00:17:45 · Doug Ricket
[00:17:45] S1: Yeah, so our uh our chief risk officer is a guy named Brad Pennington, who was previously at Prosper. And you know, I remember Prosper and Lending Club Club kind of inventing this concept of you know mass crowdfunding, of capital for loans. And so I take a little inspiration from what they did in the previous decade. Uh I don't think we need to go to hundreds of thousands of individual investors. That's not on the roadmap right now. We actually moved in the other direction, which is we started with you know, people again writing those kind of million dollar checks uh and then it went up to the institutional investors. However, I like you know, we we didn't shut down the the high net worth investors, we kept them, and I think they're a nice diversification. So that's about uh 100, 150 individuals who make up about a third of the fund. Uh you know, call it a couple hundred million dollars, uh, with checks ranging from half a million to two million, three million, kind of on the higher end. Uh and they're a nice diversification. So they behave like a group or a crowd. Uh they don't all you know want to redeem at once. I guess that would be if there's some mass macro event, we have provisions to deal with that. But I like having that group and I think it becomes better for them. I mean, I I'm one of those, you know, 150. And uh, you know, if we have some financial thing we want to take care of, uh, hey, we want to, you know, invest in something or like buy house or whatever, uh, having that liquidity just overnight, I think, will make it easier to put money in. I mean, like I think, and I think this is good, I'm not gonna put money in that I might need tomorrow. But if it's liquid, like liquid for tomorrow, then it it would open up what uh the ability of what I could put in there. I'd be more willing to put more in. So I I think the net result will be you know the the investor side becomes even more attractive. It's easier to put money in because you know you can get liquidity to get it out anytime.
00:19:54 · Oliver Smith
[00:19:54] S0: I like the um the sort of peer-to-peer lending sort of connection there, uh inspired by some of that earlier work. And maybe with tokenization now, it unlocks um yeah, new new parts of that opportunity which weren't ex- you know, didn't exist a decade ago when when that all started. Um I I want to also ask you a little bit about what uh happens when things go a bit wrong. So if uh a borrower, you know, who's who's collateralized their phone but defaults regardless, does tokenizing the loan cre you know, create change the risk there a little bit? Who who sort of holds that risk?
00:20:33 · Doug Ricket
[00:20:33] S1: Yeah. So this is another place where we're different than what London Club and Prosper did a decade ago. Uh which is we're not tokenizing the individual loan. Uh so we're not keeping track of uh you know, PageOI overall has reached uh close to 23 million borrowers cumulatively. So we don't have 23 million individual loan tokens. Uh and these things can be, you know, $200 each is a typical size. Uh but we're tokenizing on the investor side. And so basically all the loans get pooled into the pageway asset fund. There's a giant pool of collateral. Uh and then uh because it's it's kind of law of large numbers, it behaves statistically very predictably. So uh, you know, borrowers will have a one-time uh finance charge, a one-time fee that gets added to the principal at the start. So that could be 30%, 50%, 80%. It's always it's in double digits, it's not in triple digits. Uh and if you go to these countries and you need to borrow and you don't have credit, you're talking triple digits at least uh from a informal money lender. So we're bringing down the cost. Uh we're cheaper than other new banks, uh neo banks for the same customer. And uh then uh because of that, uh the tokenization is really at the investor level. So the we Can recycle the capital and we can earn 100% yield, for example. And if the fund gets right now, the rate is 15% target, and we've never missed that, the fund gets the first 15%. The excess goes to Page, the tech company. And so the people who are defaulting, you know, that's the difference. Are we earning 90% or 100% or 110% kind of asset return on our cycling capital? So the tokenization really comes in where if you've invested a million dollars in the fund, you can trade your million dollar stake to someone else same day. And we don't have to set up the infrastructure like London Club and Prosper did to connect you to Manuel Rodriguez, age 35 in Guatemala, who borrowed $187 in each individual payment. But that's where the attestation comes in. Because it's not at that individual loan level, you have to believe in the pool of capital or the pool of uh the pool of loans. That's the collateral, the pool of collateral. And what we publish, you know, we'll publish one giant loan tape on kind of a quarterly basis saying, here are all the loans.
00:23:05 · Doug Ricket, Oliver Smith
You know, here's why the Pedro Asset Fund has $500 million of capital uh pledged against or against $600 million of collateral. Like, should you believe that? You know, are we doing any funny business with that? That's where the attestation comes in. And we're able to do it all at once in one giant loan tape that is audited by a third party and published and immutable. Um so we've solved that problem kind of en masse in one big step rather than the individual uh Lenin Club and Prosper style. [00:23:37] S0: Aaron Powell Understood. Understood. And does the fund have a sort of a loss provision to take some of the default cost? Or is that does the default cost ever get passed over to the lender, I guess? That's the sort of question.
00:23:53 · Doug Ricket
[00:23:53] S1: This is why I love the fund. I feel like we found this perfect balance. And I'm on both sides of it, right? I'm running Patreon, the tech company, and I'm an investor in the fund. Uh so think of that asset return. Or uh our CFO when he joined, he's he said, like, wow, look at this asset. This is an incredible asset. This is the most profitable, like productive, amazing asset I've ever seen. If you guys can't build a business with this, like throw your MBAs in the trash and go find something else to do because this asset, this is the gold mine that the company was built on. So the asset and the way we recycle it, you know, customers can pay two digits, but we recycle it, we can earn 100% yield on that $500 million. Let's see. So the default's already baked in. If it's 100% yield, uh we absorb that first out of Pedro's profit. That would go down to 15. If the asset was yielding 15, Pedro would earn nothing. The 15% return would go fully to the fund investors. And then if the asset earned 10%, they would get 10%. If it yielded five, they would get five. If it was negative 20, they would get negative 20. So there is that risk at the bottom, but that's after Pedro, the tech company, has seen all its revenue go to zero. Interesting. Interesting. So we're highly incentivized to keep that a good margin. That's our that's our profit margin. And the investors have they're second in line for the risk, but they have um you know, they're first in line to get their first 15% at the same time. Interesting.
00:25:18 · Oliver Smith
[00:25:18] S0: Interesting. Um, and and what about the regulations? Because obviously you've got borrowers in in one market and you've got investors slash lenders in another market, and you're sort of in the middle. How do you handle the various regulations, custody, the protections that are required across those those different markets?