Mike: Thank you for tuning into another episode of Around The Coin. Today's guest is Miles Paschini, the CEO and co-founder of FV Bank. Miles, previously was a FinTech entrepreneur having started multiple businesses in FinTech and he was awarded seven patent. Seven patents related to payment processing services during the development of EWI Holdings, which was acquired by Blackhawk in 2006.

In addition to developing the industry's first cryptocurrency linked debit cards, which we talked about on the podcast, miles and his co-founder at FV. We're also the first in history to be awarded a US patent for the development of stablecoin instruments to be backed by sovereign debt and on chain kyc we talked about.

The impact that FTX and that ordeal is having on the crypto industry, namely how banks and exchanges are working together today and how they may be impacted by upcoming regulations impacted by the collapse of FTX. A lot of that story is still unraveling, so we didn't spend too much time there. We talked about the impact that the U.S. Federal Reserve and Bitcoin have on each other and how the tension there may play out in the future. And largely we discuss the role of cryptocurrency and blockchain technology in the world. How money is transferred between countries. And Mike has a really interesting, unique background having been in FinTech so long.

He was in the boardroom at Visa, MasterCard, and we talked about some really amazing ups and downs that he's had on his career. FV Bank is one of the few banks out there providing services for crypto companies, and it's a very much needed service out there. The demand is huge and there's not many companies doing it, not many banks out there, so really excited to support Miles. And hope you enjoy the conversation.  

The show today is sponsored by Kickfurther. Kickfurther is the world's first online inventory financing platform that enables companies to access funds that they're unable to access through traditional source sources, Kickfurther connects brands to a community of eager buyers. Who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales.  

Visit kickfurther.com for more info and use  

kickfurther.com/get10 g e t one zero to get a credit and let me know what you think and here you go. Enjoy the conversation.

Here is Miles Paschini.

Mike: All right, miles, I'm excited to chat with you. You're running a really interesting business, a bank, FV bank that is leaning to or catering into the crypto world. Certainly I imagine you couldn't have predicted the state of the crypto landscape today, especially if I asked you a year ago. Maybe we'll just start there.

How do you, how do you think, maybe even in hindsight, how do you sort of describe where crypto is today and blockchain technology, and maybe even the relationship with the existing FinTech businesses and what the perception is from folks coming from more of a traditional FinTech background about crypto? Love to just hear your perspective on that.  

Miles: Yeah, I, I, I mean, I certainly wouldn't say that I could have predicted where we are today, but I think that, you know, the basic thesis of what FV Bank is all about. Was to some great extent predicting where we are today. And that is that you know, the industry was going to require regulated partners for certain functions in the industry.

While I'm, you know, I'm, I'm very much pros like self custody and decentralization, I think those are great. But based on my, you know, my business background and being involved in crossover business between FinTech or been between regulated finance and and crypto since let's say 20 12, 20 13 the writing was kind of on the wall that a lot of the portions of this industry were going to fall into regulated categories of business.

And I think that the lack of service providers that are, you know, that have oversight have led to a lot of, you know, the, the recent meltdown, especially ftx, I mean, you start seeing the unraveling Albeit, you know, unverified, but the unraveling stories that you're hearing is there was no gov corporate governance.

There was no oversight. And so our, our view and the reason why we created FV Bank was we believed that there was a role to play with, you know, regulated entities who would interface with blockchain and crypto, and that they, that we could be a partner to, you know, those entities. As much as I'm a big fan of crypto, crypto doesn't really exist without fiat.

I know there's, you know, max Maximus kind of point of view that will end up in a world that's only Bitcoin. But for the foreseeable future, as far as I predict there's a relationship between fiat and crypto that's going to exist. And so if there's going to be a relationship between fiat and crypto, that means that you have to have regulated partners involved in, you know, many aspects of the on ramps.

Off ramps, you know, transmission of money. Custody of assets. All those things are regulated activities in the tradify world, and I think that they cross over and have a very important role in crypto.  

Mike: Yeah. And so now what, what was the, or maybe even today, what is the overall sentiment from leaders and banks across the US towards crypto?

I know generally, especially the large banks and I would imagine this is probably pervasive, is that they're very cautious just in nature of banks. And they, they don't have, maybe they don't have an understanding that, and that's why they don't have an appetite or desire to create programs to bank crypto companies.

But aside from that, the industry and crypto and blockchain seems so inevitable that. I would, I would imagine, I would, I would've expected by now that more banks would've created programs to bank crypto companies. Is it largely because of the lack of regulation that they're just categorizing crypto businesses as being too risky?

Or is there other things that go into their decision?  

Miles: Well, I think it's probably two general categories. One is that, you know, banks are regulated. And so there's not clear guidance from their regulators as to, you know, what their role can be. I mean, the OCC did a reasonably good job a few years ago of describing, you know, what a bank could do in the space.

And that's predominantly like the OCC opinion letters that were written about two years ago. Really give us the framework under which we operate. But still, there's not really clear regulation as to, you know, what are the boundaries of a bank's activities. How does certain aspects of things like travel rule and, you know, where does where does.

KYC and c I p play a role clear, like very clear regulation doesn't exist. There's best practices for sure. But I think one is that the lack of clear regulation, especially for US banks, is keeping a lot of banks out. And I think that, you know, the recent events have not helped the situation at all because well it may, it may help in the sense that maybe we'll finally get clear regulation.

But it hasn't helped, you know, prior to these events and, and leading up to these events, it hasn't helped people who were essentially risk managers and banks to say, well, you know, there is some clarity and maybe we can step in and we can get involved. The recent events haven't helped. I think the other, the other category is really that, you know, when you're running a financial institution, it's all about risk management and you know, Financial institutions that specialize in certain areas of risk.

I'll give you the example before, like if you are, you know, an a, an ag bank and you're used to lending money on farmland and tractors and warehouses and milking machines and you know, that's your business, you know how to underwrite it, you know the risk, you know the roi. I mean, that's your specialty.

And so you have financial institutions that are in many different types of those categories. There's very few who have invested in developing strategies around risk management for transactions that are interrelated with crypto. And so you know, you have to build up an expertise and understanding what is a risky transaction relative to, let's say, a crypto exchange versus a risky transaction where, you know, someone's buying farmland.

I mean, there there's totally different worlds. Yeah. And I think that I think that that is a big barrier is that people have not invested in the. The staff and the infrastructure, you know, and built the policies around what constitutes risk in a particular vertical versus another.  

Mike: Mm-hmm. .

And there's a few banks out there that I know that we use when I started a crypto business in 2018 that were pretty early.

Silver Gate comes to mind, and there's, I'm sure a couple others. Where, where, where is it now? Are there a c a handful of of banks out there that now specialize in crypto businesses? Is that number growing? And then I'm curious what it was like starting FV and how you started a bank  

in general.  

Miles: Yeah, so I think the, you know, the number globally, it's, it's just horribly small, right?

It's probably like 10, 12 banks worldwide, right? That like openly and actively work in crypto. In the US you probably have, you know, two thirds of those based here in the us. But still that's nothing compared to the, the demand versus the supply is just completely, you know, off the chart. And so we definitely need more financial institutions to get involved in the space so that you know, more standards and more best practices will get established as more, more people get involved.

But yeah, I mean, it's still extremely limited as far as the banks who are, who are actively and openly involved. I mean, so I think there are some banks who are now starting to, you know, dip their toe into the space and taking like maybe you know, portions of the activity that would exist in the industry, but, People who are approaching it, like FV Bank have, and you know, I think you mentioned Silver Gate.

I mean, they're very openly involved and, and have done, for the most part, have done pretty well in Signature Bank. I mean, there's a few others that have openly embraced this space and done pretty well. But it takes a dedication to, you know, to really want to build out a channel of your bank that deals in this.

In our case I wouldn't say it's exclusively our channel, but it's our primary focus. And so our energy goes towards supporting this space and understanding, you know, the, the risks and the tools and things that we need to put in place to support it. Yeah.  

Mike: And what's the history with FV Was it started primarily to do crypto or was it a pivot from an existing.

Miles: Yeah, so I was the co-founder of a business that was the first was the inventor of the Crypto Link debit card. So we issued the first crypto link debit card in 2013 for a company called Zappo. If you've been around for some time, you might know the name, but Zappo was one of the original Bitcoin wallet applications, and we issued the Zappo card in 2013, and that product became an incredible success.

We had like 1 million customers in 70 countries around the world. We were doing a significant amount of volume of people essentially spending Bitcoin using their Visa card. I mean, it's the simplest way to put it. And so it was a crossover industry where you had traditional finance meets crypto and that was a tough business to scale up.

You know, there was a lot of friction along the way, whether it was visa regulators banks that we worked with. You know, it was not an easy road, as they say, scars on your back. And so when I left when I left that company in 20 18, 1 of the main goals was like, well, next time around we want to own the bank, right?

We want to. And, and it wasn't so much to own the bank to control it, but it was to build out the technology and the staff and the, you know, the mission statement that we could be facilitators of the relationship between FinTech companies. I kind of mix FinTech and blockchain together cuz there's a, you know, it's not a, a full overlap, but there's a lot of overlap there between what a modern FinTech company is and blockchain.

And so FV stands for FinTech ventures. The whole purpose was to build a bank that supported FinTech companies and I. I, I joke with people, if we would start it today, we might call it BV bank like Blockchain ventures because Yeah, so much of the, you know, the FinTech world has a relationship with crypto or blockchain activities today.

And so I mean, we built it so that we could facilitate FinTech and blockchain companies to have, you know, access to banking services that really weren't available. And that did evolve into us becoming a digital asset custodian. You know, custody of digital assets has become like a very important part, especially in the recent, you know, months about you know, how clients funds were managed by, by people who are not properly regulated.

And so you know, we've, we've evolved into, I wouldn't say a pivot, but we've evolved into now a full service digital asset, custodian and bank that really allows for like a 360 degree management of one's banking and crypto assets.  

Mike: Mm-hmm. .  

And the majority of the demand now in the market is from crypto.

Is it individuals like high net, high net worth individuals or companies that want to safely store their reserves?  

Miles: No, we're primarily a b2b business. I mean that we don't, we don't have a retail sales division. So the retail accounts we have are really through what, you know, would be called a B2B to C process, where some of our corporate and institutional clients bring retail clients along with them.

But our focus is really b2b. Our clients are companies like exchanges OTC desks, liquidity providers. We have, you know, funds, foundations, family offices. So it's kind of like that institutional ecosystem around the industry is really where we focus.  

Mike: So would this be like if I go to Coinbase or Kraken, or.

R I p to ftx, but the same general concept here in business model and I were to transfer money from my Chase bank or U S A A from Fiat into, I wanted to move it into an exchange. The way that the structure flow is, is that I send it to a bank, and that that bank is affiliated with the exchange, and that when the money lands in the bank, then it's now accessible for trading in the exchange.

So there's a, a kind of partnership between the bank and the exchange. The exchange will, I imagine, through API or some automated mechanism recognized that the money, the, the US dollars are in the bank account and then they're available for trade. So if I'm buying Bitcoin, what's actually happening in the back end is I'm as I'm using the exchange, using the money in the bank account, that's under the exchange to give to the exchange, and then I then get credited in Bitcoin and the exchange is, Handling that, that liquidity pair.

So that's it. Is that, am I describing this correctly? Like if you think of FTX as, as a model for just exchanges, this is conceptually what they're doing, and then, and then where, where was the problem? Like what's the, is the problem that the bank is not always there's not an auditing or there's not a, a regulated process for how the banks and the exchanges cooperate together to reconcile, funds in those accounts?

Miles: Well, if you, I mean, you, you've just done a pretty good job of describing the, you know, one of the important relationships with you know, an exchange. You used Coinbase as an example. So if you have an account at Coinbase and you want to fund your account in order to buy Bitcoin, let's say there's a bank involved, right?

I mean, in order to go from your bank account to Coinbase bank account effectively you need to make a bank transfer. And so, that, you know, I start off there as like, they're really important. That like, if people are going to acquire crypto assets or digital assets, a bank is required even if you use a Visa card, let's say to, to purchase, which I wouldn't recommend.

But, you know, but if you're gonna use your Visa card or if you're gonna send a bank transfer, there is a bank involved that has to receive those funds in order to credit it to the Coin account. And you know, I think the point you made was that in Coin bases, in this example, they're providing the exchange, right?

So you're using dollars to buy Bitcoin and that example and that's the word, right? They're acting as a, an exchange. We used to call it a foreign exchange provider, right? But it's just mm-hmm. . Mm-hmm , it's a new type of of exchange. And so where things are changing is that in, you know, in the FTX example, people were leaving their Bitcoin on the exchange.

Well, the exchange is not regulated. They don't have any. You know, any regulator to answer to, they don't have any industry standards, et cetera. So imagine if you bought this Bitcoin on Coinbase and then you could send that Bitcoin to your bank account. That's a qualified custodian, right? That would be a, a pretty sea change in how the industry works.

And so that's part of what we're building, right, is so that customers can hold their fiat funds in a bank account. They could hold their digital assets in a qualified custodial account and, and they can sleep at night. We're still very big advocates of self custody. So, but we, but there are, you know, there's definitely market segments that don't want to control their own keys.

They wanna hold their assets at qualified custodian. And so we think there's a great role. Exchanges will still exist. They'll function to provide, you know, liquidity between trading different assets. But for a large portion of the population, especially institutional side, they're gonna wanna hold their assets at a qualified custodian.

And that's a role that we can play.  

Mike: And do you see the inevitability that exchanges merge with banks That either in, in, maybe in the case of not saying your business specifically, but that a bank will start and then it'll build its own exchange and or that an exchange will buy its own bank. And so the, you know, the similar to the problem you were describing with Zap Zappo, it's like if you have to rely on a third party provider, then it's hard, right?

You, there's problems that arise in the back end. Do you see that as the inevitability is that these, these entities kind of converge the concept of a crypto exchange and the, and the bank become one organization and that becomes the winning business model?  

Miles: Well, I think it's gonna come from both directions.

So give you some examples. So at FD Bank we have regulatory approval to be a digital asset custodian and also to provide settlement and settlement in the context of a custodian means, you know, selling your Bitcoin for dollars or acquiring assets and storing them. And so while we don't ever plan to be an exchange like.

you would imagine, you know, with you know, with candles and trading view screens and things like that. The ability for someone to acquire a digital asset and, and hold a digital asset in custody or dispose of a digital asset back to fiat, that's something that that, you know, in the very near future will be doing full life cycle inside of the bank.

So, you know, we're coming from that direction. Fidelity just announced that their clients could buy and hold Bitcoin in Fidelity. And now they're starting with Bitcoin. Maybe they're gonna just fo you know, like us. They're just gonna focus on what we would call the, you know, the more stable digital assets.

And so Fidelity starting with Bitcoin is another example. You can buy Bitcoin at Fidelity, you can hold it in their custodial solution and you can sell it when you're, you know, and that's, that's the same strategy that we've taken. I do however, think that some of the very large exchanges will attempt to buy banks.

I mean, you see kind of in the fallout of ftx. You know, there was a little nugget hitting in there that they had invested some amount of money into a very small bank. I don't think that was the best way to approach it, but they were trying to acquire a bank. Binance had recently announced that they had earmarked up to a billion dollars to acquire a bank.

So I do think you're going to see the very large players you know, move to acquire banks because there's going to be a very close relationship between digital asset custody exchange and banking. And I think you'll see banks like a fee bank, and you see it in Fidelity. BNY Mellon is moving in that direction where they'll offer digital asset custody, settlement, and banking.

So I think it's gonna come from both.  

Mike: Yeah.  

And is FV is that a possible outcome, probable where FV is acquired by a finance or a large exchange out there? Or is that not interesting to you at all?  

Miles: So we, you know, we get asked from our investors, you know, what's the exit strategy Like any, any entrepreneur gets asked, what's your exit strategy?

I think there's one, probably the most realistic exit strategy is the acquisition. And I think it could come from two different channels. One is, I think a large exchange, maybe not the kind of exchanges that we think about today, but maybe a tradify type exchange that's looking to acquire expertise in the space.

And, and, or maybe it could be, you know, a traditional digitally native exchange like a finance. I think that's a possible outcome. I think the other outcome is banks like regional to midsize banks who are late to the game. So you see the really big banks like Fidelity, Goldman Sachs, BNY Mellon, are getting involved kind of quietly, methodically over years.

Eventually the regional banks will be late to the game, right? They'll have, you know, they'll see that this is developed into real businesses and they, they have zero start, right? And so if I were to predict what will happen to FV Bank in the future, we'll either get acquired by a exchange, whether it's a trad fire, digitally native one, or.

We would get acquired by another bank that's late to the game, and they wanna acquire the expertise that we've developed over the years.  

Mike: Interesting.  

And do you see the, you know, in the US there's thousands of banks, hundreds, thousands, somewhere in there. Thousands. Thousands, right. To start a new bank.

Seems like they almost remind me of liquor licenses where it's harder to start, get a new one than it is to buy it from an existing bar restaurant. Is that the way you think the industry will start to shift, where these regional banks just become insolvent, they're not innovating at all, they're losing customers.

Gradually over time, some entrepreneur raise some money, buys the bank, rebrands it, restructures it, but keeps the same licensing and maybe core regulatory competency under the hood. Do you see that as being a trend that may happen,  

Miles: or, well, I mean, it, it, it is, it is being tried, I would say, you know, I mean, we can just look at the FTX example.

Like there was an attempt there. We don't know exactly the details, but You know, there, there are people who are trying to take unproductive, you know, small banks and pivot them. The challenge that they have is that that requires them to go back to their regulator and file for a change in scope of, of business.

Right. And so you, you can't take like, you know, an agricultural lender in the middle of Wyoming and turn it into a digital bank without your regulator understanding what your business model is and what the risks are. Right. I didn't realize that. It's almost akin to a changing control to change in scope.

Mm-hmm. . And so the people who have there, I mean, there are attempts that people have been out and bought regional banks or local banks and they've wor they're working on pivoting their business now hopeful. They get regulatory approval eventually, and they can start to develop those and have more people in the ecosystem.

You've also seen people try to get, you know, what you know, novel licenses like in Wyoming that have the P D I. You have a number of of people there. Probably the most, you know, prominent one is custodial that have applied for a license through a special purpose depository institution license.

There's been pushback against trade organizations like the ABA and, and community bank organizations. There's been pushback from the Fed Reserve that, you know, essentially these novel charters may not have the right to have access to certain financial services. Right? And so I think it's a debate that's going to resolve itself.

And then eventually you'll have these special charters that can participate in the space. And then you have the approach we took, which is we went to a. Us, essentially offshore jurisdiction. We're in the commonwealth of, of the United States. We fall under US federal banking regulations, but we had, you know, an opportunity to start a bank in a jurisdiction where we were able to tell our story on day one about our business plan, and we were able to get the approvals that we required.

But it has its own challenges, right? It's not there's no like straight arrow to, to starting a, a bank from scratch. Mm.  

Mike: So FV Bank, your bank is not, it's under the jurisdiction of the us but it's registered somewhere else  

Miles: outside the So we are, we are licensed and headquartered in Puerto Rico.

Mm-hmm. . And as all the, all financial institutions in Puerto Rico ultimately fall under, you know, US federal regulation, the, the local regulator, which is called the sif they closely follow the regulations of the us. So, for example, regulations like bank Secrecy ad the BSA AML requirements that.

Pertain to any state bank or any federal bank, they pertain to us equally. And so if you think about it from a regulatory point of view you know, our participation with you know, regulations for travel rule regulations, for any types of sanctions you know, identity requirements reporting requirements, cooperating with other, you know law enforcement, all the things that apply to, let's say if you are a bank in Florida, they apply to us equally.

And, and  

Mike: so  

what's the advantage of being in Puerto Rico?  

Miles: Well, for us there was, the advantages were a little different when we started. You know, my background is in the card issuing space. And when we first looked at Puerto Rico, there is a very interesting. Arbitrage in Puerto Rico. In that as a, as a financial institution, you have a right to apply for a Fed Reserve master account.

There's many financial institutions in Puerto Rico that have fed reserve accounts. And so, and you fall under all of the US regulation, as I previously described, but as it relates to card payments, so Visa, MasterCard, and other payment networks, you would be a member of Visa, Latin American, Caribbean.

And that those rules are subtly different but important if you're a card issuer. And so so there was a high interest to us initially because Puerto Rico has this kind of Venn diagram where part of it sits in the US regulation, but part of it falls under Latin American, Caribbean. And so we saw that as a business advantage.

And, and it is, I mean, we're a Visa principal member. We have a, what's called a cross border issuing license which means that we can issue cards outside of Puerto Rico and we can issue cards in the United States. It's an interesting challenge because we have to actually issue on multiple bins.

So we have bins just for the United States that we have to adhere to certain US regulations like Durban. And there there's a number of regulations that as a card issuer that you have to follow in the United States, but as an issuer to the rest of the world, we kind of fall under another set of regulations.

So but there's, there's distinct, you know, and I'll call 'em, they're distinct and subtle advantages to being there. Mm-hmm. . So we saw it as a great jurisdiction where we had a regulator that would listen to our business plan. We got this kind of arbitrage between payment networks and banking. And it didn't hurt that there was corporate tax advantages of being there.

You know, we have a low tax rate compared to being in a state for. Yeah. Sounds smart.  

Mike: So  

Ft. Ftx Sam, Sam Baker Fried is, I think today doing his first interview at the New York Times Steel Book event, which I, I don't know if it's aired yet but it's gonna be out today, I'm sure. Do you look at that business and think it's going to be a, there's so many ways to think about the long-term implications.

If you look at like a similar example with Enron, who the CEO that took over under that bankruptcy is the same, same CEO that's taking over the ftx deal and the bankruptcy. I don't know how many, if any, positive. Outcomes from Enron happened. Maybe there are some silver linings, but do you see this as being a strong, strong net negative?

And, and are there silver linings here? Is it sort of depend how the proceedings play out? Like how do you sort of make sense of the, the scale of the impact of this event given what you know now?  

Miles: Well, I, I think it is the Enron moment, right, in crypto. I, I definitely think it's significant and it's going to have significant impacts on the industry.

It'll have some negative impacts short term for sure. I mean, a very horrible that people are losing their, you know, their investments. I mean, that, that's a horrible outcome. We have a number of companies in the industry that are now in chapter 11 now, thank God that they're, you know, that they're in a, they're in a bankruptcy proceeding so that at least there's going to be.

Order to how the assets are ultimately accounted for and distributed. So you know, the, if you look back there's times when I think that these collapses would not have gone into bankruptcy. They just would've vanished overnight, you know? So I think the fact that these companies are in US bankruptcy courts, they are being reviewed as to what happened, where the assets lie, who are the creditors I think that's good.

Let that'll be a good outcome. Short term, it's, you know, it's very bad for the reputation of the industry. I mean, that, that's not helping. But I think a lot like Enron will come out of this with regulation, like law, law lawmakers will be, you know, their hands will be forced to look at this and say, Hey, what went wrong here?

And what can we do to, to put in consumer protections? Mm-hmm. . And that's a lot about the thesis that we had in early on was that, you know, that you needed to have the, the custodians of these assets and the, the folks handling the financial flow. Should be regulated. That doesn't mean that you still can't have decentralized protocols.

That doesn't mean you still can't have digital assets, but there has to be some control point, you know, and we, we believe that, and we think that, you know, the silver lining is that ultimately, I think a lot of this business is gonna go to banks and trust companies. Mm-hmm. . And, and it'll be, it'll be our part to make sure that we somehow still foster innovation.

Right. And not just you know, make this kind of a industry that dies because it's got pulled back in the banks and trust companies, but to still find a way to foster innovation. And I think that there is an opportunity for banks and and trust companies who will, will, I think, be the likely winners of this and an important role for them to play in still fostering decentralized innovation.

Yeah.  

Mike: Yeah.  

That's, that's a optimistic take on it for sure. The, the one. Large and maybe obvious incentive here. To me that seems like the elephant in the room is that crypto, unlike Enron, presents a significant threat to the monetary control that the US government, the Federal Reserve has. You know, if, if we do shift a even significant minority of the currency and circulation, the purchasing power that US citizens have, and then it's, and then Bitcoin or a collection of other cryptocurrencies starts to threaten or at least provide an alternative to the global reserve power of the US dollar, then the Federal Reserve and the US government at large, I can't see how else they look at it other than a threat to the establishment.

When they view it, when there's a collective conscious awareness that Bitcoin equals bad equals threat to US power internationally and US power over the citizenry, then I would imagine this is the opportunity, and maybe there's another example in the future, but now is when they could just ratchet it up, you know, like it, it's the nine 11 moment.

Do you wanna make, you know, draconian regulations that people are gonna be taking off their shoes in tsa, pre or TSA for 25 years in the future? Or, or, or do you feel that they're like, what I wanna identify and amplify is the message or the signal that there's a po There's a reason why people in politics, the people that have actual influence over the proposed regulations, why they should support the flourishing of crypto and blockchain technology and.

Maybe recognize it as a threat, but recognize it as an evolutionary advancement, similar to, you know, every other large scale technological turnover. But with that being said, how does that resonate with you? Do you see it the same way? Do you see it differently?  

Miles: Well, I think this is an opportunity for the right kind of regulation to come into play.

I think the basics, like, and, and, and this will not be popular, you know, amongst, you know, true crypto enthusiasts, but I think at least when touching financial services, KYC and AML protocols will come into play. And I think that custodianship will come into play. Like, what does it mean to, to give your assets to a third party?

And what are their, what are their fiduciary obligations when you do that? I think clarity around those two things are inevitable as a result of this, because I just don't see. The US government or any well established government saying, Hey, you can send, if you send a 10 million wire to China, we require all of this documentation at the bank.

But if you send 10 million usdc, we don't require anything. Mm-hmm. , I don't see that situation existing. So I think there'll be some parity on KYC and AML protocols to fiat. I also think that FTX is really gonna push the envelope on custodianship because the, the major breakdown it seems was that they took client funds and used them for their own gain or , maybe not, gain was the wrong word.

Yeah. For their own activity, right. For their own gambling, it seems. So, so I think we're gonna see it in those areas. And I think the reason why the US government would not be it would not, I would not recommend them to try to kill it to kill crypto, is because this is a global phenomenon, right?

This is not just encapsulated in the United States, so, There are and will be governments who advance crypto technologies. China's already, you know, running their own central based digital currency and pilots. You've heard a lot of talk about, you know, Russia now running a national exchange. And there's many more stories like that.

And so I think if the US were to shut down crypto, let's say make it illegal, for example, draconian step it would put them at a, at a disadvantage on the global stage because other companies will continue, or other countries will continue to develop technologies that will ultimately weaken the dollar.

Yeah, well I mean you look at what's happening with bricks, right? I mean they're expanding the definition of bricks. And it looks like, you know, more and more countries will be working towards trading for things like oil on a different platform than Swift. And you know, while that may not happen tomorrow with the advancement of technology at the rate it's going.

ultimately that's going to happen. Something like that's going to happen. And so I think the US would be at a disadvantage to try to kill it. They gotta find a way to allow it to continue to grow so they can use the technologies to their, you know, national and commercial advantage without killing it.

Mike: Yeah, that's the hope. I, I, I would imagine that, well, the real question is how, how attached or, or how , how much will the Federal Reserve and the federal government fight the eventual dissolving of the US dollar as the global reserve currency, and how much pressure will they put on allied countries to adopt the same?

Regulatory policies that the US has. Like, to me, I think of this as in some ways analogous to  

the discovery of the high potential use of psychedelics in the sixties where initially like it was, it was abused. It was super powerful. Like it's a, it's a super powerful mind medicine, but the actual practical medical uses of it were not happening, and the abuse was clearly happening and the government recognized this as like a threat to getting people to go to fight in Vietnam, right?

There was like a growing counterculture movement. So ban schedule one, no research, everything shut down for. 60 years. Right? It's just now where like these things are becoming legalized and studied and academic institutions and the Reid, like the, the, the positive impacts that they have are being scientifically shown.

And the obvious thought I have is, oh, what a bummer. That this was like, yeah. Think about all the people who died committed suicide, struggled their entire lives that could have been prevented, had this been researched in a controlled way as opposed to just bant. And to me it seems like the kind of thing where there's enough momentum now between companies like Coinbase and the hundreds of others that are out there, that there, there can be a organized resistance to this where there just, there couldn't have been like in psychedelic, you know, different totally different things.

Yeah. But they have similar patterns to them. And so I view this as like, Like, well, if it is truly going to be a evolution of financial technology that people utilize, and the eventuality is that the US dollar is not the global reserve currency simply because of the fact that the Federal Reserve has the ability to print and give out money to US citizens, which is directly counter to the incentive and benefit of all the other people using across the world.

Like once that, and we're kind of at the, I don't know, middle to tail end of that realization from other countries, it seems like the US dollar is still being largely supported because there's no better alternative. But to your point, it's like, well, if other, if development of the technology, blockchain technology in other countries passes a critical mass and the US push pushes monetary pressure on those countries, they're gonna have to make a decision.

Like, are we gonna be like pro US and still support the dollar? Or are we just gonna say, Hey, we're out of this game. China obviously is big and strong enough that they. They're not using the dollar, they're not impacted. It seems to me like India is gonna be a fringe country. Like there's some countries that are ob, like Australia's probably pro-us, but India, where do they go?

And it's not, it's not clear to me how it shakes out.  

Miles: Yeah. I, I think that, you know, the difference is that if you look at the internet, right,  

the early days of the internet was built on pornography, right. Morally and ethically against most of the grain of most people. Right? And so, but the fact of the matter is, is like PayPal was built on the back of pornography.

Like the early days of internet payments, early days of internet access was porn. And you would ask, you know, most households and most government legislators that, you know, we don't like that. Right? And I think there was probably a good point in time to. . But it didn't happen. Right? And the rate of technology advancement is so fast now.

You look at what happened with VoIP, like, you know, the phone carrier said, oh, no, no, no. You know, that's never gonna work. Phone over the internet, like most calls now are carried over VoIP, right? So so I think that the risk is that the technology, number one is global. Number two, it's advancing at such a fast rate that the US killing it would be a very bad global mistake.

They should be the global leader in blockchain technologies and a global leader in regulation around allowing it to, to grow and fostering it rather than killing it. Because it's going to continue to grow. I mean, unless there was a coordinated, like, you know, the G 10 got together and said simultaneously on this day we're killing it.

Cross the board. Right. That, that, that would, I wouldn't say it would kill it, but it would certainly put it underground.  

Mike: Yeah. Yeah. And I think that, go ahead.  

Miles: I just don't, you know, I, I, I would like to think that we have. Smart enough people to understand that this is technology that's not going, you know, it's not going away.

And suppressing it is not the best thing to do. It would be fostering it and making America be the leader. And blockchain and digital assets.  

Mike: Yeah, yeah.  

Jump on board. Be the best place. I mean, to me it seems so obvious and, and a policy you could enact today would be build the wall, but open the front door, make it easy for smart immigrants to come into the United States, like what has worked for the history of the country, but also make, make a, a fairly robust perimeter so you, you can control, like you have, you have to do both in sequence.

And to me it seems like that's the, there's like a false pretense of political disagreement, but they're almost like arguing for different things. Like one size is like, we wanna build the wall, the other side's. Like, we wanna let in more people. Well, you can do both together. And it seems like you can create regulation, you can allow for the flourishing of the blockchain technology, but, but you have to like, you have to be aware and you have to have a nuance and sophisticated.

Way of communicating that. And I, I look at our political leaders now and think, is that going to happen? Is there going to be a sophisticated nuance discussion about this? Or is this gonna be like white and black, good, bad? Oh, you're antied reserve, you're anti-US government. You're bad crypto, bad ban it.

And I  

Miles: mean, I'll give you a firsthand example. I talked about it, you know, the business, the debit card business that we built, you know, back in, starting in 2013. It's pretty well public knowledge that, that, that business died in January of 2018 by a cease and desist letter from Visa. I sat in numerous board meetings.

I sat in, you know, in MasterCards board rooms in number of briefings back and forth about this conversation. And if I were to, you know, make it sound like a boardroom on the left side of the table in the boardroom, we had people that were just saying Silk Road, silk Road, you know, money laundering. And then on the other side of the table, we had people saying, well, this is innovation.

We should foster this. This is, this is gonna be the future. Inevitably Visa killed our project. Right? They, they killed a million card holders and it died. If you go now, like I was at Money 2020 just recently, you know, visa has a big booth that says Visa Crypto, right? And so, so, you know, they, they killed it just long enough to get their arms around it.

And then, and now it's, you know, it's a, it's a very interesting, like if you go to Visa and MasterCard, booth, a big trade show, you know, visa Crypto is an actual division of Visa now, right? And so this is a project that just in 2018, they killed the largest provider in the industry, so . So, you know, sometimes, like you need these watershed moments, like what's happening right now in order for, you know, I, I think if US regulators came around and they did some of the things I just said, if they said, listen, KYC and AML applies consumer disclosures apply.

Like if someone's gonna be purchasing Bitcoin or Ethereum or whatever, you need to give disclosures. Just like if you open a money market account or you buy stocks, you have to sign a bunch of disclosures, right? And so disclosures and then probably rules around custody. Like, you know, if you're going to not hold your assets yourself and you're gonna give 'em to a bank or an exchange, there's going to be rules around how those are treated, right?

They should be bankruptcy protected, they should be held in a fiduciary capacity. So I think that is what's going to come. I, I don't think that I don't think the draconian move of trying to kill crypto is gonna come. I think there's going to be painful regulation for those people who aren't prepared for it.

And I think the maximalist who just want a decentralized world, it's gonna be a hard, you know, pill to swallow. But I think, I think that's where it's going. Yeah.  

Mike: Yeah. That seems realistic. I, I think that the, I never could quite reconcile the reality of how a Bitcoin Maxima. Sees the transition of power from the Federal Reserve to a world where we're all using crypto.

Like it, like at the end of the day, what happens if you don't pay your taxes? Like you can't just not, oh, I'm not gonna pay 'em. And like, no one's gonna knock at my door. Like eventually you'll be in jail. And that's a, you know, death and taxes are the most inevitable things. So it seems to me like that you have to play the realistic anticipate the realistic trajectory.

Go ahead. If you got it.  

Miles: Yeah.

I mean that's a very interesting conversation, right? I mean, if you, no matter who you ask I mean, you can ask some Maxs and they'll say, A Bitcoin is a Bitcoin is a Bitcoin. Which I get it. I understand. But an ounce of gold is an ounce of gold is an ounce of gold. But at the end of the day, we all say, how much is it worth in dollars?

Right, right. That's always the denominator. There's always this correlation back to what is, its buying power in. Our universe, right? And so if, if our buying power was in, you know, beans, we would say, how many beans can I get for a Bitcoin because I need to buy, you know, I need to pay for my groceries with beans.

And so, so as long as we have national currencies, there's always, it's always gonna be a correlation, whether it's gold, gold is priced in dollars, right? An ounce of gold is worth so much dollars. And so even the best reserve asset that people have ever imagined gold, or now digital version of it, Bitcoin, is still always gonna be priced back to a national currency.

So I don't see a future where I see a future where a Bitcoin could be worth a million dollars, like upon conversion, because it's a rare, it's a rare commodity. But I still always see the dollar or the euro or whatever the, you know, maybe the dollar goes away and we have something new. Mm-hmm. , maybe we have a, you know central Bank Digital Currency, that's called something new.

But we're always gonna say, well, Bitcoin is worth so many Central Bank digital currencies, because that's how I pump my gas.  

Mike: Yeah, yeah. Interesting. Do  

I wanna ask you a little bit more for a minute on visa, MasterCard, they're such an enormous network, largest payment network in the, in the world by far.

It seems like an oligopoly between the two companies. Maybe Discover on the fringes or Amex, I guess would be number three. They have a incredible, I would imagine incredible incentive to not just preserve their existing business model, but somehow shape the evolution of crypto so that it doesn't go head to head, really with the concept of a super low transaction fee and super fast payment network.

I mean, speed and price. So they're two biggest value ads. Do, do you see them maybe as explicitly or implicitly influencing, influencing the development of crypto to point more towards gold rather than towards cash? Because we don't have a cash. And, you know, the, the fork, Bitcoin fork was, was kind of about the block size war, which was about do we want to really, was it trajectory towards gold or trajectory towards cash?

And, you know, the vast majority of people now aren't using Bitcoin. Bitcoin is a, a thought of conceptually as high transaction fee. It's slow, it's like seven, seven transactions per second compared to 70,000 for Visa MasterCard network. And it's thought of as like digital gold. But that leaves to me this wide open vacancy of utilization for cash on the.

For Microtransactions, do you see Visa MasterCard's real strategy? Like if you peeled back in the boardroom, are they saying, Hey, delay the inevitable somehow, like what are they actually trying to do, or where do you say their  

steelman argument?  

Miles: If you think about what Visa is, it's a network, right?

It's a, it's a connected network of merchants that. You know, they have a client on the merchant side and they have a server on the Visa side. If you think of it, it's just a network. You have a client server network. Mm-hmm. , you have millions of points of sales that are running the Visa client and that people can walk in and they can, you know, enter their payment information and, and it's, so it's a, it's a data network, right?

With client and server connections. The most simplest description we always call it the rail, right? There's, there, you know, there's the dream is always to been to create the third rail. So you have Visa and MasterCard where Rails one and two and everyone wanted to create the third rail, which was the new competitive rail to Visa, MasterCard.

You know, most people don't know that Visa has a division called Visa Private Label. They sell excess capacity on their network in an unbranded fashion, right? So if you think about it, like internet capacity at some. Why wireless, you know, providers decided, oh, we have all this extra capacity, let's sell it to General Motors for their cars, right?

And so, so Visa even sells excess network capacity to, to private label providers. And what I, the way I look at blockchain for Visa is that one is it's a network upgrade, right? So if you, they're doing, they're doing betas right now with sdc. So if you think about, you know, SDC is just a dollar denominated, it's a stable Coin dollar denominated blockchain transaction, right?

And so from Visa's point of view, think about it as a network upgrade if settlement between the parties you have issuing a bank, acquiring banks, merchants, and Visa. If that settlement can become instantaneous and, and it's, you know, it's reconcilable in a public ledger, even on a permission ledger, it becomes significantly more efficient.

You know and so, If you, today, the reality is if I wire money from our bank to a bank in China, it's T plus one or T plus two for settlement. If I take the million dollar wire or a million dollars of us, D C SDC arrives in 10 minutes, irreversible, you know that, that doesn't even compare. So you think about would you consider that a network upgrade, right?

If you could transport money from A to B in two days with a cost of, you know, whatever dollars, or you could do it for a fraction of that over a blockchain network. And so when I think of Visa and MasterCard, why will they embrace these technologies? Because it's a network upgrade. Their settlement, their reconciliation ways to capture, you know new transactions will become so much.

Mike: Interesting.

And particularly for cross borders from one country to another, because I would imagine within the United States, for instance, it's just a database change. You know, they're just saying debit credit this account. It's, so to me it seems like centralization is very efficient, but it's not very resilient.

It, you know, one, you're trusting one person, decentralization is very resilient but not very efficient cuz you have to propagate that transaction information across all the different nodes. So it seems like Visa, MasterCard has reached like like a maximum efficiency, but not an optimum resiliency, if that makes sense.

Miles: Yeah, I mean I think that's a fair characterization, but you also have newer blockchains, which you know, if you look at proof of stake type platforms or permission based platforms where you can get that speed. And efficiency you know, that are different than approved for work platform like Bitcoin.

So I think you'll, you'll see purpose-built blockchains for trade settlement. Mm-hmm. , that'll make a lot of sense. You know, I, today in, in FV bank, we we're, we're one of the very few banks that, or I don't know of any others for, as a matter of fact, that support SDC deposits. So if I have a client who's gonna receive a million dollar payment from a foreign country, or even from the us US is gonna be, you know, one day or same day, and foreigns gonna be one to three days.

If I raise an invoice to you and say, okay, send me the, send me the payment, whatever amount it is, you can, I can have that deposit in my bank in a matter of minutes. Mm-hmm. , right? Because we resolved that transaction to dollar. We just used U S D C as a. As a, think of it as just a competing rail to other ways of getting value from A to B.

And so the same thing goes with making a payment. If I need to pay you and you say, well, miles, I'm not gonna do this podcast. Not, not that you charge me, but I'm not gonna do this podcast unless you send me the thousand dollars. I could send it to you instantly over a blockchain. If I send you even an ach, it's gonna take a couple of days to sell.

Right? And so, so just that pure efficiency and accountability that can be achieved is, is huge. Right? Mm-hmm. You know, go back again. Go back to your early cell phones. You know, where we got our first browser and it was so slow and we thought, well, this doesn't work. I mean, now it's like speed matters.

Right? Speed and capacity matters. It's made the difference in our lives. Totally. And I think that's what's gonna happen in financial data is that speed and capacity will matter.

Mike: Yeah. Absolutely. And especially in countries where bandwidth is limited and information throughput is not so high than like access the internet.

I saw a stat the other day that like a million, it might have been like one and a half million per week come online from

India with high fidelity internet, high bandwidth internet, which is just, and there's gonna be more, there's gonna be more people speaking English in India than there is the rest of the internet combined in the next five years.

Like most of the people watching most videos and podcasts are gonna be out of India, which is nuts.  

Miles: And their payment networks are far advanced than ours are, you know, especially on the consumer level. And, and I think that's a lot, a lot of it, and I wouldn't necessarily attribute it to blockchain, but it is to do with technology in the, you know, in the upgrade.

They have our pay there, which is basically a realtime payment network, which is. You know, we don't have, we have Fed now coming, we have RTP services out there, but the reality is, is we don't really have an instant payment network in the US yet.  

Mike: Yeah. Venmo, and I guess that's . Yeah. But yeah. But that's not a, it is not a network, it's just a company that maintains It's an app, right?

Yeah, it's an app. Who are you?  

Miles: It's a good one, by the way. Yeah. I'll credit to them.  

Mike: Yeah, no, I dig it. Now. Now, PayPal who are you learning from or who do you follow? Do you is there any particular books or people or blogs that you pay attention to or have influenced your thought over the last few months or years?

Miles: Well, I mean, I maybe not super popular today, but I really have, for the last several years I've been following Elon Musk. I mean, I, it's like such huge. goals, you know, and, and huge missions. I really like that. I like things that are difficult to do. People ask me, why are you running F Bank? It's like such a big challenge against regulation, against norms, you know, your two industries colliding.

I like challenges and I, and so I really look up to what Elon Musk has done. I mean, I look at what's happening with Twitter and, you know, stay outta all the politics, but, you know, it it from my lens, and I appreciate that other people have other lenses but from my lens, he's stepping in like an entrepreneur and saying, I'm gonna run this like a business.

Like I'm cutting cost, I'm adding features, I'm creating revenue channels, you know, and so but on a global, massive scale under the microscope of everybody, right? And so I really look up to that. It's like he's taking on a massive challenge and taking on, you know, and he's, he's put some 40 odd billion dollars on the line to do it.

And so I like, I really look up to what someone like that is doing. I mean, there's , interestingly, left enough, like a lot of my life lessons that I use in, in my, you know, my moral and business ethic, ethical compass today. At the time I learned them. I didn't really appreciate them. Like they were tough for me to digest at the time.

I had some, you know, business colleagues throughout my career that, you know, either were, most of them worked for me and and, and, you know, sometimes I had very difficult lessons that I had to learn. And at the time, I would've told you they weren't a lesson, I would've said that they were like, you know, just annoying and bothersome to me as a person.

But now I look back and I say, wow, that person taught me a lot. You know? I, I've given this example before, but I think it's worthwhile, like being an entrepreneur, you just have a mind full of ideas. And I used to walk into meetings and like lay it all out, you know, and just, and the rest of the management team would look at me like,

Oh my God. What did he just say? Like he said, you know, 19 different things. Which one do we listen to? Mm-hmm. . And so I had hired this CEO in one of my com companies. I give him credit, his name is Pat Hazel. And he took me out to the side one day and he said, Hey, you know, you ever aired up a balloon and then just let go of it and it just goes flying around the room, you know, nobody knows where it's gonna land.

He said, when you walk into the room, that's what you're doing. He said, people don't know. So the same air in that balloon let it out slow. And at the time I thought, you just don't like the fact that I have a lot of ideas. You know, I was like, you don't like the fact that I'm full of ideas and I'm the visionary around here.

And then later on in my life, I came to realize like how important that was to to manage those types of things. Like letting the air out slow is one of my favorite sayings. You know, you you, you're talking to a regulator. You're talking to a vendor, right? You may have grand vision, but you gotta let the air out slow so people can digest what you're trying to do.

And. . And I have a lot of those examples like throughout my career where they're just silly things that happened at the time. And then five or 10 years later I look back and go, what a lesson that was.  

Mike: Is there anything else that comes to mind that was so good?

Miles: I mean there's just try to give some, you know one of the things, like one of my, another mentor and it's a cliche saying, people have heard it like all good deals three times or all good deals die three times at the altar. And, and the idea was, you know, when you're an entrepreneur and you're trying to raise money or you're trying to win an account or something, you're gonna fail.

You're gonna get no's. And and I got a lot of no's in my career. You know, you gotta do, you can't do that. We don't believe in your vision. Like whatever you, you name it, I, I've heard it as an entrepreneur. And so if you built it into yourself that say, listen, you know, this deal's gonna die three times before someone.

Believes in you. And it's just a, it's a cliche. It goes along with like, you know, the salesman that has to get a hundred nos before he gets a yes. But just understanding that no is not the end of the game. It should make you stronger make you think more about your proposition and get it over. And so I had this one one guy early in my career, you know, we were trying to raise money for one of my companies and we were getting those.

And, and even at that, like, you get a yes and then you get into due diligence and you get into closing and, you know, and and it fails. I mean, I have one very real examples that one of my  

first times I ever raised money, I was doing a series A. And we signed documents. It was like 50 pages series, a painful

Lawyers were present, you know, six, seven signatures on the pages. And I was at the venture capital firm and the partner broke out a bottle of c. And, you know, he popped the cork. We all drank champagne and I grabbed the cork and I said, I'm gonna save this to remember, this is my first series A and I wanted to remember, you know, this moment.

And long story short, the VC never funded. So there had a problem with their LPs. Oh. They ended up not funding. You know, I called my lawyer and said, should I sue them? I'm, you know, we, we have signed documents. Yeah. Should I sue them? And he said, miles, you know, just go on with your life. So I carried that cork in my briefcase for at least 10 years.

Oh God. As a reminder that, you know, that anything can happen at any moment, right? Yeah. And so I literally carried that cork in my, that champagne cork in my briefcase for about 10 years. And I would pull it out and tell people that it's not over until, you know, until the money's in the bank or, you know, there's all kinds of different cliches to go with that.

But that was another big lesson, like, you know, I literally was drinking champagne and celebrating. With the VC team and the lawyers, and then the money never came.  

Mike: Wow.  

That, that's a stunning reminder of the construction of venture capital is that they don't VC capital, you know, some Angel Funds series A fund raises $80 million to invest in startups.

They don't have that money. That's money they have to request from LPs. It's just a contract that the money is available for deployment, which is, oh man, that's a, that's a, that's a, that's, I've never heard anything that close. Usually like the, the partner at the VC firm will kill it last minute for some reason.

Miles: But I think Yeah, they were, they were in, and I was in a con, I was in adventure conference last week in North Carolina and know one of the partners was saying that basically like LPs are sending them the notes that we're not funding now. Like, you know, we're, we're putting our funding on pause. Yeah. And, and I think that's, you know, That's it reminds me of the cork

Mike: Yeah. Yeah. It seems a little bit strange, I guess, to the LPs would still have the power to not, not invest if, if they've already raised a fund, but I don't know.  

Miles: Well, they might have capital calls, right? Yeah, yeah, yeah, yeah. And then if they say, we're not gonna be able to honor the capital call. So anyway, so you, you asked about, you know, mentors and life, life lessons.

I mean those, and that's what makes being an entrepreneur exciting, right? Is that you know, they do those moments are not very nice when they happen. But they do teach you a lot.  

Mike: Yeah. Yeah. Not nice to put it mildly. Miles, thanks so much, man. Congrats on all the progress. What a really exciting business to be a part of.

I I hope you guys keep crushing it and make a real meaningful impact in the industry and the world at large. And thanks for sharing your time and your insights here on on the podcast.  

Miles: Thank you. Thanks for having me. All right.  

Mike: Take it easy. Thanks.