Figure's Mike Cagney on IPO debut: We're using blockchain to change how capital markets work

Key Concepts:

• Blockchain technology: Displacing trust with truth, enabling bilateral transactions.
• Web 3.0: The next iteration of the internet, with Figure aiming to be a key player.
• On-chain transactions: Transactions recorded on a blockchain.
• Stablecoins: Cryptocurrencies designed to minimize price volatility.
• Decentralized Finance (DeFi): Financial activities conducted on a blockchain, eliminating intermediaries.
• Disintermediation: Removing intermediaries from financial transactions.
• Capital Markets: Markets where savings and investments are channeled between suppliers and those in need.
• Bank Liabilities: The debts and obligations that a bank owes to others.

1. Figure's IPO and Vision

• Figure Technology, a blockchain company, made its public debut on the Nasdaq.
• The company increased its offering to over 31 million shares, priced at $25 per share, exceeding the expected range.
• Figure aims to use blockchain to transform capital markets by disintermediating transactions and creating a more efficient system.
• Blockchain's ability to "displace trust with truth" is key to reducing the number of intermediaries in financial transactions.
• Mike Cagney, Figure's co-founder and executive chairman, believes blockchain will catalyze the movement and creation of trillions of dollars in market capitalization.

2. Figure vs. Competitors (e.g., Circle) and the Web 3.0 Landscape

• Figure sees itself as part of a "Mag-7" equivalent for Web 3.0, indicating a belief in the technology's pervasive and transformative potential.
• Figure started with home equity lines of credit (HELOCs) originated on-chain in 2018, having originated over $16 billion in loans.
• The company has facilitated over $55 billion in on-chain transactions.
• Consumers benefit from faster processes and cheaper rates due to blockchain efficiencies, even if they don't directly interact with the technology.

3. Financial Performance and Growth Trajectory

• Figure was GAAP profitable the previous year and considered going public then but decided against it due to unfavorable market conditions for blockchain companies.
• The company generated $350 million in revenue and over $100 million in EBITDA the previous year.
• EBITDA growth for the first two quarters of the current year is over 66% on an annualized basis, indicating rapid growth.
• Figure presents itself as a unique combination of a young, profitable, and fast-growing company.

4. Strategic Considerations: IPO vs. Acquisition

• Going public is viewed as a step in a process, not the end goal for Figure.
• The IPO allows Figure to tell its narrative and potentially engage in consolidation within the subscale blockchain and crypto space.
• Cagney draws a parallel to his previous company, where a $1 billion private raise from SoftBank transformed the business, suggesting a similar potential for Figure with its IPO proceeds.

5. Future Plans and Expansion Beyond Mortgages

• Figure intends to continue expanding into credit markets.
• A "fast follow" plan involves issuing a second share class for a blockchain-native public equity, trading on a decentralized exchange rather than traditional exchanges like the Nasdaq.
• This would enable self-custody of stock and direct control over stock loans, eliminating prime brokers and allowing shareholders to capture the full economics of lending their stock.
• The benefits of using blockchain include transactional efficiency, liquidity, and decentralized finance.

6. Disruption Potential and Impact on Traditional Finance

• Blockchain technology is predicted to cause more disruption than any technology before it.
• Stablecoin legislation could lead to trillions of dollars moving into stablecoins, potentially drawing funds from bank liabilities.
• This shift could profoundly change the banking paradigm, as banks lose liabilities from their balance sheets.

7. Stablecoins and Treasury Market Dynamics

• The influx of stablecoin companies buying treasuries to back their operations could provide a temporary boost to the Treasury market.
• However, the underlying concern is that much of the money flowing into stablecoins will ultimately come from banks.

8. Impact of Deposit Outflows on Banks

• When the Federal Reserve started tightening monetary policy, banks experienced a $1 trillion outflow of deposits, leading to capital market shutdowns and bank failures (e.g., Silicon Valley Bank, First Republic).
• The FDIC and Treasury had to intervene with extraordinary measures.
• A potential outflow of $2 trillion to $6 trillion into stablecoins could create a massive void in financing private credit.

9. Notable Quotes

• Mike Cagney: "Blockchain has this this one very interesting superpower in that it allows you to displace trust with truth."
• Mike Cagney: "I think this technology is single handedly going to cause more disruption than any technology ever has before."

10. Technical Terms and Concepts

• GAAP Profitable: Profitable according to Generally Accepted Accounting Principles.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance.
• DTCC Security: A security cleared and settled through the Depository Trust & Clearing Corporation, a traditional financial infrastructure.
• Decentralized Exchange (DEX): A cryptocurrency exchange that operates without a central authority.
• Self-Custody: Holding and managing one's own private keys to access and control digital assets.
• Prime Broker: A firm that provides services to hedge funds and other large institutional investors, including securities lending.

11. Logical Connections

• The IPO is presented as a strategic move to capitalize on the growing interest in blockchain and Web 3.0.
• Figure's focus on on-chain transactions and disintermediation is directly linked to the potential for cost savings and efficiency gains for consumers.
• The discussion of stablecoins and their impact on bank liabilities highlights the potential for blockchain to disrupt traditional financial institutions.

12. Synthesis/Conclusion

Figure's IPO marks a significant step for the company and the broader blockchain industry. The company aims to leverage blockchain technology to transform capital markets by increasing efficiency, reducing costs, and disintermediating transactions. While Figure faces competition and regulatory uncertainties, its strong financial performance and ambitious plans position it as a potential leader in the evolving Web 3.0 landscape. The potential disruption to traditional banking and finance, driven by the growth of stablecoins and decentralized finance, represents both an opportunity and a challenge for Figure and the industry as a whole.