Future of Finance: Figure’s Cagney says blockchain for payments nearing ‘tipping point’

The following is from a recent conversation with Mike Cagney, who cofounded SoFi and later cofounded Figure, where he’s CEO. Figure built—and made public—the Provenance blockchain, which has supported more than $12 billion in transactions.

As he explains below, the key to an increased number of transactions on blockchain may actually be…most people not even realizing they’re using it.

(All interviews are edited for length and clarity.)

When you’re at a cocktail party, or talking to people who don’t know what the CEO of your company does, how do you describe it?

One of the most important roles that I play with Figure and supporting the Provenance ecosystem is really just evangelizing the use cases for blockchain and trying to make them as tangible and accessible as possible. The most fundamental thing that we strive for is the idea that blockchain allows you to displace trust with truth, so it allows you to create native digital assets where I can look at those assets and know for certain their ownership composition and history—and it allows you to transact bilaterally so that you and I can transact without an intermediate.

An obvious example is when we trade stock. Obviously, you have a buyer and seller, but in between the buyer and the seller, you have an exchange registry introducing clearing brokers, customers, and trustee agents—you have at least seven parties in that transaction chain. You can distill that down to two, right? That disintermediation is what’s of huge value, whether it’s businesses or customers—you’re talking about trillions of dollars in market capitalization that accrues to both the markets themselves but also the blockchain.

Is that part of what made SoFi so successful, eliminating a lot of those inefficiencies? And for you, was blockchain just the next natural step?

When I was at SoFi, I talked a lot about blockchain, but I didn’t really understand what it was and what the power of it was. And so I just had an aha moment about this disintermediation construct, where I said, “Wait a minute, this actually is huge—this is probably one of the most transformative technologies that we’ll experience in our lifetime.”

With comparatively fewer women in tech, especially in blockchain and in crypto, what are some of the lessons learned after exiting SoFi that can be applied to building Figure, and just generally in making the space not just more attractive but more inclusive?

We achieved a lot of great things at SoFi, and we learned a lot as well. We have taken those learnings with us in starting Figure, particularly around culture. One of the biggest changes we incorporated at Figure is hiring people for culture first. When you prioritize ability and skill set during recruitment, you can often leave culture as an afterthought. That then leads to an environment where bad behaviors are tolerated when they shouldn’t be, simply because they’re coming from top performers. Our president and head of lending are both women, and that diversity transcends through not just the executive team but also the organization, where we have higher representation of women in product and engineering than tech/fintech averages.

Looking at your site, I saw home equity loans were big, but when people use Figure now, what are you seeing the greatest interest in—are two or three things the most popular?

If you think about the evolution of Figure, originally we didn’t intend to have a lending platform—we thought we could take the technology into the financial ecosystem and the banks would lean in and use it. When we built Provenance, and made it public, we went to a bunch of banks early on, and my thesis was, “Hey, you could do a securitization on here and save, you know, roughly 90 basis points,” and every bank universally said, “This is great. We love it. We’d like to be the 10th bank to do a securitization on here.”

It was very, very clear that no one was going to be a first mover, and we had to be the first mover, so we made the decision to build a lending platform to originate assets on blockchain that would take the buy side. And to participate, because they wanted those assets, that would force the sell side to come in and provide financing on the blockchain for those assets. And it kind of started the flywheel for the ecosystem.

And lending still is a significant business for us—it’s a great business, it’s a profitable business. But what we were able to do is drive that momentum into more markets and payment transactions—we’ve been able to get high-profile names like Apollo and Hamilton Lane.

And that’s led to…?

The thing that’s happening right now that’s driving a lot of momentum is the NovaWulf-Celsius transaction, where Celsius is obviously in bankruptcy and NovaWulf’s coming in, creating a company which those bankruptcy assets fall into. And we’re issuing public equity against that company on the blockchain. And so, you know, this year you’re gonna see a public security and public equity issuance on a blockchain—native to a blockchain. If you’d asked me a couple of months ago when that was gonna happen, I’d say we’re probably a few more years out. So that’s really accelerating things.

You mentioned Apollo, the Celsius transaction, and maybe you’re not at that 10th bank yet, but it sounds like it’s kind of just a matter of time. Is that fair?

We’re getting significant institutional adoption at this point. That slowed down a little bit in the fourth quarter because of what happened with FTX. The regulators, obviously, are taking a very hard look at everything blockchain at this point—crypto and non-crypto—but I think one of the benefits we have is Figure is probably one of the most-regulated companies in the country. I’ve got over 200 licenses for everything, and so there’s a degree of comfort that when you’re working with us, we’re doing it in a way that’s regulatory compliant.

If the SEC and the CFTC actually sat down and said, “All right, here’s the plan for crypto, for Web3, for blockchain, here all are the rules—we have all these rules for banks,” would that be helpful for you, or would it not really affect Figure?

It would be great if we had very clear direction in terms of the regulatory landscape. I have a lot of sympathy for the regulators, because things are moving very, very quickly within blockchain. It’s a learning curve.

And the industry hasn’t done a great job promoting itself. I always point out that the blockchain community never loses an opportunity to shoot itself in the foot: We’ve had the ICO debacle, we’ve had algorithmic stable coins blow up, we’ve had, you know, decentralized exchanges—ironically centralized exchanges—running levered positions blowing up. And so there’s just been a lot of things that have happened that have brought a lot of regulatory scrutiny into the space.

Collectively, as an industry, we need to be more proactive and educating around the benefits and the merits of blockchain for use cases, and why it ultimately benefits the consumer. And I think in doing so, we could build a lot of momentum.

A year ago, when it came to potential regulations, many people were thinking about SBF hanging out in D.C. and dropping money on politicians. How much harder now is it going to be for legitimate businesses? How do they erase that FTX skepticism?

What we need are tangible use cases where we can provide a clear demonstration of the benefit to consumers. I think the Celsius transaction—bringing transparency into a bankruptcy process—and allowing people to access liquidity and trade that security, post bankruptcy, is a good example of that.

I think the problem we’ve had is, we started off with people thinking, “Blockchain is bad—it’s used for money laundering.” And the crazy thing about that is, as you know, everything you do is public, right? It’s very easy to see what’s happening. It’s actually not a good platform for nefarious activity. And so we’ve had to dig out of that.

How much of that communication falls on companies like yours, or industry groups or nonprofits, or even just on Twitter users evangelizing?

A lot of that onus is on us ourselves, and at Figure, given the business that we do to make sure that we’re providing visibility, transparency, and collaboration, I think we’ve been successful in doing that. I think, in general, you know, we probably need to be more engaged.

On the lobbying side, you raised a really important point that, you know, you don’t want to be seen as SBF redux. There’s gonna be some hesitancy among politicians because of that, but the reality is we’re at a very important state in the life cycle of blockchain, and there are going to be rules made around it. We should be engaged and working with legislators as to what those rules look like.

So what’s next—for Figure, and for the future of finance?

There’s a couple of fundamental changes that are gonna happen—I think these are tipping-point changes, I don’t think gradual—that are going to happen very quickly. One is around blockchain as payments—in particular, as you see stablecoin alternatives or regulated stablecoins come to market, the ability to use that rail to displace legacy networks like the ACH interchange—where you have a programmable network that you can actually do much more with—I think that’s going to happen. And that’s a seismic shift because if you look at who exists within that interchange market, it’s an enormous number of players and a lot of market capitalization.

I also think you’re going to see a movement toward more blockchain-based securities, and that will support more-centralized exchanges that are sort of decentralized exchanges on blockchain. You’ll see a legitimate competitor to the NASDAQ and the NYSE pop up. Something like the Celsius transaction, which is the first public equity on-chain, is a watershed moment that’s going to bring more in, and actually provide a mechanism where there can be a competitive alternative.

The key to this is, you’re never going to really know that you’re using the blockchain in either of those circumstances. You’ll be trading stock—transacting at a terminal, probably through your phone, through biometric—like you do today. And that’s a key point because it reduces friction around blockchain. Where is your wallet? How are you going to manage your keys? And, you know, the reality is, it’s a relatively straightforward thing to solve for the consumer. At the end of the day, the consumer is going to look at it as moving money or purchasing something or trading stock—they’re not going to view it as a blockchain transaction.