Mauricio Bartolomeo (02:13):

I got the privilege, I would say, to do my university in Canada. Once Venezuela kind of started falling off a cliff, for lack of a better description, many families chose their most willing kid to go study abroad and hopefully help the family if things went south. And I volunteered in my family, and that’s how I wound up in Canada with Adam. And we always used to joke around even as we were friends at university about how two people with such different backgrounds became such good friends.

Mauricio Bartolomeo (02:40):

Because we actually joked about how different our upbringings were, yet a lot of our values and a lot of the things we liked were so similar. And so to us, that was always really interesting. And for me, what prompted me to do finance, which is what the undergrad program that Adam’s actually doing, joint engineering and finance program at Ivy.

Mauricio Bartolomeo (02:59):

And I did my finance program and then went back for my master’s. My obsession really with money came from growing up in Venezuela, because you just grew up with so many questions in a system that’s so broken. And I always thought that I grew up in an entrepreneurial family. My dad was an entrepreneur, so I wanted to have a business as well one day.

Mauricio Bartolomeo (03:18):

And to me, trying to get something is to understand how that works. And to me, that was the case with money. I said, “Well, I can’t really want to even seek out to make money if I don’t know how money works and what is money.” And in Venezuela, that’s a very hard question to answer and you just keep coming up with more questions. It’s eventually led us to Bitcoin.

Preston Pysh (03:38):

Let me ask you this. I think what we’re seeing in the global markets today, people are looking at the stock market and it just seems like it just keeps going up, in nominal terms as you guys well know. And they’re looking at that and they’re saying, “There has to be a correction some point. There has to be a correction.” And the three of us all have the opinion that it’s the currency that’s broke. Did you see something like this play out in Venezuela where it almost seemed like the equity markets just kept going up? They just keep going up.

Mauricio Bartolomeo (04:06):

100%. And the crazy part is Venezuela doesn’t have an equity market that’s popular amongst its people. So what you ended up seeing was actually largely vehicles, cars. People would rave about buying a car, driving it for four years and selling it at a profit [inaudible 00:04:22]. And so the prices of assets just started getting completely out of whack [inaudible 00:04:29], anything that was a non-perishable. At first it started with the highest quality asset, but when the capital controls came in, it went to cans of tuna, it went to rice, it went things …

Mauricio Bartolomeo (04:41):

Basically, it sends people back to the bartering system. And so you definitely see the currency breaks. And as more and more money gets injected into the economy and gets distributed more arbitrarily, this idea that you can make money through honest work disappears, dissipates. Because eventually, assets get priced out of your reach. And so the idea of getting there with honest work breaks.

Mauricio Bartolomeo (05:12):

And personally, that’s why I think the middle class is such a mesh for a society, because the middle class is that reachable place for anybody that feels like they want to climb up. And when the middle class disappears, which is the first class to go when the [inaudible 00:05:29] takes on, that breaks this continuity of society.

Mauricio Bartolomeo (05:34):

Basically, the breach becomes too far from one end to the other, and people start thinking about not honest work. They start thinking about quick ways of absurd amounts of leverage, going through loops and bounds to try to get something that can 10X. And you start getting into this behavior that’s very short term and almost very irrational.

Preston Pysh (05:57):

Wow. That’s fascinating to hear, the description of that. Because I don’t know about you, Adam, but I’m looking at the market here just in the US and it feels exactly like what you’re just describing.

Mauricio Bartolomeo (06:12):

The way I see this and the way I explain it to other people is basically if your money is structured in a similar way, but it’s structured as a series of dominoes that fall back into the reserve domino, which is the US, the latter dominoes on the pile have never even shaken. The idea that this currency can be broken doesn’t even cross the minds of most Americans, or Europeans, frankly.

Mauricio Bartolomeo (06:34):

But in a place, people like Venezuela, people like Argentina, people like Turkey, we have seen our dominoes fall. We have seen money die. And what I think is fascinated about the way fiat is structured and inflation is structured is that I compare this to the boiling frog analogy. You know this metaphor or this analogy where the frog if you gradually increase the temperature of the water of the frog, it’ll boil because it won’t notice that it’s getting hot. But if you jack up the temperature, it jumps out.

Mauricio Bartolomeo (07:03):

I think the same is true for a fiat system and inflation. When you have inflation at 2% to 3%, the frog is just slowly boiling. It’s just sitting in a jacuzzi thinking, “No issue.” Right? “It’s just the water is just a little bit hotter, a little bit hotter.” But what happened with COVID and what happens in places like Venezuela, typically this happens because of a political event or some big crisis, is all of a sudden you inject this massive amount of cash into the economy.

Mauricio Bartolomeo (07:29):

And all of a sudden you start seeing all these gaps and discrepancies around pricing and around events, and it makes you start questioning. It makes you start asking yourself how money works. And eventually, some people get to the answer that says, “Oh, they just printed.”

Mauricio Bartolomeo (07:43):

And when you have people making themselves collectively, making that realization, well, if your cost of borrowing is lower than inflation and you know they’re printing it, to no end, it makes complete sense to borrow and buy, borrow and buy an asset that is not being printed. And I think to your point, that’s a lot of the behavior you’re seeing today. Everything’s overpriced, but it’s not going to get better.

Preston Pysh (08:09):

This is what’s so awesome. So you guys go and start this business. The name of it is Ledn, so L-E-D-N. We’ll have a link in the show notes. And you’re just so well repaired for what this is all about in your business. When you guys had your aha moment that you’re going to build this company, how did that take place? Walk us through it.

Adam Reeds (08:33):

Yeah. As Mauricio was coming back from Venezuela, this is really 2015 era. And he was so excited about at that time Bitcoin mining, and had done that for several years back and helped many people do that in Venezuela. And I was in the energy sector, so I was investing solar winds and a bunch of other hydro projects in the Canada, the US, Europe and looking at projects in LATAM as well.

Adam Reeds (08:58):

What I was seeing was yields going to zero. So starting, really I was doing that job since graduation, looking at different infrastructure projects globally, bringing in pensions and others. You had to have a situation where institutions were clamoring for these projects near the end, I just started to get that. In the mining sector, the hardest thing to do was timing the sale of your Bitcoin.

Adam Reeds (09:21):

You still had real world expenses. As you were setting up infrastructure, you had to be able to time it. And so as Mauricio was coming back, we decided to do some mining projects together. I was still working in the energy sector, investing in that asset class. And really from there, we obviously put some money together, set it up and then always screwed up the time, because we need to pay expenses.

Adam Reeds (09:41):

And then Mauricio was looking around and he said, “Okay, there’s a few potential options in the market, but really what we should be doing is looking at how to finance their mind is. Let’s look into that.” And so obviously now I’m seeing something that is infrastructure that we’ve done. Mauricio is seeing this huge demand for financing Bitcoin, because at that point, admittedly, I was newer to the asset class and didn’t really see the missing out of selling it and then watching it gain as much as he had.

Adam Reeds (10:08):

So kind of putting in combining something that he knew we never wanted to sell, my side of it was looking at institutions, seeing that they really had it clamoring for yield. And if we could put that together and say, “Okay, there’s a huge group of capital over here that actually wants dollars, wants to lend against, wants to lend dollars, wants return in dollars, bitcoiners will never want to sell their Bitcoin. And if we can marry that two concepts, we’ll have a pretty attractive yield product.” And so putting that together.

Adam Reeds (10:34):

And the other interesting thing was, kind of through that conception point is the conversations around an asset class as it matures changed dramatically. And what I was seeing was a little bit of a deja vu moment in the conversations around Bitcoin. Everyone was talking about the tech, everyone was saying it’s blockchain, not Bitcoin. How does the tech work? Every time you explained it, you were always talking about tech, tech, tech.

Adam Reeds (10:57):

The same thing happened when renewables were new, people said, “Well, how does solar panels work?” Well, they last 20 years. And I’m talking about very two different asset classes, but what’s similar about the two evolutions is the maturation of the questions and the intelligence of things asked about that asset class. And now we’re seeing that again. 2017 was about the tech. 2020 was about the economics of this. And the real value of something is the scarcity of it and really the true value of Bitcoin.

Adam Reeds (11:23):

So kind of that evolution is if we got in early and we figured that we structured something right, eventually the smart money would come and it would drive the cost down of financing. That’s what we’re excited to see, structure something well, and now watch big and institutions come in and really try to bring their large balance sheets in it, and finance it and bring the whole thing together. That was really the marrying of those two things and trying to put together the marrying of two different worlds.

Preston Pysh (11:50):

[inaudible 00:11:50] termed this a speculative attack, which is what Michael Sailor has done. Your company is basically like the speculative attack company of Bitcoin. Explain to our audience what your company does in layman’s terms.

Mauricio Bartolomeo (12:11):

It’s a very simple concept. We let people place their Bitcoin as collateral so they can borrow dollars against it and not have to sell their Bitcoin. And you can think of it in very simple terms as a mortgage for your Bitcoin. It is a loan that you get. You’re still the owner of that Bitcoin. The value of that Bitcoin is your appreciation or loss. Any kind of gain or change in the value of that asset is still yours, and all we’re doing is we’re just allowing you to finance or access financing based on the value of that asset. That is our flagship product, that is our Bitcoin backed loan. It is our most popular product today.

Mauricio Bartolomeo (12:49):

And those funds could be advanced in cash or stablecoins or USDC if you want. We also let people earn interest on the Bitcoin they already have. So it’s our Bitcoin savings account, and that just pays you an interest rate for having the balances. We lended out to institutions and we collect the spread. We have savings accounts in both USDC and Bitcoin. And you can move between Bitcoin or USDC to control your exposure to one or the other as you want.

Preston Pysh (13:17):

Now, what makes you guys a little bit different than some of these other lending, borrowing platforms that are out there is you guys have incorporated real estate into that part of the collateral, correct?

Mauricio Bartolomeo (13:29):

Yeah. The product that we just announced last week is a Bitcoin mortgage. What that product is, it allows you to buy a property worth the same value as your Bitcoin stack. If you have a million dollars worth of Bitcoin, you can use the Bitcoin mortgage to purchase a million dollar home. And essentially that product is different than the straight Bitcoin backed loan. It has obviously some trade offs, I guess, and some benefits for a few parts of how the product works, but we’re happy to get into those.

Mauricio Bartolomeo (13:58):

But in essence, the genesis of that product came because a lot of our existing clients were using our Bitcoin backed loan to buy houses in cash. And essentially, they kept coming back to us, because a lot of Bitcoiners are very Bitcoin wealthy, but they don’t … In the eyes of a bank, they’re not necessarily that wealthy, because the bank doesn’t treat Bitcoin as an asset.

Mauricio Bartolomeo (14:20):

And so because so many Bitcoiners use us for so many of their financing needs, a couple of them, several of them came with the same request. And when we started working with them, we saw a lot of people around their own circle get really excited about the product, and so we clued into the fact that there was this big demand for Bitcoiners to purchase real estate. The results after the announcement kind of speak for themselves. We’re very, very happy with so far the feedback.

Preston Pysh (14:49):

Walk us through the structure of this. Because when you start getting into the interest rates that are associated with borrowing money against your Bitcoin, the rates are extremely high, especially compared to traditional finance. A person can go out today. I don’t know what the mortgage rates are right now, but they’re really low. And I suspect, I don’t know what the rates are for this product, but I suspect they’re at least twice or maybe even triple the amount in interest rates. Walk us through what those numbers are, and then talk to us a little bit why somebody would be incentivized to go in this direction opposed to a traditional loan out of traditional finance.

Adam Reeds (15:31):

Yeah, if I can say. Maybe first off, it’s helpful to walk through how the traditional, or our traditional Bitcoin backed loan works, and then talk about the evolution of that. The Bitcoin backed loans, if you had a hundred thousand dollars of Bitcoin, we’d lend you $50,000. You still maintain ownership of the hundred thousand dollars of Bitcoin, whether the price goes up or down. In dollar terms, that exposure is yours. And then if the Bitcoin rallies, you can reset the loan, kind of take it so that your ongoing loan to value remains at 50%.

Adam Reeds (16:03):

And on the downside, what we always have to balance is we obviously have to fund that capital. And so the tricky part for the borrower is the top up that’s require if the price of Bitcoin declines in dollar terms and you have to add. This can be a nerve-racking concept because you have to get comfortable that the price is moving all the time.

Adam Reeds (16:20):

The price can move at unfortunate times in the night and we have to do our best. And a lot of the evolution of the product is making sure we provide as much notice as we can, but still in the absolute scenario, provide the right liquidation terms so that we can actually have dollars to lend against. That balance has been an evolution that not just letting many companies in the space have kind of worked through.

Adam Reeds (16:42):

And so what the mortgage does is when you instead just lend someone dollars they can do anything with, instead say, “Hey, what if you use those dollars to purchase real estate? And would you be okay with us taking a security position on that real estate as well?” Now we have one asset over here, that’s the Bitcoin, that collateral, that is moving, but, but quite liquid.

Adam Reeds (17:01):

And we have another asset that’s real estate that’s stable, but not as liquid. When we combine them and we look at the financing package today, together it allows us to provide a much more generous term to add additional Bitcoin. We still required that 50% loan to value, but what we’re doing is providing a lot more leniency as far as the timing, the batting additional Bitcoin. That’s the real value prop.

Adam Reeds (17:22):

And addition to that, we can also lower the interest rate. The interest rate that we’ve gone to market with in the pilot is really midway in between what a traditional real estate loan would be and what the Bitcoin backed loan would be. And this is really subject to market conditions as we get more. Really, we hope over time we can pass on as much savings as we can as more peace comes into it. But really, it’s blending all of that.

Adam Reeds (17:45):

And then the final value prop is doing everything in one place. It’s not an unknown fact that most Bitcoiners don’t love walking into Bank of America and asking for a loan. There’s a reason that they got into Bitcoin. There’s some frustration with the traditional financial system. I think the benefit of being able to do things all in one place provides some additional value as well.

Preston Pysh (18:06):

For me, looking at this from the out, and you guys got to correct me if I’m wrong here, it seems that the person who would want to do this would be somebody who has a substantial or half of their house paid off, or maybe the full amount of their house paid off, and they want to borrow against that in order to buy Bitcoin. Is that something that you guys offer, and if so, is that what you’re seeing playing out more often than not versus the other scenario that we were just talking?

Mauricio Bartolomeo (18:39):

It’s funny you mentioned that because … We’ve received that feedback so many times. In essence, the product, the pilot, the way it was structured was clients had Bitcoin and wanted to purchase a house. And that’s the way the product is structured for the pilot. But what we quickly realized was there was a huge demand for people that outright own their homes and would like to buy the same amount of Bitcoin.

Mauricio Bartolomeo (19:04):

We’re already working on that, and it should be essentially, I think, ready. Perhaps not immediately when the V1 mortgage hits, but within months most likely of it being announced. And the other piece I wanted to add just to frame the conversation around the rates for traditional mortgages. Because I think a lot of people talk about these 2% rates, 3% rates as if they’re very at the attainable. Anyone can walk into a Bank of America and get 2%.

Mauricio Bartolomeo (19:34):

Many people, I think, incorrectly think of a mortgage as a loan against a house. A mortgage is actually a loan against your cash flows or your income that is backed by the house. If you show up and you try to buy a $5 million house and you make $20,000 a year, no bank’s going to give you that mortgage. And so what many Bitcoiners face and the challenges that many people in the crypto space face is that, A, they’re either freelancers.

Mauricio Bartolomeo (20:00):

They don’t really have a steady stream of income. They don’t really have a steady or long-term employment history. And the other one is a lot of these people have made a lot of Bitcoin or digital assets over the last few years, so rightfully, many times they’re entrepreneurs, or they are … They just don’t have that cash flow stream that allows them to buy the house of their dreams.

Mauricio Bartolomeo (20:21):

Many times their current stream of cash flows will allow them to buy a house that’s half of what they want. And so by tapping into the Bitcoin mortgage, they can now purchase or use some of that Bitcoin to purchase the house that they want.

Preston Pysh (20:35):

Have you seen a scenario where people are taking a down payment or paying off a quarter of the house through a Bitcoin loan because they obviously don’t want that high interest rate for the full loan amount that’s helped them secure a loan, a traditional loan by borrowing against some of their Bitcoin for a portion of it?

Preston Pysh (20:56):

How does the bank, or at least maybe your experience, how has the bank kind of dealt with that? Because I know when people are trying to secure loans, a lot of the times they’re like, “Well, we don’t want to see any $50,000 or $100,000 last minute inbound checks to the account, because then that warps their perception of your cash flows to your point, Mauricio, on how they’re valuing your ability to pay it back. Are you seeing customers go in that direction?

Mauricio Bartolomeo (21:23):

Yeah. We actually did see that a few times, and some of those experiences was what led us to this product. Because what we saw actually a couple times were clients were coming in and taking large loans, like million dollar plus loans. Some of them openly said that it’s going to be the buy real estate. And some of them even said, “Hey, I’m going to look to refinance part of the house, and I’m going to be repaying a portion of this loan in a few months time.” And we said, “That’s great. We’d love for you to get a more efficient cost of capital if you can.”

Mauricio Bartolomeo (21:52):

But immediately, that clued us in into the fact that in these circumstances, some of our borrowers have the cash flows to essentially they’ll support the mortgage of the house that they wanted to buy in the first place. A lot of our clients were not in that camp, and they said, “I really would like you to do the mortgage entirely. I don’t want to deal with a bank. I really don’t.” And so we obliged. We said yes.

Preston Pysh (22:18):

And it’s interesting because with a lot of these loans, it’s just so convenient. Because from your perspective, it’s fully backed, right? With liquid tokens, it’s backed on a 24/7 market. You’re good. You can push them whatever funds, USDC or whatever, immediately. And you know that they’re good for it because it’s sitting right there on a 24/7 market, overcollateralized.

Preston Pysh (22:45):

People that are listening to this, it’s hard for a lot of people to wrap their head around thing that’s overcollateralized because there’s … In traditional markets you just don’t see something like that. How are you guys thinking about the storage of these deposits that people were making?

Preston Pysh (23:00):

If I bring some Bitcoin to you, I make a deposit, I’m taking out a loan against it. Are these shared multisig accounts? Are you guys the ones that are controlling the keys? How do you think through that problem? How do a lot of your customers think through that problem? I’m just kind of curious to hear some of your thoughts on it.

Mauricio Bartolomeo (23:16):

The way that the product is structured right now is we are a custodial company. We know the lending product that we offer is a custodial product. We do hold the keys for the collateral, for our loans. And the way the mortgage is structured, we will also hold the keys for the collateral for the Bitcoin on the mortgage product. What we are looking into as future iterations of the product is giving the clients the option to basically have their Bitcoin sit on chain so that they can essentially monitor their Bitcoins that is being part of the collateral for that loan.

Mauricio Bartolomeo (23:49):

Obviously there are some mechanical changes into that. There might be some price differences as well in the two options, just because the cost of capital frankly is different in the two forms of financing. But I think that we are always of the view that if this is something our clients want and it’s important for them, we want to give them the option to have it. And if the client decides that they would like to use one or the other option, well, that’s their prerogative. We’re just there to kind of offer whatever they prefer.

Preston Pysh (24:22):

You guys mentioned that you use USDC as a stablecoin. Why did you guys choose USDC versus some of the other stablecoins that are out there?

Adam Reeds (24:32):

Obviously the most popular stablecoin as far as circulation is Tether. Tether, I think, depending who you speak to, everyone has a different view of Tether. But from our perspective, we are a regulated entity in several jurisdictions, and the regulators do continue to have issues with Tether. In order to move forward a regulatory posture, we had to make sure to not support Tether at this time.

Adam Reeds (24:53):

The other piece is the one to one peg just simplifies it. I think especially for those that are newer to the asset class, we do see stablecoins as what you can call a gateway drug. It’s maybe easier to understand digital dollar than it is to understand Bitcoin. And then once you get into the digital dollar, understanding Bitcoin is a natural evolution from that. We just thought you can say it’s fully backed by dollars and show to one to one peg, and it’d always be priced at that.

Adam Reeds (25:20):

It’s just far easier to explain. We really got into supporting stablecoins because we were having challenges sending money to a lot of our clients internationally, especially in LATAM. Unfortunately for some of our LATAM clients here, almost guilty until proven innocent when it comes to income hitting your bank account. A lot of the times a client say in Columbia would have to defend that the $5,000 that just hit their account was not income, it was actually a loan.

Adam Reeds (25:44):

And that was all part of our evolution of providing all of our documentation in Spanish as well to support not only understanding of the products, but to support documentation and making sure that they could explain to different authorities that it is what it is. That was really why we supported stablecoin in the first place. And then to now, it just makes it easier to support many different things in the ecosystem.

Preston Pysh (26:05):

That was an interesting comment there about it not being income and it was actually a loan. One of the questions that I saw on Twitter, a person asked, “Is the interest deductible for income tax?”

Mauricio Bartolomeo (26:17):

We can’t provide tax advice. You have to consult with your tax professional. But in many jurisdictions, when you take out a loan and you use the proceeds to reinvest at a business, they can be taxed deductible. You can confirm with your tax professional.

Preston Pysh (26:33):

All right. I think we know what the answer was there. Mauricio, you passed. Your legal advisors would be very proud of you. When in the United States, when are you guys going to … Because you guys are just in Canada today, correct?

Adam Reeds (26:50):

A lot of our products are available in the US as well. We operate in many states. We have to follow state by state lending regulations. As far as the mortgage itself, the first pilot mortgages that we work through this year are in Ontario, Canada. But we’re receiving applications and inquiries from all over, so we definitely hope to support the US as quick as we can next year. So we don’t have exact time frames, but expect it, I would say, mid-2022.

Preston Pysh (27:17):

One of the things that I found interesting on the site is the term, the duration of the loan is way shorter than I would imagine people who are not familiar with the product are. It’s two year term. Talk to us about why the term is so short and whether that’s important, not important to the person who’s borrowing, because they can just roll it over again. They are going to get a different interest rate. But talk to us a little bit about that.

Adam Reeds (27:44):

It’s really matching tenure of capital. Today, as we’ve kind of talked about throughout this, we really have Bitcoin backed capital. What we’ve been doing and our finance teams have been doing is as we’ve been developing the mortgage, really expanding our tentacles as far as what source of capital we’re tapping into and making sure we can match those tenures. What we never want to do is overcommit on anything. Everything is matched.

Adam Reeds (28:06):

Actually, part of the ethos of what we do with Ledn is we try to keep the behind the seams framework super simple. When we launch a product, we match everything up and we’re really conservative on duration. So that’s that. We don’t have 30 year capital today in Ledn, but as things evolve, we expect to have this.

Adam Reeds (28:24):

Just when you sit down for traditional mortgage and you can select I want a two year fixed or five year variable term, we definitely would like to support all those different variations of the mortgage product and make sure we can match this. This is really just, “Hey, let’s get going. Let’s keep it simple to get the product out there. And then let’s really innovate by listing to our clients what they want.”

Preston Pysh (28:46):

How are you guys just seeing growth from when you guys started to today? Is it exploding? Is it a little stagnant? I’m just curious to hear your thoughts on the growth in this space.

Adam Reeds (28:57):

There’s so many opportunities, and I think that’s what makes it exciting to work in this space is there really is no competition because you have really smart people. There’s competition in the sense that other people are working on similar ideas in a similar space. But the mindset you have is all about growing the pie. Just because there’s so much interest coming in so quickly, everyone’s focused on expanding that and serving as many people as they can instead of taking from others.

Adam Reeds (29:25):

So that’s been great. I mean, I think just on this specific mortgage product, Bitcoiners surely want property. I think we were blown away. Mauricio actually tried to take a couple days off last week and couldn’t, because we were just so overwhelmed with the demand and excitement of the program that we’ve been advancing things even faster than we thought we’d have to.

Preston Pysh (29:47):

What excites you guys the most moving forward here?

Mauricio Bartolomeo (29:51):

That’s a great question. I’m excited, as I was mentioning to you earlier, because I feel like there’s been a sort of collective awakening by many people around what money is. And I think that you’re seeing it around the world and it is not just in investor markets. In the US it’s a very big problem because it’s been, I believe, the economy that’s injected the most cash into its system over the last 12 months.

Mauricio Bartolomeo (30:17):

And so typically, people in the US are never worried about inflation. But to have the US now worried about inflation, to have the types of things that you’re seeing in Europe where it is just going completely out of whack, and you’re seeing this sort of collective awakening of people saying, “Fiat is not an instrument for saving. This is the terrible instrument to build wealth. And I’m going to opt out of it, and I’m going to go into Bitcoin and I’m going to go into real estate.”

Mauricio Bartolomeo (30:42):

What I’m most excited about is being part of that massive wave and allowing the infrastructure that lets people do that. I say this sort of jokingly, but the fact that somebody in Maine can take a sliver of their paycheck and hedge inflation with the same instrument that Michael Sailor is using is incredibly empowering, incredibly. And so I don’t think that’s a trend that’s going to stop anytime soon.

Preston Pysh (31:08):

Any plans to go to Europe?

Adam Reeds (31:10):

Yeah. When we added Spanish and Portuguese to the platform to support LATAM, naturally we received a decent amount of applications from Spain and Portugal. We’ve seen quite a spill over into Europe on different products. We’re there in some basis. I think what we’d love to do is be as deep in Europe and other places as we are in Canada, the US and LATAM. The other thing that I think really excites us about the space overall is it’s unbelievable, even though it’s early, how developed systems are in the US for on-ramps on Bitcoin specifically and other Bitcoin services compared to the rest of the world, and even Europe.

Adam Reeds (31:51):

There’s so much opportunity everywhere else, in the US as well, but there’s just a lot way more to go, I think, in other places. And so that’s what really excites us is the world’s a really big place and the US has had the luxury of moving a bit faster. But I think the opportunity, at least that we’re focused on is making sure that other places can grow just as quick too.

Preston Pysh (32:12):

How does the appraisal for the house value work? Is it similar to when a person buys a house and they’re dealing with getting a traditional loan?

Mauricio Bartolomeo (32:22):

Very similar. Yes.

Preston Pysh (32:23):

Okay.

Mauricio Bartolomeo (32:24):

Essentially, it’s the same process. It’s typical real estate appraisal as if you were going to a normal mortgage process through a bank. Part of the things or something that interested clients should know about the loan is that basically Ledn has the right to reassess the value of the property at the end of the first year.

Mauricio Bartolomeo (32:42):

And essentially, that would be the way that we can reset the LTVs of the loan if there have been any moves, any changes in the value of the real estate and of the Bitcoin. The idea here is that if Bitcoin has rallied and you’re overcollateralizing the Bitcoin portion, that one year mark allows us, both the borrower and the lender, to reset the levels to their 50%.

Preston Pysh (33:07):

If a person has that in hand, that’s been done, I’m sure you require a certain timeframe within the last month or something, but if they have that valuation in hand, how long does it take them to go through this to let’s say they want to borrow $50,000 or $100,000 with real estate involved?

Mauricio Bartolomeo (33:25):

The process today, it’s not automated through the platform, it’s a manual process that is done through our key account managers. So each one of the clients that is going through the application process has a designated account rep that helps them go through the appraisal process and the full application. Right now, I think it’s a bit too early for us to tell just because we’re going through the pilot. But I think once everything is in place, it should be a fairly straightforward process, at least on this structure of the loan.

Mauricio Bartolomeo (33:53):

As we start getting into lower interest rates, longer terms and traditional capital gets introduced into the mix, the underwriting process might change a little bit and it might become a little bit longer. But the idea at the start is to have this be almost as frictionless as a Bitcoin backed loan for you to be in and out as simplest, hopefully a day or a couple hours.

Adam Reeds (34:14):

Like for today for B2X loan, which is a loan to buy more Bitcoin on Ledn’s platform, you can KYC in two minutes and you can send your Bitcoin on the next block in 10 minutes. You can literally have a B2X done in 12 minutes. With us, the only really timeframe is the appraisal. That’s a piece too where we’d love to innovate in the future. Appraisals are okay, but they’re a little bit … There’s definitely room for technology innovation there to make that process faster.

Adam Reeds (34:38):

And the big thing that takes a lot of time at the banks to go through traditional mortgage is all the income verification, W2 records, all of your tax and putting a point together that package. That doesn’t exist with our Bitcoin mortgage. It’s strictly what’s the home value, and how much Bitcoin do you have and making sure that your KYC properly so we’re following regulatory requirements. And so after that’s done, I could see us shortening up the timeframe significantly, and literally making it 24 to 48 hours if everything was all together.

Preston Pysh (35:05):

What concerns you guys the most?

Mauricio Bartolomeo (35:08):

I guess one thing that I think is maybe the elephant in the room, but perhaps not necessarily, depends on who you ask. But I think that Bitcoin’s weaving its way into politics, whether it’s El Salvador, whether it’s the US, whether it’s … You name it, politicians are talking about Bitcoin. My concern is that if we get Bitcoin pinned to one particular party and not the other, so Bitcoin becomes X party supports Bitcoin, but Y party doesn’t support Bitcoin.

Mauricio Bartolomeo (35:40):

And we go into this, for example, in a sort of a in a two pole system, you would potentially have this situation where you have four years pro-Bitcoin, four years Anti-Bitcoin, four years pro-Bitcoin, four years anti-Bitcoin, and you can get into like one hand building, the other one breaking down. And so I think I see that as a potential risk as in some countries, hopefully politicians can be bigger than this and see the light above it, kind of work for the best interest of the constituents.

Mauricio Bartolomeo (36:08):

But I think that politics is one of those things that it’s going great or it’s going absolutely terrible. And I’ve seen it go from great to terrible like that. And so that’s one thing that is on the top of my … I’m very jaded by politics, so I’ll caveat with that.

Preston Pysh (36:23):

I think most are getting there with you. I notice that it’s just Bitcoin. There’s all these coins out there. How are you guys thinking about that as you guys structure your platform and what you’re accepting as collateral for very substantial sums of money?

Adam Reeds (36:41):

Yeah. I think we have a philosophy at Ledn that the best restaurants have the smallest menu. We’re trying to make sure that we limit choice, not to limit a client choice, but just to make sure that we don’t clutter things up for no reason about a lot of thought. I think we saw some of the other lending platform, different tokens, like XRP and then ran into not only regulatory issues, but client issues when they couldn’t liquidate collateral and such.

Adam Reeds (37:06):

We definitely have no plans to support a whole bunch of different clients. We have considered adding Ethereum and such to the platform, but we haven’t formally announced anything yet. And we’re actually still working through that on our road map. Our next piece that we’re working through is adding feed on ramps to the platform.

Adam Reeds (37:22):

So adding the ability to more easily send and receive dollars to make sure that obviously it’s still a fairly simple thing to do in the US, but it’s a lot harder to do in other markets. We want to make sure we support that first and then we’ll see how things grow from there. But the first part is making sure the products we have are robust. We have a lot of innovation that we want to do on loans first and then we’ll see how next year goes and how different popularity of different assets shakes out.

Preston Pysh (37:47):

When I’m looking at the type of person that would just be taking out a standard loan against their Bitcoin and paying a higher rate than what they would going through traditional finance, the only thing that really kind of just makes a lot of sense to me is they just don’t want to deal with the admin bureaucracy.

Preston Pysh (38:06):

And they just want access to working capital, to make a quick payment, pay it back a month later or two months later. And the hassle that was saved far outweighed what they would’ve had to have gone through, improve, “Hey, I have this much free cash flows for my business the past three years,” and go through that whole process, right?

Preston Pysh (38:27):

Like you said, they can literally take out a $300,000 loan in 12 minutes, or whatever it is, and then pay it back a month later. And this just, it’s too easy, right? Is that your typical person that’s using those types of services, or what would you say is the typical person that’s using the service? Because the interest rate we’re talking about is, what, 6%, 7% for the scenario that is just described to go borrow $300,000?

Adam Reeds (38:50):

Yeah. The interest rate on our Bitcoin backbone without real estate is 9.5% today. So that’s ebbing and flowing depending on where it is. I think a couple things on that. For the person that owns really only liquid Bitcoin assets today, and doesn’t own really any other substantial asset and wants to buy a home, our recommendation for that is if you’re strictly focused on rate, we will not compete on the Bitcoin backed mortgage today on a blended rate basis with a traditional mortgage, especially rates immediately.

Adam Reeds (39:23):

We hope to be able to in, let’s say, six to 12 months from now, but the product that we have immediately is not a 2% product. Our recommendation is still use Ledn, take a Bitcoin backed loan or the down payment on the home only, and then source a traditional lender.

Adam Reeds (39:39):

If you want the convenience that some of our clients have done, source the whole thing through Ledn, type a bit more Bitcoin that you’d like. And then as you just illustrated, repay the portion of the loan, refinance it with there’s no repayment fees with Ledn, so you could refinance it and pay it down without any issue to do that.

Adam Reeds (39:57):

So that’s probably for the person that’s rate sensitive and is planning to the exact penny, that’s the recommendation we would give. But keep in mind what we were talking about earlier is you have to have income to qualify for that. You’re still going to have to show your W-2 is substantial enough to support that traditional loan.

Adam Reeds (40:14):

A lot of clients are coming to us that are Bitcoin entrepreneurs or traders, have done other things. They may be worth millions, but they don’t have that cash flow that the bank mortgage can support. In that scenario, the Bitcoin mortgage makes sense for you.

Preston Pysh (40:27):

How much are you guys paying for a person making a deposit? What’s the interest rate there?

Mauricio Bartolomeo (40:33):

It’s 6.25 on the first half of Bitcoin and 2.25 analysis above that. And then for the USDC savings account, it’s 9% APY.

Preston Pysh (40:39):

When I’m thinking of those interest rates, and I’m looking at what traditional finance interest rates are, let’s just say it’s 3%, right? Let’s just say a person wanted to deposit a million dollars with you guys. The interest that’s being received off of that deposit, assuming it can hold its million dollar valuation, is covering the loan interest payments, right? If the person would go out and borrow a million dollars in traditional markets at 3% to buy a house, or they could deposit …

Preston Pysh (41:14):

I guess what I’m saying is they’re doing both, right? They’re getting the traditional loan for 3%, they’re making a deposit with you, which is going to pay them higher than that payment that they have to make to the bank. Is there something in the future where you guys are going to try to smoosh these two things together to allow the person to basically deposit their Bitcoin and you guys basically make the payment to the traditional lenders?

Adam Reeds (41:37):

I think it’s where the structure of the market is. Right now, the yields that are available on Bitcoin. When we lend Bitcoin, the market for institutional lending is around 3% to 4% today. That level is what you can pay on Bitcoin. There’s a tier system that we do. We pay 6.25 on the first Bitcoin and we pay 2.25 on the amount above that. That blended rate allows us to keep those rates sustainable.

Adam Reeds (42:02):

I think that the comparison is really on the dollar side. On the stablecoin side, we paid 9%. As we mentioned earlier, our Bitcoin backed rate is 9.5%, plus we have [inaudible 00:42:13] on there. That makes the spreads of the dollar side comparable. But I think really what we’ll see in the future is, hey, maybe one day the rate on Bitcoin yields will be higher than rate on dollars, just given the dynamics of it, right?

Adam Reeds (42:26):

But right in the current market, there’s more people that … A way I always think about it is the reason dollars are higher in the space is I think if you said to someone who’s familiar in the space, “Do you want to lend dollars? What’s my risk?” “Bitcoin.” Well, why wouldn’t I just own Bitcoin? Bitcoin went up X percent this year. I think the supply, demand curve is really tweaked on dollars in the space compared to Bitcoin, because a lot of people just want to hold Bitcoin.

Preston Pysh (42:51):

Yeah. Boy, oh boy. It is getting exciting. And I mean, just listening to you guys describe the different rates and then you’re looking at the traditional system, you can see how as this matures in the coming five years, I just can’t imagine the growth rate and how this is going to just … This is turning. It’s already turning into a monster.

Preston Pysh (43:10):

The stablecoin growth rate is just … I think it’s blowing the hair back on traditional finance, the amount of coins that are being minted and being put into circulation because of the demand for immediate clearance 24/7, it’s just wild.

Mauricio Bartolomeo (43:28):

Not to mention, it is actually banking a lot of a bank. X recent gas fees issues that we’ve been having, because transparently right now you can’t really use stablecoins on Ethereum. A normal human cannot afford to use them for their everyday life. But six months ago, a little bit … And right now, mind you, I have heard from people in places like Venezuela that are using stablecoins on things like Solana.

Mauricio Bartolomeo (43:56):

People find their way through innovation to solve their own needs, and it’s remarkable. It’s not fancy software developer engineers, I’m talking like real people are actually going out and reaching and finding a different option because they just don’t want to pay a hundred bucks in fees. Barring that aside, what I think is fascinating about stablecoins and hyperdollarization in some ways, is that it is actually …

Mauricio Bartolomeo (44:22):

If you look at some of our clients, we have clients that live in certain remote parts of Mexico. And for them to go open a dollar bank account somewhere is a day’s trip, or sometimes they don’t even have a way to get there. And many times these people found their way through Bitcoin, they bought it on local P2P market, and they want to access some of our services, and our experience, I think, speaks a lot to what stablecoins is doing for people. Because it came from clients asking us to fund our loans in stablecoins.

Mauricio Bartolomeo (44:53):

And these were clients largely in LATAM, so over 40% of our loan clients are all in Latin America. And so it is truly giving people in very far reaching parts of the world access to a stable savings account or a stable savings instrument, which I know might seem trivial for anyone that grew up in Europe or Canada or the US, but a dollar is the all mighty dollar anywhere outside of those three countries. And people will go to great lengths to not hold their local currency and hold dollars instead.

Preston Pysh (45:30):

Gentlemen, this was a blast. I learned a ton. Give people a handoff where if they want to learn more about your company, they want to learn more about you, where they can find it.

Mauricio Bartolomeo (45:41):

You can follow us @hodlwithLedn. That’s our Twitter handle. And for myself, you can find me @cryptonomista. And you can also check out the Bitcoin Economic Calendar, which is a newsletter that we write. And it’s actually free for clients and non-clients as well. But yeah, that’s where you can find us or myself. Adam, you can give yours.

Adam Reeds (46:00):

Yeah, sure. Mine’s pretty easy. It’s just my full name, Adam Reeds on Twitter. And our website is L-E-D-N.io.

Preston Pysh (46:07):

We’ll have links to that in the show notes. Gentlemen, thank you so much for making time and coming on the show.

Adam Reeds (46:13):

Thanks so much, Preston. Appreciate it.

Mauricio Bartolomeo (46:14):

Thanks.

Preston Pysh (46:15):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin specific shows come out every Wednesday and I’d love to have you as a regular listener. If you enjoyed the show, or you learnt something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. Anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

Outro (46:48):

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