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Crypto: SEC ‘relatively supportive’ of plans to go public, Chia Network CEO says

Chia Network CEO and President Gene Hoffman joins Yahoo Finance Live to discuss the failures of FTX, why investors should invest in the Chia blockchain, and the outlook for the crypto space.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: A cold climate for crypto isn't putting off blockchain startup Chia from its plans to go public. The company, which says its proof of space blockchain method is more eco-friendly, recently appointed a new CEO and has signaled plans to go public next year. Gene Hoffman is that new CEO and joins us now. Gene, welcome to Yahoo Finance. Just given the fallout with FTX, Genesis, you name it, why should investors trust you and trust your company?

GENE HOFFMAN: Well, I think investors made a mistake of considering crypto to be an asset class. It's a set of rivalrous technologies. And we've invented a much better blockchain. We have the kind of security of Bitcoin with 800 times less annual energy use, and the sophistication Ethereum promises, but doesn't deliver very well, as we see a lot of hacks on the Ethereum blockchain due to solidity vulnerabilities. This is the programming environment in Ethereum. We went and invented Chia List, which is a much better way to do that. And what that's led to is real world adoption.

Blockchain should be driving real-world applications. And so one of the first things that's going to be going on the Chia blockchain is the Climate Action Data Trust and the voluntary carbon markets under Article VI of the Paris Agreement. The World Bank, the government of Singapore, and IETA are running the Climate Action Data Trust. And this will be a trust-enhancing data set of all of the carbon registries. So you'll get a meta registry of carbon.

And then the IFC has sponsored-- pardon me-- partnered with us to start issuing high-quality carbon on the Chia blockchain for retirement and onward sale. So it's these kinds of real-world applications that a better set of technologies can enable. In many ways, like the FTX situation was, well, blockchains were invented to stop having centralized parties that you have to trust.

BRIAN SOZZI: And Gene, the last we saw from your company, you had a valuation of $500 million. What is your valuation today? And how much in profits will you make this year?

GENE HOFFMAN: Well, we haven't really had a revaluation. We have about a billion dollars worth of coins on our balance sheet in our preform. We are early in our revenue growth, but it is growing significantly with these big partners and the carbon markets, also commercial banks. We're also partnering with other governments for other interesting projects around the world. So we've really finally delivered a blockchain that governments and industries can use, as well as--

BRIAN SOZZI: So Gene, just to make sure, as your investors start to think about your company being public, you're not making money right now?

GENE HOFFMAN: We aren't profitable yet. We are increasing revenue. But the thing is, is the company itself also derives indirect value by holding our own coin. So as our adoption increases, the desire to use coins to actually access our network increases the value of those coins. And so investors make enhancements both ways, both in the balance sheet and therefore their claim on the balance sheet and revenue.

JULIE HYMAN: And, sorry, Gene, what is the source of your revenue? Like, how exactly-- sorry to get-- to drill in here, but what-- the partnerships that you're talking about, what's the transfer mechanism of how you guys make money?

GENE HOFFMAN: We're very much like Red Hat or MySQL, where large enterprises who are adopting blockchain technology to tokenize assets, to build markets, are having us come in. We do integration fees with them to build a project. And then we have ongoing support and maintenance fees, as well as generally a piece of the number of coins they issue or the wallets that they actually finally address so we kind of scale with them as they grow.

And then indirectly, as they put volume on the Chia blockchain, it drives demand for Chia, and that's kind of the underpinning value, if you will, of Chia. And we have done quite a bit of that and are going to, long-term, distribute that to the shareholders as dividends.

BRAD SMITH: How many clients or what type of spend profile among clients do you model for in order to reach profitability?

GENE HOFFMAN: Well, so we kind of have three kind of core customer sizes. There's one in the kind of, call it, million to 2 million dollars upfront and kind of half million to a million dollars ongoing. And these are things like commercial banks, folks like some of the carbon registries and the partners that actually drive carbon markets. Then there's kind of a mid-sized group of, call it half a million dollars upfront and quarter million dollars annually. And you certainly have some smaller folks who are in the $50,000 to $100,000, with $50,000 to $25,000 annually.

BRIAN SOZZI: And Gene, how many investors do you have in the company? And who are the top five?

GENE HOFFMAN: The major investors are A16Z, Richmond Global Ventures, Slow, True, Naval, kind of a who's who in the Silicon Valley crypto world and the general venture world. Probably about 40 investors total, but that includes some smaller folks.

JULIE HYMAN: Gene, I know you recently told another news outlet that you still would be interested in going public in this environment. There was-- at the same time, there was a story in the Wall Street Journal today saying the Securities and Exchange Commission is very closely scrutinizing anything with a whiff of crypto that wants to go public, whether through a SPAC, through initial public offering, what have you. So what's the timeline here? And what's the real likelihood that you guys are going to be able to come into public markets?

GENE HOFFMAN: Well, first of all, we think that the securities regulations in the United States are actually relatively simple. And unlike a lot of other projects, we're a software company that has never sold our coins for an investment of money. It's much easier to not be a security and then actually have real securities sold to real investors the right way. We've had a long-term engagement with the SEC. This is not our first time talking to them. And they generally have been supportive of our plans. And so our view is that we want to get on file.

We are absolutely realistic that the external market forces look weird right now, but we actually believe that the SEC is relatively supportive of our model of actually filing a registration statement and selling equity and keeping our coin in the classic commodity status regulated by the CFTC.

BRAD SMITH: Gene, given the Climate Action Data Trust prioritization for Chia Network, that kind of gives a nod to one of the biggest risks that many people have talked about within not just blockchain, but specifically in cryptocurrency. Do you believe that crypto can scale to mass adoption without becoming a climate risk in the future?

GENE HOFFMAN: Absolutely. You know, right now, Bitcoin is the only really other secure blockchain. Proof of stake is just not capable of being secure against governments and industries. So we invented proof of space and time to really directly address the energy use problem in Bitcoin. So on an annualized basis, for the same or even better security than Bitcoin, we use about 800 times less electricity.

And that's only going to get better as the world shifts from hard drives to solid state drives, which don't spend. So we've got another kind of order of 10 and decrease in electrical use to secure our network. So one of the reasons why the Climate Action Data Trust could adopt the Chia blockchain was because it gave those security guarantees at such a much more efficient level.

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