A New "Magnificent Seven" of Web3? ft. Mike Cagney from Figure Markets

Key Concepts

• Real World Assets (RWAs): Bringing tangible assets like loans and mortgages onto the blockchain for DeFi applications.
• DeFi (Decentralized Finance): Financial applications built on blockchain technology, aiming for transparency and accessibility.
• IPO (Initial Public Offering): The process of offering shares of a private company to the public for the first time.
• MPC (Multi-Party Computation) Wallets: A type of digital wallet that eliminates the need for a centralized custodian by distributing private key control.
• Stablecoins: Cryptocurrencies designed to maintain a stable value, often pegged to a fiat currency like the US dollar.
• Genius Act: Legislation aimed at clarifying the regulatory framework for stablecoins.
• Yields (Figure’s Stablecoin): A yielding stablecoin backed by treasuries, designed as a competitive alternative to JPCoin.
• Hastra: Figure’s platform for accessing RWA exposure within the Solana ecosystem.
• Wallet Connect: A protocol allowing users to connect their crypto wallets to decentralized applications (DAPs).

The Future of Crypto: Bridging Tradi and DeFi – A Conversation with Mike Kagny (Figure)

This discussion with Mike Kagny, co-founder of Figure, at the Salana Breakpoint Conference in Abu Dhabi, centers on the evolving landscape of crypto, the increasing integration of Real World Assets (RWAs) into DeFi, and the impact of recent regulatory developments and IPOs. Kagny outlines a vision where blockchain technology fundamentally reshapes both finance and the public equity markets.

IPOs and Market Maturity

Kagny asserts that the public markets are now “ready for a blockchain story,” a significant shift from two years ago when regulatory hurdles and a lack of understanding hindered such ventures. He notes that initial investor skepticism regarding DeFi has dissipated, evidenced by the success of Figure’s and Circle’s IPOs. He predicts the emergence of a “magnificent seven” (analogous to the major tech companies of Web 2.0) within Web 3.0, with Figure aiming to be a key player. He emphasizes that the success of these IPOs demonstrates a growing awareness and acceptance of blockchain’s potential within the traditional financial world.

Figure’s Success in a Challenging Market

Despite a broader underperforming crypto market, Figure has experienced significant growth since its IPO. Kagny attributes this to Figure’s exceptional operational efficiency, achieved through the cost reductions enabled by blockchain technology. Specifically, Figure reported $160 million in revenue and $90 million in income in its first earnings report as a public company. Furthermore, Figure is pushing boundaries with innovative offerings, such as a secondary IPO where its stock will be native on the Provenance blockchain, trading on an alternative trading system (ATS) functioning like a decentralized exchange (DEX) and utilizing wallet connect. This move aims to eliminate intermediaries and offer a self-custody, self-settle, self-clear trading experience.

Lessons from Past Failures & the Importance of Self-Custody

The collapse of entities like Celsius and Voyager served as critical learning experiences. Kagny highlights the importance of self-custody, advocating for the use of Multi-Party Computation (MPC) wallets to eliminate the need for centralized custodians. He also cautions against relying on algorithmic yield constructs, citing the instability of projects like Terra Luna. He champions products like Athena, which derive yield from traditional financial mechanisms like selling forwards and buying spot, offering a more stable and understandable yield source. He stresses the need for yielding assets with transparent origins, like US mortgages, to build trust and stability within the DeFi ecosystem.

The Role of Stablecoins and the Genius Act

Kagny believes the Genius Act is a pivotal development, unlocking the disruptive potential of stablecoins by providing regulatory clarity. He anticipates that major banks like Chase will build rails on stablecoins, creating a competitive alternative to traditional bank deposit accounts, potentially shifting liabilities out of the banking system. Figure is responding with its own yielding stablecoin, Yields, backed by treasuries, positioned as a security-focused alternative to JP Morgan’s planned JPCoin. He envisions a future where stablecoins facilitate a direct disintermediation of banks in the yield aggregation process.

Regulatory Priorities for Continued Growth

Kagny identifies three key regulatory priorities: 1) allowing the use of security versions of stablecoins to settle Bitcoin transactions without requiring regulated exchanges; 2) updating antiquated transfer agent rules to recognize wallet addresses as sufficient for voting and ownership; and 3) recognizing DeFi as bilateral, peer-to-peer transactions, not security transactions. He argues that classifying DeFi as security transactions would stifle innovation and undermine the fundamental principles of blockchain technology. He emphasizes the importance of communicating the tangible benefits of DeFi to lawmakers, particularly its positive impact on constituents in lower-income areas. He notes a growing receptiveness in Washington, particularly with the recent election results favorable to crypto.

Salana’s Appeal and Future Innovation

Kagny highlights the vibrant builder community within the Salana ecosystem as a key reason for Figure’s engagement. Figure has launched Yields natively on Salana, providing builders with a yielding stablecoin for future-proofing on/off-ramps. The launch of Hastra allows users to access RWA exposure through wrapped yields pledged for prime tokens, integrated with DeFi protocols like Camino and Radium, and utilizing Chainlink oracles. He believes interoperability is crucial and anticipates a multi-L1 future.

The Future of Finance: Wallets and DAPs

Kagny predicts a shift towards a “wallet connect” construct, where users access the best Decentralized Applications (DAPs) directly through their self-custody wallets, eliminating the need for centralized intermediaries like Robin Hood or Schwab. Figure is adapting its infrastructure to facilitate this transition, disentangling its loan origination and equity trading systems to function as competitive DAPs. He believes this represents a significant disruption to the traditional brokerage model.

Key Takeaway & Long-Term Vision

Kagny’s central message is that the blockchain space is poised for explosive growth, driven by regulatory clarity, the integration of RWAs, and the continued innovation within the DeFi ecosystem. He emphasizes the long-term nature of the crypto revolution, predicting that blockchain will ultimately displace significant portions of the existing financial infrastructure and deliver substantial benefits to consumers. He believes blockchain will be responsible for a massive reallocation of market cap from traditional finance to new, decentralized technologies.

Quote: “Crypto is a long game… It’s going to change everything.” – Mike Kagny.