This episode dissects why most tokenization projects falter, revealing Figure's strategic success in the overlooked Home Equity Line of Credit (HELOC) market and its aggressive push into DeFi to redefine capital markets.
Figure's HELOC Strategy: Unlocking an Underserved Market
- Figure, led by Mike Cagney, achieved product-market fit by tokenizing Home Equity Lines of Credit (HELOCs) on its public Provenance blockchain. This strategy targeted an inefficient segment of the mortgage market.
- HELOCs function as open-ended mortgages, allowing borrowers to draw and repay funds repeatedly, unlike traditional fixed-rate mortgages.
- Figure pioneered HELOCs in the first lien position, effectively replacing conventional mortgages, particularly for loans under $300,000.
- Traditional Fannie Mae/Freddie Mac-eligible mortgages cost approximately $13,000 to originate; Figure's blockchain-enabled process reduces this to under $1,000.
- This efficiency created a "greenfield" opportunity in a saturated market, making previously unprofitable sub-$300,000 loans viable.
- Cagney: "We have over 250 partners now that use our technology to originate loans, including 10 of the top 20 mortgage companies."
Blockchain's Value: Efficiency, Liquidity, and Fraud Prevention
- Figure's Provenance blockchain delivers tangible efficiencies and establishes genuine liquidity, distinguishing it from many failed Real World Asset (RWA) tokenization attempts.
- Provenance ingests loan data (credit, title, property, income) directly onto an immutable public chain, preventing the data modification issues seen in 2008.
- Rating agencies reduced audit requirements from 100% to 20-30% of loans, cutting audit costs from $500 to $100 per loan, saving millions per securitization.
- On-chain warehouse pledging eliminates the 5-day reconciliation period for banks like Goldman Sachs, de-risking transactions and enabling faster, larger capital deployment.
- Liquidity for tokenized assets stems from ubiquity, homogeneity, and real-time performance data, not merely from being on a blockchain. Figure's daily trading volume for loans reaches hundreds of millions.
- Cagney: "Because of the way we ingest data into blockchain and the immutability of that, the rating agencies have lowered our requirements down to 20 to 30% of the loans and about $100 alone."
DeFi Integration: Lowering Consumer Mortgage Costs
- Figure actively migrates its capital structure to decentralized finance (DeFi), leveraging open protocols to reduce funding costs and advocate for clear regulatory frameworks.
- Figure successfully financed $10 million, then $100 million, and plans for $1 billion in loans through DeFi, achieving cheaper rates than traditional warehouse facilities.
- The company launched Hatsra on Solana, an open protocol where users buy wrapped yields (Figure's yielding security), pledge it, and generate yield, which can then be looped on Kamino or traded on Raydium.
- This DeFi activity, often funded by non-U.S. capital, directly lowers mortgage rates for U.S. consumers.
- Cagney advocates in D.C. for market structure legislation that protects DeFi as a peer-to-peer transaction, not a security offering, emphasizing its tangible benefits for constituents.
- Cagney: "What's interesting about that is that activity lowers mortgage rates for US consumers... coming through this DeFi construct."
Stablecoins, Tokenized Deposits, and Wall Street's Aggression
- The stablecoin landscape is poised for disruption, with traditional finance (TradFi) institutions, particularly JPMorgan Chase, aggressively building new payment rails that could reshape banking.
- The proposed stablecoin legislation will enable broader utility for stablecoins, moving beyond their current limited use cases.
- JPMorgan Chase is positioning JPM Coin as a new payment rail, moving it from a proprietary blockchain to Base and eventually Ethereum mainnet, aiming to disintermediate traditional interchange fees.
- Cagney views tokenized deposits as an insufficient defensive mechanism for regional banks against JPMorgan's utility-driven stablecoin strategy.
- Figure's Yields stablecoin, which pays interest and is convertible to USDC 24/7, offers a defensive alternative for banks by allowing them to retain customer liabilities on their balance sheets.
- Cagney: "The cell side in particular the big banks the Goldman's and the Morgan Stanley's and certainly the JPs they are moving into blockchain and doing in my mind much more innovative and disruptive work right now than the Coinbases of the world are."
The Future: Tokenized Equity and Decentralized Applications
- Figure plans to extend its tokenization success to equity, envisioning a future dominated by self-custody wallets and specialized decentralized applications (DApps) over centralized "super apps."
- Figure aims for a "second IPO" in January 2026, issuing its own equity natively on-chain, eliminating intermediaries like DTCC and NASDAQ, and leveraging DeFi for financing.
- Cagney rejects the "super app" model (e.g., SoFi, Robinhood, Coinbase) in favor of self-custody wallets holding identity, assets, and liabilities, interacting with specialized DApps for specific functions (trading, lending).
- This approach empowers users with democratic control over their financial venues, demanding improved, intuitive wallet experiences.
- Most RWA tokenization projects, like small money market funds or structured credit funds, lack material impact due to insufficient scale and the initial friction of blockchain adoption.
- Cagney: "I believe that rather than the centralized construct I think it's self custody wallets and distributed applications."
Investor & Researcher Alpha
- Capital Reallocation: Expect significant capital migration from traditional bank balance sheets to DeFi protocols, driven by stablecoin legislation and the superior efficiency of on-chain financing. Investors should analyze protocols offering direct, low-cost capital access.
- TradFi vs. Crypto Native: Traditional financial institutions like JPMorgan Chase are now leading innovation in blockchain infrastructure and payment rails, potentially outpacing crypto-native firms in real-world asset integration. Research their L2 strategies and stablecoin initiatives.
- RWA Tokenization Bottleneck: The primary hurdle for RWA tokenization is not technical issuance but achieving genuine liquidity and scale. Projects must demonstrate immediate, tangible cost savings or access to previously unavailable capital, rather than relying on speculative "blockchain magic."
Strategic Conclusion
- Figure's success proves that tokenization thrives by solving specific, high-friction problems with long-term commitment, not by chasing speculative liquidity.
- The industry's next step involves a wholesale migration of capital markets to blockchain-native equity and debt, driven by regulatory clarity and aggressive TradFi adoption.
