It's like a late night talk show up here. You got the desk.
I know. Well, it's because then I can, you know, put all my stuff. Um, you guys, good to see you.
With the IPO, congratulations. This feels like a very big moment, not only for you guys, but for the industry in general for another company to go public, be well-received by the public markets. Describe a little bit as to the decision to go public and maybe some early lessons or significance to this.
Sure. Well, thank you. It's about a year in the making. So to some degree it's a sigh of relief. You lose some stresses when it finally goes through. You know, we were trying to get out in October and then the government decided to take a little vacation. And then they said, 'Well, it's the end of the year. It looks like if we had waited a little longer, it would have been another delay.' So anyway, it's good to get out. The reason for us to do it though, and I can't talk about the stock price and stuff like that, but the reason to do it is really back to some of the core ethos of cryptocurrency, Bitcoin, and why we're here: transparency. So, look, the next wave of money that's coming into digital assets is clearly traditional finance. It's Wall Street. It's public companies for the most part, right? These guys have been around for decades to centuries. And it's difficult to interface to a private company and get diligence. So I sometimes tell this little joke. You know, the traditional firms were getting close to this guy a few years back. He had like this massive $200 million investment from Sequoia. Everybody's talking about him. He's a smart whiz kid out of MIT. His name was Sam Bankman-Fried. Oops. And what we conditioned everybody is that Silicon Valley due diligence is crap, right? They didn't recognize what was going on. He didn't have a CFO. That might have been a clue, right? But all right. So anyway, that made it even harder for public companies to interface to private companies. We provide infrastructure to all of these guys. And of course, being a public company, you got all the faults of the SEC process, but what it does well is it really puts a spotlight on all the internals of your business. You can see exactly how our finances are, what our balance sheet is, etc. And so it makes it a lot easier to do work with the next wave.
I recently heard somebody who will go unnamed say that running a public company is better than running a private company because the pressure makes your company better. You agree with that?
Well, I think pressure always makes your company better. So maybe that's good. Look, it's three weeks into it, so I don't know if I have a real view on this as of yet. It's a new dimension that you got to think about. You got investors, you know, to consider. But, you know, overall, look, we welcome the scrutiny. That's what we've always done for the last, you know, 12 years of our existence. What we do is we prove that we're worthy of our client's business. And that takes a lot.
So, let's talk about regulation. There's a lot of licensing, banking. I mean, this is now coming up both in, you know, Clarity Act stuff. There's also obviously a number of players in the industry who have said, hey, look, I'm going to jump head first into going and getting all of this licensing. There's still players that are holding out and saying, you know, hey, we want to do certain things and we don't want to kind of enter into, you know, some of these more regulated components of the business. What's your guys' strategy and how do you look at the pros and cons of, you know, kind of the path you're taking?
Well, as you know, we recently got an OCC chartered national bank and the reason we did that is because, you know, regulators around the planet are still sorting out a lot with digital assets and it's a relatively new asset class. There's a lot of misconceptions about it. We shouldn't be upset or surprised that regulators have got some work to do just to kind of understand it. And so you end up with kind of state-based regulation which can be at odds with each other, be inconsistent, etc. You know, like that national charter, it's the gold standard for here in the US, allows you to get into, you know, equities and other products without any questions at all. But second, it provides kind of a unilateral treatment. We need to continue pushing forward. So during the road show process, met with 100 plus investors. A lot of these guys have been mostly out of the crypto markets for the last four years because, you know, the SEC was closed to business up until last summer. We got a small wave. So these guys, these investors are all learning about crypto and digital assets right now. They're all looking for Clarity to get passed. They don't necessarily know what's in Clarity, whether it's good, whether it's bad. What they do know is that having a legislated path forward from market structure means that the government has approved a path for our asset class. And of course there should be a path for our asset class. But until that passes, there's some amount of worry. Remember, we were all, I don't know if you were at the White House crypto reception I think last February, March, and pretty much everybody said to President Trump, 'Look, thank you so much for putting out the executive orders to end the operation chokepoint against Bitcoin. Can you please codify that in law?' And this next step of market structure is to do that.
There is definitely stuff still going on. I hear people all the time talk about, you know, there was a point where some of major banks wouldn't allow public companies in crypto to get bank accounts. And so it wasn't even like we're going to kick you out, we're just never going to let you in. But I still think that there's quite a bit going on. And as it becomes more apparent that the crypto companies are competing with the custodians, the banks, you know, etc., they're going to lean on the regulatory capture. They're going to lean on, you know, cutting off some of that access. Wouldn't you think?
Of course. Right. I mean, just look at the Genius Act, right? I mean, of course, Americans should have interest on their stablecoins. I mean, this isn't really debatable. There's no good counterargument. Historically, by the way, this happened before. So, back in 1970-71, there was this thing called Regulation Q. You familiar with this? You know this, okay? Well, I'll try to be quick, but Regulation Q limited how much interest banks could give to their depositors. And as inflation roared its ugly head, sound familiar? You know, interest rates on T-bills got high. So, some smart guys said, 'Let's do money markets and we'll have them just be T-bill backed and we'll give a better interest rate than the bank.' And the banks screamed bloody murder. Oh, the entire financial system is going to collapse. Da da da. Of course, it didn't. Regulation Q is gone. Doesn't exist anymore. We have lots of money markets that do T-bills and they provide yield and the banking system is perfectly just fine. So, yes, it is true. Look, I think when you've got these hundred-year-old organizations that frankly, they are victims of regulation, too. By the way, nobody's, anybody happy with their bank here? Raise your hand if you love your bank. Oh, we got one. He's a banker. Okay. But you know, the reason banks do have such a hard time is because they're so overregulated, right? And even when they try to get it right, you know, they continually find themselves afoul of some sort of AML, KYC, you know, transaction monitoring type of problem. So, look, I don't know, we've kind of held them back in a way by having too much regulation and then now when innovation comes, their first reaction is to lean back and say, 'I need more regulatory capture,' which is what's happened with stablecoins so far.
One other aspect of the like infrastructure component that people are not really talking about because it's not sexy but feels like it is a very big change is instant settlement. And if we go back in 2017 or 2018, I wrote this whole thing about, you know, we had analog assets, now we have electronic, we're going to get digital and you're going to see that transition over the next, you know, 20, 30 years. And as I've been thinking about this now for almost a decade, it became clear like what we're really talking about is crypto is a part of this like automation economy. And so AI plays into that, crypto plays into that, whatever. But like instant settlement is literally the definition of like automation, right? And it feels like that is a huge piece of what you and others are doing, but people aren't really talking about it as much because it's kind of more plumbing type stuff.
Well, we built systems that allow us to kind of buffer all of the credit risk and counterparty credit risk that you have when you don't have instant settlement. So, if you just dial back before we had computers, you know, people like to trade and they like to trade fast and we've gotten better at trading faster and faster and faster over the last hundred years. But then you sometimes have to pause the system just to settle it all out. And so, the reason net settlement exists is mostly because it's hard to settle, right? And after you do a bunch of trades, it's easier to just, you know, swap the result rather than swap every trade. But we are on a path where we can get to instant settlement inside the transaction. So every trade can just be instantly settled. There is no net settlement. There is no clearing left. And through automation, we will get there.
You guys operate a global business. Somebody on this stage this morning who will go unnamed said they thought that Europe's regulatory framework towards crypto was ahead of the US. Agree or disagree?
Yes. So, we're regulated here in the US under OCC. And in Europe, we're regulated under MiCA, regulated under MiCA through BaFin. We have an office out in Frankfurt. Look, I think the MiCA regulations have been clearer, faster. I think that part's been good. I think the stablecoin also you see similar attempts for regulatory capture. Stablecoins, they require I think it's 60% to be just in depository banks which kind of defeats a lot of the purpose of stablecoin safety. But in general, I think the Europeans, yes, they have embraced reasonably well. But of course, the European markets are not as strong as they used to be either.
It's a museum, I didn't say that, somebody else did. If we think about infrastructure, there has been this whole wave, maybe we'll call it like crypto industry 1.0 was you provide infrastructure to other crypto companies to help them do things in crypto. Now it feels like this, you know, wave 2.0 where the institutions are getting involved is now a bunch of crypto-native companies selling infrastructure and access to non-crypto players, the banks, the large financial institutions. Can you talk about maybe the makeup of your customers and where is growth coming from and how do you think about these non-crypto players, you know, coming in versus maybe the crypto people that you guys serviced historically?
Sure. So I think we've been doing infrastructure since before it was kind of sexy to be doing anything like that. So our products early on, we pioneered multi-sig, you know, for Bitcoin, still the gold standard for how you secure Bitcoin to this day. Everything we do is this two-out-of-three model, even when we do staking these days too, also two-out-of-three model that protects against both theft and loss. Who gravitated towards wanting those products? Well, it's people that had a lot of digital assets, a lot of Bitcoin in the beginning. You know, these days it's Ethereum, it's Solana, it's everything else. But building on top of that, you know, it's APIs, so we integrated with businesses, right? Exchanges came in, wanted to use our products, they wanted that secure storage, etc. As we built out licensed products, they wanted to ride on top of our licenses as well. So, the fact that we've got the qualified custody starts to become of interest. And so, today we've got what we call crypto as a service, which is an infrastructure where our clients can come to us and they can create on behalf of their clients a fully regulated, segregated, bankruptcy-remote, qualified custody account. It goes through all the AML/KYC. It goes through all the transaction monitoring. At the end of the day, the client gets the fiduciary protection that they would have gotten kind of anywhere else. But our client doesn't have to do that. Instead, they lean on us to do that part. So, right now, I think what's happening is we're entering a wave where instead of having to be an application yourself, instead of being like a retail exchange, there's new businesses that are coming in just getting started with digital assets. They don't have expertise in how do you protect keys. They don't have expertise in how do you deal with these wallets and with all this digital asset type of money. So they're looking for our experience and they ride on top of it.
