Executive Summary / Key Takeaways

• Capital-Light Transformation in Real-Time: Figure Technology Solutions is executing a rare successful pivot from balance-sheet lender to blockchain-powered marketplace, with partner-originated volume reaching 76% of total originations and Figure Connect comprising 46% of Q3 2025 volume, driving adjusted EBITDA margins to 55% while the legacy mortgage industry struggles at 20% margins.

• Regulatory Moat Meets First-Mover Advantage: As the first company to achieve AAA-rated blockchain securitization, register an interest-bearing stablecoin with the SEC, and prepare to launch blockchain-native equity, Figure has built a regulatory fortress that traditional fintechs cannot easily replicate, with 180+ lending licenses and 48 money transmitter licenses creating tangible barriers to entry.

• Economics That Defy Traditional Lending: Figure's proprietary Loan Origination System funds HELOCs in a median 10 days versus the industry's 42 days, at an average cost of $730 per loan versus the mortgage industry's $11,230, translating to 85 basis points of cost savings in securitization and loss rates below 1% versus the rating agencies' 6% assumption.

• Valuation Premium Reflects Scarcity Value: Trading at $39 per share (22x sales, 144x P/E), Figure commands a significant premium to fintech peers, but its 55% EBITDA margin and 70% volume growth demonstrate software economics applied to financial services, justifying the multiple if execution continues.

• Critical Execution Risks Concentrated in Three Areas: The thesis depends on maintaining sub-1% credit losses while scaling partner volume to 60%, navigating regulatory uncertainty in digital assets, and converting blockchain infrastructure leadership into sustained marketplace revenue growth beyond the current 99% HELOC concentration.

Setting the Scene: Rebuilding Capital Markets on Blockchain Rails

Founded in 2018 and headquartered in San Francisco, Figure Technology Solutions began as a direct-to-consumer home equity lender but quickly recognized that blockchain's immutable ledger could solve deeper capital markets inefficiencies. While traditional fintechs digitized existing processes, Figure built Provenance Blockchain from the ground up, creating a parallel financial infrastructure where loans become tokenized assets, ownership transfers settle in real-time, and intermediaries are disintermediated through code rather than regulation.

The company operates at the intersection of three massive markets: the $2 trillion consumer credit market, the $4 trillion cryptocurrency ecosystem, and the emerging $16 trillion asset tokenization opportunity. Figure isn't competing for incremental improvements in lending efficiency—it's attempting to capture a structural shift in how financial assets are created, financed, and traded. The traditional mortgage industry processes loans through fragmented systems like MERS, manual assignments, and multiple intermediaries, each adding cost and opacity. Figure's blockchain registry eliminates these frictions, creating a data-transparent marketplace where buyers and sellers connect directly.

Competitively, Figure occupies a unique niche. SoFi Technologies (SOFI) and Rocket Companies (RKT) dominate digital lending but lack blockchain infrastructure. Upstart Holdings (UPST) uses AI for underwriting speed but operates within traditional capital markets. LendingClub Corporation (LC) runs a marketplace but without blockchain's settlement advantages. Figure's moat lies in its integrated stack: the Loan Origination System creates standardized assets, DART registers them immutably, Figure Connect facilitates trading, and the digital asset marketplace provides liquidity. This vertical integration means competitors would need to replicate not just one product but an entire ecosystem.

Technology, Products, and Strategic Differentiation

Provenance Blockchain: The Foundational Moat

Provenance Blockchain isn't a marketing layer—it's the system of record for 85% of loans originated through Figure's platform, up from 2% in 2024. Blockchain's immutability eliminates the need for third-party document review in securitization, saving approximately 85 basis points per transaction. For a company that facilitated $6.04 billion in ecosystem volume over nine months, these savings compound into a structural cost advantage that traditional lenders cannot match without rebuilding their tech stacks from scratch.

The blockchain architecture enables three foundational elements that management emphasizes: transactional efficiency, liquidity, and lending. Transactional efficiency manifests in the LOS's ability to reduce funding time from 42 days to 10 days while cutting production costs by 94%. Liquidity emerges through Figure Connect, which transformed from zero volume at launch in June 2024 to $1.1 billion in Q3 2025, representing 46% of consumer loan marketplace volume. Lending innovation appears in products like first-lien HELOCs, where volumes nearly tripled year-over-year because Figure's $1,000 origination cost undercuts the industry's $12,000 average.

Figure Connect: The Marketplace Flywheel

Figure Connect's growth from $0.20 million in 2024 revenue to $91 million in nine-month 2025 revenue demonstrates network effects in action. The platform added seven new securitization buyers in Q3, including a sovereign wealth fund, while onboarding partners ranging from two-week implementations to year-long enterprise sales cycles. Marketplace revenue carries higher margins and lower capital requirements than balance-sheet lending. As CFO Macrina Kgil noted, reaching 60% of total volume is "quite doable" in the near term, which would fundamentally shift Figure's economics toward capital-light fee generation.

The platform's value proposition extends beyond speed. By creating standardized, blockchain-verified loan data, Connect solves the information asymmetry that plagues traditional loan sales. Buyers can trust asset attributes without costly due diligence, while sellers gain faster execution and better pricing. This transparency becomes self-reinforcing: more participants increase liquidity, which attracts more participants, creating the "always-on data transparent and institutionally funded marketplace" that CEO Michael Tannenbaum describes.

Digital Asset Ecosystem: YLDS and Democratized Prime

The YLDS stablecoin, approaching $100 million in circulation by November 2025 from $4 million in Q2, represents a regulated alternative to non-yielding stablecoins. Its SEC registration supports institutional investors who require compliance, and the yielding nature (paying SOFR minus 35 basis points) creates demand for collateral in Figure Exchange and Democratized Prime. Partnerships with Solana and Sui extend YLDS into active developer communities, potentially accelerating adoption beyond Provenance's native ecosystem.

Democratized Prime, with $21.4 million in assets and weighted average rates of 9% in Q3, operates as a decentralized prime brokerage where borrowers can cross-collateralize tokenized loans, crypto, and eventually blockchain-native equity. It offers financing rates below wholesale capital markets while generating 50 basis points in fees for Figure without balance sheet risk. As Michael Cagney emphasized, this is "the most scalable platform" because it leverages blockchain's DeFi constructs to create leverage opportunities traditional prime brokerage cannot service.

Upcoming Blockchain-Native Equity

The confidential S-1 filing for blockchain-native equity represents a watershed moment. Unlike peers tokenizing DTCC securities for 24/7 trading, Figure is issuing equity that exists entirely on-chain from inception. It enables native cross-collateralization with other tokenized assets, creating entirely new capital market structures. As Cagney stated, this is "more fundamental" than representation—it's about building "an entirely new capital market ecosystem" that could define asset financing for decades.

Financial Performance & Segment Dynamics

Profitability Inflection and Margin Expansion

Figure's financial results validate the strategic pivot. Nine-month 2025 net income of $119 million compares to $14 million in the prior year period, while adjusted EBITDA reached $170 million at a 55% margin, up 10 percentage points year-over-year. Q3 alone generated nearly $90 million in net income, more than tripling the prior year's quarter. The marketplace model isn't just growing—it's scaling profitably.

The margin expansion stems from two drivers. First, variable expenses declined from 36% to 28% of adjusted net revenue year-over-year, reflecting efficiency gains as more activity shifts to Figure Connect. Second, fixed costs in technology and G&A remained stable relative to revenue growth, showing operating leverage. With a long-term target of 60%+ EBITDA margins, management signals confidence that this trajectory continues as capital-light revenue streams grow faster than balance-sheet-intensive lending.

Revenue Mix Shift and Capital Efficiency

The composition of revenue reveals the transformation's depth. For nine-month 2025, 74% of net revenue came from LOS-driven sources (origination fees, gain on sale, servicing, interest income), down from 82% in 2024, while Figure Connect and digital asset products grew faster. The marketplace is becoming material to results, not just a side initiative. Partner-branded volume reached $4.32 billion, representing 76% of originations and growing at a 74% CAGR over five years, indicating the platform's appeal to third-party lenders.

The balance sheet reflects this capital-light pivot. Post-IPO cash of $1.2 billion provides strategic flexibility, while $1.4 billion in warehouse capacity remains available but increasingly unused as partners fund their own originations. The Fig SIX Mortgage joint venture with Sixth Street Partners, capitalized at $210.5 million with 95% partner equity, demonstrates how Figure can facilitate volume without deploying its own capital. As of September 30, Figure had contributed only $2.5 million, yet the vehicle supports Connect liquidity.

Credit Quality and Securitization Economics

Figure's sub-1% loss rate on originated loans, well below rating agencies' 6% assumptions, validates the LOS's underwriting accuracy, supporting premium pricing in securitization markets. It also enables the 85 basis points cost savings in securitization, as investors require less credit enhancement for transparent, low-loss assets. This creates a virtuous cycle: better data leads to better underwriting, which leads to lower funding costs, which enables more competitive loan pricing and market share gains.

Outlook, Management Guidance, and Execution Risk

Ambitious but Achievable Targets

Management's guidance reveals confidence rooted in observable trends. The 60% EBITDA margin target assumes continued mix shift toward Connect and digital assets, where incremental margins approach 100%. The 60% Figure Connect volume target, described as "quite doable," implies nearly $4 billion quarterly volume at current scale—achievable if the seven new Q3 buyers and expanding partner network maintain momentum.

Seasonal headwinds in Q4 and Q1 are acknowledged but framed as manageable. Home equity lending naturally moderates during holidays and winter months, but Figure's diversified partner base and capital-light model reduce dependence on any single origination channel. Management's realism about cyclicality highlights structural improvements that smooth volatility.

YLDS and Democratized Prime Acceleration

The YLDS stablecoin balance approaching $100 million by November, up from $4 million in Q2, signals institutional adoption. Management expects "significant acceleration" from Solana and Sui partnerships, which bring YLDS into ecosystems with active developer communities seeking regulated fiat on/off ramps. YLDS adoption drives usage of Figure Exchange and Democratized Prime, creating cross-product network effects.

Democratized Prime's prevailing rates of 1% to 30% (weighted average 9%) in Q3 demonstrate market-based pricing that undercuts traditional warehouse financing. As Michael Cagney noted, the platform benefits from "liability flight from banks to stablecoin," positioning it to capture demand deposits that could migrate to stablecoins. The 50 basis point fee structure generates pure margin without credit risk, making it highly scalable if asset volumes grow.

Blockchain-Native Equity as Strategic Catalyst

The upcoming blockchain-native equity offering, described as "more fundamental" than tokenizing DTCC securities, represents a strategic inflection point. By creating equity that exists natively on-chain, Figure enables cross-collateralization with loans, crypto, and other tokenized assets, unlocking leverage strategies impossible in traditional markets. It extends Figure's moat beyond lending into corporate finance, potentially capturing fees from equity issuance, trading, and collateralization in a $100 billion+ market capitalization opportunity.

Risks and Asymmetries

Concentration Risk in HELOCs

The fact that 99% of originations remain HELOCs creates vulnerability to housing market cycles and interest rate fluctuations. While loss rates are currently exceptional, a severe housing downturn could stress performance. This concentrates the company's fate in one product category, despite efforts to diversify into SMB loans, crypto-backed loans, and DSCR products (which contributed $80 million in Q3 volume). The asymmetry here is that if Figure successfully diversifies, the growth runway extends dramatically; if not, cyclicality remains a fundamental risk.

Regulatory Uncertainty in Digital Assets

The SEC registration of YLDS and blockchain-native equity, while currently advantageous, exposes Figure to shifting regulatory sands. As the 10-Q notes, "if the regulatory framework with respect to digital assets changes, we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties." Much of Figure's differentiation relies on being first through regulatory doors. A crackdown on stablecoins or tokenized securities could invalidate the business model's core premise.

Blockchain Adoption and Competitive Response

The risk that traditional capital markets adopt blockchain more slowly than expected, or that competitors like SoFi or Rocket develop comparable infrastructure, threatens Figure's first-mover advantage. The 10-Q explicitly warns that "if these markets do not continue to accept our blockchain-supported platform, our business could be adversely affected." Figure's valuation premium assumes blockchain becomes the dominant infrastructure, not a niche alternative. The asymmetry is that if adoption accelerates, Figure's integrated stack becomes invaluable; if it stalls, the company becomes an over-engineered lender.

Scale and Execution Challenges

Figure's $8.35 billion market cap and $347 million nine-month revenue reflect early-stage scale compared to SoFi's $33.5 billion market cap or Rocket's $53.6 billion. Smaller scale limits bargaining power with investors, partners, and regulators. The execution risk lies in scaling the partner network from 246 active partners to thousands while maintaining the "Palantirian" quality standards that drive sub-1% loss rates. If growth strains the platform's integrity, the flywheel reverses.

Valuation Context

At $39 per share, Figure trades at 22 times sales and 144 times trailing earnings, reflecting a significant premium to fintech peers. SoFi trades at 10x sales with 29% EBITDA margins, Upstart at 4.7x sales with 11% operating margins, LendingClub at 2.4x sales with 16% operating margins, and Rocket at 9.8x sales with 2.6% operating margins. The valuation gap must be justified by sustainable competitive advantages and superior growth.

Figure's 55% EBITDA margin and 70% volume growth support the premium, but the absolute multiples require flawless execution. The enterprise value of $8.06 billion represents 21x revenue, implying the market expects years of 40%+ growth. The balance sheet provides cushion: $1.2 billion in cash against no debt, and a current ratio of 2.26 indicates strong liquidity. However, negative operating cash flow of $136 million TTM suggests working capital absorption from rapid growth, a risk if volume plateaus.

The valuation's key driver is whether Figure can transition from lending economics to marketplace economics. If Figure Connect reaches 60% of volume and digital assets scale, revenue quality improves and multiples could expand. If the company remains a HELOC lender with blockchain features, the multiple compresses to peer levels. The asymmetry is stark: success justifies a premium to software multiples, while failure warrants a discount to fintech multiples.

Conclusion

Figure Technology Solutions represents a rare attempt to rebuild capital markets infrastructure from first principles, using blockchain to eliminate intermediaries, reduce costs, and create transparency. The company's pivot from balance-sheet lender to capital-light marketplace is demonstrably working: 76% partner originations, 55% EBITDA margins, and 85% blockchain adoption prove the model's viability. The regulatory moat—SEC-registered stablecoin, first blockchain-native equity, 180+ licenses—creates barriers that competitors cannot quickly replicate.

The investment thesis hinges on execution velocity in three areas: scaling Figure Connect to 60% of volume, accelerating YLDS adoption through Solana and Sui partnerships, and successfully launching blockchain-native equity to unlock cross-collateralization. If management delivers, Figure captures a meaningful share of the $16 trillion asset tokenization opportunity and justifies its premium valuation. If execution falters, concentration risk in HELOCs, regulatory uncertainty, and scale disadvantages could compress multiples dramatically.

For investors, the critical variables to monitor are partner volume growth rates, YLDS circulation figures, and credit loss trends. The story is attractive because blockchain infrastructure creates winner-take-most dynamics in financial services, but it's fragile because the transformation remains incomplete. Figure has built the rails; now it must prove that trains run profitably at scale.