#740: Hard Asset Lending For The 99% with Sadi Khan

**SPEAKER_1** (0:07)
You've had a dynamic where money's become freer than free.
When you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven.

**SPEAKER_2** (0:18)
I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor.

**SPEAKER_1** (0:29)
I mean, that's part of the bold case for Bitcoin.

**SPEAKER_2** (0:31)
If you're not paying attention, you probably should be.

**Marty Bent** (0:36)
Sadi, welcome to the show. Thank you for joining me. Like I said, before we hit record, it was like we're recording the podcast already, so I figured let's just get into this.

**Sadi Khan** (0:46)
A hundred percent. Well, thank you so much for having me, Marty. I've heard so many great things about you. We have so many mutual friends. So I'm just excited to have this conversation with you, and get to know each other and talk about new products and talk about AVEN.

**Marty Bent** (1:02)
Yeah, well, I'm, I think, more excited because I've been telling your team that a product like you're launching today is something that many people, myself included in Bitcoin, have been waiting for.
And it's a theme, it validates a theme that I think is going to be predominant for the next few cycles, which is this intersection of consumer finance and Bitcoin as collateral. And that's what you guys are launching at AVEN today. But before we get into the Bitcoin specific product, I think getting a background on AVEN, how it came to be and really leaning into and starting with your mission, which is, I think, very ambitious, but also very virtuous, which is to reduce the cost of capital for consumers, which is very important in these days especially.

**Sadi Khan** (2:00)
100 percent. Yeah, as you know, well, AVEN was founded on this very simplistic mission, which is our mission of reducing the cost of capital for consumers. We are almost overly serious about it in some ways, and very unserious about anything else. We are extremely focused on this mission.
We believe that the way we can reduce the cost of capital is, first by thinking about it from first principles. What is the cost of capital to consumers and to anybody? It's the cost of the risk-free rate plus the cost of the risk, plus the cost of the transaction. Our strategy at AVEN is to reduce the cost of capital by reducing the cost of the transaction and driving that down to zero by inventing and developing and deploying technology.
In 2022, we launched the AVEN Home Equity Card, which helped us drive the single largest change in the cost of capital on credit cards in US history. We've now originated over $4 billion in lines on our home equity products and saved consumers over $300 million in interest payments, actually.
The way we were able to do it is by attacking the largest source of unsecured capital, which is credit card debt in the United States, which is over a trillion dollars. And consumers today in the US are paying over 20% APR on that, which is over $200 billion a year in interest payments. And our goal is with asset-backed lending, we can reduce the cost of the transaction of borrowing against the assets you already own. And by doing that, reducing the cost of the risk and passing on that savings in the form of lower APR to the consumer. Going back again to that point of the cost of the capital is equal to the cost of the risk-free rate, which as you know and I know, we don't control. Today Jay Powell controls that. And hopefully in the next year or so, our friend Kevin Warsh will have more influence on it than not. But you and I and by and large, we are not in a position to influence that.
The cost of the risk is an information theory problem, where the more we understand about a consumer and the more we understand about the world, we will be able to price that risk appropriately. But the pricing of the risk isn't a strategic advantage for anyone in the long term. It's an advantage of the core problem, that is an information theory problem, which is how much information can we have about the underlying asset and non-aligned person and the world at large. And then finally, the cost of the transaction is where we can invent a lot of technology. And so we started off by approaching the problem of home equity, which is the largest asset class owned by Americans today, and extremely inefficient. And we developed and built a lot of technology to make that go from four to six weeks down to as fast as 15 minutes, and reducing the cost of that origination by an order of magnitude, which by derivative then decreased the cost of the risk itself. And we can bundle those savings on in the form of a 50 to 70% lower interest rate for consumers and put that in the form of a credit card, which is both convenient and familiar for most consumers. And in our kind of philosophy of unsecured debt being expensive and irresponsible in many ways, because we want to give people credit for what they already own so we can drive down their cost of capital. We think that also applies to what I, and I think hopefully you also consider the most important future asset class for the world at large, which is Bitcoin and digital assets in general, but Bitcoin specifically. I think I've heard from from Garen that you are, similar to me, an old time Bitcoin holder, perhaps longer than myself. I've been a hodler since 2014