Blockchain hype fizzled out. Why this CEO is still a believer

July 31, 2024 10:42 AM

Ian Ferreira, founder of LiquidFi, sees immense potential in blockchain, even if hype around the technology has died down.

"Blockchain technology was used as a buzzword for a long time and it shouldn't be," said Ferriera. "It really should be a technology that lives in the background, but makes everything much more efficient, much more transparent, and at the end of the day, saves costs for everybody. That's the goal."

Before starting his company, Ferriera was a portfolio manager at a hedge fund, a job which ended up revealing "interesting complications" related to the mortgage industry.

Being a mortgage trader opened up Ferriera's eyes to many operational and infrastructural issues that needed fixing in the mortgage-backed securities space, he said. This later led to the inception of LiquidFi.

"The whole point of what we do is to get raw data attached to an asset [a loan] on a blockchain so that it's provable. You reduce that trust issue because you have the data, you have the document that is associated with that data," LiquidFi's CEO said.

Ferriera chatted with National Mortgage News about the value of blockchain technology, why excitement around blockchain has fizzled out and why it shouldn't.

What was the catalyst for launching LiquidFi?

Prior to starting the company, I was a trader and portfolio manager for a hedge fund. I started there pre-crisis and really went through the crisis at the company, which actually had some liquidity issues and ended up winding down. But with that opportunity, came opportunities where we had the ability with the same firm to reinvest a lot of money into opportunistic mortgage-backed securities and asset-backed securities. Part of the reason why I started LiquidFi was because as a mortgage trader I saw a lot of interesting complications and those include issues with tying out cash flows, with understanding the statuses of loans…operational and infrastructure issues that are easily fixable.

When I left my last hedge fund, I started doing some work on blockchain for no reason other than technical interest in what the technology actually is and could be. The more I went down the blockchain rabbit hole in 2016, the more I realized that this technology is perfect for solving a lot of problems I had trading MBS and ABS as well.

How does your product work?

For now we are focused on the investor side. The reason for doing that is typically when an investor buys a loan it goes through a diligence process, so the information that may be received from the originator themselves may be very raw data, which may not be confirmed. But when it goes through a diligence firm, somebody is going through and re-underwriting that loan for the first time and that's the point where we want to be involved because we can create the asset after origination.

We have the data that's been validated. We have the documents that have been validated against the data, and now that's a point where we can onboard that loan. We have all this information in one place, and then we click in the servicer. And so the servicer hooks into us. They deliver us information directly. We report that information directly to the asset on the blockchain. Now we start that history, the future history of that loan over its entire life.

We're a recorder of information and that information happens to be immutable.

You can change the information, but we have a track record of exactly who changed that information and when they changed it. We're basically an accounting system for a specific loan.

What is LiquidFi trying to solve?

One of the biggest problems we have in the mortgage industry is the lack of trust. It sounds kind of heavy, but really what it means is when you're looking at an asset, can you trust the data? That's from origination all the way to capital markets and everywhere in between?

From the very start, the first person that buys that loan, most likely will do some type of diligence on that loan. They're going to try to re-underwrite a part of it, they're going to have certain stipulations if the loan has to meet certain requirements…and that's because they likely don't trust the previous counterparty that held the loan.

Investors are covering themselves from a legal standpoint, but also certain information is often wrong, which is amazing in this massive industry. Everything's held on spreadsheets and in different formats by different counterparties. It's really just a lack of collaboration for data, for documents, for purchasing information. That's one of the reasons for this trust issue.

There are also examples where some borrowers don't know the balance of their loan and that might sound crazy, but it is a true problem. It stems from the fact that the infrastructure in the mortgage industry is extremely old, and it's been around the same way for a long time, and it has not been changed or upgraded. What we're trying to do is incrementally upgrade. We're not trying to get rid of the system. We're not trying to reimagine the entire mortgage world. We're trying to help solve our problems today because there's no reason you shouldn't know what the balance of a loan is.

The whole point of what we do is to get raw data attached to an asset [a loan] on a blockchain so that it's provable. You reduce that trust issue because you have the data, you have the document that is associated with that data.

Tell me about your recently announced partnership with Rocktop.

Rocktop has been managing assets for a long time and they're experts in that space, whether that relates to title or to operational tasks, reconciliation, reporting and all that, for their investors. Their whole goal is to increase yield for their clients who are investors. I've been talking to Rocktop for years, and we finally came to the decision that we should partner where we're going to be a technology provider for Rocktop to create these digital assets. They'll validate the information, they'll continue to manage the loans. They'll continue to add additional information over the life of those loans.

Why did you rebrand your company from Liquid Mortgage to LiquidFi?

When I started the company, my focus was on the mortgage side, because I know there are quite a few pain points in the mortgage industry. The more we started to build, the more I realized eventually this is going to apply to every fixed-income asset out there.

The way we've built the product from the beginning really has been mindful of all fixed income assets. We've had requests for other asset classes, whether it's auto, credit card, student loans, really kind of across the board, in other use cases within mortgage too. This could happen in the next six months.

Where has all the blockchain hype gone?

I think people approached it the wrong way. It's a new technology and people approach new technology as if it will solve everything and that's really the wrong approach. Technology is meant to solve certain things, not everything.

If there are 200 problems in the mortgage industry, we might be able to solve 50, maybe 100, maybe 150, but it's not going to be 200. We're trying to solve the problems that are the most painful and the easiest to fix.

The reality is blockchain technology was used as a buzzword for a long time and it shouldn't be.

People used to ask me, why aren't you using a database? If you're asking me that question, you don't understand that blockchain is actually a bunch of databases. They're all hooked together, and there's some technology on top that makes sure that they are all the same at all times, and that you can't do certain things. That's part of the reason it's valuable, because you have essentially a backed up system amongst a ton of people, and you have access to your own records. My point for bringing that up is, is blockchain got a bad rap, mainly because of crypto, which is not ideal, but it is what it is.

This should be the technology that runs in the background. There are going to be killer apps, but the killer app for blockchain, you won't even know it's on blockchain and that's kind of the point.