Decentralized Credit & Capital Markets with Sidney Powell

Capital markets are evolving at a rapid rate, and many businesses are exploring how blockchain technology can be used to increase access, speed and transparency. In this episode of The Money Movement, we dig into the blockchain-based institutional borrowing world. We explore under collateralized lending, the role of delegates in lending pools, identity management in on-chain finance and much, much more.

Joining us this week to discuss this topic is Sidney Powell, CEO and Co-Founder at Maple, a Circle customer who uses USDC and accounts infrastructure. Listen today to learn more about decentralized credit and capital markets!

Jeremy Allaire: Welcome to this episode of The Money Movement here in early 2022. I'm really pleased to be joined today by Sid Powell, who's a co-founder of Maple Finance. We're going to get into a lot of detail about what Maple Finance is. I've been tracking the work that Sid and Tim have been doing for quite a while now, for the last-- I don't know if it's been a year, I think you guys launched last spring, maybe?

Sid Powell: Yes, it was around May.

Jeremy: Exactly. I've been watching this and I think Maple is a fascinating project that is, I think, representing the taking institutional markets models in debt, in lending, and re-envisioning it and rebuilding it entirely on-chain. Here at Circle, we see a lot of really interesting use cases with USDC and in DeFi, and I think there's this fusion of TradeFi, DeFi, stablecoins.

I think, in some ways, maybe we're seeing the birth of the future of gold debt markets happening here. Lots to talk about on all those themes but maybe just to get started, Sid, tell us a little bit about your own journey, your background, and how you got into crypto as people always ask and share, and then we'll drill in from there.

Sid: Yes, sure. I'm very happy to be here. Thanks, Jeremy. I came from a Debt Capital Markets background and this was working in institutional banking back in Australia, where I was involved in securitization. What that means was, largely, we were helping lending companies to access funding from banks and from investors so that they could grow their business and lend more money to customers.

I was doing that for a while but I was always more interested in working with the entrepreneurial builders who were our clients and then I eventually had the opportunity to go across and actually join a commercial lending Fintech and to help them raise capital so that they could grow their own business.

It was being on the client-side and actually having to go through the process of working with banks, working with investors to try and borrow and access to capital markets as a customer to support our growth that I became very conscious of the process hasn't really changed in about 30 years. You deal with a lot of lawyers, you deal with a lot of different third parties and it's actually very slow for innovative companies to actually access the funding they need to grow.

This was around about early to mid-2018, we started learning about smart contracts and that was actually where I met my co-founder and we started learning about this idea that, well, maybe you could actually have programmatic bonds, or you have programmatic loans. That really hit a nerve for us. We start to think, well, we've got hundreds of pages of legal documents that will just say, "If this, then that," and couldn't that be done way more efficiently with code, and then couldn't you set up some kind of infrastructure that would actually link the companies around the world to a marketplace for these products?

Anyway, we ground away for about 18 months, writing white papers, trying to come up with a proof of concept, and then it was really late last year that we're actually able to raise funding and to start to build out a team. What that coincided with was broader acceptance of DeFi. I remember when we first started, people were saying, "No, no, DeFi yields will not be a thing, therefore, you can't really build some kind of credit marketplace." That's what we set out to build, which is a marketplace for growth capital, built on top of web three technology, that innovative companies from around the world can access, really, to fund this kind of next disruptive era in history.

Jeremy: It's awesome and I think the idea of programmable money, it's been something that a lot of people have talked about for a long time. We're obviously seeing it play out in a big way with smart contracts now, and there's a glimmer in people's eyes. I remember when we founded Circle in 2013. This was the thing that got me really excited and actually in the early days in our original series A presentation, it was like you're going to be able to have programmable smart contracts and we envisioned stablecoin.

It's like what we thought-- they weren't possible then but we were thinking about it and specifically, the idea that entrepreneurs or people who create value, who want to securitize their value creation in some form, and efficiently put that into an internet capital market with the frictionless of the equivalent of setting up a shop on Alibaba or on Amazon, that was inspiring. It was like, okay, that's going to become possible and I remember we'd have board meetings and we'd talk about the phases of how this would go and I always thought that kind of stuff would be like in the 10 to 20-year timeframe.

That was that, 2013, but we're now eight and a half years and it's here. These building blocks are here and so it's a really, really exciting moment. I know a lot of this stuff still feels really nascent and like the user experience for all these things, but it's really getting started. With Maple specifically, maybe walk through the architecture of how different types of entities might interact with it. Then maybe just at a high level, just the tech stack today and how you think about that as well.

Sid: At a very high level, how Maple works is it's obviously-- It's a lending marketplace. On either side of that, you have the borrowers and our borrowers today are primarily crypto native companies. They're choosing to use us because they might be very profitable, but they struggle to access capital from banks. That's because the space still largely has a bit of a reputational risk around it for traditional lenders where they view it as akin to alcohol, firearms, and tobacco, for lack of a better analogy.

That's one side of [inaudible 00:06:20] from on-chain pools. The way I think about pools is that they really provide the infrastructure for this on-chain lending business. You can [inaudible 00:06:31] similar to like a debt fund or an OTC lending desk. What's different about Maple is that each [inaudible 00:06:37] a sophisticated underwriter. Often, it's a fund manager or an asset manager, or a team with fixed income or banking experience.

What they're doing is they're talking to the borrowers, assessing the nature of their business, and then vetting that they can repay the loans. Then they approve these loans to go out on-chain from that pool and then the funding for the pool has come from the lenders. You've got three parties on our systems, you've got the borrower, the delegate who's managing a pool, and then you've got the lenders and the lenders are largely institutions who want to get a yield on their stablecoins. That's a perfect use case for USDC and [inaudible 00:07:19], of course, how we manage risk on the platform and that's done through staking a reserve to the pool.

Jeremy: There's lots to break down there?

Sid: Yes.

Jeremy: It's fascinating. I think a lot of people who are familiar with DeFi think about it as here's a way that traders do margin borrowing to do more trade. There are obviously exceptions to that. A lot of this like over collateralized, crypto collateral borrowing to do things, that's one very large use case. There are certainly people who are margin borrowing to buy a car or a house or whatever. Retail level stuff, but I think the idea of a debt market where there's a marketplace and where you're organizing a market structure-- Which has actually got some similarities to existing debt market structures.

You're creating a debt market structure and this idea of when people think of pools, liquidity pools. People know that anyone can come in and be an LP and a DeFi protocol, but here in Maple, it's really different. A pool manager, I guess you call it pool delegate, or what have you, is really a professional debt investor and underwriter. You're creating confidence on top of this. You happen to be organizing all of it on-chain. Everything is transparent and on-chain, the actual funds, if there's going to be collateral, everything's on-chain.

Unlike with the legacy financial system, which is just like a bunch of paper docs fly over a wall, and then the wire [inaudible 00:09:03] what's going on? This is just more auditable, more transparent, more secure in many respects. Creating that intermediary of a professional manager in a sense is a really significant difference between the way you're building these lending markets compared to general open DeFi lending. On these, I see Alameda and BlockTower and Maven 11, some great players in the space who know a lot and are able to utilize that capital really, really efficiently.

If you're in the market and you know these players, you're like, "Okay, yes, I'm willing to lend to Alameda because they're brilliant and they have this incredible track record. Everyone knows them and everyone knows they've got a strong balance sheet." How does that scale to 1000 pools? Are you envisioning other mechanisms of information that become available to the marketplace just like risk and reputation in eBay in the classical example or Amazon third-party sellers or whatever the right analogy is? How do you think about scaling that so that the average person or institution is facing? Is that just time and reputation or how do you think about that?

Sid: I think scale comes from two areas. It's going to be, first of all, the way that [unintelligible 00:10:37] scales is that we would need to add more pool delegates and pool delegates can then functionally add more pools. You can think of each pool being able to pursue its own strategy, whether it be targeting a particular industry. I'd say right now we have a fairly high representation of crypto financial institutions, market makers, trading funds, arbitrages.

You could also see a pool that might be targeting the tech industry or SaaS companies, or you could see a regional focus there, where it might be Southeast Asia or a European exposure or North American. That helps us scale the number of pools and it helps us capture more lender preferences where they might not want just a moderate exposure or a largely diversified exposure to every company in the space, but they want to select a specific industry.

To that end, I think it's the information about the pool delegates underwriting. It's like, you might evaluate Vanguard or any other fund manager in that respect, but you would want to see how well they've performed in terms of underwriting, defaults, [unintelligible 00:11:42] generated, that kind of thing. I think that's one element.

Jeremy: All that data is effectively on-chain. Right?

Sid: It is.

Jeremy: All the funds flows are done on-chain with stablecoins mostly, or whatever. You have all of that, right?

Sid: Yes.

Jeremy: Not relying on third-party assurance, so to speak.

Sid: Yes, exactly. Then on the flip side of that, then you have more borrower-specific information. Borrowers really like the product because all of their loans and loan performance history are on-chain, so they can transparently show hey, we've repaid five loans with perfect payment history. Over time, that helps them build a better creditworthiness profile, credit score, so to speak and then they can borrow on better terms. These are things that otherwise would have been totally private within the private placement market. It never would have been legible.

Jeremy: I like to use this analogy often of, I think a conversation we were having the other day, I talked about long tail markets. The internet's really great at creating long tail markets for content like YouTube or long tail markets for advertising like Google, long tail markets for commerce, like Amazon, blah, blah, blah. Theoretically, you can create these long tail markets on these kinds of infrastructures, which is super, super exciting because it really is about democratization to access to capital on both sides, on both the investor lenders/ and then on the other side the borrower.

All of these platforms have been able to use data, and use data and effectively, various forms of scoring or predictive analytics or other things. Do you envision that? You're going to have enough data that this effectively will provide that level of signaling that it can be on a mass scale infrastructure?

Sid: Yes, I think so. As we scale-- We're still very early on in terms of gathering those data points. As you gather enough points on both good credits and bad credits, then naturally, data scientists are going to be able to enter the ecosystem, look at this and try and formulate credit scoring models. You can see the birth of effectively on-chain ratings agencies-

Jeremy: Absolutely.

Sid: -that would have this technical expertise to scrape all this information and process it. That naturally makes it much more scalable then because all the data is on-chain so you don't have that bottleneck and that friction in producing that scoring.

Jeremy: Maybe just for the viewers and listeners out there, just these markets today, the markets that are operating on Maple today, what are the typical borrowing rates, APYs? What's this typical cycle of capital kind of thing?

Sid: The product that we have on the marketplace at the moment in these pools is fixed-rate fixed-term loans. It really resembles the term credit market. That was a deliberate decision because we wanted to be able to provide certainty around capital budgeting for these companies. The loans would typically be average size, it might be 5 million to 15 million at the moment. It's been getting larger as we've been going. Then typical [unintelligible 00:15:00] might be about six months.

Six months interest-only borrowers are typically paying an APY between 8 1/2% to 12 1/2% at the moment and that obviously fluctuates with the market. We began with some level of collateralization, but given we were targeting the most creditworthy borrowers in the market, these have shifted to be more uncollateralized. That reflects the nature of the business because you're lending to a market maker who's always got the capital on hand because it's just in exchange.

Jeremy: It's interesting but I wanted to talk about the collateral piece of this. It's under-collateralized for the most part but there is some that's uncollateralized and what are the forms of collateral that are in the protocol today?

Sid: The forms of collateral that we accept today are cryptocurrencies. It's WBTC, which is an ERC20 form of Bitcoin, of course, and then we've also taken stablecoins and we've onboarded the ability to do things like [unintelligible 00:16:03] or link, for example, as collateral. It very much remains within cryptocurrency as collateral and that partly reflects the thinking that like, "Yes, real-world assets are a larger, total addressable market," but the need for them wasn't really burning. The people who could borrow on good terms already were, so you would have had to go out on their credit risk curve to support real-world assets at present. I think we'll get there eventually.

Jeremy: Is the collateralization, is that a decision that the pool delegate is making? That "underwriter" is making that determination?

Sid: Yes. They bilaterally negotiate things like price and collateral level with the borrowing client as they due diligence them and that was a deliberate design decision. We wanted the pool-- We really see ourselves as infrastructure for people to run lending businesses, fixed income asset management, and OTC lending desks. We trust that those pool delegates have the expertise. We, of course, due diligence them and their processes before they get whitelisted but we wanted to have that diversity in the ecosystem.

Jeremy: There's a lot of markets you can go after. [chuckles] Clearly getting anchored in, let's just call it crypto capital markets participants. There's a [unintelligible 00:17:25] volumes are higher, et cetera. How self-service is the protocol today versus needing to be whitelisted into being in different roles on it, and things like that? At what point do you envision it being more self-service so that someone who's like, "I really understand mobile app entrepreneurs in Nigeria and I'm going to write that risk so to speak," or whatever it is?

Sid: I'll assume if we have Tala as a delegate on the protocol. Right now, early on, it's in more of a curated stage and that's because we wanted to ensure a good experience for lenders, and also for the borrowers who come on board. You have this whitelisting process where we would go through, understand the way that a delegate is going to underwrite and assess borrows and in which target markets they go off to so it doesn't cannibalize existing pools.

As we scale up, we want that to be more self-service where a pool delegate could, say, propose themselves, and then it could be approved by governance. That's really part of this pathway to progressive decentralization of the protocol.

Jeremy: It's a good tie into the broader Maple architecture and I think the existing concepts of there's a bank that facilitates all this, or there's an ATS that's a specific market for certain bucket of debt instrument trading, or OTC markets like that. There's lots of analogs that are out there, but Maple is a Dow, and the Maple token and the protocol are governed. It sounds like as you're describing it, that governance is going to play a significant role in determining what kinds of market participants get involved, how this grows, et cetera.

Maybe you can just walk through the mechanisms that are there today, what is that today? Then maybe walk me out 18 months from now and what coordination is happening and what decisions are being made, and how's that growing the market?

Sid: It's an interesting question because the level of decentralization of various DeFi protocols in the communities comes up all the time. I think you've seen at the far end of one spectrum, you might have total on-chain governance at the moment and that's really suitable where you might have a limited number of parameters that need to change, and otherwise, the protocol is totally commissionless.

In the case of Maple, it's like there is a bit more complexity because you're making decisions on say bringing in a trusted party like the manager of the delegate running the pool. The level of decentralization that we've got in place at the moment is that there is a [unintelligible 00:20:26] controlling that Dow wallet and or the Dow wallet or address has the treasury funding and then it also has the ability to change settings, be it fees, lockups, or pause the protocol for security reasons.

That's decentralized away from the core team and involves members of our cap table and then I think over time, we will add community members to that [unintelligible 00:20:51] but then the way that it makes decisions to reflect the will of the community is that we pull the community in voting proposals. We have Maple improvement proposal. It would receive a [unintelligible 00:21:03] in the community forum, it would need to get endorsement, and then there's a seven-day voting period that's opened where people that hold a specified percentage of the token can vote.

It's a bit of a crude implementation at the moment but as it increases in sophistication, you would see things like full implementation of snapshot where it's token weighted voting rather than just a person gets a vote when they satisfy a minimum level. As we progress, you'd start to see that proposals are actually queued in as upgrades to the code or like actual changes to the settings, and those are just voted in where the voting actually triggers the implementation.

That's kind of the path to where you get to, I think, over 18 months but I think it's actually really important that communities have-- I don't think you have a vote on everything. It's inefficient, it detracts from the idea of product vision and design decisions. I think the way I would see it working is that effectively the community might elect multi-stakeholders who would represent good governance, and then they would choose operational managers who then make the executive decisions day-to-day and staff out the team that you need to make the decisions that you don't want to be voting on all the time.

Jeremy: I can imagine down the road, you have like the example of leveraging Dow, token holders for making decisions like market expansion decisions, which is really about who are you, who you are allowing in as full delegates, and that you could have a tiered structure where you're delegating down to-- There's a group that's very, very focused on-- I'll use that example, FinTech in Africa or whatever, and then you're basically delegating down to that group to basically be in the market, finding the pool delegates for a whole set of investing activities or borrowing [unintelligible 00:23:09] that. You have the market expansion, the community could actually drive the market expansion of this in some pretty significant ways as well.

Sid: Yes, 100% and I think it's kind of interesting at the moment because if you look at a Dow, a Dow doesn't have a legal entity behind it at present. I know some jurisdictions are working to set that up, which could be an innovation that makes it easier for Dows to do business with different vendors or service providers like lawyers, accountants, what have you, but it is also this interesting time where when you talk to people who are service providers and you explain that you're a Dow, it's like there aren't the mental models on the other side to actually conceive of what's happening.

That often puts a bit of a stopper on business. It's the same way 500 or 700 years ago, someone might have asked you what religion you belong to or dominant, theism rather than the-- there wasn't the concept of a nation-state. Whereas now everything needs to be tied to a nation-state jurisdiction and maybe in the future, that shifts a bit.

Jeremy: The invention of the joint-stock corporation was about five or six years ago as well. Took a while for it to take hold but I talk a lot about-- and other people too, but basically, we're finally getting-- we're reinventing corporate forums and we're going to graduate past the joint-stock corporation, I think pretty readily. It's just reflective of how capital and work can be organized in the age of the internet and what that looks like. To me, this is just the birth of a new era and how labor and capital is organized, but it's interesting.

I'm very excited about where you can go with this, obviously. Maybe coming back in a little bit to that for you, does this eventually compete with or provide the infrastructure to enable firms to compete with commercial banks at scale?

Sid: Yes. The way I see us is that Maple is not a lending company competing with commercial banks or the likes of J.P. Morgan. Instead, we're more like a layer of infrastructure, imagine it being like Shopify. Shopify created this new platform, anyone who wanted to compete in e-commerce could set up a virtual shopfront, they compete on price, range, selection, what have you. We're doing the same thing for capital markets. You could have a team, you could have a commercial bank set up and run a pool on here. You could have a team break away from a commercial bank and set up and run a team but then they're competing on the ability to manage risk, ability to source capital.

Jeremy: It's like credit funds, credit funds compete with commercial banks-

Sid: Exactly.

Jeremy: -at a huge scale now. That [unintelligible 00:26:06] past whatever it is, 20, 30 years, right?

Sid: One of the difficulties for them is that they still have huge fixed costs. What Maple does is, I guess to borrow another analogy, it compresses that in the same way that Amazon did for spinning up servers and infrastructure. It converts this to a variable cost proposition. Now that makes it much easier now to be a team of 5 or 10, running a lending business or a credit fund and competing with really large banks because you're on a level playing field of infrastructure.

That actually, I think it makes the market healthier because it gets away from the idea of returns to scale and it brings us back to a more level playing field. I guess at best, it unbundles some of those structuring teams and really promising ones can go and run their own business on top of Maple.

Jeremy: Yes, totally. One of the things that using that long tail markets concept a little bit more, that the internet's really, really good at bringing experts together, Reddit communities, [unintelligible 00:27:10] but there's obviously huge numbers of expert-led communities. Obviously, just the ability for people with knowledge to synthesize that, organize that, interact around that empowers decision making and understanding far more decentralized, and far more open models.

When I think about long tail capital markets, it seems like taking a little bit of that and finding ways to structure that in tooling that supports these, call them pool delegate formation, or whatever on naval terminology is potentially really, really powerful. It may be that the people who can actually figure out at a very micro level, what's a good opportunity from a lending perspective, may not be people who have any background in finance at all. It may actually just be people who are really close to a geography, a domain, a community and can convene that knowledge.

I think to the degree that Dow members, as it were, can extend to normal people, not FINRA licensed, the other but an internet of participation. It's really interesting. Obviously, we're not there right now but you can imagine that.

Sid: We'll get there over time. I like that idea of the long tail because one thing Tim Ferriss has talked about before is the idea of finding 100 true fans to run like an internet business. Now, as a lending company, let's say, you're part of J.P. Morgan or [unintelligible 00:28:55] group or something.

Now, maybe you can't find 100 SaaS companies within a specific niche in North America and so that then means you can't find a market, but across the breadth of the internet, you might be able to find 100 of these SaaS companies. That's enough to set up and run a pool around if you have the expertise there. That's how we can serve the long tail of these companies that are building out the future there and you can run a durable business just serving that.

Jeremy: Yes. Theoretically, someone who's organizing $5,000 loans and doing a whole bunch of those, the unit economics will work. That's the scalability model and with long tail markets in other areas, I can be like, I make, I don't know, 50 grandfather clocks a year and I sell them on Amazon. I sell on Amazon and you go to my website, you learn about them, you click through to Amazon and Amazon gives me my logistics, but I only sell 50 of these things.

It's my passion and it's what I do, and you know what? I can go to Google and I can actually buy ads that target income holders in these cities with this, of people who are likely to want to buy original grandfather clocks or whatever. I can find that person and I can efficiently reach them because I have self-service tools and the ability to match that. It's at that level of what's happening in commerce, it's just like bringing out the capital basically.

Sid: Yes. The core things that infrastructure like this help with are that discovery function. As you said, if you're making those grandfather clocks but you can use targeted ads to acquire customers, massively lower customer acquisition costs and it's the same for someone running one of these businesses.

Jeremy: You could have a pool delegate that just goes out on Amazon or goes out on [unintelligible 00:30:52]. I'm going to find ways to lend to product categories that I think could expand because I think that they have a great product and I want to get behind them. There's so many ways that that can be brought together.

Sid: Yes, 100%. We've also seen interest from the Fintech lenders. In other regions, you have expertise so they might actually see us as a wholesale capital market where they could borrow like $50 million or $100 million and then start hustling it out in smaller loans. That would be akin to what I used to be doing in institutional banking [crosstalk] those players.

Jeremy: Totally, yes, it works in that way as well. One of the things that we've been thinking a lot about is basically in on-chain finance, lets just call it. Whether it's a peer-to-peer payment or just fading in a market or even just showing up with my wallet to a game and wanting to get some virtual goods or whatever. All these things on Web3 but very much when you get into capital markets, there's this huge issue of identity and how to create a way for entities, whether they're individuals, households, firms, whatever, for entities to prove themselves and then have protocols be accepting of those proofs.

How do you think about identity and credentials tied to identities being critical to how a protocol and an infrastructure, even the Dow itself can scale?

Sid: I think it would be a massive unblocker to scaling and there's a couple of reasons for that. The largest institutions won't participate DeFi over concerns about compliance and [unintelligible 00:32:48] KYC and that kind of thing. The ability for identity to be managed in a productized way because currently it's done manually by almost every participant in the space. The ability to productize that then means it can be built into user-flows just like a log-in or authentication.

For DeFi to really grow its volume significantly, I think you need to see more institutional participation, and that will come as if you can solve this idea of identity in KYC and compliant usage or participation in these protocols. Our two most recent pools were commissioned and that was a very deliberate decision so that we could access more participation from larger institutions, which we see as really core to driving growth on the platform but we have to KYC all of them.

Jeremy: If some wallet showed up and you're like, "Oh, okay, whatever Circle or Coinbase or whoever has basically done the identity checks on this and is a known institution or whatever it is." Your [unintelligible 00:33:53] say, okay, I'm comfortable with entities that have that, and maybe there's a way if there's a compliance reason to do information exchange or whatever or something.

Sid: Yes, 100%. The idea of having identity that sits at the lower level and you know that it's been done by a verified issuer, it just significantly eases the friction of on-boarding and that's when DeFi starts to become just like a much better user experience, which is something that everybody always cites. It's like the reason that DeFi-

Jeremy: Yes, absolutely. Not only is it a better user experience, it can still preserve security and privacy in ways that are better than how the existing financial system works. Yes, it unlocks comfort at an institutional level and then ultimately down to the individual level of comfort to use this infrastructure. I think, yes, we all will stay tuned for improvements that happen around that. It's really exciting. I'd love to hear you just talk for a minute about and obviously, you don't need to share anything confidential or proprietary, but just a little bit from where you started having conversations with different types of entities that might be using that to where you are today in just over--

Sid: Over eight months.

Jeremy: Yes, I'm sure you've seen the conversations evolve but what's the difference from then to now, and what does that tell you?

Sid: I think we began, we launched on Mainnet back in May of 2021 and that was with our very first single pool of 17 million in loans and then since then, we've now scaled that up to the point where we currently sitting on about 505 million in TBLs, just over half a billion and that was achieved in about seven and a half months of growth.

We've now spread out to having four pools but I would say the change that has occurred in the conversations is one, the Lindy effect. Seeing is believing. It was a lot harder to even get a foot in the door with these conversations before we were live. Then you go live, and it's like, okay, this is just an experiment. Then you hit 100 million and it's like, okay, this is maybe a thing. Now, we can comfortably have a lot of conversations with various TradeFi institutions who are now actually looking at crossing this going, "Okay we're actually quite serious about participating on this, whether as a lender or maybe spinning up a pool as a pool delegate."

I would say there's a number of [unintelligible 00:36:25] and TradeFi players who've expressed interest in this and they're actually looking at it with a lens that we try and push, which is its infrastructure. This is just a new platform and way of running the businesses that they've previously been familiar with, lending businesses. It's just when you're dealing with a B2B product like this, its sales cycle is a lot longer in terms of getting comfortable.

You've got to have multiple conversations with compliance teams and risk and satisfy them on that but the [unintelligible 00:36:56] window has shifted incredibly from-- Early 2019, DeFi wasn't a thing. Then early 2020, under-collateralized lending wasn't a thing. It's amazing to see. I think in the under-collateralized, lending space has now been over $1 billion of loans done. I think probably over this coming 12 months, I would expect that to be at least 10X.

Jeremy: Absolutely. I often talk about the market opportunity for crypto finance. There are many market opportunities in crypto finance, but when I think about stablecoins and lending, and what that can look like, M2 is a big number. M2 is $115 trillion and if you break down M2 in terms of what that is, and how much is uncollateralized, and is credit expansion for people who are building businesses and so on, it's staggering. It's staggering, and we know how bad the existing system is in terms of efficiency and effectiveness. It's cool. It's going to be very, very exciting to see it evolve.

Sid: On that note, I think with tools USDC and the ability to connect USDC with a capital market, you lower the barrier to entry to being a participant in capital markets and being a net saver, or a net borrower. You could be a net borrower if you want to expand your business. Maybe if you had a bumper a month or bumper a year, you've got surplus capital, you want to invest it and deploy it in a capital market.

Well, when you make it much, much easier to access that and in smaller amounts, you dramatically expand the pie, right? It's the idea of the Sony Walkman. It was as soon as it became [inaudible 00:38:39] it was 10x the number of [inaudible 00:38:42] listen to music and [inaudible 00:38:43] right?

Jeremy: I talk to monetary theorists and central bankers and other folks from time to time and one of the things that I talk about is the possibility that you could have a full reserve digital currency, like USDC kind of thing, but still have money multiplication and money velocity that meet the credit expansion needs that are there and one of the things that's really unique about stablecoins, blockchains is we're now seeing that from a capital efficiency perspective, you actually can store and transmit value basically to anywhere in the world at a fraction of a cent with finality and security.

Fractional-reserve banking, in some ways, reflects the capital inefficiency of the way money actually moves in the world, and if you collapse that, the physics of money change. If you get you have a force of instrument and the physics of money become, you could theoretically to your point of net borrow versus invest, you could have an individual or a household or a firm that’s-- Let's say I got 5,000 sitting there like a demand deposit account or I've got 1 million sitting there like a corporate cash account. It could be very, very efficiently on a programmatic basis being utilized as a facility without having to create new money with a locking mechanism.

You actually numerically can build mechanisms that provide superior capital availability to net borrowers without introducing the fundamental risk of fractional reserve. It's maybe a theoretical question right now but I think the kinds of infrastructure that you're building and stuff that we're interested paints a picture of maybe a slightly different model for how this can work for society.

Sid: Yes, I think so. I'm interested in terms of network science, the emergent properties that will come out of an international financial system that's now more connected across the globe where-- The ability to transfer money in 15 seconds to the other side of the world versus [unintelligible 00:41:17] is like--

Jeremy: what's going to come out of that or on Solana, you've got 400 milliseconds and a fraction.

Sid: Yes, 100%, which is something we're pretty excited about. We're going to start to build on Solana and launch a V1 about protocol there as well. Hugely, hugely exciting.

Jeremy: Yes, absolutely. Sid, this has been a really enjoyable conversation. Congrats on the momentum you guys have and we're excited to be a partner and working with you and building with you. I'm really excited to see see what happens over the next year and I'm sure we'll have you back here on the show as well.

Sid: Thanks for having me on, Jeremy. Love to come back, really enjoyed it.

Jeremy: Cool. Thanks, Sid.


[00:42:16] [END OF AUDIO]

Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Sidney Powell
CEO & Co-Founder
 at Maple

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