Figure boss Cagney sees digital assets exchanges as the 'centerpiece' of Apollo partnership

Mike Cagney, co-founder and CEO of blockchain firm Figure, is reluctant to say exactly what he is working on with Apollo, the investment group with $461 billion in assets under management. 

The two companies announced a deal to collaborate on blockchain initiatives on July 13 and said only that Apollo would explore ways to use Provenance — the blockchain Figure created — for “on-chain fund listing, asset securitization and digital marketplaces.”

In a video interview with The Block, Cagney was a little more specific.

“We have the ability to run and administer these exchanges, and that I think is going to be a centrepiece for a lot of the work that we’re doing,” he says.

Cagney believes that Figure’s regulatory status helped pave the way to the Apollo initiative. In May, Figure gained approval from the U.S. Financial Industry Regulatory Authority (FINRA) as a broker-dealer and by the U.S. Securities and Exchange Commission (SEC) as an Alternative Trading System (ATS) for digital securities custodied on the Provenance blockchain.

“That’s very unique about Figure and part of why the Apollo relationship came to fruition,” he says. “There’s plenty of ATS in the U.S. There’s very few — in fact, maybe no other ATS — that allow an operator to run an exchange for digital securities on blockchain.”

We are now roughly a decade removed from the emergence of the world’s first crypto exchanges. After a landmark direct listing in April, Coinbase today commands a market capitalization of around $48 billion. Yet the window of opportunity for setting up new trading venues for digital assets seems anything but closed.

Sam Bankman-Fried’s FTX just closed a $900 million Series B raise at a valuation of $18 billion, drawing investment from hedge fund heavyweights Alan Howard, Izzy Englander and the Paul Tudor Jones family, as well as institutional investors including SoftBank. The crypto exchange Bullish, which hasn’t even launched yet, has raised hundreds of millions of dollars over the past few months from a similar cast of backers.

Clearly, there are still opportunities for those with enough capital, and neither Apollo nor Figure — which has raised around $448 million since launching in 2018 — is short on cash. 

But what can Figure and the Provenance blockchain bring to the table?

Divine Provenance

Cagney is a capital markets veteran. SoFi, the millennial-focused fintech lender that he founded in 2011 and ran until an ignominious exit in 2017, operated a sizable securitization program — selling billions of dollars worth of investment-grade rated bundles of student loans and mortgages to institutional investors.

“When we were at SoFi, we looked at blockchain, but we never really embraced it,” says Cagney.

After leaving the company, he took the opportunity to “go deep” on blockchain. “And the epiphany for me, the aha moment, was really understanding those two virtues of trust versus truth and bilateral transactions,” he says. 

The “trust versus truth” point is a staple in the blockchain evangelist starter pack — the idea being that a decentralized network verifying transactions eliminates the need for participants to put their faith in a single governing body.

Cagney’s reference to bilateral transactions is a nod to the disintermediating effects of blockchains, which can connect parties directly and facilitate instant transactions, thereby cutting out costs typically associated with third parties, such as payment providers and clearinghouses.

Even post-epiphany, however, Cagney didn’t feel that the available blockchain solutions — most notably, Ethereum — would be suitable for an institution fuelled finance firm.

“When we started off with Figure in 2018, we did a pretty extensive survey of blockchain technology, and one of the things that became very apparent to us early on was that the existing technology wasn't going to work for financial services,” he says. “It wasn’t fast enough, it wasn’t scalable, you couldn't control your own data.”

His team therefore set about building Provenance, initially as a permission-based blockchain, but with the aim of decentralizing control of the network over time.

Given the target market, R3’s enterprise blockchain solution Corda comes to mind as a potential comparison. But that’s not how Cagney sees it.

“(Provenance) is a true decentralized public open-source blockchain. So I look at it more as a competitor to Ethereum than I would to Corda,” he explains.

On its website, Provenance describes itself as an ideal home for decentralized finance (DeFi) apps “with complex confidentiality and privacy requirements.” Provenance can execute complex financial transactions and distribute the associated data between a DeFi app, the blockchain and the smart contract — while simultaneously preserving client confidentiality, it says.  

Today, more than 40 banks and funds are transacting on the network, according to Cagney.

Hashing it out

The network’s native token is named HASH, and tokens can be traded on the Decentralized Limit Order Book (DLOB) for the Provenance blockchain. By the end of the year, however, Cagney expects to see these tokens listed on Coinbase and Binance.

Currently, roughly 25% of the HASH tokens in circulation are used by participants on the Provenance network, according to Cagney. Apollo will purchase HASH tokens as part of its plan to experiment on the blockchain.

“One of the things Apollo’s doing, obviously, is they’re building a position in that token as well, because they see the accretive value of Provenance, and in particular, their involvement to it,” says Cagney.

Figure still holds the majority of the HASH tokens in circulation, according to Cagney, but has “stepped back and put a governance structure in place.” That structure includes limits in terms of the company’s voting rights.

“So we still have a vested interest in growing Provenance and growing the adoption of Provenance, but we no longer have the control of the blockchain,” says Cagney.

Figure is a commercial entity that is focused on more or less the same products that SoFi was: mortgages, mortgage refinancing, home equity lines and personal loans. Figure Technologies has even applied to the Office of the Comptroller of the Currency (OCC) for a national banking charter, again following SoFi’s example. 

The big difference is that Figure’s products are all underpinned by the Provenance blockchain – a fact which, incidentally, has caused some consternation among bank lobbyists.

To hear Cagney tell it, Figure is both a standalone business and a shop window for what Provenance can offer.

“We ended up creating a lot of consumer-facing operating businesses — so Figure Lending and Figure Pay [which offers blockchain-based point-of-sale financing solutions to merchants] specifically — because we needed to be first mover on the blockchain and demonstrate the risk for the market and then crowd them in,” he says. 

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