WALL STREET FIRST: Figure makes history with IPO issued on blockchain

Key Concepts

• Blockchain-Native IPO: An Initial Public Offering where equity shares are issued and traded directly on a blockchain.
• DeFi (Decentralized Finance): Financial services built on blockchain technology, offering lower costs and increased accessibility.
• Tokenization: The process of representing real-world assets (like mortgages or real estate) as digital tokens on a blockchain.
• On-Chain Lending: Lending and borrowing facilitated directly on a blockchain, bypassing traditional intermediaries.
• Cross-Chain Swap: A mechanism allowing conversion between a blockchain-based security and a traditionally listed stock (e.g., NASDAQ).
• SGC’s (Securitized Guarantee Corporations): Entities involved in the securitization of assets, potentially partnering with blockchain lenders.

Blockchain Lending Company’s Public Offering & Growth Strategy

The interview centers on a blockchain lending company’s recent public offering, described as the “first-ever blockchain-native IPO for equity.” This involves issuing a new class of shares that trade directly on a blockchain, with the ability to convert them into NASDAQ-listed stock. The company’s co-founder and executive chairman details the rationale behind this approach, emphasizing the benefits of blockchain technology for capital markets.

Key Benefits of Blockchain Security: The company highlights several advantages of issuing securities on a blockchain: 24/7 trading, the ability to use the security as collateral in DeFi (providing leverage), and improved control over stock lending. Traditionally, when lending stock, the lender doesn’t directly benefit from the economic gains. This company intends to operate a limited order book where lenders can earn interest (e.g., 11% on lent shares).

Liquidity Solution: Cross-Chain Swap: A major concern raised by potential investors was liquidity. To address this, the company developed a “cross-chain swap” mechanism. This allows holders to seamlessly convert between the blockchain version of the security and a NASDAQ-listed version, ensuring liquidity from day one, with market makers operating on both sides. The convertibility of the security is central to this strategy.

Market Share & Partnership with Traditional Banks

The company asserts it is the “largest nonbank funder” and is actively gaining market share from traditional banks. However, their strategy isn’t solely about competing with banks; they are also focused on partnering with them. They aim to enable banks to originate loans on the blockchain, benefiting from lower costs and increased efficiency. They are particularly successful in dominating verticals using SGC’s, achieving a significantly lower cost to originate assets.

Loan Volume & Affordability

The company is experiencing significant growth across the credit spectrum. They cite the high cost of originating traditional mortgages (around $13,000 for a $200,000 FHA/Freddie Mac mortgage, representing 6.5 points) as a key opportunity. Their partners can originate the same loan for approximately $1,000, making it more accessible. While specific loan volumes aren’t disclosed due to non-public information, the company confirms substantial growth. They are also carefully assessing risk, reporting no significant delinquencies and consistent growth in tractional liquidity.

DeFi, Tokenization & Regulatory Landscape

The discussion extends to the broader landscape of Decentralized Finance (DeFi). The company notes that DeFi lending is “undercutting traditional 30-year mortgages and auto loans.” They are actively working on market structure bills to define and regulate DeFi, ensuring that policymakers in Washington understand its benefits to consumers. They estimate cost savings of up to 200 basis points due to the rates obtained through DeFi.

Regarding tokenization, the chairman believes that creating “homogenous marketplaces” is crucial for its success. He suggests that while tokenizing rate assets is a promising avenue, establishing liquid and standardized markets is paramount. He notes that simply putting billions on the blockchain isn’t necessarily the best application at this stage.

Economic Outlook & Loan Demand

Responding to the 4.3% GDP growth (significantly higher than the expected 3.3%), the chairman attributes this positive economic performance, in part, to the company’s strong performance on credit and healthy loan demand. He anticipates this trend to continue. The GDP figure was delayed two months due to a government shutdown.

Notable Quotes

• “The blockchain security there is some transactional about his can trade 24-7 but DeFi the ability to use as collateral from leverage standard of proofed control stock alone, huge for buy side.” – Co-founder & Executive Chairman, describing the benefits of blockchain securities.
• “We lower cost up to 200 basis points because of rates we get off decentralized finance a huge impact to the consumer.” – Co-founder & Executive Chairman, highlighting the cost savings offered by DeFi.
• “I think tokenization is tokenizing rate assets for this to work you need liquidity what we've done we've created a homogenous marketplaces for them.” – Co-founder & Executive Chairman, on the importance of liquidity in tokenization.

Synthesis/Conclusion

This interview showcases a significant step forward in the integration of blockchain technology into traditional financial markets. The company’s blockchain-native IPO, coupled with its focus on DeFi and strategic partnerships with banks, positions it as a leader in the evolving financial landscape. The emphasis on liquidity through the cross-chain swap mechanism and the potential for cost savings through DeFi are key takeaways. The company’s success hinges on navigating the regulatory environment and establishing standardized, liquid markets for tokenized assets. The positive economic outlook and strong loan demand further support the company’s growth trajectory.