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The Hidden Cost of Faster Payments w/ Luka Ivicevic · The Stable Pulse

• 0:00
  Dante Reminick: Passage of the stablecoin legislation drafted by the Senate, dubbed the Genius Act.
• 0:05
  Dante Reminick: Because analysts say a wave of competition can complicate things.
• 0:08
  Dante Reminick: Welcome back to Stable Pulse, everyone.
• 0:16
  Dante Reminick: My name is Dante Reminick.
• 0:17
  Dante Reminick: Here with us, we have Luka, who is the co-founder of Sugar.
• 0:22
  Dante Reminick: And I'm really, really excited for this episode because I have spent many, many hours off camera and off-microphone with Luka asking him questions about what he does and sugar and where everything is going.
• 0:35
  Dante Reminick: And now we get to do the exact same thing, uh, but for all of you.
• 0:39
  Dante Reminick: So, Luka, very, very excited to have you here.
• 0:42
  Dante Reminick: Um, as you know from listening to this, we always start out with a section that we call bracketocious.
• 0:48
  Dante Reminick: The goal of this is to let you brag about yourself.
• 0:51
  Dante Reminick: And I know two minutes ago you literally said word for word, I don't want to be a sleazy salesman and do a bunch of bragging, but I'm gonna ask you to not, um, especially considering your background.
• 1:01
  Dante Reminick: So please, please, please tell us about yourself.
• 1:04
  Dante Reminick: Tell us about what you're building, and we'll we'll dive in from there.
• 1:07
  Luka Ivicevic: Sounds good.
• 1:07
  Luka Ivicevic: Yeah, thanks for having me on.
• 1:09
  Luka Ivicevic: Um, born and raised in in New York City.
• 1:12
  Luka Ivicevic: I moved to moved to Paris uh from my college studies, did philosophy and computer science as one does.
• 1:18
  Luka Ivicevic: The CS took me to Berlin in 2016.
• 1:22
  Luka Ivicevic: Um, and I started uh a neobank called Penta in that spring, which was focused on small businesses.
• 1:29
  Luka Ivicevic: I got into fintech.
• 1:30
  Luka Ivicevic: I started that company two weeks before learning um what fintech actually means.
• 1:36
  Luka Ivicevic: I actually have never heard the term before, let's say March of 2016.
• 1:41
  Luka Ivicevic: Um, and then basically two weeks later, I started a Neobank.
• 1:45
  Luka Ivicevic: Um I got into fintech just because I fell in love with N26's KYC.
• 1:49
  Luka Ivicevic: For those of you that that don't know, N26 is a large consumer neobank.
• 1:54
  Luka Ivicevic: Um and I just thought, wow, like the KYC was incredible, like the speed, the the slickness of it.
• 1:59
  Luka Ivicevic: And so I just thought, you know, why hasn't anybody done that for small business?
• 2:02
  Luka Ivicevic: Um and so buddy and I uh went out and um started the company.
• 2:07
  Luka Ivicevic: We ended up obviously, you know, hiring people that were much smarter than us, launched in 2018.
• 2:13
  Luka Ivicevic: By 2022, we have 60,000 small businesses, roughly 10% of the German markets banking with us or opening a bank campus.
• 2:20
  Luka Ivicevic: Um, and we sold the company in the summer of 2022.
• 2:24
  Luka Ivicevic: Um that was my fintech era.
• 2:27
  Luka Ivicevic: I then thought, like, what's the hardest thing I can possibly do after this?
• 2:31
  Luka Ivicevic: And I started a medical company to cure cancer, not immune conditions, using big data genomics, raised $10 million from a network, um, served 3,000 patients, ran the company uh to $7 million in revenue.
• 2:44
  Luka Ivicevic: We actually cured or brought uh 500 people to a neutral zero in certain conditions.
• 2:50
  Luka Ivicevic: Um and then in the middle of of a fundraise and um 60 days after a record month, we shut the company down, we flat out ran against ran out of money.
• 2:59
  Luka Ivicevic: And so I shut the company down in 2024, took a bit of a break, and just thought about like what the hell do I want to do next.
• 3:05
  Luka Ivicevic: Um, did some did some personal discovery of, you know, what do I like, what do I enjoy.
• 3:10
  Luka Ivicevic: I frankly hated working in healthcare uh and wanted to do something that was a bit closer to software financial services.
• 3:16
  Luka Ivicevic: And um to wrap kind of where what I'm building now is I just thought about credit as the last moat in financial services.
• 3:26
  Luka Ivicevic: I think I didn't want to compete with 15-year-olds on Claude building banks on on bridge or now on WAP.
• 3:33
  Luka Ivicevic: So I just thought, like, you know, what can I do that's like inherently really hard to do, which is credit.
• 3:40
  Luka Ivicevic: And um, how do you place it in an inefficient market?
• 3:43
  Luka Ivicevic: So I feel like wherever there's a high CAC, there's an efficient market.
• 3:47
  Luka Ivicevic: So you take, for example, insurance or you know, mortgages, very high CAC industries.
• 3:52
  Luka Ivicevic: Um, and I was like, how do I place credit in a place where nobody's really playing with credit?
• 3:55
  Luka Ivicevic: And so I landed on the crazy aspect of if you want to move money, you need to post reserves.
• 4:01
  Luka Ivicevic: And so moving money actually requires credit, which I found insane.
• 4:05
  Luka Ivicevic: And there's a reason that the overnight funding rate exists, right, between banks, and they actually borrow to be able to settle payments amongst themselves that are delayed in a settlement, but that problem has now moved down to fintechs and crypto companies and you know, various other companies that need settlement financing.
• 4:22
  Luka Ivicevic: And so there's I realize that nobody's basically attacking it.
• 4:25
  Luka Ivicevic: It's very hard to solve, probably fintech and crypto's hardest problem, liquidity.
• 4:29
  Luka Ivicevic: And I set out and um I'm building now sugar, which solves the problem of pre-funding and reserves.
• 4:35
  Luka Ivicevic: So it's a bit about me and what I'm building.
• 4:38
  Dante Reminick: That's a lot to unpack.
• 4:39
  Dante Reminick: I can't believe I'm gonna say this, but let's skip over the part where you tried to cure cancer.
• 4:44
  Dante Reminick: Um 2016, before the word Neobank, many, many years before the word neobank would be uttered by anyone, you got attracted to the space because you liked a KYC flow.
• 4:58
  Dante Reminick: That is the nerdiest shit that I've ever heard in my entire life, Luka.
• 5:03
  Dante Reminick: Um, but I'm glad that you did.
• 5:05
  Dante Reminick: So you built a bank, a neobank, before a neobank was a neobank, you sold it, and now you're building out sugar to bring, I guess, proper structure credit into the market.
• 5:18
  Dante Reminick: Tell me about why.
• 5:21
  Dante Reminick: Like, what is the problem that you guys are actually solving?
• 5:24
  Dante Reminick: I think a lot of the times people, when they look at a stablecoin payment, and this may be because the industry has so falsely repeated and repeated and repeated, hey, stablecoin payments is just, you know, you send stable coins from here to there and you're settled and it's done.
• 5:39
  Dante Reminick: Obviously, it's a little bit more complicated than that.
• 5:41
  Dante Reminick: I'd like for you to sort of lift up the curtain on what a stable coin payment actually looks like uh pragmatically, and where sugar is is solving a lot of the problems in there.
• 5:52
  Luka Ivicevic: I guess stable coins help money move faster, and that's that's the main selling point of USP of stablecoins, but people still want to get paid in dollars or Naira or Euros, right?
• 6:04
  Luka Ivicevic: And so there's essentially a delay in going from on and off ramping, so from dollars to stables to local currency, even if that's dollars again.
• 6:14
  Luka Ivicevic: Um, there's also the question of treasury being moved from one place to the next.
• 6:19
  Luka Ivicevic: So even if that's money going from um A to B and then being on ramped and then being off-ramped into local currency.
• 6:25
  Luka Ivicevic: And so basically moving money as a whole, it stable coins, the only thing it actually does solve is speed, but it doesn't necessarily solve where prefunding is, it just actually moves pre-funding to another place.
• 6:37
  Luka Ivicevic: Um, and so if you're taking companies that do cross-border payments, they end up settling with some of their uh some of their providers, whether that's for local currency in stable coins, it's easier for them to collect, and on the opposite hand, they get the local currency.
• 6:49
  Luka Ivicevic: And so we'll help pre-fund or give them the capital so that they can settle instantly.
• 6:54
  Luka Ivicevic: I guess the the best way to look at this is that is money going to move faster by 2035?
• 7:01
  Luka Ivicevic: And so money moving faster as a thesis requires prefunding, whether that's on-chain or off-chain.
• 7:08
  Luka Ivicevic: And that's the thesis that we're going after.
• 7:11
  Dante Reminick: For our audience here, Luka, can you define pre-funding?
• 7:14
  Dante Reminick: Tell us about how it's used.
• 7:16
  Luka Ivicevic: Sure.
• 7:16
  Luka Ivicevic: So if I owe you money, for example, and I want it to set to settle today, but you're based in Europe, the only way for me to do that is if my bank has already pre-funded or actually put the money already in your European bank, right?
• 7:30
  Luka Ivicevic: And then therefore it's a ledger transaction, the money moves from one end uh to the next.
• 7:34
  Luka Ivicevic: And so the only reason that money could move instantly is if it's pre-funded somewhere.
• 7:39
  Luka Ivicevic: And so this concept is an age-old concept where banks have prefunded each other.
• 7:43
  Luka Ivicevic: So let's say JP Morgan has pre-funded their Barkley's account in the UK, and there's millions of dollars that are going there every single day.
• 7:50
  Luka Ivicevic: And so the money arrives in one to three days.
• 7:53
  Luka Ivicevic: Um but in the case where it's not pre-funded, it would normally take seven to ten days to arrive as money actually moves like mail does from bank to bank to bank, ultimately to the destination.
• 8:03
  Dante Reminick: I think there's some way on this podcast that I should be able to draw, diagram this out on the screen.
• 8:09
  Dante Reminick: But uh, for lack of better tooling right now, I'm gonna try to paint this picture verbally, and I want you to tell me if this is right or wrong or fill in any gaps here.
• 8:18
  Dante Reminick: So a standard stablecoin payment often involves one leg of needing to move between an off-chain system and an on-chain system, whether that be off-ramping or on-ramping.
• 8:29
  Dante Reminick: And we've talked about this a lot in this podcast where the on and off ramp or the first and last mile is often one of the hardest things to do in the space.
• 8:37
  Dante Reminick: Now, the typical way in which a stable coin payment happens, if we look at an on-ramp, for example, hey, I need to send money from uh you know Nigeria to the US, and you're going from Nigerian Naira into USDC and then sending it over to the US.
• 8:55
  Dante Reminick: The way that that actually works is first you need to get that fiat money from Naira into someone's bank account.
• 9:03
  Dante Reminick: This could be the issuer's bank account.
• 9:05
  Dante Reminick: If you're working directly with the issuer, this could be, you know, if you're a fintech, your bank account.
• 9:09
  Dante Reminick: And so you need to get the fiat money in your bank account in order to release those stable coins on the other side.
• 9:15
  Dante Reminick: Now, stable coins are designed to be better, faster, cheaper, but the reality is that getting money from your client's bank account into your bank account from a fiat perspective is oftentimes the most urgent summary.
• 9:27
  Dante Reminick: And so what you guys do is you say, hey, instead of waiting for a wire to go through, whether that be you know an hour to a few days, we can essentially provide credit, do the prefunding for you so that you can release those stable coins immediately.
• 9:45
  Dante Reminick: Am I understanding that correctly?
• 9:48
  Luka Ivicevic: Correct.
• 9:48
  Luka Ivicevic: And I think there's a couple more steps where if it's outside of banking hours, if you're converting the Naira into dollars, there's that step as well, where you need to have liquidity or somebody willing to buy Naira and in exchange give you dollars.
• 10:02
  Luka Ivicevic: Or vice versa, take dollars and then buy Naira.
• 10:05
  Luka Ivicevic: Um, there's that famous example in India where buying INR and moving money inside and outside of the company because of capital controls is a huge issue.
• 10:13
  Luka Ivicevic: Everybody wants to basically attack that.
• 10:16
  Luka Ivicevic: And so a lot of companies, what they try to do, including OpenFX, is they'll actually create their own trading desk in order to essentially um control the flows between uh INR and dollars.
• 10:26
  Luka Ivicevic: But essentially all this requires liquidity.
• 10:29
  Luka Ivicevic: Um and I think by the way, I think this is like maybe 10% of the prefunding issue.
• 10:32
  Luka Ivicevic: Like if you have RTP, so real-time payments in the US, that requires you to actually pre-fund the RTP account at the Fed.
• 10:38
  Luka Ivicevic: And so Cross River Bank would, if you bank with CrossRiver Bank as your sponsor bank, they would say, like, do you want to use RTP for your program?
• 10:46
  Luka Ivicevic: Yes, therefore, prefund the RTP Rails.
• 10:48
  Luka Ivicevic: And the way to prefund it is you wire the money into the RTP account.
• 10:52
  Luka Ivicevic: Interesting.
• 10:54
  Dante Reminick: Very interesting.
• 10:55
  Luka Ivicevic: And so in the the whole thing is basically that it's it comes down to risk, right?
• 10:59
  Luka Ivicevic: Like if you offer an ACH program, you also need a reserve account or a prefunded account because there is a chance of ACH fraud, right?
• 11:07
  Luka Ivicevic: And so that also requires prefunding.
• 11:09
  Luka Ivicevic: And so anybody who uses a sponsor bank for their neo bank or their payments platform is required to post some sort of reserves, and that's typically three days worth of volumes in a reserve or a pre-funded account to be able to move money.
• 11:22
  Luka Ivicevic: And so it's not just stable coins, essentially any money movement requires a portion of reserves to be placed in one place.
• 11:30
  Dante Reminick: And so where does sugar fit in here, right?
• 11:33
  Dante Reminick: If I'm using a standard bank and they require three days worth of volume, I'm doing 100 million a day or whatever it might be, and I need $300 million in volume sitting in an account.
• 11:44
  Dante Reminick: Where do you guys fit in here?
• 11:45
  Dante Reminick: Are you replacing that prefunded account?
• 11:48
  Dante Reminick: Are you skipping the bank in entirely?
• 11:50
  Dante Reminick: Where do you sort of fit in the stack?
• 11:53
  Luka Ivicevic: So we'd either replace, so let's say, let's say, for example, you have a credit card program at a sponsor bank.
• 12:00
  Luka Ivicevic: Um, because you have a credit card program at a sponsor bank, and RAIN is a good example of that, but we can even stick to the fiat use case, is that there is a chance that uh the credit card has fraud, chargebacks, the customer doesn't have the funds, you don't have the funds if the customer doesn't have the funds.
• 12:16
  Luka Ivicevic: And therefore the sponsor bank is gonna say, you have to post three days worth of volumes in this reserve account, right?
• 12:22
  Luka Ivicevic: And three days worth of volumes, if it's a million dollars per day, that's three million.
• 12:26
  Luka Ivicevic: But if it's five million dollars per day, that's 15 million.
• 12:28
  Luka Ivicevic: So it's a lot of money.
• 12:30
  Luka Ivicevic: And so what happens is that your now operating cash or your venture capital that you heavily diluted on is now locked up in this account, $15 million worth is locked up.
• 12:39
  Luka Ivicevic: And so what we'll do is we'll come and say, like, hey, we're gonna free up that $15 million and we're gonna give you a loan based on that.
• 12:47
  Dante Reminick: Love it.
• 12:47
  Dante Reminick: Love it.
• 12:48
  Dante Reminick: That's that's super interesting.
• 12:49
  Dante Reminick: And I you've mentioned this word a few times, but I really want to dive a little bit deeper into it.
• 12:54
  Dante Reminick: And that word is risk, right?
• 12:56
  Dante Reminick: Banks require you to prefund as a function of passing on risk, right?
• 13:01
  Dante Reminick: You are operating a credit business.
• 13:03
  Dante Reminick: I imagine that risk haunts you in your sleep.
• 13:06
  Dante Reminick: Tell me a little bit more about how you think about that in terms of the standard flows that you're seeing today, how you are building your business around that risk.
• 13:14
  Dante Reminick: It's a really unsexy, boring thing, but it's the backbone of what you do.
• 13:20
  Dante Reminick: So tell me more about that.
• 13:21
  Luka Ivicevic: So we've created something that we call volume-based financing.
• 13:25
  Luka Ivicevic: So if you take the adjacent, which is revenue-based financing, you see somebody has done 100K in revenue per month and will therefore finance them 20% of that revenue, right?
• 13:34
  Luka Ivicevic: In case there's a dip or something along these lines.
• 13:36
  Luka Ivicevic: And you'll take the last 12 months of that revenue history to be able to finance them.
• 13:40
  Luka Ivicevic: What we do is something very similar, but just on the opposite end of the coin, which is volume-based financing.
• 13:45
  Luka Ivicevic: So if you're a payments company and your customers sent, you know, $5 million per day from America to Brazil and from Brazil to, you know, South Korea, for example, um, what we'll do is we'll underwrite your volumes and we'll say, like, at what percentage of those payments have failed, what percentage of those payments have uh is there fraud, is there defaults, have not moved?
• 14:07
  Luka Ivicevic: Um, in some cases, 100% of the money always arrives because it's a treasury movement.
• 14:12
  Luka Ivicevic: The only issue is that moving $5 million from dollars to stables back to local currency can take time, or even moving dollars to local currency or in a local country can take time.
• 14:24
  Luka Ivicevic: And so these companies will say, hey, I need five million dollars because my customers are demanding same-day settlement.
• 14:30
  Luka Ivicevic: And so the whole thesis around settlement financing, or prefunding for that matter, is that money increasingly is moving faster.
• 14:39
  Luka Ivicevic: So I think the whole hypothesis of fintech is speed.
• 14:43
  Luka Ivicevic: And I think that's the only reason why like all of us essentially do well, or all of us essentially find traction is because the thesis is that money will move faster by 2035 or 2030, right?
• 14:55
  Luka Ivicevic: And so the faster money moves, the the more essentially requirement, the more settlement um it actually requires or settlement financing, better said.
• 15:05
  Dante Reminick: Okay.
• 15:06
  Dante Reminick: That's that's really interesting.
• 15:10
  Dante Reminick: And I think for me, what attracts me about sugar is like credit is not new.
• 15:16
  Dante Reminick: This problem that you're solving, to your point, is not new.
• 15:21
  Dante Reminick: There are hundreds of billions, trillions of dollars that exist today in private credit funds.
• 15:27
  Dante Reminick: And traditional private credit funds, some of whom have been around for a hundred, two hundred years.
• 15:33
  Dante Reminick: Why haven't traditional players in private credit seen, hey, you know, there's massive opportunities in fintech, stablecoin funding, whatever it might be.
• 15:43
  Dante Reminick: And why haven't they started attacking this market?
• 15:46
  Dante Reminick: It seems like a lot of them are incredibly latent.
• 15:48
  Dante Reminick: Is it just they're old and lethargic?
• 15:50
  Dante Reminick: Or is there a reason why sugar is able to come into this space where no other traditional private credit fund will touch?
• 15:56
  Luka Ivicevic: So I get asked that often.
• 15:58
  Luka Ivicevic: It's like, why hasn't anybody done this before?
• 16:00
  Luka Ivicevic: Um, the the main reason is that the fintechs as an ICP, or fintechs better said, as a as an industry to this scale, didn't exist until maybe three, four, five years ago.
• 16:12
  Luka Ivicevic: Like there weren't hundreds, if not thousands, of fintech companies 10 years ago to the same extent that there are today.
• 16:19
  Luka Ivicevic: And so this is a new problem that a new group of customers are facing that haven't essentially faced before.
• 16:26
  Luka Ivicevic: And stable coins realistically weren't a thing three years ago.
• 16:30
  Luka Ivicevic: Um, they've popped up to be a thing maybe two years ago.
• 16:33
  Luka Ivicevic: Essentially, this year they've really exploded, especially 2026, right?
• 16:37
  Luka Ivicevic: And so three or four years ago, it just wasn't a thing.
• 16:39
  Luka Ivicevic: So essentially it's a new group of customers.
• 16:41
  Luka Ivicevic: The second aspect is that private credit is extremely slow.
• 16:44
  Luka Ivicevic: So private credit will take nine to 12 months to underwrite you.
• 16:47
  Luka Ivicevic: They'll ask you all sorts of questions that may be completely irrelevant to what you're doing.
• 16:51
  Luka Ivicevic: If they do give you credit, you can only use it for a certain use case, you can't use it for every use case.
• 16:56
  Luka Ivicevic: Like we've had customers reach out and saying, Hey, I have a hundred million dollar uh line of credit, but I need five to ten million dollars for prefunding, and I can't use my line of credit for this.
• 17:06
  Luka Ivicevic: And so prefunding just as a concept is basically new to everybody.
• 17:12
  Dante Reminick: Do you're actively trying to kill prefunding, which for the record, I think is a really, really good thing.
• 17:20
  Dante Reminick: Do you face any resistance from like banks and other institutions that rely on prefunding?
• 17:28
  Dante Reminick: Like, is there any friction between the old way and the new way?
• 17:32
  Luka Ivicevic: So I don't I don't think we're necessarily trying to kill prefunding, and I don't think you can kill prefunding.
• 17:36
  Luka Ivicevic: So and the reason is because there's fraud in place, there's like you could essentially keep kill prefunding if everything is transacting 100% on-chain and everybody only accepts money on-chain.
• 17:53
  Luka Ivicevic: I think that we're very, very far away from that future.
• 17:56
  Luka Ivicevic: Um but as a whole, I think what we're trying to do is we're trying to alleviate the pressure of companies posting very large amounts of capital in reserve accounts or in restricted accounts where they can't use your cash.
• 18:13
  Luka Ivicevic: So if my series A is 20 million and I have to put 10 million aside for prefunding, A, I've diluted 50% more than I should have.
• 18:22
  Luka Ivicevic: B, I have $10 million sitting there and now I can't use that for growth, et cetera.
• 18:27
  Luka Ivicevic: And so our goal is like, how do you unlock this very large portion of restricted or prefunded cash?
• 18:36
  Dante Reminick: So do you think that most of your clients will have some level of pre-funding still, even when using sugar?
• 18:44
  Luka Ivicevic: I think that it depends on the use case and it depends on the risk level.
• 18:50
  Luka Ivicevic: So our goal is essentially to alleviate.
• 18:52
  Luka Ivicevic: I think it's fair to say we do want to eliminate prefunding um for companies as a whole, but it doesn't change the fact that prefunding is required, if that makes sense.
• 19:02
  Dante Reminick: Yes, but the traditional model of prefunding where I need to park a shit ton of capital in a bank account just to do, just to you know, do the payments that my clients need, you're trying to kill that model.
• 19:12
  Luka Ivicevic: Yes, correct.
• 19:13
  Luka Ivicevic: That's exactly what we're trying to kill.
• 19:14
  Luka Ivicevic: Okay.
• 19:14
  Dante Reminick: So that's what I mean when I say you're trying to kill prefunding.
• 19:17
  Luka Ivicevic: Yeah, we're trying to eliminate the need for fintech companies to have to post capital in pre-funded accounts.
• 19:22
  Luka Ivicevic: We're saying like you don't you never need to post this again, you never need to have it.
• 19:26
  Luka Ivicevic: We're basically going to completely kill this need.
• 19:29
  Dante Reminick: And let's talk about the size and the breadth of this issue.
• 19:34
  Dante Reminick: Who right now is doing prefunding?
• 19:37
  Dante Reminick: Who right now feels this problem?
• 19:41
  Luka Ivicevic: So last year it was a four trillion dollar problem.
• 19:45
  Luka Ivicevic: Um, to some estimates, a $25 trillion problem.
• 19:48
  Luka Ivicevic: Um, all legacy banks face this problem as they're prefunding different accounts um all across the world, right?
• 19:55
  Luka Ivicevic: Um who we're we're facing in terms of let's say in our industry, it's neobanks that are using sponsor banks.
• 20:02
  Luka Ivicevic: So again, if you have everyone, basically everyone, yeah.
• 20:06
  Luka Ivicevic: So if you have an ACH program, RTP program, a credit card program, you need to post reserves in these prefunded accounts.
• 20:15
  Luka Ivicevic: So anybody who's touching and moving money needs to basically post prefunding.
• 20:20
  Luka Ivicevic: Um and that's kind of the whole thesis of it.
• 20:22
  Luka Ivicevic: It's it's a problem that everybody faces.
• 20:24
  Luka Ivicevic: Everybody has the exact same problem, but nobody solved it.
• 20:26
  Luka Ivicevic: And the only solution that there is to the market is equity.
• 20:29
  Luka Ivicevic: I'm gonna raise a shitload of VC to cover that, but I'm gonna dilute the hell out of myself, and then then I'm not gonna own 80% of uh of the company.
• 20:37
  Luka Ivicevic: Um B, I can go to private credit, but it's gonna take me nine to 12 months to actually do it.
• 20:40
  Luka Ivicevic: And when I actually do raise the private credit, it's restricted to only certain flows, and I can't use it for everything.
• 20:45
  Luka Ivicevic: Our goal is like we're completely gonna eliminate the need for you to post any prefunded capital, and we're gonna allow you to use it specifically for that reason so you don't have to essentially over-dilute yourself, and you can scale your prefunding needs.
• 20:57
  Dante Reminick: This is gonna be a serious issue, Ruka.
• 20:59
  Dante Reminick: I have about like 10 hours worth of questions for you, and we just simply do not have that amount of time.
• 21:04
  Dante Reminick: Um, I want to transition to talking about what it takes for you to build a credit fund, right?
• 21:11
  Dante Reminick: Like, I think the the radically oversimplified model is hey, I'm I need a bunch of money to post this credit, so I just need to go out and raise a lot.
• 21:22
  Dante Reminick: Obviously, there's a lot more that you're doing beyond that.
• 21:25
  Dante Reminick: What do you spend your day-to-day doing when it comes to actually building out this type of business model?
• 21:31
  Luka Ivicevic: So we're not building a credit fund.
• 21:33
  Luka Ivicevic: Um, I think previous attempts have been let's build a private credit fund and let's finance these companies.
• 21:37
  Luka Ivicevic: I think that's a completely the wrong approach.
• 21:39
  Luka Ivicevic: I think because the selling point of fintech is speed.
• 21:43
  Luka Ivicevic: So whether that's prefunding so you can enable instant settlement or whether that's a super quick KYC process or a KYB process that today is now, you know, everybody's everybody has some sort of fast KYC process.
• 21:54
  Luka Ivicevic: What we do in FinTech is we sell convenience, and convenience is typically quantified.
• 21:59
  Luka Ivicevic: As speed.
• 22:00
  Luka Ivicevic: How fast can you actually do something?
• 22:02
  Luka Ivicevic: Um, and so we're actually productizing this.
• 22:05
  Luka Ivicevic: Our goal is essentially help fintechs or underwrite fintechs within a couple of seconds and essentially issue them credit within a couple of minutes.
• 22:13
  Luka Ivicevic: And so we want to productize this process where we can we you can go from signing up with us to getting credit for prefunding within a matter of minutes.
• 22:22
  Dante Reminick: I I understand what you're saying, but the fact of the matter is you still need money to lend.
• 22:28
  Dante Reminick: Yeah correct?
• 22:29
  Dante Reminick: So like there is there's you can say that you're not a private credit fund, but at the end of the day, you are still providing credit to people.
• 22:36
  Dante Reminick: Just so that I understand it correctly, right?
• 22:38
  Luka Ivicevic: Yes, correct.
• 22:39
  Dante Reminick: You're just taking it, bringing that into the modern world where everything can be productized as opposed to the way it's been done for the last you know, many, many thousands of years, which is you build a relationship with a credit fund or a banker, and then they lend that out to you.
• 22:54
  Dante Reminick: I I've been reading a lot about like the the merchant banking uh tycoons going back to like you know the the ancient Italians, the medieval Italians rather, to you know, European merchant bankers and their entire businesses were run on relationships.
• 23:12
  Dante Reminick: It seems like what you're saying is like, hey, you shouldn't have to know a guy anymore, use our API, and we'll solve all your problems.
• 23:20
  Dante Reminick: Is that is that fair?
• 23:22
  Luka Ivicevic: So, what what I'm saying is you should be able to get credit and liquidity for prefunding as quick as you can get a loan on a firm to buy your spouse gifts.
• 23:34
  Luka Ivicevic: Like that's that's how that's how quick you should be able to get prefunding.
• 23:39
  Luka Ivicevic: Um so we operate a very similar model to a firm McLarna, where they do the credit raising in the background, but they have all the capital to deploy to their customers, and they make it super easy to buy now, pay later for certain payments.
• 23:52
  Luka Ivicevic: Or certain products, but I've said that.
• 23:55
  Dante Reminick: Interesting.
• 23:56
  Dante Reminick: Who who else is doing this right now?
• 23:58
  Dante Reminick: Like I you you mentioned a few other people to me who are doing this.
• 24:04
  Dante Reminick: Why is what you're building superior to the to the stuff that's in the market right now?
• 24:09
  Dante Reminick: Is it just, hey, we're actually productizing it where others are not, or do you have you know some more secret sauce there?
• 24:16
  Luka Ivicevic: Yeah, like I said, FinTech is competing on versus TradFi.
• 24:21
  Luka Ivicevic: And so when you're building a neobank like Slash is not competing with Mercury, um, and I see all these neobank wars on X, and it's like you guys are not competing against each other, like you guys don't get it.
• 24:33
  Luka Ivicevic: Um, you're competing against like Wells Fargo and Citibank.
• 24:37
  Luka Ivicevic: That's like the primary focus.
• 24:38
  Luka Ivicevic: Our biggest competition is then uh private credit.
• 24:41
  Luka Ivicevic: It's private credit and um and to some extent equity.
• 24:46
  Luka Ivicevic: And so it's understanding where again we're productizing something, we're making it super easy, and previous attempts were private credit funds.
• 24:53
  Luka Ivicevic: And I just think that's the wrong approach.
• 24:56
  Dante Reminick: Is there different infrastructure required though to service these more modern fintechs from like a risk perspective?
• 25:05
  Dante Reminick: Like if uh traditional institutions, whether they be banks, private credit funds, if they had the stones to actually go out and service these types of people, could they even do it?
• 25:16
  Luka Ivicevic: Basically, insurance companies have the problem where they need where they need to make a settlement uh payout, that can take a couple of weeks or even a couple of months for them to pay out.
• 25:23
  Luka Ivicevic: And sometimes they need to pay out instantly.
• 25:25
  Luka Ivicevic: And so sometimes insurance companies need to essentially take a loan to be able to finance that settlement.
• 25:30
  Dante Reminick: Yeah, I mean the truth of the matter is like uh we talk a lot about instant payments.
• 25:34
  Dante Reminick: And the reality is like there's very, very rarely a case where the payment is actually instant, as in the institutions behind that payment are settling the money instantly.
• 25:46
  Dante Reminick: Almost never happens, believe it or not.
• 25:48
  Dante Reminick: Like I think that a lot of fintech over the last, we'll call it like 25 years has been how can we create the mirage, the illusion of you know, faster payments or you know, more connectivity or whatever it might be, even though in the background it's just as much of a clusterfuck as it was before.
• 26:08
  Dante Reminick: And so I think like again, my mental model for sugar is you guys are are taking a problem that almost every single payment company has, whether their users realize it or not, and giving them uh an alternative that's just a little bit more capital efficient and is probably a lot easier on their CFO and and when managing OpEx.
• 26:30
  Luka Ivicevic: Yes, correct.
• 26:30
  Luka Ivicevic: It's a much more capital efficient solution and a faster solution to be able to move money faster.
• 26:35
  Luka Ivicevic: Um but it's not only for faster money movement, it's also for restrictive cash movement.
• 26:39
  Luka Ivicevic: So if so basically, if you have this ACH program as an example, you need to post three days worth of collateral in a reserve account.
• 26:48
  Luka Ivicevic: And so if your company's doing, let's say, payroll, you need to typically post three to five days worth of reserves in this in this account.
• 26:55
  Luka Ivicevic: And that could be, you know, single-digit millions, it can be tens of millions that you need to post in a reserve account.
• 27:01
  Luka Ivicevic: And that locks up your balance sheet in case there is fraud or charge wages.
• 27:06
  Dante Reminick: And so, I mean, you guys are primarily a risk management company at at this point.
• 27:12
  Dante Reminick: Like, I think in terms of like providing the credit, you sold in uh a really, really successful Neobank.
• 27:19
  Dante Reminick: Like, you're clearly a skilled operator.
• 27:21
  Dante Reminick: I don't think it's gonna be that hard for you to get the money to loan out.
• 27:24
  Dante Reminick: And it's a lot harder to productize that and everything uh from like a risk perspective.
• 27:30
  Dante Reminick: When it comes to like, you know, step one, two, three for for sugar here, how are you thinking about like your product roadmap?
• 27:40
  Dante Reminick: I mean, we just spent 20 minutes talking about how everyone needs this, and everywhere, you know, every single payment company can use this, an insurance company can can use this, and a gambling company can use this.
• 27:50
  Dante Reminick: The world is your oyster, Luka.
• 27:52
  Dante Reminick: How do you think about building a company that has so much open space to run?
• 27:57
  Luka Ivicevic: I think the hardest part about what we're doing is productizing it, as I was saying earlier.
• 28:02
  Luka Ivicevic: So it's like how do you underwrite a company instantly?
• 28:06
  Luka Ivicevic: And then how do you service them in a way where you're protecting your funds and you're monitoring them in a basically everyday 24-7 type of way?
• 28:16
  Luka Ivicevic: Um, and so we're working on something now that we plan to launch in the coming weeks that's actually going to solve exactly that problem.
• 28:23
  Luka Ivicevic: Um But yeah, that's basically the biggest biggest thing you have to work on is how do you productize.
• 28:29
  Luka Ivicevic: Like I said earlier, how do you make a credit product for pre-funding as easy as getting money from a firm refiner?
• 28:37
  Dante Reminick: I think it's a lot harder than than you make it seem.
• 28:41
  Dante Reminick: Like, again, for the last many, many, many, many thousands of years, credit and the risk on that credit has primarily been a function of there is a human somewhere who is making a gut check, a judgment call on whether or not this is going to be a worthwhile loan and whether the person on the other side of that credit or the other side of that loan is gonna give me my money back.
• 29:04
  Dante Reminick: That is how credit has worked for many, many thousands of years.
• 29:07
  Dante Reminick: And you are trying to fundamentally disrupt that.
• 29:10
  Dante Reminick: And I think that you know that's your advantage in the sense that very few others are going to do it, but it's also an incredibly difficult problem to solve.
• 29:19
  Luka Ivicevic: I think that the difference between today and even 20 years ago is that we can monitor what the customer is doing 24-7.
• 29:26
  Luka Ivicevic: We can monitor their volumes, their balance sheet, where they're placing the money, where it's going, and how much of it is moving.
• 29:33
  Luka Ivicevic: And so monitoring is actually the key USP or essentially the key advantage that we actually have today.
• 29:39
  Luka Ivicevic: And surprisingly, private credit and lenders actually don't monitor their customers uh well enough to be able to minimize risk.
• 29:46
  Luka Ivicevic: And so that's that'cause they don't have the tech to, or they don't have the wherewithals.
• 29:49
  Luka Ivicevic: They haven't implemented it.
• 29:50
  Luka Ivicevic: I mean, there's plaid, there's alchemy, there's a ton of you know, on-chain and fiat solutions to be able to basically monitor somebody's balances and what they do from, let's say, a business, not necessarily an individual, um, but also for individual where you can monitor and you can essentially um understand what they're doing with money.
• 30:07
  Dante Reminick: Yeah, I mean, I think it's really important that people recognize that you are building a tech company first and foremost.
• 30:14
  Dante Reminick: Like, yes, you give credit, yes, you can be in the flow of funds, but excellence in that regard is only enabled by the tech that you have to build out that scaffolding.
• 30:25
  Luka Ivicevic: Yeah, I the the main thing that the main advantage a lender can have is monitoring.
• 30:32
  Luka Ivicevic: So if you're able to monitor your credit risk 24-7 and ideally it live, you have the ability to essentially understand your risk and make moves in case there is a risk that you can prevent.
• 30:46
  Luka Ivicevic: And so whether that's through a deposit account control agreement or a DACA where you can block the account, whether that's uh being able to send notices and ask the founders directly, hey, what's going on here?
• 30:56
  Luka Ivicevic: Monitoring is key here.
• 30:58
  Luka Ivicevic: Otherwise, they appear in a month and say, Hey, sorry, I lost your money.
• 31:01
  Luka Ivicevic: And so the key difference to credit today versus 10 years ago is comes down to monitoring and control.
• 31:08
  Dante Reminick: I think it's important to note here the trade-offs that these founders are making to reduce this problem that you're solving.
• 31:16
  Dante Reminick: As in, and correct me if I'm wrong, but if founders are okay with having someone see every single transaction and monitor to the level that you do just so that they can get credit and reduce the need for pre-funding, I think that that is a really, really big testament to how big and painful of a problem this actually is.
• 31:36
  Dante Reminick: Because I know a lot of founders who have been pitched companies where they don't want to give away any information, right?
• 31:41
  Dante Reminick: They want to keep all their transactions as private as they possibly can.
• 31:44
  Dante Reminick: They want to make sure that you know their data is locked up nice and tight.
• 31:48
  Dante Reminick: The fact that they're willing to let you monitor everything for the sake of getting that credit line is incredible to me.
• 31:55
  Luka Ivicevic: So I think I think it's worth, I think it's worth clarifying.
• 31:58
  Luka Ivicevic: Like, we're not, we're not necessarily monitoring um, you know, what they're spending their money on, who gets paid how much, et cetera.
• 32:03
  Luka Ivicevic: Yes, yes.
• 32:03
  Luka Ivicevic: Like what we're monitoring, or maybe I can like rephrase the whole thing, is that the key thing for monitoring is be able to see like how are the volumes moving and how is how is the fraud and being able to monitor essentially what is the risk of the prefunding that's that's moving through the rails.
• 32:19
  Luka Ivicevic: Um and so that's something that we're essentially monitoring.
• 32:22
  Luka Ivicevic: I think we need to rephrase this this whole aspect of things where it's not necessarily like we're now monitoring like their salaries and how much they're getting paid, etc.
• 32:29
  Luka Ivicevic: You're monitoring credit risk.
• 32:31
  Luka Ivicevic: We're monitoring credit risk specifically when it comes down to volumes.
• 32:34
  Luka Ivicevic: Yes, they're caring a lot more about the money coming in than the money going out.
• 32:38
  Luka Ivicevic: No, we care about the money coming in and out when it comes specifically in respect to volumes.
• 32:43
  Luka Ivicevic: So I just kind of want to avoid the whole idea that they were now taking like a huge privacy risk, we're monitoring everything.
• 32:49
  Luka Ivicevic: It's not necessarily what it is.
• 32:51
  Luka Ivicevic: It's like we're simply monitoring the volumes uh that are going in and out when it comes to what we're prefunding.
• 32:57
  Dante Reminick: So and we while we're on the topic of like how how painful of a problem this is, I want to get a better understanding of like the the lengths that people are willing to go to reduce prefunding.
• 33:13
  Dante Reminick: I mean, when we talk about ramping, which is where you guys live right now, is the the gap between on-chain and off-chain.
• 33:21
  Dante Reminick: The entire industry is like, oh, it's a race to zero, right?
• 33:24
  Dante Reminick: Everyone is competing with each other on ramping rates, everyone is trying to get the lowest rate possible.
• 33:29
  Dante Reminick: This is how people grow their business as they undercut the the next competitor on it.
• 33:34
  Dante Reminick: And you know, throughout the entire industry, people are like, hey, ramping rates are going to zero.
• 33:39
  Dante Reminick: How do you think about that as someone who lives in the space between on-chain and off-chain and are sort of adding to the cost of ramping?
• 33:50
  Luka Ivicevic: I think that um a dollar should be a dollar, no matter if it's uh USDT, C, or USD, right?
• 33:58
  Luka Ivicevic: Um and so I think that structurally speaking, I don't know if that's ever gonna change in terms of the inherent cost.
• 34:06
  Luka Ivicevic: However, I do think that um if you compare that to, let's say, wires or ACHs, they also cost money.
• 34:15
  Luka Ivicevic: They maybe don't cost a basis point, which is a percentage, right?
• 34:19
  Luka Ivicevic: So they're more of like a fixed cost.
• 34:21
  Luka Ivicevic: But I think that as an acquisition tool, most companies are gonna transition to on and off ramping being for free.
• 34:29
  Dante Reminick: Yes, but to your benefit, a dollar now is worth more than a dollar in three days.
• 34:37
  Luka Ivicevic: What do you mean by that?
• 34:39
  Dante Reminick: You allow money to move faster, right?
• 34:41
  Dante Reminick: And if I can get that dollar now, I'm willing to pay a premium on that to you know, get that value.
• 34:47
  Luka Ivicevic: I think that the main selling point that neobanks have is that I will you're you're able to send money from America to whichever other destination instantly.
• 34:56
  Luka Ivicevic: And so I think like Revolute basically pioneered a lot of that because it was a ledger transaction.
• 35:00
  Luka Ivicevic: They said, I can send money from A to B instantly as long as you're within the Revolute network, and then it was a ledger transaction, right?
• 35:06
  Luka Ivicevic: And you can be anywhere in the world.
• 35:07
  Luka Ivicevic: And so that made complete sense and they had the money available.
• 35:09
  Luka Ivicevic: And that's essentially pre-funding, but that's essentially happening on a ledger, and therefore it doesn't require pre-funding.
• 35:14
  Luka Ivicevic: And so banks now globally have said, or neobanks have said, I now want to enable my customers to move money to another counterparty at a third party bank, and I want that to happen instantly.
• 35:23
  Luka Ivicevic: For that to happen instantly, you need a pre-fund.
• 35:25
  Luka Ivicevic: And whether that's in stables or whether that's in fiat on the opposite end, like most of our customers are actually keeping money pre-funded in banks across the world.
• 35:34
  Luka Ivicevic: So if you're multiple banks, yes, seven, eight different banks, ten banks, fifteen banks.
• 35:40
  Luka Ivicevic: We have one customer that's 16 banks all across the world, and they're working, yeah, they're working with 25 different wallets and 16 different banks because of different on-chain assets, off-chain assets, different different chains as a whole.
• 35:51
  Luka Ivicevic: Um so yeah.
• 35:53
  Luka Ivicevic: Yeah.
• 35:54
  Dante Reminick: That's that's insane.
• 35:56
  Dante Reminick: That's insane.
• 35:56
  Dante Reminick: I I was doing some reading, and I was reading about how the amount of corresponding banks around the world has been plummeting over the last 20 years or so.
• 36:08
  Dante Reminick: Uh, and I think that that's sort of a a testament to how the financial system is starting to be to be structured.
• 36:16
  Dante Reminick: As you look at sort of trends in traditional finance and you know, where banks are opening up new branches and how they are looking at uh you know stable coin usage, do you see the opportunity for sugar as sort of a finite thing within the ramping space?
• 36:33
  Dante Reminick: Or do you think, like, hey, we're starting with a wedge in credit for on and off ramps, and then we can grow into XYZ things?
• 36:41
  Luka Ivicevic: So the big thesis is that money will move faster in five years from now than it than it does today.
• 36:46
  Luka Ivicevic: And for money to move faster, you essentially need to pre-fund um different accounts, right?
• 36:51
  Luka Ivicevic: And so we want to help companies completely eliminate uh that need.
• 36:54
  Luka Ivicevic: With that said, gambling companies have this problem.
• 36:57
  Luka Ivicevic: Um, various adjacent industries have settlement problems.
• 37:00
  Luka Ivicevic: And so I think that with money moving faster, it doesn't just come down to sending money from A to B, but it also comes down to settlement financing as a whole.
• 37:08
  Luka Ivicevic: And so I think our initial wedge is definitely pre-funding for fintechs to crypto companies, and I think there's basically an unlimited market there.
• 37:15
  Luka Ivicevic: Where I just do a C adjacent industries is definitely in settlement financing for payment specifically.
• 37:21
  Dante Reminick: So tell me more about settlement financing.
• 37:26
  Luka Ivicevic: So, settlement financing, for example, can be travel companies are a good example.
• 37:31
  Luka Ivicevic: So if you work with booking or uh Expedia, in order for you to book trips, you need to post a certain reserve with them.
• 37:42
  Luka Ivicevic: So you say I'm gonna post a million dollars, and that's gonna give me credit to book a million dollars with the hotels or or or airlines, right?
• 37:48
  Luka Ivicevic: And so if your customers want to book two million dollars, you need to post two million dollars ahead of time in case that there is default from the customer from yourself because Expedia and booking don't want to take that risk.
• 37:57
  Luka Ivicevic: And so essentially that requires also settlement financing.
• 38:00
  Luka Ivicevic: And so gambling companies have the same thing with reserves, it's a very similar use case.
• 38:05
  Luka Ivicevic: So yeah.
• 38:07
  Dante Reminick: I I think that, and I hope that the audience has picked up on this by now, but the single through line throughout our entire conversation, Luka, is that people want money to move faster.
• 38:18
  Dante Reminick: And I think that that is a statement that is not going away anytime soon.
• 38:22
  Dante Reminick: I don't think you're ever gonna walk up to a business and they're like, eh, I don't really care.
• 38:25
  Dante Reminick: You know, maybe I want my money to move slower.
• 38:27
  Dante Reminick: Like that's never gonna happen, right?
• 38:29
  Dante Reminick: People are always gonna want their money to move faster.
• 38:32
  Dante Reminick: And in order to do that, prefunding needs to be figured out.
• 38:36
  Dante Reminick: Um, stable coins are an incredible tool, not only for you know, the canonically cliche better, faster, cheaper, but I think also for dramatic steps in efficiency of like backend financial offices.
• 38:49
  Dante Reminick: And I think that you guys are just adding to that capital efficiency gain that people are using for stable coins.
• 38:56
  Dante Reminick: Um who should be reaching out to, where can they reach out to?
• 39:01
  Dante Reminick: Why should they reach out to you?
• 39:03
  Dante Reminick: Give me the whole thing.
• 39:06
  Luka Ivicevic: If internet companies have a need for prefunding or reserves, we're happy to held them, um, they can reach out to me on X, uh, L-U-K-A-I-V-I-C-E-V.
• 39:15
  Luka Ivicevic: Um you're probably tagging me in the end.
• 39:17
  Luka Ivicevic: Um you can check us out at sugaraccount.com, um, or you can follow us at use sugar on X.
• 39:24
  Dante Reminick: Awesome.
• 39:24
  Dante Reminick: Well, people can also message me and I'll I'll connect you over with Luka.
• 39:28
  Dante Reminick: What I will say is that the man is currently drowning uh in people wanting prefunding, because again, this is a widely spread problem.
• 39:35
  Dante Reminick: But Luka, I appreciate you educating me and the audience on credit.
• 39:40
  Dante Reminick: We're gonna have to have you back as your business continues to grow and as you continue to do more cool stuff.
• 39:45
  Dante Reminick: But like I said, I appreciate you jumping on for our audience.
• 39:48
  Dante Reminick: I hope you learned at least a little bit.
• 39:50
  Dante Reminick: I learned a lot.
• 39:51
  Dante Reminick: And as always, stay stable.
• 39:53
  Dante Reminick: Thanks for listening to this episode of Stable Pulse.
• 39:55
  Dante Reminick: Be sure to like and subscribe for more of the latest news and insights from across the stablecoin and payments ecosystem.