Interviewed By Emmanuel Daniel
Aside from her role at Provenance, Ou is also the president, chief operating officer and co-founder of Figure Technologies, the financial technology company that she co-founded with her entrepreneur-husband Mike Cagney.
The couple was previously involved with Social Finance Inc., an online personal finance company that assists students in the US with their private loans.
A non-profit organisation that finances grant programmes that delve on ecosystem projects, the Provenance Blockchain Foundation runs the Provenance blockchain developed by Figure Technologies. Provenance was originally introduced in 2018 as a permissioned blockchain. In May 2021, the foundation replaced its blockchain with a new permissionless version, which it described as “a public blockchain network designed and developed to support financial service industry needs by providing a ledger, registry and exchange across multiple financial assets and markets”.
The following key points were discussed:
The following is the edited transcript of the interview:
Emmanuel Daniel (ED): I know nothing about decentralised finance and how it’s revolutionising the financial services industry as we know it to be. I know everything I need to know about how loans are originated and how they are securitised and taken off the books of traditional lenders. But today, more of those loans are being put on a blockchain, tokenised and traded openly in the marketplace. And I'm very happy to be able to speak to June Ou of Figure Technologies, who's going to explain to me how it all works.
I'm very happy to speak with you June Ou and I know you as the co-founder of Figure Technologies that launched Provenance Blockchain Foundation. Thank you for speaking with me today. Just give me a sense of what is Provenance and the organisation that you started with because when I first came across the idea that you're a blockchain company and then you did permission-based systems, I figured that you were a vendor to users. But you're not. You’re a blockchain in your own iteration and you have a token called Hash. So can you go through with us very briefly what is Provenance and how it's organised?
June Ou (JO): Provenance Blockchain is a sovereign blockchain. It uses the Tendermint consensus engine and it also makes use of the Cosmos SDK. We built it as a platform to help financial institutions transact, reducing costs and time for any of the transactions that they might want to execute.
ED: Just a little bit of history, when was the organisation started? Who owns it? And how is it organised?
JO: We started in January 2018 as Figure Technologies and we started Figure diving pretty deep into blockchain, wanting to build a platform like Provenance on the blockchain because many of the people in the beginning of the company are familiar with lending and understand the challenges of execution of lending from a sales perspective, warehousing and securitisation, and really felt that blockchain would be a solution to some of these efficiencies from a cost and time perspective. So when we started to think about what that might look like, we then went to some of the larger organisations in New York and tried to see if they would work with us on building this. Now, they all thought it was a very interesting concept but they weren't ready for it. They said look, we're not ready for it. We will work with you on a proof of concept.
Transforming financial services
The thing about us and the team here is we like to put things into production because that's the only way you know that it works or it doesn't. If it doesn't, then you fix it. But we wanted to put a blockchain in production with actual assets on not just with crypto but with financial assets like loans. We know the lending business really well so what we ended up doing is we built a lending business, in part it was to exercise the blockchain and really de-risk the platform that we were building and show the world it actually does work. That's sort of the genesis of using blockchain technology with Figure. Within a half year, we decided that the name of the blockchain would be Provenance so we've used Provenance as the name of the blockchain for a while and it probably didn't catch your attention until we went public because we changed the way that we built it. In fact, we completely rebuilt it. So in the beginning, there weren't a lot of protocols that made a lot of sense because ultimately, we're building an enterprise software system on top of blockchain, which nobody's really tried, because it's hard. So with all of the blockchain protocols out there, majority of them are really focused on crypto. So the one that we thought would make sense was Hyperledger Fabric. So we used Hyperledger Fabric in our initial production system and we boarded loans starting in July 2018. Then we started to sell loans probably by October-November 2018 and 2019, we had warehouses and so we started to bring on buyers of the loans hold on buyers. And the larger institutions said we want to buy your loan and they wanted our assets but they didn't want to buy them off blockchain. So they said if you will sell them off blockchain, it's 100%, we're there. If it's on blockchain, it's 50%. And we have to go through all the compliance which goes through other departments. So for us, it was really a calculated risk where if we let them buy our assets off blockchain, they would never buy on blockchain or it will just take a long time for them to turn around. So we went to smaller institutions who were like, sure, no problem. They saw the system that we had. The system, when you look at it, there's an application sitting on top of the blockchain. That's what you look at. So if you're looking at a loan, you can see all the data, you can see all the documents, you can see the validation we put in place. That made them very excited because that's normally not what you would see when you buy a pool of loans. What you would see is just a loan tape with a set of loans, the documents themselves, the auditor would look at these, or the trustee. Somebody else would look at these from a compliance perspective. But the buyer, the capital markets team, for example, wouldn't necessarily see those documents. And so for them to see it all in one place, they could download a tape if they wanted to, that really appealed to them. So we ended up with a number of buyers and then people started to feel more comfortable with what we were doing. We've ended up with a significant number of buyers from an institutional perspective of our assets. So we started warehousing and then in early 2020, we executed our first securitisation and there's been two subsequent from there.
ED: Do you have a balance sheet? When you originated your loan, do you take it on your own balance sheet and then you securitise it? So you're actually in the lending business yourself? How did you fund that part of the business?
JO: So we are state-licensed lender. We do fund off the balance sheet. There are many times though that the warehouse comes into play. So we'll set up a structure whereas the loans come in, the warehouse funds it pretty quickly after the loan is originated. Maybe two days after it's originated. So that helps us such that we don't have to have a bloated balance sheet for the lending part. So there's a bit of finesse and making sure we have the right vehicles in place so that we have the capital that we need for the funding aspect of the business.
ED: And you have other functionalities on your platform, you have a marketplace, your payments, you know, and something called instant traceability at Adnales. What's that?
JO: So that ended up itself as a cap table management system. The reason that we built that was really not necessarily to compete in the cap table management world. But because we felt that this could be an exchange, it can be a marketplace slash exchange. And so you have a private company that allows their employees to sell assets in a secondary, for example, instead of having a secondary with a set price, you can have an exchange. So we have a broker dealer licence with an alternative trading system (ATS) exemption, which allows us to run an ATS. So it's not an exchange per se, because you need a different licence for an exchange. So it's an ATS for digital securities. In our case, because we have that broker dealer with an ATS exemption, we are allowed to trade figure securities, figure stock, which are securities on our exchange if we wanted to, which we do, and we are actually gearing up to do that, hopefully in the next month or so.
ED: How do you actually originate a loan? Do your customers come online? Do they buy a token from you? How does that work? And how does Hash, the utility token that you have, how does that work into your interaction with customers?
JO: The application for a loan, it's a regular digital application. So you log on to a website and you fill in the application. Then on the backside, there are customer service representatives who then may or may need to process it for most of our loans. We try to automate as much as possible. We can't automate 100% things like mortgages for a lot of different reasons. But for our home equity loans and equity lines of credit (HELOC) products, and our personal loan, which is an unsecured product, we automate probably 99% of it. So all of that, it's just an online application. When the application is complete, which means everything has been approved, we've done all of our underwriting checks, it's boarded onto the blockchain. The way that we built the public blockchain is we have a contract execution environment that you have lived in your world. That's where you hold the private information, for example. So for each borrower, you have their name and their address in there. In the US, you have your social security number and date of birth and that's all private. You don't want that to be in the public arena. So we hold that in the contract execution environment, we encrypt it, and then we hash it, hence, the term hash. And that hash is now on the blockchain. It gets loaded onto the blockchain. So now you have a representation of that loan in its entirety. That happens before the loan is funded. The system will then inform the blockchain with a smart contract to fund the loan. This is where a marker comes into play. We call it stablecoin but I know that some people get confused as to what stablecoin is and some of the risks behind it. But our version of the same coin truly is there to memorialise the fact that the funding has truly happened. So what we do as the originators, we would put money into an account or that account just lives there as our funding account. The blockchain can see that there is the right amount for funding, creates the stablecoin to show that we've created it was ours, we move it into the loan account and then that marker gets released into fiat currency that then gets transferred to the borrower. Now the loan is funded. So we know with absolute certainty because we're tracking the money movement that that loan has been funded. Once that's complete, the loan goes into servicing and moves into a servicing system, which we have. Then every payment that comes in happens similar where there's a stablecoin that memorialise the fact that the borrowers have paid and they've paid on time. So you can see the system in real-time what your portfolio looks like any given day at any given time because it's there, because as the payments come in, the blockchain marks it.
Promoting greater transparency
When COVID-19 happened, a lot of our buyers really thought it was interesting to view their portfolios on the system because they can see it's a little bit of a forecast. Normally you would get a report on a monthly basis. You wouldn't know until that next month that maybe 20% of your portfolio has defaulted on that payment for that month. That's some of the things that we worked towards. We want this system to be real-time settlement and real-time transparency so that you can manage your business much more efficiently. You can put your money to work much more quickly. All those types of things that I think that the financial institutions sort of grapple with.
ED: You use the word stablecoin and Hash digital token or utility token. Is there a valuation associated with that? On the lending side? Or in terms of securitisation? Do they buy the token? Or do they buy the information on the asset?
JO: These are two different things. The stablecoin is a coin, a token, if you will, that helps us memorialise any money movement that happens in a financial transaction. Hash, on the other hand, is a utility token that is used to pay for gas, for any transaction that is executed on the blockchain. So if you want to transact on the Provenance blockchain, you will need some Hash to pay for the gas that it takes to complete your transaction.
ED: So that's definitely a source of income for you.
JO: Well no. We have a validator network and that validator network stakes Hash to be a validator. This is sort of a typical validator network proof of stake process where the validator will get a reward for participating in any transaction that's complete. And if you're the proposer, you get an extra reward to be that proposer. But the way to increase your Hash stock is to be a delegator into the validator network or to be a validator yourself to then earn rewards within the system based on the transactions that are happening.
ED: The validators are participants in the lending or are they owners of the stablecoin?
JO: A public blockchain is public because there's no central authority. If you think about a financial institution, or any institution out there, when they run their systems, they have a database. So for a normal lending company, when they lend, they're originating loans. They're holding all of their data and their documents in the database. So if you were buying loans from that originator, you need to get the data in the documents from them. In a public blockchain, you're still an originator, and you're still holding data, but now you're putting the data on the public blockchain. When you put the data on the public blockchain, you now have validators. Now, the validators are nodes that are participants in the ecosystem. So they say, I believe in this blockchain. I'm going to spin up a validator which is a term to start up a server. That server is a validator on the network and then in order to participate, you have to stake Hash or delegate Hash to yourself. Then while you're there, other people can delegate Hash to you. You can decide to pay commission to those delegators because they help you become more active in the validator network based on the number of Hash that you have as a validator. The more Hash you have is proportional from a round-robin perspective. If you have 5% more than the rest, then you'll be a proposer 5% more times in the grand scheme of the transaction. So the information sitting on the blockchain is governed by the validators and some of it isn't business logic, per se. A figure wants to onboard a loan, here's how much it costs from a gas perspective. The validator says I'm willing to propose this transaction. So they propose it to the remaining of their validator network, who then say, we'll do this, the gas has been paid. Let's complete the transaction. Now our loan is boarded onto blockchain. So if you think about Ethereum, because that's one of the big ones out there, Ethereum at the moment is not proof of stake. It's very expensive and it's very slow. So they also have a concept of gas. They also have a concept of a validator network. So when you try to transact on Ethereum, it will take a long time but not as long as Bitcoin or there are more transactions happening in theory because it's been out there and a lot of people have been glooming on to it so you can actually earn quite a bit of ETH if you are participating in that particular network. So if you own some, you can actually stake it to other validators to earn more.
ED: I'm trying to construct this from what you're saying. So the validator is like an owner of a crypto and by participating, is rewarded with a value around the Hash that he owns. What is the size of the validator network? And how is the community growing? How much have you raised on the validator network Hash?
JO: When we had our initial incarnation of the blockchain, we had about 12 validators because that's really all we needed. And those validators were all financial institutions. They were all like Franklin Templeton, some well-known financial institutions. When we switched to the public blockchain, we talked to them and we said were going to shut down the old blockchain, which means your nodes are going to be shut down. We were helping them manage that because many of them don't have technical departments that can do that. We would like you to be a validator on the new network. It's a brand new blockchain that is public. What we said to them was, you don't have to, there's no obligation. However, if you would like to earn rewards, earn more Hash, then this is the way to do it. Either you stand up a validator or you delegate your Hash to an existing validator. So we've launched our public blockchain in June. We don't have a ton of validators on. We would like a minimum of 20. We have a few companies like Bison Trails and State, and Blockdaemon who have offered their services for the financial institutions that don't have the technical capability to set this up for them to contract that to Bison Trails to run the validator tech for the. So we have State and Bison Trails on right now. So we're continuing to talk to many people about being a validator and they're all very interested. But they all have an education process that they're going through because many of them are not in the blockchain world or the crypto world. So they're trying to understand what we did and why it's different. Why the platform is different from the other systems out there. But we have many people who are interested and it's just a matter of them speeding up the whole system to get going.
ED: Here's the important question for someone who is from the financial services, the traditional players. What were their initial reactions? What were their concerns to support your validator going public? Given that financial institutions generally would like to keep it within a no-network permission-based system. And how do you see this taking off because you're actually moving from institution to public? What were their initial concerns and that whole transition to permission? What is the motivation also because once you go public, the value ascribed eventually will be a little bit out of your control? I get this impression that you will not be in control. If I'm a banker, what would my concerns be?
Issues on user privacy and security
JO: Initial conversations with sort of new context within a particular institution is you have to do a little bit of the education of what a blockchain is. In terms of the public aspect of it, they have a lot of questions about security as they would for any other system that they might be contemplating. Have you done a security audit? We've had multiple penetration tests. We've had code reviews. We've had many security audits on the system because we knew that people would be concerned about that. They also want to know if there is private information that shouldn't be public on the system. What I say to them is that it is up to you. You can decide what is public and what isn't because of the system that we've built on top. This system we built on top is the one mentioned earlier. There's a contract execution environment called PID, which is a piece of software that will live in your world. So if there's some data that you do not want to be put on blockchain, you hold it there, you encrypt it, and you hash it and you can put it on the blockchain. Now, transactions that happen on the blockchain will be public. It doesn't mean that they can identify who you are. But there is an identifier. So if someone's sort of trolling the blockchain and kind of just watching and kind of understand what some transactions are happening, they may be like this ID, could be Morgan Stanley. Because they understand that they are an active user on the system. They might be speculating that's a large institution because there's a large set of transactions happening there and we know that they just did a securitisation. So there are things that you can do to be less conspicuous if you need it to be that way. But at some point, there will be many institutions on that it doesn't really matter. So you don't have to go through those links to figure out who's doing what.
ED: How much technology does a validator need in order to participate? Especially in a permissionless architecture, do they need to be active participants? Is that something that you can do passively? And when you participate in a proof of stake, do you have to go look for other participants to help you complete the transaction? What does the validator need to do on this side?
JO: The validator doesn't really need to do anything once they have their technology up and running. They can set certain configurations of what they want to agree to or not on the system, meaning, maybe their threshold for payment of fees is a little bit higher. So they can set that if they want. They can set them lower so they accept lower fees. They also participate in the governance of the blockchain. So there's voting aspects but they are probably alerted to those proposals that come up. But in general, once you stand up the system, all it is really is maintenance and making sure that it's up 24 hours a day.
ED: I've come across other systems like Anchor is a protocol where it becomes an investment token where the public can participate in the investing and the lending. In other words, it’s very peer-to-peer. Is your platform heading in that direction to become eventually peer-to-peer? Or is it still an original and securitised type of a model?
JO: This system is very flexible. It can be used for peer-to-peer as well as business-to-business or business-to-consumer. We have a pay product that is merchant-to-consumer. It can be peer-to-peer in terms of you can send money to your friend or your family. So there is a consumer aspect to this, consumer-to-consumer aspect. There is really no limit to any application that anyone might want to run on our platform. What we've done, however, is we've built an enterprise system on top of the blockchain so that you can transact lending or if you wanted to board a fund onto the system and you wanted to sell subscriptions to that fund into the marketplace. So that's sort of explains a little bit of our marketplace. Because if you wanted to appeal to a large audience for a particular fund, you can place that fund on our marketplace, it’s on the blockchain and advertise for subscriptions based on the regulatory requirements of the investors. We also have a passport product which is from a US regulatory-perspective. We'll do the know your customer (KYC), anti-money laundering (AML), Bank Secrecy Act (BSA), and we'll also have an accredited piece of it which will look for your assets and your liabilities and determine whether you are truly accredited. We have the attestation piece. So there are different degrees of the passport that we might need to use for any particular fund that wants to put their fund on the blockchain to sell pieces of it. So in speaking about a token, yes, the fund would sit as a token then you can split that token up into as many infinite parts as you want to sell.
ED: I'm getting stuck at the point of token because the moment it's a token, it becomes in my mind an asset that can be traded between people that have nothing to do with you. They can actually buy the token and trade it.
JO: A lot of blockchains out there talk about tokens and trading tokens and that type of thing. You can do that. That's super easy to do. You just create a token in your trading. What we have on our platform is we actually have financial assets that hold value. You can think about each of our loans as an non-fungible token (NFT). But our NFT truly has value on the system. When you're trading that NFT, you are trading the value of that asset, whereas there's other blockchains that will tokenise but the asset itself is still offline. It's still not truly on the blockchain. For us, the loans that we are holding on our blockchain that we haven't sold and taken off the blockchain, because we do that sometimes, if you try to trade that offline, it's invalid. It's an invalid transaction because the system of record for the loans that we hold on the system that our service on the system traded and securitised have to be traded on our system, or at least our system has to be notified that token has traded somewhere else. So that's the difference in what we've built versus what some of these other blockchains have built and the evolution of what we've done because it's very difficult to do. It's not an easy system to build. It's just not easy because it's an enterprise system. It doesn't happen overnight.
ED: Now that you're using NFT analogy, when your token has a value that is determined by the market, is that a validation in itself and can it take a life of its own where it's traded? I know that in your case, the token carries the transaction, the database, the data of the of the transaction. You're saying also that it has to be traded on your system, so therefore, it's somewhat permissioned.
Minimising third-party interruption
JO: Well, I'm not saying it has to be traded on our system but our system has to be aware that that transaction has happened. So part of the reason that we chose the Tendermint-Cosmos infrastructure is that they are very much advocating and focused on the inter-blockchain communication (IBC). That just means that blockchains can talk to each other. So we're very much of the mind that there will be multiple blockchains out there. The scenario is here's a pool of loans that we've sold to another institution. They want to sell that pool of loans to someone else but that someone else is on a different blockchain. Now, this is kind of a pie in the sky, like it hasn't happened and it's a little bit theoretical, but they could theoretically have a representation of that loan pool on a different blockchain that then trades over there. But we are aware of it. It's sort of the same analogy of a wrapped Bitcoin trading on Ethereum. So you've wrapped Bitcoin so that you could trade it on Ethereum platform but under the underlying asset is still Bitcoin and any trading of that needs to ultimately go back to the Bitcoin chain. So Bitcoin knows about anything that happens on the Ethereum world because it's wrapped and it ultimately goes back in the Bitcoin. Something like that could happen where there's a pool of loans or there's a bond and that bond gets sold on another blockchain. But we should know about it, because ultimately, that asset lives on the Provenance Blockchain. So it doesn't mean that we want to be a permissioned and closed system. It just means that we have to have connectivity with another blockchain.
ED: And just coming back to the origination. Why would a customer take a loan? Do they get a loan from Figure Technologies or from the Provenance Blockchain? Which do they borrow from?
JO: Technically, they borrow from Figure Lending which is the entity that holds licences. So Figure Lending is the originator and Figure Lending is making use of the Provenance blockchain.
ED: What is the key selling feature of Figure Lending? Is it the price of the loan? Is it the convenience? Why Figure Lending and not someone else?
JO:Now you're kind of going into the normal competition with other vendors out there. With our HELOC product, it's a slightly different product than the traditional HELOC where you get the entire distribution once the loan closes. Because a regular HELOC is a line of credit where you are approved. If you don't need the money right away, you don't have to pull it down. For us, we do distribute the entire thing. As you pay it down, you can then borrow back the full amount. It's a little bit of a hybrid model for the HELOC. It's a better product on a personal loan for a homeowner because the personal loan products cost more. The HELOC is definitely more cost effective, especially if you have quite a bit of equity in your home. If you have a lot of equity in your home, you should take the HELOC out and go use that money for something else because you might as well leverage the home that you're in.
ED: Give me a sense of where this technology is leading the industry. Eventually, how do you see it playing out? And on the token side, will it take a life of its own, become an industry in itself? Then on the loan origination side, that's traditional lending and securitisation. That's the clear part, it’s simple. Where do you see it evolving as it goes along? Do you think that a blockchain-based lending platform is superior or just an alternative at the moment?
JO: If we sell a pool of loans to Institution A, Institution A hires a number of third-party vendors to help them assess what we've done. So a lot of these auditors, they're around because nobody trusts anybody. So what they do is they come in and they audit the loan to look at Figure Lending. Does it do what they said they were going to do? Which means we have a credit policy that an underwriting box. Was this loan underwritten within this credit box or did something happen? And it was originated outside of the credit box, which means it was outside of policy, which means, it's a defect. So the auditors will look at all the numbers and look at all the documents and it costs a bunch of money. Then that Institution A completes their transaction then calls five years later and say I don't want this loan anymore, for whatever reason. They want to sell it to somebody else. You got the same auditors or different ones to do the same exact thing that they did when we sold that loan pool to Institution A. There's a lot of redundant work here because they're going back over all of the things the original auditor did, not necessarily the recurring payments or non-recurring payments, although they bought it like that. But they go all the way back to look at the original state of the asset, how it was originated, what the underwriting box looked like, all that same stuff. Then if you do a securitisation, they do it again. So there's a lot of cost involved and time involved in that type of activity. When I talk about automation of the lending application, that's what I'm talking about because if you automate as much as you can then codify and create a validation smart contract to do that validation once that loan is boarded to do those checks of the originator before you even fund the loan, which is the kind of what we do. So once you have that and you have a report that says all the validation checks have checked out, you might have a few defects, you take a look at them. A lot of loan buyers look at defects and some of them say we don't care about that. That's not such a big deal. Some are like, I don't want that loan, because that's a big deal and it's going to affect the loan strat look of the asset. So for us, that piece of it is really big. Every transaction has a pool of lawyers that create a pool of documents. For example, the securitisation market is really all about the entities that need to be involved to get to the place where they issue the bonds. There might be four or five entities that the pool of loans has to move through to get to the end state, which I was saying why we're using blockchain.
ED: The more digitised it is, you can actually trade it more easily, it becomes more liquid. Everybody's liquid. Everyone can buy and sell the portfolio or even individual transaction. Provenance Blockchain Foundation, is that the organisation? And why is it a non-profit foundation? And where are the revenue fees for your organisation? Where do you make your money from?
JO: Provenance Blockchain Foundation is a foundation that's literally there just to promote the development on the blockchain. So they might participate as a validator on the network. But the governance of the Provenance Blockchain is held by the stakeholders which really means the validator network on the platform. So any proposal that comes forward, the validators and the delegators have a voting percentage that they get to vote.
ED: So the foundation, is that the technology company that updates the technology and all that?
Technology maintenance and upgrade
JO: The foundation is responsible for the base Provenance protocol blockchain coding. So they don't own it, per se, because it's open source but they are responsible to make sure that the protocol level code is working properly. They will maintain it and they will upgrade it, and they will create features on it. But they're sort of the base foundation for the blockchain for any of the tool providers on top, then the originators and the actual end users of the system on top. So the developer community we would like to create is the developer community to build on top of the blockchain. The foundation developers will just be there for support on the documentation as well as the code itself.
ED: Figure Technologies, so what's your revenue like? Where do you make your money? In a model like this, there’s the funding side and there’s the income side. So give me the capital side.
JO: Figure Technologies has Figure Lending. So from the Figure Lending side, we make money by selling our loans or securitising. So that's a normal lender-type revenue stream. The broker dealer, for example, will charge a broker dealer fee for anybody who wants to use the ATS. Our pay product has a lending aspect to it so we'll do point of sale lending for anyone who's trying to buy a washer dryer and they need a little bit of a loan. We'll give that to them. So they make money off of that. There are fees on the pay product but are significantly less than the regular interchange fees.
ED And the stablecoin, is that a source of capital eventually? Does it take on a price of its own?
JO: So we're talking to several banks about creating, burning and minting stablecoin. For them, it could be that they want to charge a fee for the minting and burning but they also really like the float. Because if we're transacting and using them as our stablecoin bank, we might sit millions of dollars in their institution where they would earn on the float sitting there.
ED: The float is an income for the bank that is underwriting the stablecoin. Is that what they do?
JO: All they're doing is providing the mechanism for the transactions to prove that the fiat money has moved. So if we're selling an asset pool to someone, we tell them why is your money here? That bank will then see the $50 million stable coin they'll create and that stablecoin then moves to Figure. We move ownership of that asset to that institution. Then we can either hold the stablecoin or we can redeem it and get the cash back out. That's what the stablecoin bank does. It’s sort of regular banking activity if it's a closed loop so they only take the stablecoin that they mint. But if it's multiple banks, I think the Federal Deposit Insurance Corporation (FDIC) sees it a little bit differently. But if it's just one bank issuing their own stablecoin or redeeming their own stablecoin, it's truly just regular banking activity.
ED: Eventually, you would like to see multiple players, not even banks, minting it.
JO: We would like multiple players in the ecosystem because we want people to use the system. We want people to use the blockchain, which is really why we made it public because it's much easier for people to use the system if it's public.
ED: Permissioned to permissionless? What was the motivation?
JO:So we didn't actually mean to go permissioned in the first version of this. In some ways, it was a little bit of an experimentation if this technology can actually do what we needed to do for complex financial transactions. At the time, we put all of the data onto the blockchain. We encrypted it, we secured it as well as we absolutely, possibly could to the extent that if somebody actually set and tried to sniff out keys, they might actually get a key but they would only get one loan. So if you had a pool of assets with a thousand loans in it, they might sniff and get one key and then we get access to data from one loan but they would never be able to change the ownership of that loan.
A public open-source network
JO: We really, truly believe in the public open source aspects of blockchain. So we didn't want to stay with the permissioned world. We also believed in the distributed nature of it. We don't want a central authority managing the tech. We truly believe that's the right model for what's happening. Well, also giving institutions the ability to hold data that they need to hold and secure because of the private information aspect of it. So that's a lot of reasons why we moved to public. We ultimately wanted it to be public. We just started with that permission based on the technology that we had chosen at the time, which I believe was really the only choice at the time.
ED: The reason I reached out to you is because as you move to permissionless, it's the feedback of the traditional financial institutions. What do they think about a permissionless world? Well, this is almost like a breakthrough because just about any blockchain project I know of any bank in the world, it's all permissioned. It's almost an on-us transaction, which is specific to the institution, in a sense. I was also reaching out to you to see how that transition is taking place. I guess organisations like yours, players like yours are breaking new frontier. You’re creating the trust, the ecosystem. You also have other players, so there's competition in the space that you're in right now. The whole token-based ecosystem, the secret is to be interoperable, that you will be able to buy and sell and place the assets on your own system as you like it. But you will have a track of the transaction as the originator. Is that the correct way to say what you're doing?
JO: That's kind of my view right now. We're not there at the point where someone wants to take it to a different chain. But once we do and there is a viable chain out there that it can sit on, then it'll be a really interesting use case.
ED: Being someone who's from outside this industry as it's evolving, what's your take on the popularity of your token?
JO: We've created a lot of buzz in general just because of Figure and our lending business and people know who we are. So when they found out about the blockchain, we had a lot of enquiries about being able to buy. And in the previous incarnation of this, it was difficult to buy because it was a Regulation D offering. So you really had to be an accredited investor, which is another reason why we moved from that blockchain to the new blockchain because we wanted it to be a utility token freely traded with others. We really look at the amount of the value of assets that are sitting on our blockchain, which really distinguishes us from other blockchains. So it's not just pure speculation. They're actually using the blockchain for the technology that we want blockchain to be, which is a technology that's used for true applications in the real world.
ED: June, you’ve been really very patient and very kind in explaining the whole mechanism. It sounds to me like these are really early days. It'd be great to follow how the Provenance network evolves and how you grow and also this whole transition of traditional finance into a decentralised ecosystem. The traditional players think of decentralised as an enemy of centralised and yet, it's players like you who build a bridge, taking assets that are very recognisable in traditional finance then taking it into a marketplace in a networked world. Thank you very much for spending time with me on this.
JO: Well, I'm going to give you one more thing on that transition. So when we have the permission, people asked millions of questions about what we're doing. Now that it's public and it's open source, we can say just go look at the code, you can see exactly what's happening on the blockchain. It's a little bit of like damned if you do, damned if you don't. There was a way that they kind of accepted it in the permissioned world but they had a lot of questions about one aspect of it. In the public world, they're like we can see everything and they can review it and they can have somebody do a security audit if they want on it. They're free to do it. We're not in the middle of that. So they don't have to come through us to do it, which is why we like it. I believe that they really accept it as well because of the fact that it is open source and they can look at it. They could take it if they want it and do what they want it to and that we created a way for them to secure the data that they're very, very worried about. So we created a way for them to do that so that opens them up to, “I get this, I understand what's happening and I understand why my data is now secure”.
ED: The fact that your code is available on GitHub and that anyone can take it on. In a happy situation, they can even create forks. They can create a different ecosystem from yours. So that whole universe, the people in the traditional institutions just don't understand. Even I. You want it to come alive and take a life of its own. And you will not have any control over how it evolves. So that aspect of it we are all learning, so it's just early days yet.