YouSaid · the spoken record

Bill Wolf

lines on the record: 86
first: 2022-08-11
most recent: 2022-08-11
sittings or episodes: 1
sources: podcast

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“I don't know if that satisfied your macro question there, but that's my bet is Fed keeps expanding, rates will have to expand out, otherwise risk is being mispriced.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so great question. I appreciate you asking me for my crystal ball view. And my crystal balls is as hazy as anyone else's, but that won't stop me from talking about. So what we think is going to happen is that we think there will be an expansion of the rate and expansion of spreads over treasuries. Obviously, our marketplace somewhat was dislocated from references to traditional benchmarks like the U.S. Treasury because there was a lot of capital flowing into it. We think that compressed spreads artificially. We think that as the Fed continues to raise rates, which is obviously what the market expects them to do, there will be a continued widening out. And so those high single digit returns will have to, to your point, they'll have to expand into low double digit returns because people will just say, I'm taking more risk. I need to make sure I'm getting paid for it. And so that's what we believe is going to happen. Partially, that depends on the supply and demand in the particular markets of whoever is managing.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“We've got a lot of explaining to make people understand because when there's a train wreck, everybody says, oh, all trains are not safe. And that's not the right conclusion to take. And I appreciate you having us on here as a company to tell our story because through great podcasts like yours, this is the place where we're going to have Trad Five folks and early adopters come and look at this and say, oh, that is different. Maybe I should give that a look.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“I want that. That's when you'll see the real inflection point. That won't happen tomorrow. That may not happen the next few months, but that we believe is what's going to happen. That's where we see the business going. There's a chance that you'll see some privately built platforms that try to do this. We still think the open public, not owned by anyone, rent sinking central party is the best way to do that. The analogy we think of that is sort of like some of these open financial market utilities. If you think about the DTC, the Depository Trust Corporation, which is the consortium owned by major brokerage houses to exchange and transfer securities amongst themselves from a custody basis, that's kind of how what we think TruFi is in terms of a marketplace for people to manage and exchange credit on the marketplace. And so that's where we think it's going to go. And we've got a lot of hard work to do and a lot of building.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Open marketplace. And again, we don't think there's going to be just one of them. We think this is not a winner take all market. We think there will be a bunch of players that can participate in this. But we think slowly investors will look at it and say, ah, this is different. That's not what those centralized folks were doing that we're not telling us exactly what they were doing and that we're making poor credit choices and taking too much risk. And this is just a place where good managers can come and build their business and be a portfolio manager. I'm not sure when it's going to happen, but the big sort of inflection point to look for is when a major existing player says, you know what, I'm opening my fund on the TrueFi marketplace. So somebody who's got a huge TradFi reputation, I can't tell you when that's going to happen. I can just tell you we believe that will happen because they'll look at our software and they'll say, yeah, that's much more efficient than how I'm currently running my business. And that transparency and that 24-7 transactability.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Company, we started our strategy by lending into crypto market makers, et cetera. We're a blockchain company. We're using this technology to build something that is better than the traditional rails that exist in finance right now today. And so we think it's going to be a while before the dust settles and people see how these bankruptcies work out and that they also are able to differentiate what we're doing from what others were doing. And we're going to keep building. We're in the background. This is obviously the part that no one sees. We're working on new iterations and new power of our technology. We know it's something that's going to, that the traditional finance world is interested in. How do we know that? We're talking to all the major players. I won't mention any of my favorite names. Think of your favorite investment banks and major money center banks. They're all experimenting and looking at this too because they want to try and build their own private walled garden version of what we're trying to do, which is a debt marketplace. And so, but what we believe it should be is one job.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Great question. So, look, we're all going to pay for the sins of others. And so it's absolutely true that a lot of people are looking at this and saying, gosh, these guys were not telling us the truth. They weren't doing what they said they were doing. And because we're next to and adjacent to them, we're going to pay the price for that. In the same way that the dot-com bust blew out a ton of people who didn't really have a business model. They literally just attached.com to their business. And that's similar to how a lot of the people that fail were saying, oh, I'm crypto, but they weren't really using the power of the underlying technology. So to your question, what do we think is going to happen? We think there's going to be a rebuilding of trust and a rebuilding of understanding the differences between what did go wrong and why did it go wrong. And again, those of us who are using the technology in a transparent way. And so we're working really hard to make the distinction. That's why we're saying we're not a crypto.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Holders, and they were raising tons of money, and there was lots of inventor capital, and they made bad choices. They also ran into the other things.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“For its transparency and its openness to run their lending strategy out in the open where everyone could see it. They were running huge books, in some cases tens of billions of dollars of lending, but you didn't know what they were doing. And so that was them taking advantage of this very interesting high-growth market that was happening, but not taking advantage of the best part of the technology, which is to create trust through transparency and immutable record of what's happened so that nobody can ever change that and you'll know exactly what happened. And so I think that's the other reason that we would point to is that the protocols that have survived and done well, and some of these are our competitors, and we think very highly of them. We enjoy competing with them every day, people like Maple and Goldfinch and Centrifuge, we're all the ones who are still out there because you could see exactly what we were doing. And you couldn't see with those centralized finance folks were doing. And they were trying to grow to make money for their equity.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Matt, well, so the one I want to hit on first is something you just talked about. We think a lot of them were too focused on growth, where in effect they were catering to their equity holders who wanted them to grow their assets under management very, very quickly. And how do you do that? You take more and more risk. And so in effect, their lenders, they're investors who are providing the capital that they were going to then loan out. They were being subordinated, if you will, to the desires of the equity holders of those businesses. So that's one of the fundamental things that happened there. The desire for growth outstripped the prudence of what's a safe way to grow quickly. The other thing that I think is different about us and them is that if you look at it, the vast majority of the businesses that have failed were centralized businesses. They weren't using the block.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“But that's where people are going to find the interesting returns. So again, but on our founding markets, back to your underlying question, we think those returns over time will go down because the risk is going to go down and the market's going to mature.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Dislocation, maybe those market making spreads do expand back out and that demand will come back. So we think that's an important market. We think it's a market that gets efficient over time. So I don't think you should expect to see those returns. But again, as the risk comes down, so will the returns. What we hope and what we are working on in our business development area is finding new managers that are finding new and interesting emerging areas to deploy capital into, like the FinTech business in Mexico, like that unique mortgage structure, like the folks at Caras who are doing the lending into the emerging markets in fintech businesses and emerging markets, somewhat similar to what's going on in Mexico. We think those will be interesting areas. They're not risk-free. I mean, these are new credit and balance sheet-oriented businesses that have higher, higher risk because they're inherently playing into markets that banks have not figured out how to efficiently serve.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Great question. So they would look like over the life of our doing these funds, and you can look at this and calculate this, it's high single digits, maybe approaching around 10%. And the reason for that is because if you look at the market cycle we've been through, those were fantastic years, exactly the point you were talking about in your last statement. There was a lot of volume. There was a lot of people making a market, and there was a lot of demand for capital. And so that's why we made those returns. Long term, in this specific area, that shouldn't exist because the trading should get more efficient. There should be more competition for making that market over time. And those spreads that those people that are able to earn in doing that riskless market facilitation, that should come down. And as a result, they shouldn't be able to pay us high single digit, low double digit cost on the interest. So I do not necessarily think that's going to be around. Now, over time, it's a volatility, in times of market.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Yes, we do. And we think about correlation risk both in each individual loan that we're making out of our credit strategies. Obviously, we rely on, if it's an independent portfolio management.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Depends on the lending. So, yeah, so sometimes we come in and that's part of the credit analysis we do. We look at the liability stack and we see, you know, is there anybody secured above us? Where are we? Are we just above the equity? Then we craft the legal agreement to conform with where we're comfortable being in that rest. And so sometimes we say, you know, we need to be peripassed with everyone else. So if we're an unsecured lender, there's nobody who's secured above us. And so that all the assets are going to be carved up with us as a class with all the unsecured lenders. And so again, it's case by case, but we're very careful about that lending agreement to make sure we know where we stand so that we feel like we're pricing our loan correctly based on who's ahead of us and who's behind us.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Okay, and then I know that uncollateralized means there's no collateral, but is there sort of a hierarchy? Like are you in the middle or the bottom of the capital stack where obviously you're above someone who owns equity in a company? You're above them, but who are you below? Are there people who are like the first lien, you know?”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Question. So, yeah, yes, we are lending under the same types of legal agreements that all loans are made under, whether you talked about a mortgage, but we're not directly, we have a portfolio manager who's running a mortgage-related strategy and they're using traditional mortgage documents. For our lending, there is a master lending agreement, which is a traditional legal lending agreement. And if somebody defaults, we will go into court. And it doesn't matter. There are actual entities underlying these, and there's a lot of complexity about what the entities are. They're actually the ones signing these agreements. I don't think that's useful for our discussion here today, but that entity goes in and they will have full and true standing in that court and know the judge won't say, oh no, you guys were from that gambling world of crypto. You don't have any standing. They will say, I recognize you and we have true legal standing. So in that sense, if there is a deficiency claim, meaning somebody's deficiency.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“We're probably doing that behind the scenes. Not probably we are doing that behind the scenes. We're constantly monitoring our loans. And so while someone is an obligated to pay us back early, that doesn't mean we can't go and have a negotiation with them and say, hey, does it make sense for you to repay early? Because you want to keep your borrowing reputation intact. And so that affiliate fund that was borrowing from us, their reputation is intact. Their parent company Through Arrows is going through issues, but those folks, we think a very smart thing. They said we have the liquidity. We're happy to enter into that transaction with you. And so they kept their borrowing reputation and their credit intact by doing that. We think that was a smart move on their part. We think it was a smart move on our part.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“What happens? Let's deal with this now. And so, again, no losses on that. That loan was repaid in full back to the fund. And so there was no loss in that instance. That's why we're able to say there's no defaults. That doesn't mean we didn't take real proactive action in order to head that off.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Not so far. Well, we had one loan actually end early, and thanks for calling that out because we were lending to a borrower who was part of the Three Arrows family. And as soon as Three Arrows hit the news, and this is, I can talk about this because this is public, we're an active credit manager for the funds that we run in any portfolio manager we bring on, we would assume they would do the same, even if they were independent of us. And so our head of credit and head of lending immediately went into action and arranged for that loan to be repaid early. And so it was an early repayment because we just said, look, we don't know what's going to happen with you all. And again, they were not three arrows. They were a fund affiliate with three arrows. And they were on our user interface. You can see that we had a loan that was guaranteed by three arrows and it was repaid early. That's called good credit management. We went in and said, let's not wait to see.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“It's never happened. And so, so far those folks that are staking true have been earning that interest and just getting pure interest for providing credit insurance that haven't been called on. But insurance that hasn't been called on doesn't mean the insurance was mispriced. It just means it the event hasn't happened yet.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Have there been losses, you know? There have not yet, there have not yet. And again, I know I'm sounding like a broken record. I keep saying this. There will be losses. There's no such thing as a lending business without credit losses. But here's what would happen is if one of our borrowers came back and said, you know, I owe you, I'm using silly numbers, $100, but I can't pay all that back. I'm going to only pay you $95 back. So what would happen would be if that loss on that loan, that first loss would be in the founding funds. This is not how all funds are going to be working going forward. Just in our founding funds, the folks who stake their true, they would be the first loss against that. But that's never happened.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Right, okay, and then the folks who are staking their true and they pay the first and credit losses, what is the definition of a credit loss? Obviously a default is a credit loss, but you've never had default. What if, you know, is it marking something down from $100 a loan from $100 to $90? Is that a loan? How do you, you know, how do you decide to market down? In traditional finance, there's tons of examples of things that were priced at $100 that ultimately went to zero. So how do you go about sort of marking stuff down? And then also, if the longest that you're lending in some cases is, what do you say, 180 days? Yeah, how's that happen? Have there been losses, you know?”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“And those no fees things, we're going to sunset that. Call that sort of early days. We're discounting the fees all the way to zero for the asset management because we wanted people to come and see that and experiment that. They've obviously seen that we've generated great returns with very low credit losses so far, zero. And so hopefully they won't be surprised when we say, you know what? Now we're going to”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Treasury Mutual Fund in terms of overall expenses against that yield. So anyway, hopefully that outlines kind of how the economics would work and what the investor or lender would pay when they show up on the marketplace.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Is 10. Well, then the net yield would be about 8.5% after you pay the manager and you pay the protocol fee. And so really good managers who have really good returns, they'll be able to charge higher fees and garner more assets. And also, over time, we expect that the protocol fees will come down as the overall marketplace grows. Right now, we're pricing at around 50 basis points because that's a good place to start. We expect over time to be competitive, and particularly we were talking about some of those lower risk strategies. You can't pay 50 basis points on a U.S. Treasury fund. Well, we don't have a U.S. Treasury fund today. But if U.S. Treasuries are yielding $2,000, 3%, depending on how far out on the curve you go, 50 basis points of a protocol fee, that would swamp your returns. That wouldn't be competitive. So someday when we have U.S. Treasury funds on there, those would probably pay two, three basis points or whatever, which again is equivalent to what you would pay to be in a U.S.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“We're setting up or new funds that independent portfolio managers are coming to set up. There are two levels of fees. There's the asset management fee. So that's the manager saying, I'm really good at this credit and I'm worth 1% of whatever yield I create here. I'm going to charge 1% on the assets that you invest into my fund for me to manage it. And there's the protocol fee on top of that because instead of my billing out all the traditional infrastructure of running a fund, having asset management software, having bank accounts that move the money around, et cetera, and all the layers that they need to have around that, instead I'm going to use the True Five Marketplace, and that's going to charge a certain number of basis points. So most of the new funds that we're doing right now are being charged 50 basis points to use the TrueFi software. So back to my simple example. So someone would pay 1% of the manager and then 50 basis points. So one and a half percent. So if the overall target yield of the fund”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“So here's the way the founding funds are set up and new funds are being set up slightly differently. The founding funds, 100% of the interest goes to the investors with one caveat, which is true holders who want a stake and be the first loss in that, they get 10% of that interest. So let's make a simple example. So somebody makes a $100 loan. It's a 10% interest rate and True Stakers then come in and put up $10 worth of true so that the first $10 that get lost, if there's a loss in that fund, they're going to take that first loss. They get 10% of the interest. So in my simple example, $100 at 10%, there's $10 of interest. $1 that goes to the True Stakers, and $9 of that goes to the lenders into that fund. So that's how the founding funds were set up. There's no asset management fee. We're not charging an asset management fee for that because this was our proof of concept. Going forward, and on our new funds that”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Okay. And so let's say someone who borrows from you, they pay 9%. What does the people staking their true or investing in the firm, the portfolio managers, what do they get? And does Trust Token, do you guys get a basis point spread, a percentage of the percentage, a flat out fee? How does it work?”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“And we think that that's what will make our marketplace work, which is the different managers who have different insights on that, the ones that succeed will come and there'll be good arbiters of that credit risk and good investors behind that.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“So, that risk is real, and we think that's healthy, and that's okay, because that means that the underlying risk is being recognized by the marketplace, and the borrower is able to access capital at a lower rate. And so that's good for the lender's investors who are showing up on our marketplace. And we want to have that whole continuum of risk. And so if Alameda gets to be a better and better credit, which they are all the time and their cost of borrowing goes down, then there will be funds and portfolio managers on the TrueFi Marketplace who say, yeah, we're going for high quality market making lending and expect our coupons are going to look in that sort of 4% to 5% range. But for more emerging managers who aren't the Alamedas of the world, there's other funds or maybe within that fund, they're willing to take more risks. So we view that as just a natural and healthy evolution. And again, obviously it's dynamic. And so over time, some people may become better credits and then their fortunes may change and they become riskier credits.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“And what is so that's the risk of the left tail risk that you really don't want, where you lend to someone and they don't pay you back. What about, I guess it's called the right tail risk where the market realizes that, yeah, the person you're lending to, they're good for it, and then the yield goes way down and your opportunity sort of evaporates. Like, you know, Alameda, like I know that Alameda is kind of like the JP Morgan of the crypto space. So if I know it, everyone knows it. So what's the risk of them saying, actually, we want to pay you 4%?”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“They don't care who the borrower is. That's the beauty of it. And again, we think this is a genius model. We think that is a genius model. The Avian compounds of the world are fantastic. We think that will migrate over traditional margin lending, where eventually let's assume that all stock equities are tokenized and trading on the blockchain. We care deeply who these people are. We call it credit investing, but it's also reputation and who they are. And so that's the other red flag is we get into these diligent sessions and we're making a judgment on who these people are. We look into their backgrounds. We see what they've done. We see what their expertise is. And we're making a credit bet on them. And so the other red flags are if we look at people and there's things in their background that we don't understand or that we think are red flags for reputational or character risk. That's another reason for us to say this is not a good fit and we wish you luck in finding capital somewhere else.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“So, uncollateralized lending, you have to do rigorous analysis on your borrower. Whereas in over the Aave platform, if you're lending against Uniswap, as soon as Uniswap goes below $5, it's liquidated. They don't care who the”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“That's a great question. It fundamentally starts at our credit diligence that we go through. We don't have a formula for what we're looking for in a credit situation. So if we would come to you, Jack, we would look at your business. Have you explain our business? And then we would give you a diligence list of what we needed from you. And so the initial response is, and this happened during the bull market that was happening six, nine months ago, a lot of people were trying to break into the business of doing this kind of.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“A lot more efficient before we think we're going to be competitive. That's why we're focusing on the higher octane, more risk markets that are not as well served and that have more of an opportunity.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Making that more broadly available to maybe accredited investors who aren't necessarily ultra high net worth investors, that's part of what is the thesis of what we think this is doing because more and more people want access to that. They don't want to just go to their favorite mutual fund complex, Fidelity Vanguard Schwab, whoever it is, and just invest in the intermediate bond fund. That may be a part of their asset allocation, but some of them want to take a little bit more risk and get paid more yield and put that into the mix of their portfolio. And that's what we're trying to provide. And that's what we think is going to be compelling as a marketplace. Eventually, do we think that there will be people managing good old intermediate investment grade corporate bond funds on the TrueFi marketplace? Yes, we do. Look, that's a pretty efficient marketplace right now. If you look at how little Vanguard and Fidelity charge for that type of fund, it's very low basis points. And so that's a pretty efficient market. We need our marketplace to get a lot.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“I can argue both sides of that. We've chosen to focus on an area that is fundamentally difficult, which is fundamental, uncollateralized, or under collateralized work. It doesn't mean there's not assets in the mix there, but we're not counting on our ability to liquidate those assets to get repaid. We're counting on the borrower having a productive underlying business, being able to repay us. That is just the hugest part. That's the mass majority of that $7 trillion we talked about in terms of global corporate lending. That area is growing very, very quickly. It's an area that investors up and down the scale, institutional investors already have great access to that area. They're the ones who are able to go to the very sophisticated large alternative credit players named some of my favorites, like Blackstone Credit or Apollo or folks like that. Those institutions have access to that. Even high net worth individuals have access to that if they go through some of these sophisticated asset management platforms.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. As fast as my uncollateralized lending. On the face of it, uncollateralized lending sounds unsafe. And in a vacuum, you'd rather be collateralized than under collateralized. But the question is, would you rather lend to a highly risky business on a collateralized basis or a blue chip firm on an uncollateralized basis?”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Knowledge proofs and ways to share information so that people can know that the credit assessment has been done, but not necessarily know, one, who the borrower is or what that information was that was shared by that borrower and do it in a way that the credit work is done off-chain, but people can be assured that fundamental credit work has been done and that their money is safe if they deploy it into that account. But that's what we're currently doing, and it's worked very, very well. And this is this proof of concept that we think has made it clear and compelling that this is an area that's going to grow.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Has become a standard. We're not the only ones doing this. We were one of the pioneers in doing this uncollateralized lending. In fact, I think we were the first to do it on a blockchain open transparent way. But it's worked really well so far. And again, the beauty of our protocols, you can go in and you can look at every loan that's ever been made to Alameda. You can see when they took it out, what the rate was, and when they repaid it, and you can see currently which ones are outstanding to them, et cetera. What we don't share is the credit work we're doing behind the scenes. And again, people say, well, what does that look like? Well, go to any of your favorite alternative lenders out there. It would look just like the analysis that they're doing. And people are sharing that information with us. The borrowers are sharing that with us on a confidential basis. We think there will be a lot of innovation about how credit information gets shared and done in the future. A lot of people are working, including in a very whiz-bang technology area called Zero.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Strategies and statements and are doing analysis on that, their rates have come down. But to your question about can we lend the money to them? And if we don't like what they've done, if we lend money to them on 180-day basis, we don't get it back until 180 days, and we can't recall that capital. So they, for working capital purposes, can plan on that, and they know what their cost of funds of that is. And obviously, the activity they're doing as market makers or in this matched trading strategy where they're trying to scrape inefficiencies out of the marketplace, but try and do that in a way where they're not taking risk, they're making better returns than what we're charging them. Obviously, they wouldn't do that. And this working capital is a substitute for them putting in additional equity capital. And equity capital gets 100% of return of the profits. And so they'd obviously rather use our capital than that. But no, we can't bring it back in early.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Great question. So the lending into those, and I'll mention a couple of names of the borrowers who've been big borrowers with us because these are names in the crypto world that are very well known, Alameda, Wintermute, or two of the big names that we've loaned a lot of money to. Alameda, of course, is the hedge fund that's affiliated with and owned by Sam McMahon Fried of FTX Bain. And so our loans to them are anywhere from $30, $60, $90, and as long as 180 days, these loans are made to them on a coupon that's on a fixed basis across that relatively short-term loan basis. It tends to be in the high single digits. When we first started with some of these borrowers, they were in the low double digits, but over time, as they've proven their ability to repay, and they have a good repayment history, and also as they've increased the visibility we have into their finances and sharing with us their finances.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“So in the traditional finance markets, the maturity is how long the lender has borrowed the money, when the money is due back from the person who has borrowed. And that can be three months, it can be six months, it could be a year, it can be a fixed rate, it can be a floating rate plus a life.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“That I mentioned are all in the native crypto markets where most of our lending has happened. The real-world assets business is still a small single digit millions business on its way to growth.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“So the four founding pools just invest into the crypto markets doing uncollateralized working capital loans to market makers and to delta neutral hedge funds. So that's what those four do. A handful of other funds that are doing the real world, some of which we're the manager of. So the FinTech business in Mexico, in our internal asset management group, we are the fund manager of that. Then we have these other strategies that are outside of ours. We have a strategy with a group called CARAS, who's a great partner of ours. They're a portfolio manager who's currently running a strategy to lend to fintech businesses in the developing world. Again, that's going into real world applications and investments. And that's an external portfolio manager. That's not us. That's a manager who's using the protocol and using the underlying blockchain software. But again, our four founding strategies.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And so, as you said, you had four pools, and some of those pools invest in only DeFi and CFI, not real world stuff. Some of those pools invest only in real world, like the Mexican payments company, and some of them invest in both, right?”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“And put money in. So that's how we've avoided it so far. I don't think there's any really other magic to it other than just blocking and tackling credit. And that's the distinction between us and some of the CPI lenders that you've mentioned that have gotten in trouble.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“CFI lenders that have run into trouble, etc., is because they either made really bad decisions on a credit basis. I don't know what else to call it, or they were taking too much risk for the wrong underlying return, and they were taking effectively equity risk for fixed income or credit returns. And they also had the classic mismatch of their investors wanted their funds on a short-term basis able to be repaid. And some of these loans were being made on a longer-term basis, and they had the classic run on the bank, and the funds weren't there. But we've avoided that so far because we don't have this same issue. We have put in place mechanisms in our funds so that people realize that when there's liquidity, they can withdraw. But if the funds are loaned out, then they can't get it at those times. But no one's had any trouble withdrawing from any of our funds when the loans come back in and they get repaid. The liquidity flows in and investors take money out.”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT
“Can you modify these terms? We have done some behind the scenes private restructurings with people, but we've not had an official default. We will have defaults. There is no such thing as defaultless lending. That's not really a business. That's like lending somebody their own money and you know they can pay it back to you because it was their money. That's not a real business. But we have been very, very fortunate and I would say we made our own fortune because we brought a serious credit diligence to this. We took a very traditional approach. We hired folks with extraordinary experience and traditional credit lending and they brought a traditional credit lens to this. And there were a lot of people that applied to borrow money from us that we looked at it and we asked them for information and either they didn't give us the information we wanted or we didn't like what we saw and we turned them down and we didn't lend to them. And so that part of that, why we think we've fared better than some of the”
2022-08-11 · Forward Guidance · Real GDP Lending on Blockchain Could Be A Gamechanger | Bill Wolf · IDENTIFIED FROM THE TRANSCRIPT