>> From the Hard Rock Hotel in Las Vegas, it's theCUBE, covering HoshoCon 2018. Brought to you by Hosho. >> Okay, welcome back everyone, we're here live with theCUBE in Las Vegas, for the first security conference. It's an inaugural event. It's called HoshoCon. This is where security experts are gathering to discuss the future. I'm John Furrier, host of theCUBE. With Joe Kelly, he's the co-founder and CEO of Unchained Capital. We were just talking about the old days, and big day, yeah? 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, earlier, 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, we're really a financial services company, I'd say. Kind of in this new era where we have this challenge of users have crypto currency, they want custody of their assets themselves, they want to maintain some of the grave sovereignty over and 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. Our first product is loans. We give out dollar loans, in U.S. dollars, to individuals or businesses who provide crypto currency as collateral. So right now, we accept Bitcoin, or Ethereum as that collateral. And we do accept it in a fully custodial manner today. When you get a loan from us you are sending us your Bitcoin, you're trusting us to keep it safe, and we do. But we also have some more multi-signature models that we'll be releasing soon, that we work with, for instance, Hosho here on getting our smart contract, and Ethereum honored it for doing such a thing with Ethereum. But we're really trying to find ways to bridge that gap of user don't have to quite give up everything , we don't have to have full control, we can still as a lender, safely extend money and know that we can. >> So you've got a lot of couple things going on. >> Yeah. >> You've been topical here at this conference, been hearing in the hallway, there's been sessions on it around custody, >> Yeah. >> So that's one big issue that everyone's talking about, but it's also now your lending. So, this collateral, that's services, financial services, so it's a little bit fin-tech meets cyber security needs. >> Yeah. >> You're in the middle of two cross-hairs. >> Yeah. (John laughs) >> How are you guys doing this? >> I mean, I think, as far we were talking about earlier, my co-founder and I kind of cut our teeth in the big data technology space, and learned a lot through that. And 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 customers, and what they need. 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 always has been this kind of focus on the customer, the end user, and what they want. >> Hey, building a sustainable business. >> Building a sustainable business. >> With paying customers, what a great idea. >> Yeah, who would've thought. (both laughing) >> Well turns out it was a good call because with the whole bubble burst thing, you know in February really, I think February to me was the month where you saw the decline, the security token, Rightfully so is the discussion for all the utility all the stuff regulating now, so a little bit of a dark time for us, but, the winners coming out of this will be the durable real builders. >> I think so, yeah. You know we didn't, we chose not to do 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 cause. >> Yeah. >> SCC reported today, I saw it today, SCC is actually having some ICO's give money back on violations. >> As they should, yeah. >> So, you would have been properly optimizing your time on other non-company building activities? >> Yeah. >> Yeah, running around Asia managing token prices >> Now, it's a shame, its like these small teams run out like 12 or 20 people almost running public companies, in terms of the demand and opinions and-- >> Yeah, and they're young, they got keep their eye on the ball, which is the value proposition evolution and also security. >> Yeah. >> Alright, so talk about how, what you're doing here? Why're you here at HOSHOCon, I see they're a supplier, a partner with you guys. >> Yeah. >> But what's, what's the story here for you guys? >> So we got to know Hosho earlier this year, we spent about six months developing a theorem smart contract. So a theorem, 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 that multi-signature spelled out. So, and we, with the way we store the currency, we store it all cold storage, we store it with multiple hardware devices, and in so, we believe the only way to do that, or the only way to store cryptocurrency is 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. Also, you minimize risk of theft, you also create some resiliency in the sense of maybe a key is lost, like you got some back up keys to it. So, really important to get to that multisig status but as you maybe saw last year, with hacks like there's a parody multisig wall that was hacked to the tune of some hundreds of millions of dollars. There's several of these multisig contracts people developed that were really sophisticated pieces of software allowed ownership to be transferred or things to change, within the contract that, in our opinions 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 multisig as closely as, it's already spelled out in Bitcoin. And worked with Hosho on at that, it's been since honored it 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. >> Really smart team of folks that put that together and so yeah we're very security conscious company. We like being present, contributing to conversations like those that are here. >> It's funny, we were talking earlier in some interviews it's like, security is a differentiated of some of these exchanges. (Joe laughs) >> We got better security >> Cheap table steaks. I mean, differentiate? That's like standard. Alright, so talk about how someone uses your service because I think this is fascinating. A lot people are holding crypto, they may or may not want to sell it. There's also fluctuation risks. >> Yeah. >> So how does this system work? I give you my crypto and you lend me money? >> Yup. >> Is it that simple? >> Yeah, so you first sign up to our website. We lend mostly in the U.S., 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 email check on all folks and then you put in a loan application. And within that loan application, we can either lend you at a 35% loan to value or a 50% loan to value. You have a 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 and you can go from basically a new account and application to a funded loan, in like four hours even. You have that time from the client signing up to us, wiring the money and so that, that, can be a pretty fast process. Which is really unlike any other loan products. Even if you get a unsecured loan on a website, like an Earnest.com or some of these, it can take you many days, a week or more sometimes to close the loan. >> So you're taking a big risk with this, you guys do? >> Well you could say that. I mean, I mentioned that-- >> It all depends on the fluctuation, right? >> 50% on LTV. We do do margin calls, so if there's a 25% price drop, we'll issue a margin call. It means, with 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 a liquidation over anybody-- >> So explain a margin call real slowly, so okay, it drops below a certain point percent. Let's say 25? You do a margin call, they don't come up with more collateral, to refuel essentially the collateral. You can default, which means you take ownership of the crypto? >> Yup, in that case we would take ownership of the crypto currency. We would sell what portion of it, was need to pay off the principal of interest, and then they get the remainder. But ya, thankfully nobodies ever fully bailed on us in that way. >> Ya, not yet, not yet. Well so for me this is a great service. So, great for people who get some hands on some, some fiat, some cash. Now, on the backhand, I'm only imagining just my brain spins around, you got a lot of hedging going on, you got have math, a lot of math behind it. Maybe, it's big data. How are you managing the back end, because now in your risk profile, so you the margin call, you got some mechanisms, which is great. What's going on in the background? You crunching on some cloud computing, Amazon computing, going OK, where are we with our positions? 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 puristic and 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, ok, 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. That says, really? You know, 9.9999 or 99.99% of the time, you will never see anything that big within a day. Maybe a week, there's been a couple of weeks where Bitcoin will go down 50%, in that period but that's, that evolves on like a human reactionalary kind of time scale. Not something that you're-- >> Well today the stock market dropped 800 points today and Bitcoin didn't move. So that's good that there's no corelation. >> Yeah. >> But the point is, you're measuring it. So, is there, the question next question I have for you, as I'm thinking about myself if I was a customer. If I was a customer, do you provide like some sort of total cost of ownership calculative, that I would have to know, okay, 'cause I want to plan, I don't want to be defaulted. Right, so I should have a good understanding of how to manage it so I give you guys some crypto, for the loan. >> Yeah. >> I got to have some reserves. You guys see a formula for that, is there benchmarks or is it more of ad hoc general. >> Yeah, it's definitely, I mean it's a case by case basis but with every client. We recommend not of course leverage all your crypto currency, you want to leave some in reserve for margin call and it just depends on personal situation and how much-- >> And the margin call too, if they give the money back, that's fine too right? So either pay back the loan-- >> Yeah, exactly. Or pay down the principal, which you can do partial payment, we have no prepayment penalty. So pay down some principal, or yeah, post more collateral. Just some way to get that ratio back. >> Got it, 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 taxis and stuff like that. Summers been a little slower, but we're still full of-- >> Tax season, yeah roll your eyes. Hey, welcome to the tax bill. >> Yeah! >> Trading all that crypto. >> Yeah. >> People had a wake up call. >> Well, it's arguably what killed all the volumes. It's finally when people realized, oh my gosh, you know, I can't 1031 moving forward, I have to pay taxes every time I trade all client for another all client. I think that really dampened volume this year. >> Alright, so I got to ask you, what's going on here, in this event thats folks that didn't make it, what is some of the conversations, a lot of diverse, smart people here. Kind of core kernel industry security, but it's not just security nerds, it's total laid out players on the security side to business we had Andre on talking about custody. You've got you're business here, financial services chain. What's some of the hallway conversations that you're over hearing and that you're been involved in? >> Let's see. I mean, almost just been in, you characterized it pretty fairly I think, there's real engineers here. People that kind of get into base 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. >> Thank God! >> Pretty nice. >> That's refreshing. >> Yeah. >> I mean an ICO converse, a little bit over, a little long on the tooth there, don't you think? >> It's a converse we deserve. (John chuckles) That's just a tagline. >> Yeah. >> Alright, so what are you seeing as the major trend that's going to bring back, not bring back, but establish more of a mainstream culture with crypto, because you're actually getting into the level of services that certainly for the early adopters and insiders that are been there from the beginning, or involved now making money and having crypto, to Joe Sixpack, out there, who's really, he's interested in, it's really the younger generation love this/ You can't pull a 16 year old away from. >> Right. >> Learning how to mine, getting involved and pretty much anyone under 30, pretty much, is on the crypto band wagon. >> Yeah. >> It's a revolutionary, kind of cultural shift. >> Especially in our customer base, very well over represented there. >> So, how does it get more mainstream? >> I mean I think speaking somewhat biasedly, you know, part of our view is that, we're a company that's here to make crypto currency more valuable in the long run, to it's holders. Not necessarily, doesn't have to be in dollar terms be more pricier, but the idea that before us, before other people doing these kind of loan business, there's really nothing else you could really do with your Bitcoin. You could buy it, you could hold it. And then go sell it later, or you can give it to someone else, kind of trade it for fact or feeling here and there. You could trade it for other off coin. >> Convoluted process though. >> Yeah, all these things. And there, don't have much to do with your daily life. Except for, if you buy a car maybe, and that person will accept 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, so. >> What are some of the sample loan sizes? What's the average coming in? >> Well average is $120,000. >> What's the largest? >> Largest is over a million. Yeah. >> Where you guys getting the cash from? >> 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. 'Cause many traditional lenders, they want 20%, 30%, I don't care, it's the riskiest asset there is. Like, they just don't get it. >> So you're building a company, you're a company builder, pragmatic, which is good, but also you got to manage the waves 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 about getting back to the big data conversation, we really started that, it's a joke that, but smartest thing we do was start that company at the time we did. That, no matter what kind of happened or steps that missed execution, we were on kind of that wave. So, in some ways that formed our philosophy here. But, so you start a business at the right time, and a good space, don't let valuable long term business and let's focus on clients. For us that meant, grow the value of, and the utility of crypto currency is that people are already holding. So, make crypto currency really into the most useful assets in the world. As they should be. They're software, we know they can do more things then what they have done for us necessarily in the last 10 years. So, going forward, I mentioned the loan products we have, we have some storage in custodial technologies we've got, that we will be releasing soon. Things that help you keep crypto currency 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 a small team. >> Yeah, growing. >> Great, congratulations. >> Thanks John. >> And if I need a loan, I'll come knocking on the door. >> Give us a call >> Regrowning capital. Cube's growing like crazy, going international. >> I like it. >> Going crypto. Joe Kelly, co-founder and CEO of Unchained Capital, check him out. This is theCUBE, bringing you live coverage here at HOSHOCON in Las Vegas. The first security watching conference in the world. We'll be back with more after this short break. (digital music)