Solana Is Becoming The Home Of Onchain Credit Origination | Marius Ciubotariu & Reid Simon

Transcript

I think we kind of all looked at the past few years and we thought low risk DeFi is a thing and everyone's happy to earning a 2 and 1/2% or 3% forever. And I just simply don't believe it. Or maybe Solana is more higher risk appetite in general and is more keen to get you know, 11 12% yield. We found that people are extremely interested in getting this this extra yield as long as they understand the asset. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guest and I may

hold positions in the companies, funds, or projects discussed. All right, everyone, welcome back to another episode of Bell Curve. This is going to be a fun episode. Today I am joined by Marius, the co-founder at Camino, and Reed, the president of digital assets at Figure. Guys, welcome. Thanks for having us. Nice to be here. Yeah, guys, this is going to be a really fun one. You know, I haven't done an episode on kind of borrow lend and DeFi on Solana a little while and you guys between Camino and Prime at Figure are representing a huge amount of TVL and activity growth over on the Solana ecosystem and just super exciting to watch. So, I guess I'm I'm curious cuz you know, typically a lot of the

content especially on kind of like the DeFi and borrow lend side, I feel like I end up focusing on Ethereum. So, take me into Solana land here and maybe you know, Marius, I would love to actually rewind the clock to the inspiration of you know, founding Camino and then you know, Reed, how did you and Prime find your way into you know, working with Camino and talk to me about kind of the differences between Solana and Ethereum here. Camino was born about 3 years ago kind of out of a of a need to serve some of the stable coins in Solana.

It initially it was um an LP protocol to to tokenize LPs and then it once we realized that actually the borrow lend was not well served or did fit all the needs, we decided to build our own borrow lend as well. Um It was at the time when basically Solana was considered basically or just place of of imitation, you know, not not very serious builders. It was just in the middle of the bear market where lots of people left.

And um you know, it there was not a lot of of um excitement about Solana, but we we really bought Toly's vision and we believe that the architecture would allow it to scale. Um the bear market and all the network holds that came with it um forged our our culture, our personality, and made us resilient, which kind of I think allowed us to go through this current bear market if you want to call it like that. Um and yeah, we we've been building ever since. We've had a Camino lend open on the market for almost 2 and 1/2 years, the LP protocol for 3 and 1/2 years.

And um yeah, the the the reason why it was all created was to serve DeFi on Solana because we thought the blockchain will create a lot of economic activity. Which is what is happening now and what we observe with more and more quality al assets coming on on chain. And and I guess you know, on on my side, so Figure's been at sort of the RWA intersection of of TradFi and credit origination since 2018. Um you know, we set out to really rebuild capital markets, but doing so on chain. And so, you know, we're vertically integrated across the whole stack from credit origination, mostly known for tokenizing HELOCs on chain.

Done about 22 billion of those today. We structure the cash flows and then we also distribute across TradFi and DeFi. And so, I think for sort of the earlier years of of Figure, a lot of that took place on Provenance connecting users directly on Provenance both in TradFi and in DeFi. And sort of about I don't know, maybe 9 months ago, we decided to branch out to to other chains to to reach liquidity sources in other ecosystems. And you know, my own experience with Camino team in in prior roles and also sort of the Solana ecosystem,

we thought it was a great opportunity to sort of test the product and build out with strong relationships and a strong ecosystem. And I think the the results we've had together have been really fantastic and sort of speak to an ecosystem that is really focused on bringing new ways to finance new assets and doing so in in a responsible Yeah. I think you know, one thing that I would really love to I feel like this borrow lend as a category has evolved quite a bit over the year. I mean, I think if you look at the original you know, kind of the 1.0 version of DeFi it was mostly in Ethereum and it was kind of based on people that wanted to borrow against like their ETH

primarily. And a bunch of the borrow lend protocols kind of went through different iterations in trying to find themselves. And like some of the original versions of Aave were more focused on trying to spin up a market for any collateral and then people figured out that really what people wanted to borrow lend was mostly stable coin based. And I think the most interesting chart on the Camino side of things is what's going on on the RWA uh going on with RWAs. So, this is a dashboard actually that Blockworks just put together with Camino here, but the deposits on the RWA markets for Camino are kind of up only and doing extremely well. And in a time where things are pretty challenged in crypto, this is a pretty rare chart. Uh so, this is kind of the reason that I wanted to

get the two of you on one podcast together because obviously Figure's Prime is a relatively big part of this. You know, you can also see that there's Maple Henri a little bit of Superstate, etc. You know, but I I guess I'm just very curious um you know, maybe we can start with you, Marius, on your perspective for what is driving this. And I'm also very curious as we're kind of merging these two worlds. Even Reed, you know, kind of hearing your background. It was very we're kind of merging these two worlds that have in the past felt very separate of very DeFi and crypto native and a little bit more TradFi. And as they come together, I'm just curious like how do you ensure that these charts continue to go up? How do you do BD? What are you looking for as

an issuer? And then maybe Reed, from your standpoint, I'd love to get kind of on the issuer side of things like you know, what is kind of the value of you know, tokenizing HELOCs in general here and you know, participating in borrow lend, are you looking to loop, etc. Sorry, I can never help I ask like five questions in one. So, Marius, let's start with you. What is driving this? Like how do you do BD in this new world? How have you changed your general approach as kind of TradFi and you know, crypto have closer together? I think I think we still um I think the historical past to get here um is um I mean, I think we always wanted to get

here to have something like quality assets that people can simply hold on chain self-custody um or you know, borrow lend loop, which is like kind of like a a similar way of tranching it, you know, getting the senior tranche or the junior tranche by lending or by looping it. We always wanted to have this, but the the assets were never there. So, we always had native crypto, so ETH and Bitcoin. And stable coins. So, okay, we had governance tokens, we had all these like games with like uh you know, emissions and etc. But there was never really like exogenous quality sustainable yield.

And I think the first the first glimpse of that was Ethena uh last year or 2 years ago when we had like exogenous yield that was not due to you know, like leverage against Bitcoin. It was to some extent leverage because it was still driven by the the funding fees, but it was somewhat of an exogenous yield. And what we observe with Prime is when you have something that is sustainable um um and can sustain sustainable and scale um it takes a bit of time, but people start trusting it and then they realize they can do useful things. People with that want to earn yield, they can they can rely on it.

So, this was always the the promise of of DeFi composable money, but there were no pieces to compose with. That's my really my take on it. And um when I first saw when we I was talking to Reed and I knew about HELOCs and and Prime, I thought this is a really good quality asset. Um that that that I was talking to everyone at Breakpoint that this was this is going to be really good and and big in Solana. Um because we always wanted this and we finally have it.

And I think you know, we although we live in this permissionless 24/7 world it's still finance and people still lose money and things break. So, you don't want to just like let it open and you know, maybe you get wrecked, maybe not. And then you you realize at some point that you know, you some parts of your portfolio has survived. I still think you want to it's all extremely varied. It's still path dependent. You wants to do it well. You want to inform people about the token, what does it do? What are what are the the risks? What it's where What coming from?

Be as transparent as possible. Try to curate as much as possible. Because that's how you build kind of a a user base that that that appreciates those things then invites other people, trusts you, etc. etc. So, I think the path to here and to further away from here where the the the promise of good quality assets, finance happening on the blockchain, uh non-custodial, etc. has to be paved by by by by by quality. And I I think Prime is basically the best example of this. Reed, but before you tap in there, can I if I could just comment and provide like 30 seconds of context as well for listeners. Marius, when you're talking about exogenous

yields, I think a framework to understand, right? If you're in kind of the borrow lend space of cryptos, you're looking for new sources of yield. So, there are kind of these big buckets, right? There's kind of the demand to you know, to borrow and and leverage up against ETH, which is kind of like one big bucket. The other big bucket that Figure really discovered was kind of the basis trade. You know, or like funding rate on C5 exchanges, right? So, you're kind of sitting there looking at different sources of yield in the world and this is maybe the reason why originally the Maker folks went towards this like RWA based end game. They just saw it limited markets and like hey, there's like a ton of really high yielding assets out there. We need to find a way to bring them on chain.

So, I just wanted to you know, that's kind of the context that a lot of folks in the borrow lend space sort of look at things and then Reed, sorry I interrupted you there, but I would love kind of have you respond to what Marius just said and then also want to get your perspective as an issuer here. Like HELOCs are a really sexy category at the moment, especially given what's happening with the in the real estate market and I'm just very curious like you're one of the largest ink originators now in the US and I'm just curious, you know, why you know, even from the standpoint of like why does this need to be tokenized? Like what excites you about this? Is it the looping use cases? Anyway, multiple questions in one, but yeah. Yeah, yeah.

So, I mean, I might break it down into like productive debt and unproductive debt. Um and I think, you know, stablecoins were sort of like the first fantastic product market fit, I think for for crypto. But if you think about like debt markets in in TradFi or rather capital markets in TradFi, you have sort of different reasons for why you would issue equity or why you would issue debt. Um and you would choose debt and it's for, you know, not giving away upside of of your business, maybe to to fund the growth of it, but that's going to be risk-adjusted. So, if you operate a higher risk business, your debt is going to cost you more. But there's this weird dynamic on chain, which is I can just issue a utility token to fund my

project and so like what role does debt actually play? And I guess my view would be it largely has been supply and demand for leverage. And so, you know, credit cycles on chain, um they don't necessarily follow sort of credit cycles in in the TradFi world. And so, we're seeing this today with um you know, other borrow lend platforms where there's billions of dollars that are just sitting there sort of earning below a risk-free rate. So, I think Figure's goal um and sort of why it it launched with with HELOCs was um these are productive assets, right? They're American homeowners, um real homeowners, real borrowers with a real asset that are making real cash flow interest

payments. And I think that's sort of the differentiation from a lot of the other sort of yield products on chain is this is a productive debt asset and productive cash flows that don't sort of just ebb and flow with whatever's happening with stablecoin supply and and demand. So, if you look at what Figure has been focused on doing is sort of we have the scale and sort of the TradFi expertise to be able to find these asset classes that have otherwise been locked within a bank balance sheet or some other TradFi sort of moat, right? Um even if you're um you know what a smaller community bank, you're not going to get access to warehouse finance

against HELOCs. Um and sort of with the name democratized Prime, our goal has been to democratize access to those type of credit asset. And Reed, can you just actually do a quick 30 seconds about why HELOCs are such a sexy product at the moment? Um I mean, I don't know if it I don't know if I'd call them sexy, but I think, you know, We're talking about finance and crypto, it's all relative terms. So, uh Yeah, yeah, exactly. Exactly. Um so, I think, you know, we we started with HELOCs not because we saw it as sort of like some fantastic asset class, but more these are mortgages in in the US are very difficult to originate. Uh there's a lot

of paperwork. It's generally done by banks. It's really inefficient. It's really expensive to to do. Uh and Figure wasn't born as sort of like a crypto company. It was born as a company that was operating on public blockchains for the efficiencies and the speed that we were able to to avail ourselves instead of traditional off-chain models, right? So, HELOCs are interesting because there's a ton of equity within Prime borrowers' homes in the US. And with our ability to originate on chain, we're able to do that much quicker um with really high quality borrowers. Um and, you know, HELOCs as a as an asset class were sort of very difficult for other originators

to do because of legacy systems. So, we sort of fell into it rather than like seeking it out. Um and I think it's been a great proving ground that we're using as a launching pad to expand into other types of productive consumer credit, consumer and and corporate credit. So, can we talk about um private credit actually here? Uh and I'm very curious to get both of your perspectives on this because private credit is obviously quite a large um asset class in TradFi, um especially since some of the banking regulations over the course of the last uh decade and a half uh moved a lot of lending out of the banking system. Um although and folks in crypto are very excited about it um as an idea and I think when you talk to a lot of the

folks in the more TradFi perspective is maybe there's the potential at least for some adverse selection and the asset class has gone through a little bit of challenges like even Apollo who's probably one of the most responsible uh you know, private lenders and got out of a lot of the legacy software uh and like reduced their legacy software exposure pretty early, like even they had to gate withdrawals. So, um you know, I'm curious um as it feels like crypto and and private credit are moving closer and closer together, what do the two of you kind of think of this as an asset class? And Reed, I don't know how much insight you can give us on the road map for Figure in a you know, like where you're going post-HELOC, but I'd love to get the two of your perspective on this. I think for me that having been doing this

on-chain lending for for a few years, uh first time I I hear about a tokenized version of a private credit, it's always like um sounds a lot a lot like a black box, you know, the you don't see the the prospectus as a normal user. You don't see the what it was under how it was underwritten. You don't see um how it's marked to market. It's and you contrast that with um you know, the blockchain where the the the the the collateral is locked there on the open source smart contract on the block explorer.

You see everything transparently. It's a it's it's a huge contrast and I I I think I think we the one thing that we did well on in DeFi is this complete openness. Um and and I'm extremely skeptical. Although we are super bullish on RWAs, I I think there's a lot of adverse selection when it comes to to just bringing anything that is tokenized on the blockchain. I don't think that's the just because it's tokenized, it's it's it's a good asset. Which is why I I loved um a Prime. So um the the the the other thing is we have yeah, we you like to see the collateral on the blockchain. The you know, the blockchain

doesn't allow double spend. It's not you don't pledge the same balance sheets to to issue to to, you know, underwrite as it's it's um it's just so much better. So, even though it happens in a regulated space in TradFi, uh it's the the the the we have gotten used to something good and we should try to try to keep this as much as possible on in DeFi. Um that's my my thinking. Yeah, and and I mean, I I I don't disagree. I think um there's a a really important distinction between credit origination and credit intermediation.

Credit intermediation looks more like what a private credit fund does, right? I give money to XYZ asset manager. They go and they make a whole bunch of loans and those loans, you don't get a lot of insight into what's actually inside, how they were underwritten or especially how they're priced. And then you're sort of stuck within this wrapper of a fund structure that the manager gets to decide at their whim sort of okay, well, now you can access your capital back or now we're going to update marks. Um where asset origination uh is you actually are lending against the asset. Um you're not lending to a balance sheet and hoping that the balance sheet will pay you back, but you actually have ownership and and security against the asset that

has liquidity. Right? And I think if you look at we saw this earlier in the year um around Tricolor and and First Brands, which basically just were double pledging and fraudulently borrowing from credit funds. And some of the biggest ones were all exposed to that. And I think what Figure has done um with HELOCs and other other credit assets, we have a lien registry that exactly prevents the ability of a borrower for double pledging their asset because you see it on the blockchain and you can see in the lean registry, okay, X X HELOC is pledged to, you know, Y or to Demo Prime and it physically or technically cannot otherwise be double

pledged. So, I think um you know, I think part of the the slowness in sort of seeing the evolution of of credit origination for real-world assets is there are not a lot of companies that have sort of the scale and the innate interest in building on chain first. And I think, you know, Figure has done a great job of that with HELOCs and Prime is a a great example of that and we have a host of other products coming on that sort of replicate that same structure of native origination, structured cash flows all on chain and then distribution into into DeFi.

Reed, could you give us a little bit of an overview of what Forge is? Um so, this was recently unveiled from the Figure team and I think it's lots of conversation nicely. Yeah, so I think, you know, the the core issue I think there's two real challenges for why hasn't, you know, we talk about all of these trillions of dollars of credit assets and why are they so slow to move on chain and we've been sort of I think dancing around some of the issues which is A, it's difficult, but there's just issues around how do you accept non-fungible loans as collateral in a platform like Kamino, right? If you look at any, you know, the three of us could have HELOCs, they're not going to be the same size, they're

not going to have the same maturity date, we might have different FICO scores. They're probably generally in the same risk category, but how do I take Michael, how do I take your loan and pop it into Kamino and how is Kamino going to liquidate it, right? So, I think there's an issue around standardization and an issue around liquidity. And so, Forge is Forge's is a platform of sort of cash flow structure that Figure has. So, we can take course non-fungible loans, put them into the forge and outcomes standardized $1 units of loan participations into that pool of loans.

That solves sort of how do we get the asset to be standardized and fungible inside a DeFi protocol, but the second piece of the puzzle is, okay, great, I can accept it, but now how can I liquidate it? And Figure occupies this interesting position between securitization markets in TradFi and asset originators who originate through our platform on chain. So, what we're able to do is sit in this interesting position as sort of an arbitrageur between these loan participation tokens, securitization markets and then loan originator loan originators.

So, in a situation where Kamino needs to liquidate a loan participation token, they can sell it back into this liquidity pool and we sort of can balance that by when those tokens trade above market, it incentivizes originators to come in and sell into the forge and when those tokens trade below market, we can step in and sort of connect them with securitization markets. And so, we're sort of using TradFi to originate these assets, provide liquidity, but to serve DeFi.

Got it. Okay, so how should I think about like the risk component here of something like Forge? Like it's a platform, I would guess like there's a lot of nuance around the risk management there and kind of making, you know, getting in a bunch of different loans with different maturities, different yields, etc. and, you know, spitting something out which is fungible. So, take me like two clicks deeper into the risk management behind. So, look, I mean, Figure has deep and very extensive experience in credit origination, securitization, capital markets. This is really been our bread and butter of operating a credit origination and trading and securitization business. But the second thing is, if you look at, you

know, DeFi at its core is an asset finance business, right? You're not underwriting the borrower, you're underwriting the asset, you're looking at the liquidity, the volatility, all of those elements that are specific to the asset. So, Forge in the same way is doing pretty much exactly the same thing. Doesn't matter who the borrower is because you can see the asset, you can see the liquidity and the securitization availability, but all it is is is really Figure providing um I guess some structural credit enhancement and, you know, cash flow structuring to make this more to make it easier to interact with DeFi the way DeFi operates today, but also

such that we can connect liquidity between TradFi that is desperate to access these assets and credit originators who are looking for a platform for you know, distribution into DeFi and into into TradFi. So, I think in in short, um yes, you're you're sort of relying on on Figure to to do what it says it's going to do, but because all of this is taking place on chain, you can verify that yourself. I would love to get to the discussion of actually you each of you have mentioned it now on the podcast, but this idea of looping RWAs and Marius, maybe starting from your perspective as the operator of a borrow lend protocol,

how much do you see that as driving growth of like deposits and TVL especially on like the RWA side, I'm very curious to get your perspective and then I'll ask Reed the same question to you from your originator side. The whole all demand comes from looping at the moment. It's a I think we kind of all looked at the past few years we looked at Ave and we thought low risk DeFi is the thing and everyone's happy to earning 2 and 1/2% or 3% forever and I just simply don't believe it. Or maybe Solana is more higher risk appetite in general and is more keen to get, you know, 11, 12% yield.

But we we found that people are extremely interested in getting this this extra yield as long as they understand the asset. At the same time, the people that lend into those markets, they kind of take the senior tranche. They they are lending there and if the the loopers, you know, there's an impairment or there's like a, you know, the price goes down, then we would liquidate, so they're protected by the by the loopers. I mean, almost, you know, one in let's say like average looping like multiple is like five 5.6 in the prime market, so for every dollar that comes from loopers, there's like five something like that coming from from from lenders who just want to earn some some some lower yield. So, it's kind of

much more a lot more people willing to earn a lower yield, but it's it's all predicated on someone wanted to take the the junior tranche. So it's it's all that. Like prime market is that the we have something called on re insurance that is also growing and it's the same thing. I expect this to continue. I think uh I think what's happening is I mean, you could tokenize these things or you can the payoff is the same is similar. Uh different liquidity profiles, but basically there's people that want high yield and then people that want low yield and they're happy to to take it on chain and for example, me on my brokerage accounts, I just don't have access to

these assets and I think so I guess this kind of yield especially the the senior one, you take a lot more risk in the in in the brokerage account. So, although demand comes from looping, somehow there's there's a lot more demand from the from the seniors. Now, I'm not sure who between the two of you is the right person to ask this question to, but how do both of you think of some of the structural challenges of looping RWAs versus, you know, atomic kind of native bearer assets like SOL or ETH or something like that? You know, whereas, you know, on something like you know, the traditional looping is, you know, you might borrow or like deposit, I mean, in this case a million dollars worth of SOL, borrow, you know,

$500,000 of USDC, you know, rinse and repeat. And then, you know, crucially you can have liquidators that unwind that transaction in market volatility, you know, for for some amount of for some amount of spread. There are challenges with RWAs, right? You can't necessarily just there's a liquidity kind of mismatch in between your ability to mint and redeem. So, how do you think about solving the structural challenges of RWA looping to enable this activity? I think this is again what would differentiate Prime and sort of the forthcoming forged assets from from Figure from some of the other more sort of like the closed end or rather interval funds that would that

we see, right? That don't have sort of embedded liquidity in them because they sit inside some wrapper and they weren't purpose built for operation on chain, right? So, Prime operates through democratized Prime which is an hourly reverse Dutch auction borrow lend. So, it has hourly liquidity in a way that in addition to DEX liquidity where you can trade. So, I think the difference is the approach that tokenization or issuers are are taking. I think some of the first iterations were TradFi purpose products that were tokenized and then put on chain which was a great kind of first step to to prime the the space, but there's a lot

of friction points with how those things actually operate on chain. First of which is they're permissionless. A a of them you need to be qualified purchasers, um, and their whole periods for liquidity are sometimes a quarter long. So, I think it it really takes, um, sort of a concentrated effort from originators who believe in building on chain to adapt their products to work on chain. Okay, can I just two quick follow-up questions for you there, Reed? I know there's a DEX So, it sounds like, um, you know, in this instance, the and correct me if I'm wrong here, but Forge is kind of acting as, um, a balance sheet to temporarily absorb some of that risk, um, like selling off. Uh,

yes and no. So, Forge is Forge is mostly focused on providing liquidity to non-fungible loan. Right? So, um, that is sort of the the mechanism for providing that liquidity. Then, Democratize Prime is the borrow-lend platform where the asset actually gets financed. So, that borrow-lend platform provides hourly liquidity in that loans only last 1 hour and they roll over. And so, you have the option of pulling your, um, your lending offer and you're out at the end of the the hour. Got it. How did you arrive at, uh, 1 hour as well just out of curiosity? Which, um, obviously is, you know, very, uh, kind of rapid in the

grand scheme of things, but during, you know, kind of very panicked liquidations, I can imagine maybe being a little bit slower than some of the liquidators might like. It's interesting, right? Um, the we sit at the intersection of on chain and DeFi and then off chain TradFi that we bring on to DeFi, right? So, there there is a balance between like a continuous, um, you know, a continuous interest rate wasn't necessarily something that a lot of our originators were comfortable with given that they operate sort of at a TradFi off chain pace. Um, but also a month was not feasible, nor was a day. So, we really zeroed in on sort of an hour as, uh, a happy medium where, you know, if

interest rates were to to move up such that a borrower doesn't want to, um, to pay that interest rate anymore, it gives them enough time that they can actually pay down their loan and do something else with the collateral. And we thought that an hour was sort of, um, an interesting time frame for, um, for DeFi to have a bit of assurance around, okay, what am I actually earning? Yeah. I mean, partially the reason I'm asking here is like, um, at least on some somewhat familiar about how some of these challenges are being approached. Um, I shout out to 3F, uh, small but proud, uh, bag holder. But, you know, when they're looking at liquidators, the profile of a liquidator of something like, um,

you know, uh, RWA's where this problem hasn't been solved in the way that it has, um, like their kind of clever structure that you have, Reed, at at Figure, um, is almost more like a, you know, like a distressed credit investor or something like that because they might have to, you know, warehouse the risk for like a month or so, but, um, you know, if they're assured of the credit, then they're kind of happy to do that. Um, I'm curious, Marius, on the on the more general side of things in RWA looping, um, for like non-prime assets where they or, you know, assets that don't have access to, uh, the mechanism that Figure has built with Forge, how do you think about solving the structural challenge?

Yeah, it's, um, there is a few things. One is um, this instant liquidation that we are used to with ETH, Bitcoin, and SOL. Um, we have to relax that assumption a little bit because and people in general on chain have to get used to duration, which is something that we have not we have been spoiled with. Like, you can withdraw from Camino anytime. You can withdraw from from Aave anytime. That thing So, if if we bring more kinds of assets, we will have to get used to to longer, uh, liquidity, you know, uh, longer duration profiles.

So uh When you say we, though, is that the user or is that the liquidator in this instance, right? Like, I could imagine, um, some sort of gating function from the user perspective, although users really freak out when you, you know, when you do that. Or, you could ask, um, you know, some sort of specialized liquidator to step in potentially. Like, how do you think about who who >> the user Yeah, the the users though. I mean, the liquidators are only doing it if if it makes if it's profitable for them. But, the users that are already locked into the asset or into the market or into the into the loop, right? So, they are the ones that are taking on this risk. In the case of Prime, it's something like could be if it's if it's not business hours, then it's you have to wait the

weekend. So, it's like, okay to to wait for a few days. I don't think people would really freak out because the liquidity is there. But, when you're coming to other tokenized assets that have very thin liquidity and then maybe quarterly redemptions then the the only solution is to adjust the the pricing or the LTVs or the liquidation penalty to incentivize people to to liquidate. Um, and just make get people, uh, to accept the duration. It's just And that's how you that's how you're going to pay get paid the extra yield. So, I I have a question in this instance as well. So, uh, interest rates on chain at the moment are extremely low and I'm just curious how you think about, um, like market conditions, um, as impacting

this because on the one hand, right? When there's a lot of, um, I feel like the the still, like, we're importing a lot of RWA's and exogenous yield into crypto, which in theory should be, I don't know if it's countercyclical or just uncorrelated to a lot of what drives borrow-lend markets today in crypto, but still, I feel like, um, on chain interest rates are still pretty correlated to general market conditions. How do you think about, um, you know, higher low interest rates as incentivizing or enabling certain types of trades, um, or not. Like, I could imagine, you know, there's a certain, um, uh, type of borrower who sees these interest rates and wants to take

advantage, um, and kind of run these arbitrage trades or kind of lever up maybe into something like, um, you know, real world assets, something like that. So, how do you how do you think about, um, what low interest rates on chain do, I guess, in terms of activity? I I I think I think first of all, the, so, Camino has the isolated markets and the yield the the yields on each market is actually quite different. And um the I don't think a higher yield necessarily invites more people. So, for example, uh, Prime has had a a good enough yield, um, but others have much higher and they have managed to attract fewer people,

although it has high yield. So, I do think people are are, you know, some of especially about deploying size, they do their due diligence and they analyze the risk of the of the the thing that they're underwriting and and and and assessing if the yield is worth the risk. Um, so so and in that sense, it's not really like, um, an arbitrage because you are taking an extra risk. It's not it's not some risk-free stuff that you're doing. It's not same it's same thing. Um, so I I I I my opinion is okay. So, it's a it's a function of supply and demand. Some of some like stablecoins are trapped in in a, say, the good way or the bad way on chain and they have to earn some

yield there or they they're like slow to react. But, some of them are active and they're actually calculating the the yields. And, um, I think it's going to be more and more correlated to the liquidity, uh, and the the the risk of that specific market of the collateral they're underwriting. Yeah, I mean, I think if you look when like yield farming first came out, you know, the the numbers were completely crazy. They were like equity-like returns for a, you know, a yield. Um, and I think that over time, those were investors who were looking for equity-like returns, but were just deployed into yield strategies because the yield strategies were equity equity returns. Um, but I think what we're

seeing over time as more stablecoins enter and continue to enter, um, into into on chain markets, like there actually are credit investors who are investing from a credit perspective. And I think, you know, the isolated margin point that Marius makes is a great point. But, if you also look at sort of the curator's vaults across a ton of different chains, like they have high, medium, and low often, right? And not everyone is in the high. There's plenty of cash that is still in the low. So, I think that it is an evolution of maybe portfolio management, um, or uncorrelated yield that isn't necessarily available in TradFi that we

are seeing as like maybe a maturation of investor portfolio allocations or really risk management. So, I think it's just like, yes, if if Bitcoin starts pumping tomorrow, we're definitely going to see higher interest rates on chain, um, because people will pay up for for, um, leverage on on Bitcoin moves. But, I don't think that that means there's going to be zero allocation to credit strategies. It may just come at a, you know, an incrementally higher cost. So, I'm curious as well on the, you know, I guess I view the yield that on chain, you know,

I I guess I view the yield requirements here as a little bit of function of the risk of like smart contracts and hacks as well. Um, right? Like, you know, the reality is, you know, there have been a number of high-profile, um, hacks and and challenges. Like, there was recently, you know, resolves kind of infinite mint redeem. There was the drift, you know, 280 some million dollar hack. I So, I think users, you know, Marius, you said something like maybe users on Solana, you know, I kind of somebody to the effect of like maybe they're a little bit more degen and want higher yield, but you know, what I would say is like a casual user of DeFi is like it's kind of hard for me to diligence, you know, the smart contract risk here and I don't really know, you know, whose security is better than

like opsec of one protocol is better than the other. And you know, if I'm lending it here that I need to get a much higher yield than I might otherwise in TradFi or something like that. So, how much do you think that, you know, yield expectations or and that type of thing are impacted by some of the security challenges of crypto? I think a lot. I I think um I I think still a lot of users are uninformed and therefore they're they're they supply without demanding higher yield if it's not it's not being compensated, but I think a lot of people I think like you.

And it's also I think to what Reed said I think it is a bit of maturation in the user base of DeFi that people are aware of these risks. There's been a lot enough track record to put some probabilities or some estimations of whether something is going to blow up or not. So, I hope more and more the the risk will be well priced. And um um the the you know, there's like there's a few layers between the actual yield that um the the actual risk that um um is being paid by the yield of the asset. So, Prime, for example, there is the risk of the borrowers and not the borrowers, the originators and then ultimately the borrowers. And then

between between you and that there is like Oracle risk, hacker risk, all sorts of opsec risk and all that stuff. That one also impacts because you can't just loop it without them. Um So, I I I I think as an industry we're getting more aware of this and people that do it with size, they do they do the diligence. We We definitely observe that. Um for example, we get people reach out to us and they ask tell me everything you know, about Prime and how how does it work and we before they allocate they they do due diligence.

Then and recently more and more of them are asking about what is your opsec, how do you how do you sign things? Um what's your what Oracle do you use? And only after all of that they they decide to allocate. So, I think people are are uh people are getting used to this and they're finally they're finally pricing them uh correctly. And I think the ultimate um the ultimate the end game of DeFi is to make all of these non-credit risk uh risks go to zero. So, formal verification on smart contract side, um super long time locks and uh you know, good good opsec for for for operational stuff,

um good Oracles to to to ensure that uh you know, that the the the market you don't do bad liquidations. And once you have enough track record for a platform, uh you can put some put a number on that and then decide if you allocate. Um Otherwise, we're going to end up in everything is fully permissioned. Every single user is white listed. Uh nothing works 24/7. And it breaks the entire composability and you know, the the the the the appeal of DeFi. And I think one thing that one thing I know that we were very intentional with in in launching was sort of putting together a cohort of best in class platforms and and sort of providers and actively working across

them in building what ultimately was going to be on chain. So, whether that's working with curators, whether that's working with Oracles or or Kamino, it wasn't sort of like, okay, this is what we're putting out, you guys deal with it and and take it. It was much more, hey, can you take a look at this? We're thinking about this and like sort of bringing everyone to the table to find solutions that work at scale rather than sort of forcing people to adapt to what was what was being put out on chain. So, I have a um uh maybe in terms of like pricing risk here as well. I would love to I I have a I know we're um

you know, ending you know, we're running a little bit short on air, but I have I have a like rapid fire list of questions that I would love to to get through with both of you. But uh Marius, you kind of mentioned earlier at one point in the podcast kind of um you know, like junior risk versus senior risk. Um and I feel like this is a concept this is a a very basic concept in TradFi that's only recently like moving into crypto. I know the folks in the Sky ecosystem think about this quite a lot. Um but you know, when you talk about pricing risk, you know, help me understand just give me a basic definition of kind of what that means and how Kamino thinks about pricing that. Just to be clear, pricing I meant pricing the there's two types of pricing, right? Pricing the

asset, uh what's the value of the asset, what value can you liquidate with in case you have to liquidate, how much and um and then there is the the actual uh spread over risk free rate. So, how much extra yield do you get for uh for participating in a specific payoff. So, uh lending with with protection from others being liquidated before you, which is a senior way. And then the other one is uh looping, but you get liquidated first with a higher leverage in case something happens. So, that's the kind of the spread and uh senior means you have protection.

Junior means you take higher yield, but you you give up on some protection. That's what and the market decides that. So, like the demand for yield and the demand for how however people think of the risk they're taking, they will deposit or not, utilization curve is going to adjust or not and the market will settle on specific rate. We don't set those rates. We the market set settles that. Um I wanted to touch on one more um like change that's coming to Kamino relatively soon, um which is like fixed rate borrow lend. Um I know Morpho as well as this is uh what they're kind of rolling out with their new V2 vaults. Um just curious about maybe to start with you, Marius, like uh you know, talk to me about kind of the difference in like does this unlock

a huge amount of new demand? Um you talked about crypto needing to get comfortable with duration. We haven't really had duration um on chain. Everything's been kind of, you know, you've been able to instantly redeem. Everything's been variable rate. Um most of the world in TradFi as everyone points out, you know, for the very continuously in crypto it's it's mostly fixed rate um borrow and lend. So, you know, talk to me about what you think that that unlocks and then Reed, I'll kick it over to you. So, I'll keep it really simple. So, uh if you want fixed rate, you need to borrow it for fixed fixed duration because you promised someone something.

You can't be locked into that forever. Fixed fixed fixed duration borrower implies a fixed duration lender. And the problem with fixed duration lenders is that people are not used to that. But we since for about 2 years we had this concept of vaults, which can aggregate lending into various markets and they can absorb this extra complexity. So, you can imagine a vault that allocates 70% to open term lending and 30% of fixed term lending. And therefore the average or the weighted duration of that is quite low. And most people don't even take out all the money at all all the time. So, they won't even feel it.

And because you take this extra duration and there should be this thing called term premium where you just get paid a bit more for locking in. So, that should just raise the yields a bit higher. And um yeah, Kamino's rolling this out in a like a in a in a um bundled way. So, there's going to be fixed rate part of the of the vaults, there's going to be the fixed rate part of the markets and they're going to be married. And uh that's going to create a com- complete solution without adding complexity to the to the end user without having to think of too many things.

And expect yields to be expect borrow borrow rates to be maybe the same, bit higher and lending rates a lot higher because of the of the term premium. And uh I expect this to allow people that that don't like the spiking nature of interest rates currently to finally enter. That are like a like when you know, some people enter for a specific trade. I need to find something for 3 months. And that might uh cuz I have another refinancing thing at like 6% and I need to borrow at 5.5. Getting that guarantee will allow them to enter DeFi. And then I guess Reed, I don't know if you have anything um to respond there or thoughts on it. And then Yeah, I mean I guess like in in the same way we were talking about at the

beginning of yield farming, you know, you get a maturation and the market starts to understand that things are a little bit different and you get, you know, a bit more sort of like a spectrum of risk appetite. Um I think that's what will naturally happen in in um the market and I think it's, you know, for for the positive. Um and it's not even just against sort of um you know, yielding assets, but it's also sort of trading, you know, interest rates. So, you may get traders who in, you know, low interest rate environments like today who would want to lock in a borrow at this cost for, you know, a certain time period even if they're not necessarily using it um to put on a

trade um and then in the the the converse, you know, in um high interest rate regimes, um you know, you may have people um refinancing. Um so, I think it's just the the natural evolution of of the market and it's a welcome um it's a welcome addition. Maybe zooming out of even the details of what we've been chatting about. I'm very curious to get both of your perspectives and maybe Reed, we can start with you on what the different composition of RWAs and RWA lending looks like. So, we talked about looping driving an enormous amount of demand um the future. To me, that would imply, you know, if I'm looking out into the world of uh kind of like like importing yield, right? You'd want to look at large asset classes like

treasuries or HELOCs, something that's scalable, so you're not necessarily underwriting an entirely new asset class every time. Um you know, and most of the real world assets that exist on uh crypto rails are still the ultimate ultimately scalable asset, which are just stable coins, right? US dollars. Um when you look out into the world, maybe zooming 5 or 10 years into the future, how do you see that composition changing? Or do you think that roughly the balance that exists today is the one that's going to exist in 5 or 10 years? I mean, if if you look at the RWA economy, right? The proportion of dollars relative to treasuries is the complete inverse of of sort of what we have in in um in on chain. Um almost entirely, you know, the opposite.

Meaning that stable coins ought to be backed by more RWAs on on chain. So, I think that's a going to be a natural growth lever. Um but I think also, you know, as I mentioned before, one of Figure's missions is to unlock assets that are otherwise sort of hidden or locked within bank balance sheets or behind institutional moats. I mean, if you just look at the securitization market, whether it's credit card receivables, auto HELOCs, first-lien mortgages, there's a ton of credit assets that people just can't even get Let alone people, a lot of institutions can't even get access to lending against because it's such a big

boy or, you know, um sort of supra interna- institutional um access. So, I think, you know, we've rolled out HELOC. Um we've launched auto, which we'll be bringing to Kamino in um a couple weeks. Um we have SMB trade um and inventory receivables. And we've got sort of a long host of other huge asset classes where Figure can sort of unlock the access behind whatever the institutional moat is, use sort of cash flow uh restructuring and our expertise in in credit origination, and crypto-native or DeFi-native origination, um and help distribute those uh across a whole host of use cases. It might be,

you know, leverage looping today, um but hopefully we want these assets to sort of um you know, become uh a bigger part of DeFi composability and uh for other people to then be able to build on top of them. I can also add to that. I also don't think the final form is looping. I think it's something that it's kind of like a stepping stone at the moment because we started with the what was like the re-staking looping or something like that, and we kind of applied the same concept.

But um I think the the the I think the final format is you have these assets, you own them. And uh sometimes you need liquidity on them against them. And the DEX plus the borrow lend will give you that liquidity. You'll be able to um just exit out of them or get some temporary liquidity if you need it for various other trades. Um so, you'll see I think I hope to see more uh simply borrowing against them or just simply trading them.

Um um go forward. And that is the um what the blockchain gives you, this like 24/7 running financial system on on code. That will allow you to to just just have the guarantees of liquidity. Uh and I think we're kind of like training the training ourselves on these like primitives here and there, the DEX, with the borrow lend, with the loop. But ultimately, if you want this to be like a complete financial system, uh people will ultimately will just hold them and sometimes borrow, sometimes lend, loop, sometimes short, whatever.

Okay, guys, I know we need to wind down here in a minute, but um just uh first of all, this has been a lot of fun and very illuminating from my perspective. Um could each of you just give us a quick, you know, look into uh Kamino and Figure respectively? Like, what should folks be looking out for, uh you know, on the like the 6-to-12-month horizon here? Give Bell Curve listeners a little bit of a little bit of that sweet sweet alpha, uh and then we can wrap up. Um Kamino should uh allow more and more people to act access to RWAs uh and liquidity to RWAs. More better and more quality yields, uh much more informed way of of of accessing yield rather than just, you know simply uh just like a borrow and market.

And um yeah um maturing the the the DeFi uh offering to to to access all kinds of um to to to to to satisfy all kinds of needs for for real uh holding assets on chain. And and for Figure, you know, we kind of have a a three-axis growth strategy. Um so, we'll be adding um additional chains. Uh we'll be adding additional credit assets and additional equity um tokenized equity um on chain. And then the last is sort of like a more unified, user-friendly experience for building sort of uh more actively managed portfolios of of yield um across chains, across credit

assets, and um across different um leverage uh leverage levels. So, um not really just one sort of product, but really a a credit layer for for DeFi. Amazing. Guys, this has been a ton of fun. Thank you so much for doing this. Um what is the best way if people want to follow you, get updates, uh you know, find out more about the story of either Figure or Kamino? I'm on Twitter on Waitukappa. Uh same here. Uh read like a book. Um and >> that Twitter handle, by the way, Reed.

That's a great uh >> [laughter] >> That's awesome. Uh or or figure.com, but um appreciate the the opportunity. Great to to chat with you guys. Ton of fun, guys. Thanks very much. Want to do it again sometime soon. Cheers.