The Wolf Of All Streets - FTX Will Change Finance Forever | Brett Harrison, President of FTX.US

Episode Date: March 1, 2022

Most big companies are bogged down by a massive workforce that is slow to move and innovate. FTX.US has broken the mold. They are one of the top U.S. crypto exchanges, but have only 80 employees. Known for being nimble and lean, FTX.US is different in almost every way. In this episode, Brett Harrison, the president of FTX.US, explains how his company is waiting on the green light from regulators to roll out a number of groundbreaking products that will change the world of finance forever. --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

What's up, everybody? I'm Scott Melker, and this is the Wolf of Wall Street's podcast, where twice every week I talk to your favorite personalities from the worlds of Bitcoin, finance, music, trading, art, sports, politics, basically anyone with a good story to tell. I'm pretty convinced that right now in crypto, nobody has a better story to tell than literally anyone who's running things at FTX. So today, I'm very excited that we have Brett Harrison, the president of FTX US, to talk about what's happening on the United States front with regulation, with their exchange, with their humongous marketing push, basically everything they're doing to reach mass adoption for crypto. Brett, thank you so much for coming on the show. Yeah, thanks for having me on.

So Brett, listen, I think there's a lot of confusion as to the relationship between, I guess, the FTX umbrella brand, where FTX United States falls in. How does that all work? Sure. So first, FTX.com, or something we sometimes refer to as FTX International, is an exchange that was started around two and a half years ago by Sam. And it was primarily to service institutional customers outside the U.S. because they wanted to create a derivatives platform. Without the right licenses in the U.S., you can't offer derivatives to U.S. customers. A little over a year ago, they launched a completely separate company called FTX U.S. And it's like a separate corporate entity structure.

It's not wholly owned or even partially owned by FTX.com. So it's just a completely separate structure, although there's some common ownership. Of course, Sam is the majority of owner of both, but it's based in the US. Our servers are in the US, our people are in the US. And we have a different product offering because we have to go after specific licenses required

to offer specific spot cryptocurrency tokens, derivatives, which we could definitely get into what we're doing there. And so that's how those two things are related. We consider them a global FTX brand and do a lot of co-marketing, co-branding, and sharing of technology. But otherwise, they're supposed to be separate companies. Right. I'm assuming that they have to sort of

keep those barriers in between them for regulatory reasons and what's allowed in different zones. And obviously, the United States, every time almost that I talk to anyone who works at any exchange about the United States, they're like, oh, we're not touching that.

Right. They're just totally outright. They're saying, listen, we don't want to deal with regulators in every single state. We don't want to deal with the strict regulation in the United States in general. So it's actually sort of bold to try what you're doing in general, right? I mean, to even operate a cryptocurrency exchange in the United States is a massive, massive headache. Exactly. And as you say, there's a huge barrier to entry into doing the United States market, which is why we think we have an edge.

We have a niche here because we have really great relationships with regulators and we've done so much work on the licensing front. I mean, think about all the licenses that FTX US has and has had to get. We have state money transmitter licenses in dozens of different states that require them. We have a money service businesses license. We have four federal CFTC licenses. We have a SEC broker dealer license. We just have all of these licenses that took a ton of time and effort and energy to be able to apply for and get. And that means we have to do audits from all these regulators multiple times per year. So it's a huge undertaking and cost just to get it set up. But this is why we think we have some real legs in the US for what we want to do,

because very few crypto companies are willing to put in that effort to make it happen. Yeah, it sounds like a mammoth effort. Sounds like you probably have more lawyers than employees at this point, I would imagine. Well, you'd be surprised just because, as you also probably know, and this is a bit of lore for FTX, we have very few employees. If you think about like, I think Coinbase has, how many employees do they have now? It's in the thousands. It might be close to 10,000. FTX US has about 80 employees, including maybe between five and 10 software developers, four lawyers,

a handful of KYC customer service people. But our goal is to run as lean as possible. We think it's what keeps our culture really good and makes us very nimble and able to push out stuff really quickly and not be caught up in the morass of some large organizational bureaucracy. So we've managed to run pretty lean, even though we've taken on these Herculean efforts when it comes to regulation. Yeah, it seems contradictory that you're able to do that. But Sam said the same thing when I've spoken to him before,

when they sort of joked like, you can seemingly FTX, not FTX US, obviously, but can have a pair trading of a coin that launched hours ago and already have like an effect. And it's incredible. And that would take, you know, imagine a legacy stock exchange or something trying to go through that process. And you guys, by being lean, can do that so incredibly fast. But I'm surprised that you're able to then with just those four lawyers manage all of what you just described before all of those licenses and

dealing with every single state pretty incredible i don't know how you do it yeah i mean how we obviously we work with outside counsel too there's a lot of different law firms that specialize in different aspects of this of this business and um but yeah everyone you know everyone's 100xer that's like what people like to call these people. So United States traders, obviously, we have very limited access to a lot of the assets that we want to trade. I know you guys are looking actively to trade that. You've had some acquisitions.

I think it seems, I could be wrong, that the holy grail here is to be able to offer derivatives in crypto in the United States. Is that accurate? 100%. Yeah. So like other asset classes in crypto, the majority of the global volume trades in derivatives. It's something like two to three X trades and derivatives as opposed to the spot tokens. But what makes crypto very different from other asset classes is that less than 5% of the total derivatives volume is in the US. Compare that to something like equity futures, equity index futures, like the S&P 500 futures or the Dow Jones futures or the Nasdaq futures, where more than half of the world's equity index volume is trading in the US. And this again is because no crypto native player has really been able to sort of crack the code on getting the right licenses

and bringing that all onshore. And so it's a massive opportunity, one, to bring a lot of that volume onshore that is currently offshore. And two, because there are all of this institutional demand from the United States for derivatives because of capital efficiency, being able to hedge positions, more efficient forms of speculation, more complex strategic things that you can do by leveraging, for example, buying Bitcoin and selling Bitcoin futures against that and doing basis trading. And people want to do that trade, but they can't unless they have some special corporate entities set up outside the United States. So we think that is the holy grail for us is getting that really going in the U.S. and we're on our way.

You talk about institutions wanting to be able to participate, obviously hedging, like you said, that cash and carry trade that you sort of described there. Can't institutions right now effectively do that with the CME or some of the products that are not available to retail? Yeah, excellent question. So the CME has a cash settled Bitcoin future. And so the problem is, is that CME is not a spot crypto exchange. So let's say you want to do this trade where you buy Bitcoin and sell Bitcoin futures against it. You need to open, let's say an FTX US account, buy Bitcoin there, post your cash there to buy Bitcoin. You separately need to post cash collateral with the CME or really with an intermediary broker called an FCM or a futures commission merchant, unless you're directly a query member of the exchange.

And already you've ruined the capital efficiency. You have to separately use cash to buy Bitcoin. With the cash, you have to post collateral to sell the future. What you want to do is what you can do on every international derivatives exchange, which is basically post Bitcoin and use that Bitcoin as collateral to sell a future. Or even better, let's say you already have a billion dollars worth of Ether on the exchange and you want to sell $10,000 worth of a Bitcoin future. Why do you need to get any more collateral? You already have tons of assets on the exchange that has collateral value. And that's what really made FTX.com unique and take off in the way that it did was this

cross-collateralization, this portfolio margining based on the value of your total portfolio and all the assets in it, regardless of what exactly it was. Which makes sense and is more efficient. So basically you're saying that institutions can do this, but there's a lot of barriers, it's complex and it's inefficient. So they probably just skip it. Right. And that's why, yeah, that's why empirically the volume is so low on CME compared to the rest of the world. I think 2% of the world's crypto futures trade on the CME. So if CME was offered spot and had an actual spot exchange, you would probably see an explosion. So it's kind of interesting. You think I spoke with Pay all Shah from the CME maybe a week or two ago, and they have zero interest in a spot exchange because it's just not what they are. Right. So that's never going to happen for them. But I guess, theoretically, you would think that they were would try to work for the problem from the opposite side as you. Right. They've actually done the harder part, right? To some degree. Yeah, well, they have their licenses. They have a clearinghouse. They're an exchange. They have all the liquidity. They have all of the capital in their clearinghouse.

They have all the futures liquidity. Plus, now they have ETFs on their products. So being the only futures exchange in the US where there's an ETF vehicle on their futures means there's still a ton of demand for their products, even without this capital efficiency. So, if they had that missing leg, I think it'd be huge for them. But they need to figure out how to do, you know, crypto custody, cold and hot wallet storage. They're not going to.

Interface with layer one blockchains and they're a big company and they have other priorities. And I understand that. Right. It's just not going to happen, obviously. And it's interesting you talk about the futures ETF, the Bitcoin futures ETF, which is such an inefficient product. And largely as a result of that, we saw the first week that that launched, there was so much demand for the first Bitcoin futures ETF that they weren't even able to buy enough contracts, right? So they had to buy out two months, three months, four months just to fill it. Imagine if they could do that from more than just the CME, right? Or if we, of course, had an actual physical spot ETF,

which we should. Yeah. And there's two interesting aspects to this. So one is, yeah, imagine if we had crypto native futures in the US. There would probably be new ETF products that could launch using F-Checks US derivatives as their underlying, which would be awesome. Not to mention the pricing for the underlyings on our exchange would be free. Because unlike the CME, all of our market data is free. It'll be a much more efficient vehicle for people to be able to create these alternative investment products. The second is that one thing we're looking into is whether we can get Bitcoin and ether to be listed on our futures exchange,

basically as retail spot commodity transactions. And I'm not going to go too deep into all the legal theory behind this, but if we can get Bitcoin on a federally regulated exchange, then we think this could be a shot at having basically satisfying all of the concerns of the SEC, which is they don't want to have a spot Bitcoin ETF when the spot Bitcoin itself is not trading on a federally regulated market. And so if we can get Bitcoin trading on a federally regulated market under the CFDC or some sort of joint thing between the CFDC and the SEC, then maybe that actually enables spot Bitcoin ETFs, which would be huge. Oh, so you're actually working at this from multiple angles, right? I mean,

one of the arguments, obviously, for not having a spot ETF is that they don't know how to mark to market and they feel like those underlying exchanges could be manipulated and they don't have control. So that makes perfect sense. So really, it would almost be fair to say the Holy Grail isn't having derivatives trading, it's having all of it in one place. Exactly. It's that vertical integration that we have the spot, we have the derivatives, we have cross-margining of the spot with the derivatives. We let people make ETFs on our futures, on our spot, and having that all in one consistent framework with free API connectivity in both directions, market data, order connectivity. This is the thing that we're looking to achieve as fast as we can. I know you can't give any direct answers, but when you talk about as fast as we can, is that completely determined by regulators? Is that something that's within your control? Is it if they come up with some clear regulation next month, we start doing this and it could also take 10 years if they're too slow? Is it really

just totally in their hands? Sure. So on the CFTC side, the regulation is already clearly spelled out. So there's already a path for how we can get margin approval. So that's the big thing we're looking for right now. So LedgerX, which is the derivatives exchange that we acquired and then rebranded to FTX US derivatives, they have the license to be able to clear Bitcoin derivatives directly for retail institutional customers. But right now that's fully collateralized. So you have to, if you want to buy a $50,000 Bitcoin future, you have to put up $50,000 worth. So we have a big application in with the CFTC right now to get our margining system approved. And one thing that makes that special and just completely unprecedented from the world's derivatives is on the CME, they do margining basically once per day during normal trading

times. So not on weekends, not on holidays. So you can imagine if on Friday at 3 PM, you put on some gigantic futures position. And then over the weekend, you find out that Russia invaded Ukraine and futures are down everywhere. You have to wait until Monday to start to unwind that risk, which usually causes huge price dislocations on the opening of these futures contracts. And this also results in further cascading liquidations and inefficiencies in general. FTX, the way that the FTX.com system works, which we're importing into the US, is it does full portfolio margining basically once every 10 seconds, 24-7. And so we think this is actually super risk-reducing compared to the current worlds out there with derivatives. And so we're getting that model through the CFTC right now. There's a big application in there. They're going to review it very carefully and in great detail. And if we get that approval, that's sort of the last big step that we have before we can offer those products. And how long is that going to take is a question that could be on the order of single digit months, maybe a little bit longer, but we're making good progress there.

Right. With what you just described, shouldn't every single market be 24-7? Yes, absolutely. I mean, we're in the internet age. It's not like if you wake up at three in the morning and you want to go order some cookies late night or something like that, you have to wait until 9 a.m. because the internet stopped between 10 p.m. and 7 a.m. or something like that. It's like when the internet stopped between, you know, 10pm and 7am or something like that. It's like when the internet is 24 seven, why shouldn't financial markets be as well, it would be much better for risk management. And for price discovery, if all of the products that could be traded, it could be available 24 seven, we just think this is the way we're all heading. And so we hope we can usher that in.

Yeah. One of my favorite moments was when Elon Musk put his infamous now Twitter poll up saying, should I sell 10% of my stock on a weekend? And the price reacted Monday morning, but FTX, obviously, FTX.com was already trading effectively Tesla stock. And you could see that move on Sunday before it even happened in the real market. That was a real eye opener, I think, for a lot of people. Right. Yeah. Just having this sort of tokenized product, this regulated derivative, be 24-7 and be able to immediately price in the change from this very surprising news. Yeah. It seems like we can even then up the definition of the Holy Grail to say, we want all of this for crypto in one place. But once you have that, and if you get this approval, it seems like then you could theoretically replace the 48-hour ludicrous

clearinghouses that we use for stocks and make every market go 24-7 using the same basis. Yeah. It's really interesting how, because crypto came about in the last decade or so, completely in the internet age, people designed it from the beginning to be sort of the simplest thing you can imagine, which is just like always up, instant settlement. Like why should there be anything else? Like if I buy Bitcoin, they could show up in my wallet now, as soon as that block gets confirmed, right? As opposed to the equities world, where previously it was T plus three, now it's T plus two. And that was a huge deal going from T plus three to T plus two. But if it's like Friday before President's Day, it's going to take

four calendar days before that stock settles in your account. Think about what can happen in the market in those four days. And when you looked at the giant problem that occurred on the infamous GameStop day with Robinhood and these other brokers was because of this T plus two settlement, you don't necessarily have the cash to back these positions yet. And you're not going to for 48 hours. But in the meantime, you're getting asked by the clearing firm to put up capital to back these positions yet. And you're not going to for 48 hours. But in the meantime, you're getting asked by the clearing firm to put up capital to back the positions because of the increased volatility. And at that point, you're sort of screwed. And so what do you do? Well, maybe you have to just shut off trading because otherwise you're going to go under as a company. And then that, of course, pisses everyone off. So that system is just broken.

It really pisses people off when you turn off trading only in one direction. Only one direction. You can sell as much as you want. We're just not going to allow you to buy it because we can't cover those orders. But I think that, interestingly, to pivot, Robinhood took endless crap for that, right? Maybe justifiably. But people forget that that was also an issue with Schwab and E-Trade. Although, you know, the people who are largely trying to trade GameStop were on Robinhood, but that was a failure of the system and not of the platforms, right? You just couldn't, how could Robinhood anticipate

needing to have billions of extra dollars in cash, who has that, sitting offhand for these orders on any given day? If you're Vlad, you don't want to be in that seat on GameStop Day, where you have a huge mass of internet retail traders who are super excited about what's going on in the market. And all of a sudden they can't trade. But what they don't understand is if you're Vlad in that seat and you're dealing with a firm that you rely on, or multiple firms, five, six, seven different firms you rely on to buy the order flow. You rely on 13 public exchanges for routing. You rely on a number of dark pools for routing as well. You rely on the DTCC, who is going to suddenly call you up and say they want 50 billion extra of collateral, whatever they want. There's so many steps for an equity trade

plus delayed settlement. You're not in control over the execution. And these problems are going to be completely out of their hands. And people don't really appreciate that fact about the stock markets. What we love so much about the way that crypto works is when you're trading crypto, there's the buyer, there's the seller, and there's the exchange. That's pretty much it. The exchange does your custodian of the assets. They are the market data, they're the app, they're the clearing, they're the instant settlement, they're the risk management, they're the exchange order book itself. It's all of it. And so we can say with pretty high confidence that this is going to work even through 30% swings in the crypto markets as a whole, we can operate fully normally and not have to liquidate customers left and right or

take away customer funds or randomly shut off one side of trading. This is our compelling case for why this is going to be a risk-reducing market structure going forward. I can't wait until they tokenize everything and we can eliminate all of those, but maybe that's a pipe dream because the problem is as much as it's a superior system, think of all the big players who have a vested interest in not allowing that to fail. I mean, this would effectively undermine every major bank and system in the United States. And to be fair to, like, let's be fair to regulators. I think they are rightly concerned that things like regulation in the equities markets were built very slowly and carefully over decades.

Just because the technology might be a little bit new or might be an improvement over the past. I think they are likely or they are rightfully reluctant to just sort of like throw that away, dive headfirst into whatever new regime is there, you know, instantly cut out two days of settlement because who knows what that actually can do to the participants in the market. Maybe that really destabilizes things in the short term. And so it has to be done slowly and deliberately. And I think we will get there. So the other side, obviously, that we didn't discuss that's probably an even bigger challenge, I would imagine, is determining between you and FTX.com and FTX.us what you can actually list and what the criteria are to decide that. Obviously, we've seen

like XRP is a great example, right? It was listed in the United States, then the SEC sort of threatened to deem them a security and they were delisted all over the place. So how do you go through that process, determining what you actually can? Is it like an internal Howey test? How do you do that? Yeah, super good question. So just for a little bit of background. So in the US, we crypto exchanges are regulated as money transmitters. We are regulated like MoneyGram, which is sort of a silly regime for places that have millions of internal transactions per day. Typically speaking, we are not securities exchanges. And that is because the crypto exchange infrastructure is not well suited to the existing securities exchange license regimes. Like filing like Form 1 to be something like NASDAQ doesn't really make sense for crypto exchange.

There's so many differences between them. And so as a result, we're not regulated securities exchanges. We can't offer securities. On top of that, even if we could, there's no licensing or registration regime for security tokens. Imagine you are Ripple. Doesn't even exist. Yeah. What if you wanted to register?

What do you do? I mean, you can file an S1 and list on a stock exchange, but that's also not quite right because you're like a protocol token and it's not really like a company. It's just very confusing. It's not really the same thing as listing a public company. So that being said, what do you have to do? As an exchange, we need to make sure that we're not listing something that could be considered an unregistered security. And therefore we'd be offering an unregistered security to unaccredited investors. That's the no-no. So we have to determine what we think we can list. And FTX US, compared to a lot of our competitors, we've been really conservative about what we choose to list because we just don't know where

the hammer is going to drop on this. And also we have a bunch of other priorities that's going to diversify our business. We have the derivatives, NFTs. We're looking at stocks. So we have not been as aggressive as some of the other exchanges. And that's the number one complaint we'll get on Twitter is, why are we listed like these 30 tokens? And this is the only reason I won't trade with you. And it does feel terrible to not be able to list a lot of these tokens. But until there's good clarity on that, we've just really been erring on the conservative side.

So the short answer to your question is, yeah, we try to do what other people do. We've just really been erring on the conservative side. So the short answer to your question is, yeah, we try to do what other people do. We get the legal analysis. We try to see what tokens either clearly pass or don't pass the Howey test. And sometimes we will make determinations based on that, but we've been very slow to do that. I don't understand how you operate in an environment where a decision that you make today that seems totally legal and compliant can be deemed illegal or not compliant by a regulation that's yet to be passed. Yeah, it could be like an enforcement money trading this token, claiming they were sold to unregistered security against their knowledge. There's a lot of legal and regulatory risks operating in the environment. Right. In a vacuum, I get it. And so

is there a path? Accreditation itself is a huge problem in the United States. It's probably not even worth diving into right now. I think we all know that it gives opportunity to wealthy people and creates a larger wealth divide and thatX.US than people who are not? Those who go through that process and decide to KYC, AML, do accreditation, show their accounts, could they be able to trade almost any asset on your platform in theory if you had them? David Sherman In theory, yes. If we set up an accreditation process and I think that could be possible. I think the problem is, well, first of all, it puts you on the hook for that process, which can be tricky.

And you have to make sure people aren't, you know, fraudulently claiming accreditation. You have to sort of keep up to date with that. But the second is it sort of goes against the spirit of crypto, which is that think about how much financial markets have grown in the last, let's say two decades. And think about who have primarily benefited from that growth have been people with access to brokerage accounts, investment advisors, wealth managers. And you can imagine what kinds of people have mostly been able to

afford those benefits. And when you think about crypto, which has this democratizing effect where people have been able to participate from the earliest days, all of a sudden you see over-representation in areas where people have typically been underrepresented in the financial services sector, saying that, okay, now we're gonna list all these tokens, but you know, you need to be making at least 200, $200,000 a year and prove like, you know, 1 million in net assets. It just kind of goes against the spirit of what we're trying to achieve in the first place, which is this open free marketplace for, for everyone.

Yeah. That makes perfect sense. I guess it was really a theoretical, it would get so much pushback for offering something like that. I can't even, I can't even imagine we've launched our only for rich people exchange. Sorry. So yeah, I guess that that that would not work. So how did you actually come to be in this position? You're a computer scientist at heart, right? Yeah, that's what you actually studied. How did you end up as the president of this exchange? Sure. Yeah, I actually still do a fair amount of coding and stuff here in the night hours. But so I found my way here through Sam Bankman Freed, actually. So I spent eight years of my

beginning career in finance at Jane Street Capital. And I was a software developer there. I built algorithmic trading systems and low latency order gateways and managed other software developers. And I had worked a bunch with Sam when he was a trader on the international ETF desk at Change Street. And then he left first to go work at Effective Altruism full time, and then realized there was this incredible arbitrage opportunity with Japanese Bitcoin and started Alameda, later started FTX. I left Jane Street and moved to Chicago with my family to start a family and then worked at a couple other places. I was at a high-frequency futures trading shop called Headlands Technologies. I was in at Citadel Securities. And then while I was at Citadel, my contract was

almost up and looking for my next opportunity. I was planning to leave. And Sam and I, we sort of had been texting occasionally over the years. And then someone out of the blue said, hey, you want to come to FTX? And having very little experience with crypto, except for some at Jane Street, I said, yeah, 100%. Let's do it. I'm there. And that's basically how I got here. So you, it was not about a deep seated passion for crypto for you at first? No. Yeah. No, I think it was about what it was for me more was I was working inside of, you know, super secretive trading firms slash hedge funds where you can never really talk about what it is you're working on and nothing is consumer facing.

And also there's sort of a plateau you hit where all these firms are roughly doing the same things. You know, they're all optimizing for latency. They're chasing after that quarter tick. They're looking to improve their models. It's different from something like this sort of startup life of building this huge product for millions of people and trying to revolutionize the way finance works. And it's a lot more fun when you get to actually say what you're working on. And so that was a big

draw for me. Yeah. I can imagine like trying to make something a split second faster as your like main passion and job is very different than how do we sign up 10 million more people? Right. And so also, I got to imagine this, that those markets are so efficient, right? I would imagine it has to be very frustrating trying to find some sort of edge there. And this market is the wide open Wild West gaping ocean of inefficiencies that you can literally like the smallest changes here for a company like yours can make a massive difference. I mean, Sam, you said like FTX launched what, two and a half years ago? Yes. Has there ever been a company with that trajectory?

Has there ever been a company on the planet with that trajectory of earnings? I think no. I mean, look how fast Sam became a multi-billionaire. I mean, it's really crazy. But obviously, I love his sort of ethos of altruism, as you hinted on there. But also, it seems like there's an ethos at FTX about that mainstream adoption that maybe we haven't seen in other companies, or that maybe now we're seeing it from other companies as you've forced their hand. Right. But so on the marketing side, I know a lot of that is coming from FTX on the marketing side. How hard can you push, you know, like Tom Brady, Mr. Wonderful, Super Bowl commercials, right? How hard can you push and how effective will that be? Is it a ROI decision? Do you know we do this much marketing based on this many signups?

Or is it because to me, it looks like more like you're taking the entire crypto world on your shoulders and just trying to make the entire thing, mainstream signups be damned, right? And what's good for you is good for everyone, but that seems like you're helping the competition to some degree, right? It's a combination of both. So there is, I guess, a real art plus science when it comes to all the marketing things that we've been doing. And it's been actually largely in the US as compared to international because US has the largest retail trading class in the world. These are the people who are on Robinhood, who are on TD Ameritrade, who are on Coinbase, who are on Schwab. And they are people who have some expendable income. They understand things about finance. They want to trade.

So how do you reach all these people? If you add to that challenge, okay, you're FTX US. You started basically in the beginning of 2021. Coinbase has been around for 10 years. They're the only public company. They have 60 million users. You have 10, so far. If you really want to reach tens of millions of people tomorrow, how do you do it in the United States? There are very few things you can do besides put your name on a stadium or work with Tom Brady or get your logo on every umpire's patch in every major league baseball game that could just instantly reach tens of millions of people. And not just that, but the implicit trust that comes with those relationships. You know how old an institution major league baseball is. You can imagine what it took for them to throw their hat in the ring with a crypto company, which they've never done before. And the kinds of diligence they have to do on us to get comfortable doing that is just

an outward signal to the world that we're a very serious endeavor. We care a lot about regulation, about compliance, about the law, about safety and operational robustness. And this has resulted in, I think, a serious push for FTX to become a brand name in the US. And I think those parts are very difficult to measure. I think on a go forward basis, we are thinking a little bit more scientifically about how many signups are we getting from these promotions? How many impressions do we get from these various advertisements? What is a more effective way to get app downloads and for people to sign up and deposit funds to trade. But there's also that intangible

element that we're still going to continue to go after, which is when people see our ad on Sunday, what kind of feeling will they get about us as a company, our personality? Are we a fun place? Are we someone that they trust, that they like? And yeah, that sort of can't be understated. That's a huge point that I think many people probably haven't thought about. It's not even the fact that so many people see your name on the stadium. It's that the NBA or whatever power that be accepted you and basically gave the stamp of approval that this is okay. Because we've always been fighting the FUD in the crypto space of it's only for criminals, bad for the environment, ransomware, choose your narrative. We've seen them all come

around. So for Major League Baseball and Tom Brady and the NBA to say, no, this is totally fine, is really, that really is the kicker that I think maybe is intangible and people don't understand. And now with Tom Brady specifically, it seems like you guys fully orange-pilled this guy. I don't know if it happened before FTX or not, but it almost feels like he's more willing to retire from his football career because he's excited about what he can do in crypto. Yeah, look, there's his investment in Autograph. There's FTX.

I think it's not an atypical path for a celebrity and athlete to get into entrepreneurship, to get into finance investing at the sunset of their career. But I think for Tom, it's just getting started. And he's a great partner to have and for a lot of reasons. So we touched on regulation quite a bit before, but are you hopeful that the United States will actually be reasonable? I mean, it seems like they sort of hold the future of our industry, but certainly of your company in the balance, right? I mean, most of the things it sounds like you're investing in and trying to do are completely determined by their decisions and how they decide to approach this space. It is scary that they can so easily turn it off for their country in terms of

crypto innovation in the U S and then I'm not saying they are, but it would be, it wouldn't be difficult to pass like a law, which would maybe not intentionally, but would as a result just sort of ban things like stable coins or ban, you know, virtual asset service providers from being able to efficiently operate in the U S and what that would ultimately do is just move even more of the total company share in this space offshore. When the founders, the intellectual property are all really, or I shouldn't say all a large part coming from the U US. And so it would be a shame in terms of where it's going right now.

On the hopeful side, we've had such good interactions with lawmakers and regulators who I think they all get it, or if they don't get it, they really want to get it. They want to be educated. We spent some time in the Hill last week, educating lawmakers on a lot of the basics and fundamentals behind crypto and crypto regulation. And it's become more of a bipartisan issue that it's very clear this is a technology that is taking off. That's going to be the underpinnings of a lot of future technological innovation and not just in finances, but in other areas as well, in art, music, and law, and real estate. And they've come around to that and they're looking to do the responsible thing.

On the flip side of that interaction are the crypto companies. And in order for this to go well, we have to behave too. I think if you look sort of like a year ago, two years ago at what people were saying on Twitter, and even now in terms of crypto regulation, it's a lot of like, don't touch my industry. Anything that you could possibly do in this space will result in something bad for crypto.

And I think that's not the attitude that's constructive or productive for moving this forward. It needs to be, there's a reason why the US is the largest financial markets, capital markets in the world. And it's because there is class A regulation that makes all of these places safe and easy to trade. And we have to port a lot of the good principles from that to crypto, but not in such a way that leads to making the same mistakes that have been made in the past where market market microstructure is overly complex and there's tons of intermediation and multiple players required to do a single trade and lots of middlemen and we we feel pretty hopeful about the conversations we've had that we're going to

get to somewhere productive and it's going to take some time but we think we're getting there well it feels like every single day that passes some other country country or zone becomes even more friendly to somebody. I mean, literally Russia now is talking about deeming cryptocurrencies and Bitcoin as currency. But it seems like there's going to be increasing pressure, or at least the United States now has to accept that if they come down with a heavy hand or ban anything or come out with harsh language, that it's very easy for all this innovation to go somewhere else. It's not like they can kill anything. They can just make it difficult for Americans. And that seems very counter the ethos of the country.

One point that Sam made when he testified in front of the Senate Agricultural Committee yesterday, and I think it's such an important point and it might be easy to miss, is 99% of the crypto transactions happening globally, regardless of where they're happening, are US dollar base. If you go buy Bitcoin, it's Bitcoin to USD. Maybe it's Bitcoin to USDC. Maybe it's Bitcoin to USDT. Maybe it's a perpetual Bitcoin that settles to USD payments. But the denominator in all of those transactions are USD. And that is because USD is, I think, the safest currency in the world. It's the most trusted currency in the world. It's all the stablecoin volume is USD. Well, what if we just sort of shut off the ability for USD stable coins to exist? Then I don't think that Bitcoin markets go away from DeFi. I think instead, or, you know, I said Bitcoin, you know, whatever, Ether, Sol, any of these are the DeFi marketplaces,

let's say. I don't think those shut down. I think they become BTC slash EUR or BTC slash JPY, could be BTC slash CNY, which would be a little bit scary. And so in order to maintain the US's global dominance as a currency and as a participator in cryptocurrency transactions, we have to do good by regulation. And I think lawmakers are fully cognizant of that fact, which is it's somewhat of a somewhat of a homeland security issue to make sure that USD maintains its dominance. The first time that I was feeling optimistic, I didn't see this last hearing, but the previous hearing where Sam and others were on the Hill, there had been such harsh language in the months leading up to that.

But during that hearing where Sam had the awesome shoelaces, during that hearing, I think was the first time that I heard even the more skeptical politicians actually seemingly asking the right questions or listening, or at least an acceptance that maybe they didn't know what they were talking about and were willing to be educated as opposed to just forming an opinion on a hot take, right? Previous congressional hearings just seemed like an aide had written something down about energy or criminals and that they were just going to read that one set, corporate coin, mongoose coin, et cetera, of course, right? So it does seem, and now it's interesting to hear that you guys were

on the Hill last week and actually educating them because it seems like that's what's really necessary, right? I don't think they're evil. I think it's just like, they're going to be dismissive of anything until they have to pay attention to it. Right now, it's just kind of like their voters care. So they might lose their job if they don't get it. Remember, when people think about cryptocurrency as a potentially fringe or niche industry, there are something like 80 to 100 million users in the US with accounts at exchanges. So if you think about that as a percentage of the total constituency, that is a very non-negotiable amount of the voter base. And so, I mean, just think

about how many users Coinbase plus Kraken plus crypto.com plus FTX, US plus Gemini have. It's a huge percentage of the United States population. And so this is not a fringe issue anymore. It's something that is top of mind for people who want to be able to control their financial future and invest in what they like. And that's why lawmakers are paying attention. Do you see a future where FTX US sort of incorporates all the best parts of crypto? I know you've talked about, obviously, we've talked about derivatives, we've talked about spot. I know you're going into NFTs, which will be huge. Is there a time when it effectively becomes your entire bank account, right? You're earning yield, you're making your payments out of it, whether using stable coins or USD,

maybe you have an FDIC insured USD account there where you can basically do everything from one place. I think that's sort of lacking in this space is the one-stop shop, certainly for Americans. I think there's other places where it's closer. Yeah, we'd love to have there. And I think that technologically we're set up such that that's a possibility. I tweeted about this the other day, but we have this payment service called FTX Pay where you can, and it's really just a small thin wrapper around the exchange, but you can accept

payment as a merchant in any crypto or in USD and people can pay you through FTX using any crypto or fiat currency and will convert for you if you want or won't convert you if you prefer to take the existing currency. And that's a small example of the kind of Venmo like service that we can already provide as an exchange. We're looking into things like being able to direct deposit from your employee payments, your salaries directly into your FTX US account. We're looking into things like how can we, if not become a bank, maybe partner with a bank or get some kind of licenses that would let us do borrow lending or savings type products in a regulated fashion. I think all of these things

could come together into one and it would be really powerful to have it in one place. I love savings account in a regulated fashion because obviously we have this sort of famous story now where the SEC, Gary Gensler said, just come talk to us, guys. Come talk to us. And then Coinbase tried to go talk to them about their potential yield product and were threatened with litigation. Come talk to us and we'll threaten to sue you without any reason, which I think scared a lot of people off, obviously, on regulators, that thing. But we already do have these yield products all over the United States, the BlockFi, Celsius, Nexo, Voyager, etc. of the world. Is that the reason that you haven't done it yet? You want to do it in a fully compliant- It's not just the SEC. The states have been going after Celsius and BlockFi.

And again, when you think about the most canonical example of an investment contract, a securitized product, it's put in X principal and then receive interest of Y percent on that X principal and eventually get your X principal back. And that is what these services claim to offer. And it's complicated under the hood. It could be DeFi. It could be a liquidity pool.

It could be an AMA. You have to make it. Yeah. But at the end of the day, it still looks like that. And banks have exemption from securities registration, but non-banks do not. And so it's a gray area of the law that we need to get clarity on, but we also have to operate with it. Yeah. And I'm not critical of any of them. I love the idea of earning yield. I think that's one of the most exciting parts about crypto, but when potentially you're parking money. And why not? Yeah.

Yeah. But when you're parking your money with a platform and maybe they're trading it, and for example, the GBTC premium disappears and becomes a discount, then they can't offer yield anymore. Okay. Well, maybe people need do need to realize it needs to be regulated i don't have a passionate feeling either way but you definitely don't feel like you're going to go on a platform park your coins for yield and then it's going to disappear which is theoretically possible yes and that's because it's earned that is the problem you know in in programming we talk about like the happy path you know you if you test if you only test your program for when everything works well then you're not going to be fully robust when they

don't. And when it works well, yield is amazing. But what if that institution goes under, or there is a run on it? Is it FDIC insured? Is, is, are, is there any insurance on those assets? Are you going to ever going to get them back? Who, who do you sue if it's like a D5 protocol, AMM? David Sherman There's no centralized company to sue, right? Nick Neuman Exactly. On the other hand, yield is great. If you think about people want to borrow money, companies would be very happy to borrow money for more than 0.01% or whatever the bank gives you.

They can do very good things with those money that earn them much higher returns than what you can lend it to them for. So why shouldn't you as a person with $700 in your bank account be able to lend it out at 4%? It makes sense. It shouldn't have to be that you earn, you know, 0.02 pennies per year at Citibank. But there has to be good guardrails in between to make that easy and safe. Right. I think Coinbase would have argued that their 4% rate versus the 10% rate being offered elsewhere was probably the happy middle ground there. And they were threatened with litigation as a result. So as we sort of come to the end of the time here, what are you looking forward to the most in 2022? I mean, I would imagine you have to say some regulatory clarity, but are there

certain narratives in the space, certain things that you're building that you think could really be impactful by the end of this year? Sure. I would say I'm the most excited about three different verticals for FTX US in particular. One is definitely the derivatives exchange. We talked about that earlier, getting the licensing to be able to offer margin, creating the first real-time margining system in the US ever for derivatives trading is, I think, going to be revolutionary. Very excited to see if we can

bring a lot of that offshore volume onshore. The second is other asset classes, more traditional asset classes like stocks, where we, as you say, it's really great if you can do everything in one place. If you want to spend your money to invest, you don't want to have to keep a quarter of it at TD Ameritrade and 75% of it at FTX. You'd like to be able to put it in one place and kind of go seamlessly back and forth. So we are looking at how we can offer stocks, just vanilla stocks to our customers. So that's pretty exciting. And then the last is we are growing our NFT marketplace.

And aside from the sort of consumer facing art or collectibles market, we're really excited about games and all the ways that they're looking to integrate with blockchain technology and how exchange partners like FTX US can provide a lot of the technological services and backends required to make those integrations happen. And we're in talks with a number of game studios who are looking to start getting into that space. And so those I think are the three most exciting things for me, for the products in 2022. Every time I talk to anyone knowledgeable in this space and they describe what they're excited for or what could be coming, the message that just like rings so loud and clear to me is just how utterly early we are. Oh, yes. We're like,

we can barely do anything in this space versus what's possible right now. I mean, this is like the most basic offerings when you consider what's out there. It's really exciting. I totally agree. So Brett, where can everybody follow you after this? And I know we can go sign up at FTX.us, but where can everybody follow you personally? Sure. Yeah. I'm Brett underscore FTX.us on Twitter. Well, thank you so much for taking the time to do this. It was nice to hear another voice from FTX. I've had Sam three times, so we'll have to catch you up and see if you could get on here as many times as Sam. Yeah, anytime. Thanks so much for having me on. Thank you so much.