Mike Colyer joined Foundry as its founding CEO in October 2019. In this discussion we touch on how Foundry is navigating this crypto winter and the particularly challenging environment it presents for bitcoin miners. Colyer also shares thoughts on what it’s like to be a portfolio company of the Digital Currency Group and how Foundry does business with other subsidiaries like Genesis Trading and Grayscale. He also shares some key predictions for 2023.
Forbes: Can you explain Foundry’s lines of business?
Mike Colyer: At Foundry, we are focused on empowering decentralized infrastructure. Half of our business is focused on proof of work. The other half is focused on stock validation. On the proof-of-work side, we offer all kinds of services for miners. Our goal is to grow the North American mining ecosystem, and we support miners by providing services such as FoundryX, which is a marketplace for buying and selling machinery, logistics services, placement services, and an academy. We now have miner management software and run the largest pool in the world, which is the Foundry USA pool. The rest of our original business was equipment financing. We were one of the largest equipment financiers in the market in late 2020 and early 2021. We also offer stock services for 20 plus protocols. We are really focused ether (ETH) right now Both of our businesses are really geared towards institutional class customers. We do not have any retail focus. We’re really working with large publicly traded mining companies, and then on the equity side, we’re focused on providing equity services to institutional equity clients.
Forbes: What is it like to be a portfolio company within Digital Currency Group?
Necklace: Foundry is a wholly owned subsidiary of Digital Currency Group (DCG). About three years ago, Barry Silbert, the founder and CEO of DCG, decided that institutional money was going to pour into bitcoin mining, and he really wanted to create a company that could help those institutional investors navigate the space of mining. I started in late 2019, and in the past three years, we’ve grown Foundry from a white sheet to 170 employees focused on helping build the mining ecosystem. Being part of DCG has been great in the sense that Silbert allows us to think long-term, in terms of decades, and not really worry about month-to-month, quarter-to-quarter results. It also helps us understand how we can leverage the DCG brand, its balance sheet and its portfolio companies to bring value to the decentralized infrastructure space. We are sort of the technical arm of the DCG ecosystem. We have a lot of engineers, we have a lot of people who are very passionate about decentralized infrastructure, and it’s been great to be part of the DCG ecosystem.
Forbes: Can you talk a little more about how you interact or do business with some of the other DCG portfolio companies?
Necklace: When we were first starting Foundry, we worked very closely with Genesis. They were able to provide capital to start our equipment financing business. We have no exposure today to the Genesis lending business. In our equipment financing business, we will end the year with less than $3 million in loans remaining on our books. We stopped lending to miners about a year ago; we just felt like it was getting dangerous and started to shut down that part of our business. We have also worked very closely with Greyscale to build the Grayscale Digital Infrastructure Opportunity, LLC, which is a vehicle to help institutional investors invest in the mining ecosystem. We are entering a new phase of the mining cycle. Mining goes on a four-year cycle and we are now entering a phase where there are a lot of distressed assets or distressed miners and there are opportunities to re-enter the space. We’ve been working hard with Greyscale to build a product to help people navigate the ecosystem. Genesis has a very strong trading and derivatives desk and we use their services to liquidate the bitcoins we are mining.
Forbes: Can you give an example or two of how the logistics supply chain finance business works?
Necklace: Most of the devices are manufactured in Southeast Asia by Bitmain and MicroBT and there is usually a six to nine month delay between when you have to put down your deposit and when the machines actually ship. In our equipment financing business, we had asked customers to put 20% down, we would provide 80% financing, and we placed orders for those machines. We had pretty aggressive loan terms, a 12- to 18-month payback period, and a high-teens interest rate. Logistics is a big deal in terms of getting equipment in and out of the United States. So we built a logistics business to help miners, who a lot of times don’t have really big teams.
Forbes: Let’s go back to crypto winter. How is Foundry approaching this difficult mining environment?
Necklace: We’re in crypto winter and miners are struggling, especially those who took off a lot of leverage. Our goal is to continue to support the mining ecosystem. We are participating in various bankruptcies, trying to keep the projects alive, to keep moving them forward. We just completed the bankruptcy process of Compute North, which is a great team that has over leveraged. They had some great sites and projects that we want to keep moving, including a miner management software suite for enterprise-scale mining. We were able to hire that team and we want to be able to bring that software to the rest of the industry. There are also many people on the sidelines who are interested in investing in these distressed assets and just don’t know how to navigate the space. People say it’s crypto winter, but there are some very large, mainstream investors looking to invest in this ecosystem.
Forbes: What are your thoughts on some of the regulatory hurdles facing bitcoin mining in particular?
Necklace: Obviously, we were very disappointed with Governor Kathy Hochul for signing the New York moratorium bill. We think it’s bad legislation, a bad signal to send and a bad direction to go in. The reality is that we find that people do not understand what we are doing and why we are doing it. But once they do, they light up. Hopefully by putting a lot of effort into educating policy makers, they can write better legislation and create better policies to support the industry, as opposed to fearing it and trying to drive it away. Bitcoin mining is an innovation in itself for our electricity grid. We are working with some of the largest energy providers in the country. They’ve been running a lot of experiments, a lot of pilot programs over the last couple of years. Bitcoin mining is a large controllable load. And our power grid should be stabilized 100% of the time. Bitcoin mining provides that controllable load stability in the network. As we add more and more renewable energy sources, you need to balance it with controllable loads. I don’t want to turn off the lights, air conditioning or heating, just to check the mains. I’d rather have bitcoin miners turn their machines on and off. What we’re finding is that it’s probably one of the biggest innovations to hit the grid in a long time, and energy companies are getting very excited about it. I just think that long term it will be part of our core infrastructure as a nation. Batteries do the same thing, but you can’t scale batteries today. I think bitcoin mining will be that bridge to take us to the renewable energy future. It’s super exciting and as people start to understand it becomes less scary for them.
Forbes: Any predictions for 2023?
Necklace: I think 2023 will be a long and difficult year for bitcoin miners and we are here to support them through our mining services. As for stocks, I think eth staking will dominate the headlines until 2023. We are long bulls on the space. We’ve been through many crypto winters in the past. So this is a good time to put your head down and keep building.
Forbes: Thank you.
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