Forensics Expert Lee Neubecker and CEO of Drawbridge LENDING, Jason Urban discuss the many innovative ideas in the lending industry and how it relates to the blockchain and cryptocurrency.
The transcript of the interview follows:
Lee Neubecker: Hi, I have Jason Urban on the show today. He’s the President and CEO of DrawBridge Lending. Thanks for being on the show, Jason.
Jason Urban: Thanks for having me, Lee. This is great, glad to be here today.
Lee Neubecker: Jason, I’ve known you for a while. You’ve been doing some innovative things in the lending industry as it relates to bitcoin and blockchain. Tell us a little bit about that.
Jason Urban: Sure, so what we do is we’re a lender against secured digital asset holdings and what we are providing is the draw bridge, or the bridge, from these traditional lending sources, or pools of liquidity, into this new ecosystem where everybody is trying to figure out how that landscape works.
Lee Neubecker: What type of people would have a need for your service?
Jason Urban: I think there is a wide variety of people. People who have these digital assets and because of the way they’re categorized here in the States from the IRS perspective, when you spend them, when you use them, you encounter a taxable situation, but to the extent that you might need to pay your power bill or to go on a vacation or buy that boat you always wanted, you need fiat, you need US dollars, and what we provide is a mechanism or platform for people to borrow against the digital asset holders.
Lee Neubecker: So, if someone’s sitting on say 100 bitcoin, which is quite a bit of money, you’d allow them to take out a loan against that bitcoin and use that for short term cash expense or whatever?
Jason Urban: Yes
Lee Neubecker: What is the duration of your loans typically?
Jason Urban: We typically focus one to six months. It’s a very volatile asset, and our backgrounds are managing that volatility, but there’s only so much you can do when something moves as rapidly as that does, which is an advantage to the asset, but it’s also difficult from a lending capacity. So our loans are one to six months in duration, and we offer renewal options, so you can re-up and renew. Just the strike price of that loan to value, think about your home moving 50% in a six month period, you might want to refi or you might need to put more money up. We try to mitigate a lot of those risks by offering the durations we do.
Lee Neubecker: So, your clients actually give you their cryptocurrency and you escrow it for them?
Jason Urban: Yes, so what we do is we don’t like to take possession of their currency. What we like to do is use a qualified third party custodian so that their digital assets are resting there, so they know they’re there, and I can’t take them unless they default on a loan or something unfortunate happens. All we want to do is provide a mechanism or a platform for someone to monetize their holdings. We don’t want to take possession of them. We don’t want their private keys. We’ll only take those in the event that they default or want us to satisfy their loan.
Lee Neubecker: So in this business, what measures do you take to help ensure that these digital assets are safe from a cyber-attack perspective
Jason Urban: Well, part of it, the key for us, is cold storage. And cold storage is basically storing these things on a server or computer where it’s not connected to the internet. It can’t be taken, so we require that all our custodians deploy a cold storage method as opposed to warm storage or hot storage. That way we know that the gold is in the vault so to speak but that it’s not going to be readily accessible to anybody out there.
Lee Neubecker: Have you had a situation where a customer gets angry because a price fluctuates and they feel that they were cheated out of there value?
Jason Urban: Interestingly we don’t have that problem because of the mechanisms that we deploy on the back end. So all our loans are no margin call and non-recourse unlike a lot of people in the business that will have you stop. Think about it this way, if I issue you a loan on an asset that’s worth $10,000, and I give you 50% of that asset in cash if the value of that asset goes from 10,000 to 5,000, I now need to create that cushion again, so you need to pay me more money or reup or figure out. What we’ve developed, and our methodology is a way to never have to worry about that, and we use the financial markets. We’re market experts, and we’re risk managers, so we have mechanisms by which we can ensure that you don’t have to worry about topping off your loan.
Lee Neubecker: Are there any restrictions on the type of customers you can have based on what the SEC imposes on you?
Jason Urban: We are very compliant, so we are registered by the CFDC, and we follow all the rules and regs imposed on us by them. We have to do AMLKYC, anti-money laundering know your customer. We’re registered as a non-bank lender in all 50, or in 31 states. We operate in all 50 states so that we’re following not only consumer lending laws but also securities laws and commodities laws.
Lee Neubecker: Are there any requirements you have on customers before you can take them as a client? Well, we have to do the AMLKYC on them. Right now, our products are geared towards accredited investors. Because of the way we do the hedging on the back end we need to make sure that those customers are sophisticated enough to understand what we’re doing. And so in order to do that, we need to put that accredited investor cap on things. It’s a little different under the CFDC umbrella. They call them qualified exchange participants or ECPs, so there’s a couple of different buckets you wear, but it’s a little different than the SEC’s accredited investor, but effectively it’s the same thing.
Lee Neubecker: Is there a minimum net worth that your customers have to have?
Jason Urban: And that’s part of it, a minimum net worth of a million dollars, or an entity that’s a million dollars that’s what we require.
Lee Neubecker: What sectors do you see that this type of lending is getting the most interest in terms of where your clients are coming from?
Jason Urban: A wide variety, if you really think about it, bitcoin, or digital assets as a whole, can be held by anyone. It isn’t a single group that says, “Hey, I’m really into this.” So we see funds, minors, people who were early adopters of the technology, they’ve all kind of stepped forward. Additionally, we’ve got a product that’s geared towards people who would like to buy bitcoin and want to employ some of the same methodologies that we’re employing right now.
Lee Neubecker: Do you have any closing thoughts you’d like to share?
Jason Urban: I think that people often confuse blockchain and decentralized ledgers with bitcoin. I think the blockchain technology is interesting on so many levels. I think that as the world becomes more tokenized, and I think you’re going to see more and more of that, everything from the artwork that you see on the walls to buildings to physical assets like gold, silver, oil. The world is moving towards that technology and that methodology, and I think that being an early adopter and understanding it is so important. If you want to make the same parallels, this is the internet in 1990 or 1995. The difference is the world moves much faster today than it did back then.
Lee Neubecker: So are you taking investors?
Jason Urban: We’re always willing to have strategic investors come into the space, and we’re not opposed to that. We’re very well capitalized, but we do recognize the value in being partners with people. And part of being partners is financial as well.
Lee Neubecker: Well thanks again for being on the show.
Jason Urban: Thank you very much.