The following interview is a conversation we had with Jack McDonald, CEO of PolySign, on our podcast Category Visionaries. You can view the full episode here: $50 Million Raised to Power the Future of Digital Assets
Jack McDonald
Thank you. Excited about this?
Brett
Yeah, no problem. So before we can talk about what you guys are building there at PolySign, could we just start with a quick summary of who you are and a bit more about your background?
Jack McDonald
Sure. So I am a Chicago native living here in San Francisco for over 20 years. I’ve been in the financial services business basically my whole career since law school and moved from a big bank at UBS to a smaller private company called Conifer that I ran for ten or eleven years and then joined our Founder, Arthur Briddo four years ago to start PolySign.
Brett
Very cool. And two questions we like to ask just to better understand what makes you tick as a leader. What CEO do you admire the most and what do you admire about them?
Jack McDonald
There’s a lot of CEOs out there that I admire. I think one who’s top of mind for me recently is hope I’m pronouncing his name correctly, eve Shernard, the CEO and Founder of Patagonia. I’m a pretty active guy, so I’ve always been a fan of their gear and customer service quality. I also like how he’s blended his own personal interests into the fabric of the organization and culturally. And then most recently, obviously, what he’s done is turning the whole business from a profit minded business to more of a charitable trust and basically giving all the profits away. And to be able to had a vision, started a company, grew it successfully and giving basically the money away while building a very strong culture with quality products and services and feels to me like anytime I go in the store talk to somebody online that really engaged and aligned employee base.
Jack McDonald
I just think it’s a really powerful combination of what he’s done and read some of his management books and whatnot a really impressive guy.
Brett
Yeah, that’s such a great call out. I really can’t think of a more, for lack of a better description, like an aligned brand. I think sometimes brands just seem to kind of have fluff out there. But it’s very clear that Patagonia takes their mission seriously and every single thing they do, every message they push out is completely aligned around that mission, which is really cool and really inspiring to see.
Jack McDonald
Yeah, I agree with you. And unique. I mean, there are other companies, obviously that do that. But he’s always struck me as a very disciplined guy as well. And even when the company’s rolling out something new, you say to yourself, AHA, that’s really consistent with their mission. Without getting too into the weeds, just because it hit my family the last couple of weeks, is that they have this used gear side of their business. I forget what it’s called, secondhand or something like that, where you can turn in your old gear and get credit for it. And they just did a promo of double the value in the month of January. So were finding all sorts of old puppies and fuzzies and whatnot and bringing them back. I just think it’s really cool that they recycle or repurpose that gear and it is consistent with who they are as a company and their brand and whatnot.
Jack McDonald
So I’m a big fan, as you can tell.
Brett
Love that. And I’d have to ask then, so being based in SF, what’s your favorite outdoor adventure and activity to do around SF?
Jack McDonald
I would say three, if I’m allowed three choices. So, big skiing family. We’ve been bombing up to Tahoe for 18 years or so, 19 years. I’ve got four kids, the oldest was 22, started skiing when she was three or four. So rent a place up there and we’re kind of weekend warriors in the winter. Also do a lot of sailing, which is a big part of my past, and own a boat with some other families here. And also like riding the bike. It’s a great place to road bike, warm mountain bike. I’m a road biker. And just a great climate and great terrain to do that in.
Brett
Nice. Love it. And what about books? Is there a specific book that’s had a major impact on you? And this can be a business book or can also just be a personal book that’s influenced how you view the world?
Jack McDonald
Yes, on the business book front, which is less interesting but relevant to the podcast, I’m a big fan of Patrick Lenchoni’s fables that he writes. There’s a whole series of them, and I really find myself inspired by his thinking around running businesses, building culture, building teams, meetings, et cetera. So I would say he would be the top of the list. There are others, but he would stand out on the personal front. Historically, I’ve been a big fan of Hemingways. I prefer fiction to nonfiction. One book I continually recommend to people is Patty Smith’s. I guess it’s a biography called Just Kids of her relationship with Robert Maplethorpe. And while I don’t have anything in common with Patty Smith or Robert Maplethorpe, I do think the way she ages as a writer and she’s very talented, but also how she kind of views relationships for the long term.
Jack McDonald
And gives people the benefit of the doubt and is very open minded, et cetera. Just struck me as a really respectable way to live and a really respectable outlook on life. So, matter of fact, my wife just gave me a book that’s on my desk of her photos for Christmas.
Brett
Nice. That’s awesome. I’ve not heard of that one, but I’ll have to check it out and add it to my bookshelf here.
Jack McDonald
It’s an easy read, so you’ll tackle it.
Brett
Nice.
Jack McDonald
Love it.
Brett
All right, now let’s dive into PolySign. So can we just start with the origin story behind the company? Yes.
Jack McDonald
Arthur Britto was one of three co-founders of Ripple way back when, ten or eleven years ago, I think they just recently celebrated their 10th year. And he had left the company to pursue other interests about five or six years ago. And some early investors in Ripple were looking for custodial solutions for their XRP and had asked Arthur to build a company. He is probably most well known for designing and developing the XRP ledger. Together with David Schwartz, who’s still at Ripple, their chief cryptographer and CTO, and the two of them decided to start a company. I had just kind of finished selling my prior company called Conifer that had a broker dealer and a fund administrator. And I was looking to do something different with my time still within financial services, but wanted to do something also entrepreneurial and something that would inspire me to learn new things.
Jack McDonald
I had a view that financial markets as we knew them was kind of ripe for innovation and disruption. I had a, I’d say, pedestrian understanding of bitcoin and blockchain. Could maybe tell you the difference between the two, but by no means had I gone down the rabbit hole, but met Arthur through a VC friend of mine who was an early investor in Ripple who had inspired Arthur to start this company. I think I joined his employee number two or three, but I just was really taken back by Arthur’s vision, his brilliance, his demeanor. He’s just a really kind person while also being incredibly driven, intelligent, and he’s a visionary, but not someone who is steeped in the day to day operational flows of capital markets, how they work, et cetera. So I think we really compliment one another. Well, he’s not involved in day to day business at all, but as a visionary, he’s really unique and talented and a bit of a Samoan.
Jack McDonald
And so anyways, I decided to join him. Also really attracted to some of the other early investors and board members, specifically a guy by the name of Tim Keaney who ran all asset servicing globally at BNY Mellon for many years. And he had already found Arthur. Arthur had found him. And he just gave me a lot of confidence that this company had a lot of potential. So it was really about the people as well as the idea that inspired me to jump into this.
Brett
And then did you join as CEO?
Jack McDonald
I did.
Brett
I feel like that’s a very uncommon path for most tech companies for the founders to give up the CEO seat so early on in the venture. So why do you think that was, that Arthur was okay with giving that control up or having a CEO come in and run the company?
Jack McDonald
Yeah, I mean, I mentioned it earlier. He’s one of the kindest people in many ways that I know. And his intention was never he’s very humble, he’s very private. I’m sure people listening will try to google him and you’re going to find very little out there about him by design. But it was never about him running the company. He wanted to not only give birth to it, but to kind of behind the scenes drive in a direction that could realize its full potential, but had no interest in running the business day to day from the get go. So they were looking for a CEO when I met them and also understanding, which again, is an attractive quality in anyone, to understand your limitations. He did not come from a financial services background, and particularly around custody, which was the initial foray of the business. He understood enough to know that this was going to be a regulated business, what we wanted to build, and it would be a cornerstone of a future capital markets.
Jack McDonald
And so finding someone like he did in Chris Larson and starting Ripple, who could deal with the regulators, who could deal with the market positioning, the go to market, were all skill sets that he was looking for in others and not something he felt like he had his superpower, which is around the engineering, cryptography, technological vision side. So I really respect that it’s not just humility, but it’s also a level of self awareness that we should all aspire to just to know where your strengths are and where you need others to complement you.
Brett
Absolutely. I love that. And now can you talk to me about the actual product or products that you offer and what customers look like who are using your products?
Jack McDonald
Sure. So from day one, the vision was to build institutional grade infrastructure for digital assets. And we wanted to start with custody, hence Center Custody and Trust, which is our New York qualified custodian. We had, I think, a view towards building something that would be regulated because we wanted to attract the best institutions in the market, not just the institutions who were invested three or four years ago, but had a view that if the infrastructure was there, that traditional asset managers would come into the space and without getting into the weeds. In traditional capital markets, call it stocks and bonds in the US. With a caveat that’s very much of a global business. But in the US, if you manage more than 150,000,000 of regulatory capital, you’re subject to the Investment Advisor Act 1940 and have to use what’s called a qualified custodian. And for stocks and bonds, you could be a broker dealer, you could be a futures commission merchant and FCM, or you could be a trust bank.
Jack McDonald
So when it comes to digital, FINRA has not allowed broker dealers to do this. The CFTC has allowed a couple of FCMs if all you want to do is trade futures, but if you want to trade other types of digital assets, crypto, et cetera, the only path to being a qualified custodian is being a trust company. And so that’s the route that went. That was a long process, but it was important to get that license and credential even more so now post FTX to be credentialized in a way to be licensed opens the door for institutions to come in. And we had a view that is consistent today, that this business starts with custody as the foundation and then you build upon it other services, really creating a surround sound, if you will, to fully support our client base. And that led to our second product, the fund administration business that we acquired in the late spring of last year, mg stover, the leading fund admin really, the OG, if you will, of fund administration for digital assets.
Jack McDonald
That’s a one of one sort of business. And brand. And I’ve known Matt Stover for a long time. He started his business having run a fund administrator myself. I know about that business and when he called me and said that they were looking to bring on a partner to help them really grow the business that could take it to the next level, we talked about at the board, it was consistent with our longer term vision. It came about sooner than we had expected, but it was an opportunity we couldn’t pass up. And so we did a fundraising round to make that acquisition and are very excited that we did. So that’s the second business. Again, that both businesses, standard custody and trust, wholly owned subsidiary that provides the custody business, only services institutions, the Mg stover business also only services institutions doing accounting and reporting for them.
Jack McDonald
So you can think of hedge funds, venture capital firms, other types of asset managers who invest in the digital space predominantly, not exclusively. We do have some traditional VC funds and hedge funds that we’ll continue to support but have a bit of more than a niche focus, but certainly a strong reputation of market share around digital. And then we have a third business we’re building, kind of in the skunkworks, if you will, but I’ll talk about it a little bit called Atomicnet, which provides a settlement layer for a broad range of asset transfers that could be digital or analog. And that’s really a critical tool and offering that’s being built that will support the future tokenization of assets that will ultimately live on chain. And so we think that is the big idea, the moonshot idea here, beyond just crypto, that all assets. So you can think about a real estate building, a venture capital fund, an equity, a corporate bond, the list can go on and on.
Jack McDonald
That could ultimately be tokenized and trade as a digital asset and all the different efficiencies that would come within capital markets for that to happen. So, long answer to your question, but those are the three different businesses we have.
Brett
Nice. We like long answers. Now, can you share any numbers in terms of the traction and adoption that you’re seeing across those three products? I’m guessing they’re all at different phases of the go to market journey, but are there any numbers you can share just to give us an idea of the type of adoption you’re seeing?
Jack McDonald
Yeah, I would say the custody together with the fund administration business, we have over 100 and I think 3140 clients, maybe even more than 150 clients, representing, I think, the number I just saw recently, 300 and 4350 different fund vehicles. So we may have one investment manager that has multiple funds that we support or different accounts, maybe even closer to 400. So it’s a sizable business and again, all institutional. The atomic net business is still in the lab, if you will. We’ve got some very exciting proof of concepts that we’re working on today, engaged with some large buy and sell side firms that are part of that ecosystem. And so that’s something that we will continue to work with others in developing that product to ultimately create a flywheel effect on that. But that’s not in a commercial state quite yet.
Brett
Makes sense. And just to dive a bit deeper into the state of the industry. So you touched on it there. I think everyone listening has heard of FTX and SBF and all the drama that’s been going on there. What’s been the impact on PolySign with everything that’s happened there? Has that been overall positive for you? Have you seen more demand or how would you describe that impact?
Jack McDonald
Yes, I would say overall positive. As with anything like this, there’s a mixed bag. I’d say the negative and then there’s two or three positives. The negative is that there’s definitely been a blow to confidence in the industry overall. Nothing specific to PolySign, but just in general, there were a lot of institutions who were getting ready to invest in the space and you get things like SPFs, which is really fraud. Right. It’s a combination that we rarely see of fraud, hubris and greed coming into one, having nothing to do with crypto, other than it just happens to be the industry that he was in. But we’ve heard him likened to Madoff and Enron and others. I think history will show there was a lot of fraud there. My personal view. So there’s been a crisis of confidence that we’re suffering from in that it was the third or fourth kind of domino to fall over the course of last year with €3 capital and Terra Luna and some other things, celsius, et cetera.
Jack McDonald
So a tough year from a headline perspective, having nothing to do with the underlying technology or asset class other than just they all happen in the same industry. So I think it’s elongating the slope of the demand curve to come back into it. That said, FOMO is a powerful force and Bitcoin being above the price as it was before FTX collapsed, just given the rally in the market in the last five weeks has gone a long way of quickly starting to change sentiment. So there is a lot of demand still for the asset class out there. On the positive front, I would say other thing is that when asset prices get hit, it’s bad for our clients, right? So many times our clients are suffering, there’s a trickle down effect to not only PolySign, but other service providers who support them. On the positive side, I think the spotlight has shined very brightly on the business model for standard custody.
Jack McDonald
From day one, we set up our business to have segregated accounts and to be conflict free. So we don’t trade, we don’t lend, we don’t borrow, we don’t make markets, we don’t rehypothecate client assets, we don’t commingle customer funds, we don’t use customer funds for any corporate purposes, all things that others have done in varying degrees. And so we’re singing from the rooftops about our business model that has been in place from day one in terms of how we approach the business. We’re regulated, we’re insured, we’re regulated by the highest regulator in the land and all of our accounts are conflict free, institutional grade segregated, et cetera. So that’s been a positive.
Brett
I think.
Jack McDonald
Also having third parties who are brand names doing independent accounting and reporting is certainly a positive for the Mg stover business. And those businesses combined were able to support different types of fund structures in a way that others cannot. So for example, separately managed accounts which had a big surge interest and demand after Madoff, where rather than having commingled investment vehicles, institutions wanted to have their own account that was strictly in their name, that they would control where you got, I like to call it TLC, transparency, liquidity and control. We’re starting to see some interest in different SMA platforms for crypto and digital and that’s something that we have a unique solution for because we can custody it and we can also do the accounting and reporting on it all in the same family of businesses. And I would say the last positive is that a number of digital asset exchanges and liquidity providers and whatnot are looking for partners who have a need for that independent custody business as the kind of aggregated business models are being disassembled or picked apart.
Jack McDonald
There’s a lot of regulatory guidance around what an ideal model looks like and also just best practices what the investors and clients are demanding. And so we are engaged in a lot of conversations right now about different unique types of partnerships that weren’t being as discussed as broadly nine months ago or a year ago. And we think we’ve got, again, a unique offering to be able to provide some of those folks.
Brett
And if we look at your journey so far in bringing these offerings to market, what would you say has been the single greatest challenge you faced so.
Jack McDonald
Far and how did you overcome it? I think it’s always a question of product market fit. We started the business really focused on being very quiet in terms of how we built it. And that was a decision we made in part, just given the kind of people who were behind it with Arthur and David Schwartz and whatnot. And I think it’s just finding that balance of working with the industry to be getting feedback all the time and understanding what that need is, and then also being very guarded in terms of the technology build, not wanting to launch something until it’s ready. And were fortunate to be well funded from the get go, but we really took our time in building that. And I think what I’ve learned is just really honing in on that balance because as a result, we didn’t have a lot of name and brand recognition from day one.
Jack McDonald
There’s other companies who splash their brand and their name out there from day one even well before they have a product to launch or take to market. And so we’ve been raising our brand. Part of the benefit of the stover acquisition is they’re extremely well known in the industry, whereas our custody business is becoming more and more well known. And so that’s just something that I’m mindful of bringing products to market, getting that balance right between the marketing side and the building side. And it’s also a challenging industry. It’s still, if you take a step back, an industry that’s relatively tiny versus the broader capital markets business. And so we’ve found lots and lots of organizations who want to take meetings, who want to learn, who want to spend time getting to know us and our products, but aren’t necessarily in a buy mode anytime soon.
Jack McDonald
And so you just have to be judicious about where you spend your time. And a lot of this business is about educating, right? We’re trying to build confidence, which we certainly have in the investors. We have the management team, the licenses, et cetera. Education is a big part of the branding and the sales cycle, but it’s a long sales cycle just given where it’s so a relatively nascent industry, that.
Brett
Makes a lot of sense. And what would you say excites you most about the work you get to do? And why do you wake up every day? What fires you up? What motivates you?
Jack McDonald
I’ve been thinking a lot about this lately. There’s a ton of conferences and I’m trying to be more selective about the ones I go to, but bar none, I am really inspired by the people I meet in this industry. I remember when I started four and a half years ago, it was a very different population in the industry than there are today. And I’m really in awe at the aggregate amount of intellect and drive and innovation that’s happening in this business. I really think about it as us collectively rewriting a new operating system for capital markets. And I’m just in the financial services capital markets business. Obviously, blockchain technology has applications in a wide range of industries, not just financial services just happens to be where I sit. And so that really excites me. And I learn every single day. I mean, there’s just so much information, not only news information, but just new ideas to think about, new partnerships to contemplate, new structures, to evaluate, new use cases to build.
Jack McDonald
So that for me, is the main driver. And I’ve also learned a ton about technology. I’m not an engineer, and I’ve been working closely with engineers, and engineers are just a really inspiring and interesting group. If I could just stereotype that I didn’t grow up working with, and it’s never been an area of study for me, but I’ve learned a ton from working with our engineers who are very curious, intellectual driven people.
Brett
And you touched on it there, but I’d love to dig a bit deeper. So how have you seen the digital asset community and ecosystem evolve over the last four and a half years?
Jack McDonald
I think it’s gone from the early pioneers who again, stereotyping, were in a very, I think, non institutional, non government, non trusted. Even though cryptography and blockchain has been around a lot longer than bitcoin. People don’t realize that, but if you look at the bitcoin white paper, it’s really a trustless, peer to peer transfer of wealth that was being contemplated. And what’s happened over time is that there has been, I think, a leveling of that view to envision how capital markets can flow in a more efficient way, how wealth can be transferred leveraging technology that may or may not involve trusted third parties. We happen to be in the business of being a trusted third party, both on the fund administration side and being a bank. And I don’t think those service providers were contemplated 2008 kind of thing. I think it’s become much more institutional from a retail business.
Jack McDonald
And I would not in any way say it’s close to being mainstream, but the level of awareness is so much greater today than it was before, and now you can walk into any institution of any means and talk about digital tokenization, et cetera. And there is some view that’s being formed, or that has been formed. You can read the paper, go and talk to central banks, and many of them have initiatives around central bank digital currencies. So I think the early idea around bitcoin has been taken and expanded upon in really profound ways for all different sorts of use cases and becoming much more institutional in terms of where the future is likely going to evolve into Got.
Brett
It makes a lot of sense. Now, let’s talk about that future here for the final question. So on the website, it mentioned you guys are building the future of digital assets. What is the future of digital assets? What’s the space going to look like five years from now?
Jack McDonald
Five years from now? Capital markets as we know it, T plus two settlement where you have two days after you buy or sell a stock to settle, will be compressed. Whether it’s same day or T plus one or a combination thereof will be different. There will be a broader tokenization underway in terms of how different assets are represented digitally, and more of these assets will be issued, stored, traded on blockchains. I think our idea around atomic net is spot on and it’s probably five years is a good time frame to start to think about what that will look like. But a broad range of assets will be able to be traded across one of those. So if you have us. Dollar, and I have a fractional interest in the Empire State Building, and Wendy has a tokenized interest in an Eastern European venture capital fund.
Jack McDonald
We will find each other somehow, some way, and be able to exchange those assets with a lot less friction, a lot less costs, and a much more expeditious time frame than we can do today. That’s what the future is going to look like.
Brett
Nice. Well, that’s certainly an exciting future, Jack. Unfortunately, that’s all we’re going to have time to cover for today’s interview before we wrap up. If people want to follow along with your journey as you continue to build, where’s the best place for them to go?
Jack McDonald
You can obviously find me on Twitter would be a place to go or just to our websites, polysign.io.
Brett
Awesome. Jack, thanks so much for taking the time to talk about what you’re building and the vision here. This is all super exciting and we.
Jack McDonald
Hope to have you back on in.
Brett
A couple of years to talk about everything that’s happened.
Jack McDonald
Thanks for the opportunity. Appreciate it. No problem.
Brett
Let’s keep in touch.
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