Figure Founder's Letter on First RWA Stock: DeFi Will Ultimately Become the Mainstream Method of Asset Financing
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Figure Founder's Letter on First RWA Stock: DeFi Will Ultimately Become the Mainstream Method of Asset Financing
An IPO is just one step in the long process of bringing blockchain into every aspect of the capital markets.
Navigating Web3 tides with focused insightsWritten by: Mike Cagney
Translated by: Zhou, ChainCatcher
Blockchain lending company Figure went public on September 11, rising as much as 44% on its first trading day, briefly reaching a market cap of about $7.8 billion; it closed with a total market value of $6.5 billion.
This is an open letter from Figure founder Mike Cagney regarding the IPO:
In late 2017, I had my "aha" moment with blockchain. While serving as CEO at SoFi, I’d often make polite remarks about Bitcoin and blockchain more broadly—“It’s going to change financial services!”—but I didn’t really know how. This time was different.
Ask any full-stack engineer, and most will say they’d rather not build on blockchain: it’s slow, clunky, and due to its immutability, offers little room for error. But blockchain has one superpower—the ability to replace trust with truth.
Financial services have always been, and still are, markets built on trust. Such markets require numerous intermediaries: between the buyer and seller in a public stock trade, there can be up to seven intermediaries; in a debit card transaction, five parties may be involved. Many large-cap companies are built around such rent-seeking structures. Blockchain has the power to collapse these multi-party markets into just two parties: buyer and seller. All rent-seeking opportunities would vanish.
Blockchain does more than disrupt existing markets. By putting historically illiquid assets (such as loans) and their performance history onto the blockchain, it can bring unprecedented liquidity to these markets. Combined with the ability to achieve true digital completeness and control over assets, this unlocks financing opportunities previously out of reach. The disruptive opportunity brought by blockchain is significant, but the untapped potential it creates is even greater.
This was my “aha” moment. You could create natively digital assets where anyone could verify true ownership, composition, and history without relying on trust. Assets could settle in real-time, peer-to-peer, with no counterparty or settlement risk. Lenders could gain instant, truly complete digital control over collateral. Blockchain completely redefines how assets are originated, traded, and financed. This isn’t fintech lipstick on a pig—it’s an entirely new capital markets ecosystem. I wanted to be at the forefront of driving this transformation.
Figure: Rebuilding Capital Markets with Blockchain
In early 2018, I co-founded Figure with my wife June Ou and a few like-minded partners. Figure’s mission was simple: transform capital markets using blockchain. To do so, we needed to bring a real, measurable use case to market.
2018 was the year of ICOs (Initial Coin Offerings), when crypto companies seemed able to raise endless funds by selling tokens. We chose a different path. We believed we could originate, pool, and securitize loans on blockchain, saving up to 85 basis points (bps) in transaction costs. When we pitched this idea to banks, they responded uniformly: “Great! We love it! We’d be happy to be the 10th bank to do this…” Clearly, this wasn’t a “build it and they will come” situation—simply building the system wouldn’t make users appear.
Having run a market-leading lending business at SoFi, we weren’t excited about building another lending institution, but we recognized we had to prove that doing it on blockchain was better. In 2018, we became one of the earliest teams to originate consumer loans on-chain. Figure started as a direct-to-consumer loan originator, simply replacing the backend infrastructure with blockchain. We chose home equity line of credit (HELOC) as our first product because we felt it was inefficiently originated (greenfield), and we didn’t want to go head-to-head immediately with major consumer or mortgage lenders—we needed time to convince both sides of the market to adopt this new technology.
We quickly expanded into a B2B2C model. Today, over 168 third parties use our technology to originate loans on-chain, including half of the top 20 retail mortgage lenders. Recently, we’ve opened access to a blockchain-native capital market for these originators: using our technology, they can now directly sell (and soon finance) their assets into the blockchain capital market on a peer-to-peer basis, without Figure acting as intermediary.
In 2020, we completed the industry’s first blockchain-native consumer loan securitization; in 2023, we completed the first AAA-rated securitization. Since launch, we’ve originated over $15 billion in loans on-chain and facilitated more than $50 billion in on-chain transactions. We are the largest player in the RWA space on public blockchains, and no one has caught up yet.
In 2018, most mainstream blockchains were based on PoW (Proof of Work). PoW posed real challenges for financial services applications: cost, speed, and above all, predictability. PoS (Proof of Stake) was emerging as a better alternative to address these issues. After a failed experiment with a quasi-permissioned chain, June and her team built and launched Provenance Blockchain. Provenance is a public, decentralized PoS blockchain. Figure does not control Provenance, although we hold 20% of the utility token $HASH and continue to support the protocol’s development. Built for financial services, Provenance is critical to driving institutional adoption.
Blockchain and Capital Markets
We believe blockchain brings three core values to capital markets. First is transactional efficiency—reducing costs related to auditing, quality control, third-party reviews, and more; we’ve already seen significant benefits here. Second is liquidity—enabling 7×24, real-time peer-to-peer markets. With partners, we’re building exactly this kind of greenfield loan trading market. Third is financing, which we believe holds the greatest value.
Putting natively digital assets (e.g., loans) on-chain allows lenders to perfect security interests (e.g., via Figure’s Digital Asset Registry Technology, DART) and gain control. Lenders can directly assess the liquidity, volatility, and advance rate of collateral to judge risk, rather than merely underwriting the borrower. By directly connecting capital providers and users, we create a Pareto-efficient market: both lenders and borrowers benefit, freed from the inefficiencies of capital allocators and other intermediaries. We first applied this decentralized (DeFi) approach in our crypto exchange to offer margin lending, and recently brought Figure’s loans into our DeFi lending market—Democratized Prime. Just as we demonstrated DeFi’s power in trading and liquidity, we’re now showcasing its strength in financing using our own assets.
We’ve long believed DeFi will eventually become the dominant method for asset financing, and recent legislation is accelerating this shift. After the passage of the GENIUS Act, the U.S. Treasury noted that trillions of dollars might flow into U.S. Treasury bills through stablecoins. These funds would largely come from bank deposits. In 2022–2023, the outflow of $1 trillion in bank deposits nearly crippled the financial system. If the Treasury’s assessment of scale and trajectory is correct, something new must fill the gap. We believe that something is DeFi, and we are leading the way in the RWA space.
The Endgame for Blockchain
We believe blockchain’s value proposition can extend to all asset classes. Take public equities: beyond trading efficiency and liquidity, blockchain’s improvements in financing may be the most impactful today. Imagine being able to seamlessly cross-collateralize stocks with non-equity assets to gain leverage, or having investors directly control and earn the economic yield from lending out their shares. Blockchain is a leveler in the financial arena. We pioneered securities lending on-chain, and next, we aim to lead in bringing new asset classes—like equities—on-chain.
Just as Web 2.0 today has its seven giant stocks, I believe Web 3.0 will have its own cohort of companies representing blockchain technology at the same level. Our IPO brings us closer to becoming a leader within that peer group. Although we’ve already built a profitable, high-growth blockchain-based company under extremely rigorous regulatory conditions, we remain highly optimistic: regulatory changes and public market acceptance of blockchain will drive the entire industry and its opportunities in the years ahead. The IPO is merely one step in the long journey of bringing blockchain into every corner of capital markets.
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