Zac Prince, Co-Founder & CEO of BlockFi: The Future of Crypto Lending

Zac Prince is the co-founder & CEO of BlockFi. In this conversation, Zac and Anthony Pompliano discuss lending in the crypto markets, how to earn 6-8% interest on your Bitcoin and Ether, why BlockFi just removed their account minimums and fees, and what Zac is excited about moving forward. BLOCKFI-----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. COINMINE-----The Coinmine One is like an Xbox that turns your electricity into Bitcoin. You just plug it in, connect to wifi, and tap on the crypto you want. It’s so easy anyone can do it. Everything is controlled from the Coinmine mobile app and the Coinmine keeps getting better with over the air updates that add new coins, features and services to your Coinmine. Visit coinmine.com/pomp to get a Coinmine and earn crypto for powering a new world. ETORO ----- This episode of Off the Chain is sponsored by eToro, the smartest crypto trading platform, and one of the largest in the world. Join 11 million other traders and create an account at etoro.com and build your crypto portfolio the smart way.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:12Anthony Pompliano?

  Zach Prince is the co-founder and CEO of BlockFi. In this conversation, we discuss lending in the crypto markets, how to earn 6% to 8% interest on your Bitcoin and Ether, why BlockFi just removed their account minimums and fees, and what Zach is excited about moving forward. I really enjoyed this conversation, and I hope you do as well. As many of you know, crypto investors store their digital assets on exchanges, or in cold storage for long-term safekeeping. However, this strategy doesn't help them grow their investment holdings, or build overall wealth. With the new BlockFi interest account, users can now securely store their Bitcoin or Ether at BlockFi, and receive 6% annual

• 0:53Anthony Pompliano?

  interest, paid monthly in cryptocurrency. 6% is an absurdly high rate. It's the best rate in the industry. I highly suggest you go check out blockfi.com/pomp. Again, that's blockfi.com/pomp, to sign up and start earning crypto today. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp, or his guests on this podcast, are solely their opinions, and do not reflect the opinions of Morgan Creek Digital, or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment, or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 1:35Anthony Pompliano?

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• 2:20Anthony Pompliano?

  tell them Pomp set ya, and thank me later. If you follow Bitcoin and crypto, you've probably heard of eToro. They're the world's number one social trading platform, and I love it. They've got more than 10 million other traders that love it, too. And guess what? They just launched in the United States. eToro offers access to the world's most popular cryptocurrencies, including Bitcoin, Ethereum, and others. With the smartest trading tools and the ability to connect with the best traders around the world, there's no better place to build your perfect portfolio. If you're new to Bitcoin and crypto, you can test the waters with their $100,000 virtual trading feature. But if you're more experienced, you can create custom technical charts and use eToro's social fees to inform your trading decisions. They've got transparent fees, and so you never miss out. They also have an easy-to-use

• 3:04Anthony Pompliano?

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• 3:18Speaker 01

  All right, guys. I'm here with Zach Prince of BlockFi. We've got a whole bunch of stuff to cover. Thank you so much for coming and doing this. We've also got the livestream going. Somebody just asked me if I'm planning to attend the North Korea conference, so no. I'm gonna skip that one. Let's start with, as a reminder for people, what BlockFi is. Huge disclosure disclaimer. We're investors, huge fans, big believers, but just start with kind of what you guys are doing at BlockFi.

• 3:54Speaker 02

  Yeah, sure thing. So we're a wealth management platform for crypto investors. Today, we have two different products that we offer. The first is the ability to earn interest on your Bitcoin and Ether holdings. So you can get 6% annual interest rate on your Bitcoin, paid in Bitcoin, very similar to a savings account at a bank with dollars, except that it's crypto, there's no FDIC insurance. It's a little bit different, but functionally it provides the same value. You're earning compound interest on your assets, you're putting them to work for you. The second product that we have is a loan product where you can borrow dollars against the value of your crypto holdings at interest rates as low as 4.5% a year.

• 4:39Speaker 02

  So that's a way to get access to liquidity without selling your crypto, without incurring the tax costs associated with selling your crypto. And then you can use that cash to make other investments, buy more crypto, do whatever you want with it. We send it to your bank account same day. The entire loan process takes less than 10 minutes. So those are the two products that we have today. We're 50 people, based in New York City. We're growing quickly and we're planning on launching incremental products around this same theme of wealth management for crypto investors, financial services for crypto that look like what already exists in the traditional world for stocks, bonds, cash, etc.

• 5:18Speaker 01

  Yeah, so one of the things that got me excited about this is this idea that if you look at the legacy financial system, there's plenty of, we'll call it wealth management or banks or whatever it is, there's a lot of bureaucracy, right? There's not a lot of technological savviness. And then if you look at the actual offerings, they're not really that attractive, right? When you look at the interest that's paid in accounts, etc. And so when you compare that to what BlockFi is doing, to me, it feels like it's kind of a wealth management solution from the future, right? In the sense of it's software-based and it just feels like it delivers more value to the end consumer, right? And how much of that is driven by efficiencies that you guys have, right?

• 6:03Speaker 01

  From being more software-based and more technologically savvy versus it's just you saying, hey, we're going to make less margin and pass that on to consumers? Or is that kind of a mix?

• 6:16Speaker 02

  Yeah, no, it's definitely a mix. So we started completely digital. We don't have a legacy branch infrastructure with physical locations that adds to our cost structure. We're working with digital assets as the primary value that we're storing and building these products on. So that means that we can do things on a global Scale a lot faster than you can using the legacy banking infrastructure. And we're a startup technology company that's growing quickly. So just like how in public markets, you have a growth to value premium. The same thing exists in private markets. And as long as we keep growing quickly, there's not as much of a need for us to, you know, squeak out profit and EBITDA.

• 7:00Speaker 02

  That just means we're going to have to pay taxes on it. As long as we're pursuing a really large market opportunity, which we believe that we are, we don't need to make as much margin on every transaction as a big bank. So all of the things that you said are true in terms of our business model and the advantages that we have versus the legacy financial system.

• 7:18Speaker 01

  For sure. And then I guess part of this is, so let's start with the lending product, right? So somebody can come in, they can deposit a digital asset, and then you guys will give them a US dollar loan against it. Maybe walk us through how that mechanism actually works.

• 7:32Speaker 02

  Sure, so someone creates an account on blockFi.com.

• 7:37Speaker 01

  BlockFi.com/pomp, of course.

• 7:39Speaker 02

  BlockFi.com/pomp. They go through KYC. It's all completely automated. KYC process takes less than, you know, three minutes. And then they can play with the loan calculator. We've got all kinds of resource articles on our website. So generally, when people are getting a loan, they educate themselves on it a little bit upfront. But assuming they've already done that, they apply for the loan, they get approved, they send their asset that they're using as collateral, and then they can borrow up to 50% of the value. And we can fund that either using a stablecoin or a wire to their bank account. So the entire end-to-end process takes less than 10 minutes, which is incredibly fast when compared to getting a loan

• 8:23Speaker 02

  from a traditional financial institution. And we're one of the few companies out there that's financing digital assets. That was the first product we launched when we started the company. The lightbulb moment for creating this product came from an experience that I had with a bank, where they basically told me to, you know, screw off because I held Bitcoin and they didn't think that was worth anything.

• 8:46Speaker 02

  So we've seen a lot of growth in that product. It's a fantastic way to get access to incremental capital at a low cost. And it's really a strong wealth management tool.

• 8:55Speaker 01

  For sure. And part of this is, you know, and again, correct me if I'm wrong here, but you're able to underwrite The loans and do it in a much quicker, more efficient way because you're sticking specifically to collateralized loans, right? It's not like you're having to underwrite my income or underwrite other assets. I'm actually putting the deposit down and then you're lending against that asset. When you have control of the asset, because the way crypto works is you're able to manage the margin, et cetera. And so it's a way for you to be more efficient and provide value to the consumer, but also make sure that you're not overextending yourself from a risk management standpoint as a business.

• 9:34Speaker 02

  Yeah, that's exactly right. I mean, across all the different types of lending that we do, we've never had a loss and we don't expect to ever have any losses. Lending against liquid assets where you're over-collateralized is the least risky type of lending that exists out there. Our chief risk officer, who came from prime brokerage at Bank of America Merrill Lynch, did this type of lending in the securities world for 15 years before coming to BlockFi, including through 2008, 2009. They never lost a penny on his side of the bank. You don't expect to lose money and as long as your risk management and access to liquidity is calibrated correctly, you won't.

• 10:16Speaker 01

  Got it. Today, what assets can you deposit and take a loan out against?

• 10:21Speaker 02

  Bitcoin, Ether, Litecoin, Zcash.

• 10:25Speaker 01

  Got it. And what is the kind of framework you use to picking assets? Right, so why those four?

• 10:31Speaker 02

  Yeah, so it's based on custody availability. It's based on demand that we see from our clients and then it's based on liquidity of the asset and the volatility profile of the asset. So we check the first two boxes to decide if we want to pursue and then we build our risk management model off of the second two components. And yeah, we'll be listing a lot more assets soon. We're planning to launch two or three more before the end of the year.

• 10:58Speaker 01

  Got it. All right, so that's the US dollar lending product. You also have a product where I can deposit a digital asset and then I can earn interest on that asset. Maybe just describe how that mechanism works.

• 11:11Speaker 02

  Yeah, sure. So the way that works is you go through the same account setup process, do your KYC at blockfi.com.

• 11:18Speaker 01

  Slash pomp.

• 11:19Speaker 02

  Slash pomp. And you deposit Bitcoin, Ether, or GUSD are the three assets that are supported in the interest account currently. As soon as you've deposited that asset, you start to accrue interest. Interest is paid out every month on the first business day of the month. Once you've been paid interest, that interest becomes part of your balance and then you're earning interest on your entire balance. So the interest is compound interest. And we have very attractive rates. So on Bitcoin, you can earn 6.2% a year, on Ether 3.3% a year, and on GUSD 8.6% a year currently in the interest account. The way that we generate the interest that we're providing to our clients that have

• 12:03Speaker 02

  a balance in a BlockFi account is by lending to institutional borrowers. And when we lend to institu-

• 12:10Speaker 01

  Just so you can really explain for those that don't understand what that means. When I put the deposit in, you're then taking the deposit and you're lending it out to another company, right? And why do you do that?

• 12:25Speaker 02

  We do that to-

• 12:27Speaker 01

  What are they doing with that, with the assets?

• 12:29Speaker 02

  Oh yeah. So what are the borrowing use cases?

• 12:32Speaker 01

  Yeah.

• 12:32Speaker 02

  So there's a couple of different borrowing use cases, and it depends on the type of borrower. Right now, we're primarily lending to market making and proprietary trading firms who have large businesses in traditional markets but have started to get active in the crypto market. And one of the things that companies like that might do is they make money by providing liquidity into the crypto market where liquidity is currently fragmented and there are opportunities where they can remove spreads from different trading venues and make a little bit of money by doing that. They get paid for doing that. So there might be a difference in where Bitcoin is trading in terms of the spot price between an exchange

• 13:17Speaker 02

  in the US and an exchange in Europe. There might be a difference in where Bitcoin is trading on the futures market versus the spot market. And these companies make their living by providing liquidity into those venues and getting paid for creating consistency across the different exchanges. So we lend to them. We help give them incremental capital so that they can conduct this activity. And this activity is very instrumental to healthy and orderly markets in the cryptocurrency sector.

• 13:48Speaker 01

  Got it. And so one of the questions I think that people have a lot of times is, I'm going to put a deposit down, I'm going to get paid interest, that's attractive to me. And there's some risk rate in terms of it's being lent out on the backend, but I'm getting compensated for that risk with the interest I'm getting paid. How do you as BlockFi first underwrite who you lend to? Right? So like, how do you go about selecting your partners that you're willing to lend to? Because that determines that risk profile that my assets are being exposed to.

• 14:20Speaker 02

  Sure. So we do diligence on every single counterparty that wants to transact with BlockFi. The result of that diligence, which includes KYC, financials, and ongoing reporting requirements after they've been onboarded to our platform, is a decision around how much collateral we're going to require that counterparty to post to us. So similar to when we're lending USD and someone gives us Bitcoin and we'll lend them up to a percentage of the value of that Bitcoin, it works the same way when we're lending it to institutions who borrow. So if someone wants to borrow a million dollars worth of Bitcoin from BlockFi, depending on who they are, what the financial position of that company is,

• 15:01Speaker 02

  we might require that they post 1.5 million dollars worth of US dollar collateral with us, or 1.2 million dollars of US dollar collateral with us in order to borrow that million dollars of Bitcoin. And to put some round numbers on it, like directionally speaking, we're not really lending to too many borrowers that have less than 50 million in equity capitalization, for example. We're lending more to the Siskohanas and Akuna Capitals and other firms like those of the world than we are to, for example, a crypto firm with, you know, 5 million bucks that they're trying to manage in the markets.

• 15:36Speaker 01

  For sure. All right. And then the other question that I see a lot of people talk about is the custody, right? Obviously, with Bitcoin, Ether, etc., these are bearer assets. So if there was hacks or any sort of security breaches and somebody can get a hold of those assets, it creates this problem. But you guys don't actually custody yourself, right? So maybe talk a little bit about how the custody works and kind of why you selected certain partners.

• 16:02Speaker 02

  Yeah, we decided early on that custody was not something that we were going to specialize in building for this market and that it was something that we should partner on, not build ourselves. We decided to custody our assets with Gemini, who's still our primary custodial partner. So when you send an asset to BlockFi, we never actually touch the private keys. It goes straight into secure custody on Gemini's platform. Some of the reasons why we selected Gemini include that they have insurance against hacks and cyber attacks to their custody system. They have a cold storage proprietary infrastructure where not that many of the assets at any single

• 16:44Speaker 02

  point in time are kept online. They've completed a SOC 2 Type 1 audit and they're about to complete a SOC 2 Type 2 audit, which is basically a colonoscopy of every security procedure that you could possibly have from an operational and technical perspective. And they custody billions of dollars worth of crypto and they've never had an issue. They're also regulated here in the US. So we've got great confidence that if something were to happen and all of those other things didn't work, that we've got a very strong legal claim and we know exactly where to go if there are any problems.

• 17:17Speaker 01

  For sure. And as part of this, the interest rate moves, right? So when I make my deposit, the interest rate can move and also the amount of my capital that I've put in that's exposed to different interest rates can move, right? So maybe talk a little bit about from a framework standpoint, how does BlockFi determine what the interest rate is that they'll pay on each asset? And then on an ongoing basis, what evaluations are you doing to kind of move those interest rates to keep, one, competitive rates, but also, two, make sure that you can build a sustainable business here and continue to do this in the future?

• 17:53Speaker 02

  Yeah, great question. So we have a tiered rate structure right now, which is that up to a certain balance with Bitcoin and Ether, you earn a higher interest rate and above that balance, you earn a lower interest rate. So on Bitcoin, for example, on balances up to 10 Bitcoin, you earn a 6.2% annual interest rate. And on balances above 10 Bitcoin, you earn 2.15% annual interest. The reason for that is that structurally in the crypto market right now, there are a lot more people who want to earn interest on their Bitcoin than there are firms who want to borrow Bitcoin. The debt capital market is still very nascent for the asset class. And demand to borrow Bitcoin is also partially driven by market sentiment.

• 18:39Speaker 02

  And you and I both agree, we were talking before we turned this thing on, that we're very optimistic and bullish on where Bitcoin prices are headed right now. It's not a bear market. As a result, there's a little bit less demand to borrow. So we're looking at a few things. We're looking at what's the market for lending and borrowing, both at the institutional level where we're focused, but also on exchanges and on DeFi to get a feel for those prices. And then we're balancing our own internal supply and demand. How many assets do we have? What demand are we seeing? And then lastly, we're looking at our customer acquisition targets. We're looking at competition and we're making sure that the rates we have are the best in the market.

• 19:20Speaker 01

  For sure. And so as you're doing this, you know, look, I personally have to say, not only are we investors in the company, but we're users of the product. And it's pretty damn cool to get paid the interest every month, right?

• 19:33Speaker 02

  You don't even have to do anything.

• 19:34Speaker 01

  Yeah. And for me, I think part of the exciting part is it's not just getting paid interest, right? It would be one thing if I said, hey, you know, use a simple example, right? You put $100 in and I'm going to get paid over the course of that year, you know, $6 in interest. But I'm not getting paid in dollars. I'm getting paid in the actual asset itself. And the framework that I use to think about why this is attractive is that When I get paid in Bitcoin, then if there's price appreciation, which I already expect to happen or am anticipating happening, that's my investment thesis, is that Bitcoin that I just received as interest should appreciate in value in the future as well.

• 20:17Speaker 02

  It's a return multiplier.

• 20:19Speaker 01

  Yes.

• 20:19Speaker 02

  So if, you know, I'm pretty sure you, like I did, opened up an interest account the day we had it available. I mean, I was account number 000001. And, you know, Bitcoin was $3,000 at that time. So the interest that you earned during that time period where Bitcoin is 3K has now appreciated in value by a factor of, you know, almost 3X. And so your effective rate of return on those payments is more like 18%, 20%.

• 20:50Speaker 01

  Yeah, because the math you're using, right, is let's just use round numbers. If you put an amount of money in to get $100, and in that very first payment, you received $1 a month, right? And those aren't the right numbers, but let's just use them for easy numbers. So my $100 is the deposit. I received $1 a month. That'd be 1% interest, right, per month.

• 21:10Speaker 02

  Yep.

• 21:11Speaker 01

  That $1 of interest was paid in Bitcoin. If the price 3X is, really, I got paid $3, right, in terms of current new price. And so that interest percentage on my deposit went from 1%, now it's 3%, right? Just given the price appreciation. And if that's happening month over month over month, I'm getting paid my interest in Bitcoin, then you can really see how this can compound very, very quickly and become attractive.

• 21:37Speaker 02

  Yeah, that's exactly right. That's exactly right.

• 21:40Speaker 01

  Insurance. Lots of people are always asking about, hey, I'm going to put money in. How does insurance work? Is there insurance? It's not FDIC insured, obviously, like a traditional bank would be. But how do you think about kind of that risk mitigation in the insurance part?

• 21:56Speaker 02

  Yeah, so I mean, we believe fundamentally that we're in the risk management business at BlockFi. Everything that we do, we look at from a risk management first lens. The reality is that there's not a FDIC-like type of insurance against losses from our lending pool that we could buy right now at any price. It just doesn't exist. The market is still too nascent. We do have insurance on the secure storage of the assets via our partnership with Gemini, and we do have a multi-tiered risk management approach, some of which we talked about, to ensure that the performance in our lending pool is perfect.

• 22:40Speaker 02

  Unfortunately, to date, it has been. One of the other things that we don't do is lend crypto on exchanges. So there's some venues with exchanges that are international that aren't necessarily insured, and you've got a lending pool. We're not active there. We only lend in places where we directly control the relationship with the counterparty. All of the legal boxes that we need checked are checked, and we feel very secure in those positions.

• 23:05Anthony Pompliano?

  One more word from our sponsor, BlockFi. Their new interest account allows you to securely deposit your Bitcoin or Ether at BlockFi and receive 6% annual interest paid monthly in cryptocurrency. This rate actually compounds, so you receive a 6.2% APY, which is very attractive given the alternatives. So you can actually take your Bitcoin, you can deposit it with BlockFi, and get paid an interest rate of 6% in return. Go check out blockfi.com/pomp. Again, blockfi.com/pomp to sign up and start earning interest on your crypto today. Ever wanted to get into mining and didn't know how? Don't worry, your boy Pomp's got you. Everybody got some electricity and Wi-Fi.

• 23:48Anthony Pompliano?

  All you gotta do is go to coinmine.com, you buy a coin mine. It's like an Xbox or a Playstation that helps you turn your electricity into Bitcoin. That's right, you purchase it, it shows up at your doorstep, you pull it out of the box, you plug it in, connect to your wifi, five minutes or less, you're mining Bitcoin. All you have to do is control it from the mobile app they provide, and then you receive over-the-air updates that add new coins and new features on a consistent basis. Kinda like how Tesla does over-the-air updates and updates the car software. Just you're updating your coin mine. Consumer mining made easy. That's right, go to coinmine.com, tell them Pomp sent ya, and thank me later. If you follow Bitcoin and crypto, you've probably heard of eToro.

• 24:32Anthony Pompliano?

  They're the world's number one social trading platform, and I love it. They've got more than 10 million other traders that love it too. And guess what? They just launched in the United States. eToro offers access to the world's most popular cryptocurrencies, including Bitcoin, Ethereum, and others. With the smartest trading tools and the ability to connect with the best traders around the world, there's no better place to build your perfect portfolio. If you're new to Bitcoin and crypto, you can test the waters with their $100,000 virtual trading feature. But if you're more experienced, you can create custom technical charts and use eToro's social feeds to inform your trading decisions. They've got transparent fees, and so you never miss out. They also have an easy-to-use application available on iPhone, Android, or any web browser.

• 25:15Anthony Pompliano?

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• 25:24Speaker 01

  You got some announcements today. Maybe just tell us what you guys are doing, the new updates, and then we can talk about why it's important.

• 25:32Speaker 02

  Yeah, sure, so I mentioned that the supply-demand for crypto lending is a bit imbalanced in general. There's more people that want to earn interest than borrow the asset at times. And for that reason, one of the things that we did when we launched the interest account was we had a minimum balance requirement to be eligible to earn interest of half a Bitcoin or 25 Ether. Today, we're announcing that we're completely removing that. So we're removing minimums from the account, and we're also removing fees from the account. So up until today, we had a pass through withdrawal fee of what Jim and I has. So I think it was like point 0015 Bitcoin. And we're going to start offering all of our clients one free withdrawal per month from the platform. And these two things were the biggest pieces of feedback that we've heard from the community in terms of

• 26:14Speaker 02

  what they would like to see us change in terms of how the interest account functions. So today we're announcing that they're both gone, no minimums and no fees.

• 26:22Speaker 01

  Got it. And so the minimums, I think, really important in my mind, really, it gives access to more people, right? So the previous minimum, I think you said was point 5 Bitcoin. So at today's prices, you had to have $5,000 worth of Bitcoin in order to participate in this.

• 26:40Speaker 02

  Yep.

• 26:40Speaker 01

  Now, when you drop to no minimums, I literally could go put $25 on and start earning interest, right? Again, it's not a huge thing, right? In terms of conceptually, but when you look at it in practice, there's a lot of people who own digital assets, but they don't have $5,000 worth. They just have, you know, tens of dollars or hundreds of dollars worth. And now you're opening up more financial access and wealth management tools in the crypto world to those people.

• 27:07Speaker 02

  That's right. I mean, one of the things we talk about a lot at BlockFi is that getting access to high quality financial services, especially outside the US, has always been possible if you had $5 million or $10 million or whatever the cutoff was to be part of, you know, Citi's private wealth program. And one of the really exciting things about crypto is that it opens up accessibility to great assets to invest in and to financial services and products like the ones BlockFi is building. So we think that this update is aligned with the ethos of that and we're really excited about it. Additionally, for anyone who's watching this, and maybe we'll tweet about it after, if you don't have a BlockFi interest account yet and you want to create one soon,

• 27:50Speaker 02

  we're going to give anyone who uses the referral code POMP25 when they're signing up for an account, $25 worth of Bitcoin along with their first interest payment. If you create an account in the next few days. So if you haven't created an account yet and you're signing up for one, put POMP25 in the referral code box in that account creation field and you'll get 25 bucks in extra Bitcoin on your first interest payment, which will be, you know, October 1st or October 2nd, whatever the first business day in October is.

• 28:19Speaker 01

  It's every single day, pop 25, you just get free money for hanging out with us. It's amazing how this works. What's up, Jason? I see you on the live chat. But, alright, so let's go to then the withdrawals, right? It's counterintuitive as to why a company would want people to withdraw their money, right? You're actually reducing the friction to that. Why allow that to happen or why empower people to do that?

• 28:50Speaker 02

  Honestly, it was just feedback from our clients. So, we send out a customer survey once a quarter at BlockFi, and we rank the things that our clients are telling us based on how many people said this thing. And then we just start knocking them out. We build it. So, the three biggest things that we heard when we sent out our survey in Q2 was, number one, people wanted the ability to earn interest in a different asset than the one that they deposited, which is really interesting. We should talk about the use cases for that. Number two, people wanted us to remove the minimums. And number three, people wanted us to remove the withdrawal fees. So, we just take the feedback. We just give our clients what they're asking for. We think that's a really important and critical approach to us being successful,

• 29:35Speaker 02

  is listening to that feedback, and so that's where it came from.

• 29:38Speaker 01

  Got it. Explain the first one.

• 29:41Speaker 02

  So, we launched a feature about a week ago called Interest Payment Flex. And what Interest Payment Flex allows you to do is, regardless of what assets you've deposited into the interest account, you can elect to have your interest paid in any of the assets that are in the interest account. And the two top use cases we've seen for this are, number one, someone wants to deposit a stablecoin like GUSD, which earns an 8.6% interest rate. But instead of having that interest paid in GUSD, which is the default, they want the interest paid in Bitcoin. So, now you're getting the multiplier that you and I talked about earlier, but your equity position in terms of what you've started with is still that dollar-based asset.

• 30:22Speaker 02

  The second thing that a lot of people like to do is they've deposited Bitcoin, but they actually want to generate a passive income stream that they can cash out to their bank account every month in dollars. So for whatever reason, they're overweight Bitcoin in their personal portfolio, or they just want a little extra cash every month. They deposit Bitcoin, select GUSD as their interest payment flex option, and then they're earning dollars every month off of their Bitcoin holdings.

• 30:48Speaker 01

  Got it. And why is GUSD's interest rate so high? 8.6 compared to some of the other rates is much higher. Why is that?

• 30:57Speaker 02

  It's a difference in the capital markets. So the reality today is that the crypto market, like other emerging industries, for example, the cannabis industry, doesn't have access to banking and debt capital markets the same way that developed industries do. So the interest rate that we're paying on GUSD is derived off of dollar demand that we see in the market, which is much higher. Also, the crypto market is bullish right now, so if you look at CME futures, they're in contango, and there's an implied interest rate there of around 10% a year. So the crypto market wants more cash right now, and as a result, the rates are higher for borrowing dollars than they are for borrowing Bitcoin, and so that's reflected in the rates

• 31:42Speaker 02

  that we pay to our clients.

• 31:43Speaker 01

  Got it. Let's back up a little bit, because I think you guys have gone really deep on these wealth management tools and done a great job with the US dollar loans and then with the interest accounts. What other products are you excited about and think that is natural for crypto to take hold of and really run with and maybe even BlockFi could go into in the future?

• 32:05Speaker 02

  Yeah, sure. So in terms of things that we'll be going into in the future, we'll be launching products that enable you to buy and sell crypto or manage your crypto positions that feel a bit more like a robo-advisor than an exchange where you're incentivized to trade all the time and add a lot of leverage. We'll also be doing something in the payment space, incorporating this concept of earning Bitcoin as a reward into a piece of plastic that you're spending daily cash on.

• 32:36Speaker 02

  And in terms of the space more broadly, I'm, you know, I was on your podcast, maybe like a year ago now. And you asked me, what is something that I believe that's contrarian in the space? And I'm very bullish on stable coins as an on and off ramp for people who aren't in crypto that strongly today. I also just think there's going to be a lot of use cases for stable coins in terms of financial product delivery globally. And I think that's going to be great for Bitcoin to see that continued adoption. I don't know if it's USDC or Tether or something that Facebook or another company does. But I'm watching that part of the sector. We're generally very bullish on it at BlockFi and you'll see us doing more with stable coins over the near future as well.

• 33:17Speaker 01

  Got it. The thing to me that's so interesting about crypto is, and it's usually younger generation, but it is such a better user experience than going to a traditional bank in the fiat world, right? Whether it is sending value to somebody, it is storing that value. It just feels like digital natives are much more comfortable in this world. What's it going to take to get the people who aren't the digital natives to kind of cross over in your mind?

• 33:50Speaker 02

  You've got to give people things that they're used to seeing. One of the things that we saw when we launched the interest account that we were the most excited about was, we said, we're paying a 6% interest rate on Bitcoin. And people came to us and they said, I don't own any Bitcoin yet, but I know what 6% interest means. Where can I get some Bitcoin? And so, you know, there's other companies in the space like Lolly and Pay that are incorporating Bitcoin into cash back rewards, shopping online or in-store. I think things like that are going to, are going to help accelerate adoption. I think on-ramps and off-ramps in international venues are going to accelerate adoption.

• 34:33Speaker 02

  And traditional companies coming and doing things in the space and making Bitcoin accessible on their platform is going to accelerate adoption. And all of that stuff's going to work together and we're going to be in a great spot in terms of the Bitcoin price in the, in the near future.

• 34:47Speaker 01

  Absolutely. One of the questions that we're getting on a live stream is the GUSD rate that you described is obviously attractive at 8+ percent. Is it locked in for some period of time or how do you look at that rate and how it could change over time?

• 35:02Speaker 02

  Sure. So in general, interest rates on the platform are locked in on a month-to-month basis. So if you sign up today, the rates that you see on our site are the rates that you're going to receive at a minimum through the end of this month. And then all of our clients get an email between one and two weeks before the end of every month announcing what our rates are going to be in the subsequent month. We also have a rates page on our website that we keep updated. So the rates are subject to change monthly. That being said, they don't change that much. The 6.2% interest rate on Bitcoin, for example, for that first year, hasn't changed a single time since we launched the interest account.

• 35:43Speaker 01

  For sure. One of the things that is probably one of my most controversial thoughts, more so in the crypto world than outside of it, is I hear a lot about the quote-unquote DeFi space, or the decentralized finance space.

• 35:57Speaker 02

  Yep.

• 35:58Speaker 01

  And I'm actually writing today for the newsletter that I write, it's not so much DeFi to me as it is automated finance, right? And what I mean by that is, yes, some of these services will be decentralized, and that's important in some cases, right? If, for example, you're worried about corruption, you're worried about access, you're worried about kind of state pressures, right, things like that.

• 36:21Speaker 02

  Yep.

• 36:21Speaker 01

  But that market of when it is essential to have decentralization feels smaller to me than the market for, hey, I want an automated financial services experience. And so for me, you guys are not a decentralized company, right? You're not a decentralized organization. You're a centralized, for-profit, private company, just like you would see in other markets, but you're actually building automated financial services, right? When I go in and I make a deposit, I, yeah, I have to fill out some information, but I do it myself. I don't have to go into a bank branch. I don't have to fill out paperwork, and that interest payment is automatically, you know, deposited. I'm able to also, on the lending side, right, it's this kind of automated experience. Do you agree that it's more about the automation?

• 37:06Speaker 01

  Or are you guys working to, over time, become more decentralized? And kind of go more in that DeFi bucket?

• 37:12Speaker 02

  Yeah, so we're not moving towards DeFi at all at BlockFi. I think that I'm bullish on DeFi. I think there are some really cool things happening there. I think there are some use cases where DeFi works really well. For example, if you're coming from a place that is on the US sanctions list, you can't access BlockFi's services. I agree with you that those markets are smaller. The black market is smaller than the gray market is smaller than the regulated and legal market. So at BlockFi, we think what's important is knowing who our customers are

• 37:54Speaker 02

  from a regulatory perspective, but also from a delivering value to them perspective. If we don't know who our clients are and what they're doing and what additional products that they want, then how are we going to do a good job creating more value for them? Additionally, there are critical fiat components to what we're delivering. You might, if you went and got a loan from BlockFi, you might want that loan in stablecoin, but you might want us to send the money to your bank account. And if we don't do KYC, if we're not regulated, if we don't know who our customers are, we can't do that. If we want to give people fiat on and off ramps to buy Bitcoin for the first time because they're interested in a 6% interest rate, we can't do that unless we're regulated.

• 38:37Speaker 02

  If we want to launch a card that gives people Bitcoin rewards based on how much money they spend on the card, we need banking partners and payment processing partners that we can't get unless we're regulated. So it's different approaches. I think they're both great for the space. I think the more smart people we have building interesting applications, the better. It's just two different approaches.

• 38:58Speaker 01

  Absolutely. Let's talk a little bit less about products and more about company BlockFi. You guys recently announced a pretty big fundraising round. I know you're hiring, so two, three minutes on just, you know, what are you guys looking for from a hiring standpoint and what are those candidates? You know, what's their kind of background or skill sets that would be good fits?

• 39:18Speaker 02

  Yeah, so on the fundraising side, we announced our Series A round of funding, which was an $18.3 million round.

• 39:24Speaker 01

  $18 million?

• 39:27Speaker 02

  It was led by a group called Velar Ventures, who are really excited about, or actually the first cryptocurrency-specific investment that they've made. They're fintech investors, so they've invested in companies like Transferwise, N26, Pedal, and we're really excited to have them on board. You also participated in the Series A along with other very strategic partners that we have from the crypto world like Galaxy Digital, Fidelity, Siskahana, Kuna Capital, and others. We are definitely hiring.

• 40:01Speaker 02

  We've grown the team from 11 people in January of 2019 to right around 50 people now. We have offices in New York, New Jersey, Poland, and Argentina. If you're someone with skills in marketing, software development, risk management, operations, client service, any function that you can think of.

• 40:27Speaker 01

  If you're excited about crypto.

• 40:28Speaker 02

  That applies to business and you're excited about crypto, check out our website, take a look at the jobs that are open, shoot us a note, shoot me a note on Twitter, I'm BlockFiZack, or shoot our team a note on our website or directly via email or via Twitter. We'd love to chat with you.

• 40:45Speaker 01

  Absolutely. What are you thinking in terms of, so you're at 50 people today?

• 40:50Speaker 02

  Yes, analytics. This guy's asking analytics? Absolutely.

• 40:54Speaker 01

  Yeah, pretty much anyone who's excited about crypto and you have a skill, they probably are looking for that role. You're at 50 people today. What do you think you'll get to end of this year and then let's say maybe end of 2020? Like, what does that growth look like for you guys?

• 41:08Speaker 02

  Yeah, we're projecting to be around 70, 75 by the end of this year, between 100 and 125 next year, depending on how things are pacing.

• 41:16Speaker 01

  Awesome. Before I let you go, what is your new most controversial thought in crypto? So you've got your, your stablecoin. Any other thing that, that you've got going?

• 41:29Speaker 02

  My new most controversial thought? I don't know, man. I think that's the only one.

• 41:33Speaker 01

  That's all you got?

• 41:34Speaker 02

  We're doing a Bitcoin price prediction contest at BlockFi right now, just like a fun thing for employees where you guess what you think the price of Bitcoin is going to be at the end of the month and whoever's the closest gets 100 bucks in Bitcoin. And I realized that I'm like particularly bullish. Like, you know, I was, I was one of only three people that put north of 15K in the, in the prediction. So maybe that's a little bit controversial based on the answers we got in the competition. But no, stable coins and I'm just extremely bullish on Bitcoin, man.

• 42:07Speaker 01

  Yeah, well, there's some game theory, right? It's like, what is, what's the game show that, like, what is the price or you go on the game show, they show some sort of good?

• 42:20Speaker 02

  Price is Right.

• 42:20Speaker 01

  Price is Right. Yeah. And so like you see, if there's only three people guessing and the other two people guess around the same thing.

• 42:27Speaker 02

  Just get on top of them.

• 42:28Speaker 01

  Yeah, you just go $1.

• 42:30Speaker 02

  Yeah, unfortunately, some, some crazy person at the company guessed that Bitcoin was going to be at 27K at the end of September. So I lost to him.

• 42:39Speaker 01

  Amazing. All right. So as a summary, BlockFi, you guys have a, a US dollar loan product, an interest product. Today, you're announcing that you're removing the fees associated with withdrawals and then you're also dropping the minimum amount. So anyone, regardless if they have $10, $100, or a couple of thousands of dollars, you can now use these products. And then moving forward. Forward, you guys will continue to roll out more assets and other products around wealth management in crypto space.

• 43:09Speaker 02

  That's exactly right.

• 43:10Speaker 01

  All right. And then where can they go to find out more and what's the code?

• 43:15Speaker 02

  Yeah, our website is easy. It's blockfi.com.

• 43:19Speaker 01

  Slash pomp.

• 43:19Speaker 02

  Slash pomp. On Twitter, we're, the company's Twitter handle is at the real blockfi. My Twitter handle is at blockfi zac, Z A C. If you want 25 bucks, if you don't have an account today and you want 25 bucks as a bonus with your first interest payment and you create an account, put the code pomp25 in the referral field when you're creating your account and we'll get you some, some extra money in addition to the interest that you're gonna earn.

• 43:45Speaker 01

  All right, guys. You guys sat here, listened to a podcast, watched the live stream, got an opportunity to make 25 bucks and go get a blockfi account and earn some interest. So thanks so much for coming and doing this.

• 43:55Speaker 02

  Thanks for having me, man.

• 43:57Anthony Pompliano?

  Hey, everyone. Pomp here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.