How Re is Rebuilding the $1T Reinsurance Market with Stablecoins | Karn Saroya & Avichal Garg

**David** (0:03)
Bankless Station, I'm here with Karn Saroya. He is the founder and CEO at RE. Karn, welcome to the show.

**Karn Saroya** (0:09)
Thanks for having me, appreciate it.

**David** (0:10)
And back on the podcast today, we're getting some extra help here. Avichal from Electric Capital, who is an investor in RE. Avichal, welcome back to the podcast.

**Avichal Garg** (0:18)
Good to see you, man. Thanks for having us.

**David** (0:20)
Karn, I'll just start you off with the easy layup. What is RE?

**Karn Saroya** (0:24)
Yeah, we're an on-chain reinsurer. We take in stable coins. Those stable coins find their way to primarily US insurance companies. That capital lets them write insurance business. They collect premiums, percolates all the way back to this on-chain capital layer.
That's what it is. We back 35 insurance carriers, about half a billion in business, and should grow to about a billion over the course of the next seven-ish months.

**David** (0:52)
Well, what do we need to know about re-insurance to be productive in this conversation, and why is a blockchain, why are smart contracts the right substrate to build the frontier of re-insurance?

**Karn Saroya** (1:06)
Yeah. It's a massive, boring business. There's about a trillion in re-insurance premium that's processed annually across dozens of very large re-insurers, Munich Re, Swiss Re, Lloyd's of London. All of it is basically just a pot of opaque capital. It's attested to asynchronously.
The product that they sell is a promise. It's a promise to pay their insurance company customers if things happen. And then the second part of that is to prove that they can pay at a given moment's notice. And so, being on-chain and utilizing on-chain capital is probably the most elegant use case of, in my mind, on-chain capital, in that it fulfills both of those things. We take in capital that anyone in the world can see at any given point in time, regulators, insurance company customers, the insurers themselves, anyone with a computer can see that we are good for their promise and that we're solvent at any given moment in time. It's also a massive pool of capital that can take diversified risks. And the cash flows back into this pool of capital being transparent, something that's never existed before in this space.

**David** (2:13)
So, what part of the capital stack around reinsurance is blockchain tech doing this on smart contracts? You're built on Ethereum using stable coins.
What part of that are you improving? Now, are you guys simply improving the business model margins by using blockchains as your back end? Or what's really the secret sauce? What's the X factor here?

**Karn Saroya** (2:37)
Yeah. So, in two parts, if you think about reinsurance as a product, it's another capital source for insurance companies. The first part is the manufacture of the product of reinsurance, the expense ratio is lower. We're a much higher operating leverage business. We have less than a dozen employees will be on track to be a multi-billion dollar insurance market in comparison to legacy reinsurers that have tens of thousands of employees, legacy business, legacy infrastructure. That's a meaningful difference in just the expense ratio load. And we're the first to find scale on with on-chain capital and build transformers into all DeFi protocols that they now use us or we're composable with to pull in capital in a way that hasn't been done before in this space. And our viewpoint is at scale as we as we kind of proliferate through those more than markets, as folks are using our products on Pendle and the like, that we have a cost of capital is competitive, if not superior to practically every reinsurer in the world.
And so there's nothing special about money that is used to security collateral, to securities obligations. And we think we could just form that at a lower cost to a greater extent than anywhere else within traditional insurance.

**David** (3:50)
Avichal, when you were talking to Karn, looking at Re at Electric, you're a VC, you audit things, you kick the tires. What got you excited about what Re is doing, what it can do?

**Avichal Garg** (4:01)
Yeah, so maybe zooming, because, you know, VCs are very high level, so zooming out for a second, the thing that there are two things that kind of caught the eye about this particular thing.
If you step back and think about what is Re, what I think the way to think about it is, there's this regulated FinTech business, and it's a registered Cayman Island, you have to get licenses, there's regulators, there's rules you have to follow.
And then there's the on-chain piece and the smart contract piece.