 from the Hard Rock Hotel in Las Vegas. It's theCUBE, covering Hoshokon 2018. Brought to you by Hoshok. Okay, welcome back everyone. We're here live with theCUBE in Las Vegas for the first security conference in an inaugural event. It's called Hoshokon. This is where security experts are gathering to discuss the future. I'm John Furrier, host of theCUBE. We're here with Joe Kelly who's the co-founder and CEO of Unchained Capital. We're just talking about the old days and big data. Joe, good to see you. Thanks for coming on theCUBE. Good to see you too, John. Thanks for being here. So take a minute to explain what Unchained Capital is. We heard some people talking this morning on some earlier news about your business model. Love it. Take a minute to explain what your business model is, what you're doing that's different. Sure, so Unchained Capital were a, really a financial service, this company I'd say, kind of of this new era where you had this challenge of users of cryptocurrency want to cut through their assets themselves. They want to maintain some degree of sovereignty over in control over their money, not just give it, relinquish it wholly to a bank or someone else. So it's an interesting time to start a business like ours and our first product is loans. We give out dollar loans and US dollars to individuals or businesses who provide cryptocurrency as collateral. So right now we accept Bitcoin or Ethereum as that collateral. And we do accept it in a fully kind of custodial manner today when you get a loan from us, you're sending us your Bitcoin, you're trusting us to keep it safe and we do. But we also have some more kind of multi signature models that we're releasing soon that we work with, for instance, Ho Show here on getting our smart contract on Ethereum audited for doing such a thing with Ethereum. But I'm really trying to find ways that bridge that gap of users don't have to quite give up everything. We don't have to have full control, but we can still, as a lender, safely extend money and know that we can. So you get a lot of couple things going on that's been topical here at this conference. Been hearing in the hallways, there's been sessions on it around custody. So that's one big issue that everyone's talking about, but it's also now your lending. So it's collateral, that's services, financial services. So it's a little bit of FinTech meets cybersecurity needs. You're in the middle of two crosshairs. How are you guys doing this? I mean, I think, sort of as we were talking about earlier, my co-founder and I kind of cut our teeth in that big data technology space and learned a lot through that, learned a lot especially about how easy it is to get caught up in either a hype or a market cycle where you don't pay as close attention as you should to kind of customers and what they need. And we went through a pivot in that business, which was good, the right thing to do, but we wanted to start this company consciously in a way that we didn't have to pivot. So there's always has been this kind of focus on the customer and the end user and what they want. Hey, building a sustainable business. Building sustainable business, yeah. With paying customers, what a great idea. Who's your thunk, man? Well, it turns out it's a good call because with the whole bubble bursting, February really, I think February to me was the month where you saw the decline, the security token, rightfully so is the discussion, role of utility, all this stuff's regulating now. So a little bit of a kind of a dark time for us, but the winners coming out of this will be the durable, real builders. We think so, yeah, and we didn't, we chose not to do a token sale last year to our, maybe in the long run, it could be a bad idea, but we still feel pretty good about it. It's a good call actually. Yeah, we think- SCC reported today, I saw it today, SCC is actually having some ICOs give money back on violations. As they should, yeah. So you would have been probably optimizing your time on other non-company building activities. Yeah. Yeah, running around Asia, managing stock prices, all right, token prices. No, it's a shame. It's like these small teams right now, like 12 or 20 people are almost running public companies in terms of the demands and opinions and- Yeah, and they're young, they got to keep their eye on the ball, which is value proposition evolution and also security. Yeah. So talk about what you're doing here. Why are you here at Hosho Con? I'll see their supplier partner with you guys. Yeah. What's the story here for you guys? So we got to know Hosho earlier this year as we had spent about six months developing an Ethereum smart contract. So in Ethereum, it doesn't have a native multi-signature mechanism. There's no way that within the protocol you can speak to the protocol in a way that says you need multiple signatures to make this transaction valid, unlike Bitcoin that has a multi-signature just spelled out. And with the way we store cryptocurrency, we store it all cold storage, we store it with multiple hardware devices, and so we believe the only way to do that are the only way to store cryptocurrencies with that and with multi-signature enabled. So to try to- To minimize the risk on the custody side. To minimize the risk of, yeah, on the custody side. You minimize risk of theft, you also create some resiliency in the sense of maybe a key is lost, like you've got some backup keys to it. So really important to get to that multi-sig status, but as you maybe saw last year there's a parody multi-sig wallet that was hacked to the tune of some hundreds of millions of dollars. And there's several of these multi-sig contracts that people developed that were really sophisticated, pieces of software allowed ownership to be transferred or things to change within the contract that in our opinion kind of didn't need to be there and put the contract at risk. And so we worked on this very simple bare bones smart contract that does multi-sig as closely as it's kind of already spelled out in Bitcoin and worked with Hosea to audit that. It's been since audited twice, both times passed with flying colors, no issues, not a single discrepancy. You did the work up front. Did the work up front, yeah. That's critical. A really smart team of folks that put that together. So yeah, we're a very security conscious company. We like being present, contributing conversations like those that are here. It's funny, we were talking earlier in some interviews, it's like, security is a differentiator for some of these exchanges. We got better security. Should be table stakes, in some way, yeah. Differentiator, same standard. All right, so talk about how someone uses your service because I think this is fascinating. A lot of people are holding crypto. They may or may not want to sell it. There's also fluctuation risks. So how does this system work? I give you my crypto and you lend me money. Is that that simple? Yeah. So, you know, user signs up to our website. We lend mostly in the US a few international jurisdictions but as long as you're in a jurisdiction we can lend, you finish out your profile with us. We do do a KYC AML check on folks and then you put in a loan application and within that loan application we can either lend to you at a 35% loan to value or 50% loan to value. You get slightly better interest rate on the lower LTV. What that means is if you'd like a $100,000 loan say, you need to provide maybe $200,000 of that collateral up front in the form of Bitcoin or Ethereum. We can fund loans that you can go from basically a new account and application to a funded loan in like four hours even, you know, just have that time when a client's signing up to us, wiring them money. And so that can be a pretty fast process. It's really unlike a lot of any other loan products. Even if you get an unsecured loan on a website like an earnest.com or some of these, it can take you many days, a week or more to plan to close a loan. So you're taking a big risk with this. You guys are. Well, you could say that. I mean, I mentioned that. Well, it depends on the fluctuations, right? 50% LTV, we do do margin calls so if there's a 25% price drop we'll issue a margin call. It means the client is required to post more collateral or else we can declare the loan in default. Luckily we've had no defaults. We've never had to force the liquidation for any way. So there's a margin call real slowly. So, okay, drops down below a certain point percent in say 25, you do a margin call and they don't come up with more collateral to refuel, essentially collateral. You can default, which means you take ownership of the crypto. Yep, in that case we would take ownership of the cryptocurrency. We would sell what portion of it was needed to pay off the principal and interest and then they'd get the remainder. But yeah, thankfully nobody's ever fully bailed on us in that way. Yeah, not yet. Not yet. This is a great service. So great for people to get some hands on some fiat cash. Now on the back end I'm only imagining just my brain spins around. You got a lot of hedging going on. You got to have math. A lot of math behind it, maybe it's big data. How are you managing the back end because now on your risk profile, so you got the margin call, you got some mechanisms, which is great. What's going on in the background? You got to crunch away at some cloud computing, Amazon compute going, okay, where are we with our position? There must be some math involved. What's going on behind the curtain? Can you tell us a little bit? I think you'd be surprised, I think that we've been able to manage pretty well with just more heuristics and kind of common sense around a lot of this stuff. I think what we did up front, before we even gave our first loan, did a lot of research on historical volatility with Bitcoin looking at, okay, what are the most significant drops within a day or a week long period? And based on that analysis, that's where we did come up with this sort of 50% LTV ceiling for us. It says, really, 9.99 or 99.99% of the time you'll never see anything that big within a day, maybe a week, there's been a couple weeks where Bitcoin will go down 50% in that period, but that evolves on a human reactionary kind of time scale, not something that you're concerned about. Well, today the stock market dropped 800 points today, Bitcoin didn't move. So it's good that it's no correlation, but the point is you're measuring it. So is there a question, next question I have for you is I'm thinking about myself, I was a customer. If I was a customer, do you provide some sort of total cost of ownership calculator that I would have to know, okay, because I want a plan, I don't want to be defaulted, right? So I should have a good understanding of how to manage it. So I'd give you guys some crypto for the loan. I got to have some reserves. Do you guys see a formula for that? Is there benchmarks or is it more of ad hoc kind of general? Yeah, it's definitely, I mean, in some ways a case by case basis, but with every client we recommend that you not, of course, leverage all your cryptocurrency. Do you want to leave some in reserve for a margin call? It just depends on person's situation. And a margin call too, if they give the money back, that's fine too, right? So either pay back the loan? Or pay down principal, which you can do a partial payment. We have no pre-payment penalty. So pay down some principal, or yeah, post-mort collateral. Just some way to get that ratio back. Cool, how's business going? Good, yeah. We think it's been a great year for us. The first half was pretty bananas, honestly just with the kind of bull run and tax season and stuff like that. Summer's been a little slower, but we're still bullish. Tax season, roll your eyes. Hey, welcome to the tax bill. Trading all that crypto. People had a wake-up call. What's arguably what killed all the volumes is finally people realized, oh my gosh, I can't do 1031 going forward. I have to pay taxes every time I trade an altcoin for another altcoin. I think that we dampened volumes this year. All right, so I got to ask you, what's going on here in this event for the folks that didn't make it? What are some of the conversations? A lot of diverse, smart people here, kind of a core kernel industry security, but it's not just security nerds, it's total players on the security side to business we had, Andreon talking about custody, you've got your business here, financial services, the blockchain. What's some of the hallway conversations that you're overhearing and that you're been involved in? Let's see, I mean, all in all, it's just been, you characterize it pretty fairly. I think there's real engineers here, people that you can kind of get into debates with over the pros and cons of the different programming language or implementation for smart contracts, so it's kind of a definitely more nerdy conference. I haven't heard of one like ICO I should buy into or anything like that, so it's pretty nice. It's refreshing. Yeah. I mean, ICO contests a little bit along on the tooth there, don't you think? It's the conference we deserve, I don't know. That's the tagline. All right, so what are you seeing as the major trend that's going to bring back, bring back but establish more of a mainstream culture of crypto, because you're actually getting into the level of services that, certainly for the early adopters and insiders that are pinning there from the beginning or involved now, making money and having crypto, to Joe Sixpack out there who's really interested and certainly the younger generation loves this. You can't pull a 16-year-old away from how to mine, get involved, and pretty much anyone under 30 pretty much is on the crypto bandwagon. It's a revolutionary kind of culture shift. Especially in our customer base, very well overrepresented there. So how does it get more mainstream? I mean, I think speaking somewhat biasly, part of our view is that we're a company that's here to make cryptocurrency more valuable in the long run to its holders. Not necessarily, it doesn't have to in dollar terms be more pricier, but the idea that before us, before other people doing this kind of loan business, there's really nothing else you could really do with your Bitcoin. If you could buy it, you could hold it and then go sell it later, you could give it to somebody else and just kind of trade it back for fee on here and there. You could trade it for other off-coins. And you could... A convoluted process though. Yeah, all these things that don't have much to do with your daily life, except for you buy a car maybe in that personal except Bitcoin and things like that. But our clients are buying homes, they're investing in real estate, they're investing in businesses and paying off credit card debt, things like this. What are some of the sample loan sizes? What's the average coming in? Our average is $120,000. What's the largest? Largest is over a million, yeah. Where are you guys getting the cash from? So we have some investors, including some small credit funds and institutions, high net worth individuals that have pledged to back loans from us. So financial pros would get the collateral gain. Yeah, totally. You really got to be comfortable with Bitcoin as an asset to then be comfortable with the kind of rates we're talking about here. Because many traditional lenders, they want 20%, 20, 30%, I don't care, it's the riskiest asset there is, they just don't get it. So you're building a company, you're a company builder, pragmatic, which is good, but also you've got to manage the wave that you're on, which is high growth and potentially, so you're managing growth, funding, vision, what's, how is the execution plan? What's the tactical execution plan for you guys? I mean, it's interesting. I think we're talking, even getting back to the big data conversation, we really started that as we joked. The smartest thing we did was start that company at the time we did, that no matter what kind of happened or steps that missed that execution, we were on kind of that wave. And so in some ways that informed our philosophy here, but so it was start a business at the right time in a good state space, build a valuable long-term business in there that's focused on clients, which for us has meant you grow the value of, in the utility of cryptocurrencies that people are already holding. So make cryptocurrencies really into the most useful assets in the world, because they should be, they're software, we know they can do more things than what they've done for us, maybe necessarily in the last 10 years. So going forward, I mentioned the loan product we have, we have some storage and custodial technologies we've got that we'll be releasing soon, things that help you keep cryptocurrencies safe while consuming products like a loan from us, so. And you're based in Austin? Yeah, based in Austin. How many people on the team? 16. So it's a small team. Yeah. Great, congratulations. Thanks, John. And if I need a loan, we'll come knocking on the door. Give us a call. We're in capital. CroCube is growing like crazy, going international. I like it. Going crypto. Kelly, co-founder and CEO of Unchained Capital. Check them out. This is theCUBE bringing you live coverage here at Hoseokon in Las Vegas. The first security blockchain conference in the world. We'll be back with more after this short break.