The Pomp Podcast - Thomas Farley On Leaving The NYSE For The Crypto Industry - #899

Episode Date: April 5, 2022

Thomas Farley is the former President of the New York Stock Exchange and is the Incoming CEO of Bullish. In this conversation, we discuss Tom deciding to transition to the Crypto industry, Exchange Infrastructure, Bitcoin, Regulation, Liquidity Pools, and Institutional Adoption. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= The world's 2nd largest crypto exchange, OKEx, has dropped the "E" to become OKX, reflecting its evolution from a traditional crypto exchange to a comprehensive, cross-platform crypto services provider. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Explore DeFi, NFTs and play-to-earning gaming with the world's most powerful crypto exchange. Visit OKX.com to learn more. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Tom Farley is the incoming CEO at Bullish. In this conversation, we talk about exchange infrastructure, Bitcoin, regulation, AMMs, liquidity pools, and institutional adoption. I really enjoyed this conversation with Tom, and I hope that you enjoy it as well. Before we get into this episode, though, I want to first talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes.

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All right, let's get in this episode. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion.

This podcast is for informational purposes only. We've got Tom Farley from Bullish who's going to be joining us. Tom was formerly the president at the New York Stock Exchange and now has gone all in on crypto. Tom, how are you? Great to be on with you guys. Absolutely. I'm super excited about this. So you were the president at the New York Stock Exchange, which is the epitome of the legacy markets. And I think that for a long time, I would put you in the category of like cautiously optimistic about crypto. and you were interested in it, it seemed, but weren't yet convinced. You now have gone ahead, gone all in on crypto, you're CEO of Bullish. Let's just start with like, what were the milestones or the data points that ultimately led you to say like, hey, you know, my cautious optimism is

now going to become something where I want to actually spend some of my career working on this stuff? Yeah, I don't even know if I would call it cautious optimism. It was it was kind of like fear of being disintermediated by it from, from the very outset. I, uh, probably summer of 2012, you know, I was talking to a neighbor who was telling me, Oh, I'm working on building a blockchain company. And, you know, I'd heard the term blockchain, but I, you know, I was friends, friends with a guy and I just was transparent. I'm like, I don't know what the hell the blockchain is, because in those days it was the blockchain, and tell me about it. And at this point, I was going to be going in to run the New York Stock Exchange. And basically every facet of the answer

was, and this is how we'll put the New York Stock Exchange out of business eventually. And this is how we'll put the New York Stock Exchange out of business eventually. And, oh, there's a whole cottage industry of people between the customer and the New York Stock Exchange. And we're going to put all of them out of business. And I was like, I'd like to know more about this company. And so he hooked me up with the founder, his buddy from Duke, who was Fred Ursham. And we got together, you know, and we're in the gilded halls of the New York Stock Exchange with like Gold Leaf and everything. And Fred rolls in and he was probably like 21 or something. And it was just more of the same.

And I was like, wow, there's something to this. And so we ended up putting 10 million bucks pre-revenue into the business. And the most important thing I cared about was getting the board information rights and really just learning along the way. And so really just biding my time, look for an opportunity. And, like everybody, my optimism for crypto generally kind of waxed and waned. Bitcoin as well waxed and waned, but all of crypto. And then really didn't see the perfect opportunity until about a year and a half ago when I hooked up with Bullish. And that's how I ended up here today. So when you go to make that investment in Coinbase, $10 million, is that like a big investment for the New York Stock Exchange to make at the time? Or is that more of like, hey, we're basically going to pay to learn. And if we lose the money, that's okay, because the learning is the more important part. But you know, obviously, we make an investment, we hope to get some kind of economic return. Like, how is that size wise for the exchange?

Yeah, actually, we, so I spent 13 years, pretty much my whole career running exchanges for the Intercontinental Exchange and the New York Stock Exchange, kind of family of exchanges. And boy, I can't remember too many minority investments we ever did. So whether or not it was big or not is less relevant. We didn't, we just didn't do it. You know, we did a minority investment in a futures exchange in India, and we did one or two others that were strategic. But I just felt it was that important. For me, I was truly, like I said, it was less about optimism. It was more about fear and, hey, do we need to be innovating? How are we going to keep up with this? And so made the decision in that one meeting, it was maybe a half hour. And I said, OK, we want to invest. And then the rest of the meeting was about how do we do that and how can we partner and how can we help you guys create a lot of value? It was actually a really helpful investment. I can say with all due humility that NYSE brand name, which I had nothing to do with

creating for 200 years, really kind of put an imprimatur or a stamp on that particular business. And it bounced around the echo chamber pretty good. the big investors back then were Mark Andreessen and Fred Wilson. And if you go back and you look at the stories, it kind of said, you know, NYSE invest. And then, you know, bullet point two said two of the best crypto investors, two of the better venture investors of all time, Fred Wilson and Mark Andreessen. So it was a quick decision. It was because we knew something really important was happening and big innovation was coming. It wasn't something that was very

typical for what we did as a business at all. And I think it worked out for all parties. And I think to this day, Brian and Fred and Mark Andreessen and Fred Wilson, they'd all say it worked out well for everybody. Yeah, it's a pretty cool story. When you start to think about after the investment, as you guys continue to see Bitcoin and cryptocurrencies rise in price and crash, rise again, and I'm assuming part of the interest across Wall Street really was tied to price and to some degree uh it seems like the price is almost the marketing department for these you know decentralized assets um what was the the sentiment inside of the new york stock exchange and obviously there's some stuff that you won't be able to say but just was the general idea of

like yeah 25 years from now all of this is the future or was there some skepticism and people were basically saying look you know yeah maybe you know people on the internet want to go and trade this stuff but there's always going to be a home for these legacy exchanges uh and we don't need to worry about this kind of new technology? Well, I'd say the team that kind of thought about this all day, every day, remain positive and optimistic in particular about Bitcoin as a, really as a store, increasingly as a store of value. In early days, it was a little unclear what it would be, but increasingly as a store of value. You have to go back in time though, and remember how many knuckleheads were running around in 2015, 2016, 2017 with really dumb ideas

about this is the direction of the blockchain. Everything's going to be a private, everybody's going to have their own private blockchain. And, you know, they kind of describe in a 20 slide PowerPoint pitch, this is why you need your own private blockchain. You're not going to have any miners. You're not going to, it's not going to be proof of stake.

It's not going to be proof of work. You'll just control the thing, but it'll borrow from a couple precepts and concepts of what was in that original eight page white paper and what's been built since. and it just made no sense. And so we, we, because essentially they were describing a better Excel spreadsheet, a better Oracle database. And so there was a little bit, and that's what I meant earlier, kind of waxed, waxed and wane. We knew there would be a market for Bitcoin. So we spent

more time thinking about, okay, what, what might a futures contract look for, look like for Bitcoin? What, what might a spot exchange look like for Bitcoin? And it really wasn't until say 2018, when it all came into focus for us, that you'd have multiple viable blockchains, you'd have a lot of this innovation that today is called DeFi, but back then was more just kind of smart contracts on new blockchains.

And that was kind of the germination stage for new ideas coming out of Intercontinental Exchange. And we had a lot of good teams fight. We had a lot of differing views of exactly how that should work. What came out of that ultimately was a number of different initiatives. One of those was the subsidiary BAC that subsequently went public via SPAC.

And I left around about that time, 2018, and started an investment company with my colleague, Dave Bonanno, really looking at investing in innovative and interesting fintech companies. So when you leave, and up until today, what is the general sentiment across these institutional investors? And institutions both could be the endowments, pensions, you know, foundations, et cetera, but also every major hedge fund in the world trades on the New York Stock Exchange, right? This is literally the premier exchange globally. You talk to a bunch of these folks, like what is their openness and kind of participation in crypto in general right now? And I'm assuming that partially led you to eventually say, hey, look, I want to step in and become the CEO of Bullish. Yeah, I mean, I kind of thought the light switch would flip back in 2018, 2019 for institutions. It did not. The light switch is flipping right now. And what I mean by that is all the so-called smart institutions, well, by and large, there's exceptions that prove the rule. they just missed it. You know, they basically missed it from back 2012 all the way to 2022.

I mean, you don't see any of the Wall Street banks with any businesses in crypto. They'll talk about, oh, we're launching crypto. Really what that means typically is they're going to broker Bitcoin futures on the CME. And that's the extent of it. By and large, the biggest asset managers had no business in it and no investing in it. And it was really this kind of really smart retail wave far more sophisticated than we've seen in other asset classes. In equities, if you buy a share of, I don't know, Workday stock or IBM stock, you buy the stock and you stick it in your Schwab account and you hope it appreciates. In crypto, you buy the crypto and now I want to earn on this particular, I want to earn by staking on this particular asset and I'm going to go get

a loan from one of these other lenders on this other particular asset. Very, very sophisticated retail base that's wholly responsible for the growth of this industry. And only now have the institutions started to come in hand over fist. And I think there's an absolute ton of room to grow on the upside with respect to institutional adoption. And the single biggest thing that will help is more and more and more regulatory clarity. I spoke to a very well-known institution last week on Friday. And the person said, yeah, I'm investing in crypto. And I said, oh, geez, you must be. I mean, you can get incredible yields by investing in crypto. And I cited a couple of the protocols that are available. And he said, yeah, but we only put about 5% or 10%

of our assets because we still don't have that kind of regulatory certainty, regulatory clarity. And we would rue the day that we had to go back to our LPs and tell them why we got into trouble for investing in a particular protocol or another. So I think the institutional adoption is going like this. Regulatory clarity is starting to follow it all around the world. I say it as an American here in New York, but also outside of the US. And I think it's really going to be the slope of the institutional curve is really going to ramp up as that regulatory certainty comes into view. You mentioned a bunch of innovation that occurred in DeFi and in kind of crypto. And one of those is AMMs, which obviously is a core piece of the infrastructure

to make a lot of these decentralized exchanges work. My understanding, and you'll kind of correct me here if I misstate anything, but basically it's taking the idea of the AMM and the liquidity pools and bringing that into kind of a more institutional, regulated, centralized type structure with bullish. Talk a little bit about that innovation around the liquidity pools and the AMMs and like, why is that so effective and so innovative? And then how you guys are thinking about bringing this to, you know, more of a Wall Street type audience? Yeah, sure. Let me, if you don't mind, let me give you maybe a little bit of a long winded answer. You're the expert on it. So go ahead, knock us out. I'll start, I'll circle back to precisely answer your question. So first

of all, and if I use buzzwords, I apologize. I, like I said, I've kind of been in the exchange industry my whole life. But just to help the viewers kind of understand what an exchange is all about, typically the exchange with the most liquidity wins. And exchanges tend towards kind of sort of oligopolistic market structures. Not one exchange, maybe more than two, but, you know, not necessarily more than 10 or 15 for a particular asset, because people like to have more liquidity concentrated in fewer places. And what liquidity means is, let's say I want to buy Bitcoin or I want to sell Bitcoin or I want to buy ETH, I want to sell it. I want to know for the amount that I want to buy, how much is it going to cost me? Meaning when I buy it,

how much is the overall market going to move against me such that the mark-to-market value of my asset is going to be less at the conclusion of my trade? And in a perfect world, that movement is zero. But you're never really going to reach that theoretical zero. There's always going to be some cost because you have to pay the people who are providing the liquidity. So exchanges all around the world are in this eternal quest to be able to effectively increase the number of bids and offers that they can get in particular around the current market price. And whoever does that best wins. And I, you know, I remember just an anecdote way back. I don't even remember the year. Maybe it was 2007 or eight. I launched a new coffee futures contract and I was all excited

about it. And I, you know, I traveled all, I went to all these, I went to Switzerland with all these coffee guys like Nestle and everybody wanted it. Everybody, it was a robust coffee contract. They really needed it to be able to hedge their coffee. And then we launched it and it was just crickets because the first person who shows up to provide liquidity, they're going to end up losing a lot of money. And it's difficult to find the market makers who are going to make markets in coffee. And so I wanted to create our own liquidity as an exchange. I wanted to be able to provide our own bids and offers, but I wasn't clever enough to figure out the model that worked, the model that worked financially, the model that worked with the regulators. And I had the same experience

later, launching a CDS index product in Europe, so on and so forth. And it wasn't until about a year and a half ago when I started studying these DEXs, and in particular, the DEXs that use the AMMs, mostly powered by something called the Bancor algorithm. And the light bulb went off. I said, aha, this is it. This is like bring it, you know, BYOB, like bring your own liquidity as an exchange. I can launch as an exchange and I can use this automated market maker model, which I use the term liquidity pools synonymously. So if I go back and forth, I'm talking about the same thing. And all of a sudden you have a way to populate bids and offers and you're not beholden to any one market maker. You're not beholden to 10 market makers.

You're not beholden to the same crowd of people that are making the same prices on a whole bunch of other exchanges. And just to go back 10 minutes, when our guy Elon puts out a tweet and they pull back their prices on every single exchange. So if you're just doing that, you're not unique. You're not going to win this eternal quest I talked about. But if you're using an automated market maker model, all of a sudden you can have a unique and differentiated form of liquidity. And so that's really what got me excited. I can talk to you more about Bullish and how we're going to use it. But let me just pause there after that monologue. But before we go into exactly what Bullish is doing, explain the liquidity pool, how it actually

works in terms of how there's so many more bids and asks that are going ahead and providing, you know, superior pricing, if you want to describe it that way. Yeah, sure. I'm happy to kind of do the nerdler 201. Let me let me take a step back, you know, mine and just say I'm talking a little bit. I mean, so far, we've just kind of talked general market structure, but increasingly we'll be talking about bullish and how we operate. And the SPAC, Far Peak and bullish will be merging. We've announced that we filed with the SEC. We've actually filed many versions of a document that's called a proxy, which is roughly 800 pages that lays all of this out, kind of the business description, the opportunities, but also the

risks. And they're both real, the opportunities and the risks. And so I encourage anyone who's listening here, if you're interested in learning more or investing, please don't just take my word for it here on the show. Like actually go to the SEC website and make sure you educate yourself or reach out to us. We're easy to find on Twitter and otherwise. So just to explain how it works, and it's kind of complicated, at least, well, frankly, it's a little bit like all of DeFi. You know, it has a really great use case, but when you approach it, it's like complicated. I spent the weekend studying a particularly new development in DeFi. Man, I came out of it feeling, you know, even dumber than I already felt.

It can, you know, for all of DeFi's innovation, it can lack approachability at times. So let me explain exactly how it works. for each currency pair, and now I'm referring to bullish, for each currency pair, we will have an AMM for each one. Think of the AMM as a box of money. So a customer can show up to the AMM and they can put assets into the box. On day one, we require that you put the assets in, in a 50-50 ratio. So with Bitcoin USD, for example, let's say you wanted to put $10,000 in, you'd put $5,000 worth of Bitcoin and $5,000. of actual fiat. And then across the box, the aggregate of all those deposits from all the

customers, we run something called the Bancor algorithm. All the Bancor algorithm does is answer the following question. If Pomp shows up to buy or sell a given amount of Bitcoin, and the answer will be different if it's $100 versus $1,000, what price should I make Pomp or Joe or John, such that at the conclusion of the trade, the assets in the box are still 50-50, Bitcoin, USD, just as they were prior to the trade. That's it. That's all the Bancor algorithm does. We have then asked the question of the Bancor algorithm many, many, many, many times. And we post those answers as bids and offers on our central limit order book. So if you were to show up to bullish, you were to pull it up on the bullish exchange, you will see a central limit order book that looks very similar to the New York Stock Exchange. It looks very similar to any other central limit order book you've ever seen. Many, not all, maybe even most of the bids and offers are emanating from the automated market maker.

but also third parties can come and post bids and offers just like they can anywhere else. What makes it so interesting is the Bancor algorithm does not know what the price is on any other exchange in the world. The Bancor algorithm does not know that Elon Musk sent out a tweet. And so those bids and offers are immutable in that sense. They only move when acted upon, when somebody comes and trades with them. And so there will be opportunities just as there are with the DEXs, the AMMs and the DEXs, to trade in a way where there's an arbitrage opportunity and you can make money. But as the price moves up and down and comes back to the starting place, the value of the assets in the box will be the same as they were on the day it

started, if it comes back to that initial price. So that's kind of how they work. Did that make sense? It makes a ton of sense. And I think one of the big keys here for most people to understand is that market-making, for anyone who doesn't know, there's firms that make billions of dollars a year doing this, right? And what they're essentially doing is they're doing it by providing this liquidity. And that's what you're talking about,

the coffee contracts, et cetera, is if you can't get somebody to come in and start doing that, then you're kind of screwed because you don't get the liquidity, liquidity would get liquidity, et cetera. Really what we're talking about here, and one of the key things that I've always thought

is that so much of what we're talking about across crypto is automation. We call it DeFi, we call it all these other things, Right. I think you're probably one of the first companies that I've seen where you're taking aspects of this decentralized finance. You also have a centralized component to it. And really what we're talking about now is just automating what's already happening in the legacy world. And you can think of Bitcoin as an automated central bank. You can think of this, obviously, as this like automated exchange. And you can kind of go through the full stack. But that idea of automation, it's really unique because I don't think that many people think that's controversial, right? People may think decentralization is controversial. They may think crypto is controversial. But I think most people agree, hey, the world's going to get more automated, not less over time, right?

Yeah, and I think DeFi has kind of proven it, that additional automation has a use case in the world. You said it exactly right. We're the only exchange that I'm aware of that combines a central limit order book with an AMM. We're the only so-called kind of centralized exchange that's borrowing kind of the most notable protocol in all of DeFi, which is really these AMMs. I mean, there are days where a super majority of all the gas fees on the Ethereum blockchain come from the AMMs. And we're taking that and combining it with Central Limit Order book. Let me say two things. First, we have an additional luxury I haven't mentioned, and that's we have a large balance sheet. So in our proxy,

I think it's the, in our last proxy, we disclosed that we had Bitcoin as of June of 140,000 Bitcoin. So a large position, also cash, also other digital assets. So the beauty is we're able to prime the pump. We're able to invest as a customer and deposit in these liquidity pools to be able to create bids and offers in the markets from zero. And then ultimately, as the yields to depositors increase, in other words, as the trading fees increase, the depositors get a share of that, third parties will ultimately find it attractive to invest alongside us. And, and, and all of this will, will, will, will increase liquidity. The other thing I would say is DeFi, like there are many times when I'm envious of our DeFi cousins because there's

just so much room to run and, and, and so much room to innovate. But there's some things that you can solve by, by doing it the way we did it. You know, the lack of KYC AML is not a help, it's not a feature, it's a bug when it comes to institutional adoption for most institutions. So we're able to do that KYC AML. The lack of Bitcoin and DeFi, the inability, frankly, to have Bitcoin and DeFi in any of the major kind of non-Bitcoin blockchains, we can do it. So it's an advantage. The lack of gas fees, we don't have gas fees. So it's just a lot cheaper. You know, it's kind of like no gas fees, no rug pulls and doing it all in a trusted wrapper. There are some advantages. Are we going to be able to mimic the amazing explosive DeFi from just like brilliant folks who are doing it?

Probably not. But we're going to be able to solve some some real issues in the short term. And ultimately, we're going to be able to build bridges to DeFi in a way where we can participate and be a part of that innovation. But again, doing it in a safe wrapper. Yeah, I think a lot about like, there's no one size fits all solution, right? There's different market participants, they're all looking for different things. And so we need many different solutions for them to kind of evaluate and choose. Joe, Joe, what questions you guys got? Hey, Tom, thanks for coming on the show today. Thanks for having me. Of course. So my question would just be around kind of the future.

Obviously, you're very bullish by joining bullish. I'm very proud of that. Play on words there. But where do you think this goes with institutions in general, right? Over the next 5, 10, 15 years, we've seen retails going to continue to acquire Bitcoin specifically and other traditional or other digital currencies. What happens on the institution side? What are your thoughts for the next 5, 10, 15 years?

So, first of all, we take the bullish like puns and metaphors to the extreme. And speaking of speaking of which, we're actually going to have a mechanical bull in the convention center in Miami. And whoever has the longest ride on the bull Wednesday to Saturday wins a Bitcoin. Wow. So don't ever apologize. Don't ever apologize for using Bull. Even before I kind of understood what Bullish was, I was like, oh, I like the name. You know, it's like got a good name and logo. That's a start. Now let's learn.

Let's learn about the business. Yeah, it's kind of what I said, Joe. I already feel like if you're an institution and you're not at least asking the question, how can I hold Bitcoin? And how can I evaluate investment opportunities and yield opportunities for the rest of the non-Bitcoin digital assets? You've failed the intelligence test. Like you've just kind of missed it. And in general, that's the sense I get. I mean, the smartest institutional investors have come around. I mean, in our pipe, a pipe is a a sidecar investment effectively that can go along with a SPAC. The term pipe, I think,

is a bit of a misnomer, but it's an investment. And in our pipe, we had Peter Thiel, Alan Howard of Brevin Howard, Lewis Bacon. We had Steve Cohen. I could go on and on. Christian Angermeyer. I mean, some of the smartest investors in the world. And yeah, maybe you could say they're avant-garde or they're on the leading edge, but it's coming. I sit on a university board and I've had the chief investment officer ask my thoughts about allocating into Bitcoin. And these are things that weren't happening six months ago, let alone a year ago or two years ago. So I think institutions are going to come in, but they're going to come in to some extent on digital assets, on the terms of the participants who are already in digital assets. I don't think

this is going to look just like every single asset class that exists in Wall Street. I'm sitting here in New York City. Today, securities lending is the exclusive province of the most sophisticated Wall Street investment firms. Guess what? Cat's out of the bag in crypto. It's not going back in the bag. You can now lend out your securities. You can get the incremental yield that you didn't otherwise have the ability to do in equities or FX or fixed income. And so they missed it for a decade. The market evolved. And now institutions are going to come in and they're not going to be able to co-opt it. They're not going to be able to put innovation back in the bottle. They're not going to be able to put the nature of crypto returning kind of power to

the people back in the bottle. But they are going to have a big say. John, what do you got? Thomas, yeah, it's great to meet you. You talked about regulation a little bit. Can you talk about what effect a spot ETF would have domestically in the United States and kind of the institutional demand for it? Oh boy. That's such a controversial topic. That's the only one I ask. Oh boy. When we were at the New York Stock Exchange, we had the ARCA. We had several exchanges, New York Stock Exchange being the most notable, but all the ETFs, something like 92, 93% of assets under management were listed on our ARCA platform. And so I spent a lot of time learning about ETFs. And the key distinguishing characteristic about ETFs that would get

approval is they're able to prove that they're transparent, they're easily understood, and they're not subject to manipulation. And as digital assets were coming about, I understand that the SEC would want to move with some trepidation on approving ETFs. But the conclusion that they've ultimately come to up to this point of what we're going to approve Bitcoin ETFs that settle into futures, but not Bitcoin ETFs that settle into the spot doesn't I don't I don't understand it because actually those futures contracts actually settle into spot. so if you're going to approve a contract that's settling on a future then ergo you would think that the logic would be you would you would also approve an etf that settles in the spot but i haven't spent a lot of time in it i will tell you gary gensler was my direct regulator for six years this is a very smart guy uh very deliberate he's brought in a team of people that no doubt are

looking at it and i'm sure there's logic there whether or not you or i would agree with it i don't know. But up to this point, I haven't fully understood the approach. Gotcha. Tom, when you start to think about 10 years out in terms of a lot of this all developing, is your thought process that all of the exchanges across the legacy world will start to incorporate what I'll call crypto innovations, whether that's AMMs, some liquidity pool stuff, or various other innovations? Is this just the legacy world's infrastructure and the new world's infrastructure is on a collision course with each other. And it's just a matter of when it happens, or do you still think that, uh, we'll kind of have some separation over time and something

like bullish, which combines the two is going to be the outlier. Yeah. I mean, first of all, there's going to be far fewer exchanges than there are today. Uh, like a tiny, a tiny fraction, uh, because of what, because of what I said at the outset about liquidity and liquidity tends tends towards vigorous competition, but a relatively smaller number. In addition, there will be more regulation. So the notion that exchanges would move purely, let's say, decentralized, kind of unregulated, that won't be the case either. We used to have a saying at the New York Stock Exchange that every country had a flag, an exchange, and an airline. And it was pretty much the truth. And it's because countries like to be able to regulate that important risk

transference. So you'll have far fewer exchanges. I think you'll have a combination of what is currently called DeFi. It'll have some new name then, along with centralized exchanges. The one thing, you know, I'll kind of turn it back around and ask you guys, one thing I don't have a view on is what is the future of digital assets if you kind of split between just Bitcoin on the one hand and all other digital assets on the other. That's something I think about a lot. If you look before DeFi summer, Bitcoin was like 40% of the market cap of all digital assets. Then we had DeFi summer, we had this absolutely amazing burst of innovation. It continues today. Bitcoin is 40% of the value of all digital assets. In fact,

if you strip out stable coins, which have increased dramatically now, like 250 billion, the percentage of the value of Bitcoin has increased. So what's unclear to me is what's going to happen to all of these other assets, which really embody a goodly portion of the innovation. Is that ultimately going to swallow kind of the turf of the New York Stock Exchange? Is this what an IPO is just going to look like? And so Bitcoin is going to shrink to a tiny fraction? Or is Bitcoin always going to be kind of a dominant force in digital assets? Then when it hits the 21 million, the lack of inflation, the value is going to increase, the value is going to increase otherwise. Because I think the answer to that question, which I have no idea what

the answer is, speaks to the market structure of what exchanges are going to look like. Bitcoin tends more to be easier with kind of old school, your granddad's centralized exchange, where some of these new assets are more given to kind of the innovative approaches to transferring risk. So there's two things that come to mind immediately. And I agree with you that like no one knows the future, right? I think there's a lot of people who, who, uh, who wants to know the future or pretend to know the future. But, but if you really look at it, I think we have to look at the legacy world and say to ourselves, like, maybe this isn't as different as we all want it to seem. Uh, 600,000 small businesses every single year opened up according

to the SBA. I just looked it up. And when you think about that in the headlines from each kind of cohort of a year of businesses getting started, I don't know, 10 businesses, 20, 50, 100, you know, whatever the number is that end up becoming these like multi-billion dollar businesses, it's a very small percent of the 600,000 businesses on average that are started every year. And so if you then start to say to yourself, all right, you know, some portion of those are tech type companies uh where venture capital and other types of financing uh are appropriate and then there's another bucket that are like the small business that's sort of like a coffee shop a restaurant whatever on kind of main street so if you let's just take out the mainstream businesses

for a second and say anything that's tech related like i think a lot about like what percentage of them are going to be created in a way that is more crypto native right it's not going to be all of them yeah but i think that percentage goes up over time yeah and a key piece to it is you know if you actually go back to the 90s and i won't know the exact data but just directionally companies went public earlier the reason why a lot of them went public earlier one was just that was culturally what was uh kind of uh appropriate to there wasn't as much uh kind of you know growth capital available in the private markets but the third thing was that stock ended up being a great currency for them to use whether it was for acquisitions whether it was to pay employees

all the stuff that we know kind of you know really led to the boom of the tech industry and so now it feels like there's almost this like renaissance again where people are saying wait a second rather than stay private for 10 years 15 years if i could get some liquidity to this asset now they claim it's not equity i think that that's going to get figured out by regulators as to how gets regulated and what exactly does that entail somebody holds it do you have a claim on assets cash flow do you not whatever but just generally i think people are realizing like we can use this as a currency to incentivize whether it's uh people to do work for us whether it's to try to acquire resources whatever so if you think of it that way then it's like man that's probably going

to become way more popular similar to what the trends were you know in these past kind of boom cycles. With that said, I always go to the startup attrition rate. And like, it's way worse than most people think, right? Like just not that many companies end up being good companies. And so what I haven't yet figured out is that startup distribution of results. If you were to ask a venture capitalist, you know, how many of your companies go to zero, maybe it's like 50%. Right, then there's another like 25% where you kind of maybe get your money back or a little less than you put in then you get like another 25 to 30 percent where you might get two to four x and then really comes down to like there's like one percent that are 10x or more in crypto right now

it seems like that's inverted where only like one percent goes to zero because when you do an early stage startup you get funding and usually everything looks great for 18 months because you got money to spend so you're just sitting there you're hiring people you're able to drive revenue whatever and you die after the money runs out here you get it basically get liquidity in the market before the money runs out and so in some weird way like you never actually get to zero because then you might just get to so much illiquidity they delist you and it's a de facto zero but there's no bankruptcy there's no any of this stuff and so then you look at it you say okay well if we were to look at the dispersion of returns over the last five years of all these

different coins 50 went up 10x right like i don't know what the number but like there's some like very odd thing if you look at it from the legacy lens and so i think the question that it leads to is like forget the short term because you and i probably you know if you know enough people if you have access to private rounds if you like have all this stuff you end up having a very different experience than like the average person who just goes on a on a crypto exchange but the question really is like how many of them survive 10 years from now and i think what we've seen so far to your point is that like most of the non-bitcoin ones other than you know ethereum obviously has uh has stayed up there but most of them that ended up being number two three four

five on coin market cap rose and then fell in prominence and so the question really just becomes like how many stay let's say bitcoin let's say ethereum is there two others is there 20 others let's see what happens. But like, it's a very interesting question. I think it'll ultimately dictate the long-term financial returns of investors who don't want to sit and day trade or kind of play, you know, a seat at the casino, uh, and trade virtual coins on the internet all day. Yeah. There's a lot of wise, um, there's a lot of wisdom in what you just said. Two, two things in particular, I want to, I want to adopt as my own, always put a footnote that I got it from directly from pump. But I, I agree with you, first of all, that the right way to

think about it is, you know, you have Bitcoin in one hand, you have the pure crypto native companies, and then you have kind of, let's call it old economy companies that are behaving in a much more crypto friendly way over time. When I was at the New York Stock Exchange, we own 40% of the options clearing corporation, which does all the clearing for equity options. And I was on the board there, so I really got to know well. And then DTCC, I believe we own 20% or some significant chunk. And I was pretty clear when I would talk to the folks running that, that this is the way of the future. It's just more efficient. I can't tell you if it's going to happen on Ethereum or Solana or some new chain that hasn't even been conceived yet, but it is

going to happen that IPOs are going to occur on a blockchain, which is more efficient, which is immutable, which is just the wave of the future. And it allows you to cut out transfer agents. and people who are doing stock tallies for votes and all of this sort of thing, like that is the way it's headed. So you are gonna see many, many more companies that are kind of, again, like old school companies, but they're behaving in a much more crypto native way.

Where I have less certainty is the number of companies that are gonna be successful that are purely crypto native, especially relative to kind of Bitcoin, Bitcoin's market cap, because I can't see into the crystal ball. But you're absolutely right that this has been a boom time. And look, a couple months ago, maybe not even, maybe six weeks ago, there was a little bit of a scare in the market. And it was pretty ugly, the volatility that happened there. And that certainly could be a preview to the next bear market. And there will be a shakeout. I mean, look at equities and you look at what happened with GameStop and AMC and, you know, a lot of the, unfortunately, I say this as a two-time SPAC investor, a lot of the SPAC transactions where there was a lot of hype. It was too much.

Even at the time, I think we all knew it was too much. And I was raising my hand saying, what's going on here? And it really just kind of cleaned out a whole sub-industry. And a lot of people just left. They just took their bags and left. And, you know, that may have to happen in crypto. And it could happen in crypto. One more bear market and you could all of a sudden people could leave, say, OK, this isn't free money.

There is no free money. This isn't easy money. Just like any other industry, there's risk and reward. And I think that will be OK because this is here for the long term. And that's certainly how we think about it at Bullish is this is a 20-year play, if not a 50-year play. It's not a two-month play. and there's going to be ups and there's going to be downs. And right now feels exuberant. Uh, even though there's been, you know, some retrenchment, it does feel a little bit exuberant.

Yeah. I think that's a, uh, a very fair way to kind of evaluate it. Um, we we've got to move on Tom, but where can we send people to, uh, find you or, uh, or go learn more about bullish if, uh, if they're interested in learning about kind of the technology and what you guys are doing. Uh, maybe the easiest way is Twitter. Um, so I'm on Twitter, just send me a DM DM. I love to, love to talk to anybody, frankly, that's interested in crypto or investing or the U.S. equities markets or what have you. I appreciate you guys having me on. Really, really great questions. Hear me out. And I'd love to stay in touch over the weeks and months ahead. We've had a good start at Bullish. We put out some materials maybe a month ago. We've gone from

zero to around about $100 million of annualized revenue. I think the exact number was $97 million in four months. So everything we've talked about so far, Touchwood has been working and trending in the right direction, but stay tuned. My last question, actually, I lied, is while you're doing all this, one of our sponsors is Eight Sleep. What's your sleep schedule? I actually prioritize sleep over a lot of other things in my life. In fact, my friends call me 10, 10 o'clock Tom, because just when the party, just when the party gets good, uh, I pull the rip cord. Um, but you know, I have three daughters and the, really the reason why I left the New York soccer change, I was there for six years. It was amazing. I met like

the most interesting people all over the world. Um, and I love the job and, and, and we were crushing it. Uh, but I like never saw my kids and I never slept. And so I left to be able to just kind of have a little more time, spend more time with my kids, which, which I was able to do. And I really started prioritizing my sleep. So I wear a whoop, um, and I try to get seven hours. Um, but interestingly, the coda to that is like, my girls could not care less about spending time with me. Um, so that was, yeah, that was purely me. Uh, my daughter Maeve's 16 and then Maggie and Tegan are twins. They're 13. And, and they're like, dad, like, like, that's cool. You know, you can go back to work like full time all the time. And so that's part of why I'm going in as

the CEO of bullish. I got, I got kicked out of the house. Um, and they would say that on, on this podcast with, without hesitation, I have a four month old daughter. And, uh, if I, if I say her name, she doesn't look at me, I'm already offended. So at 16 or 13, I'm going to be screwed for sure. Dude, it gets worse. I was like totally the cool dad. And now like everything I do, I mean, sometimes I'll embarrass them on purpose. You know what I mean? I'll wear a ridiculous outfit to like the school dance or something, um, or do the running man as I'm dropping them off for prom. But, but even when I'm just like being me and trying to be normal, oh, it's bad. Yeah. It's all right. They, uh, my dad used to say to us all the time,

uh, I'll get smarter as you get older. And boy, was he right? yeah so all right congrats on the uh four month old having girls is awesome um it's a real blessing i i love it all right thank you so much for joining us we'll definitely have to do this again in the future thanks joe thanks john see you bye thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to try to transition to get a new job in the Bitcoin, or crypto industry, we've got you covered. Head over to palmscryptocourse.com.

We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more, and I'll meet you guys for the next episode.