Chapter 2
TPAY was founded in 2017 during an interesting period of history for crypto and financial markets. Banks would close your bank account if they suspected you did any transactions with crypto, countries would put you in jail if you sold bitcoin for any fiat currency and banks or public companies could or would not hold Bitcoin or crypto on their balance sheets out of fear banks would shut them down.
Today, we have banks and countries embracing crypto, well not all, but at least much more than before. El Salvador made Bitcoin a legal tender which is the first in the world. Exchanges have come and gone, yet crypto is now much more adopted but still not widely used for its true intended purpose. Speculation is still the main driver for crypto not remittances.
When TPAY was started we executed on its roadmap and purchased 10% of WEG bank in Germany, then sold due to “conflicting vision”, with the thesis that banks would eventually be accommodating to crypto.
We were ahead of the curve but also behind the curve.
Ahead because Germany a few years later approved banks to hold crypto on their balance sheets but behind the curve because at its core crypto shouldn’t encourage any centralized control, including ETF’s. Crypto is about people’s rights to own and fully control their assets with no restrictions, meaning the ability to send crypto to anyone in the world in seconds, for pennies, or the ability to sell all of your assets for crypto, get on a plane or cross a border legally and start your life again with no bank or government in the way.
There were some successes from what we worked on but also failures. For example, finding the right team to execute a plan or product is difficult, especially in boom periods when people think you have unlimited funds and salaries are 2x higher than the quality of the output of the worker. History shows that the best companies in the world were started in busts or recessions where highly skilled engineers or visionaries took risks and were able to recruit people at depression level stock/crypto prices (dotcom bubble burst 2001 to 2003 and crypto bear of 2019 to 2020) from boom periods.
In February of 2020 (before COVID, talk about timing) I was burned out and stepped away from crypto entirely and decided to help a few companies with their businesses and work on a few side projects.
- I helped grow a printing/promo business business from $1.4 to $2.5 million in 2 years doing things like changing the company culture, implementing processes, systems, hiring an excellent team and executing on an acquisition.
- I also helped a boxing brand with just a vision on its way to being a profitable business from $0 to 40k month recurring revenues. Launching a new website, winning a government contract to get a gym and create systems and processes.
- I also ventured into mortgage note investing which helped spark my interest in crypto again. I will get into that a bit later.
You can say that I have a love-hate relationship with crypto. I love crypto’s capabilities but dislike a lot of the characters that were or still are involved in it but I can say the same things about finance bros.
Nevertheless, I dabbled into something called mortgage note investing. For those that do not know what that is, basically it is the buying of the loan of a homeowner or business or becoming the “bank”. To explain further, when a bank issues a homeowner or business a loan these loans are then packaged and sold.
For example, a bank makes $100,000,000 in 30 year loans at 7% interest.
The bank has 2 options:
- They can either keep the loan for 30 years. Rarely happens.
- or they can package them and sell them (securitization) to a pension fund or many different financial institutions seeking the yield.
If the bank keeps the loan that is because the deposits they collect from people like you and I get 0% or if lucky 1% on our checking account balances. So, the difference is what the bankers call NET INTEREST MARGIN or the “spread” between rate of loan and rate of deposit. Sometimes a bank will issue $10,000,000 of loans at 7% and then sell to a pension for 0.5% up front fee or higher therefore using the capital to issue more loans, the bank business is all about volume of deals, etc.
So if there is $10,000,000 deposited and 1% is given to the depositors that is $100,000 but the interest collected is $700,000 or a profit of $600,000. The bank makes money, shareholders get their profit via a higher stock price or dividend, the people that got the loans get a home and the people who deposited their funds get 1% for doing nothing but depositing the money.
Seems like a WIN WIN WIN WIN for all but in reality the depositor is hurt the most which is ironic because without the depositor there is no loan or a bank, you would think the rewards would be higher for the depositor but it is not. They take a significant risk in not growing their capital at a rate higher than inflation and a bank can freeze the bank account for any “suspicious” transaction. The depositor could instead buy a bond that is relatively risk-free but not all government bonds are created equal, LATAM government bonds are NOT risk-free.
Inflation is the major culprit for any and all depositors which is caused by the central banks continuously printing money. When inflation runs at 3% to 4% and your deposit gives you 1% the FED or government is making a “Profit” on your output as a worker yet penalizes you daily for your hard earned deposit. Don’t get me wrong. Banks, currencies and a central banking are necessary institutions that although have some clear negatives there are also positives such as the ability to distribute capital in a system that allows people to own homes (which offers stability in a society), build businesses, etc. yet as a consumer you have to be cognizant of the choices you have or need to make.
Now, let’s get back to my venture into mortgage note investing. I studied 100’s of hours listening to podcasts, reading books, and reading legal agreements and before I made any purchase I worked on financial models, scenarios and probabilities of what would be the upside or downside of the investment. Yes, even for such a small amount I dedicated a lot of time to it, because if you are going to buy something you need to be 100% aware of what you are getting yourself into.
I was able to acquire for $5,000 the debt of a homeowner that was in default on his $105,000 loan. The original price was $30,000 but I stuck to my model. This purchase was not a typical purchase as most notes are sold for 90 to 100 cents on the dollar when performing (people are paying their monthly payments) and sometimes 5 cents to 70 cents on the dollar when non-performing (not paying their bills).
Why was this note so cheap? Well, the homeowner died years ago and it needed to go through the legal foreclosure process for the “bank” in this case me to get the property back as I was technically owed $105,000. It took over a year and about $8,000 in legal fees but I was able to get the title of the property and was able to sell it for $60,000. A return of 360%. How often are these opportunities? Very low but there are out there and given the debt RESET that is happening there is a major opportunity to capitalize on this.
Therefore, my vision and mission for TPAY is to become widely adopted via the use of lending/debt.
Let me explain deeper.
I fundamentally believe that fiat currency is backed by assets (land, businesses, economy), trust in its government and military, all of which are essential to provide a stable society. The issuance of debt is the fastest and most efficient method of distribution of fiat currency. Debt is necessary for small businesses to grow and get output from their workers which then get debt to buy a home, car, etc. Debt is incredibly powerful, it is necessary and although sometimes “evil” it is also be an incredible tool for an economy.
So, I plan on doing the following using my own personal funds to jumpstart the need to use TPAY in daily transactions below is what I believe will help make that happen:
- Issuing hard money or asset backed loans to businesses in exchange for them paying the interest only payments in TPAY.
- 1 year terms in duration
- not be involved in residential mortgages unless an amazing opportunity is available in non-performing notes or notes like the one I purchased.
- Debt holder pays the interest only payments in TPAY. Then the TPAY collected every month will not be sold for at least 1 year of which it will then be either kept or sold to pay for expenses or to fund more debt deals.
- Purchase special situation debt where the returns make sense given the risk reward of which a % of the profit earned will be used to buy TPAY and the rest to keep finding more opportunities.
Other opportunities long-term
- Issue credit facilities to large revenue generating and profitable businesses at discounted rates where the interest payments are paid in TPAY, why? This forces the business to get customers to pay in TPAY which encourages adoption.
- A charity component -Use a portion of the proceeds to buy non-performing loans of elderly, sick, disabled people to avoid them from losing their homes in exchange for title of the house upon their death where all profits will be used to fund more loans to help more people.
I believe crypto adoption can be spurred faster via debt than anything else.
I need to be candid and realistic. I don’t know if my ideas or plan will work. There are lots of risks. Issuing loans is still a risky venture. People can lie on their application or have no intent in paying back the loan at all. The local laws of getting the property could take years to get back and be inundated by legal fees. I don’t know if this experiment will work because no one else has done it before. I am using my own capital. The value of TPAY is not worth anything today nor is there any guarantee that TPAY will be worth anything in the future. My thesis and plans are largely an experiment that I am conducting and risking my own funds.
Thank you for reading this. Looking forward to talking to everyone and sharing new ideas.
Sincerely,
Derek Capo