The Evolution of Digital Asset Infrastructure with Mike Belshe of BitGo

Speaker A: Foreign.

Speaker B: Welcome to rebank, your front row seat to the future of finance. Mike Belsheet, welcome to rebank.

Speaker A: Thank you. Good to be here.

Speaker B: Will, it's great to connect with you. Um, you are a legend in this space. Ah, someone I've been following for a long time, both you and, uh, your work at Bitgo. How do you think about the kind of two parts of your business? One, the technology layer, and then second, the regulated financial services layer on top of it. And I guess specifically in the context of, like, the role that you play in the industry as it evolves, because I think you want to be a technology, like an infrastructure provider to banks, probably traditional exchanges as they move into digital assets, uh, potentially traditional custodians as they move into digital assets. But potentially you have some competitive offerings, at least in certain areas as well. How do you think about that dynamic?

Speaker A: Yeah, well, look, we build all of these things and we do offer the service in different ways. And it turns out that different financial institutions want, uh, to come in at different levels. Sometimes they're like, great, Bitgo, Federally chartered national bank. That's the highest standard you're going to get runs in all of the U.S. oh, by the way, I also have needs in Europe. They can do that there as well through Bitco. So they want that custody component. Others are still thinking, like, you know what, I like this model that Bitgo uses for self custody. We want to bring that in house and we're going to use that. Then they have to build more of the plumbing up top because the financial services, you know, all kind of built on custody, but they have that option. But we now have this, uh, this latest service, which is what we've been doing for the last couple of years. We call it Crypto as a service. And it's like software as a service, but subtly different. When you have software as a service, and everybody's familiar with that term, of course there you're buying some web APIs, some service APIs, maybe some software that you download. Sometimes it could even be hardware. This is, you know, software as a service model, but it's all pure technology. In this case, it's money, right? So money is regulated heavily across the globe. And in many areas, in order to operate the custody, you need licenses, oh, in order to trade, you need licenses, oh, in order to stake, you need licenses, oh, you want to borrow and land, you need licenses. So Bitco has acquired those. And through our custody as a service. I'm, uh, sorry, crypto as a service, you can create all through APIs accounts all the way into the most regulated component of Bitco, from the foundation up and then service all of these activities. So uh, one of our clients is Fold, uh, their publicly traded company. Uh, they do a Bitcoin app and a number of services on top of it. They very much want the market structure and capabilities that Bitgo has at the lowest level, but they don't want to go get all those licenses. So they ride on top of what we do. Now they've got an AML KYC policy of their own and they run through that as the first layer of support. And then it also comes through Bitgo and we're on the hook for all the AML kyc. We're on the hook for transaction monitoring. But here's the real glory. The glory is that every one of their clients gets a fiduciary protected segregated bankruptcy remote account inside a Bitco trust company. They are a first class client now. They're serviced through, you know, our, our, our client, like in this example, Fold, but they actually have a full, a fully protected account. Which means that if, you know, if anything ever happened to Fold and it's not going to, I'm not trying to say that, but they would be able to come to Bitgo and get all of their money. So this is exactly what the FTX clients wish they had, but of course did not have. And it's, it's, it's actually, I think, the right way to build market structure. So one of the biggest criticisms that you know, traditional finance has coming into crypto right now is like, wait a minute, we don't see a market structure here. It's not, it's not regulated or legislated. Like how do we manage this? Bitcoin's been building that, uh, just out of, kind of necessity from day one. So we think every single user, whether it's retail or institutional, deserves to have that fiduciary protected, bankruptcy, remote segregated account. Um, and then people can build services on top of it and it's hard. So anyway, how do I think about uh, how we potentially compete with our clients by offering the service in addition to providing the infrastructure? Our first and foremost would be, we would love to do the infrastructure, uh, the institutional access. They've got large pools of retail clients. They take that to market. We do the heavy lifting on the digital asset and crypto. And because it's money, it requires both regulatory as well as software technology components.

Speaker B: Yeah, and what's the role of Bitgo in that future market structure? Larry Fink's Uh, vision of uh, all assets being tokenized. What role does Bitgo play then?

Speaker A: Well look, we're a financial services company that provides infrastructure and direct access. So we pioneer on the innovative side of uh, building this full stack of direct access and we move very quickly. So compared to traditional financial firms, you know, uh, we will adopt and take on more assets, we'll take on more features of functionality. We do staking, we do prime brokers do all these things, uh, quickly. And the other, the traditional firms are going to move a little slower. Um, they're just getting started now, but I'll give you an example and I, you know, Fidelity does not get nearly enough credit for what they've done for the space. Everybody talks about Block, BlackRock and their, their ETF, which is also great, I'm not trying to deny that, but fidelity got in 2016 very early, recognized that they wanted to have product, ah, to be able to take custody of Bitcoin, offer that to their clients. And they did. And that was Bitcoin is what they got started with. Um, from 2016 when they started until about 2020, they went from holding Bitcoin to now holding Bitcoin plus Ether. Now of course Bitgo in that time period went from, I don't know, some number of tokens to thousands of tokens. Um, and we added all kinds of services. Um, the traditional firms need to move slower, they need the markets to grow, they need to do risk mitigated, they need regulators that are on board. There's a whole bunch of reasons why Fidelity couldn't move faster. But then now we've got a regulatory environment where staking is something that you can do. Remember just last year people thought, oh, that might be a security. You can't do it now. The SEC is like, no, that's not a security. You can do that. So all of these companies want to provide those products. Bitco is doing all the innovation, all the heavy lifting, making all the scale work. And when traditional finance comes along and needs it, they can come and they can use Bitgo and we're going to have whatever asset they need. We're going to have the custody components wherever they need it, whether that's the US or abroad. We're going to have the financial services components that they need and they'll be able to build on us. So really I think the only question that remains is how fast are these two things going to move? Will Bitco move faster and gain market share, uh, basically away from those large players before they get into the space, or will they come in, adopt, and then grow as the innovation grows quickly enough. And this is where, you know, I think I mentioned innovators dilemma a fair amount. You've read that book, I assume. Clay Christensen, classic from, I don't know, 2001 or something. Innovator's Dilemma dealt with the idea of like, why is it that technology, and not talking about money, just technology companies, why is it that the monopoly, the leader, continually gets toppled by some small startup that doesn't have nearly as much money, nearly as many people, nearly as much distribution channel, and yet they topple these big guys, whether you're talking about IBM being toppled by Microsoft or anything else. And the answer is when it comes to innovation, the larger companies have a hard time seeing it, have a hard time chopping off one arm to grow a wing in order to, in order to get there. And I think that's what we're going to see right now, what's going to unfold in all of our monetary systems. Whether you're talking about banking, whether you're talking about equities markets, derivatives markets, or even the new spot crypto market.

Speaker B: Yeah. What's it like running a federally regulated crypto business that's publicly traded? You have to deal with the regulatory overhead complexity, uh, which is required. You have to move relatively, I don't want to say slowly, but at least in a controlled manner with respect to anything you're doing in the regulated space. Crypto markets are hypercyclical. And as a publicly traded company, you're presumably held to more or less, uh, a quarterly cadence, more or less of output.

Speaker A: Absolutely.

Speaker B: How do you balance those three dynamics?

Speaker A: Well, look, we've been building it over a long time. I'd like to point out that like the foundation of traditional finance, if you want to call that custody, um, it's been building for a hundred plus years. State Street, JPM and uh, BNY, they're all 100 years old. So look, we're one of the, I guess, elder companies in the space. We're at 13 and it takes a long time to build this, but we have a great team. Look, we've brought people in from traditional finance to make sure that we can speak the language that regulators need, potential, uh, clients need. This is true. Jody, uh, uh, our coo, she's great. She comes out of Citi. Jeff Horowitz, our chief compliance officer, comes out of bny. They have helped tremendously. And then of course, in our go to markets, there's a whole bunch of people that do a really great job Overall, I think we've just been building it for a long time. And we've been building it, actually. I think on Bitcoin ethos deserves a lot of credit. So I'm not a Bitcoin maximalist, but Bitcoin is still my favorite, uh, of all the digital assets. I like innovation. I think that Ethereum brings us smart contracts and programmable money. Um, Solana brings us a little bit more scale. Canton brings us some privacy. Each of these are innovations that allow new things to unlock stablecoins. Uh, another example. But Bitgo has always held to this principle of, like, you want transparency, you want to be able to remove middlemen as much as possible. Um, you want to put everybody on an equal playing field. And so we've been building market structure towards that. And as the industry has grown, we've made sure that we grow our regulatory capability that preserves those principles. So, you know, we talked a little bit about crypto as a service, and, you know, our clients can create accounts inside of Bitcoin that are fully compliant and bankruptcy remote and all that kind of stuff. Fiduciary protected. Look, not every industry has fiduciary protection for their clients. Um, you know, most people think, and, uh, I've even said wrongly in the past, that the banks are fiduciary to clients. Not really. Uh, actually, they're not a fiduciary to their depositors. They take their money and, uh, uh, they don't have to take them in good stead. But like, your broker is usually a fiduciary for you. Your IRAs are fiduciaries for you. This is your, this is your money. I think you should have a fiduciary protecting you. And so when you just go down the natural con, the natural course, when you start with those principles, you'll end up building this thing. Right. So back to answering your question about, you know, on the regulatory side, it's not fun to have seven custodians around the planet, but we did it because that's the way you protect the money. Now, once you've done that, it turns out you've kind of, you know, I don't. Perfected maybe is the wrong word, but you've learned a lot about what different types of regulators need and expect. And of course, you know that they've all got a target on your back, especially, you know, a couple of years ago where, you know, we were in a different political time. So it turns out that all of that works. So we just upgraded from our state charter trust to an OCC National Bank. And I think it might be the first of its kind. You know, most people don't know this, but when you go to create an OCC national bank or convert one, you go through first a set of, you know, examinations and procedures and vetting of what you do. And then, uh, they usually give you a list of conditions and they say, meet all these conditions and then we'll, we'll convert you. In our case, they converted us right away. And I think that might have been the first one that happened. Why was that possible? Well, all of the work that we have been doing because we were setting a higher bar. Because we knew that, you know, the world is out to get crypto to some degree. Um, and we do it so in so many different places we were already meeting the bar. That doesn't mean that there isn't more to be done, like security and regulation, like you just constantly evolve and do even m more. But we're already operating and running. Even though on the day that we were approved, several other banks were approved. I think we're the only one that's actually already converted of them. Um, the others still have conditions. And then lastly, running a public company. Look, we volunteered to run a public company, um, because we think it gives you transparency to your clients. And you know, the SEC process is expensive. I applaud Paul Atkins. Try to make it better, uh, and cheaper so that we can have more public companies that are, you know, have a good spotlight on them. But we wanted our clients to know, take a look at us, see our financials, see how we're doing. I know some of our competitors, you know, they're still losing money. Look, we had to figure this out. We've seen the ups and downs of Bitcoin. We've been through four cycles and nobody's perfect. And I wouldn't say we are either, but there's been a lot of learning out of that, which has graduated us to, I think, a, ah, higher bar. And we want people to see that. Yeah.

Speaker B: What was the specific thought process around the charter? Conversion to the federal charter from the State Trust Charter.

Speaker A: I hate to say it's political, but I mean, a little bit it is. Um, you know, look, I don't want to be political. I've, I've had to be, be, uh, a little bit over the last couple of years. Um, our clients actually want us to go and fight to get a good political, sorry, uh, a good legislated and regulated path, uh, forward for all of what we do. Um, and previously we had an Administration that was just trying to shoot it all down. I think that was unfair. I think it was unjust. I think it was unnecessary. And, uh, so, look, we did fight to kind of push that. If you're not at the federal level, then you're regulated state level, which is where we've been. We had two state charters. We had one in South Dakota, by the way. South Dakota. People ask why? And it's like, well, South Dakota is. Is more or less the, uh. Just like Delaware is where everybody incorporates their companies. South Dakota's got the best tax law, the best privacy law. Um, so it's got more trust companies than any other state that's not related to crypto. Um, we also had New York, because New York considers it special, itself special, and created this thing called the bitlicense, um, which required us to get a whole cyber trust company, uh, by being a federal charter. A. There's still a lot of churn at the state level, which we get to avoid. Um, so it just takes out all questions. Even though we had the ability to operate in all 50 states, you know, when your clients have to go look at 50 states to see if you can do all the things that you're doing in each of those 50 states, it's painful. Going to the federal level is better, by the way. The federal regulator, the occasional. The staff is really head and shoulders better than any of the states. I mean, they're much better funded. So to some degree, it shouldn't be a surprise. But, you know, when you apply with them, you know, they ask you an exhaustive set of questions, and then they come back with very thoughtful questions, very pointed, like at. Like, wait a minute, what are you doing right here? They know how to home in on risk. Very, very, uh, specifically. And I think they're just a better regulator. So anyway, it takes away the question. It's federally regulated. Now, there's another thing which comes. Which is digital assets and banking are intersecting, uh, as a result of stablecoins. Um, of course, we need to move this forward now. We offer a stablecoin as a service. Um, we just announced last week, I think it was last week, the week before, uh, that we're helping SoFi with their stablecoin, um, that they're taking to market. Uh, they're a public company. Right. They're a top, uh, 50 bank here in the United States. So this is a big deal for. For everybody in our space. They want us to be federally regulated. So this helps us with clients, takes away all those questions, and, uh, ultimately should Be good for everybody that uses Bitgo as well.

Speaker B: Yeah. Are there any other of the, I guess benefits or the access that being uh, an OCC chartered bank, uh, will provide that you plan to use? I, uh, don't know if it has anything to do with uh, for instance, like payment system, uh, access which could account.

Speaker A: Yes. Um, access to the Fed. Look, I do think banking is going to change and being part of the Fed system I think is going to be a requirement for stablecoins at some point. So anyway, we are applying for that already. This is an area that needs a little bit more work from the regulator side. I wouldn't say any bad way. I think they're open to trying to figure this all out. Um, but we did see that Kraken, uh, just got connected on a fedmaster account. So I think the door is open and uh, I think that'll be happening. It's going to make us just much stronger. By the way, I personally think that banking, you know, there's a big debate about stable coins and interest right now. And by the way, the interesting thing there is that Genius act which was passed last year said no interest on stablecoins and it left a loophole that, that, you know, you can do this reward system which Coinbase uses a lot. Okay, so now this year we've got Clarity act, which is about market structure and we very much need market structure. I think it's really, really important. It's not really related to stable coins, but some of the players, the banks in the space are like, we gotta go back and revisit stablecoins and ban the loophole. Look, the number one thing that these banks could do to help themselves would be to pass clarity regardless of the interest. I think they're really making a fundamental mistake or look, all the asset managers from, you know, Larry Fink at Blackrock to Abby Johnson at Fidelity to Jonah Steinberg at WisdomTree, um, I mean down. We got Morgan Stanley coming in this week. All of them are going super heavy digital. If you have clarity, all of the banks can jump in to digital assets. They won't have to worry about regulator smackdown. If they don't get clarity, they, they will be prevented from entering this space. Now it's not going to block Bitgo. Like we're already in the space. We're already regulated, not just in the US but seven different places around the world. So we're going to be fine whether clarity has passed or not. And we will continue to grow in the space that every single one of the major asset Managers says is the next thing to happen. Why would the banks, why would any. I shouldn't say the banks. You shouldn't lump them all together. I don't think they're all equal. Um, why would anyone lock themselves out of that possibility? So, um, I think there's a real opportunity for everybody to get clarity and we uh, get it all done and we can all move forward together. Um, and yeah, we'll have to compete to win. I mean, nobody should be afraid of competing on business. That's the job.

Speaker B: Um, all right, reading between the lines, is it fair to say that you are of the view that if we do have this sort of financial system transition to tokenization to blockchain rails, that it's really less about how the incumbent firms kind of change the technology stack that underpins their business, and it's really more about just coming over the top with a completely different set of expectations, flows, market participants, ways of, of, you know, transacting and storing value. Of course, you mentioned innovators dilemma before. You mentioned the infrastructure, the, the regulated business that you're building. You mentioned the role of Bitgo in the future tokenized finance space. That's kind of the impression I'm, I'm getting. Is that, is that, is that right or wrong?

Speaker A: Yes. And look, before we indict, you know, the, the incumbents as being just bad, bad, bad, which is an easy, natural thing. And sometimes I probably come across as saying that unfair. Um, remember, this is money. And so we've added regulation. And what's happened is over the last 150 years, you know, there's been various people that have built banks and broker dealers and all kinds of financial institutions that failed in bad ways. And every time one of those things failed, we added a little more regulation on top to make sure that the bad thing can't happen again. And we're now at a point where there's just massive piles of regulation on top of every one of these financial institutions. Now maybe you think that that's all perfect and works great. I'm not of that view. I think that we now have computers that we did not have 150 years ago. And there are very responsible, strong ways that we can open up the spigot on product and innovation without necessarily opening up the spigot, uh, on just risk and bad and failure. So I think this can be done. And I think it's actually the duty of the legislators and the regulators to help make sure this happens. So what's happened as a result of too much Regulation is that generally people aren't happy with their banks. I mean I do a lot of talks and sometimes they'll say hey, raise your hand if you love your bank. And unless it's a banker talk, nobody raises their hand. But you don't have to use that kind of uh, anecdote. Just look around at what do we have in terms of payment apps like why does PayPal exist? Why does Venmo exist? Why does cash app exist? If banks were doing a great job at payments, would any of these companies exist? They exist because there's a void that banks have been able to fill. Now why? Well maybe they're just slow and bureaucratic. Maybe they're just, you know, fat, dumb and happy because they've got, you know, a regulatory moat. Maybe the regulatory is too difficult for them to get over. But at the end of the day, consumers are choosing very clearly they like these products. I think actually Sofi, I'll mention them again, I think they deserve credit. Also they've built kind of a more tech forward type of a bank and then people use it and it's just delightful to use people like it. So in the end what should win good products should win. The regulatory when it comes to money is there to make sure that people aren't getting abused. Right. People aren't getting taken advantage of. There's some amount of safety that we do want to have in place so that you can't have just a big rug hole. Those are all legitimate things. But I think the evidence is very clear. We have not had enough innovation. That's why those payment apps exist. We can we get to a world where A, you get more safety and then B you get good features. I guess. One last thing, of course we should mention before you think that the entire existing system is so great, don't forget that the existing system gave us the great financial crisis of 2008 and Bitcoin was born out of that. It's in the genesis block. Uh, about that particular dilemma. It, it's not like safety and soundness is secured with existing regulation. It's not. Um, and there's a lot of big problems and there's a lot of places where we can make it better and take it back to things that really benefit the end investor, which is you and me and all the retail people.

Speaker B: Mhm. What's the role of intermediation in the blockchain based financial future? Now you talked about self custodial wallets being really the foundational layer of your platform. On top of that you've built licensed financial services businesses which, which are in the business of intermediating finance. How do you think about the role of intermediaries, intermediation in the future?

Speaker A: Well, there's a little bit of balance here for sure. Okay, so first off, we talked about market structure. And then what does market structure do? Right, you've got exchanges which are separate from broker dealers, who are separate from clearinghouses or separate from banks and custodians. Those separations of duties do a couple of things. Number one, they isolate risks. So which risks is each of these allowed to take? And there's really good reasons why you should do that. If you're going to have the best capital markets in the world, it's imperative that like the capital market can't go down. So a lot of this is fault tolerance, business continuity type of topics. And then that naturally separates pieces out. Well now by having separated out those pieces, you've created intermediaries. Okay, so, uh, there's some amount of these that have to have to balance. Another place where intermediaries, uh, come in is just in. How do you do things at a business level versus a retail, uh, level. So businesses, it doesn't matter whether you're a crypto business or a T shirt shop or whatever. In general, the business wants to run regardless of like, if an employee comes and goes, you want to be immune from insider theft. You don't want to have to, you know, manage all your own money and be protected against fire. Like, you know, people don't use cash at businesses for a reason. There's a bunch of security risks and business continuity risks that go with it. So all of the businesses of the world will use an intermediary, I.e. hire somebody to take care of the security and safety such that they will persist regardless of what happens internally to the company. Uh, and they're protected against those things I just mentioned. Um, so there's definitely still a role for intermediaries on the go forward. My personal belief is that what we want is institutions and individuals to be able to com, you know, to work together on, on the same platform so that there's an equal playing field. If you don't have the retail people or individuals able to participate at the same level, then eventually you end up with a, uh, gated system where there's the haves and the have nots. I'll give you an example. International wire transfers. As an individual, try wiring money, you know, from the US To Singapore to Mexico, whatever is super painful. Now if you go ask a big bank HSBC or JP Morgan, they're like, we can do this. No, it's no problem. What do you mean? This is hard. That's a gated system where, yes, there's privileged access and there's certain parties that have been able to build that and use it for themselves, but it's not for everybody. And then, of course, there's a whole bunch of fees and other abuses that come into play. I'll give you another example. You know, pay for order flow, you've probably heard of that, right? It's generally considered to be a pretty disgusting intermediary way of making money. But this tends to happen when you have gatekeepers to a system. So, like, on one hand, I, uh, advocated, yes, we need market structure which isolates risk. On the other hand, by having done that, you've now created this intermediary who's got to make money. And they come up with different business models. And some of them, like payment for order flow is kind of this thing that's hidden behind the scenes, and they advertise it to you as no cost. But of course there is a cost, and it's just not being transparent. Um, again, by having a system where both retail and institutions can both connect however they want, it optimizes the ability for competition in different ways. So if payment for order flow does show up and it's abusing people, great. Somebody else can emerge, connect in without having undue gatekeeping that they have to go through some incumbent that they have to get to, uh, approve their new innovation and things can evolve. So I think, yes, you're going to have innovation. I'm sorry, uh, intermediaries, probably always for business continuity and also for addressing risk. But what's great about the blockchain is that we make it so that everybody can still connect to each other and it keeps the institutions and the businesses honest. More honest.

Speaker B: Mike, to wrap up, one final question for you, what are you most excited about, uh, for Bitgo and for the industry over the next two to three years?

Speaker A: Well, for Bitgo specifically, I mean, I'm really excited about what happened in 2025. I think it just can't be understated. Uh, how big? Having regulators, um, uh, that are willing to embrace innovation and help you with change is for all of us, it's just huge. So I think our tam, our total addressable market last year, due to that, like, I don't know, quadrupled. Um, and then this year it's like quadrupling again because all the traditional firms are actually now starting to Deploy and that creates another set of new opportunities. So I'm most excited about the fact that just the addressable market has just ballooned. Second, uh, look, I think stablecoins are still like really, really exciting. I think we do get to rethink how banks work just from like a first principles level and what we had historically and there's debate, some people say this is systemic risk. Look, uh, I think they're protecting themselves. But we had this coupling of deposits to lending and that's what led to these heaps of regulation for banks because that lending Turns out bank managers aren't really that good at finance. A lot of times, you know, svb, the most recent failure, like think about what these guys did, right? They're running this massive bank and they're getting all these deposits. Now what a banker is supposed to do is take deposits and then lend them out responsibly. Safety and sound, all that. The bank had no idea how to make money. They're like, we don't know what to do with this. Uh, I know, let's put it into long duration T bills. And then as soon as interest rates went up, of course people wanted their money back to run on the bank and they die. Okay, Imagine being a finance guy claiming to be good at your job and your best idea for how to put money to work is to put it into a 10 year T bill. That's it. Really? You're good at your job? I don't think so. All right, so, um, this has happened historically. Not every bank is like this, of course, but obviously the managers of the SVB were incompetent, um, to say the least. And this is true across more than just svb. Um, all right, so I think we can decouple those things. I think we can make deposits happen with stable coins. The idea of a reserve bank, we've had it for a long time. Bitco is a reserve bank. But we haven't really liked it in the past. And that's because we didn't have technology and computers in a way that like it didn't cost money. Like if you don't have deposits that you're going to lend out, then like how do you make money? You have to charge the client fees. The client doesn't like to get feed. Now with stablecoins we have an opportunity to pay for this. It's safer. It's 100% reserve, it's 24, 7, it's global. Um, and yes, it should give you interest. So anyway, I think we get to rethink banking. Uh, and I'll give you one last thing, which a lot of people have been picking up on. Um, I think it's kind of funny. I'll, uh, ask you a question, if you had your choice. You got two banks. One of them's an insured bank and the other one's an uninsured bank. Which one would you pick?

Speaker B: Well, based on that, it sounds like the insured bank.

Speaker A: Of course, that's the logical thing in insured bank. And by the way, if you look at Clarity act and who can do what, you know, there's a little bit of discussion about an insured bank. And what they mean by an insured bank is they mean an FDIC insured bank. And FDIC insurance is, of course, federal depository insurance. Uh, it's really the only uncapped insurance program I know of. And I know it's got 250k per account limit. Um, but it's an uncapped number of accounts, so it's an uncapped insurance plan. Who gets FDIC insurance? Depository banks, fractional reserve banks. Why do they need FDIC insurance? Because they take risks with your money, and they may not be able to give it back to you. And FDIC is the insurance backstop to make sure that you can get it in case the bank screws something up. An uninsured bank is not eligible for FDIC insurance because they don't do deposit taking. They don't lend out the money. They actually hold the money in 100% reserve. So not only are they ineligible for the insurance program, they don't need it because they're not taking that risk at all. So it's interesting when you go to managers, uh, and CEOs of public company, you know, depository banks, they don't understand this concept because nobody's been thinking about, could you have a reserve bank? Basically, for the last, you know, 50 years, people actually haven't been thinking about it. It's a simply better model. Once we have the technology we have with stable coins, it is lower risk. And yet, you know, by all of the nomenclature that the incumbent banks have chosen, they like to say, hey, I'm an insured bank. And, uh, then they're like, oh, you should go get FDIC insurance. In fact, Jamie Dimon just said that last week, like, well, I don't need the FDIC insurance, Jamie, because I keep the assets. What are you doing? Look, I'm sorry. I shouldn't be so, uh, uh, belligerent towards Jamie Dimon or JP Morgan. They're doing exactly what they should and they're doing it well. But what I'm really talking about is can we have a new banking model which fundamentally just rethinks where the risks are? We can't.

Speaker B: Yeah, I know we're up on time. If you have to drop, no problem. But there's the important other side of that question, about which I have some thoughts, but I'd be interested in yours. You've clearly thought this uh, through very deeply. How about the credit creation side of the banking business?

Speaker A: Great question.

Speaker B: How does that work in a fully reserved model?

Speaker A: Yeah, so the counter argument uh, to stablecoins I guess goes like this. If A stablecoin is 100% reserved and provides interest, uh, even if it's a risk free interest, then that takes away from potential lending that could happen at the bank. All right, well let's take a, let's take a breakdown of what lending we're actually talking about. The largest lending market, you know, in the US is far and away mortgages. Banks don't really do mortgages anymore. They, they underwrite the paperwork for like five minutes. And everybody that's got a mortgage knows, you know, you go into your bank, you get the initial loan, like by the time you walk out the door, literally two weeks later, you get a notice in the mail that says that they packaged it, securitized it and sent it off to Wall street and somebody else now owns that, that loan. So more uh, mortgages have. And then by the way, those all land eventually at Freddy and Fanny. Right. So mortgages already are not really done at the banks. Next type of lending would be small business loans. Look, banks have struggled to do. This is a relatively small part of the market. They are saying that they're not going to have enough money to do small business loans. I uh, disagree with this statement. I also think lending markets don't need to be coupled with deposits. So remember in addition to uh, this bank side of things, we were just talking about IPOs and capital markets. Companies have been staying private longer than ever these days. They don't go to the capital markets because private equity and other funding sources exist in, in, in scale. So all of that private equity, you know, corporates, uh, heck, even high net worth individuals could participate in lending markets. And they can be open lending markets. It doesn't have to be. The bank connects these two things. The bank exists because historically 150 years ago you didn't have computers. What you had was you had a bunch of people that held the money but they Wanted security and safety and some payment features. And they went down to their local branch who was like a big marble building. And then somebody else wants to borrow money and needs that money creation, they would go into that bank and use it. And that did get the economy going. They needed that because we didn't have computers. Today's day and age computers fill this whole role. You don't need to go to a bank anymore. In fact, your mortgage, other than for the identification check, that's really what's happening, right? They're doing the initial identification check. Your credit worthiness, they're signing off kind of as a, as a bank regulated entity that they're worthy. And by the way, 2008, they weren't doing that. Right. Because that led to the crisis. So that lending doesn't need to be done at a bank anymore. Why does the small business lending need to be done at a bank anymore? You don't have to tie these things together. So I just wholly dismiss this argument that the only way to have money creation is to have the banks do it. I think that they've done a shitty job of it. They gave us the great financial crisis. They already have pawned off mortgages to be securities instead. And those land ultimately in Freddie and Fannie was a whole different topic. And they want to say that they're the sole creators of like this small, small business lending market. I don't think so.

Speaker B: Amazing. Well, listen, talk about a comprehensive conversation. What a great place to end. Mike, I'm very excited about, uh, what you've built at Bitgo and uh, where you're taking this business going forward.

Speaker A: Thank you so much for having me. Uh, it's always fun to chat about these things. I get a little animated. Um, I mentioned a few people's names. Uh, if they listen this far, I apologize for using their name in vain. I actually respect what everybody's built before us. Um, I'm excited about what we can build differently. But it's good to have people start to think about it.

Speaker B: Mike Belsheep, thank you very much for joining us today.