Haun Ventures' Diogo Mónica on Anchorage Digital's charter journey and the new wave of bank formation

Speaker 1: Let me tell you about Plaid first. Plaid powers the apps you use to spend, save, borrow, and invest securely connecting bank accounts to move money, fight fraud, and improve lending now with AI. And without further ado, welcome to the show. How are

Speaker 12: you doing?

Speaker 4: What's happening?

Speaker 1: We are working on audio. Let's try and bring that in, and we will kick it off with an introduction. Please, since it's the first time on the show, introduce yourself.

Speaker 3: Yes. My name is Jorg Monika. I'm a GP at ON Ventures and the cofounder and executive chairman of Anchorage Digital.

Speaker 1: Fantastic. Since it's the first time on the show, give us a little bit of background how you wound up at Hahn Ventures. We've had Katie on the show.

Speaker 4: And what was your first trip to Nicey? Yeah. I hear that. That's interesting. Yes.

Speaker 3: It was not my first trip actually. Okay. So I've been here a few times. Nice. I've gone to take lots of the pictures.

Speaker 1: Great.

Speaker 3: And they actually have a curator, by the way. So if you come to Nisi, you should ask for her. She knows everything about the history of this place. It is an hour and a half to two hours, but you should absolutely do it and see all of the original documents and everything that has happened here. Super historic.

Speaker 1: Cool. And then, so, yeah, background, the the path to Han, the path to crypto. I know Han Venture is interesting because there's the government relationships as well as the fintech. There's a lot going on, so I'd love to know, how you wound up in your current position.

Speaker 3: Yeah. So fun story, but I really have only done one thing in my entire life. So PG and Distributed Systems twenty years ago when honestly was useless. Yeah. And then I led security team at Square for four years Wow. Went to lead security team at Docker for three years, then started my own company Yeah. With Nathan, company called Anchorage Digital, the first federal chartered bank, which is very relevant for And then Katie and I connected when I was fundraising for Anchorage about eight years ago. And over the years, we've just been friends. Yep. She was, as you know, co leading the a sixteen z crypto funds Yeah. That was an investor in Anchorage. We were friends. We were on the board of the Libra Diem, if you recall that initiative by Facebook together. And just, you know, they're clients of Anchorage. And so we've interacted many different ways over the years.

Speaker 1: Yeah. So talk about the airborne deal. How'd you meet Palmer? What what was interesting about this other than, you know, obviously, there's a lot of star power, but I wanna hear more about the unique thesis.

Speaker 3: So look. I was in a unique situation, which is I'm one of the few crazy people that actually sit on the board of two federal charters, not just one. And so when, the team came to me and really wanted to start this said, well, there's not that many people, that have done this over the past five years, and Anchorage got our charter, as you know, in 2021 and really, was trailblazer in terms of showing that you could have innovation under the OCC and going through a Biden administration, which as you know, was very crypto unfriendly and really

Speaker 5: coming out on the other

Speaker 3: side with a very strong business.

Speaker 4: So sorry to interrupt, but did everyone think you were absolutely you guys were absolutely insane to try to get a charter in that climate? Like, what what what did how did you think the odds were going into that process? Was it kind of a moonshot? Like, hey. If we can make this happen, it's great, but low likelihood or or at any what point did you develop confidence that it would be a possibility?

Speaker 3: Well, look. We, it was to the point where the consultants that were helping us get the charter did not believe that we were going to get to get the charter in the first place. So that was how bad it was, to get a charter and try to get a charter in 2020. But if you think about Anchorage and how it started, it is an institutional bank. We only serve large institutions. You know? The clients are the of the world, visas of the world, very large institutions. So when we had the opportunity of converting our trust state trust charter into a federal charter, it was the obvious solution and the obvious, you know, solution that had longevity if you're just serving institutions. We basically connected the best security that custody these crypto assets to the best regulatory charter that it can get out there, and that was the end state of the company. If you had the opportunity of jumping right to the end state of the company, wouldn't you take it? And so we put all of our chips, we went all in, and we just ended up, being the first ones to get the charter.

Speaker 1: Got it. How are you thinking about innovation in the existing, you know, mega bank sector? Like, there's been a ton of skepticism around crypto from the leads of the big banks, but I feel like some of them are coming around. It's staring them in the face at this point. They're seeing public companies that operate in crypto, you know, make it through. There's new regulation. Is there any, is there anything that you are seeing on the horizon where those banks might modernize and actually adopt some more forward thinking technology strategies?

Speaker 3: Look. Erebor, to a large part, actually came out of the frustration of the fact that that does not exist for the industry.

Speaker 2: Yeah.

Speaker 12: Like, if go all the

Speaker 3: way to 2008 in post crisis, you had Dodd Frank that actually created so many more regulations, all of these stress tests, all these capital requirements. And from that moment on, the number of federal banks is literally a monotonically decreasing function over time. Each year has less banks than the year before it through m and a, mergers, or people going out of business. And so the frustration of the industry when you're in technology and you're trying to build financial products of not being able to build has culminated in something like Anchorage and then something like Aeroborn. Because if you think about it, fintechs started for a while renting these charters and doing banking as a service as it's called. And then all of a sudden, Synapse blowup happens, which is still being litigated. Mhmm. They literally did not know who the money belongs to. And so it showed that if you are a tech company that wants to build a world class product, then you cannot rely on a rented charter and banking as a service. You sort of have to do it yourself. Mhmm. So going straight to the pain, which is very difficult to get an OCC charter and operate as a bank holding company under the regulatory regime of the oldest banking regulator in The United States, the OCC, that is not something that you do lightly, but it was necessary. So it was time for tech to come into finance, And so that's why that's why these banks got created, and we had to take matters into our own hands.

Speaker 1: How do you see the market for new banks developing? Because when Palmer launched Anderol, there was this line where order to start a defense company, you had to have a billionaire as a cofounder, and he cited Palantir, Andoril, SpaceX, and it was something that was like the barrier to entry was so high. And then now we have a whole defense tech boom, and there's a lot of stuff going on. Andriel's obviously still doing fantastically. But is this one is this a moment where you think people will just wake up and be like, yeah, it's hard, but it's not impossible. And so maybe we will see a bank that's specifically targeted at farming or oil and gas or some new startup in some other vertical. They'll try and create some differentiation, not go right up against Erebor, but we will see a market map in a few years of new banks.

Speaker 3: A 100%. After twenty years of almost zero federal charges being created a year, there's a window here because of a pro business administration Mhmm. And lots of these convergences that have been happening that allows people to even for the first time think that it's possible. Yeah. Think that it's possible. Yeah. And so dozens of these charges have been applied for. There's two main strains of them. One of them is the trust bank charter that encourage trailblaze in which you are full bank, but you're not actually taking deposits, and you're effectively a full reserve bank. And then there's the Eribor model, which are full fiduciary traditional bank. In the case of Eribor, extremely conservative, tier capital tier tier capital ratios, and it's an extremely conservative bank, but you're going for the whole enchilada, FDIC insured, etcetera. So lots of banks are now realizing that this is possible, and you see that in the massive increase of applications in charges being given out. So it's a new renaissance for banks and people realizing this is possible, so let's actually go do it.

Speaker 4: Yeah. How how are you how are you thinking about making you you're you're now on the board of two. Would you consider making more investments in this space, or are the incremental charters that are would be kind of broadly interesting to the market not necessarily a fit for Han Ventures?

Speaker 3: Look. They have to make sense. One of the reasons why Arabor works is because three of the things that are hardest about starting a bank, the first one is capitalization. It's no surprise that Palmer starting anything will get capitalized, and so you jump through that hurdle. The second one is the regulatory hurdle. Anchorage has shown that it was possible. The team that Palmer assembled is absolutely magnificent from engineering to compliance to regulation. And so it was very clear to me from day one that they were going to be able to step over their hurdle. And then the third and most important thing is you actually have to get to scale on a depository base. And Erobor threw Palmer as a go to market, which is what I call it, Palmer as a go to market. It's our go to market strategy. And Yeah. Palmer's friends, Palmer's connections Yeah. And obviously the competence of the team in the bank, you have all three figured out. So effectively, we speed ran the infancy teenage years of a bank into something that is fully fledged and is ready to go.

Speaker 1: Amazing. Well, thank you so much for coming on the Thanks for

Speaker 4: your go to market.

Speaker 1: Breaking it down. Palmer. Congratulations. Have have fun. Enjoy the closing bell.

Speaker 4: Great to meet you. Come back on the show today.

Speaker 1: Minutes until the closing bell.

Speaker 4: Then. Have fun. Nicey.

Speaker 1: We will talk to you soon.

Speaker 4: Cheers. Goodbye.

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