Scott Shay on N3XT, full-reserve banking and tokenized deposits

How did Signature end? What went eventually wrong? The government hated crypto, and they decided unjustly and unnecessarily to seize Signature. They thought they had murdered crypto. The most overrated idea in crypto banking right now. I'm gonna be very, uh... But AI is gonna make- Welcome to another episode of 51 Insights, today with Scott Shea. Scott, welcome to the show. It's a pleasure to be here. And Marc, I'm a big fan. Thank you, Scott. It's a pleasure to have you on. We've got a lot of interesting topics to discuss today, live from Proof of Talk in Paris.

Scott, you're the founder and chairman of Nexo. You're also the co-founder and former chairman of Signature Bank. Probably I'm best known as the creator of Signet, and I also started two banks before that, Bank United of Texas and Merrick. Before we jump into Nexo, and I know you're building something very, very interesting there, and we'll, and we're gonna unpack all of that, I wanna understand more about your journey. What was Signature Bank? You founded that in 2000 or 2001. It was a over 20-year journey. What did you do there? What was that, and how did it end?

I founded Signature with the idea that New York was over-branched but underbanked. There wasn't good quality banking. So we opened May 1st, 2001, and became an enormously successful bank with over 100 billion in assets, rated A by Moody's and S&P and all of those folks, and just, um, really was part of the fabric of New York. And about 2013, I began my crypto journey because I realized that being a founder now of four banks, I'm a bit of a bank nerd. And I realized in 2013 that blockchain was really something amazing. And so I've always characterized myself as a blockchain maximalist, not necessarily as a Bitcoin maximalist, but blockchain.

Boy, we were still using basically 1970s software to power the bank, and I thought if we could use the blockchain to move money, boy, would that be something amazing. And so the bank got to be known as a crypto-friendly bank even though the bank itself didn't touch crypto. And we-- I had the really good fortune and privilege to come up with the idea for Signet, which was enormously, enormously, enormously successful and really helped to enable the growth, you know, s- from 2019 till '22, the m- the, the tremendous growth of the, um, crypto community and marketplace.

What was Signet? Unpack that for us a little bit. So Signet was the first 24/7 blockchain-enabled tokenized deposit. Within a closed loop, you could transfer money 24/7, so if someone were buying, selling Bitcoin into, from, from New York to Japan on Friday night at 7:00 p.m., they didn't have to wait until Tuesday or Wednesday for the wire and the Swift rooms to actually work their slow magic. But they would get the money at 7:00 p.m. in 20 seconds, and then they could pivot to gold. They could just hold onto the money. They didn't have to worry about whether their counterparty was gonna be solvent, you know, on the following Tuesday or Wednesday.

They... And if they wanted to, if Bitcoin had fallen in price, they could rebuy. If they started to say, "Hey, it's getting away from us," they could, you know, buy, they could short, they could do whatever. People loved the product. Critical thing that I recognized at a certain point, though, was that taking a system like Bitcoin and putting it into a bank was a lot like stapling paper to cardboard. It wasn't really natural. It was somewhat fragile to the banking system because the truth of the matter is, and it's true today in 2026, that all banks at the bottom are debits and credits and batch processing.

Fundamentally, and this is why Nexo is so exciting and why I'm so thrilled to be starting Nexo with my fellow founders, Jeffrey Wallace, Aurel Banel, and Kyle O'Donnell, is that we are actually changing banking not to be, not to have crypto be more like TradFi, but to have a bank be more like crypto. A bank be more like crypto. Before we jump into that, how did Signature end, and what went eventually wrong? I know there's a big story behind that. Can you just paint for us that a little bit? W-what happened there? What went wrong is the government...

There was a time that many of your listeners will remember that the government hated crypto, and they decided unjustly, totally wrongly, and unnecessarily to seize Signature. And now it's pretty clear because we're, you know, we were a crypto-friendly bank. They had, they had stopped Silvergate earlier that week, and that Friday we were... Yes, there was a run on Silicon Valley Bank, and there was some, there was tremendous deposit outflow from Signature, but nothing it couldn't handle. And, um, in the fog of war, they seized Signature and were thrilled because they thought they had murdered crypto, and so it was a happy dance day at the, you know, at the regulators.

They were just totally, totally thrilled. So what went wrong is the government targeted a bank and, you know, I mean, again, wrong, unjust, and sadly unnecessary. Can you take us back to that day? How did that journey then progress from a bank that you founded over 20 years ago Being closed by the government and then going into a new project that is different, as we hear in a minute, how did that journey feel and progress? I clearly didn't see it coming 'cause it shouldn't have come, and I've, you know, I've publicly testified that there was no need.

Shouldn't have closed the bank. So it was a total surprise. That Friday, I had bought shares of Signature personally. Um, and when they, you know, did the de- evil deed, I was devastated. I would say I felt as bad... It was the worst I felt. The only times I felt worse was when my parent, when each of my mother and father died. And on that day, I sort of knew one day I'd get better, but having w- work, having built a bank for twenty-two years that was hugely successful, and then to have it snuffed out in a moment, again, r- unjustly, it was...

Overwhelming is really too mild a word. It was devastating. I couldn't sleep. I mean, I, honestly, I was taking, to get to sleep, to get four hours of sleep at night, I need two sleeping pills. I mean, I could barely sleep. It was just, it was so unjust, so wrong, and I couldn't believe that this is what was happening. I just couldn't believe it. But I guess, you know, in the scheme of things, that's denial, although I didn't deny it happened, and I, you know, knew it was happening. But it was... I don't even like re-thinking about that day.

But I do know one thing. My father taught me really well. You always move forward. And so June 1st, 2023, I started working with Jeffrey Wallace on a new bank that I would, thought would be 10X better, and the best way to move forward was to create something that was new, better, revolutionary, and do for crypto what really needed to be done. And I think that's why I'm so enthusiastic. I'm working like, you know, I'm in my 30s. I was telling you this before we began. Because I think what we're doing ha- can change the whole world of finance.

Not just crypto, but bring the banks into the crypto world as opposed to the traditional, the banks, TradFi, trying to seduce and entice the whole industry into becoming more like TradFi. Yeah, so that project is called Next. Revolutionary new thing, as you say. Can you unpack that for us? What is Next, and how does it work, and why is it different than what you did at Signature? Signature was a fractional bank, and even though it had plenty of capital, and this was, you know, in a way how it had, uh, you know, was why it was vulnerable, like any fractional bank, to being destroyed, was ultimately you have an F, you have a, a deposit insurer, and you have a lender of last resort.

And if somebody says, "You know, unsafe, unsound, we're closing you," that's the, that's the rule. They can. So when you move the dollar on Signet, you are moving a promise to pay from Signature, which was a good promise to pay, but it was a promise to pay. If you go back to the original white paper of Satoshi, what he envisioned was the exact opposite of fractional banking. When you move a block of Bitcoin or Ethereum, whatever the coin is, you move the whole commodity. It's yours. It's no longer mine. It's not a promise to pay, it's yours.

With a deposit, it's a promise to pay. And remember I told you it's batch all the way down, so that batch isn't even processed until twenty-four hours later, twelve hours, uh, you know, later. Some do it twice a day. But the difference is what my partners and I tried to do, did, was we wanted to rip up that system and start with a full reserve bank. So when people deposit money at Next, we don't lend it out. We take all of the money, we put it in just direct obligations to the treasury. We're a narrow bank sitting in custody so that any time, day or night, if everybody wants all of their money, all of their money is there.

We don't have to go to a Fed. There's no FDIC. There's nobody to, we need to borrow from or need anybody's credit for. So you're gonna be superior to a G SIP. And that has a very important, some people have told me this is a philosophical distinction. Actually, it's a very important distinction to anybody who really cares where their money is, which is when you move a dollar on the Next blockchain, you're actually moving a dollar, like a whole dollar. It's not pegged to the dollar. It's not a promise to pay. It's actually a dollar because we're a US bank.

And that's actually strangely revolutionary because no one else is doing that. No bank is doing that. As you probably know better than anyone, a banker would say lending the money multiplier is what makes the bank's economics even work. And now you have a full reserve bank. You need to keep all that capital in your bank. How does that work economically? How can you make money on that? So first of all, with all due respect to the people who say, "And I took Economics 101, and we learned about the magic of money creation," and all of that, you wanna know, you know how it started.

It started in Venice and Genoa in Italy. When people would deposit their gold in a bank, and then the bankers realized, "Hey, those guys are going off on ships. They're not gonna be back for six months. We can lend that money out in the meantime to these other guys who are right here, make some money ourselves, and then- When they're back, we'll give it to them. They-- it actually, fractional banking, um, started as a three-card monte sleight of hand. Now, it was then taken by the Bank of England when, uh, one of the kings needed to finance a war.

They took money in. They said, "Here's your pounds," but then they gave the same pounds to the sovereign. So the whole start of fractional banking was a bit of a, um, I don't wanna call it a fraud. It's not a fraud, but everybody thinks that their money's there, and it's not really there. And now we have a whole new backstory of how, why it's so wonderful because, yes, you're taking what you think is your money and what I think is my money, and you're lending it to that guy, and we're saying that's good. Well, you know what?

The whole thing about crypto is to rethink that and to say, "Hmm, maybe that's not so good." They both think that's their money, and this bank has lent it out to someone who we don't know. So my view is, if you wanna lend out your money, you wanna keep some of it in payments, great. That should be there no matter what. It's your money. If you, on the other hand, wanna make some yield, you can... you should choose between different lending, short-term, long-term, whatever you want, put it on the platform, lend it out for yield, and it should be-- you should decide you're participating in it.

You shouldn't have the bank be taking your money that you think is there and lending it out against this building, again-- well, not against the Louvre, but, um, against the restaurant across the street, against whatever they're lending money on. It should just be transparent. Everybody should know what they're signing up for. And in our current banking system, it's not like the Venetian, quite like the V- it's not like the Venetian bankers who were, you know, not telling anybody. Everybody knows what's going on. But if you gave people the choice between full reserve banking and fractional banking, they'd take full reserve banking in a minute.

That's a, a revolutionary new banking model, and I assume you, uh, see quite a lot of skeptics when you talk about, uh, that, and particularly among your former banking colleagues, but also from regulators. And I, I would love to understand what are these conversations that you have with your former banking colleagues, and how does it sound from the regulator? Are they looking at this with excitement, or is it something that they're rather cautious about? So the truth of the matter is, some of my former colleagues who, you know, are in this still today, have jobs at, in the banking world, and as you know, I've been involved, was involved in a, heavily in a banking assoc- trade association, um, I don't think they would quarrel for an instant that this is a firmer model.

On the other hand, like some people looking at crypto for the first time, it's alien, it's strange, um, how can this exist? Well, the truth of the matter is it can exist, and it's safer. So I'm not gonna say I don't get the occasional perplexed look from a existing banker. I do when I talk about it, but most of them actually get it. Uh, most of them realize that they're sort of telling a noble lie, you know, uh, in terms of fractional banking. And the deeper you go, the more you realize just how many steps there are in any transaction, whereas when we do something and people are on both sides of the transaction and they trade a dollar, it's, it's like clean protein versus going through six steps, which if you check your typical money transfer as a consumer, we're only B2B, but if you check your, your traditional, you know, money transfer, it's going through a lot of handoffs, a lot of bridges.

And when I hear the word bridge, see I have the opposite reaction when I listen to some TradFi presentation, and we say, "Well, we're gonna take this transaction, and we're gonna move it there, and then we're gonna move it there, and then we're gonna move it there, and then we're gonna move it back to crypto, or we're gonna move it back to dollars." I'm thinking every one of those handoffs there is risk. And so I come from the exact opposite, uh, view. I think what we are doing is revolutionary. It will scare some people in the sense that it's just different.

But if you take five minutes to sit down and figure out what we're doing, we're saying, "You know what? We actually keep all of your money where you think it is, as opposed to in, you know, some loan." And you said you only work with B2B clients. Yep. What's your pitch to B2B clients? Is it your assets are safer? And, and what would you say if someone comes and say, "I'll, I'll just go to JPMorgan. My assets are safe there as well. I don't care whether they lend it out. JPMorgan has been around for very, very long time.

They're probably even secured by the government." I mean, we saw that with Swiss banks as well. They got bailed out. Uh, what would you answer to a person like that? There's no question in my mind that if JPMorgan got in trouble, it would be bailed out, and I, you know, sadly, even as a, you know, uh, you know, one of the many, you know, competitors, I'd be r- I'd be in favor of that because it would destroy the American economy and maybe [chuckles] a good chunk of the world economy. But so I do ask people to think if that's a great idea, that I challenge anybody, you know, maybe other than the senior management at JPMorgan to say what's on their balance sheet.

Um, I don't think anybody really knows. Um, but I do think they would be bailed out. On the other hand, um, we're gonna-- we're cheaper, easier to use, more user-friendly. Not everybody wants to be a client of JPMorgan. I mean, you know, that's the flip side, is there's plenty of people who realize- That, and in the crypto business, I honestly talk to people who are, you know, couldn't get an account at J.P. Morgan if their life depended on it, uh, 'cause they certain wouldn't-- J.P. Morgan wouldn't care. And now in this administration, they are able to get accounts, and they are giddy, but they are under-indexing what could happen January 20th, 2029, when the exact opposite can happen.

So, um, I think that for a crypto client asking J.P. Morgan or us, my view is, I don't know what J.P. Morgan's politics are gonna be in January 2029. Probably they'll be the same as whatever the administration says it should be because of exactly what you're saying. They're so big. They're such a behemoth. They have to be in, um, they have to be in consonance with the government. So when the government hated certain sectors, J.P. Morgan didn't bank them. When the government liked them, J.P. Morgan banked them. If you want to be at a bank that'll be with you for all of the cycles, and where we keep...

We can't say we're J.P. Morgan, but we can say we have less risk than J.P. Morgan because all of our money directly in US government securities, short term, no interest rate risk, no credit risk, no, um, maturity mismatch. I'd say you should probably come to us. And I won't be crying for J.P. Morgan. They make enough money. Yeah. They make enough money for a lot of people. Scott, I also wanna talk a-about the technology behind it and particularly how blockchain plays into that. And previously, you compared this to Figure and explained why this is different.

Can you just, uh, elaborate on that? Like, how does that work technically now with blockchain and digital assets, and how is it different than what Figure did a couple of months ago? We're different. They're not a bank. They are using, uh, tokenized money, essentially a tokenized money market fund. Um, what we're doing is our core operating system is a blockchain. So in terms of transferring money, we're primarily a money transfer bank, so we're not in, we're not investing, we're not offering, you know, on our system, investing in money market funds or second mortgages or the like, 'cause again, we're full reserve.

Our core operating system for the bank is a blockchain, and that means we are fundamentally compatible with the crypto world. So if they want something, if they use us, we look to them a lot, lot... We look to them not a lot like. We look to them like s- as stablecoin. They can transfer. When engineers look at our sandbox, I mean, they're thinking they're working in a, in a crypto stablecoin environment, except they have actual USD. It's not a receipt for a dollar that they're transferring. It's an actual dollar, and that part is also revolutionary in banking.

Speaking of stablecoins a-having actual, an actual dollar, you also launched a stablecoin, right? So we didn't launch a stablecoin. We launched something that, again, I think is on brand with us. We put our dollar on the Ethereum blockchain so that two clients who want to have their transaction disclosed can do so on the blockchain, visible, but they both have to have NFTs, so they both can only transact with each other at this point. They can't transact with you as a client 'cause you're an individual, but among themselves they can transact, and there's tremendous use case with that.

For example, we've just had, and I don't know when this will broadcast, but not that long ago was First Brands, where they were buying from multiple players and telling everybody that they were making payments. Well, if you said if you were the la-lender and said, "You know, you've gotta show your payments on a public chain," that kind of fraud is not possible. So what we're enabling is the move of a block of USD, again, we're not pegged to anything. It is USD, moving between clients so people can actually see it. If you wanna be inside the bank in our private permission blockchain, great.

We're happy. But some people will wanna be on the Ethereum chain, and by the way, we will add other chains as well. One of the big topics I think i-in the next two or three years is DeFi and, and how DeFi will start plugging into some of these more traditional rails and tokenized assets becoming compatible with, with some of these DeFi markets. How does your system plug into DeFi or plug now? You said it's, it's, you can also connect it to Ethereum. How does that all play together? That's a very complicated question, a highly regulatory question.

I mean, I will say it'll depend on the DeFi because, you know, if you're making a pure money transfer, there's travel rules and there's allow lists and green lists and red lists. So that's almost, I would say, a full podcast in itself 'cause it's devilishly complex to, to, to actually move from, to total DeFi within a banking environment, but that's not to say we're not on it. Without going into the details, is this something that you're excited about, or are you more excited in kind of the fundamental revamp of how money is stored and how it actually moves between different parties?

Yeah. I'm really fundamentally excited about that because I think DeFi will always have a particular place, but I think the bulk of the financial system will be in an environment that's KYC, AMLed. Right now we're also seeing, uh, different philosophies of big banks and institutions entering crypto, digital assets. Some of them are tokenizing money market funds. Some of them are building stablecoins pegged to the US dollars. Uh, some of them are working with deposits. Where do you see the stablecoin race going from a technology perspective? I- look, I'm in favor of, uh, as many stablecoins as are economic.

But I do think that, um, if you are Costco and you're issuing a stablecoin, or you're Walmart and you're issuing a stablecoin, and you are Amazon and you're issuing a stablecoin, and I could on and on, and I'm a supplier, and I'm supplying all of you, so now I end up with three or 15 stablecoins. Ultimately, I need to get back to USD, and that's where I think our role is- Mm-hmm ... is to be a common carrier, um, because you can't send Amazon Costco coin because they can't create a reserve from that. There's a lot of minting and burning.

This, again, goes down to being a banking nerd, sort of, and my... you know, that I am. But there's a lot of minting and burning that has to go on, and I think that's why there will be a limited number of stablecoins. Mm-hmm. Now, uh, looking forward 12 months, 24 months, what are your key milestones now with N3xt, and what are you personally looking forward to? So I am looking forward to having N3xt become a common denominator for USD transactions, where native... I think we're just gonna... Once the flywheel is really going, I think it's just a superior product.

And I think that we also, now going to the 12, 24 months, we're really beginning and talking to people in shipping and logistics because if I ship something to you, it works just like, frankly, um, crypto. I wanna know that you got your shipment of iPhones or pens or whatever. I sent it to you. Mark, you checked it. You got it. Somebody else checks that, um, this is what you ordered, and this, and these, and it's good. And then the money and the deposits we're sitting in Paris, the money and deposits can change hands whether it's 3:00 AM either in Paris or Perth, right?

It's- It's not banking hours in one of the two, and the money and the bill of lading and the certificate of origin and everything can transfer whenever because the money's really there. It's not a debit or credit. It doesn't need Swift. It doesn't need some meandering bank system. It's great to have you on the show. Before we end, we usually do a quick lightning round. Those are short questions with very short answers. Yep. Uh, the first one is stablecoins or tokenized deposits when institutional payments by 2030, which one is it? I'm a true believer in tokenized deposits.

Yeah. Bitcoin, store of value or payment rail or none of these? It's, uh, digital gold. The most overrated idea in crypto banking right now. I'm gonna be very, uh, but AI is gonna make payments for individuals. Mm-hmm. Uh, you as a banking veteran, what is one of the misconceptions crypto people have about banks? This is a little longer, but I think they trust the banks too much, the existing banks. I think when they... If they get a JPMorgan account, they are giddy, and they're not thinking, "Well, you know, in three years or less, there could...

Two and a half years, there's gonna be another sheriff in town." Then last one, Scott. I know you're also an author- Yes ... and that's why this question is fitting. One book or idea that shaped how you see the world with nothing to do with banking. I would say the Bible. The Bible is a book of tests. Whether you're a believer, you're not a believer, all of the characters in the Bible face tests, and the question is: Do they succeed? Do they meet the test, or do they disappoint? And I think life is a test, and believe me, there have been times that I felt it.

A lot of people are, are saying, you know, Bitcoin, crypto, that's almost like a religion. Yeah. And sometimes it is, at least for some of the people. What is it for you? Is it a religion? Is it a technology? Is it all of it? It's not a religion. Um, it's a tool. I mean, I don't have an idea for something better than Bitcoin or blockchain, but if it came around and it was a better tool, great. I'm no- I'm agnostic- Mm-hmm ... if you will. [laughs] You mentioned at the very beginning that you were very early in looking at blockchain when you were at Signature.

Why did you do that? Why weren't you threatened by this technology a- and thought, "This is gonna destroy our business model"? Why did you see this as an opportunity back then? You know, I'm a big believer that you have to keep learning every day. I've learned here at this conference, and if you don't, if... The banks wanna stop learning. Yeah. They wanna... They love the world that they've got, and at least the big banks love the world they've got. I didn't ever feel that way. Scott, I'm looking forward to follow your journey a- and what you do next with N3xt.

Now, where can people learn more about you, about N3xt? They can go to N3xt.io. They can check us out on X at, um, N3xt.inc. All right, great to have you. Thanks for tuning in, and all the best. Thank you. It's just always a pleasure. You obviously like this video enough that you got to the end. Listen, do me a favor. Hit that like and subscribe button because I think you'll like it. And if you want even more, with more, I mean incredible alpha, research, and digital asset market updates, subscribe to our newsletter on 51, that's the number 5-1, insights.xyz and get the most actionable insights on digital assets.

See you next time. [outro music]