RWA - 6s - 2022 - a time to start walking - Part 3

(Thread continued from RWA - 6s - 2022 - a time to start walking - Part 2 )

RWA - 6s - 2022 - a time to start walking - Part 3

Being mission driven

6s has a vision for change and for utilizing this unprecedented power for the benefit of all. Thus far, 6s has invested significant capital in the construction of its lending structure and shared this valuable knowledge and legal framework with the community.

This is not a vision that is only about metrics and measured by capital deployed and deals done. Rather this is much larger. It is about change. Not only the source of capital and putting it to a targeted use, but rather the people that engage around that.

No need to think small. From 6s’ lens, we want to change the mentality of a city and how that city is viewed to the world. When folks think of San Francisco (or more broadly the Bay Area), start-ups, incubators, and venture capitalists come to mind. That didn’t happen overnight; it happened because a hotspot of innovation was concentrated into one geographic area over a sustained period of time.

Today, when folks think of New York, it is viewed in the context of big investment banks and the markets. When folks think of Houston, they think of the oil & gas sector. So what do folks think of a city like Dallas, Texas? Maybe they view it mostly as a city of real-estate and corporate headquarters, with some remnants of oil & gas. 6s wants to change that – to include clean money initiatives at the scale to ultimately change a city, not just be a lender… A lender’s lender, mixed with self-originated loans, focused and targeted to a mission. 6s wants to change how Dallas operates, as a hub of innovation and value, and to change how the city is viewed by the rest of the world as this powerful credit facility takes root. 6s has a vision, and it is not small.

Character matters.

This shouldn’t be a surprise, humans matter. No smart contract can nor should ever be able to perfectly predict or define human outcomes. We can code it all day long, but the character, integrity, and soul of a person matters. Period.

The legal systems that have grown to support advanced economies exist specifically because disputes arise. People breach contracts and understandings. Harmed parties want relief. Courts are there to interpret the law to allow for resolution.

For a lender, just like for everyone else, avoiding costly legal processes is always the ideal. A lender that has no “upside” but only wants its money back with interest, making this even more pronounced. Embedded within all good lenders is the process of building a comprehensive awareness of risks associated with loans, and then mitigating each risk as much as possible, moving it to the borrower (where it squarely belongs).

Given the importance of character, an Arranger must make a subjective character evaluation before lending to any borrower (in addition to the underlying economics). This is not a question of money or wealth, but character. In most cases an Arranger will, for the most part, know before a loan is ever issued if the borrower is a person of their word. Things go sideways. Deals and projects do not always go precisely to plan (in fact I’ve never seen a project go precisely to plan). That is life. The real question is “will the borrower make it right” when it happens. Make no mistake, for lenders, the subjective character analysis can be equally, or more, important than the quantitative analysis when engaging with potential borrowers. Every lender wants the borrower to “win”, but the prudent way to achieve this is to “plan for the worst and hope for the best.”

“… [On being asked ‘Is not commercial credit based primary upon money or property?’] No sir. The first thing is character. [‘Before money or property?’] Before money or anything else. Money cannot buy it… Because a man I do not trust could not get money from me on all the bonds in Christendom… “ - JP Morgan

The community must also by proxy make the same character evaluation for each Arranger that comes forward.

For an Arranger, there are many qualities that must be in place to succeed, many of which the community never sees (nor needs to). The community should know that they exist though. These qualities include by are not limited to:

  • Reputation (in front of the community / trustee / borrowers / investors / social)
  • Ability to execute for a borrower (the good old-school business handshake, which very much still matters and >> always << will)
  • Following legal best practice, for example, ensuring securities law compliance related to any securities offerings for the first-loss equity

Compliance with law, including federal securities law, is always the base ingredient for success, with just about everything else vital is tied to a good reputation. If an Arranger cannot perform as a lender, its deal pipeline dries up, and it becomes the walking dead. Ability to say what you will do, and then do what you say is everything.

While each community participant cannot conduct their own deep-dive psychological evaluation on each Arranger, the community can rely on an alignment of incentives and community engagement, as measured over years, as a decent gauge.

In this years-long process there will be no handbook nor checklist that defines when a person or company “passes” this character evaluation, but like meeting your future partner (business or other), you know a winner when you meet one.

Everyone wants the same thing… Certainty.

Borrowers want certainty. Maker wants certainty. Investors (in 6s) want certainty. Therefore 6s wants certainty. We all want the same thing, a core ethos of good commerce, and by proxy that of a good (debt) investor… Certainty.

As it walks, 6s wants to build a diverse portfolio of collateral, and to do so, 6s will request that the Maker community authorize scope increases when the time is right.

Staff needed

6s will staff its operations in accordance with its underlying transactional needs. Based on the five year projected target portfolio, 6s will need to expand its team to bring on industry experts and “jack-of-all-trades” professionals alike. Uniquely, the lending business is quite a scalable business that directly confronts those with the “sickness of the zeros”: doing a ten million dollar deal, and doing a one-hundred million dollar deal, require the same amount of paperwork. As we’ve just discussed,Lenders like to execute with certainty, so staffing for new and unapproved sectors will likely be deferred until such sectors are approved. And when staff are employed, they will be selected with the utmost care for character, so that 6s’ own good character can be protected.

(Thread continued: RWA - 6s - 2022 - a time to start walking - Part 4)