. So we have over 140 third parties that originate assets native to blockchain through Figure's tech. And that tech ensures homogeneity of assets and leverages the immutability of blockchain to reduce audit, QC, and third-party review expenses. So for example, every securitization since 2008 requires 100% of the loans to be audited, it's 500 bucks a loan. Because of the way we use blockchain, we get AAA rating with 20% of the loans audited and 100 bucks a loan, and we've been able to extract some pretty significant cost savings using blockchain. And one of the things that we worked on over the last couple of years is building a standardized marketplace, because traditionally with private credit, everything is bespoke. So I originally had $500 million in loans and I sell them to Apollo and then I hope they either re-up or KKR comes in behind them to buy those loans. And you live hand to mouth, and that's a tough situation to be in as an originator, requires a lot of balance sheet capital, a lot of equity. And so what we've been very, very focused on is standardization and liquidity. And what we've done over the last couple of years is stood up a marketplace called Figure Connect, where all the originators who use Figure technology can contribute and sell loans to a set of buy-side and sell-side institutions that are buyers within that ecosystem with a common loan purchase agreement, common documentation. And because of the immutability of blockchain and the certainty of blockchain, we've been able to run things like bid wanted in competition, offer wanted in competition, marketplaces in this ecosystem where we've never been able to do that with private credit before. Everything was always these very high friction, difficult transactions in one-off bespoke pools, and now we've created this commoditization. So we were really, really excited a couple of weeks ago to announce that we stood up a guarantor for this ecosystem, so effectively something that functions like a Fannie Mae or a Freddie Mac, guarantees the performance of the credit, and supports a to-be-announced security marketplace for the originators and for the security buyers. And so what we're doing is basically a Web3 version of the GSE ecosystem. We're using blockchain to create a marketplace where originators have certainty and liquidity, the same that they do in a GSE ecosystem. And where buyers have effectively a look through to the guarantor and rated securities that they combine in advance.

>> Talk about the liquidity numbers there. What are we talking about in terms of scope? Can you scope kind of like the origination of this, where does it go?

Mike Cagney

>> Sure. So we've done-

>> What are some of the numbers?

Mike Cagney

>> Yeah, we've done over $43 billion in blockchain-native transactions on the lending side and on the security side. We're currently adding between $500 to $600 million a month of locked value on the blockchain. We're the largest real world asset player by a significant margin. And not a lot of folks know that because of where we play, but what we've been able to do is pull in a lot of the TradFi ecosystem into this. So we did an announcement last week about a solution we have called DART, which is effectively a registry service on blockchain for mortgages. And we talked to the fact that Goldman, Jefferies, Deutsche Bank, Texas Capital, are all using DART in this construct. Now, a year ago we'd never be able to say that because regulars wouldn't let us. And this year they all want us to talk about how progressive they are in the blockchain technology side. So we're really leading in and trying to build, as I said, a Web3 ecosystem that ultimately we think is competitive to the GSEs.

>> I want to get into the Figure Connect. I just love this platformization of what you're doing, it brings some confidence and certainly scale to the equation, but I want to first get into the market drivers. As we see the evolution and the maturization still got a long ways to go, it's going fast, what is the driver for you? Because you go back just a few years ago, it's like, "Oh, we're going to replace the banks." And now you're starting to see the transformation of the real-world money come together, so there is an integration, there's a segue happening in real-world finance. Could you just lay out the drivers and define this ecosystem components? Is it integrated? Is it fully stacked in? How the piece parts work? Just lay out the landscape for us because you're seeing kind of an intersection of the mainstream systems crossing over. Lay that out.

Mike Cagney

>> So I think what you're going to see with blockchain is actually a wholesale replacement of the technology that we're used to and a wholesale replacement without technology static. So if you look at Figure as an example, we originated an asset native to blockchain. A lot of people talk about tokenizing an asset, taking a DTC security for example, or an office building in Topeka, which is a ridiculous blockchain use case by the way, but people talk about it. And putting it on blockchain, the idea is that, "Oh, we're going to get liquidity, we're going to get transparency." Those things don't work. Unless you have a native digital asset that starts its life on chain where you know for certain you can get rid of all the trust, you know for certain what the truth of that asset is, you can directly encumber that asset from a lending standpoint. That's where you really begin to unlock value and that's what we focused on. And I give a great example of this going back to the DART analogy I talked about a little while ago. I used to send Goldman a spreadsheet every five days with a bunch of loans on them and they'd send me a bunch of money in a warehouse in advance of that, and then they'd spend five days figuring out if I lied to them or not. And what you have with blockchain is I can give them certainty. They know immediately whether those loans have been double pledged, whether they're performing, whether they exist, and that's allowed us to increase the cycle in which we pledge into the warehouse, but it's also reduced their counterparty risk back to me. And so one of the challenges that we've had with blockchain is it is so destructive. And when I see DTC running blockchain experiments or Visa running blockchain experiments, I kind of laugh because if blockchain was really pervasive, none of those things would exist. And so it's so disruptive that it's a challenge in actually bringing it to market, but I think the last four years have been very difficult from a regulatory standpoint. And as I said, we've done over $40-some billion of transactions on chain and pulled in a lot of the track by ecosystem into that. I'm very excited about the next four years and I'm not sure we're going to get regulatory tailwinds, and that's unclear so far, but we're not going to have the same headwinds we had for the last four years. And I think that's going to open up a lot of innovation, a lot of disruption.

>> I mean, the headwinds have been really high-velocity, I would say hurricane winds. At least, it's kind of like normal winds, normal headwinds if anything. I want to get into something you mentioned around the spreadsheet, the Goldman, and the back and forth. One of the things in your platform you guys talk about is truth. In free markets, in an ideal scenario, prices should drop at this truth, there's no middleman. So I want you to talk about how that figures into the system that you're building because in the system with on-chain, and if you have full visibility into the truth, in essence that should actually be a freer market. There shouldn't be any other distractions. So can you explain the truth equation, how you look at that, and then where the truth gets masked in the other systems? I mean you'll have all kinds of things. What's declining? What's rising? There's no baseline. On the chain, it's straight truth.

Mike Cagney

>> Yeah. Look, I think it's a thing about level of disruption, take interchange as an example. This is one that people often don't associate with blockchain, but it's a great blockchain use case. When I swipe a debit or a credit card at a terminal, there's five parties that sit in between me and the ultimate seller of whatever it is I'm buying, and they each take a little bit of economic out, and blockchain has the ability to distill a transaction down bilaterally just to the buyer and the seller. So for example, using something like Stablecoin, I can do a direct bilateral transaction, buy something from you, riskless, real-time settlement. And by disintermediating those five players, those five players represent trillions of dollars of market capitalization. That ultimately accrues back to both the technology as a disruptor, but ultimately the buyer and seller as participants in the marketplace. We could talk about stock trading as well. You're obviously in a topical position to talk about that. There's seven parties that sit in between a buyer and a seller. You can distill that down to two and you free up a lot of economic. And so what you get out of this is not only taking economic rent and returning it to the buyer and the seller, you get a more transparent market, a more liquid market, a market that can function 24/7. And there's a lot of advantages that come out of the technology.

>> A lot of efficiencies there. Great point. I think I want to get that on the table because I think a lot of people get confused by all the moving parts. When you break it down to the bare bones, it's literally just truth on the chain, so it's really efficient. I want to get into some of the innovations you're looking at because as liquidity comes into the market, we're seeing potentially IPOs, you're seeing a lot more money flow coming in, which means the ecosystem will come up. Can you talk about the role of innovations? What are the key things that need to be in place and sacred to the transaction? Stablecoins has come up as a real critical piece of it, you got a credit ecosystem through the platform you're building, so you got participants, you got a two-sided marketplace going on. What is the key things that need to be in place to be, I mean I'll use the word sacred, but locked in?

Mike Cagney

>> Yeah, I think there's a couple of things. I think you hit on one really important one, which is Stablecoins. We need a way to represent fiat on blockchain and that's critical for everything that we do. Obviously, you do a transaction, a transaction almost always is against currency, whether it's dollars or euros or pounds or what have you. And so the challenge that we've had historically with Stablecoins is Stablecoins are considered crypto, US banks have not been able to touch crypto. Now, that will change as we come into the legislation, hopefully into the August recess where we'll get clear definitions and rules around that. But one of the things that we did in the short run is we actually got effective with a public fixed income security native to blockchain, fixed dollar price, continuous yield, registered with the SEC, buys only money market eligible securities. And the key is it's freely transferable peer to peer, so I can take $50 of it out of my wallet and move it directly to your wallet. It's called YLDS or yields. And for anyone that's interested, it's issued by Figure Certificate Company. You can read the S-1 on EDGAR. And we think that kind of innovation is going to provide a foundation not just for basic things like collateral and treasury management, but for applications like cross-border remit and payments where it provides a rail to do something very disruptive to what traditionally has required lots of intermediation. Cross-border remit requires nostro and vostro accounts, payments requires that five-party interchange I talked about earlier. So this is providing some ability to displace that. And, again, the challenge is that's displacing a lot of market cap and so it's not an easy thing to do to go in and drive that disruption, but I think it's going to happen and I think it's going to happen in part because unlike what we've talked about in traditional disruption, at least in the first innings of blockchain, the banks are going to play a critical role. So this isn't disrupt the banks. Certainly with SoFi, that's what we used to say, "Don't bank SoFi." In this situation, the banks are critical players here. But what will happen over time is the lending paradigm is going to change because if you have truth that you talked about earlier, I know that an asset is yours, I know I can encumber it, I can encumber it with a UCC section eight security perfection for example. I have the ability to lend to that asset and not have to look through to the counterparty. And this is something we call democratized prime brokerage where we see an ecosystem springing up where we can all lend or borrow against securities or against assets native to blockchain on a perfected basis, and basically disrupt the prime brokerage intermediary. And this is where I think the ecosystem ultimately lands. And this is the most disruptive thing about the ecosystem because lending is the biggest financial driver for all the sell side firms. And so it'll be interesting to see how they lean in and participate in that disruption.

>> What are the key enablements? I mean, I want to get to the folks that aren't in the weeds, not inside the ropes. You got a lot of people super enthusiastic about what's happening. Obviously, the climate's different and we're feeling good about that, but as you look at the next few years, you're going to see a lot of formation. You mentioned some of those kind of core building blocks, but as you look at people want to get in and either be a participant, one, get value, understand that truth and say, "Hey, I got more growth than I thought because other systems might not be able to value things because of the distractions and other data that might mask that." What are some of the enablements that are going to come from this? If the lending, if the credit stuff and the stable coins kick in, what do you see happening? Connect the dots for us because I'm looking at maybe future value saying, "Okay, I want to participate in a highly liquid, highly transparent, accurate marketplace of numbers. I don't want to have to go through middlemen and other things." And what's going to be enabled? Disruption is great, but what's the enablement of it?

Mike Cagney

>> Yeah, I think there's two dynamics that are going to happen and they're very synergistic to one another. One roots back to the Stablecoin discussion we just had, which is if I have a yielding coin that I can self-custody, if I can go to Starbucks and buy coffee with it, then the question is why do I have a bank account? And I think this is the beginning of the movement of narrow banking, which is the flight of deposits, liabilities out of the banking ecosystem into self-custody transaction interface. And if that happens, the question is, "Well, who picks up the lending that the banks did with those liabilities?" And that's where I think you go to this democratized prime construct where anyone who has capital can lend directly against anyone who needs it. And so I think those two dynamics are already in play. They're already happening. We see interesting aspects of DeFi and things like figure markets are on platform, Aave, and Compound, and others, but they're a very small scale at this point. They'll get much, much larger. But I think that ultimately is the end game and that's hugely disruptive. Now, the way people are going to get participation into this, right now, there's a dearth of public Web3 companies. There really isn't a way to put public capital, public equity capital into a Web3 play. I think over the course of this year you will see true Web3 companies go public. I think the regulatory environment was prohibited last year with the SEC. I think it's supportive this year and I think you'll begin to see what I would say is the beginning of a Web3 magnificent seven. Just like we have it in Web2, I think we'll have a Web3 cohort start to form this year and provide the ability for people to get that exposure to the public blockchains.

>> Yeah, that's great, great point. I can say I can feel it. I mean, I'm not a data person on what's going on the day-to-day, but I can feel that just generationally we're years in, you feel like it's about to explode in growth just on timing of what people are working on. So people have been kind of cranking away on some stuff, your work you're doing. And so as things kind of coalesce, you're going to see that. One point about narrow banking made me think about, so I want to ask you, because I think confidence is a big term. What are the keys in your mind to confidence for people saying, "I see the big seven coming or magnificent crypto seven," whatever you call them, "They're going to be winners." So people want to see that. What's the confidence driver or points that need to be locked in? Enthusiasm, check, we got that. Confidence, what is the confidence variables and then what does success look like?

Mike Cagney

>> Yeah, I think that what you're also going to see over the course of this year with changes in regulation is a lot of entering from TradFi players into Web3 tech, but I think they're going to approach it in a centralized way. So if you look at a Coinbase or a Binance, those are centralized exchanges and it's sort of orthogonal that blockchain is a premise of decentralization that the tokens play on these decentralized platforms. There's no doubt that entities like ICE, for example, are going to push for national crypto exchanges and create that consolidation, that centralization. No doubt that Bank of New York's going to come into crypto custody, no doubt that J.P. Morgan is going to issue JP Coin on public chain. At least in my mind, there's no doubt about any of those things. And so the question is how do people like ourselves compete? And obviously, we're no stranger to competing against large institutions. We did that with SoFi, that we were very successful, and we've done it with Figure as well, been very successful there. But I think the key for us is decentralization is what ultimately matters, self-custody is what ultimately matters. It's crazy to me that people still trade on centralized crypto exchanges after FTX. And the whole premise is we should be able to be in a decentralized self-custody construct for everything that we do. And that's where you no longer have to trust anybody, you know what you have because you own it, you hold it, and the industry will give you all these boogeymans about, "Oh, you're lose your keys, you lose your crypto." We're way past that from a technology standpoint at this point. Those things don't happen with MPC wallet and other technology that we have. And so I think building this ecosystem on fundamental truth versus centralized custody is a fork that's going to happen this year, and I think ultimately the decentralized path wins.

>> Yeah, that's a great point. A lot of people don't know that little nuance in the mainstream between self-custody and centralized banking or centralized holdings. And you mentioned narrow banking, and stable coins, self-custody. Those are to me three major things. How does that come together as a trailblazer? I mean, you're plowing the fields, you're getting stuff in your face, but now it starts to clear out, Mike, and the industry is starting to see a clear line of sight, self-custody, narrow banking, Stablecoins. What's that future look like? What's going to happen next?

Mike Cagney

>> Look, I mean, one of the challenges that we have with blockchain is it's an industry that never loses an opportunity to shoot itself in the foot. And we've had lots of issues. The volatility of Bitcoin over the past week, the hack of the exchange a couple of weeks back, the Libra coin before that. It's just an ongoing set of high-profile circumstances that have happened that people point to and say, "See, it's too volatile. It's a sham. It's Brooks and criminals." But at the same time, there's a big cohort of us that have just been building and building really cool and good stuff. And Figure's been able to extract over 100 basis points of cost out of the securitization process, so you think about a business with 600 basis points of gross margin, 100 basis points of cost reduction is huge in terms of contribution margin, profitability. And we've been able to build a business that has significant revenue momentum, significant profitability on the back of using this technology. And I think you're going to see more of that this year. You're going to see more real applications that are sustainable, sustainable because they make economic sense, because people, they make more money either through higher revenue, reduce cost, or better efficiency. And that's what we're going to see this year, and I'm super excited about what '25 and '26 unfold for us.

>> Well, I really appreciate you coming on theCUBE here remotely, even to our Palo Alto, we got the NYSE studio there. Final point, just put a plug in for what you're excited about with Figure and also how do people get involved? I mean, you guys are seriously building out some good stuff. There's a cohort of people coming online that have made money or making money and making money for others. Narrow banking's happening, stable coins is rising. You're to see the digital currency coming. How do people get involved? What would you recommend and put in the plug for Figure?

Mike Cagney

>> Yeah, sure. Look, I think there's a couple of different ways to get involved. One is go on to Figure Markets and buy yields, and own a stable coin that yields and send it to your friend and just start playing around with that ecosystem and seeing how it works. And it's incredibly effective and efficient, and I'd really encourage folks to do that. We would hope that we would be part of that cohort going public over the next year. And so I think as you get opportunities to allocate into public equity, hopefully we're one of those potential opportunities. And then everything we do, we do on a blockchain called Provenance Blockchain, which is going through a significant tokenomics overhaul right now, but I'm extremely bullish on. It's the largest, what people call RWA platform, real world asset platform, within the Web3 ecosystem, and excited to be building on there.

>> Great stuff, great evolution, love the platform, very portable, very scalable, truth in capital. Mike, thanks for coming on. Continue to trailblaze in the industry. And, again, it's just getting started and more people should be jumping in and participate. Self-custody, decentralization creates freedom, and also gets the transparency, which eliminates all the fog. Mike, thanks so much for coming on. I really appreciate it.

Mike Cagney

>> Thanks for having me.

>> All right, cheers. I'm John Furrier here in the Palo Alto Studios for the Crypto Trailblazer series. It's a two-day digital event. We're talking to all the leaders in the industry who are building the future, the bridge to the future. It's continuing to go, its maturization of the entire ecosystem in this new era, Web3, blockchain, cryptocurrency, token economics, all going down. It's changing the game. Just like AI changes the game on one side, you got the infrastructure on the other all kind of coming together. Thanks for watching.