Why Wall Street won't touch DeFi yet: Mike Cagney on tokenized stocks and Navra

Transcript

figure puts over $2 and half billion dollars a month of assets on chain. If we leave those on chain, you know, we'll exhaust the entire available DeFi pool in, you know, three months. There are a few businesses that have really figured out how to make money in digital assets, but the question everyone wants to know is how do they do it and what do investors need to know about all this? Hello and welcome to Milk Road Crypto, the show that checked its seed phrase several times this weekend just in case. I'm your host, John Gillan. Today is Monday, November 2nd, and we are joined today by Mike Kagny. Mike co-founded SoFi and Figure, where he's the executive chairman, and now he is the co-founder and CEO of Navra, which just raised 199 million in a series A. We're going to talk about that and a lot more

things. Mike has been one of the most successful entrepreneurs in the digital asset space. He's learned a lot. He's full of alpha. He's going to share all that with us today. So, if that sounds good to you, make sure you like and subscribe. Share this episode with somebody who's going to enjoy it. And as a reminder, our podcast today is free. And that would not be possible without our wonderful partners at Alumni Ventures, giving accredited investors access to private market investment opportunities alongside VC firms and Nexo, the digital asset platform that lets you earn, trade, and borrow all in one place, all from one account. So keep an eye out for more information on both of these sponsors later in the show. But for now, welcome to Milk Road Crypto.

Mike Kagny, sir, how are you? >> Good. How are you? >> I am really excited to talk to you. Mike, I wanted to start there's a lot of things I could ask you about, but I wanted to start with figure. Um, there's a statistics a statistic that a lot of investors use called the rule of 40. And our audience may not know about this, but basically the idea is you take your revenue growth plus your profit margin and that should add up to at least 40. On the last earnings call, figures said that their rule of 40 number is 150. And this beat out everything else in the S&P 500 except for Nvidia and Micron. And I think this got a lot of people's attention. I wanted to get your reaction to this and what you attribute this amazing success that Figure is experiencing too and and just yeah tell

us a little bit about what's driving that number. >> Sure. So and and last I checked I I actually thought it was uh Palunteer was the only one that had beaten us out but but who knows you you might be right. We're we're in we're in rare air. So I think you know one of the things that Figure's done that makes a lot of sense and you know as you were saying have you figured out how to make money on blockchain and this sort of ironically that's the name of figure uh and we get to say that all the time pun intended you know we use blockchain for for three things we we use the immutability of the ledger to reduce the uh friction around transactions.

We use the ability to support bilateral self- settle self-clear marketplaces to create liquidity and we use DeFi and DeFi is is an integral part of what we're doing because there's always been this thesis that you know if I if I if I borrow money from Goldman for example so let's say I pledge loans and they they send me money in a typical warehouse fashion you know they might charge me silver plus 250 to uh finance my assets and they're just going out into the capital markets and raising money in the asset back commercial paper space that's so for flat. So they're making 250 basis points 2 and a half% to sit in the middle of the transaction under the opices of managing risk and liquidity. But blockchain manages the risk and liquidity. It manages the risk

in that you know I can't put a a a loan with a bad FICO score or the wrong LTV or whatever you into a pool because the blockchain sees all that data and it doesn't allow for that to happen. More importantly, you can't double pledge an asset in blockchain. And the last four major credit events we've had in assetbased finance have all been through fraud, through people double pledging assets. And you know, blockchain eliminates that ability. And so, you know, further for DeFi to work, you have to have liquidity in the collateral. And, you know, figure has a liquid capital market for its loans as an example. But the the premise is a concept in economics they call paro optimality where by changing something you benefit both parties. And in this

situation by eliminating a Goldman as a capital allocator in the middle you generate a lower borrowing cost for the borrower but a better return for the investor because you're cutting that 250 basis points out. That's what we're most excited about in DeFi and you know the area that we're really leaning in on. >> Okay. So, I also saw something that stood out to me in this earnings call, which is that figures loan volume has more than doubled from a year ago uh to over $5 billion as of last quarter. And I'm curious what you're attributing that growth to there. Is it because of solving these problems, leveraging the blockchain and DeFi? Is it other demands in the market that are just increasing the appetite here? Where's that coming from in your view?

>> So, I I think they're they're interrelated. I think solving the problems has allowed us to bring a bigger value prop to our partners and you know the bulk of what figure does is B2B. So we have a you know I think I think the last earnings call was it was uh 400 plus partners I don't remember the exact number was um who use figure technology to originate assets but they don't just use the technology for asset origination they also are able to access the capital markets that exist on the blockchain that figures created the defi financing that figures created and so what we've done is is we really created a moat uh around what we have with blockchain infrastructure and that there isn't anyone else that has a capital market like Figure has been able to

build. I' I'd argue it's the only liquid private credit capital market outside of GSC mortgage and that capital market that certainty of execution has given our partners comfort that they can ramp up their businesses that when the capital markets go sideways they're not going to get stuck with a bunch of loans on their balance sheet and it's allowed us to to scale and grow and I think we're still in the very beginning stages of this. I think the the addressable market opportunity year not just with with home equity line of credit and in second lean position which is how we started the business but helock and first lean and I could talk about that a little bit you know it's it's we're we're still in the early innings >> so where does that growth go and where

does it come from as we get deeper into the early innings of this is it more products is it you know integration with more different like blockchains like how do you see the progression of growth from here for figure Yeah, I I think it's going to come on a couple different axes. I think um certainly the the HELOC market, we're still, you know, a tiny player in a relatively large market space. We're the largest non-bank lender, so I shouldn't call us tiny, but um you know, it's we're we're still a small amount of what the total is and and think we can continue to grow that. I think the expansion of HELOC into first lean mortgage is a huge opportunity and notably, you know, mortgage companies traditionally would

do two $300,000 mortgages and and that was one of their core businesses. The cost to originate a traditional mortgage, a Fanny May Freddy Mortgage, has gotten over $11,000. Some might say it's $13,000. And that number moves around a little bit. If you're doing a $200,000 mortgage and it cost you $13,000 to originate it, it's really hard to make money. And and most mortgage companies have just given up on those small balance loans, you know, it costs less than $1,000 to originate a figure helock. And so if you do that in first lean position, you know, that's a pretty big dollar differential. And what we've been able to do is make those loans profitable for our partners again.

And and they're starting to lean into that. And I I see that as a huge growth opportunity. But outside of the mortgage space, we have an auto pool on uh democratized prime that that I think now is is maybe over $200 million somewhere in that neighborhood and growing relatively quickly. You know, the value prop we brought to mortgage I think is extensible to any credit asset class, whether it's auto, unsecured consumer, uh small business, receivables. So, I expect you'll see those asset classes start working into the figure ecosystem and leveraging our connect marketplace for liquidity and democratized prime from a financing standpoint.

But I also see this extensible beyond credit. Um, one of the areas that I'm sure we're going to talk a little bit about today because it's a hot topic is equity. And I think, you know, DeFi is an extremely high value ad to to equity. It's it's really the point that a lot of the market's losing focus on when they have those discussions about tokenizing stocks and you know why this has or hasn't worked so far. Defi is going to be the real needle mover to get equity adoption. This pullback on Bitcoin is scaring a lot of people and I am not one of them. So if you want to see what I'm not selling and why, what's on my watch list and when I'm going to be deploying more capital into these markets, you can join Milkro Pro today. It's just a dollar. The link is in the description.

I answer questions day and night in Discord. I'll see you there. Okay, I want to come back to all of these points, but before we get to all that, I got to ask you about Navra. Um, as I said in the opening, you've closed a series A on this, raised $19 million. Uh, you know, we talked a little bit about figure and some of the problems in the market you were solving there. What are the problems in the market you're solving with Navra? What's the opportunity you're you're launching this business to go after here? >> Yeah, so we we talked a little bit ago about um all the great value in DeFi as it's applied to assetbased finance. you know, this disintermediation of the capital allocator, the paro optimality that happens to borrower and lender. And it kind of begs this question of, hey, um, you know, if this is such a a better

framework, why hasn't the $6 trillion assetbased finance market moved on to blockchain? And the the reality is when when we go to the D5 pools, you know, there's there's a couple billion on Morpho, there's six billion on a, you know, in terms of available stable coin, there's, you know, a billion dollars on demo prime. In in blockchain, we we tend to think of those as big numbers. And in wholesale finance, those are not big numbers. Those are tiny. And, you know, figure puts over $2.5 billion dollars a month of assets on chain. If we leave those on chain, you know, we'll exhaust the entire available DeFi pool in, you know, 3 months. And so we need to get these dollars over and and you know in terms of why the dollars haven't moved

over. Well, there's there's three really glaring reasons. One is usability is bad. And and this is where I can get in arguments with a lot of folks on the crypto side. We've we've built these these crypto OG products, you know, like a like a MetaMask or a Phantom. And you know, they do what they're supposed to do. It's self-custody. it's autonomy of transaction and so forth, but they're not easy to use and and so what people end up doing is they use Robin Hood or SoFi. They use these super apps. Those super apps, they don't you don't custom your own assets. You don't have autonomy as where you where you transact. You're limited to their venues or protocols.

And so, one of the first things that we're doing with Naver is we're we're building an application where we're feeding in data from these D5 protocols into a common wallet experience. So rather than using your wallet to log onto everyone else's protocol, everyone else's data comes to you. And not only does that deliver a consistent user experience, it opens up another thing that that NAVRA does, which is it lets you use an AI agent to do things like get me the highest yield across these three DeFi protocols and produce a 1099 at the end of the month, right? And it will go and run that and do that for you. and and so you know we think that's an important element and and certainly on the institutional side being able to deal with with self-custody that

satisfies qualified custodial requirements and having enterprise control where you know it's not this issue of one person one wallet it's it's you know one wallet might have a 100 users on it and two can trade and five can move money and 90 people can see things and all that data has to feed a fund administrator and a fund accountant and so forth. What we've done with NAVA is we've solved that and we're doing it both in a directto user way. So we have the ability for entities and individuals to sign up directly and start using Navra, but we're also white labeling it just like Figure does. And in fact, some of Figur's big partners are going to be early NAVRA users where they're going to

take Nava and integrate it in their own mobile app. And you know, you're going to have not just the normal functions of that app. Now you'll have a yield section or a securities prediction market trading section or you know some of the other cool stuff that we're bringing to market through through the combination and partnership with Figure and NAVRA. So NAVRA is really built to get the dollars to move over that that aren't otherwise going to move. And that's really where the bulk of the money is. And and we have to solve that problem or we're always going to be kind of, you know, in in this this medium, you know, nothingness land. So we we really, you know, to move the needle and get real dollars over, we got to have better experience and better enterprise

controls. >> Yeah, medium nothingness is my favorite kind. Um, okay. I want to ask a little bit about this. Uh you're still the executive chairman of Figure and Figure as you said is is still um it's invested in Navra. There's partnerships there. There's there's a lot of like collaboration going on. What was the thinking behind breaking out Navra as its own company separate from Figure as opposed to doing this within Figure? Talk me through a little bit of that. >> Yeah, it's a great question. um you know the the importance of NAV and one of the important value props of of the self-custody wallets versus the Robin Hood super app is autonomy of transactional choice, right? I want to be able to go to the venue I want to go to and you know I want to do it with a consistent experience and through a

common interface but I want to be able to go to this DeFi protocol if I like the yield here or this one if I can borrow cheaper here and so forth. And it was going to be difficult for us to get those protocols to feed their data in as distributed apps if they viewed us as figure because they view us competitive. And and so you know while Figure is uh an investor in NAV they're on the cap table of NAV and they're an important strategic partner NAV is distinct from Figure. You know, Naver is focused on on solving these three problems to deliver the best user experience and that that's predicated on having equal access to these D5 protocols, whether it's to trade stock or to borrow money or to lend. You know, we want to bring the

best-in-class into NAV and give people the choice. >> Gotcha. Okay. So, who are the ideal clients here? Is it a focus on institutional capital, individual investors? Who are you going first? Is it both? But you don't start with all of them? Like, how are you thinking about that? >> Yeah. So, so the first thing that we're doing is um Figer has an upcoming transaction uh that that they're doing on chain um that I I won't go into more detail other than saying there's an upcoming transaction on chain. Uh you'll know more about it in the in the coming weeks, but it's going to require a blockchain wallet and qualified custody backend and so forth. And we're working with some some large institutions to stand them up on NAV as early users there. We're also bringing figure loan

customers over. So, you know, the 350,000 figure customers uh are going to start servicing their loan through NAVRA and uh be able to pay us in stable coin and you know, all this other cool stuff as it relates to that earn yield under dollars constantly. But the big opportunity downstream is going to be white labeling the solution into other people's applications. And you know, that's where, as I said, figure has a massive white label ecosystem. And I think a lot of those players are going to want to take elements of Navra and work it into their own apps, especially on the yield and and new market uh access side.

>> Okay. Just to not to make you repeat yourself, but I think this is important. You've said that some of the things that have stopped institutional capital or Wall Street capital from coming on chain. Um the three things I've heard you list are user experience and then keyless qualified custody, which I'd love to hear you elaborate on what that exactly means, and then enterprise control. talk to me a little bit more about those three separate problem pieces and how Navra is helping solve that and just yeah a little bit more of that the detail on that. Yeah. So like I I think from a user experience standpoint you know the first thing is just changing the construct of wallet where I'm not logging on to a and morpho and commamino that data is coming to me right and I'm delivering a consistent experience and

that experience is best-in-class fintech experience and you know the the area where I'd say fintech has has far exceeded what we've been able to do on blockchain is is around UIUX um you know the the Robin Hood apps the SoFi apps They're very good apps, but they have this underlying problem which is they're, you know, they cuss your assets and they control your trading venue. So, you know, being able to open that, deliver that experience, but where you have that autonomy is is a huge value prop around custody. You know, we're huge fans of self-custody and in particular, we use what's called a multi-party custodial wallet construct where we have multiple entities that

control effectively think of it as controlling key shards, right? Where they come together and form a block to basically form the key and release the asset. And we call this keyless custody, not because there isn't a key, but because you as the holder don't need a key, right? And there isn't a key loss experience. there isn't, you know, other issues that you have with that because you have redundancy across these policy agents. The the challenge we've had is if you're a fund and you're holding a security, you need a qualified custodian. That's, you know, the SEC requirements. So, how does an MPC wallet satisfy a QC requirement? Well, you do it by introducing a QC entity into the signing process where, you know, a

qualified custodian doesn't need to hold your assets. they have to control the asset, meaning that they have to be necessary to sign and release. So, you can hold an asset in self-custody with a QC policy agent that's necessary but not sufficient to move the asset. And that satisfies your state and and uh federal regulatory requirements as it relates to QC or at least we have legal opinion that says it does. And then you know on the on the last uh element enterprise control you know again it's just this reality that uh a firm is going to have lots of different people that touch an account and some people can trade and some people can move money and some

people can see things. And by the way trades over a million dollars might require two people to sign off on it or you know whatever the process is. You've got to have the flexibility to build that infrastructure in place, the full audit trail to track it and report to it and the outcomes to feed into your systems, your fund administration or portfolio accounting or what have you. If you don't do that, you're just introducing an enormous amount of risk and burden where firms aren't going to feel comfortable extending into this. Now one of the one of the interesting things just going back to the cussy question when we launched uh open we launched our equity native on blockchain and uh all these I went to a bunch of

hedge funds that weren't native blockchain hedge funds and they're all very excited to participate on the open transaction but they had their mid and back office people get on the phone with us and all of them would go to chat GPT and say what can go wrong with a blockchain you know security and and you know it all came back around key management well you can lose the keys, you lose the security. And they're like, "Well, that doesn't sound good because I'm going to get fired, right? Like, if I lose the keys, I am fired." And and that's very asymmetric upside down for the mid and back office person. And so, we could have gone through the intricacies of no with with MPC custo lose the keys. But instead, we we did something that I think is very relevant to to the hacks that have just happened

more recently, which is there's a difference between a blockchain security and a blockchain bearer asset like Bitcoin. You know, Bitcoin possession is control. A security, you still have a transfer agent and the transfer agent's actually the definitive book and record. Now, the transfer agent's just passive. They're just watching what's happening on the blockchain and as it, you know, they move from Mike to John, transfer agent just automatically updates it, move from Mike to John. But if John stole Mike's security, Mike can prove that. He can go to the transfer agent.

Transfer agent says, "John, poof, your security's frozen." And Mike, here's a new one. And that was that was what we needed to show them to like get a degree of comfort that there wasn't this crazy fireable offense that was sitting in the back of key loss that you know it's securities you're okay. And and that's uh you know that's that's been a a constant uh point we've had to go back to as we brought in more and more people on chain and dealing with security transactions is you know everyone's like well what about the hacks you know what about what happened to Binance? I don't want to lose $6.8 billion.

Well, and you even saw a little bit of this with Binance with with how they froze Tether and and and USDC. You know, they still had a reasonable loss because they had a lot of things that that weren't frozen or weren't able to freeze. But what a lot of people don't understand is Tether and and Circle also have transfer agent effective functions, right? There is a registry of ownership that controls who has what and so they do have the ability to freeze your coin and and to mint new ones to the to the old holder. >> Gotcha. Okay, that's really helpful context on all of that. Um, I feel like I learned a lot in that, but just for future reference, if John and Mike have any disagreements, John pleads not guilty on the blockchain. Um, okay. I want to ask about another piece of this

because as you describe this, there's a lot of moving parts there. There's a lot of additional functionality that this is going to enable. There's also AI agents that are built right into Navra. And I'm curious how that complicates things. I'm sure it helps in many ways, too. talk about um like how you've gone about thinking about incorporating AI into this because aentic finance is a big topic and I'm curious how you're approaching this. >> Yeah, so you you have to build pretty explicit rails um and and some of the challenge for folks is how they manage those rails and and what they do with them. It you know is is I'll give you an example. I I actually saw a tweet today of someone that does something that I do um which is I have an agent that takes all my spam AI generated sales mail and

responds to it and like this crazy like off-the-wall dead pan you know stuff and you know it sent one out today about about mermaids and talking walls as a response and you know but I had to be very careful because if I get like a legitimate request like a journalist sends me something and and my AI bots's like oh you know this is another one those ath you know I'm going to I'm going to show him and then some be like Mike Kagny's on mushrooms you know it's it's uh and so you know you've got to manage the rails and and that's that's important I think we're going to evolve to a stage where your mobile app is just going to be a number and a text prompt and you're going to tell your app what

you want it to do right I want to bet that Nvidia is going to close over $220 on Friday I'll pay up to 20 cents a contract. I'll put $10,000 at risk. And if it closes at 200 and I'm not filled, send me a text message. And it's going to do all that for you, right? And and or the simpler one that I talked about that we do today. I I want the highest yield across these three D5 protocols and produce a 1099 at the end of the month. It's just, you know, giving it transactional activity is introduces an element of risk that you want to make sure you have have guard rails to and, you know, transactions over X dollars or, you know, if there's a loss or or what have you. It's it it's sort of

germanine to the way that these algorithms are built. I shouldn't even call them algorithms anymore. But, you know, I've I've I've been I've been doing AI since like late 90s when we used to use neural networks and genetic algorithms and trading patterns. You I was running prop trading at at a bank and it was a big area of focus for us and our computational power was so weak. We could never actually do anything with them, right? They were, you know, they were kind of novelty as opposed to to functional. But you know the interesting thing about a genetic algorithm as an example is it it's designed to propagate itself and that can lead to un unexpected results right in terms of its sense of survival and its sense of

trying to perpetuate itself and uh and so you know what what we're trying to do is is bring the benefit of AI in terms of you know managing routine tasks doing traditional advisor work you know things that that are are very well defined and just making sure they stay in the in the ring fence. >> You know, one of the weird things about crypto is that the longer you're in it, the more accounts you seem to end up with. You buy in one place, trade somewhere else, earn yield somewhere else, and if you actually need capital, you end up having to sell something that you probably wanted to keep. That's why we at Milk Road are partnering with Nexo. These guys keep the whole thing under one account. You can buy, trade crypto, earn interest on what you already hold, and even borrow against

your capital without having to sell it. all in one spot, all in one account, all on Nexo. So, if you need liquidity, but you don't want to give up your position, or you're already holding crypto and you want to be able to do more with it, I think Nexo is worth your time. We love working with them. I think you will, too. Telemilk Road sent you. >> In crypto, you can get into a project long before it lists on Coinbase. In tech, the early window mostly belongs to VCs, and companies now stay private for a decade or more. Alumni Ventures, a partner of the Milkro Show, gives accredited investors a way in. Time and CB Insights both rank them as a top 20 US venture firm. You can sign up for free to see the weekly deal flow or write one check into their foundation

fund for about 25 private deals. Venture is high risk and long-term though, so read the details first. Go to av.vc/milkroad. >> Okay. So, you got to have tight rails on this just like anything else to make sure it doesn't, you know, go haywire. Um, >> I if I get a crazy email from Mike, I'll know it's not mushrooms. I I promise. Okay. I want to talk about tokenized stocks and tokenized assets because this is something I've been following. I know you've been following this, too. And I'm curious what you think on this. Um, OKX and ICE, the Intercontinental Exchange, are about to start let people start trading tokenized stocks basically 24/7 around the clock, but a lot of companies are opting out of this and I've seen you on Twitter opting like following who's opting out and uh you're I I've seen you

just paying close attention to this. Could you tell me a little bit more about what's happening here, why these companies are opting out and just like what's going on with this this tension that's unfolding? Yeah, my my tweets have been very polarizing into the blockchain community. Uh not not universally met with with great reception because I tweeted this weekend that 50 companies of this original what 62 have now opted out. And and but I think that that's that's losing the focus of what the real point is, which is, you know, why trade stock on blockchain? And the the TSVs, the way that they they're created, they use an automated market maker to create liquidity. And an AMM by definition has slippage versus a limit order book. So

limit order book is always going to be better execution. So NASDAQ and nicely trade on a limit order book. Uh a TSV trades on an AMM. So, so if you if you your bid gets hit or your offer gets lifted on the AMM, by definition, it's worse execution than what was happening correspondingly on the limit order book at the same time. And so, you don't get better execution. It's unclear that you can margin the security or get margin to the security and you don't control stock loan because the security is sitting somewhere else and and you know, it's a wrap or it's an IOU on this. And so I just I question the utility of it. And you know I think we have to be very pragmatic when we

when we think about putting markets on blockchain or putting businesses on blockchain. We need a real economic reason to do it. And there is one for securities. I think that you know the ability if you run a limit order book you have a comparable level of execution. If um you allow for sell settle self clear, you eliminate the back office process of post trade settlement and clearing. You eliminate the need for DTCC in in all kinds of dimensions. The blockchain is the registry and you introduce potential for better margining going back to that paro condition I talked about where you disintermediate Goldman as a prime broker and you borrow directly from the market and the market gets a better

rate, you get a better rate. You also introduce the ability to control stock loan and stock loan is a huge economic value prop that the brokerage industry the you know the the sell side basically goes to great lengths to hide how much money they make off of it because it's obscenely profitable. And what a lot of people don't understand is if if you have money in a typical brokerage account like a Robin Hood for example and you have a dollar of leverage in your account, right? It doesn't matter what stock is leverage. It's just a dollar of margin leverage in the account. They have access to all your securities to lend out themselves and you don't get any any of the economic off of that. That could be, you know, 2, three, four, 5% on your portfolio,

sometimes even higher, you know, in certain circumstances when stocks are special and so forth of incremental return that that you aren't getting. And and blockchain brings that return back to you because it's self-custody. You control, it's your assets. And so I think there's a real reason why the market should move over. The the question is how are we going to hit the tipping point where you know borrow happens on blockchain because that's where the liquidity is. How how do we hit the tipping point where you know the the prime the dollars that that that traditionally ultimately fund prime uh prime brokerage the assetback commercial paper market for example how do we get that to feed in like there's some some serious logistical stuff we have to do

and I feel like these TSVs are just you know sort of a a shiny object distraction that we're going to spend a bunch of time on something that's that's tamountly amounting to nothing right I mean 50 of the 62 or 60 or whatever it is already opted out and and it's just a waste of our our time and brain power and focus. Like we we should be focused on the real heavy lifting issues which are how do we get companies to natively issue stock on chain which you can do today. You don't need any regulatory approval. You don't need uh any any u sandbox. You don't need clarity. You know, you don't need any of these things. You can do it right now. And it's just we have to figure out how to get how to make it happen.

So Figure has something that's taking a different approach which is open and I'm curious you could talk to us a little bit about that and you know just like you said there aren't regulatory barriers to people issuing tokenized stocks if they want to. How do we get them to want to? What what does that look like and do you have a strategy there? Yeah. And and Open is a great example of that where um it was easy to get Figure to do it because we just said we're going to do it. And you know what we need to do is is we need to go to other issuers and convince them why they should do it. And you know the the first and foremost reason is it's good for your investors. Well, a lot of companies don't care about that even though they should because they're your

shareholders. But you know that that it it it gives your investors potentially better margining. It gives them stock loan economics. that, you know, there's a bunch of things that can happen. And so that's a lot of the discussion and brainstorming we're having right now, which is how are we going to incents issuers to move over? And it it might need to come from the buy side. It might need to come from, you know, Black Rockck and Franklin and Fidelity for them to put pressure on the companies they're invested in and say, "Look, we want you to issue a blockchain share class because we want to get the leverage and we want to get stock loan and so forth." And maybe that's what what what we need to do. But, you know, we haven't we obviously haven't cracked it yet. We've got Open World coming on

uh onto Open and you know, we have a pipeline of a couple other names that are that that we believe are going to come on, but we haven't gotten widespread adoption that that we'd hope we'd get and you know, that's that's something we have to solve for. >> Okay. So, still early days and still solving for that. I've also heard you say that you'd like to see the US Treasury Department copy Malaysia and start issuing bonds that trade 24/7 on a blockchain. Is that like a like a a future state that you want to get to someday? Is that something you're actively pursuing now or like what what is what is your thought process on that? Like the government bringing their bonds onto blockchains?

>> Well, the the Treasury knows how to get a hold of me if they want to do it. So, my line's open. Hopefully my AI agent doesn't interpret that as a sales call and respond with some wacky hallucinogenic response. Uh but um yeah, no, I mean I' I'd love to help the Treasury do this. It's it's uh you know, I'm not sure why they haven't decided to lean in on it yet. You know, the the one of the one of the biggest benefits of blockchain is real-time collateral mobility. And so the ability to to move your treasuries 247, you know, across wallets with with very little friction, you know, again, that that's part of why you want an MPC QC construct backend because when you put your stuff with the

traditional custodian, it takes them two, three, four, five days to release the collateral. But but this seems like there's a huge value prop for it. It would it would increase the demand for treasuries and the treasury is trying to sell a lot of treasuries. So, you know, they they should be oriented around thing activities that boost demand. So, I don't know. Hopefully, we can see something happen on that front. I'll do the work for free. I I will I will just I won't charge a treasury a penny to put their treasuries on blockchain. >> What a patriot. Yeah. I hope they reach out and I hope they don't get a psilocybin response if they do. Um Mike, I want to talk a little bit about the regulatory and legislative landscape here a little bit and just get your thoughts on this because we saw the

Genius Act go through. We saw the Clarity Act not go through Congress. Um, but we've also seen the SEC, the CFTC trying to open the doors for digital assets, for tokenized assets in general. Um, how does all this net out for for NAVRA, for Figure, for what you're doing with your business? Are there still blockers or uncertainties that are holding you back or do you think you mostly have what you need to do business? What's that outlook for you? Yeah, look, I mean, Figer Figer built the business up the way that it is today without clarity, without um without genius. You know, our assumption has always been we we need to survive irrespective of what happens because the regulatory winds change all the time. And you know, I I tried to tell this to a bunch of of

folks I know who are getting banking charters right now and they're like, "Oh, it's great. We can get a bank." And and I'm like, "Yeah, but if the old bank regulators come back in, your life's going to suck." And you know, and the problem with being a bank is you can't undo being a bank. You're like a bank. And so, um, you know, we've we've been able to operate without without the the overhead. there there were certainly aspects of clarity that we would have liked to have seen codified into law and you know it's it's not clear that that's not going to be able to happen at least to the extent that they're good for the general public but I think clarity really underscored the fact that our own industry as small and nent as blockchain

is was pretty divided and you know we weren't unified in uh in our positions across things you know there's there's certain certain entities certain businesses out there that have been massive beneficiaries the regulatory morass that we've had for the last you know prior prior four years before the last couple of years and you know I'm not sure had great incentive to see things changed or codified into law so you know it's it it is it is what it is and and uh you know I think ultimately what will drive adoption is is economic use cases you know reasons that people make more money on chain and and you know that will drive the the the political support behind it. But, you know, it's it's never been a necessary

condition for us. It's just it's been nice that oh, if this happened, this would be great. There's some things we could do that we weren't planning on doing, but you know, are more upside to us. But the the blocking and tackling bar business was never dependent on legislation. >> Listen guys, there are a lot of big names in crypto and you know that they hold a lot of assets. But the problem is that you never get to see all that information in one place. And you also don't know when some of those big names actually buy and sell. Well, we have rebuilt milkroad.com just for this use. You can see right here we have all these crypto personalities like Justin Sun, Vitalik, Arthur Hayes, Donald Trump.

Yes, he's a crypto person. Zack XBT if you know who that is. We have listed all of their portfolios, the stuff that's available publicly right here for you guys to check out whenever you want. If you're curious, what is Arthur Hayes still holding? Did he sell everything? Is he holding anything? It's all here available in our insider portfolios and all that is available for free for you guys on milkroad.com. So check it out right now. Gotcha. Okay, that's a helpful update there. Mike, I'd like to just like get some thoughts from you about the outlook on the markets overall here for digital assets and and for everything because there's a lot of concerns in the macro landscape. We don't have to go through the whole list, but like the Fed's raising rates, oil's going higher, the equities markets are struggling, crypto is kind of uh, you

know, middling. let's say um what's your outlook for the markets here and do you think we need to see sort of a strong bull run come back to digital assets overall in order to get capital kind of off the sidelines are more interested in coming to digital assets. >> Yeah. Look, I I I think one of the biggest conundrums that that Bitcoin maxis have had is Bitcoin's not behaved the way it should have under the the more recent ge geopolitical and macro backdrop. Right? We've got high inflation. We've got risk of war. We've got all all these Oh, we have a couple wars going on. Um and you know, it it didn't behave the way it was supposed to behave. Now, I I think part of that was

it overran. Um you know, because it was fueled on the on the digital asset treasury side. It it there was an artificial push on the price. It got it to levels that probably outpaced where it should have been at that point in time, you know, relative to cost of energy and so forth. And so maybe what it's done is it's just normalized back to the trajectory that it it needs to have. Um but I think it's it's you know caused a lot of headscratching and and you know it it certainly is not behaving like a uncorrelated asset, right? It's it's just tied to risk and there's a lot of ways you can get exposure to risk. You can buy the NASDAQ, you can you know you can you can short the VIX. You can do a whole bunch of stuff. And so I I think

people want to see that normalized back to become less correlated and more systemically and and fundamentally driven I should say more fundamentally driven and then I think you'll you'll start seeing potential reallocation and and price support but it's you know it it it's faced a lot of headwind over the last couple of years and exacerbated by by margining by you The the the great thing about PERPS is you get 100 to1 leverage which works great when things are going your way and not great when they're not. And a lot of people discover the hard way about you know margin calls and um you know these things all just just kind of laid in on

one another. And it's it's it's funny because we sort of repeated the cycle of what we what we did in in 22 right 2122 and and you know with a sixyear halflife on that. So, uh, hope hopefully we we get smarter and smarter. I I always joke the blockchain industry and the crypto industry never loses an opportunity to shoot itself in the foot. And, um, you know, we're we're we're certainly not doing that right now. So, >> yeah. Well, I hope that changes in the near future. Uh Mike, I'd like to get your thoughts on, you know, we've talked a little bit about what you see as being the total addressable market and like we're in sort of this, you called it a middling nothingness, but it's really more of kind of like a tide pool and

we're trying to break out into this larger ocean of capital, larger markets, larger economic use cases. How big do you see the addressable market for digital assets being? And what is the timeline from getting from this middle nothingness towards that promised land that's on the on the horizon and what does that look like for you? So, so look, I I think conservatively the assetbased finance market $6 trillion, you know, that that's KKR's number. I think Apollo has it upwards of 20 trillion. And that whole market should run on blockchain. Like, bar none, there's no reason why blockchain isn't the best platform in ecosystem for assetbased finance. That's one segment of the broader wholesale capital market, but that in itself, you know, let's say

it's just 6 trillion. It's not 20 trillion. Well, 6 trillion versus the couple of billion of stable coin liquidity we have right now on DeFi. It's a significant change. So, I think we're still in the very very nent stages of blockchain capital markets. But what's been important is certain things have been derisked. Like what what Figur's done with DeFi is is they've derisked the notion of the capital allocator and the necessary role of the capital allocator. you know, with these upcoming transactions, I think we'll derisk security issuance in in different ways um that the market, you know, hasn't seen before. And I think, you know, de-risking these and then proving there there's economic rational behind

them uh are necessary to to kind of drive adoption. Now, they're not sufficient in themselves or necessary. So I think solutions like NAVRA will be bridges to to get those dollars over to you know what's going to be alpha in the capital markets for early users for you know could be one two three years before that alpha is ultimately competed away. So, if I'm a fund right now, especially, you know, if I'm in credit, uh, I I would I would be crazy not to be looking at at blockchain and DeFi as a way to to beat my competitor set because they're not there. And and the reality is, uh, you know, that structural arbitrage, that structural alpha,

disintermediating the capital allocator is is a sustainable alpha and someone's going to earn rent for a long time before everyone else figures it out. Mike, I really appreciate you coming on the show today. As I said at the beginning, you have a really amazing track record, really impressive results uh for your businesses in digital assets. A lot of the team here at Milk Road are huge fans of you and your companies and your work. Um, so just thank you so much for coming on at this like kind of very uncertain time in digital assets and sharing your perspective with us. I know our audience is really going to appreciate this and the Milk Road team definitely does as well. Where can we send people to find more of you and your work online?

>> Yeah, so I'm I'm M. Kagy on on X and Twitter. So I'm just M Kagney, sorry, on on X and on Telegram. Uh and and those those are those are easy places to get me. I'm pretty responsive on both those social platforms, especially on X. >> Well, thank you so much for being here, Mike, and I'm I'm looking forward to keeping up with you as we go after these several trillion dollars that should come onto the blockchains here. But uh in the meantime, thank you so much for being on Milk Crypto. Really appreciate the conversation. >> Thanks for having me. I really appreciate it. Thank you all for joining us. I hope you all learned something today. So until next time, as I always say, stay safe, stay educated, stay bullish, and we will see you all on the next episode of Milker Crypto. Thanks for being here

everyone. Bye. Thanks for listening to Milk Road. If you enjoyed the show, make sure you like and subscribe. And if you're struggling to find winners in the market, that's exactly what Milkro Pro is built for. Our analysts have called some of the biggest winners early, and Pro lets you see what they're buying next, every trade they make, and the research behind every position. Check out Milk Road Pro at the link below. Everything you hear on Milk Road is forformational purposes only. These are our personal opinions, not financial advice, and we may own some of the investments we talk about. Always do your own research and make the decisions that are right for you. See you next time.