Meet The MBA Student Hoping to Use Cryptocurrency to Benefit Mortgage Lenders

 When Eilon Shalev applied to business school, funding was his biggest concern, like many prospective students. He considered applying for a loan from a US bank but without an US credit score as an Israeli, he faced sky-high interest rates. The conundrum led him to establish a blockchain startup he hopes will shake-up another lending market: mortgages.

His venture, elphi, is streamlining the life-cycle of mortgages from origination to securitization, powered by a blockchain built by R3 — a consortium of financial firms including Credit Suisse.

Blockchain is the digital ledger technology that underpins bitcoin and other cryptocurrencies that’s mooted to transform vast swathes of finance and other industries.

Shalev’s trouble securing a student loan for his MBA at MIT Sloan School of Management was the inspiration for an earlier version of elphi, focused on student loans. He planned to use a blockchain to lower service charge costs, which he says make up a portion of the interest rates banks charge, ultimately lowering the cost of borrowing for students.

The winning formula

Shalev says, “With blockchain the efficiency of transferring money from different countries would be more effective than the way banks do it.” But the regulation involved proved too high a hurdle, so he decided to focus on mortgages instead, a market he says is 10-20 times larger than student loans.

It was through failure Shalev first came to appreciate entrepreneurship and pursue an MBA. He wrote a novel about “the mysteries between young men and women” aimed at college students. It was turned down by 12 publishers. Two and a half years later, the thirteenth he approached agreed to print the book, but Shalev had to finance it himself.

So, he turned to crowdfunding, where entrepreneurs post their projects online asking investors — retail and some institutional — to pledge typically small amounts to their cause. Shalev banked US$8,000 through Headstart, an Israeli crowdfunding site.

He says, “The whole process — taking something from inception to completion — I needed a lot of perseverance and belief in myself.

“I realized these are the characteristics relevant to entrepreneurs —facing many failures and challenges and seeing them not as failures but as opportunities to learn.”

The eureka moment

He came to Sloan without a business idea, but his passion for cryptocurrencies was ignited with an email from the b-school promoting  a crypto class the summer before starting his MBA.

“One article was about blockchain”, he says. “It was written by Christian Catalini, a blockchain guru at MIT. It was super interesting. On my first day at MIT, I pursued blockchain events and classes.”

Shalev hit on the idea for using a blockchain to reduce student loan costs at a weekly blockchain luncheon organised by MIT professor Simon Johnson. There he received feedback to pivot his idea to mortgages.

He says, “30-40 people come from across MIT. It could be a professor who was a high-ranking officer at the SEC, or a 19-year old-undergrad studying computer science. Either there’s a guest speaker or topic or both, and we discuss challenges or opportunities in the blockchain space.”

Groups working together

In another class as part of Sloan’s Entrepreneurship Lab (E-LAB), he was paired with teams of students to work for R3, whose DLT Corda platform powers elphi. Other recent ventures from the lab are focused on blockchain or cryptocurrencies, artificial intelligence and machine learning.

He also worked with students on his own startup idea in the New Enterprises class led by MIT professor Bill Aulet.

“Working with them [R3] gave us some tools of how to approach problems that startups are facing,” he adds. “They also helped us define the scope of our idea. Once it’s all aligned on a clear, unambiguous mission and goal on what we want to achieve, it makes a lot more sense.”

Best of the best

While some entrepreneurs question the value of a business school education, Shalev is a big advocate. He points out the risk is lower at school because you’re sacrificing a salary anyway — when the paycheques will be smaller than post-MBA. Whereas, alumni of MBAs typically boost salaries and earn over US$100,000.

In addition, he says the networking aspect of an MBA can be crucial for startup success. One of the degree’s key selling points is you mix with high-fliers from across industries, companies and cultures.

He adds, “the whole iteration of my project was through MIT; through the network. I spoke with endless professors about their expertise and how it can help me to better build my idea. They answered my emails nearly instantly. They’re honest people from the [crypto] industry.”

He cites the example of being introduced to the CEO of a lending company who provided advice about keeping a lid on the operating costs involved in his current entrepreneurial venture.

“I also spoke with a board member of a bank, ran the numbers by him and got his perspective on whether I could make it work,” Shalev says. “I got all of these conversations through the MIT community.”

He now plans to raise funding for elphi, between US$5-10 million, to get the project off the ground when he graduates from Sloan, in 2019.

Even though he’s not solved the sky-high student loans issue for MBAs, he wants to leave a crypto legacy on lending nonetheless.

“I want to use my MBA and blockchain to bring efficiency to the mortgage market and leave my impact on the operating costs of the lending industry.”