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The Fall of #FTX: Implications for the Future of #Web3 🎙
Recorded: Nov. 16, 2022 Duration: 1:37:12Space Recording
Full Transcription
All right.
Hey there, Noah.
I'm just getting things settled here.
I've sent you a co-host invite.
Let me know if you got it.
Yeah, I got you, man.
I got Joe.
I got Joe up.
We're open a bit early, so people are going to join in as usual.
Hey, Joe.
How are you doing?
Oh, man.
Good.
Busy as hell.
A lot going on with the exchange this week.
I was going to say, not a great week to be the CEO of a major centralized exchange.
It's actually not that bad.
You know, we never leveraged our assets.
We never, you know, we always kept them on the balance sheet as a zero cost basis.
And finance protects all our funds.
So it's not really that bad at all.
Business as usual.
But we'll talk about that.
Good to hear.
And yeah, I was going to say we'll talk about it.
I'm just finishing up breakfast, and we're going to get started here in like four minutes.
Sounds good.
Yeah, we just open it up early, making sure everybody can speak, making sure everybody's
on their mobile and getting everything set up.
Good to hear.
Here we go.
Welcome, Nima.
We've opened it up early just to get everything settled here.
Getting everyone on.
It's going to be a really cool panel today.
Got 10 speakers coming up.
I'm pretty excited.
Oh, here we go.
I think we got Dan here.
Let me send him an invite.
I'm going to be a little bit.
I'm going to be a little bit.
I'm going to be a little bit.
I'll be a little bit.
I'm going to be a little bit.
All right, just waiting for everyone to join in and then we'll get started.
I've set up the recording, so we'll upload the recording on our YouTube as well for this.
So far, Clear Spaces only saves the recordings, I think, for 30 days or 60 days, something like this.
So we've got to conserve everything for austerity.
Yeah, I like the way that we do it better.
I think that having the YouTube recording is great because if people like it, they can clip certain parts,
they can upload it to Twitter, TikTok, and any other social media application.
And we're at the top of the hour, but we do have a number of panelists that are not here yet.
We have Joe, Dan, and Nima.
We're going to wait, I'd say, a few more minutes just to get people time.
Then we've got Michael.
Oh, I think people have the reminder set at 11, so they typically trickle in at 11.
Andrew's here.
How are you this week, dude?
You were suffering with a cold or something last week.
Oh, man, I'm still – so the fever is gone, thankfully.
I had a fever all last week, but the cough and I guess the fallout is still there.
But I'm feeling a lot better physically.
Thank you for asking.
That's here.
It's on its way out.
Nightmare.
Yeah, it is.
I might be coughing a few times if I go on long-winded rants,
but I'm going to leave the long-winded rants to the panel for the most part,
or I'm going to try at least.
Good morning.
Good afternoon.
All right, cool.
I'll go and get my mask just in case, though.
Okay.
Jess, welcome, Jess.
Ajit, welcome.
Okay, let's see.
Why did that other speaker whose name I didn't catch,
why is he going and getting his Meta mask?
Just kidding, kidding, kidding, kidding.
I like it.
You almost had me there, honestly.
Hey, guys, so we typically start at the top of the hour.
I want to – some people might be late.
They might be finishing lunch, breakfast, dinner, wherever they are.
So I want to give it like one or two more minutes before we get started.
And at the very end, this is the first time we're doing this.
If anyone's – I know people have busy lives.
Feel free to leave whenever you need to.
But at the very end, around about an hour and a half,
I'm bringing on a project that's going to do a 10-minute pitch.
And if anyone wants to – I'm going to be critiquing them
for about a couple minutes.
If anyone else wants to stick around and critique them,
we're trying something new and seeing how it works.
So you're welcome to do that as well.
But we'll be doing that at the end of the talk.
Yeah, I think we can give it one or two more minutes here, Noah,
and wait for people to come on in.
Yeah.
A lot of exciting people on the panel today.
I'm glad you managed to bring all these nice people together.
I know the situation is not, you know, super happy.
But I think some people are still optimistic for the space and moving forward.
So I'm really curious to hear what some of these guys have to say.
I know we already spoke to some of them.
Some of them were familiar with their views,
and we may align on some.
We may differ on others.
But it's always good to have these conversations going.
We've seen a lot of activity in these past two weeks with spaces,
especially Elon jump on one.
We've seen SCZ do one.
And it's an exciting place.
Everybody wants to kind of speak up and say their piece or, I don't know,
present their vision or their better view of what's to come
or who should be to blame or all this and that.
So there are a bunch of cool conversations going on.
So we like to take part as well.
And, of course, yeah, the fall of FTX, it's not pretty.
We're still getting, like, a lot of news coming out,
a lot of this and that.
And, yeah, nothing really clear on where those billions have gone
and what's happened and if these people are ever going to see any,
I don't know, compensation or anything like that.
But on the other side, there's people saying, well,
it's a good thing that it's happening now and not when they're managing,
you know, 10 times what they were managing now and all these conversations.
So it's really interesting to follow, you know, everything and everyone's views
and to see who has been affected, what they think,
and from the people that haven't been affected as much, their view of it.
And, yeah, I think this is what Noah had planned for today, you know,
bring as many different people as possible and see where they stand
on the fall of FTX and, yeah, future of Web3 sexes
and everything going into the next year.
So, no, I believe we have a bunch of people brought up,
so I'll pass it on to you and get it started.
Yeah.
I got the recording.
Yeah, no, for sure.
And honestly, we have a few people we're waiting on,
but we have enough to start here.
I think this is perfect.
And as Acti said, I don't want to focus much on the details of FTX's implosion.
I don't, I think there are, there's plenty of that happening on Twitter right now.
And I wanted to more look forward.
One, I mean, if you want to revert back to certain points of the,
and details of the FTX fiasco and tie them into why you believe so-and-so is going to happen,
I completely understand.
But I don't want to go down FTX rabbit holes.
I just, I'm happy to do that on another space.
But, I mean, I personally am kind of surprised to see how well top crypto assets are holding up,
given the fact that the second largest crypto exchange in the world just imploded.
And as Acti said, I think rather than yell at, scream at each other during these bad times,
I think we need to have more conversations like this,
which is why I brought everyone together or tried to bring as many people as I could together
to get this going.
But I'm really curious to know, and I'm going to pass the mic on to the panel for most of this
and going to facilitate, but I'm curious to know people's opinions on what this means
for the future of DeFi, what this means for the future of centralized exchanges,
because whether you like them or not, we need centralized exchanges.
They offer a number of high-level utilities, but fiat to crypto gateways are very important.
And, you know, what does this mean for NFTs?
What does this mean for the entire industry?
How are institutions going to scrutinize the space after the FTX blowout?
Like, what about retail investors who, you know, saw FTX as this crypto white knight,
saw the Super Bowl commercial, saw Matt Damon, or was it Matt Damon doing crypto.com?
Excuse me, I might be mistaken there.
But basically, saw these celebrity endorsements, Tom Brady, excuse me,
saw these celebrity endorsements and was like, well, I'm going to invest my money in FTX.
I'm going to hold my assets in FTX.
And now they, some of them lost everything, right?
I lost my money again.
Crypto's a scam.
I'm walking away, right?
So what's going to happen as a result of the fallout?
I mean, I personally believe that we're going to see a bit more pain.
But at the end of the day, this needed to happen.
This shakeout was necessary.
We needed to flush out all this, you know, crap, for lack of a better term.
And I see hands up.
So I'm going to start passing the mic.
But I really want to get your guys' insights.
I really want to get a better idea of myself.
I have some idea of what's going to happen going forward in the near future and in the
distant future.
I think this tech is here to stay.
I think Bitcoin is here to stay.
I don't care what anyone says.
I'm happy to debate that any day of the week.
But for the broader crypto industry and for regulators and for all the other pieces that
we're about to discuss during this panel, I'm curious for you, beloved panelists, to shed
light.
I still consider myself a beginner.
I'm still learning.
But I know we have some experts in here.
And I see a lot of hands up.
So let's...
I didn't see that the order of the hands went up.
Let's pass the mic to Dan first.
And then, Aki, I don't know if you saw the order of the hands went up.
But let's...
And if you guys have something you really want to say on a certain topic, just chime
And I try to keep this as free-flowing as possible.
But I also wanted to keep it focused as well.
Cool.
Well, your guess was right.
I think mine was up first anyway.
So brownie points for you.
The reason it was up first was you mentioned DEXs and centralized exchanges and stuff.
And I actually did a thread yesterday on Twitter that highlights some of the maybe challenges
and stuff around decentralized exchanges.
Can we find that thread and pin it to the Acti or someone?
No, I'll put it right out there.
Thank you, Andrew.
Yeah.
And pin it to the space.
So, like, you know, I've been around in this space a long time.
I was here when Mt. Gox happened.
And every time you have, you know, a fairly large exchange that collapses, these conversations
about decentralized exchanges become a hot topic again.
And obviously, we're seeing that right now because of FTX.
And DEXs are something that I've thought about for, well, it must be eight or nine years
now.
Pretty much since the whole Mt. Gox fiasco, it's always been quite high on my thought list.
And the issue has been over all this time is that we just aren't quite there in terms
of technology to be able to implement a decentralized exchange that can give you most of the features
that a centralized exchange can, right?
So, if you think about these large exchanges, they're processing tens of thousands of trades
a second, right?
So, even if you look out into the space right now, we're at the fastest, highest throughput,
lowest latency projects out there.
Let's take Solana, for example, right?
That's probably got the highest real throughput, even though their numbers are fabricated a little
bit.
That thing doesn't even come close to being able to process what one single popular centralized
exchange can do.
Now, the good news is that we are getting there, right?
Like, throughput is increasing.
There are some really interesting new technological advances on the horizon, including our own
at Radix, that we'll be able to support these kind of very high volume of trades.
So, in terms of the pure throughput and the finality and stuff, we will get to a point where
decentralized exchanges become viable, where your users will be able to have more self-custody
of their funds, being able to use these decentralized exchanges that offer good latency, good throughput,
so that you're able to execute trades pretty quickly.
I'm talking, you know, sub-five seconds in terms of performing a trade in a game, matched,
settled, and done.
But for your kind of fiat off-ramps, you're always going to need a centralized entity for
that, I think.
There are some ideas that me and others have had over the years around kind of like social
off-ramps, a bit like local Bitcoins, but in a decentralized fashion.
There's a lot of challenges with those in terms of KYC, AML, and all these other different
things, right?
What happens if you try to off-ramp through somebody and they're malicious and they take
your money, et cetera, et cetera, that's just rife with issues?
And then the other side of this, of course, is that if you're a day trader, you want high
frequency trading.
So your day traders in the space are always going to have to go through a centralized entity
because it's practically impossible to have a decentralized network that doesn't compromise
decentralization to the point where you can have high frequency trading.
It's just impossible to have millisecond finality on these kind of networks.
So your day traders will always stay in centralized exchanges.
But then there are some other issues as well, which I highlight in the thread, such as like
shorts, stop losses and things.
They pose a lot of issues as well because that information is visible.
So other actors can use that information to their advantage.
So I think kind of best case, we're going to get to the point where the decentralized exchanges,
you know, they'll have order books, they'll be able to do market limit orders, all this
kind of stuff, all the kind of common stuff that your non-professional trader would want
to use so they can go between assets, still retain self-custody of funds, which I think
would be adequate for the most part, right?
It would at least, if we had that, then this FTX fallout would have been minimal.
It would just have been the professional day traders that suffered.
But those guys understand risk anyway.
They account for risk.
They're set up in the way that if they are hit by an exchange going down or they lose
money, it's part of what they do, right?
So you would imagine that a pro day trader would be able to manage the fallout from FTX better
than, say, a retail customer.
So I think we'll get there in a couple of years.
Things are moving in the right way.
So, you know, maybe that's enough.
And I think that's a good first step.
In terms of the rest of DeFi, I'll just wrap up quick.
In terms of the rest of DeFi, I don't think it will care in the long term.
It was already, it's already kind of, it's too small compared to the market size that it
could achieve.
And so DeFi as a whole will just continue.
It won't really care about the FTX fallout because it's only just getting going anyway.
And there's so much potential there.
So before I pass it to Joe, Dan, what you're saying essentially is that decentralized exchanges
will get good enough, fast enough, advanced enough, and get close to what we're seeing
with centralized exchanges today.
But ultimately, people that are going to want to make these hundreds of micro trades a day
will remain on centralized exchanges and they will have a place for the foreseeable future.
So basically, yeah, yeah.
So like, there's two things that we need to do, right?
The first thing we need to do is to make, say, let's just focus on retail customers, right?
We need to get retail customers to the point where it's convenient and easy enough for them
to have faith in self-custody, right?
Because at the moment, a lot of retail customers, they get confused.
You know, I've got to get a ledger.
I've got to save this phrase.
I've got to do all this stuff.
You know what?
I'll just leave it in the exchange because they're essentially treating exchanges as banks,
right?
I'll put my money there.
It'll be safe.
This exchange is apparently regulated.
Everything will be fine.
I don't have to worry about all this self-custody stuff because it's confusing and it's difficult.
So that's the first step.
We need to get retail customers, retail users comfortable with this idea of self-custody.
And there's a bit of work to do there yet as well, right?
But once we get to that point, most retail customers, if they can do that, they will only want
to use an exchange as a means of swapping their tokens to either go somewhere else into a different
project, a different token, maybe buy something, or to off-ramp.
So they will go to a decentralized exchange.
They will swap what they have for some US dollar token, right?
And then they will then send that US dollar token to an exchange to off-ramp it.
So eventually, the bulk of what an exchange does in this space, I feel, will be to support
day traders and to be off-ramps.
And I know that Joe and Michael both have a lot to say on that.
So I'm going to pass the mic to Joe and then go to Michael and Nima.
I see your hand up.
I'm going to get to you right after that.
All right.
Thanks, Noah.
Dan, thanks for kicking that off.
You made a lot of good points there.
Um, something I was going to talk about was the way both ecosystems, centralized and decentralized,
uh, interact in harmony with one another and are both necessary for the ecosystem overall,
the whole, uh, crypto verse, I like to call it short-term and long-term.
Uh, he hit the nail on the head when he said that, you know, exchanges, centralized exchanges,
uh, if properly regulated and properly, not over, don't get me wrong here, but properly regulated
and, and with proper visibility, they do act as access points for on and off ramping for
fiat and they do act as banks, right?
Uh, what we know with other digital, with other asset classes rather, is that this is
going to be regulated now that's being hastened of course, with the FTX debacle, but this industry
is going to be regulated as another type of asset class.
What that means is proper identification for, you know, uh, trading into different types of
currency and for ownership of assets.
We already know this is coming, uh, you know, I've, I, I work in the U S with, on a bunch
of, uh, legislative bills, both statewide and federally, and this is a key focus point
and focal point for Congress and for state legislatures.
So we know that, uh, people are going to have the KYC AML, whether it's on a decentralized
platform or a centralized platform in the future.
And there are ways for people to effectively restrict usage, not of course, stop decentralized
usage because any developer that's good enough or team of developers can come up with a platform
and build it in their basement, uh, or their dev shop or wherever, but you can effectively
restrict usage.
If you restrict the outlets or the outputs or the throughput that, um, you know, can be
accessed through the platform.
And there are ways to do that and constrict business.
We know that.
So the KYC AML is coming for all platforms.
So be ready for that.
It shouldn't be a surprise.
Uh, we were thinking 12 to 18 months, but I'm thinking now six to 12, uh, with what's
going on.
And, uh, you're correct in that fiat off ramps are still going to be an on ramps are still
going to be the primary throughput for people to get their currency, whether it's digital
or otherwise into cryptocurrency, digital being the, uh, digital us dollar CBDC, God, God
forbid, or your typical, um, you know, bank accounts as you have now that's access points
with debit and credit cards.
Also, there are different things to talk about, uh, within this space.
Uh, for instance, myself, uh, running a crypto exchange, we're fortunate to be paired with
finance, liquidity, order books, security fund, and, um, you know, book depth.
So that gives users a very, uh, large sense of security, really the best that they can
have right now for a centralized exchange in the wake of the FTX fallout.
And what's nice is that when Binance produces their reserves, those are also our reserves.
We share those order books as part of, uh, Binance, uh, cloud, you know, white labeled
exchanges that are still independently owned and operated, but fall under their ecosystem.
Furthermore, uh, you know, we did the right thing when we did our token swap in 2020.
Um, over to our newest version of our token and counted them as a zero cost basis on our
books.
And they have remained that way regardless of token price.
What that does is two things.
It allows for a true accounting of assets and the exchange and not inflated order books or
inflated, um, valuation, which is one of the downfalls of FTX, as we know, and any good
lawyer and good accountant should have, and probably did inform SPF and his executives that
they should not be counting the FTX, the FTT token as a, uh, you know, as an asset, unless
it was fully backed and they could withstand a bank run, which obviously they couldn't.
And, um, you know, we carry minimal debt on our books.
Our typical monthly debt is just to vendors and third-party partnerships that we have right
now.
And we didn't build up something that was reliant on, uh, you know, leveraged type assets.
So, you know, there are proper ways to go about structuring your business and there are
proper ways to transact and act as a good actor in this industry.
And I think a lot of exchanges got ahead of themselves and purposefully, or, you know,
maybe some of them not even understanding the, the asset class properly, maybe accidentally,
I don't think that's the case, you know, kind of basically rearranged their books and account
it incorrectly and caused this mess.
Right.
And we've seen it over and over and over again, but I do think the fallout from this will be
more concise regulation, uh, a stricter, you know, set of guidelines and the good actors
will come through this, uh, you know, unscathed because they haven't done anything wrong.
So just my two cents on Michael.
Yeah.
So I have a lot of thoughts on both the centralized and the decentralized side of things.
Um, starting with the centralized, I think there's currently an issue with accountability.
Um, and what I mean by that is in the traditional finance space, there's more of an even power
dynamic between exchanges and retail investors.
And the reason there is, is because retail investors use a counterparty like an institution
to trade on exchanges.
So retail investors do not trade directly on exchanges in the retail market.
Generally, they use a brokerage, they use, um, you know, other sort of funds or, or services
where those services can hold the exchange accountable.
So right now there's sort of this uneven power dynamic in the crypto space where retail investors
can use an exchange.
The exchange could do something ridiculous and the retail investor cannot hold the exchange
accountable.
The exchange will just tell you to screw off and there's nothing you could do about it.
So I think one of the things that we need to think about is how can we better hold exchanges
accountable in the crypto space?
And my personal opinion is that retail investors should not be trading on exchanges.
So this is an area that I probably differ from a lot of people on the panel is that I think
there should be no retail investors on exchanges instead they should be using advisories, brokerages,
all of these other services that plug into exchanges, but those services can help retail investors
hold exchanges accountable.
And if something happens to the retail investors, uh, assets, um, those institutions will have the, the manpower and the leverage to,
you know, sort of figure out the situation for the retail investor because it's in their best interest.
Otherwise they're going to go out of business.
So that's sort of my take on centralized exchanges.
I think we should get retail off of centralized exchanges on the DeFi side.
Unfortunately, I think somewhat similar retail investors should not be using DeFi protocols in
these applications directly.
They should be using, uh, developer tools, developer platforms, you know, these tools that are developed
by developers.
They simplify the process, make it very easy to get into crypto, manage your assets.
Um, that way retail investors do not have to fear at every step.
Are they going to lose their assets?
Are they going to accidentally send it to the wrong smart contract?
Is this smart contract valid or, you know, legitimate?
You know, all of these things are on the mind of investors today and stopping millions of investors
from getting into the space because they fear that they're going to lose their money if
they do literally anything with DeFi.
So my, my take is that we should have retail investors more sort of invested in developer
tools, institutional platforms, these other services that can really protect retail investors
because there's very little protection, uh, as we speak for retail in the crypto market.
So I have, you know, tons of other thoughts, but that's sort of my, my starting stance.
Michael, I, I agree with, I agree with you in terms of protection.
I'm curious to know, do you believe that the end user should still have the option of interfacing
with DeFi protocols if they so wish?
Cause I'm, cause some of us, like most of us, and I would say in my circle have not really
had issues with sending to the wrong wallet or, I mean, I, if I'm, if I'm making a transaction
for the first time to a unique wallet, I will always send a dummy transaction.
I know that most people don't do that, but shouldn't we still have the option of being
able to be autonomous and kind of operate in this industry on our own accord?
Yeah.
So I guess to clarify, I'm not saying there shouldn't be an option, there should be that
option, but I think it's very similar to the internet.
So if you look at the internet, how many people do you know, right?
Their own, you know, HTTP requests, they interface directly with TCP IP to, to use the internet.
I bet you don't know a single person that does that.
And I think that's the way that the industry needs to go, where we have so many tools and
so many options that people won't use the, the protocols or the networks directly because
they don't have to.
So my opinion is sure.
If, if you want to do that, I don't see any problem with that, but that shouldn't be the
expectation.
And that shouldn't be even, you know, practical.
We should make it so easy to use those protocols and services that it's impractical to do it
yourself.
Got it.
So Nima next, Jess, and then Yusuf.
Yeah.
Thanks, Noah.
My sentiment is very similar across the panelists.
So we all know, you know, obviously, you know what happened.
I mean, most of us know what happened with the FTX debacle.
Um, DeFi didn't get affected, right.
As much as, um, CeFi based companies.
Um, but there's still like risks when it comes to like DeFi and that, and there's two main
risks that I see right now.
There's the, the transactional risk.
Right.
And then there's also security risk.
Transactional being, as Dan mentioned, if somebody like places an order, um, or maybe
like a, a stop loss or some sort of like action on the platform, um, traders and bots, uh,
uh, see this stuff and it's all visible.
And then they can go ahead and like manipulate all these traits.
And then from a security perspective, you have protocol risk, right.
Cause protocols could get hacked and also custodial risk.
It's all like self custody, right.
So people can, you know, send transactions to, um, send funds.
I'm sorry, to wrong addresses that you just mentioned, uh, Noah, or, you know, those, and
you just could have to, um, there's, uh, getting a lot of like issues when it comes to that.
But when it comes to like C5 and B5 regulation, um, my thoughts might differ a bit, right.
Cause they're structurally, um, designed differently with C5.
You have, um, the wallets are structured in Omnibus manner, right.
So what does that mean?
So, um, the Omnibus wallet is pretty much custody by the, uh, the centralized entity funds go in,
they manage it and.
Did we lose Nima there or was, did I just disconnect?
You know, I think you cut out.
I can't hear him either.
Okay.
Well, let me wait for him to get back.
Let's go to Jess.
Jess, you've got your hand up for a while.
Yeah.
Thanks again for having me.
As far as the topic of centralized versus decentralized exchanges, I personally don't think we're
ready to, uh, have mass adoption on the decentralized exchange aspect.
As far as centralized exchanges, I do think we need regulations.
If these entities want to act like a bank, they should be regulated, but I don't think
that's going far enough.
That hasn't worked in traditional finance.
So I really think that we also need to implement the technology that exists in this space to ask
for more transparency and more clarity from these exchanges.
I know, you know, um, Vitalik talked about possibly coming up with this proof of reserve
protocol.
So I think as a space, we, we can't just be satisfied with the traditional finance regulations.
We need to continue to push these exchanges to provide more, more transparency to us as a,
as a community, because it hasn't worked in the traditional finance world.
Why do we think it's going to work here?
It's not going to prevent us from bad actors.
Um, so I really think that we need to push for that.
Um, and what else?
And as far as, you know, a mass adoption, I think we're far from that.
This has definitely put a bad look on crypto from an outsider's perspective.
Um, if you talk to people who are not in this space, they're not talking about FTX.
The only thing they read is the high level articles that say crypto has crashed and that's
exactly what they think.
Um, so I think we need to keep pushing forward in this space, um, um, the, the correct messaging
and keep pushing for self custody and all those things.
But if regulation doesn't come and if nothing doesn't happen six months from now or the next
bull run, there's going to be another FTX with another logo and another, uh, you know,
uh, person, uh, as the spokesperson.
And this is going to happen all over again to people that enter this space.
And that's all I have for now.
I'm going to push back on that a little bit, actually about the regulation part.
Um, uh, sorry to jump in.
Um, but the issue here isn't that we need more regulation, right?
What we need is to apply the correct regulation that we already have to exchanges, right?
So, so at the moment exchanges are following the regulation that they need to follow, but
what they're doing isn't captured by that regulation because like in this space, exchanges behave
more like banks.
So they're making investments, they're diversifying their, their balance sheets, all this kind
of stuff.
And if, if the banking regulations are applied to exchanges, because that's really covers
then and captures the activity that they're doing, then FTX couldn't have happened in
my opinion, because they would have been so strictly regulated because they are behaving
like a bank taking customer deposits and diversifying and investing, et cetera, et cetera.
This couldn't have happened.
It would have been caught a long time ago.
So it's more, not new regulation, because then you have an issue of potential overreach.
And as people in, you know, the guys in politics haven't got the time to fully understand what
this, what, what this means, right?
Well, what is crypto?
How, how do you regulate it?
What are all the nuances about it?
But what we, what they need to do is to, is to apply the correct regulation.
And in my opinion, if an exchange wants to behave like a bank, then it should be regulated
like a bank.
Yeah, I agree with you, but you know, on the pushback, like what do traditional banks do with
your money today, right?
Isn't the whole point of us being crypto, we don't want the same thing that's happening
in the, in the traditional banks to happen.
If you go and ask for a million dollars, go to the teller and ask for a million dollars
at the bank, they probably don't have it.
So why are we trying to replicate what's in the current traditional banking system into
crypto?
But the difference is, is that if you, if there's a bank run on a bank and it collapses, then
your government insures those funds.
So you will get up to, I think in the UK, it's a hundred thousand pounds of insurance,
essentially from the government that on your deposit in that bank, if that bank collapses,
because you know, it's not, it's, it's not followed the regulations or it's been to making
dodgy trades, whatever, you will get up to a hundred thousand pounds back from the government
per institution.
And it should be the same for exchanges.
Yusuf, I know you've been waiting for a while, brother.
Your mic's yours.
Yeah.
Hey, I just want to basically touch up on what Dan said is entirely correct.
I think someone said at the beginning that they will, they will, they believe that centralized
exchanges will always be thing, but I actually have to disagree because, you know, the initial
concept of cryptocurrency was, it came about due to corruption associated with centralized
entities.
And even though, you know, cryptocurrencies are decentralized nowadays, we still depend
on centralized technology because decentralized technology is still incredibly new.
It hasn't had the time to evolve enough.
You know, the concept of decentralized technology, you can say is relatively old with things like
hash cash, but Bitcoin was the first actual decentralized peer-to-peer network.
And that was only about 14 years ago.
For comparison, if you look at the internet, right, that was created in 1983.
And it took over 20 years for actual consumer adoption because, you know, the early days
you had to put the HTTP address, the DNS, all the details manual until, you know, search
engines came about during the tech bubble.
But what I'm trying to say is, you know, usually experimental technology like cryptocurrency
would be exclusively used by computer scientists and programmers, but due to the ease of access
of information and, you know, the profit incentive cryptocurrency has, it has picked up consumer
adoption way too fast.
And because of consumer clients and institutionalism using cryptocurrency as investments, instead of
actually utilizing the backend, a lot of focus went to the UI, the UX, and the ease of use.
And this is why centralized exchanges became too big.
If you look at the early days of cryptocurrency, a lot of people went about this thesis that
cryptocurrencies are meant to stay decentralized.
Most Bitcoin payments are actually done peer-to-peer, you know, if you're doing exchanges or like,
you know, and over the OTC marketplaces.
And then if they were to use an exchange, people wouldn't keep their funds in exchanges.
Back in like the 2013 days, like around the Mt. Gox days, people would send their Bitcoin,
do transaction, and offload off the exchanges.
But due to the amount of consumer, the amount of retail clients that have gotten to crypto
during 2020, 2021, those bull cycles, and, you know, the marketing from these exchanges,
there's too many people holding their funds on exchanges, treating them like banks.
And people have given too many trusts to these institutions.
And like Dan said, with banks, banks are fine, because even if banks does bank run,
on the first end, there's insurance, and even banks will probably be supported by the government
and the bank if, you know, if something happens, like the 2008 collapse.
But it's just because retail adoption became too fast too soon.
But whenever an issue arises, like let's say with the FTX situation, more emphasis is put
on decentralization.
So now, you know, there's a scalability trilumber, which is why decentralized exchanges aren't
able to be widely used by retail, because retail preaches on scalability.
And also institutions, because they want fast millisecond trades, with even like Uniswap,
you know, they'll take you a couple seconds to execute a trade.
And there's a lot of, you know, centralized exchange features which are unavailable on
decentralized exchanges, like futures, for instance.
So now we're preaching on, you know, security and decentralization for our decentralized exchanges.
But some other decentralized exchanges must, might, you know, lean more towards scalability
in the future, or making ease of use for these, for traders.
So I think now we're currently fixated on centralized exchanges, not because decentralized
technology is trash, but because we are way too early.
You know, cryptocurrency has only been about since 2008.
And if you talk about like Ethereum decentralized exchanges, that's not even 10 years old.
So I just think we need to give it more time.
And then once decentralized exchanges are ready, and they have all the features of centralized
exchanges, centralized exchanges will slowly cease to exist.
Unless there's another utility to centralized exchanges, and they are treated like crypto banks.
But at the same time, I find it ludicrous, because cryptocurrency technology in the beginning
was meant for decentralization, to decentralize yourself from a bank.
And I read a post the other day, which I found quite funny, which was people buy decentralized
crypto to separate themselves from banks, just to put their money on an uninsured crypto
bank, which are exchanges.
So I think the future is decentralized.
I just think we need to give it more time.
Beautifully put, Yusuf.
I'm going to pass the mic to Peter, and then Joe.
Hey guys, thanks for having me on.
Yeah, I mean, I pretty much agree with everything Yusuf said.
So I'll just try to repackage it in an interesting way.
You know, first of all, if we're looking at regulation in the fallout of FTX, there certainly
will be some.
But in my view, the existing statutory framework is certainly broad enough to capture lots of
stuff.
There's going to be wire fraud.
There's going to be garden variety fraud.
There's going to be all kinds of crimes that do apply to the conduct at issue.
So if we're saying we want these centralized exchanges to be regulated in a way that they
appear safer to us, all we're really doing is just trying to replace banks with digital
asset banks.
And then we haven't really achieved anything at all.
So, you know, I know that retail is not ready for self-custody, but I don't care.
I'm going to go plowing ahead because I think that's the only way to solve any kind of problem.
And yeah, people are trying to build more useful and accessible interfaces.
And over time, I think people will figure out how to use self-custody in a way that works
for them.
Because if we don't, then all the centralized exchanges are going to do is do exactly what
banks do.
They'll have their deposits insured up to a certain amount.
They can amalgamate capital.
They can lend it out.
And they can keep printing that 10% per annum, which is the kind of returns that we in retail
have never had access to because we're forced to take our 401ks and whatever and then hope
they outpace inflation.
So I think, you know, if we in the space are really interested in decentralization, then
in my view, in this particular case, we maybe shouldn't be so interested in regulation because
in a way that gives centralized exchanges the legitimacy as something that they shouldn't
be in the first place.
In my view, we should kind of hope that they just become on ramps and off ramps.
And that's it.
And one final point on this, when you hear kind of sophisticated traders and participants
in the space calling for the safety of retail on centralized exchanges, realize that those
folks are probably very good traders and are just finding a way to fleece the sheep rather
than skin it.
They want retail in so they can out trade them, basically.
So they don't want retail to have to get kicked out of FTX all at once.
They want a slow, steady casino where the smarter poker players are able to continually
extract value.
So be careful of those traders in Web3 who have Twitter accounts who know how to take
value out of the space and don't give a hell about the philosophy of the whole thing.
I think we see a lot of that in the last couple of days.
With all that, I'm going to pass the mic to Joseph.
I feel like he has a lot to unpack there.
Oh, yeah.
A lot, a lot.
So first of all, I want to talk about the difference between centralized exchanges and
banks and the false equivalency of comparing it to stock exchanges.
I was just talking about this and it's pertinent here.
Stock exchanges aren't banks, right?
We trade on stock exchanges, but we don't utilize that investor money on the back end to
loan to, you know, it's a platform to trade, right?
We don't do that.
Centralized exchange in its pure form should operate similarly, right?
You shouldn't operate as a bank.
You should operate as a platform for people to trade assets and, you know, conduct transactions
of that nature.
Yes, they keep custody of your assets because they keep them in a safe place, but they should
not be loaning them out on the back end.
Binance is a perfect example of this.
They have, you know, they do loan investor assets, but it's through their DeFi protocols.
It's really through, you know, things like PancakeSwap, right, where investors knowingly
put their money up for a yield and loan it out.
That's the primary access point for that.
You know, Binance centralized, they keep funds on there.
They keep user deposits, keep user funds, and they have them in case something happens,
such as, you know, if an FTX type incident was to ever happen in the bank run on Binance,
they have to have tens of billions, if not more, of crypto capital on there so that traders
can withdraw, retail traders and institutional traders can withdraw.
That's one thing there.
Another thing is we're talking about, you know, everyone's gung-ho on decentralization,
and it should be.
That is the spirit of cryptocurrency.
That's why it came around, absolutely.
And I do agree that we're very early.
We're only 14, 15 years in.
It's great.
It's a great time still to be in.
And, you know, a lot of people that thought they missed out at Bitcoin at 50, 60, 65K are
getting a second chance now, and, you know, smart money is buying, of course, right now.
But to say that everything can be decentralized is not true either, because guess what?
And be anonymous and autonomous really isn't true either, because we're still going to need,
like I discussed before, to convert our currency to traditional fiat assets for the foreseeable
future.
And what does that come with?
That comes with KYC AML protocols, that comes with identification and verification of
accounts, that comes with a lot of firewalls that traditional banks have in place.
And, you know, there has not been a good decentralized solution to fiat ramps.
I know there are multiple companies and multiple dev teams working on it right now,
and maybe something will come in the future.
But right now, you know, regulators are slow to allow any sort of inroads to traditional
financial systems, especially via crypto.
So I don't see it as a viable option in the near future.
What I do see, and we've talked about it, is, you know, playing within the regulatory sandbox.
A lot of people here said that.
Exchanges are playing within the regulatory sandbox that is available to them.
But just, you know, to recap what I said at the beginning, also proper accounting methods,
proper financial oversight, and having people that are, that understand, you know, traditional
finance on your board, on your team, right?
The biggest thing you can do in this industry, and I've talked about it ad nauseum, is to not
hire proper accountants, not hire proper legal oversight, not hire, you know, people with
understanding of traditional financial markets, and go with a team of developers, go with
a team of, like, hotshot whiz kids, quote unquote, to run your company that don't have
the understanding or the wherewithal to, you know, to transact or manage billions and billions
of dollars.
You know, at the end of the day, I think that's what happened, to loop it back to FTXs really
quickly, that's what happened is these kids got in over their heads, they didn't know
what they were doing, and they either thought they were smarter than their accountants and
attorneys, or just blatantly ignored them.
Either one is stupid, right?
That's why most of FTX's legal team quit, I'm sure.
And, you know, to avoid that happening, there needs to be some kind of proper oversight,
whether it's quarterly accounting of assets, and making them available, you know, the asset
wallets available, just at least view only somewhere, and, you know, just proper oversight.
Mr. Ajit.
Hello, I wanted to be the last one in this series, because I have nothing new to say, but I have
some points, nonetheless.
Number one, so what I'll do is I'll break this up into facts and opinion.
The fact is that Lehman Brothers crashed, destroyed the world for some time, but financial service
firms did not get outlawed or replaced.
I think that this is just a wake-up call.
It is not a catastrophe, not the end of the world.
Centralized exchanges presented an opportunity in their earlier days only to do on-ramp and
off-ramp.
All the rest could be done in a decent, decentralized way.
Today, there are ways without using centralized exchanges to do decent on-ramp and off-ramp.
Despite that, I think that centralized exchanges are going to stay.
I don't think that any banking-like regulation is even possible.
I mean, leave alone desirable, that can be a subject of debat.
But the fact is that banking-like cannot be done unless you literally start accepting
this as money, legal, tender, etc.
at a regulatory level.
However, here's an interesting thought.
If any one of us has visited CoinMarketCap, which I assume most of us have done, CoinMarketCap
already uses some analytics and feeds to give each exchange a score, right?
Now, what they are doing, and they explain how they do it, is actually just very minimal.
Either we allow centralized exchanges to only do the exchange component, like in the stock
market, where the depository that is custody is with somebody else, the client is with somebody
else, so the entire bank versus regulator versus exchange versus depository versus broker,
everybody is a specialized function.
That is not how crypto exchanges are involved.
And frankly, if the stock market were to start today, it would probably start more like crypto
exchanges than the traditional structure.
So either we just segregate all functions and they are separately audited with service providers,
or there's another method.
We evolve, at the protocol level, various mechanisms, where lots of things, not just proof of reserves.
I must tell you, proof of reserve can be spoofed.
Proof of reserve may not tell the complete story.
It has to be proof of many things.
Proof of reserve is one of them.
So in some way, we can have fairly good metrics.
Technologically, it's possible today to be more transparent about these exchanges, because
they're centralized exchanges.
Hence, their need for privacy has to be ignored, as in the exchanges need.
I think this is the way forward.
Look at how the market has reacted, and believe in some level of wisdom of the markets.
I think that most of us who are aghast at what Sam did, most of us who are very disappointed
with what FTX did, I think are missing the point that this does not get us off course.
As in, sure, if we don't do anything about, don't learn any lessons, there's going to
be the next Sam and next FTX.
There's no doubt about it.
But I also feel that we don't need to be, you know, sounding the death knell or saying
that business will never be as it has been in the past.
Those are all exaggerated.
So for those that are wondering, and I believe we have people that know more about this than
I do, proof of reserve is a procedure used in the digital currency industry to confirm
that a specific crypto exchange or project has the reserves required to cover all customer
deposits.
And exchanges can demonstrate that they have the funds available to process customer withdrawal
requests by posting both the entire number of the cryptos held by the exchange and the
total amount due to the customers.
Joe, I know that you mentioned earlier, and Andrew, I see your hand up, Dan and Andrew,
I see your hands up.
But Joe, I remember you mentioned earlier that we all know that Binance is slowly rolling
out their proof of reserves.
I was curious to know how long you think it will take or that will take for not just Binance
to have a 100% transparent proof of reserve, but also other centralized exchanges to follow
suit.
And if that's enough to, assuming that everyone understands what proof of reserve is, is that
enough to instill most of the trust that was lost back in centralized exchanges?
Yeah.
I mean, banks have fractional reserves, right?
If you're doing something that's better than banking, traditional banking, I don't see why
it wouldn't, number one.
And number two, we can't lump all exchanges together, like I was saying at the beginning,
because there's a lot of exchanges that don't do this with customer funds, that do secure
customer funds.
Or like us, for example, we are a white label Binance product, so we share their order books
and liquidity and their book depth.
So we don't even have the option to do that, right?
There are a lot of exchanges that are built on other infrastructures that never touch customer
funds in that way, shape or form and never do leverage them.
And they don't, like I was saying, we keep our token when it was minted or swapped really
to our version, our current version of our token back in 2020, keep it at a zero cost
basis so that there is never any inflated value on the books or any quote unquote fake
valuation when approaching, you know, investors or current members or any regulatory body that
wants to see our books, whether, you know, for us in the US, it's the IRS, you know, you
file a tax return, or if, you know, we're a global exchange, so we file because we're
a US parent company, we file with the IRS, but we're not regulated by the SEC per se.
But even so, any regulatory body that approaches us, we're more than happy to open our books
because we don't transact in the wrong way.
We don't operate in the wrong way.
But in terms of 100% reserves, I think it's going to happen.
It's going to accelerate now for those exchanges that are solvent, and they are going to show,
you know, they're going to open the doors a little bit more open, you know, peek behind
the curtain a little bit more and at least crack it open.
Because honestly, there are, you know, some very large players that want this industry
to flourish and want to be good actors and are good actors.
And I, you know, I truly believe that.
And I don't think that everybody's a bad actor.
And I think that people need to be very, very careful of, you know, especially in the
wake of the FTX fallout, Twitter, quote unquote, influencers that, you know, lump everybody
together in one group or another, and say they have insider information or mislead or
spread disinformation.
Like this is the perfect storm of events for these type of disinformation campaigns to thrive
and conspiracy theories to thrive.
So everybody needs to be very careful, evaluate where your information is coming from right
now, and, you know, really source it and self-verify, right?
Not to go too far off topic, but it's important that this industry continues to have trust and
build and maintain trust.
And the only way to do that is to put out good information that's properly sourced and
not speculate, speculative.
Dan?
Yeah, I'm going to be a bit of a Debbie Downer here.
Sorry, guys.
I don't think things like proof of reserve and all these initiatives that ideas floating around
for this kind of stuff, like, they're not going to, they're not going to really change
anything in the long run.
And the reason I think that is, you know, you're kind of, you're getting back to the
retail customers again, right?
Retail investors, retail users.
Like, if I want to open a bank account, I don't go digging around the internet to try
and find, okay, does, is this bank meeting the regulations?
Is this bank following its code of conduct correctly?
Is there a bank market cap?
I can go and check this stuff.
And retail customers just don't do that stuff because they're busy, right?
Like, for us in this space, this is our kind of bread and butter.
We do it daily.
We're all clued up on what we should be looking at, what we shouldn't be looking at, what's
good, what's bad, red flags, all that stuff.
But your retail investor, you know, he's just trying to get by.
He's working long hours.
He's got a family.
She's got a family.
They've got hobbies outside of what they're doing at work.
They're meeting friends, whatever.
They don't give it.
They don't care, right?
They don't care.
In their head, they just think, well, if I put my money in the bank, it's safe.
If I put my money here, it should also be safe because of the SEC or the FCA or whatever
financial regulatory authority you have in your country of domicile, right?
And when we get the next ball run, that's even less of a thing that they do because then
you've got FOMO kicking in and all they want to do is just get in and chase the green candles
because it's get rich quick, right?
And so for us internal to the industry, I think it's good initiative.
But in terms of the broader picture, the long term, you know, mainstream investors, ball
runs where these retail investors are coming in, all this kind of stuff, don't think it'll
actually change anything at all.
I think if we rely on that strategy, then we'll just have the same thing again in two
or three years' time.
Andrew?
Yeah, really, really quickly, I wanted to say that, you know, proof of reserves, the
whole concept, short term, it may cause some mayhem, long term, it'll probably flourish.
It'll be one of those things that's going to cause mayhem really, really in the short
term.
And that may be kind of the mindset to sacrifice a few to save the many, even though I might
get some pushback on that.
That's fine.
Dan, I kind of want to ask you this question.
I'm sorry, I mean, Joseph, I want to ask you this question if I may.
A lot of people kind of refer to this as a one-on-one backing.
Most people actually don't know where the actual one comes from, from the other one.
So if you can really quickly dive into that, how an exchange or how an investor would be
backed one for one with their assets on an exchange, obviously, because you are the CEO
of Mandela.
Sure.
I mean, just to keep it real simple, if a user deposits, let's say a user deposits one
Bitcoin on the exchange, right?
And they're trading with that.
Typically, user funds go into a wallet.
Once it's deposited, designated wallet on chain where you can see all, you know, kind of deposits
and get an amalgamation of what is deposited in there.
So, you know, it's, and that's the wallet that gets accessed on the back end for deposits,
withdrawals, you know, et cetera, mostly deposits and withdrawals, of course, with a centralized
spot exchange.
You know, typically the team doesn't touch it, shouldn't touch it.
You know, we don't, of course.
And, you know, it's an API call on the back end for an exchange wallet if there's going
to be a deposit or withdrawal through that wallet where the balance is credited or debited
out of said user's wallet, but those funds are held, you know, in custody.
In our case, it's, it's Binance holding custody over those deposited funds based on
their contractual agreement with them.
And it's, it works off of their wallet infrastructure and protocols.
So basically, in essence, the way it works is you deposit it, you get a credit on your account,
you know, showing on your wallet and it goes, the actual funds go to that reserve wallet
of, of whatever, you know, asset you've deposited.
So to show the one-to-one reserves, you'd have to basically match up user deposits with
or what's, what's currently matching in user wallet addresses and exchange wallets to what
reserve you have on the back end.
And that's kind of the basic mechanic of that.
I hope that helps people understand.
Peter.
Thanks.
So, yeah, I hate to just repeat myself over and over again.
Um, but if you are in this space and you are in it because of the philosophy of it, and
you do believe in decentralization, in my view, pushing proof of reserves is not necessarily
such an important prerogative.
Um, the best proof of reserves to me is when I put my Bitcoin on an exchange and I immediately
send it off and it arrives in my wallet.
There's my proof.
And if they don't have it to give it to me, then, you know, that's the end of them and
I'll never use them again.
And so, so when we push for these ideas that legitimize centralized exchanges, and of course
they should be legitimate because we need to trust them, but if we center them in terms
of our global experience with crypto and web three, then we're allowing them to kind of
keep the casino open.
What do centralized exchanges want us to do?
They want us to trade.
They want the assets to be liquid.
They want them to be flowing around so they can keep charging us fees.
That's what keeps centralized exchanges going.
That's their business model for now.
So if we take that power out of their hands, then they reach this decentralized destiny
when yes, they're important as fiat on and off ramps.
We need KYC.
I think most people agree.
And they can do a fine job at that.
They're a centralized institution that has a role to play.
But in my view, their role should not be holding everybody's assets, enabling trading.
And therefore, I don't care what their proof of reserve looks like because I'm using
them only as a train station to get in and get out.
You know, it's like, um, you know, I think of them as like a public restroom.
I don't want to use them frequently, but I'm glad they're there when I need them.
So, Peter, I'm going to, I, I agree with that sentiment and that philosophy, but I'm
going to push back and say that the majority of people that I know, whether it's my parents
generation or whether it's even my peers that are outside of crypto, don't.
And I know I saw Michael's hand go up because I'm going to, I'm going to regurgitate some
of his talking points because I do agree with them slightly, or I agree with them to
a point here that most of these people do not want to take self custody of their own
assets.
If something hits a fan, if they lose their, their private keys, whatever happens, they
want to be able to turn to someone and say, Hey, help me get me out of this hole.
That's human nature as far as I'm concerned.
And I, and I want to tie this into kind of, I want to let Michael get his talking points
in and Joseph as well, but I want to tie this into education after we kind of finished this
subject, because right now public sentiment is at its worst.
Jess made a great point about legacy media outlets.
Whenever this market crashes, whenever a piece of bad information comes, I have a, it's
when it, when it rains, it futts, they love to put big flashy headlines about how bad this
industry is, how big of a scam, but they love to bundle Bitcoin and everything else, how bad
Bitcoin is and public sentiment, retail sentiment is probably the worst it's been in my opinion
ever, because sure you had the Mount Gox implosion, but this is on an entirely different scale.
FTX imploding is, is, is, it's like almost comparing apples to oranges, but I'm going to pass the,
the, the mic to Michael and, oh, sorry, just to finish that, and Peter, yes, I know I'll
let you respond to that.
Just to finish that thought, I wanted to, so how do we educate, I'm going to wrap up my,
sorry, how do we educate those retail investors, Peter and Michael and everyone else to, how
do we restore faith, right?
We need them to buy into this market.
We need them to believe in this tech because we believe in it and we believe in it for very
valid reasons.
So Peter, I'm going to let you respond and then go to Michael.
Well, this may not sound so inclusive, but, but I don't care if they buy in.
Um, you know, I think Bitcoin itself is undefeatable.
I think it will go on forever and the rest of the crypto industry could go down to zero.
But if these friends and family of ours who don't want to do self-custody, um, want more
centralized solutions, that's fine, but then they don't agree with most of us philosophically.
And so what are they trying to achieve?
Their lethargy in terms of learning about self-custody means that they'd rather just make money
then participate in a overhaul of the system that inverts the process where centralized
institutions are able to amalgamate capital together, lend it out and then give us the
breadcrumbs.
So if they don't want to educate themselves, that's fine.
If they'd rather participate in centralized YOLOs and come in and come out and smash
in and out of the market, that's fine.
Um, if they wanted to stay in a 401k, that's fine.
I'm not, I'm indifferent to what they do.
I think the education you're speaking of will come.
Yes.
First of all, in terms of more accessible software interfaces, you know, everyone jokes
about web three, like the tech sucks when it comes to UX UI and they're not wrong.
Um, but, but the education comes in just having these conversations and saying like, look,
like either you're in or you're out.
And if you want to get on board with self-custody in whatever form it's evolved to now, then you
are participating in the philosophical inversion of the system.
And if you'd prefer centralized custody, then you're doing something else and that's fine.
Um, but, but yeah, I think Bitcoin itself will propel the revolution and those who want
to get on board will, and those who won't, won't.
So, you know, we'll see what happens.
Michael.
So I will have to jump off after this, but I, my opinion on this is that we can't make
retail investors care.
So, you know, there's a lot of sort of talk around the philosophy of the people that are
currently in the space.
And, you know, my opinion is that's great.
And I think that philosophy we should try to carry as much as we can into the future.
But realistically, we're not going to make retail investors care about that philosophy.
And we, we don't have a choice in terms of they will get into this market because somebody
will build tools for them to get into this market.
And that might not be somebody who has the same values as people in the market.
You know, like I could go out, build this massive centralized service that every retail
investor in the world wants to use.
And I don't need to have the same values as the people in the space right now.
So that's not to say that, you know, that's going to happen immediately.
But in the long run, retail investors are going to be attracted to services that are
easy to use, that they can have accountability, that they can call a support agent on the
phone, be like, hey, what happened to my account?
Where did my balance go?
What are my trades?
You know, like they can talk to a person to do these things.
And I think in the space right now, a lot of people are opposed to that.
But the reality is retail investors don't care.
They don't care that people in the space are opposed to that.
They're going to come in anyways, and they're going to use services where they can do that.
And somebody is going to build those services.
So either we can work with those services to try to make them as aligned as possible with
the ethos of the crypto space, or we could push them away, in which case the crypto space
is going to be pulled in a direction that doesn't sort of meet anybody's needs, in which
case that's, to me, the worst of all options.
So I do think we need to embrace that there are all of these retail investors that are
going to come into the space.
They're not going to be aligned with the values that we currently hold.
How can we navigate this sort of difficult situation so that as many people are as happy
as possible with the outcome?
And that probably looks like some combination of centralized services that are really meant
for onboarding and managing these long-term, passive sort of solutions for retail investors
who just want exposure to the market, along with DeFi, where people who want to have deeper
access, want to manage their own assets, they want to do self-custody, they could do that
as well, but that can't be the only option.
And that's not just, it can't from my perspective, it won't be the only option, because other people
will build other products that don't align with those values.
So it's really not up to the people in the space where the space goes, but I think it is
up to us how we help navigate that with regulators, with the developers in the space, with institutions,
because otherwise it's just going to be a runaway train and it'll go wherever it goes.
So anyways, I have to jump off.
Michael McCarthy, thank you so much for joining and sharing your insights.
You're always welcome on this show.
Thanks, everyone.
I think it was Dan, Andrew, and then Joseph.
Forgive me, guys, if I'm wrong.
Mine's real quick anyway.
I just want to touch on this a little bit, right?
And the way that I look at decentralization, you know, Bitcoin, crypto, et cetera, is more
from a kind of macro philosophical point of view, right?
And that is that we've got a choice.
So it doesn't really matter if you're a retail investor or you're kind of hardcore.
The point is, is that now we have a choice and we have a choice that we didn't have 15
years ago, right?
15 years ago, if I wanted to use something other than banks, I couldn't because there
was nothing available.
If I wanted to take control of my material as an artist, I couldn't because it was dominated
by, you know, large record companies and all this kind of stuff.
And I think that's the key thing, right?
There's a choice.
And so it doesn't matter where retail users go.
The important thing is they can choose what they want to do now.
And that will just expand over time.
You will have, you know, kind of artists making NFTs and trading them and people will
own their data and they can choose what to do with it.
And you'll have social networks where I'm in control of everything about my data that
I put on that social network.
And I can choose to stay on Facebook and they can send my information to advertisers or I
can choose to monetize it myself.
All these things.
And so I kind of agree with the guys that say they don't really care where retail users
go because that's not the point.
The real point here is that there's options available.
Andrew?
Yeah.
My points regarding what Peter said, I'm kind of on the fence.
I agree with him to an extent in the sense that we should care about retail investors,
especially when they're friends of ours, friends of friends, whatever it may be, to an extent
that, you know, obviously having the retail investor purchase crypto, deploy their capital
into something and then getting them liquidated is a whole different story than them, you
know, being profitable and coming back.
Retention is obviously something different than people being aware of the space as a whole.
I think retention is what we're lacking right now, especially over the past two or three
weeks with FTX and Celsius and everything else there.
That's part of the problem.
So I'm also not a huge fan.
I'm not your keys, not your crypto.
And since that it's such a simple, it sounds like such a simplistic process, but it's actually
not getting someone to do and actually practice safe custody.
It's kind of a pain in the ass.
Mind my French there.
I think there has to be a better solution.
I don't know one right now, but I'm hoping in the future that we can kind of, you know,
create a solution in that sense.
Because when it comes to self-custody as well, I mean, we all know a friend that's purchased
a safe pal or a ledger off secondary and it wasn't off the website itself and got liquidated
with their assets.
That's another problem as well.
It doesn't really end.
I mean, there has to be a simpler process in order to keep everyone safe.
And I think proof of reserves could be one of those things to ensure that if you have
your money somewhere, they don't operate like banks, like Jess said, in the sense that
it should be all backed one for one, but sometimes it's not.
We're not the hard way.
Joseph?
Yeah, a couple of things on that.
I, you know, I agree with everybody else that it's not CD5 is the way of the future.
It just is.
There's always going to be retail.
There's always going to be institutions that want ease of access to funds, to trading
pairs, to, you know, and it's just, it's, it's, everybody's got different goals.
So just to put that out there, but I think Noah, you were going to start touching on something
that was very important and is very important in my view as a former teacher and that's
education in the space, right?
We need to, and I think everybody agrees with this, act as advocates, act as leaders in
the space and help out where we can.
You know, I always try to do my part as a compliance and regulatory lawyer to advise on these bills,
to help out and sit on state legislature boards, things of that nature and advisory boards to
ensure that sensible regulation gets passed for all crypto projects and crypto consumers.
And, you know, whether they're retail or institution and whether the project is a small two-person
startup or finance or, you know, or, or, you know, Coinbase or something like that.
The biggest thing here that we can do is not be exclusive and say, you have to do it this
way or that way, but as Mandala does very effectively, I think, put out videos, put out pointers, put
out FAQ sheets on every little part of the process.
So somebody can come watch a two-minute video and learn how to onboard themselves onto an exchange
or learn how to use a wallet.
You know, whether it's a cold, cold store, which wallet like a Ledger or Trezor or a hot
wallet, more of like a MetaMask or, you know, new wallet type.
But, you know, putting out these types of informational pieces, and we do focus a lot of attention on
them, is how you drive adoption.
It's how you drive customer confidence and it's how you educate the younger generation.
I go, you know, for instance, I go and teach at law schools.
I go and teach at undergrad and graduate business schools, courses on crypto and the legalities
around them and the infrastructure.
And I do continuing legal education for lawyers as well that are interested.
And if we don't do that and don't maximize our impact on the industry as industry leaders
and advocates, this industry is doomed to fail because people, especially these younger
generations, want easy, they want quick, and they want something that doesn't take a lot
of, you know, work to understand.
And that's just, unfortunately, the trend of the way the world's working these days.
It's 30-second clips.
It's very short attention spans.
So thank you for addressing that, Noah.
And I think it's so important in the wake of what happened here to educate on, you know,
how your funds are properly stored, how your funds are properly not, you know, utilized
for all these things that FTX was using them for and other exchanges such as Celsius, BlockFi,
Voyager, using them for, you know, lending, you know, assets in the background.
And really just how to properly transact and interact in the space, whether it is DeFi or
CeFi, it doesn't matter.
Right on.
I want to go to Piotr.
Hey, guys.
Thanks very much for the space and to Wail for inviting me.
So I joined a bit late.
I was preoccupied with a lot of Ukraine and Polish issues.
If you don't know me, I work more in the sort of policy field.
But given the developments over SPF and FTX, I've been quite intrigued by the situation and
the increasing sort of, shall we say, political engagement it's now getting.
I'm based here in D.C. and I do dabble in crypto a little bit.
I'm very novice compared to everyone else in here, but I think it's important to engage in the space
and learn about it.
And as I say, just to talk to the previous speaker's points, I think education is very paramount at this
point. Clearly, what's happened in the past week or so is going to increase, you know, the scrutiny
and spotlight focus on on this industry and or sector and what was sort of maybe more of a fringe
thing for people who are very interested in it and the desire to be decentralized and not reliant on
fiat currency and so on.
It's going to be more, you know, pushing for regulation or at least some kind of
understanding of how it works.
I'm not going to go into whether or not regulation is right or wrong.
I think that's a debate that can get hotly contested.
But what I do think is important is that at the end of the day, engagement is important for people
who aren't in it necessarily.
Like if you've got people who are interested in the crypto sphere, understanding or educating to them
exactly what it is, how it works is crucial because there was another discussion I was in and we were
talking about the politicalization of everything or many things.
And increasingly, you know, you don't want, say, politicians or regulatory individuals to dictate the terms
by which you operate. You want to engage them, be the ones to be seen proactive so that you can ultimately
direct the things in a way that you feel is more beneficial for for for it, if that makes sense,
instead of being passive, being being proactive.
So I think that that's really important.
The one question I'm curious or sort of the one thing I think is important to keep in mind is also
that because crypto is such a transnational thing, it's very reflective of the global sphere
more broadly. You know, G20 is meeting at the moment.
And one of the primary things that they're the countries there want to discuss is is a crypto
regulation, a crypto sort of framework.
And interestingly, the country that's pushing for this the most isn't sort of the West.
It's India and global South countries, because there's a lot of inconsistency amongst countries
about whether or not you can even do crypto.
China doesn't even allow crypto mining, for example.
So I think it's going to be interesting to see what those countries come up with.
I think a, you know, staunchly strict set of regulations is not helpful.
You need some degree of freedom for competition and innovation, but perhaps a sort of looser set
of guidelines, principles by which to sort of operate or base one's efforts on is a good
start because, you know, practices, the good do's and don'ts, because that also acts as a
good basis to to to build an education.
And also because at the end of the day, I think also there's many countries that are
cautious around crypto and decentralization, defy and these sorts of things.
And I therefore think it's a lost opportunity, because if you introduce some looser framework,
that may reassure more countries.
And therefore they open up to the idea of crypto, which in the ultimate scheme of things is a
gain, is a net gain.
So those are just a couple of my limited thoughts there.
And I appreciate the space.
So thanks for thanks for it.
So you're not too embedded in the space.
You're just dipping your toes.
And I'm assuming your colleagues might fall under that same umbrella.
I'm curious to know what the sentiment is like amongst those that are around you, whether
it's in the workplace, whether it's your own friends with respect to the crypto industry,
given everything that's happened over the last week.
Yeah, absolutely.
So, you know, I probably would say I'm on the if you put everything on a spectrum, you've
got hardcore kryptonite, I'm not sure the official term, and then you've got traditionalists,
you know, gold, fiat currency.
I would probably say I'm, if the center is like exploring both, I'd probably say I'm left
the center.
So I do have a few, you know, things invested in the main sort of cryptos.
I've not gone into NFTs.
And I dabble with it as, you know, I follow a bit of a diversification strategy and, you
know, put, what, five, 10 percent into these sorts of things to look at it.
That being said, I do have friends who are very active in it.
One of them, she's like 21.
She lives in Dubai.
She's all about the crypto thing.
And she's, you know, she was onboarding me earlier, late last year on the wallets and
just the use of the keys and just understanding.
But the concept I found was still quite hard to grasp.
And I said, is there like a is there like a handbook?
I know that sounds absurd, but what I would think would be really helpful is finding a
way to summarize like a website, like a core set of, you know, principles to follow if you
are a novice and you want to jump on board just to experiment and get started without
becoming overly integrated with it.
Because on the other side, I have had a couple of friends, one of whom was very, shall we say
there were there was some concerns about their mental, you know, state of mind after what
happened in the past week.
They were very they shouldn't have put it all on FTX, on air, on an exchange, I think
is what some people are really beginning to argue.
Um, so that was, you know, very, um, um, I had to support them through that.
They've, they've calmed down now, but, you know, they lost a lot.
So I'm, I'm more than aware of the, um, uh, you know, difficult times that I think many,
perhaps including in here are going through, which I really empathize with.
Um, and, and that's why I think conversations around regulation should be, um, a healthy
one at this point.
I think regulation can be a bit of a dirty word to many people because you think it's,
you know, an encroachment on freedom.
Uh, and I completely get that.
But at the end of the day, you get people who will try to manipulate the system, uh, and
some degree of just very minimal, at least regulatory support for those who are novices, I think
is, is, is, is something to keep in, to consider, uh, not pushing for anything.
So, yeah, I'm, I'm definitely on the, on the novice side.
Um, but as I say, I think if you want to understand this, you, you, you've got to not stay in your
comfort zone.
You've got to not be in your silo, um, and, and listen and, and share what you can of value,
which is what I'm trying to do now.
Um, so, um, yeah, um, I'd say I'm a lightweight, definitely.
If that makes sense.
Well, I guess I'll share one more comment on that note.
And my co-host, Acti, one of the, um, I think that the strength of any regular
regulatory regime is on the ability of the builders like us and policymakers and people
like the SEC and governments to identify and give priority to and address these issues in
a collaborative manner.
So I hope that we can reach that, we can reach that equilibrium here in the U S I can't speak
for other countries, but I would love to continue to see some of the best inventions and innovations
come out of this country.
Um, I don't know, like you, Piotr work in, in the cusp of it.
Uh, so I'm not sure what the, uh, you know, what the trajectory is for us over the next five
to 10 years, but I'm hoping that we, um, hoping that we find some sort of compromise between
both sides.
Yeah.
I mean, as I say, I, um, I, I think again, a lot of people who I listened to in these sorts
of spaces are very much against the establishment order, right.
Or the establishments as it is, which I completely understand, you know, uh, there wants that
is a desire to have greater control over one's finances, freedom, the role of blockchain,
uh, the meta web three metaverse are all very powerful, um, devices, which I think we are
barely scratching the surface of.
Right.
Um, and I'm, I'm all for that sort of thing.
Um, and I think there needs to be a way to balance, you know, I've listened to Kim.com and
others talking about, you know, we're entering a new multi-polarity, which I mean, from a
non-finance side, yes, I think we are, but, uh, you know, we talk about, are we going to
see competing currencies?
Is the U S going to be the, can, you know, the default one still?
Um, uh, and I do think there's an opportunity for, for crypto and other things like these
to be living in tandem.
Um, I don't know whether it would become the incomplete and utter replacement, but I definitely
do think it could be in tandem, but, um, there needs to be again, greater engagement,
I think on both sides, um, policy makers, politicians who sort of talk about it, but
don't actually, what pisses me off the most, um, is people who talk about stuff, but they
don't have any knowledge of the sector.
So, uh, it's a bit like if you have a secretary of defense who has never served, right?
How on earth can you understand the military aspect?
So I think you need people to be involved in the space, um, to advise people and, and
there not to be a, uh, descriptive instead of prescriptive approach, if that makes sense.
Um, uh, and as I say, at the end of the day, you know, you guys are at the forefront of
it, you know, what's best for you.
And therefore I think it's within your interests to take a lead in, in, in engaging as well,
because otherwise policymakers will just be like, Oh, okay, well, we'll just prescribe
shit then.
Um, and, and clearly, you know, they'll, they'll harm instead of help at the end of the day.
Um, and the other thing I would just keep in mind is that also, uh, obviously the U S
is the largest market and the most active, but we do have 190 other nations that are
very active.
So try and keep, and this isn't directed to you.
I just mean other people sometimes can be U S centric, try and keep in mind that there's
a lot of different countries that approach crypto differently and therefore have a bit
for cultural reasons or whatever it is, economic reasons, uh, we'll look at it, you know, with
a very different lens and, and, and having that more holistic global view, not necessarily
with global list, um, is, uh, is an important, uh, consideration as well, but much appreciate
that.
No, thanks.
Appreciate you, Piotr.
And lots of unpacked there.
I want to pass the mic to Dan though, cause I can go on, especially on that last point
you made, I could go on a long winded rant.
Uh, so I'm going to, I'm going to save that for another space.
Dan, go for it.
Yeah.
Well, maybe this is a rant on your behalf.
Who knows?
Um, yeah, I just want to touch on the regulation side of things, but right.
I, the one thing that I'm so worried about here is that there's a huge overreach of regulation
because it's trying to capture all of the nuances of crypto decentralization, Web3, and
it just purely stifles innovation completely.
Um, no, I'm not, I'm not, I'm not against regulation.
I think where there's an overlap with traditional finance and an overlap with, let's just call
it Web3, right?
It, it makes sense.
And it's also unavoidable that you need to have some regulation on those touch points.
But what I don't want to happen is that, you know, they, um, as Piotr was saying, they
don't quite understand or there's not enough education about what is the potential of this
technology that things, innovations in the future are unable to come to life because
the guys that are trying to develop those innovations just get caught up in all this
unnecessary regulation because they just happen to touch a bit of it.
And then there's tons of red tape that they have to navigate.
Um, so just things like, let's say, you know, in the future, I've, I've, um, let's say
I'm following somebody on, on some social media networks, all decentralized Web3.
And that follow, and they followed me back.
That's an NFT that I can sell, right?
Like, how does that fit into, into the regulatory frameworks today?
And how might that fit into any new regulatory frameworks that come out of this whole FTX
debacle, right?
If, depending on how that is perceived, like what classification is that, that NFT given
depends on if that social network with that idea for those, um, you know, for, for the
users to monetize themselves in various different ways, like, you know, say it's a super follow
or something like what Twitter is doing.
How, how does that work in any of these new regulations?
Um, one of the great things that, um, that the US did, um, at the birth of the internet
was they, they just left it alone completely until they, until there was a really clear
view of where is the internet going?
What, what is the internet going to be?
What is it going to do?
Um, they just completely left it alone.
Um, and I fear that's not going to happen here because unlike the internet, you know,
if, uh, I'm not going to lose my life savings because my email got lost, right?
Back in those days, because there was no value involved, right?
It was purely communication information.
Whereas now you have these huge networks of value that are in that same kind of incubatory
period of the internet, nobody really has a clear idea where it's going, but because
there are these victims of, of nefarious actions, the regulation, I really fear is just going
to be a massive major and that really shouldn't happen because then this, this entire opportunity
that has been placed in our lap is, it's just gone.
Let's go to Dr. Strange.
Mike's yours.
Yeah.
Hi, thank you.
Uh, yes, the thing is what I want to touch on is I think there are already rules and
regulations, uh, which exchanges, uh, comply with, uh, the question here is about how much
scrutiny, uh, the governments are going to, uh, have in this case or the SEC, uh, seeing
the debacle, uh, that's, that's the only point I need to make, uh, the thing here is people,
some people are saying that crypto is over.
Uh, the government is going to shut it off, uh, that's, uh, not possible because we have
gone way too far, uh, in this, uh, field to return back.
So imagine what, what, what the, what they're going to do with the exchanges, what's going
to happen to, uh, Pax, uh, Pax, which is the stable coin issuer of USD, what's going to
happen to Tether, what's going to happen to all those blockchain developers.
So, uh, shutting this industry off, uh, would mean, uh, a mass, uh, scale of unemployment.
So, which obviously the government does not want.
And, uh, besides there are, uh, a lot of government agents who are deeply involved in cryptocurrencies
personally themselves.
They're have, they're holding their personal portfolio, uh, in this very line itself.
So that's, uh, exactly not going to happen.
I seem, uh, highly unlikely for this situation to arise.
Secondly, uh, this is something off topic.
I want to cover that, uh, if you know that the hacker, uh, uh, has, uh, transferred all
his, uh, uh, all the funds stolen into Ethereum, I guess you're aware about that.
And, uh, it's highly unlikely that he would be able to cash it out because if he, if he
has to cash it out, he has to go to a centralized exchange.
And, uh, the moment he transferred, uh, transfers the amount, the person would be cashed.
So I feel that, uh, the probable move is gonna, that he would sell all the Ethereum and at
the same time he would take a short position and make money on Perpetual.
I mean, what is your guy's opinion on that?
Something off topic, but, uh, still want to know.
And I want to say hi to QTM.
Hi, QTM.
Uh, QTM is here.
Uh, yes.
So I wanted to let Piotr respond and then we can, we can unpack that.
Um, I don't have something towards specifically that thing.
Uh, I was just raising my hand to more the regulatory front again.
So maybe you circle back around when we're, it's a bit broader theme.
Well, no, go, go for it.
Cause I know that you wanted to respond to that regulatory front and then we can circle
back.
No worries.
Okay.
Um, yeah, I just, I had a couple of people message me, uh, cause they said they looked at
my profile and they see that I'm more UN background or bank and stuff like that.
Uh, so they were wondering about that.
Um, so like I, and I'm not going to turn this into politics, don't worry.
Um, I think the UN in this regard would be a very useful actual, um, avenue to explore.
Um, because the UN is meant to be neutral.
It's meant to be a platform by which countries work out global issues or things that are of
a transnational nature.
That's why it's a multilateral organization.
Um, and I think that the crypto thing is, um, is, is, is definitely a good space to
think about that.
Um, I, I had, I was thinking about it before in the sense of, you know, we have this charter
of, you know, principles by which countries are supposed to live by, right?
Norms and values.
And I think that kind of basis by which to formulate some kind of crypto principles would
be really good.
Countries can, you know, bring their perspectives when it comes to what they would like to see
from it.
You can have a large role of civil society.
So you guys directly, you know, engaging, um, people at that level about, Hey, look,
you know, we're worried about crypto being encroached on, uh, and we think, you know, X, Y, and Z
is what should be followed and not ZXB.
Um, so, uh, I think that that's really interesting place to, it's, you know, think of it, you've
got like youth activists and stuff about the environment and other issues that transcend
traditional boundaries.
And, and again, I think it's the same with crypto.
The UN is notoriously behind on this sort of stuff and countries are generally, you guys
are at the forefront of tech, you're at the forefront of what's possible when it comes
to personal finance, FinTech, any of this sort of stuff.
Um, and I think therefore taking a proactive role, as I said before, in, in educating people
who really do have the ability to influence the potential global regulatory framework would,
would be, would be very, very beneficial.
There's another element to this very quickly, which I wanted to mention also, which is, um,
I wasn't aware of this, but the UN came up with a study about six months ago, a year
or so basically saying that now about 20%, and I'm not going to, I'm not going to try
to scam on this, but 20% apparently of terrorism is financed by crypto sourced financial sources.
So, um, that's a, that's an actual security concern at this point.
So crypto is no longer just in a very uni dimension, uni dimensional, uh, element.
Now it has issues that are pertaining to other interests or concerns.
And therefore, you know, you have to, I think not you again, but one has to look at this
increasingly multifaceted, because if that is true, if that statistic is even remotely
accurate, um, then there's a lot, we, we have to, you know, look at the, that as well.
It's a bit like when the internet first came around, right.
And there was no regulation around the internet.
And then you've got the dark web, the deep web, and a lot of other shit that is just abhorrent.
And so, uh, I think that at this point, we also need to be aware of, of how crypto can
be leveraged for nefarious, well, as SPF has done, largely speaking, um, at least most people
think it has been done like that.
So, uh, that's just another element I wanted to keep in mind, because countries look at
it from not just the financial point of view, they look at it from a security, uh, and other
thing, which is, uh, you know, important to keep in mind.
That's all.
Uh, thanks.
Sure.
And, uh, I want to make a point on that last, uh, on that last note, uh, I hear this a lot.
And first of all, I think it's important to make the distinction of Bitcoin and then crypto,
but I hear this a lot, that Bitcoin is used for money laundering.
It's used for criminal activity.
It's used, uh, to fund terrorist activities.
And, uh, I believe it was a former CIA director, the former CIA director that came out with a study
to show that the U S dollar is by and far used more for money laundering and criminal activity
than Bitcoin and in cryptocurrency, uh, again, by a large margin.
So I, whenever people, and I'm not saying that you, you did say you weren't sure about
I'm not saying that you're making that point with certainty, but I hear this a lot.
And I just want people to understand that Bitcoin is used for illicit activities on a
very, uh, at a very minuscule, uh, at a minimum, very minuscule rate compared to the
U S dollar.
So if we're worried about, if we're worried about money laundering and criminal activity,
then maybe we should find other ways to tackle it.
Uh, rather than just, and I'm not saying this is you, Piotr, I'm just saying in general,
cause I hear this a lot, but maybe we should find a way to tackle it in a different way
than just saying, Hey, it's, it's crypto or Hey, it's Bitcoin that, that is, uh, allowing,
um, evil entities to commit, uh, to, to commit these crimes.
So no, a hundred percent agree with you.
Sorry, just jump on, on that last point.
A hundred percent agree.
Um, you know, obviously the actual predominant sources of anti, um, uh, laundering and, uh,
and, and illicit activities is through conventional currencies.
That's without question.
And then the one thing I would just keep in mind is that this has, if that again, percentage
is accurate, that's a lot for a, uh, a thing that was only created what in 2008, nine.
So it shows you that despite the rather infancy that Bitcoin and crypto is in, uh, the, the
potential for this to balloon is what all I'm saying.
But again, I a hundred percent agree with you.
Uh, and again, I, it just comes back to what we're talking about with education, engagement
and, um, constructive pathways forward.
Yeah, it's a fantastic point.
Ira, Mike's yours.
Well, thanks for having me up here.
Um, and, uh, look, full disclosure, I represent all sorts of folks in this industry for a
long time.
Um, so I'm not speaking on anyone's behalf, uh, except for my own right now.
And this is not legal advice.
Uh, Peter, I also represent a Kim.com who you mentioned for a long time and, uh, folks,
you know, uh, worked with consensus mesh to build a new NFT standard.
And, you know, there's a whole host of folks at blockchain co-investors and, you know, I'm
an ambassador for them and they have stakes in a lot of folks, including Coinbase.
