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- [00:00]
A
I mean I think the big difference, the one if you could say like what is the dividing line between this, whatever you call it, defi bank, cryptonio bank and the normal bank is custody. So crypto alternatives do not take custody of user assets. Which the reason that's important is it means nobody can come in and just take all your money. And the level of transparency is, you know, extreme compared to, you know, anything that a traditional bank would, would provide. You know, you put in a dollar, you know exactly where that dollar is.
- [00:33]
B
Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shinn. Mantle is pioneering blockchain for banking, a revolutionary new category at the intersection of TradFi and Web3. Follow MantleOfficial to learn more. Binance is the world's number one crypto exchange trusted by over 290 million users. With industry leading liquidity and a wide range of digital asset products, Binance is the place to buy, sell, trade and earn crypto. Download Binance today to get started. Today's topic is crypto neo banks. Here to discuss are Itamar La Suisse, Co founder and CEO of Reddy, formerly Argent, and Mike Sulegadze, founder and CEO of EtherFi and founder of Tophat. Welcome Itamar and Mike.
- [01:22]
A
Hello. Having me.
- [01:24]
B
So this year has seen so many different sectors of crypto just take off. It feels like there's kind of these little mini gold rushes happening everywhere obviously in stablecoins, in perps, in dads, even, maybe everything apps. And we're also seeing a big rush in the neobank space. So for people who don't spend their whole life on crypto Twitter, you may not know that there's many tier lists going around ranking these crypto neo banks. But before we get into all that, why don't we just make sure everyone understands even what we're talking about. So Mike, can you explain what a crypto neobank is?
- [02:02]
A
Yeah, basically think of it as a self custodial version of something like a revolut or new bank or chime. So neobanks have expanded substantially over the last 15 or so years and have grown to become this massive force. It's $170 billion space, about 100 times larger than than Defi. But they're fully custodial and suffer from a lot of the same challenges that Tradfi banking suffers from. What Etherfi and I guess in Reddy is and other other players in the space are building are end to end crypto native alternative to These neobank products that allow you to save, earn, spend, borrow, all in a non custodial way with lower fees and better rewards and much more flexibility.
- [02:47]
B
And Isamar, do you want to expound a little bit on how a crypto neobank differs from any old regular non crypto neobank, like one of the fintech options that Mike mentioned.
- [03:04]
C
I think the starting point is that probably neobank is too broad of a word. You have like 50,000 banks I think in the world, most of them retail. I think remittance fits into that savings as Mike mentioned, payment, merchant payment, there's so much into that. I think for us the view is once you start with a different stack, let's say so stablecoin and self custody, you can do things that traditional neobank will struggle to do or will do in a much slower way. But I think at the end I really love my definition we use the same which is the non chain alternative to, to a new bank but it has to evolve into specific benefits for users whether it's cheaper, faster or things like more yield. Yeah.
- [03:54]
B
Okay, so let's also now talk about the origins of crypto banks. Mike, I know people often talk about etherfi as one of the original. So why don't you explain how etherfi got started.
- [04:07]
A
Yeah, so back when we were first pitching our series A which was in 2020, that was actually the original pitch is we were going to build a vertically integrated crypto app that lets you basically replace your bank. Our starting point for that was what we became pretty well known for, which was our staking product. And that was meant from day one to be a starting point. So start by building a staking solution. Build lots of users TVL deposits, then layer on our liquid product which is a defi strategy, basically investing on chain and then launch the card product and the self custodial, you know, the vault smart contract vault. And remarkably it actually kind of worked out as you know, as planned and we've now we tried to coin this term defi bank that doesn't seem to have caught on the market seems to have, you know, narrowed in and started calling it crypto neobank which is a bit concerning frankly to me because you know the word bank has very specific implications. Bank means you're taking deposits and you're regulated and so on. Even if you put neo in front of it, it's, it's kind, it's still a little bit but like you know the, the language people were using in the language so we kind of have to go with it. I Think bank alternative is. Yeah. Is, is maybe a better.
- [05:27]
C
We have similar lawyers. I see Mike.
- [05:30]
A
Yeah.
- [05:31]
B
Well actually Mike, just one question because you said you wanted to call it a defi bank so that still would have used the word bank but like.
- [05:38]
A
But it's one word. We said defi bank all in one word.
- [05:42]
B
Oh, oh, oh, okay. Okay. Well so anyway it doesn't matter.
- [05:47]
A
You know, people are going to call it whatever people call it.
- [05:50]
B
Yeah. But basically the main, the main like kind of feature is that defi is the plumbing that kind of powers this. It's really like a suite of features. It's not. Yeah, just like I think a lot of like when I tweeted about this a lot of people were asking about the cards because like we're, everybody's so used to having a credit card and using that to pay. But there's only so many other services that can be wrapped, right?
- [06:15]
A
Yeah, yeah, it's an end to end replacement. So I mean I think the big difference the one if you could say like what is the dividing line between this, whatever you call it, defi bank, cryptonio bank and a normal bank is custody. So crypto alternatives do not take custody of user assets which the reason that's important is it means nobody can come in and just take all your money. And the level of transparency is you know, extreme compared to you know, anything that a traditional bank would, would provide. You know, you put in a dollar, you know exactly where that dollar is. It's not that the bank or you know, the entity has rehypothecated it and you know, gone out there and started gambling on mortgage bonds. Like no, no, you put in a dollar, it's exactly where, where you placed it. So custody is that, is that dividing line that separates the two worlds.
- [07:02]
C
Just important to add. It's not. We've been in self custody for many years. It's not philosophical. Users get direct benefit even as simply as anyone who has banked in the US, in Europe would know that you deposit anything double digit thousand dollar, you get a phone call from your bank to get we feel those questionnaire every single week or month at ready. And the second you have self custody the regulatory surface is much smaller which means users have a much better ux. It's really a direct benefit to users. It's not just philosophical.
- [07:36]
A
Exactly.
- [07:37]
B
Yeah, yeah. Although I one thing I will say is in my research I do think that there's, there's very few but there are some of these quote unquote neobanks or crypto neobanks that are actually custodial. So yeah, let's fake that. Yeah, they're outlined. Yeah, I don't think they're the more commonly used ones, but I did see at least one. So Itamar, obviously your company started as Argent and it's now rebranding as ready. So talk a little bit about how you got started and why you're doing this rebrand.
- [08:08]
C
So for us I would say the defi bank or the unchanged tenant if you bank was a pitch from seed round already day zero we saw crypto coming. We were convinced that what would happen is that self custody was so hard that five big exchanges would just hold everyone's money and we would be back to the status quo of few big banks. And we had that pitch with payment. There was no proof of stake on Ethereum but we already had that vision that proof of stake would be your savings account. We had all those elements and we started with the self custody and in some way we kind of had built what we have now but seven years ago by 2001. And so our project was free. There was no seed phrase, there was no gas people. There was crazy growth people would use when compound launched for the first defi protocol people would start using it for saving. So we kind of thought we had it. And then of course defi summer came up, the gas fees exploded. So creating a wallet was impossible. And so our product evolved into a product for whales. We had more than a billion dollar in assets. We had a single user depositing half a billion dollar into the app. That's not a mass market consumer neobank product. It became super safe cold storage basically. And so we really evolved into really a technical complex wallet. And even although as we evolved on the chain level but move further and further from the Neobank then we came to that realization that wallets will not become those products. They are too complex, less opinionated are generalists don't weigh to an ecosystem. And so we really wanted to make a strong mark around this a very different product, different focus, splitting Those products Wallet versus Crypto NeoBank and that's where we did the rebrand to really mark that.
- [10:06]
B
Okay, so let's talk about the credit card aspect because like I said that is the thing people seem to be focused on. I don't even know is it difficult for something that is being, being powered by Defi on the back end like that kind of operation? Is that hard to get, you know, a connection to Visa or Mastercard or whatever to. To establish the credit card portion of the services.
- [10:31]
A
It's hard to do it right and to make it good. There are many, many quote unquote crypto cards out there. Almost all of them are terrible. I mean I can get into why, but probably frankly if you've tried one, you know what I'm talking about. So tons of fees, complexity, no actual crypto and that you have to like sell your crypto for fiat to load the card, stuff like that. Most of them are really terrible. So it's, it is hard because you have to, you know, put in a bunch of sort of plumbing and make sure that you're on side in terms of regulatory requirements. And then it is hard to actually make it good. As in, in our case, I mean we started the card product, the transactions being on layer two from day one. So that is a must have if you want to have a card that doesn't charge you a dollar or two dollars in gas every time you do a transaction. But there's lots of abuses. Like there's lots of programs that use commercial bins, meaning they use commercial card programs to issue to retail, which is super illegal and you shouldn't do that. And those programs of course eventually get shut down. There's programs that issue cards in regions they're not allowed to issue cards in. So you have to get a legal opinion in every single country, sometimes every state, but where you're able to issue, how you can market and so on and so forth. So it's hard to make it good and to do it right. That's the short answer.
- [11:57]
C
And I would add it was impossible before.
- [12:00]
A
Correct.
- [12:00]
C
You couldn't have done, I think what the define ready is doing three, four years ago, probably even two years ago was borderline and then it became possible. So I think that's why you see there's a reason why everything is happening now.
- [12:15]
B
And what was it that changed that made it a lot easier all of.
- [12:19]
C
A sudden there is one the appetite and the regulatory clarity. So I think that's probably the biggest change. So you wouldn't have been able to one issue a card linked to a non custodial wallet. It was really something only centralized exchange could do. It was a fiat card. So the point of Mike is a lot of card. There's a real difference because once you have a very pure model where it is resettled in stable, I'm pretty sure is the case for etfi, you can really lower the cost and have a very efficient model. Cards have always existed but you would have paid between 3 and 6% in fees basically. For every transaction, partly because the model was less efficient, partly because people would just add a lot of fees. So regulatory Appetite, we needed L2s, low fees for us. Account abstraction play a very big role to have what I think is the purest self custodial model. It's not like some hosted wallet. And so all those places came together at the right time. And you see Visa and MasterCard being extremely open and much more bullish about crypto now than they were three, four years ago.
- [13:24]
B
And when you mentioned the regulatory clarity, is that the Genius act like the stablecoin act here in the US or something else?
- [13:33]
C
I don't think the genius act really impacted that. I think it's more before crypto was taboo and dodgy and why people wouldn't take the risk. The reality is I don't think there was clearly a defining like policy. It's more, it's acceptable, it's mainstream. Everyone knows crypto, they can afford it. So they can afford to do it without having a reputational risk.
- [13:55]
A
Yeah, that's exactly right.
- [13:56]
B
And then when you are dealing with the network like these are MasterCard or whoever, what kinds of questions are they asking you as entrepreneurs like it, do you feel like there's a higher bar that you have to meet because of, you know, what, what other services are attached to, you know, the fact that, that you're not an actual bank, that you don't have custody of the assets. Like you know, what kind of questions are you getting or do they not care?
- [14:22]
A
It's, this is a technical detail, but it's an important one. Pretty much every crypto card program out there, almost every single one, works with a sponsor. So there's another company that has the Visa or MasterCard Principal membership, which means they can actually issue the cards and they get sort of a bin, meaning like a card number block and they assign that to a partner. So they're sort of lending out their, their license with, with Visa. So these companies, we use a number of them. The main one that we use is a company called Rain, which has been fantastic that make this much more feasible and including things like stablecoin settlement. So we don't need to wire money to a bank account, we can just settle directly in usdc. So all of these components are the hard work has been done by companies like Rain to educate Visa and get everything set up so that they understand these crypto card programs and see it as a growth market. It's now at a size where Visa and MasterCard actually care about it. Whereas previously even Though it was around, it was so small that they just, it wasn't even worth the hassle of doing it. Whereas now, I mean, with Etherfire, we're doing like a million and a half a day, which is actually meaningful for a crypto card program. It needs to be about 100 times that to really be meaningful at a global scale. But for a crypto card program that's meaningful enough that we're talking to Visa now. We're, they, they actually care. They're seeing this as a growth area and they're starting to invest in it and you know, nurturing the, the growth.
- [15:55]
B
Interesting. And so I, I also imagine the regulatory aspect is a little bit of a nightmare because another thing people were asking is like, oh, is this card available in this country or that country? Or you know, and even like I noticed for the US like it's asking you which state you're in and stuff like that. So, so just talk about. Because like that, that in and of itself just sounds like that could be, I don't know, like a few hundred, if not even a thousand different types of regulators that you might have. Yeah, so explain that part.
- [16:28]
A
Well, so we, I mean, just to put it in perspective, we have four full time compliance people. So I mean, that doesn't sound like a lot if you know, for a crypto exchange, for example, but you know, for a defi, you know, product just that's the overhead here. We have, you know, legal counsel, we have compliance, we have to get legal opinions. So we have to, if we want to issue cards on a reverse solicitation basis in, you know, Spain, we have to go to a Spanish law firm, get them to issue a legal opinion. They get, give us a report that says, here's exactly how you can, you know, issue cards to people. Here's exactly what you can and can't do. From a marketing standpoint, it's, I mean, it's an absolute nightmare. But even as much of a nightmare as it is, it's probably one tenth of as much of a nightmare than if we were a fully custodial, regulated institution.
- [17:18]
C
That's the critical part. People don't realize, I think, how shielded we are from that complexity. You work with Rain, we work with Kulipa, they are the regulated entity. I think both of us could decide to be regulated, to integrate vertically. But I think there's something actually very strong in splitting that for many reasons which allow us, I think, to stay a tech company versus financial services. And so I think being able to, the separation of concern makes Life much easier. You mentioned different markets. Yes, it's more work per market. But experience has been, I mean, and we started I think from opposite markets actually. But I think our experience was that you can really replicate that. But in some markets we might work with Visa, some with MasterCard it's been. Yeah, I think it's as you say, some people took shortcuts. I love your example of the corporate cards. I think when you see a card that is in every market with no KYC up to a million dollar, there's probably something very, very fishy and a lot of these cards will disappear and will be shut down.
- [18:23]
B
Huh. Okay. Yeah, that does make sense because I did have some other questions which I'll ask in a little bit about that aspect. But I did want to just. Oh, and I remember actually it was a comment that I was going to make which is when you said that you had, you know, people on your staff to do this role and they would literally have to go in and meet the regulator. I thought to myself, oh, okay, so I guess AI isn't removing all the lawyer jobs yet just yet.
- [18:50]
A
No, unfortunately not. Yeah, still. Still paying a couple thousand dollars an hour for a lot of this stuff.
- [18:57]
B
So I did want to ask about the fact. So in the. So I don't, I don't know how it works in other countries and maybe it's the same but at least in the US when you apply for a credit card it will, you know, check your credit score and things like that. So it seems like that's also happening for this card. So like basically people will have their on chain identity but then, and then there will be. It'll be linked to KYC and then on top of that it will be linked to their credit score. So is that how to think about it?
- [19:28]
A
Like so in our case, no, we don't check credit score because. Because it's fully collateralized, so we don't issue uncollateralized loans like many card programs do. We do plan to eventually do that probably in 2026 we will start. But, but for now it's fully collateralized. So you have all your stuff in the Ether 5 vault, the smart contract wallet. And then we give you loans if you want to borrow against those assets. But it's fully collateralized so we don't need to check your credit because your loan is backed by assets.
- [20:04]
B
So it's more like a debit card.
- [20:07]
A
It is issued as a credit card. There's actually an important distinction there when you issue a debit card it won't work for, for a bunch of things. So we, it is issued as a credit card, but it is fully collateralized credit.
- [20:20]
C
Okay, Very similar model to us. We have debit in some market, will be credit in others. In Europe, debit works better than Credit. In the U.S. credit works better than debit. But at the end users use on chain loans.
- [20:35]
B
So basically the credit limit will just be determined by how much ether they have in their vault.
- [20:40]
A
Oh, or any assets. I mean one of the advantages that, and I'm not sure if ready has the same thing, but it's kind of an obvious next step. In our case, a user can have defi strategies. So you can have assets that are in a strategy vault that's earning depending on the day these days, I think around 10% yield on your stables and you can use that as your payment currency. So it's almost a little bit like imagine you have, you know, AN S&P 500, you know, index fund and you're using that to spend day to day or you're using that as collateral to borrow against on your credit card. I think that's one of the, you know, incredible things about crypto and defi and why this, this thing is interesting is that the composability allows you to create products that would be impossible to create in, in tradfi.
- [21:29]
B
Right.
- [21:29]
A
So many of our users, just to like finish the loop, like many of our users will have like a bunch of assets that are earning, let's say 10% and then they'll be borrowing at aave rates which are much lower than 10%. So you're getting this like arbitrage, you know, this interest rate arbitrage basically.
- [21:46]
B
Okay, so it's like, because so basically the traditional lines between like your investment account and your savings account and your check, they just get like all blended into one thing. So you don't even have like this separation of like you're keeping money just to transact in one place. Yeah, got it. Okay.
- [22:04]
A
It's exactly right. And that's the power of this model and why I think it's going to take over the world because there's this ridiculous kind of artificial distinction that currently exists. Exactly as you say, where like your insurance policy is over here and your investing is over there and your checking account is here and your mortgage is. And then none of them talk to each other. In this case, imagine you have a wallet that has your dollars, your stocks, your art collection, your mortgage, the house, you know, the NFT that represents your house and the entity the protocol sees the entire financial picture of you as a person and can issue you credit and products and all of it just works seamlessly together. Something that would be completely impossible in tradfi. And even if you were to try to create it, it would be only available to people that are, you know, ultra high net worth. So that's I think that's the power of this whole crypto neobank model.
- [22:55]
B
I love it. Itamar, did you want to add on that on how it's really. Yeah, it basically kind of upends the entire way that most people think about how they organize their finances.
- [23:11]
C
I think I really love my point because we see a lot of the same thing and in crypto you realize that we are trying in the UX sometime to recreate those patterns but the reality is there's no such thing as checking, savings, etc. And we, I mean we really see also this element of products that exist in trade 5 but they are very exclusive products. The collateralized loan is the most. It's always something that is seen by used by Elon Musk Jeff Bezos but the rate is we use it so much in crypto. It's so common for us. We really see when we started to do that with bitcoin which was not something we're very active and then we became much more active in bitcoin. That's where we realized actually there was real demand because it's less easy to do typically on the bitcoin world. But also things like even integrating hedge fund investment basically what we would call exotic investment are much more favorable. In crypto everything is tokenized. Whether you invest in AAVE or some hedge fund is actually the same thing. So we see at least in some markets more of a demand for those that's a private banking products. Everyone has access now to private banking products once once they're on chain.
- [24:24]
B
Okay so in a moment we're going to talk a little bit more about the types of offerings that we're seeing here in these crypto neobanks. But first we're going to take a quick word from the sponsors to make this show possible. Mantle leads the establishment of blockchain for banking as the next frontier you are is the access layer that transforms Mantle network into a purpose built vertical platform. The blockchain for banking that enables financial services on chain UR unifies and vertically aligns Mantle's focus on payments trading and assets. MI4 Meth Protocol functions FBTC supported by developer grants ecosystem incentives and the industry leading distribution platform through the UR app, RewardStation and Bybit launch pool. All economic activity within Urban will be captured by Mantle Network to further drive value to token holders and establish its significance in blockchain for banking. Follow MantleOfficial to learn more. Binance is the world's number one crypto exchange, trusted by over 290 million users globally. With world class liquidity, security and a wide portfolio of digital asset products, Binance makes crypto easy for everyone. Whether you're new to crypto or a professional, Binance offers a simple user experience. Learn with Binance Academy, browse hundreds of tokens and track your portfolio on an easy to use dashboard. For experienced users, Binance Pro provides industry leading services and bespoke trading products with some of the lowest fees and deepest liquidity in the market. It's no wonder over 290 million users choose Binance for everything. Crypto Buy, Sell, trade earn Live Crypto Download Binance today and begin your journey into the future of finance. Disclaimer Binance is not available in certain countries, including the US. Check its terms for more information. Binance.com en/terms Back to my conversation with Issamar and Mike so let's talk about the back end now we kind of talked about the front end and I mean we did talk about the back end sort of in an abstract way but just describe so if it is really that users can kind of use any different types of DEFI offerings in the back or whatever, are they limited to certain ones? Are only certain ones allowed to work with the card on the front end.
- [26:43]
C
Or.
- [26:45]
B
How does that all work and either one of you can go yes.
- [26:50]
A
We have specific vaults. We try to be the easy button for DeFi. We you know in terms of the wallet and smart contract, smart contract wallet structure we want to make sure that users don't get wrecked which means you can't just sign a random transaction that you know will drain your wallet. We have a lot of protections and kind of bubble wrap around it eventually like we want this to be mostly normies using this product and so we tried to make it simple for people. So we have a product for eth, a product for btc, a product for USD one click you deposit it and then magically in a non custodial way deploys it into defi and you don't need to really think about it similar.
- [27:34]
C
It'S not a technical decision, it's really a pure product segment. I mean you will have as many neobank as segment of users and in our case extremely opinionated with three assets It's ESBTC and USD or local currency, it could be Euro, we're working on that. And then we have a matrix of like three risk ratings. So extremely curated, extremely opinionated and that's really the product relevant to users. If you take a loan you can go for like 90% usage ratio of your loan where you will be ready. So it's really, it has to become a product that right now I think crypto cards and even ready to be an elsewhere wallet where you stick a crypto card. And we have been evolving and by the end of the year we'll be there where it will feel really like a traditional NeoBank product on TradeFi just with security guarantee around self custodiality, no one can freeze your funds, et cetera. So that's really a product decision for our segment to be extremely opinionated.
- [28:39]
B
So for some of these rewards in the background I noticed EtherFi's current liquid rewards are 12%. So explain where that yield is coming from.
- [28:49]
A
Yeah, I mean it's like any defi. Those vaults which have a third party strategy manager tend to be very conservative so there's no directional risk. Usually the risk is just defi protocols but the protocols we use are things like aave. So I think for example the USD vault, there's a bunch of it that's deployed into Ripple. So RLUSD on aave which is a you know, pretty boring strategy. But Ripple I believe is paying incentives to be able to, you know, provide those, those higher yields. So the short answer is it's mostly lending and various token incentives that, that generate the yield on the, on the vault.
- [29:31]
C
And another thing is we go broader just to add on that because so lending is something everyone. We're also looking whether it's on L1 or we bring it from any chain you need. But for example if you look at Bitcoin we specifically do staking on starknet because now you can stake Bitcoin so that's not incentive, that's how to secure the network which is something we couldn't do months ago. So now we have native yield, sustainable yield on Bitcoin but we're also working on things like funds like fully manage hedge funds, not buyers but like big names that manage crypto funds which means you have different exposure, they tend to be custodial, they get your funds, they maximize benefits. So that's more like investing in a hedge fund. So very opinionated but still a range of risk, reward, appetite for users.
- [30:22]
B
And so it sounds like some of this is basically just farming on the back end. So I guess so traditionally the reason that networks would offer those incentives is, is to attract people who might stay after the incentive program. But I guess like if they're just offering it to these cards and the or the neobanks and then the neobanks are just moving the users. I mean, not that it's like necessarily. I'm just more thinking about the networks that are offering this like I don't understand necessarily what's in it for them.
- [31:02]
A
They're offering these yields to Defi because they're trying to integrate their assets in Defi. They're trying to become a stablecoin that's with Ripple, I imagine they're trying to become a stablecoin that's broadly used in AAVE and other DEFI protocols. And then we participate in that. I wouldn't even say our job, what the strategy manager's job is to just source the best available yields in Defi, which might be the basis trade, which is broadly available, might be these token incentives. And generally historically and I think for foreseeable future, the rewards yields in DEFI are going to be higher than in Tradfi because you're stacking the T bill yields which are underlying, you know, with additional rewards that come, you know, directly or indirectly from the speculative nature, you know, of the crypto market.
- [31:50]
C
I would say our job is just to bring the best product to users if that means going on other chains and to while being very transparent on the risk. And so that means so we do things like yes, if there is a, a token reward, it's automatically repaying the loan, et cetera. So making it super simple for the end users and just them having certain confidence they will get maybe not the most degen extreme opportunity, but the best risk adjusted opportunity out there. And we also work with Volcreator, working with Steakhouse, et cetera. So very similar. Yeah, similar approach. I do think the chains doing that still get the stable, doing those incentives still get the benefit they want liquidity in the system. We are contributing to liquidity in the system.
- [32:36]
B
Right, right, that makes sense. Well, I did also want to ask so earlier when we talked about how you could kind of compress what in tradfi would be multiple different accounts into one place and then just have a credit card that would be attached to all of it. Talk a little bit about how the security works for that because obviously in crypto we know there's been so many hacks and people losing funds or their private keys or their seed phrase or whatever. So, so Explain like if someone were to, you know, put what in? Like tradfi would be divided across multiple accounts. Like how does it work for them to keep all of that secure even if it's all in one place?
- [33:15]
A
Yeah, I mean, I think smart contract security has come a long way since the DAO hack where, you know, a fairly trivial error allowed somebody to, you know, steal millions. And so there's many layers of protections that come into place. So obviously there's smart contract audits. That's table stakes at this point. You know, you do multiple audits. We also do formal verification, which is a process where you kind of make a mathematical model of the smart contract and make sure certain invariants can't be violated no matter what you put into it. We have active monitoring, which is where like there's just system that looks at anything being deployed on chain that might interact or do something to your smart contracts and can proactively pause the contracts if you know, if something looks wrong. Operating on an L2 provides some protection because you need to get the tokens off the L2 to fully sort of escape with them. So, you know, it's not perfect. I don't know at what point you can call it perfect, but we are, I would say rapidly approaching a level of security and robustness that's close to what you would actually find in tradfi. You know, tradfi institutions blow up all the time, right? I mean every year that this, you know, this happens, they usually get bailed out, I guess. But the fact is these blow ups happen and I mean, I think DeFi has shown itself to be, you know, starting to get to close to as robust as anything you can find in tradfi.
- [34:50]
C
And I would say it's in some ways here to safeguard the current product. We're doing both for it, I find as very opinionated product then. We've been in the business of securing billions in wallet. We have more TVL than many L2s. But when it's a generic wallet that can sign anything, farming something, claiming an airdrop, it's much harder. We work on smart account for security for years here. It's a very opinionated product. We are not offering like the latest new protocol that has been live for two months with 600% APR. It's well established. You mentioned AAVE, there's Morpho, Lido, very, very well established protocol that went through all those years of battle testing and security measure. Plus the wallet itself. In our case, we work with smart accounts. There's more than a Signer. So even if you're. Even if all the cryptographic material in your app was compromised, you will still be protected. We are working on adding things like trusted address. You can add times delay. There's a lot of mechanisms recovery for us delays. As I say, it's exactly the same philosophy that what we did on L1 with wallets as high as big as $500 million in wallets. So on that sense we are pretty comfortable. The biggest risk honestly is more market crash. What you saw a few a few days ago. Again, if you are focused on usdc, ETH and btc, you were probably fine. But if you start to do other type of investment, having a token that can drop 60% is probably the biggest risk here.
- [36:27]
B
Yeah, and actually when I asked my question, it was more around the wallet security. But it sounds like right now you have it set up in such a way where it's like somebody can't lose their private keys.
- [36:41]
C
Yes. In our case there's no private key exposed. But you can still have censorship risks. And with Armadill you could decide you have so much money, you could still have for example a hardware wallet, set that up as an extra signer because really you want to do the extra effort. And then you could craft a transaction that would you get escape hatch. Basically the idea is really getting escape hatch and that's really something account abstraction allows. It's quite standardized now and they are very good model there. As I said, we have never lost funds from a user.
- [37:15]
A
Yeah, any sophisticated system these days. It sounds like on both our sides, it's not just like an eoa, it's not just a wallet. In other words, it's not like a one seed phrase or private key that controls the whole thing. It's a smart contract, which means there's a bunch of code there that protects you with. You know, again, in our case, same thing. You can have a hardware wallet that you, you delegate to sign on behalf of it. You can have ways of recovering in case you lose your, your phone or your hardware wallet. So in all these cases we're way, you know, we're. Well again, modern sophisticated systems are way past the point. I'm just like, okay, here's a wallet, just please don't lose this phrase or else it's all gone.
- [37:58]
B
And how do chargeback chargebacks work in this world?
- [38:03]
A
Same thing as in the normal world. If someone disputes a transaction, we escalate it to Visa and goes through the same process.
- [38:13]
B
Okay, I see.
- [38:15]
C
And they get refunded in stable. That's it at the end? Stable is money. When, when you were in the bank in the uk, you didn't have fiat money, you had EMI money. It's an E money, a new type of money because it has a different regulatory aspect and stable is the same. It's just money.
- [38:32]
B
Yeah, it's basically like it's a building where there's a revolving door in the middle and on one side the revolving door is like Defi and then on the other side of the revolving door is like the normal credit card world. So. But it, but it's all housed in the same building.
- [38:49]
A
Yeah, that's a great, it's kind of, that's really great analogy. It's like where do you place the door? If you look at for example a centralized exchange like at Coinbase for example, they have that access to Defi, but they place the door well within. It's almost like there's two countries, there's DeFi land and Tradfi land. They place the door well within Tradfi land, whereas for us and Ready, we place the door right on the border where you don't get all of the encumbrances that you normally get. If it was like a, you know, a largely tradfi system, but you get all the benefits that you get from Defi. And I think that fundamentally is a better model. I mean EtherFi, if we were a TradFi institution with $12 billion in deposits, we would have probably 5, 600 employees. EtherFi currently has 32 employees. And so there's a more than, more than an order of magnitude cost difference in terms of operating this institution that eventually will provide all the same services, in fact better, and that those costs savings go back to users directly or indirectly. It means we don't need to screw our users in all kinds of hidden fees. We don't need to screw them with 5% FX fee charges and deposit fees and chargebacks and whatever, all this stuff because we just, we don't have as much of a cost basis. That's why this crypto neobank model really can and I believe will replace the tradfi model. It's just much more efficient and better for the customer at the end.
- [40:16]
C
I think that's interesting. That's our philosophy we Talked about @DevConnect is really at. Etc. It's like the technology is there to make a NeoBank like product 90% more efficient. I think the stable Rails is the big part of it. But you can even put in that AI around customer support. Obviously we don't need branches anymore but has been done for a while. And so the challenge obviously is that there's no users that will come because you have 80% smaller CapEx or OpEx. This need to translate into benefit whether it's of course and the easiest one is of course lower fees. But at the end I think the challenge is for the crypto neobank world is figuring out segments when we can really offer 10x values. And the obvious one has been today I think for everyone probably crypto holder that the second they would cash out to their bank would get their account frozen and leave a month of nightmare. And that's been really low hanging fruit for, for many.
- [41:15]
B
Yeah, that makes so much sense. I wonder if there's any bank executives listening to this that are like oh damn, we shouldn't have done that. Well, I did also want to ask, so talk a little bit about your business model because you know this is a world that's quite competitive and I saw like a breakdown of some of the economics behind the scenes and it definitely looks like a low margin, high scale kind of business. So at least the, the discussion of Etherfi that I saw. So Mike. Yeah, talk about the, the numbers, how you're making it work.
- [41:45]
A
I mean we're, we're very profitable even with, because I think we do have some, you know, a good amount of scale with the amount of assets. So right now our run rate is around 80, $85 million a year, which is for 32 employees. I mean that's a great business. And from a user standpoint they're getting way lower fees, they're getting 3% cash back, they're getting these great yields on their products. It really is a win win. The reason that our model works more so than any standalone card program, I think any standalone card program is a complete dead end. You can't make money that way because you make a little bit of money on the interchange which over time gets compressed meaning like the, every swipe the Merchant pays like 2 to 3% and you get a slice of that. So you make a little bit of money on that. But the, the cost overhead kind of absorbs most of that. But where most of the revenue comes in is there's a spread. If people are borrowing, you know, within the, the product make a little bit of money there. If they're in the defi strategy vaults, we make some money there. If they're staking with us, we made a bit of money there. So there's a lot of like layers but you need to add Such that the average revenue per user ends up being, you know, depending on the cohort of users, 500 to $1,500 a year which in in revenue to Etherfry which is great. If you look at a company like Chime for example, their arpu is around $200 per year. If you look at a new bank it's a fraction of that. So you have you know a model where we're able to generate you know, substantially more revenue from the customer while charging them a lot less fees and providing a better service. So I mean it really is just a better economic model kind of across the board.
- [43:34]
C
Isamar totally agree. I mean card is not how you make your money. I mean you say it will be compressed. If you look at globally Europe for example is compressed that through regulation you don't make money on card. For me it's a go to market marketing angle. It's a product people want but you offer it almost for free and then it's everything. I mean performance fee basically is the most obvious. That's why we're not, we don't present ourselves as a Venmo or a cash app. Well cash app became more than a payment app but we didn't start as a payment app. It's really payment and investment because it's investment and you can buy bitcoin, buy eth, get yield. That's where you can make real money at scale. But as Mike mentioned the cost basis is also much smaller so you can create quite quickly pretty good businesses. You have other model? You have a subscription model of course on cards I believe I'm not at the same. We have a premium model.
- [44:30]
A
Yeah, we don't but yeah, that's a good man.
- [44:33]
C
That's all revolution. So I think where really we all start to make a lot of money is when we will move FX on chain the volume will be so much bigger there move effects on chain take some spread there. I think if you take beyond the core currency where tradefi is extremely good there is a future where we can offer significantly better FX to end users while still making extremely good money there that will take a few more years.
- [45:02]
B
And when you say on chain what would that take? Just like stable coins in every fiat currency or.
- [45:09]
C
Yes, okay. Especially the long tail. That's where you will start right now for most card model you most I mean all of crypto is USD basically you settle in USD and then Visa, MasterCard will take will make the effects at a good rate for big the large currencies and then up to Us, we don't take any fees. We want the lowest possible effects. But once you move all of that and you can have, I mean Buenos Aires right now, it's not good effects. Once we can move that on chain and have a much more efficient FX market, then there is an order of magnitude more money to be made.
- [45:46]
B
Yeah, yeah. I mean it might have the average.
- [45:50]
C
I got the number this money in Africa. The average effects. The person who had the call with me an hour ago will smile because I'm reusing that. But the average effects on the African market is 7.5%. The average spread 1 of the market I think Ghana was at 20%.
- [46:11]
B
That tells you 20% to another African.
- [46:15]
C
Currency or always to tend to be $USDC or USDT. So I'm talking for crypto USDC USDT to their local currency. So the average for the entire continent 7.5. That's what we're talking about. So offer users, you know pond 5 they are. It's a 10x improvement already and you can still make another. A nice margin there.
- [46:39]
B
Yeah, that's so interesting. It's kind of shocking how far behind we are in that because I think currently the stat that I saw the other day, I'm blanking on what the source was, but it said that 99.8% of all stablecoins are still denominated in US dollars. So okay, we start to see a change.
- [47:00]
C
Yeah, I think we started seeing really with Europe because the US did a really good job to devalue the dollar and it's the first time we see that where people are like I lost 20, 30, I lost all my yield in effects the $1. And so people want at some point to cash out in their local currency and spend that.
- [47:22]
B
Yeah, yeah, that as an American I feel, I feel it. Okay. I did also want to ask so. Oh yeah, sorry. I remember. So it'samar because you, you briefly mentioned this but you know, you guys are kind of leaning into this BTC FI and you have this program with StarkNet. So is this kind of what we were talking about before where they are offering this promotion and it's sort of like a farming thing or like just talk a little bit about, you know, why that's, that's a big part of ready.
- [47:58]
C
At the end. As I said, we want the best yield for our users or the best safe yield. Bitcoin is where it was the hardest to find something to be honest. I mean on USDC, on ETH, you just go, you don't have men on L1 there are many options everywhere and so BTCFI is really two things. One, there is organic native yield that is not incentivized. That's the ability to stake. So Starknet is I believe the only L2 that has a multi sequencer. So it's decentralized but it's still permission. So it start net running the sequencer, it's phase one and then it will be permissionless where anyone can run sequencer. But that means you have a decentralized network running there and you have a consensus all that is live and you have a proof of stake model to secure it. You can stake Stark or you can stake Bitcoin. That means you have native yield the same way that we have native yield with ease when we stake it. That's one thing in parallel btcfi where there are incentives, it's on making Stagnet the best place to borrow against bitcoin. So if you want to borrow USDC against Bitcoin, that's where you have incentives. Where the end goal for us is basically having a loan that repays itself through that and that yes, it's efficient, it's incentives. Obviously as that grows, we'll end up to have a place with a lot of liquidity to borrow against Bitcoin. Not as good rate, but still probably the some of the best rates in the market.
- [49:26]
B
Okay, and Mike, so Etherfi also has Bitcoin but it's with EBTC which I'm assuming is EtherFi BTC. Okay.
- [49:34]
A
Yeah. And we use Babylon and Lombard for yield generation and then the defi strategy both for bitcoin sources. Yield wherever is to be found.
- [49:47]
B
And out of curiosity, I don't know if this is a public figure, but what percent of people are out of what's being staked on your platform? What percentage is Bitcoin versus Ether?
- [49:59]
A
Oh, it's almost all eth. Yeah, I mean we're Ether fi, so that's quite sticky. Okay. You know our USD, there's quite a few USD deposits that people use. They're both spending and more growing assets. And that's growing. But in terms of assets held on the platform, vast majority of it is eth.
- [50:18]
B
That makes sense. I did notice that also the DAO votes on some of the parameters. So I was wondering how that works with running a business. Like what does the DAO decide and what does management decide?
- [50:29]
A
Well, I mean everything. The way our governance system works is the DAO elects manager, which in our case is the Labs company and the Labs company gets a Fair bit of latitude in terms of just day to day operations. It's not, you know, this sort of nightmarish dao governance that a lot of protocols fall into where every single decision, you know, ends up having to go to a vote. But big decisions that certainly involve anything, you know, using the dao treasury, like using tokens for incentives or big partnerships, those do go up for a vote.
- [51:05]
B
Okay, so before we wrap, are there any particular tips that that you would that you think consumers should look for when they're considering which neobanks to use?
- [51:16]
A
Sure, yeah. I mean there's lots of scams out there. Look, there's a few good products. I haven't looked into them with enough depth to be able to recommend. I usually am totally fine recommending competing products just for people to try it out. But there's a lot of stuff like again like programs that if a card program doesn't do KYC or you send a picture of your shoe and either proves you, you know, as your identity like that's. There's probably an issue there. You probably shouldn't use that product. If a program offers you x percent cash back. But really it's some freaking points program. You know, you should probably look at maybe what's. What's going on there. So just read the fine print. You know, there's a handful of reputable products out there. They're actually pretty good. And you know, users should, should choose the one that makes most sense for them.
- [52:09]
C
I think the most important part is that is which one to avoid rather than which one to recommend. There are a lot that are too good to be true. And yes, the no KYC is something fine, use it but don't put all your funds there because at some point it will shut down. I think at the end the entire point, I mean I think Mike mentioned that in we had an exchange role. Now we're competing or not. At the end there is 99.9% of the users are not on chain. And so this is the pool of users and people should look for products that fit what they like, what they need. The entire point of what we are doing is you can create really hyper customized experiences. It's so much easier to build so much faster and so you can create something that is much better for your segment. If you are bitcoiner you want a card that would generally setting with a really good angle. You will get great yield. It would work really well. But if you only have east and you want yield, we have it. But there are probably 10 others who have it too. So look at who has. Some people are better for family cards, some better. We are working on inheritance. If you, if you care about that, you'll come to us. So look for what you need and find a better way for that.
- [53:26]
B
Okay, so last question. You know, when I was researching this I just thought this seems like such a no brainer for somebody who is interested in crypto and wants to optimize their financial life. Like, like definitely for young people, like no question. Like just no question. You know it reminds me of how I'll talk to my parents and they're, they're kind of like we still prefer going to like a physical bank. Right? That's because they're, they're used to that. And you know, for me, like I, I actually started online banking all the way back in the late 90s, like maybe 98, 99ish era. Which at the time I remember I had this roommate who worked in finance and she just like tried to make me feel so, like I was so stupid for doing online banking. And yeah, like everybody does it nowadays. But anyway, point is just that when I was thinking about this, I happened to see. So somebody tweeted this like a few months ago. My bank in Dubai called today just to check if I was okay because I haven't used any of my cards in three months. I didn't know what to say so I just said yeah, but honestly it's just because I've been using. And so this is another one of the neobank cards that like, because I, I tweeted asking for, you know, what's your favorite Neo bank or whatever. And this was one that came up multiple times called Cast Card. I have not looked into this. So this is not an endorsement but this is what this person just said. They said because I've been using Cascard nonstop since I got it and, and I, yeah, I kind of thought to myself, yeah, I could see once somebody gets into this world like, yeah, if you can make 10% or 12% off of the money that you have in there in the background, plus you know, you get all the normal benefits that you have of like what the modern world is used to. But this credit card thing that's been around for decades, like, like why wouldn't you do that? And, and even just the ease of use that we talked about where like all your accounts are in one place and it's not. Or sorry, all your accounts, but all your, all your, all the ways that you use your money are in one account. If that's how to express. I don't even know how to express it. So anyway, so I'm just kind of curious for your thoughts on like how quickly you think this will change banking or what, what it will do to the banking sector.
- [55:45]
A
I mean look in, in 2007 back, I mean at that time Google existed, the Internet was pretty big. Facebook I think had already launched. You know, traditional advertising was still substantially larger than online advertising and in fact it was growing. I mean if you look at the graph it just, it was like up into the right and then over a period of really a couple of years it just fell off a cliff. And digital advertising just completely so clover now. I mean digital advertising is advertising basically. I think it's a similar kind of thing where things change slow until they don't and then they move really fast. So I think we're in the tail part of the exponential growth curve. But at some point you hit that kind of inflection point and it just takes off and then that becomes, it goes from a fringe thing to basically the only model and there's going to be hundreds, probably thousands of companies that play in this space.
- [56:46]
C
I think people don't realize how early we are in that transition. I mean if I look at Reddit, two weeks ago we didn't have bank accounts so only crypto users could deposit money. Now we offer bank account, you send $, you have stable behind the scene. This is literally I think this week, I don't know if we have even announced yet. So we are still in that phase where all those building blocks are being built, are being launched. If I look at our roadmap I feel in three to six months the core things, it will feel like a Web2 trade five product and then hypergrowth can start. But there are still some blocker I'm sure Mike think also about privacy. So we have some initiatives there. So there will still be some use case where we'll see some blockers we like, some long tail stablecoin et cetera. So but I feel it's moving so fast I struggle to see what will be missing let's say a year from now. And that will be a go to market game and a race between how fast crypto products take over traditional finance and how fast traditional finance moves towards crypto. The likes of Revolut are very crypto savvy, they move very fast. Nubank is looking at it. The like of Klarna are looking at it. Okay, the neobanks are not diagnosers. They're also working on that.
- [58:06]
B
All right, all right. Last, last quick question, because I realized I had meant to ask this when I asked about security is just so in the U.S. like, when you have a bank account, there's like this FDIC insurance. So, like, does that concept apply here at all or.
- [58:18]
A
No, No. I mean, I think equivalent. Equivalent insurance policies are going to come into play.
- [58:26]
B
Oh, okay. Yeah. Because obviously it's self custodial. Yeah. It doesn't make sense that. Okay. All right, you guys. Well, it's been such a pleasure talking to you both. Thank you so much for coming on Unchained.
- [58:37]
C
Thanks a lot, Mike. Always great to be with you here.
- [58:41]
B
Unchained is produced by Laura Shin, with help from Juan Aranovich, Margaret Curia, and Pam Majumdar. Thanks for listening. Sa.