Bitcoin-backed lending: how Ledn lets holders borrow without selling

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show that knows that your dream is to get rich and immediately move somewhere with less people and better Wi-Fi. I'm your host, Jay Hamilton. It's Monday, April the 21st. Happy Easter, everybody. I hope you all had a great long weekend. Now, lots of people say never sell your Bitcoin. But if you never sell it, how are you supposed to profit from it? Are you just going to leave it all to your kids when you die and never see a dime yourself? I mean, I love my kid, but let's be realistic, folks. So, today's episode is all about looking at how you can get access to the gains from your Bitcoin and other crypto for that matter without ever selling it. We sit down

with Adam Reed, CEO and co-founder of Letin, one of the largest centralized lending platforms in the world that done over six trillion in crypto loans since their formation back in 2018. This episode, we don't just talk about Bitcoin or crypto lending. We also get a really wide-ranging perspective from Adam as an OG builder in the space. He's been here for so long. He's worked with so many people. He's been through bull cycles, bare cycles. He's seen the rise and fall. He's seen some of his competitors fail and the impact that that has on the industry. So, we talk about a wide range of stuff. We talk about Bitcoin. We talk about price predictions. We talk about CFI versus DeFi. Adam was super honest and upfront

with us about not just promoting his own platform for crypto loans, but also what do you need to think about if you're going to take take out a crypto loan? Should you use centralized? Should you use decentralized? What are the advantages to each? A really helpful episode today. You guys are going to absolutely love it. Now, before we jump in and hear from Adam, please, please, please do me a favor because it's Easter and we're all giving back. We're all feeling the love and we're hyped up on chocolate or your kids are definitely hyped up on chocolate. give me some love in return with a little bit of a review or a subs a subscribe or a like on whatever platform you're listening on.

Really, really helps the show if you guys pump up that algorithm a little bit. So, appreciate your time on that. Now, today's episode is brought to you by Moon Pay. Trade crypto fee, free, fast, and on your terms. It's also brought to you by Coin Shift, powering top crypto treasuries with their yield bearing stable coin CSUSDL. Without further ado, let's jump in and hear from Adam. Adam, what's going on, my man? Welcome to the Milk Road Show. Thanks so much, Dave. So great to see you again. Yeah, man. Uh this is this is a rare rare opportunity. I don't get to uh everybody listening in. Adam and I went to university together. We did business school together. Uh like what like 20 years ago? I think I think I graduated 2008.

You graduated a year before me. I think 2007. Is that right? I did concur. So yeah, I graduated 2008 as well. That's right. Wow. Wow. So here we are almost 20 years later. Both business building businesses in crypto. you building letting which is doing fantastically well, incredible. Okay, I want to there's so much to dive into in today's episode, but I want to start with um a theme that we've been talking a lot about on the show recently. Uh which and we've been talking about both directions, which is is Bitcoin finally making its move from trading like a riskon asset to trading like a riskoff asset and following more gold. You know, Bitcoin is digital gold. Gold is flying right now as a result of most a lot of people moving risk off because of all

the tariffs and uncertainty in the markets. We don't need to get into any of that. If you want to learn about that, go back to yesterday's episode where we had a lot of conversation around the macro setup. But right now there is this conversation and it happens every cycle and you've been through many cycles. So, this isn't your first time seeing this where everyone loves to bring up the like, okay, is this the moment where Bitcoin finally decouples from US risk assets? What are your thoughts? Do you think we're finally seeing that moment? There's a lot of a lot of differences in this cycle and differences in regulation and things that are coming that might make this I I I I really want to manifest this. I think that's why I want to talk about it so much right now. What do you What do you think? Yeah, you

know, it is so interesting, right? And I think what uh you know we forget obviously you know speaking from Canada the US is a lot of uh individuals and especially on the retail side can't buy you know US stocks or it's very difficult for them to buy US stocks but Bitcoin you know trades globally right it's it's an asset that's available to someone in Nigeria versus you know and you know also available to someone sitting in Wall Street New York so I think you know that's what makes it you know so unique is you have this global you know speculation that's happening all the time on price and not only you know from different countries but also a 24/7 market. All right. Uh you know, unlike our traditional market hours, 9:30 to 4, uh you can look at this thing, you you can take a view any time

of the day from anywhere in the world. Uh and I think as adoption increases, we're of course going to see that decoupling happening uh because of that, you know, separation and just completely different distribution and availability. Mhm. Yeah. It feels like if you're if you're a macro trader and do not become a macro trader if you're not a macro trader, everybody listening, a lot of people are trying to become macro traders right now. Don't change your mandate. Don't change your strategy. Stick to your gun. But if you're a macro trader, uh gold is the trade right now. Like that feels fairly clear. And so the question becomes, what's the next trade?

And the next trade feels like it's it's Bitcoin. It feels very obvious. And right now, and and I'd like to get your take on this because you travel the world and speak at conferences and speak to institutions all the time. And I've never before seen so many institutions interested in Bitcoin on on a lot of levels, right? corporations putting on their balance sheet institutions large pension funds buying it in order to hold it as reserve asset Abu Dhabi buying it like I've never it feels like there's a wave of new flows and new buyers and a lot of that started

with the ETF and then you combine that with a riskoff environment and liquidity is picking up right now and global liquidity is picking up and it And and then as you said, you have all of this money out outside of the US, outside of the Americas that can't invest in US stocks. Plus, right now, quite honestly, there seems to be a lower in confidence in America right now and a lack and and trust has been breached around the world. And it sort of just I I kind of I really keep coming back to this thought that like what do you buy? Well, you buy Bitcoin. feels it feels like the obvious buy for for a lot of people and a lot of institutions. I just I I'm I I really

wonder because I don't want to I know in the past when people have made the call like oh Bitcoin is decoupling then like literally it it it marks a local top and like a week later it falls. So, you know, don't don't massacre me if a week from now Bitcoin drops. I do not know what's going to happen in the short term, but it feels like it's heading that direction. Let's talk about regulation is a big has a big impact on your business and it obviously has a big impact on crypto in America. What's been from your seat? What's been what's happened over the last five years in terms of businesses moving out of America? And then what do you see happening as regulation comes in uh in the next I mean could come in in the

next few months? It it sounds like it's going to come pretty quickly here. Yeah. So I think you know a year ago we were having board meetings about you know how do we make sure we can grow outside of the US and I think that was the benefit of starting as a as a Canadian company you know as you know as well you always grow up kind of looking at this giant neighbor you know uh right next to you but you also understand that the world's a big place and uh you know there's a lot of activity happening everywhere so we were looking at you know the Middle East we're looking at other regions trying to figure out uh how can we grow more quickly in markets that we were not deep in yet and now it's completely flipped where we're saying you know how

quickly can we grow in the US again. And not only is that, you know, at the retail client level that, you know, we're focused on and helping more people use our services, but it's also on the funding side of our business at the institutional level. And I think, you know, what's happening is what regulatory uh clarity does is it helps remove career risk, right? And I think this is an important piece for institutions is what was happening before was I think you know you've got you probably younger people in organizations that are uh more interested in the asset class coming in and saying you know can I make a mark on this and trying to get you know their ideas up in the digital asset space at senior levels and now I think it's it's flipping where it's it's no longer a career risk to be talking about it. It's

probably a career risk not to be talking about it. And I think that's like a a really really interesting change in that if you don't have a digital asset or you know Bitcoin strategy today you're you're probably you know not going to move that fast uh you know in your career at at large organizations because it's such an important piece and it's so disruptive and an area where you can do really really well or get left behind if if you're not focused on it. Let's talk a little bit about the lending side of of Bitcoin. Give give us some numbers here. how how big is lending within Bitcoin and and if you were to compare it to other asset classes, other store of value asset classes? Yeah, of course.

Uh so there was a report uh that Galaxy uh just put out that uh you know talked about you know some of the size of it. Uh I like to talk about the retail lending side of of Bitcoin and how many uh individuals are using uh and posting Bitcoin as collateral and not boring and sorry using it to borrow. We think today that that space is around, you know, two to three billion dollars of people not wanting to sell their Bitcoin, which is so small. That's so small. Yeah. Yeah. When you think about and and that's just because, you know, I think we're we're at the early stages of because of a couple things, right? I think again, you know, with the market cap of Bitcoin being, you know, about 1.5 trillion. You know, it's a really really small amount of Bitcoin that's used for, you know,

retail borrowing. So, I think a people maybe uh don't know it exists yet. I think that's you know a big part of it is you know it really is inventing a new category and secondly uh people may be uh nervous to war against it because of the volatility of bitcoin you know the understanding that you know if the bitcoin price does decrease you do need to post more collateral uh to avoid margin calls and and liquidations and that I think like as that stabilizes and as the mindset switches from okay this is a speculative asset to like no this is global digital uh you know permissionless uh you know secure effectively real estate I think that'll change, right? Analogy I love is the amount of financing in the US on residential mortgages about 60%. So 60%

of residential homes have a mortgage on them. And so think about that in Bitcoin terms that that changes. So if people start to use their Bitcoin like they use real estate for, you know, savings vehicle, you know, saving for their first home, saving, you know, that, you know, this asset that they're never going to touch, they're always going to build up this nest egg over time. Then they start to take, you know, loans against it as they need liquidity. if that moves from, you know, a couple percentage points that it's at today to 60%, you know, the lending market opens up massively, right? And so we're excited about that. You know, the the the piece that just came out, you know, did did place uh let in in the top three of uh lenders globally alongside Galaxy and Tether. Uh and those they're more focused on the institutional side. So,

we're actually, you know, the largest of the names on the retail side. So, excited to be really helping to create a new category uh for lending on Bitcoin. Let's be honest, everything in crypto comes with fees. But here's a nice surprise. Moonay Balance doesn't take a cut. You heard that right. No Moonay fees when you buy or sell crypto with your Moonay balance. Top up with dollars, pounds, or euros. Then you're ready to trade instantly whenever the market moves. And if you change your mind, withdraw your cash. No Moon Pay fee there either. Simple, fast, ready when you are. Check it out at milkroad.com/moon. Disclaimer: Network and ecosystem fees apply.

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is just like the TAM is so large, but the the activity is still so small. Obviously, as you said, the volatility has a big impact and even just the customer awareness as well. I'm sure self-custody still has a big impact, right? Because a lot of the and we we we don't need to get I want to talk about self- custody and how you guys think about that. But let's let's leave that for a little bit later in the show. Right now, uh I I want to chat about let's let's rewind for a second. You got your start mining Bitcoin in what year did you start mining? Uh 2016. Okay.

2016 you started mining and once you started mining you felt like okay I want to keep all this Bitcoin. And this is the same thing that every whether you're a minor or whether you're just an investor. Once you get Bitcoin I think most people really get it in their head that that never sell is is a very real belief and everybody buys into that that like I'm lost right. I don't know you know what I don't remove the volatility I'm long I'm here for the long term whether you believe in you know this year predictions range from 150 to 250k assuming the macro side figures itself out and we don't go into like an absolute death spiral and a China US trade war goes out of control if that

happens all bets are off but let's assume we're looking good this year and then people you know lots of predict predictions you know Vanic or maybe it was Bitwise predicted a million Bitcoin uh in the next 5 years. I mean, some people are predicting a million Bitcoin in this year, which is absolutely insane. I don't think we can flip gold that fast. But um so, you know, you want to hold your your Bitcoin. You started mining, you want to hold it, you figured, okay, how do I how do I monetize this, right? How do I monetize this today? I'm guessing this is like the the story of is this how Letin was all started, this belief that that's exactly it. you know, we were we were trying to cover our expenses in the mining operation and of that we were forced to sell Bitcoin and you never you

never time it properly, right? Like it's it's impossible to time. So, you know, you have real expenses. We had electricity costs, rent for the data warehouse that we were in to cover in the mining operation. And uh we just thought, you know, wouldn't there be a way isn't there a way better way uh to to set this up where we can access like a line of credit style financing by using the Bitcoin that we're generating uh as collateral? And so we looked at it. Um the other piece that I often explain to our clients is, you know, lending is a two-sided marketplace, right? You've got the individual or institution putting up the capital to lend and you've got the individual who wants to borrow it and everything like, you know, in a market is about balancing. And so you have to create terms that allow for both of those

activities to occur and both people that want to transact. So you have to make the borrower or the lender feel secure. You have to make the the borrower who's putting up collateral uh feel secure. And you have to have terms that are fair and and work for both and you know someone willing to pay a rate of interest, someone willing to part with their capital at that rate of interest and and put it together. So that was a lot of what we analyzed when we created the product is understanding those pieces and understanding how to get that balancing right. And I think you know diving into the self- custody piece because that's you know what we really have to get our clients comfortable right is where is my Bitcoin sitting when I'm taking a loan? How do I know that you're not going to lose my Bitcoin

and you're you're you're storing it safe and securely. Let's just be clear for everybody listening in here. If if you take out a Bitcoin loan on Letin, you give custody of your Bitcoin to Letin. You do. Yes, you do. Yeah. Understand? Yeah. So, you retain the price appreciation in Bitcoin, right? Like, you know, the Bitcoin uh is effectively, you know, you you get your Bitcoin back when you repay. There's no kind of, you know, um, you know, fancy things happening with it. But you're you're right. You're giving up your private keys. You are sending your Bitcoin uh to Leen to facilitate that. And there is some interesting models in market just to give the full spectrum of availability for clients that are interested in this is there are you know triparty agreements. So a group like Unchained who does a really good uh job out of um uh in the US and Texas they

have a great product that allows for multi- signature and then there is you know uh more DeFi models that have you know DLC contracts and other things like that that uh take advantage of different uh things available on Bitcoin contracts and there's full DeFi that you know you may have to wrap your Bitcoin to participate in Ethereum or Sena based contract but uh you can do that as well and each has its pluses and uh and minuses right and so I I I think you know what I always talk to about that's probably less aware for clients looking at it is how do you fund that right and so that's a piece that we spend a lot of time on and try to get that hybrid right because access to capital is huge the space is really really really still short dollars we haven't yet recovered

from losing silvergate from losing signature uh from losing genesis these really big crypto uh bohemoths that were offering dollar loans uh into the space and because of that we're spending a lot of time educating institutions to say hey this is why you should lend, you know, millions of dollars to our clients and help get the rates down, right? Like the rates are still relatively high. Interesting. So, it's it's that side that that is is struggling right now in Yeah, exactly. We we have tons of supply and we're working or sorry, we have tons of demand. Uh we have supply obviously we are lending. We are in market. We have we have hundreds of millions of dollars of of dollars available to lend as we see in our volumes. But, uh you know, we we know that eventually, you know, the space is going to be shorted.

So we have to keep educating more institutions to come into that and it's how you hold Bitcoin and how you get them comfortable with it again is a balance. So as much as I'd love to put you know all client Bitcoin in a triparty contract and use all the amazing features that are available on the Bitcoin blockchain to secure that I have to get the institutional or individual who's putting up capital comfortable with that as well. Right? So, they're going to want to say like, "Hey, if this client doesn't pay back their Bitcoin back loan, how can I realize that collateral sell it?" And understanding how that sits and getting even comfortable with some of the maybe smart contract or, you know, different risk that exists uh is a hurdle, right?

And so, the easiest thing is to uh send that institution uh the collateral, put it up in a custodian that we both agree to that that is vetted, that's secure. you know, we do use, you know, Bitco as an example for the majority of our uh custody operations uh and get them comfortable that way. So, it's a learning Bitcoin. Yeah. It's it's it's uh them alongside Coinbase would be the largest custodians uh in the space. Yeah. So, so that that you know kind of underlying piece of it is, you know, the space is uh is not yet set up so that you know there's not standardization, right? So like you know as you're getting someone comfortable participating in the Bitcoin lending

space it's not like the you know credit card financing or auto loan market where it's been done for now you know uh you know tens uh you know almost you know probably 100 years obviously not not quite 100 years but you know uh you know 30 to 50 years at least and there's you know sophistication there's no known practices there's rating agencies like that that's the piece behind that that there's a lot of education still to bring in uh different different groups into this and to get them up to speed on it. So, yeah, complexity be behind the behind the doors. One thing that we don't talk uh a ton about on the show uh is the Bitcoin economy. And I think the reason we don't talk a ton about it on

the show is we talk a lot about Bitcoin. It's because the Bitcoin economy is still mostly institutions and and and mostly it's it's centralized. It's not on crypto rails, right? And you can't and actually you know what the other thing is you can't invest in it through tokens right there's not a lot of Bitcoin economy businesses that started with a TGE most of them did traditional fundraising right you know we had Dan Tapiro on the show I know he's invested in Latin like these are the funders so there's this difference and with with our show we talked so much about you know the cryptonative side but that this what is going on with the Bitcoin economy is just when we had James Lavish on the show earlier earlier this week,

you know, he's got the Bitcoin Opportunity Fund and it seems like it's a it's such a big piece of what is going to happen in the next 10 years is this evolution. As you said, there's only such a small percentage of retail that is lending their Bitcoin, but 60% of American households are lending against their house, right? And yeah, when you So, do let me ask you this. Do you save in Bitcoin? I absolutely do. Yeah, I I own No, no stocks. all all Bitcoin, you know, of course, my my lead in equity, uh, and, um, you know, uh, just focus on, you know, it really keeps things simple, right? I think that that's an undersold aspect of getting into the Bitcoin space is like once you only save

in Bitcoin, you you actually clear up a lot of mental bandwidth of like how am I going to allocate? What what am I going to do that way? Right? Obviously, those not yet in the space would argue that, you know, that's lack of diversification and, you know, I would argue otherwise. I I think it's uh you know I'm I'm very happy with the direction it's going. I I understand you know I I obviously um like to think I understand the the the risk or lack of risk that I'm taking uh by by doing so and happy with lack of risk. Lack of risk. Yeah. Yeah. Yeah. Risk risk adjusted for sure. Yeah. It's okay. So let's talk about getting a loan here. So I've never done a Bitcoin back loan. Okay. Let's say I've got one Bitcoin and I want to do alone. Walk me

through what this looks like, what I need to think about, how it might happen. Of course. So, signing up for Latin is very similar to signing up for uh, you know, a Bitcoin exchange or other, you know, ways you may have participated in the Bitcoin economy today. So, you're going to create an account, you know, username, email, a password, uh, 2FA, uh, important to set up for for account security. Uh, and then, you know, we do KYC our clients. We are a regulated entity. So we we have to do that for compliance purposes. So we kic KYC everyone on the platform. We use uh software to do that. It's relatively quick. You know it can all be done in in less than you know 5 or 10 minutes if everything's available. Uh so once the account is created the account is uh confirmed from a from a KYC

perspective. You can apply for a loan. And applying for a loan is really straightforward. We have a calculator on the platform that shows you how much you can borrow. It's 2:1. So, if you want to borrow uh, you know, $10,000, you have to post $20,000 of Bitcoin at at current pricing. And, uh, you you specify the amount you'd like to borrow, it it's it specifies the amount of Bitcoin collateral you need to send. And then, uh, we have a unique address. That unique address is uh, Bitco. So, you're sending your your Bitcoin directly uh, into Bitco Bitco. And then once you've done that, uh, we uh, can fund the loan.

And we we process loans within 24 hours. Our average loan processing time is about eight hours today. So that usually amazes people is like sometimes you know that I mean for those that have gone into a bank like think about the time it's going to take you to get a residential mortgage, the amount of paperwork, the amount of background and that's just because we're dealing with an asset that's unique, right? It's it's the same to everyone globally. I love that we can offer, you know, sim similar rates and services to everyone globally because Bitcoin is equal, right? It's the ultimate equalizer. It doesn't care where you are, who you are. Uh we don't do credit checks. So that's an important thing uh on the platform and super cool actually we don't we don't we don't focus on this use case of crypto enough because quite frankly because our

audience is mostly in the developed world and so we talk mostly about the developed world but if if you want access to financial products and you're in the undeveloped world you're in India like billions of people in India and you want to get a loan or do something like this it's not easy like there you might not even have a bank account, right? Like this is this is massive. Yeah. I I spend a lot of time in Latin America and loans in Latin America are for the wealthy, right? And so they're for those often that have assets, you know, outside of the country that they're even in because of, you know, challenges with property rights, right? Even, you know, if if you go to buy, you know, luxury properties in in uh you know, countries, you know, Latin America, a lot of times the financing just doesn't make sense,

right? The rates and terms will be uh much higher. And so um you know there there is not the availability of credit because of that. And so a lot of times when we are offering loans to clients outside of uh US, Canada um you know um Western Europe, it may be the first loan they've ever been approved for, which is which is pretty cool, right? And so um you know that yeah it's an interesting like you know I think it's like yeah you matter. You have an asset that's valuable. We can treat you fairly uh we can treat you with respect. we could treat you the same uh as other people and not disadvantage you just because of the passport that you hold. Okay, let's come back to to the loan here. Okay, so uh I've got I want 50 let's say I want 40,000 because that roughly works out to

one bitcoin right now. So uh so I want 40,000. I I I give I go through your process. I give custody of my one bitcoin over to you. I get $40,000 in cash back. Okay. What what what happens next? What's the interest rate on it? How does how does the payback work? What happens if I get margin called? At what point would I get margin called? Let's go through that. Well, I'll first just also say you we we can disperse the loan into a bank account. You know, that's obviously the most common use cases. We're just wiring US dollars to a bank account of the client's choice, right?

Okay. So, most people don't want stable coins. Interesting. Yeah, we we do actually we offer stable coins as well. Uh, so we can disperse in USDC, USDT, and um or we can also disperse in in local currency. So if someone's taking a loan from Mexico, you know, we can disperse in Mexican pesos. So lots of availability. Basically, we just want to get through the currency in the form. I can take Canadian dollars then. Basically, you can take Canadian. Not that I necessarily want Canadian dollars right now to be honest, but Exactly. Yeah. Yeah. 100%. And so um and then but the loan importantly is denominated in US dollars. So you have an obligation to pay us back regardless of how you took the delivery method of those funds. The obligation is to repay the loan in US dollar um basis. Uh once the loan is in

place uh we have uh a couple different thresholds that are important. So if the bitcoin price decreases so that the loan to value meaning the the ratio of the loan that you took uh divided by the the total collateral is um at at 70%. you'll start to get warnings and say, "Hey, Jay, you know, your loan is Let me just What would the What would the price be for me then?" So, it it roughly, it's not perfect math, but roughly decreasing by, you know, uh you know, uh to do the exact math, but it's around like a 30% decrease would get you to uh different margin call or liquidation uh provisions. Okay. So, that would be uh we're at 85,000 right now. That would be pretty low. that would be dropping below 60K. Okay. So,

okay. Okay. So, it' have to drop below 60K. I don't Yeah, that's right. And that's an important piece. So, uh we always tell clients uh to check the LTV of the loan uh to look at it carefully because the liquidation price does change based on the loan outstanding which includes interest uh any the admin fee that's placed in. So that factor would change the liquidation price and that's why we always ask uh remind clients to make sure they understand the LTV check it frequently uh and you know again make sure they're building in uh those factors uh and then so once the the loan is active uh if the price uh does decrease at 70% loan to value they will get a notice that they need to uh maybe consider taking action on the

loan. Nothing happens. Letin doesn't sell any collateral at 70%. at 75% they'll get more warnings more emails uh coming in uh saying that they need to top up and if they get to 80% then there is a liquidation. What happens in the liquidation is uh the amount of bitcoin in that they post as collateral is sold $4 and the loan outstanding including interest uh principal and admin fees is repaid. Now there will be a bit of bitcoin uh remaining obviously depending on the the loan to value in that situation. If it's at 80% there'll be uh some collateral uh the amount of collateral remaining does get returned to the client of course. So we have no interest in taking you know uh anyone's

bitcoin more than the loan is repaid and you know just how leen makes money is we do not want liquidations to occur. We would much rather have a client active on the loan, happy with the loan, paying us interest than have a situation where the loan is repaid because we're losing the loan outstanding. Just, you know, and I like to state that because we are aligned in that we uh you want to do everything we can to keep the loan in good standing because of how we make money. We make money from uh an interest spread being our cost of funds versus the cost that we're getting uh paid on on the platform. And so it's important for us to help the client keep their loan active. During the loan there there is no actually interest payments that are that are due. So this is a

differentiation with letin. Some other competitors in market ask for uh interest to be paid monthly. Uh so we we our view is the reason that a client is taking a loan is they're bitcoin rich at the moment cash poor. So the thought of taking cash to repay a portion of the loan over time doesn't make sense. we'd rather acrue that interest and allow the client to repay the loan all in one shot uh when they'd like to. Another important aspect is there's no early repayment uh penalties for the loan. So the loan is available for up to 12 months and during that 12 months they can repay it at any time without penalty. So there's a lot of flexibility there. We make the obligation for uh it available for 12 months. At the end of that 12 months, as long as market

conditions prepare uh prevail, the loan is automatically renewed. So, a lot of clients have had their loans open for many years now. We have some clients that are actually paid in Bitcoin. They operate their entire life off Bitcoin, but they obviously have, you know, expenses to cover that are dollar expenses and they take a loan like every two weeks uh when their paycheck is growing and they have this like buildup of they don't want to sell like what I'm trying to wrap my head around like Yeah. like how does this Okay, I'm very interested in this. Like how how how does this is it is this is this considered income this loan like do I the loan is is is again we always have to say you know anything around taxes you have to get your own advice but our view generally is that it's not

considered income because you're borrowing against an asset uh that you're you're not selling. So uh again in most tax jurisdictions loans are not uh income and we actually have the other you know we'll get into this uh you know obviously in in some of the differences but the nice thing about a CFI platform like Laddin is we can provide the loan documentation. So a lot of clients you know their banks are they you frankly treat them guilty until proven innocent when it comes to like anything that hits their bank account. Sometimes the banks are obliged to report that to the tax authority and they have to prove actually that it's not income. So, we've had clients ask us for our loan documentation to say, "Hey, I need to show my bank a proof of funds for anti-moneyaundering purposes. Where did this money come from? And I need to show

the tax authority that I didn't get, you know, the income. This is actually a loan. So, can you provide the backup?" And we of course all have all the legal documentation to do that. So, you know, helpful to be able to provide that client service point for C5 versus D5 basically. Yeah. Sometimes we're still bridging, right? And so that's where it's like, you know, a a DeFi protocol can offer you, you know, a lending agreement to show the the, you know, the CRA in Canada or the IRS. Yeah. Right. What is the interest rate? Uh it depends on the type of loan. Uh so uh they generally range between uh 12 and 14%.

Uh we update them the the the interest rates monthly and uh we you know based on market conditions of course we're doing our best to to bring uh rates down. Uh and then depending on the u you know jurisdiction you're borrowing from there may be a admin fee as well of of of 2%. And and so with that uh we we have two types of loans. We have a standard loan today and we have a custody loan. Uh the custody loan we say we do not touch your Bitcoin collateral. Uh it it may be posted to third party uh borrowers. So uh in some cases how we source funds we do have the right to take that bitcoin collateral aggregate it post it in custody uh keep it in trust uh for letin and its clients uh but it is uh you know posted that way

but it's not traded it's not you know relent further than that we have another loan that's called our standard loan and that allows lein to lend a portion it's generally around 25% of the total collateral package just how the numbers work on how much we have to post to borrow to lend uh that portion of Bitcoin to generate additional yield on that Bitcoin that helps us lower the interest rate and pass on you know a better product. So we think choice is important. So we we offer those two differentiations. Which one is the 12%? The 12% would be the standard loan and then the 14% would be the the the custody loan. So we're working over time those are those are coming down. We'll have some announcements shortly. We're getting the the custody loans down more and more. uh will be, you know, closer

to the 12 to 13% range, uh, you know, as as we work to to to get to that. So, and and and obviously anybody listening to this is gonna, you know, because because we brought up the the mortgage example earlier, is going to say, okay, well, like 12% like that's that's high interest if you compare it to your mortgage. I mean, it's I depends. I know my mortgage rate personally is somewhere around four or 5% right now, right? So, it is a it's a it's a much lower rate. But then at the same time I also say okay but a lot of the a lot of the guys who were giving better rates than that blew up in the last that's it in the last cycle right so you know we saw what happened with with Blockby and Celsius talk to me a little bit about like so if

somebody says to you whoa that's a high rate what what do you say to that how does that rate work and will it do you think it comes down in the future or and maybe even how does it compare to some competitors yeah so I say it's all about opportunity costs So uh you know obviously we want first off I want the rates down to come down as well. If we can lower the rates that we will open up a much larger universal borrow hey you know we can you know someone says okay this makes sense to me at nine. I think the rate makes sense you know historically in almost every circumstance when you look at the price appreciation of bitcoin. So that's the most easy answer is like okay go back and you have two choices you know your your first okay I'll say one thing

first. We don't say to clients that let in or other Bitcoin back lenders makes sense when you have maybe other alternative sources of financing. So if you have room in your home equity line uh that you can borrow at 5% do it. If you have room on a personal line of credit that might be you know um uh unsecured at you know 7 8% do it right maximize and understand your own portfolio first. Letin loans make sense when you've exasperated other sources of financing and you want to collateralize and use your Bitcoin position to do that because let's face it, the banks will not lend against Bitcoin today. That's why we're here. uh it it makes sense in the use case that says my alternatives are sell this Bitcoin, maybe pay capital gains tax depending where I'm located

and lose all upside in my Bitcoin forever or collateralize my Bitcoin with a loan, maintain that upside generally defer capital gains today uh and take that loan instead. So that's the use case that we're playing in is is that universe where hey the Bitcoin price has appreciated massively over the last several years. If history repeats itself, it will continue. Uh I take a long-term view that Bitcoin price is going to several hundred thousand, you know, millions, two millions depending where where you sit in your belief spectrum. And for that reason, I will never bullish longer term view for sure. You know, like I think that's the nice thing is like, you know, for me this is a, you know, 10-year asset, right? So it's

like, you know, let like put yourself in a position where you don't need to sell and uh that that's what we're trying to do. at Letin is solve that use case and not say, you know, but there may be situations where, you know, maybe someone has some credit card debt and that is at higher interest rates that it might make sense to consider taking a Bitcoin back loan to do that, but we're not competing with traditional real estate mortgages. But again, you know, keeping in in place universal buyers is that exists in the US, right? like, you know, talk to a a Colombian, talk to, you know, someone in, you know, another market about walking up and trying to get a million dollar real estate mortgage. They will tell you the rate is, you know, 15 to 20%. Um, in their in their local currency, which may make

sense based on inflation of that currency, but again, there's a lot of nuance to it. Yeah. Very interesting. Uh, okay. So, talk to me about CFI versus D5 in the lending space because this is we actually were looking at a chart on our episode on Saturday of uh I can actually bring it up here. I think I was I even grabbed it off your uh this report you mentioned earlier is DeFi is growing at a rapid pace when it comes to lending. Uh and so where are we at right now with C5 versus DeFi? Is there is there DeFi options in the Bitcoin lending space?

And and and then let's talk about like what happens in the future. Let me just pull up this chart here so everybody can see because this is pretty interesting. Like you can see in this chart, everybody's listening and not watching. This is C5 versus D5 lending. This is is this just Bitcoin? This is all crypto, right? Except for Yeah, it's all crypto. Except for like stable coins like Maker Sky wouldn't be included this. I think that's what a CDP stable coin is. Um so it was it was majority CFI in the last cycle, right? and and like I mean I think 60 65% CFI in last cycle and now it's switched and it's majority DeFi now for sure thoughts on that so there's a there's a lot to unpack in in this

question I love digging in so there's like what are the use cases for le for for lending right and in 2021 a big use case for uh crypto lending was something that's not around today and that was the the Grayscale Bitcoin trust you know arbitrage right where people were were lending Bitcoin uh to create GBC units on the hope to sell them at a premium later and then close that trade which was billions. Uh and that was completely trade worked worked for a few months and then went really massively negative and you know was some of the reason that uh led to the downfall of of some of these major lenders at the time right and so that was a massive um use case of CFI lending that that is not around today.

Now we have new types of lending. Now we have the ETFs. There's some interesting things happening that there to arbitrage uh the the ETF units because those still follow traditional rails. there's a couple days requirement for settlement. And so there's there that's actually a use case that Latin helps facilitate today is creating and redeeming uh ETF units using uh Bitcoin lending, which is a much more uh you know uh um you know different risk profile and uh different you know you're not you're not taking you know the massive price risk and potentially uh trading risk that you're taking with facilitating the the GBTC trade that exists uh previously. Uh but broadly speaking, you know, CFI versus DeFi. Defi is, you know, obviously done an amazing job by using all aspects of the blockchain for transparency. So

you've got this really unique setup where you can see massive pools of uh crypto assets coming in being deposited as collateral and then typically borrowing you know other types of assets against that and an amazing pool. The challenge with it and something that uh DeFi yet has has yet to solve well is rate certainty. And so to keep these pools active, they, you know, when there's an imbalance, they they raise the rate to bring in more assets to lend. Uh when there's, you know, imbalance the other way and there's too much supply, they cut the rates to keep the pools paying out a nice ratio, which works really well for intraday trading, but obviously can get expensive when the market's in a bullish position, gets really cheap when the market's in a bearish position, but is not really good at solving the problem of maybe bridging

into the real world. We have clients that say, "Hey, I want to buy a house with my Bitcoin." And you know having the interest rate change from 5% to 20% overnight doesn't work right like you know you might be trying to make an investment you know you're paying this on a you know maybe a fixed income so like that's where you need CFI to bridge it because CFI has been really good at providing that certainty like what we can do is say hey pension fund how would you like to lend against Bitcoin over five years uh and that's the type of conversations we're having right now and you know can you lock in that rate and provide that certainty uh for that amount of time and and lock that in.

Then we can say hey let in clients you know do you want to pay a fixed rate for for the next year and do that. So that's the use case that that I see is like CFI is bridging longer term more predictable financing bridging into real world and DeFi is doing a you know maybe a better job of riding that intraday uh trading in and out. Another aspect is for the most part we're talking about bitcoin here like bit letin is a 95% you know bitcoin company and bitcoin is not easily bridged to defy right you have to wrap it to participate in uh you know different protocols that typically sit on ethereum and in most jurisdictions that's a taxable event so if I want to you know use my bitcoin and for example uh convert it and use it on you know

coinbas's new protocol with with morph lending you're converting your bitcoin to a wrapped version of bitcoin in this protocol and again in most jurisdictions that that may be a taxable event. So it's not hitting the use case of I want to defer my capital gains. Uh so that's a that's a massive change there too. So a lot of important uh details. I always say like you know again what's so nice about the space is there's so many innovators globally building new solutions every day and clients have choice and you know not only you know it's not one or the other. You might want to try okay I want to try some some you know DeFi lending. I want to try this new protocol and I want to compare it against letin or you know unchained or other uh more more centralized counterparties and see what works for me

right and that's what that's that's what's great is we're we're in the business writing option out and I hope clients you know can spend the time to to do the research and figure out what works best for them. Okay. So, uh be because you're my friend and uh the I'm considering this Bitcoin loan, I'm going to look at Letin, but who who else would be worth looking at? If I want to look at some DeFi options or some other CFI options, who would you be worth looking at? And I know you're going to tell me I should do Letin, but let's, you know, Yeah. Yeah. Yeah. No, I mean, uh look, at the um uh at the CFI level, I mean, I mentioned Unchained. So they have an interesting solution where you uh use multisig uh to post uh bitcoin. Uh arch lending is a new uh uh competitor that's

that's popped up uh in the US as well. Uh so uh they have an interesting product as well to consider. Uh Nexo is a company uh in uh Europe that's that's been around uh for many years. Uh they they support many different uh crypto assets. Uh so uh they have a they have a lending uh solution as well. You know there is you know a universe of that. And then on the DeFi side, you know, there's there's there's Compound, there's a there's Coinbase's new protocol uh with Morph. So, you know, several different and then there's I think, you know, there is, you know, more lenders kind of on the uh you know, that are new uh you know, up and coming.

But, you know, I I would look at, you know, many things. I would say, you know, how many years of experience do you have? Where where are you based? What is the team like for support? What aspects do you offer for transparency? So letin has a proof of reserves report that we put out every six months that shows that our assets are greater than our liability and you know again how do I make sure I keep my bitcoin safe what is your experience in the space what's the dollar volume of lending that you're doing I think you know there is you know value in in numbers I should have asked that what what dollar value is are you guys doing yeah so we're doing approximately 100 million of originations every month now so in the first quarter of this year we did uh 304 million of of new loans uh across um

that that again the first quarter. So seeing a ton of volume come in and how does that how does that compare to uh uh to to like the past year? I I'm curious if you are affected by market prices or are you seeing growth? Well, interestingly enough, you know, we we obviously had had a runup with uh Trump's election last fall. And so, since then, we've seen, you know, very high volumes, but as you know, April p has, you know, obviously recovered a little bit p the tariff issues. March was a sideways month, and March was one of our best months ever. So, despite uh that coming down a little bit, I think people are really really starting to

understand the use case for let for lending, right? And it it does work in a sideways market. Uh it works in a market where obviously the price is appreciating and you of course don't want to sell. Works in a sideways market where you don't want to sell because you think you know you obviously have some appreciation later. Uh it works in a down market because you don't want to sell at a loss. So it kind of is uh one of these things for all all market conditions. What I always want to make sure we tell our clients uh and partners is, you know, make sure you have Bitcoin aside for a rainy day, right? we do not want uh to liquidate uh loans. So, make sure you do understand the risk profile, you're comfortable if Bitcoin does contract, you understand how to how to deal with it, you keep the Bitcoin that

you may need to top up uh available um because if you do need to top up, you top up in Bitcoin. Yeah, exactly. We do have a feature uh called auto topup. So, we have a transaction account that you can put Bitcoin in that, you know, if you want to make sure there's Bitcoin available, you can turn on that feature that actually automatically moves additional Bitcoin collateral uh to the loan. Uh that's an interesting feature. Uh but yeah, and then to give you kind of like uh you know quantify the growth, more 1.5 billion of assets overall on our platform today and that's 140% up from the year before. So, we've really really recovered. Um our company is profitable. Uh we we're proud to reach profitability uh now for you know almost coming up on you know close to 18

months. Uh so the company is is in great financial shape and uh it's really been an exciting you know rebuild uh from uh the post FTX events. Yeah. Yeah. It just it it really does feel like everything that is not only is Bitcoin such a strong investment right now for everybody listening in, but also everything that's happening around the Bitcoin economy and I know that there's not a lot of investment opportunity there. I mean you can invest in some of the DeFi lending platforms that you mentioned but it feels like you can't you got to pay attention to this space because there is just and if you're a builder like there's a great opportunity

you know just taking traditional financial products and then enabling them for Bitcoin is like we're just we're so early so so early. Yeah. You know what like I found this so uh fascinating as I started to get into it. So like one of my frustrations coming from the energy and infrastructure space was most of my work was in Canada and we were so you know boomer based on the government in place based on the current policies for renewable energy you know at the municipal level at the provincial level at the federal level and when you're building a Bitcoin business you you finally get this opportunity to say like the market is global and yes the US is hot right now but maybe that'll change in a couple years and you know

the middle middle east will be hot or you know Southeast there's always somewhere that you can grow your business and you can hire anywhere you know you've got like millions of builders around the world saying how I can use this unique asset and because it is the same like I can't stress that enough right I was building a power project in Canada and then I try to do something in the Caribbean even though there's more sun in the Caribbean uh it's harder to do because of regulations and property rights and all these things but like when it's just Bitcoin it adds so much simplicity to what you're trying to do and and such an amazing opportunity uh to think about it. So that that's the thing is like you know people are nervous about buying real estate in Canada right now because the state of the Canadian economy but

when you think about a building like again we're getting to this place where I I think we're way past that like Bitcoin is not going away and therefore Bitcoin businesses are not going away. So you don't have to worry about this like okay I'm I'm so micro in what I'm what I'm attaching myself to because of that right like I think and this is changing I don't I think like three years ago people would not have thought twice about investing in a real estate related business in Canada but now they are right because again like it's going to take a long time for things to reset and things to get back but you can bounce around uh in Bitcoin and take advantages of of different jurisdictions that are attractive and you've got this nice balancing aspect. Well, and and and if we go through who knows what happens

in the macro side right now, but if we go through this shift in in monetary policy and global trade and we move more towards uh more protectionist government and more manufacturing onshoring, if that comes and that happens, which will take years, where does that all lead to? That leads to the main outcome of that in my mind is a lot less investment in America and American stocks, right? And a lot more capital that is prepared and looking for a an asset that they can invest in. And gold is the obvious one.

And then it's Bitcoin. Like it's just Exactly. So my my I feel like and everybody listening will know this because you guys have heard me talk so much about like my my interest in Bitcoin in the past six months has skyrocketed and it's not that I wasn't interested before. Do you know what I mean? Like it's like it sounds like a weird thing to say as if I I only just found out about it but it feels there's just there's a moment happening right now around Bitcoin specifically crypto. Yes. Not not I'm not saying it's not only I mean also Salana Ethereum very exciting all the things happening there stable coins huge fascinating like big don't get me wrong I'm not downplaying that but there is so much happening around Bitcoin that is just so exciting uh Adam absolute pleasure to get you on the show today so fun to

thank you so much Jay yeah really enjoyed it yeah so nice to see you again and uh yeah congrats on everything that's happening with with Milro 2 uh great to see you're doing super well appreciate it my man appreciate it everybody listening in uh we will link to Letin in the show notes if you want to check out getting a Bitcoin backed loan from them. Have yourselves a wicked awesome day. We'll see you back again tomorrow. Cheers. See you later. Wow, another great show. Thanks so much for listening in everybody. Before I let you go, I've got to tell you about a new documentary that just came out called Vitalic, an Ethereum story. It is an incredible documentary made by some award-winning filmmakers that follows Vitalik around the world, which is just wild to follow this billionaire that

does not live like a billionaire. And you guys, you just got to check out this doc, not just because of Ethereum, but also because of how interesting Vitalic is and the way his mind works and the stories of his childhood. It's just incredible. And also, this documentary is a great documentary for not just crypto people. So, if you're hanging out with your friends, hanging out with your family, and you want to introduce them to crypto, this is a great documentary to learn more about crypto, learn more about a very interesting person. Highly recommend it. Check out the link in the show notes to go watch it today. Thanks for listening in everybody. Have yourselves a great day. As always, if you liked today's episode, please hit subscribe and make sure you follow us so

you don't miss out on the next one. There's also a link in the description to our free 5-minute daily newsletter where we simplify crypto for you while making you laugh. And if you're willing to step up your crypto investing game, we're going to also leave a link for Milk Road Pro. You get access to our portfolio where you can see exactly what we are buying. This is your number one resource to help you invest successfully in crypto. One final note, this show is for educational purposes only and nothing we say is financial advice.

Investing in crypto or any asset is risky and you should never invest more than you can afford to lose. Thanks so much for listening in my friends.