John Light is the co-founder of PawnCoin, an innovative way for bitcoin users to unlock the value of their bitcoins. He has been making the rounds with investors, pitching his business in front of an audience at the recent Plug and Play EXPO where 10 other bitcoin-related startups also were seeking funds.
Light spoke to us about his startup, how it will operate with the risks of volatility and why Buttonwood has become less of an open air cryptocurrency market and more of a social gathering.
CoinDesk: Tell us about PawnCoin.
John Light: We are going to be offering customers a cash advance based on the value of their bitcoins. So if bitcoin is $1,000 and the customer wants to pawn a bitcoin, then they send us a bitcoin in exchange for $300 cash, which they can play around with for 30 plus 10 days. So, forty days.
CD: It’s 30% of the bitcoin’s value?
JL: Yes, 30% of the value. And to get their bitcoins back, they just pay a 10% redemption fee and get all of their bitcoins back. 10% of the cash that we advance them. So on a $1,000 coin, they get $300 cash advance and they would pay $330 to get their bitcoin back.
CD: Who is the type of person that would want to use this type of service? How did you come up with this idea?
JL: I see a space in the market for this. And I’m sure people will think of a lot more ways to utilize this functionality.
Among a lot of bitcoin early adopters, bitcoin might be your first investment. Bitcoin might be the first thing you ever really thought of like, “hey, I can throw money at this and it’s going to be worth a lot more in the future”.
So they might be your average person that just works a 9-5 or maybe like a part time job, or a college student or whatever. Anyone who needs cash to pay a bill or pay rent or whatever the case may be. And they don’t want to sell their bitcoins because they are probably going to be worth more in the future. But at the same time, they need the cash.
You can skip the process of pulling out a line of credit and just pawn your bitcoins. Use your bitcoins as collateral for a cash advance, which you can pay back in a week, two weeks or even a month.
CD: How does volatility play a role in all of this?
JL: From PawnCoin’s perspective, we’re offering customers 30% of the value of their bitcoin. So built into our business model we have room for a 70% drop in the value.
CD: But how do you mitigate that risk?
JL: If at the point where bitcoin loses more than 70% of its value, then we have internal policies to manage spikes or declines and we’re also exploring a hedging option to actually fully mitigate against that risk.
We’re establishing a bitcoin company. We believe that bitcoin will continue to be successful. Hopefully those are just contingency plans that we never have to execute on.
There are a few options that exist in the market for hedging. We haven’t committed to any one of them. So it’s a little bit of figuring out what we need to do and then seeking out people who can help us execute on that.
CD: Have you received any funding yet?
JL: Not yet. So far we have been completely founder-funded.
CD: What does PawnCoin have to do in terms of regulatory compliance?
JL: From a regulatory standpoint, we’re not a money transmitter and we’re not a money services business. So a lot of the concern that bitcoin exchange companies have to deal with, we don’t.
CD: This kind of reminds me a little bit of the concept of payday loans. Do they not have to register as money transmitters?
JL: I can’t speak to that particular business model. But we’re not lending money. We’re basically buying bitcoins at a discount, and then customers have an option of canceling that sale at the end of the month.
There are a few different ways that pawnbrokers have conducted their business. For some, it is phrased as a loan that they give people and in other jurisdictions it’s this purchase with an option to cancel.
CD: Are you planning on marketing this globally or just in the United States?
JL: We have international ambitions.
CD: Let’s talk a little bit about Buttonwood San Francisco (Every Thursday 7PM at Yerba Buena Gardens, now being held inside at the food court for winter). You started it, right?
JL: Yeah, I organized the first one. I think what I like about the most about Buttonwood is not the cryptocurrency trading, it’s the people that show up. And as the prices have gone up, people have become hesitant to sell because they know that they can get a better price next week.
Or, at least, they believe that they can get a better price next week.
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