Originally Posted by Mike Cagney

Original translation: Zhou, ChainCatcher

Figure, a blockchain lending company, went public on the US stock market on September 11th. Its stock price surged as high as 44% on its first day of trading, bringing its market capitalization to approximately $7.8 billion. At market close, its total market capitalization was $6.5 billion. This is an open letter from Figure founder Mike Cagney regarding the IPO:

At the end of 2017, I had my blockchain "aha" moment. When I was CEO of SoFi, I'd always made rhetoric about Bitcoin and blockchain more broadly—"It's going to change financial services!"—but I had no idea how. This time, it was different.

Ask any full-stack engineer, and most will say they'd rather not develop on the blockchain: it's slow, cumbersome, and, because of its immutable nature, has extremely low fault tolerance. But the blockchain has a superpower: it replaces trust with truth.

Financial services have always been, and still are, markets based on trust. These markets require numerous intermediaries: a public stock purchase and sale can involve up to seven intermediaries; a debit card transaction can involve five. Many mega-cap companies are built around this rent-seeking dynamic. Blockchain has the potential to condense these multi-party markets into just two: the buyer and the seller. All room for rent-seeking will disappear.

Blockchain can do more than disrupt existing markets. By putting historically illiquid assets (such as loans) and their historical performance on-chain, blockchain can bring unprecedented liquidity to these markets. This liquidity, combined with the ability to achieve true digital integrity and control over these assets, will open up previously inaccessible financing opportunities. The disruptive opportunities presented by blockchain are significant, but the untapped opportunities it creates are even greater.

This was my "aha" moment. You can create natively digital assets where everyone knows true ownership, composition, and history, without relying on trust. Assets can be traded in real time and bilaterally, without counterparty or settlement risk. Lenders gain instant, true, and complete digital control over their collateral. Blockchain completely reshapes how assets are originated, traded, and financed. This isn't a "lipstick-on-a-pig" fintech remake of an old system, but a completely new capital markets ecosystem. I want to be at the forefront of this transformation.

Figure: Reshaping the Capital Market with Blockchain

In early 2018, I co-founded Figure with my wife, June Ou, and a few like-minded individuals. Figure's goal was simple: to transform the capital markets with blockchain. To do this, we had to bring a real, measurable use case to the market.

2018 was the year of the ICO (Initial Coin Offering), and crypto companies seemed to be able to raise an endless stream of capital by selling tokens. We chose a different path. We believed we could originate, aggregate, and securitize loans on the blockchain, saving up to 85 basis points (bps) in transaction costs. We presented this idea to banks, and they all said, "Great! We love it! We'd love to be the 10th bank to do this..." Clearly, this wasn't a case of "build it and they will come"—just building the system wasn't going to get people to buy it.

Having built a market-leading lending business at SoFi, we weren't excited about creating another lender, but we recognized the need to prove to the market that blockchain would be superior. In 2018, we became one of the first teams to originate consumer loans on-chain. Figure began as a direct-to-consumer loan originator, albeit on a blockchain. We chose the home equity revolving line of credit (HELOC) as our first product because we felt no one had efficiently originated it (a greenfield initiative). We didn't want to immediately compete head-on with the giant consumer lenders or mortgage originators; we needed time to convince both buyers and sellers to adopt this new technology.

We quickly expanded this model to B2B2C. Today, over 168 third parties use our technology to originate loans on-chain, including half of the top 20 retail mortgage lenders. Recently, we've also opened up blockchain-native capital markets for these originators: using our technology, they can sell assets directly (and soon, raise capital) bilaterally to the blockchain capital markets, without Figure acting as an intermediary.

In 2020, we completed the industry's first blockchain-native consumer loan securitization; in 2023, we completed the industry's first AAA-rated securitization. Since our launch, we have originated over $15 billion in loans and completed over $50 billion in on-chain transactions. We are the largest player in the RWA space on a public blockchain, a position unmatched to date.

In 2018, most mainstream blockchains were based on Proof-of-Work (PoW). PoW presented real challenges in implementing financial services: cost, speed, and, most importantly, predictability. PoS (Proof-of-Stake) was emerging at the time, offering a better response to these challenges. Following a misjudgment experiment with a quasi-permissioned blockchain, June and her team built and launched Provenance Blockchain. Provenance is a public, PoS-based, decentralized blockchain. Figure does not control Provenance, though we hold 20% of its utility token, $HASH, and continue to support the protocol's research and development. Built for financial services, Provenance is crucial to our efforts to drive institutional adoption.

Blockchain and the Capital Market

We believe blockchain brings three core values to the capital market. The first is at the transaction level—reducing costs for auditing, quality control, and third-party review; we've already benefited significantly from this. The second is liquidity—supporting a 24/7, real-time, two-sided market. We and our partners are building such a greenfield loan trading market. Finally, financing, which we believe is the greatest value.

Putting native digital assets (such as loans) on-chain allows lenders to improve their security rights (for example, through Figure's Digital Asset Registry Technology, DART) and gain control. Lenders can directly assess the liquidity, volatility, and prepayment rate of the collateral to determine risk, rather than simply granting credit to borrowers. When we directly connect the supply and use of funds, we create Pareto-like markets: lenders and borrowers benefit because they no longer bear the inefficiencies of capital allocators and other intermediaries. We first applied this decentralized (DeFi) approach to margin financing on our crypto exchange and recently introduced Figure's loans to Democratized Prime, our DeFi lending marketplace. Just as we do with trading and liquidity, we are demonstrating the power of DeFi in financing with our own assets.

We've long believed that DeFi would eventually become a mainstream method of financing assets, and recent legislation is accelerating this process. Following the passage of the GENIUS Act, the US Treasury Department indicated that trillions of dollars could flow into US Treasury securities via stablecoins. This would primarily come from bank deposits. A $1 trillion outflow of bank deposits in 2022–2023 nearly crippled the financial system. If the Treasury Department's assessment of the scale and path is correct, something new will have to fill the void. We believe that's DeFi, and we're leading the way in the RWA space.

The “end game” of blockchain

We believe that blockchain's value proposition can be extended to all asset classes. Taking public equities as an example, beyond trading efficiency and liquidity, blockchain's most significant improvements in financing are likely to be found today. Imagine a scenario where you could seamlessly cross-collateralize your stocks with other non-equity assets to gain leverage, or where investors could directly control and earn the economic benefits of lending their stocks. Blockchain is the leveler in the financial arena. We pioneered on-chain lending, and next we hope to lead the way in bringing new asset classes, such as stocks, onto the blockchain.

Just as Web 2.0 has seven major stocks today, I believe Web 3.0 will also have a peer group of companies representing blockchain technology. Our IPO brings us closer to becoming a leader in this group. While we have built a profitable and fast-growing blockchain-based company within an extremely stringent regulatory environment, we remain optimistic that regulatory changes and public market acceptance of blockchain will drive the industry and its opportunities in the coming years. This IPO is just one step in a long process of bringing blockchain into all aspects of the capital markets.