Unchained - Tyler and Cameron Winklevoss on Being the 'Fastest Tortoise in the Race' - Ep.103

Starting point is 00:00:00 Hi everyone. I've got a quick update that I'm appending to this episode after its publication. During the recording of the show, Tyler and Cameron Winklewaffe said that no other stable coins have named their banking partners. In the moment, I mentioned that Tether had revealed at least some of its banking partners, but I wanted to know that Circles USD coin has several banking partners, including Silvergate Bank and U.S. Bank Court Management, and TrueUSD has named its trust companies and their correspondent banks. I've also put links to that information in the show notes. There may be others among the dozens of staple coins as well. Now let's turn to the original episode. Hi, everyone. Laura here. Before we dive into today's episode, I have a quick message.

Starting point is 00:00:41 In case you missed the news last week, we relaunched the unchained and unconfirmed websites. Both podcasts have new logos and a more unified look. Plus, we've got a beautiful podcast player on every episode page as well as transcripts in exclusive content. Go check it out at unchainedpodcast.com. Also, I launched a weekly newsletter, which is a curated set of the week's top crypto news and links, along with a little summary to make sense of this fast-paced world. Go sign up for it now to receive the next edition this Friday. Don't forget, the URL is Unchained Podcast.com, where you can see the new logos, re-transcuits of Unchained, and most importantly, sign up for my weekly newsletter. And now on to this week's episode.

Starting point is 00:01:25 Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. If you've been enjoying Unchained, pop into iTunes to go as a top rating or review. That helps other listeners find the show. Considering using digital securities as a way to grow in 2019, Tokensoft's trusted platform provides the security and compliance tools to leverage blockchain technology and enter new markets with confidence. Visit us at Toconsofts. tokensoft.io or on Twitter at Tokensoft Inc. Do you have an idea for a blockchain app but are worried about the time and cost it will take to develop? The folks at Azure have you covered. The new Azure blockchain dev kit is a free download that gives you the tools needed to get your first app running in less than 30 minutes. Learn more at AKA.m.m. slash unchained or by following them on Twitter at MSFT blockchain. Within months, cryptocurrency anti-money laundering regulations go global.

Starting point is 00:02:29 Are you ready? Avoid stiff penalties or blacklisting by deploying effective anti-money laundering tools for exchanges and crypto businesses, the same tools used by regulators. CypherTrace is securing the crypto economy. My guests today are Tyler and Cameron Winklevoss, the CEO and president, respectively, of Gemini. Welcome, Cameron and Tyler. Hey, Laura. Thanks for having us. Hey, how you doing? Thanks, Laura.

Starting point is 00:02:54 The last time I had you guys on the show was in 2016, and a lot has happened since then. Gemini has undergone major changes, and we'll actually start with talking about one of them, your new ad campaign. What is the message of the campaign and where are the ads running? Sure. So we just launched a new ad campaign. It's targeted in New York City. It's in the subways, on taxi cabs.

Starting point is 00:03:20 We've got a few billboards as well, as well as a crypto buzz. And the message is basically the revolution needs rules. And it also coincides with our mobile app launch in December. And why are you targeting only New York City? So this is our first campaign. And we're a New York-based company. So it made sense to sort of test this city. And it also happens to be one of the financial capitals of the world. And also has one of the preeminent Bitcoin or rather virtual currency regulators, New York DFS. So it felt like, a great starting point to start a campaign. Yeah, New York City or the state of New York is really ground zero for building a framework for cryptocurrency companies to become licensed, compliant businesses. And so that was, they were definitely a pioneer as a state. It's very much the reason why we built Gemini in New York and why we have almost 200 employees here and growing. And so it sort of made sense to start it in our backyard where this all happened. And Cameron, myself,

Starting point is 00:04:31 we testified at the Bitcoin hearings, I think they were in 2014, and helped, you know, educate the regulators and shape the regulation to be thoughtful for crypto companies. So this is definitely the right place for us to start this campaign. We'll see how it goes. And then we'll consider rolling it out to other cities and jurisdictions. So it's just for, from the way you're answering, it does seem like you're almost saying that the targeted audience for the ads is the regulators? Is that the case? No, definitely customers, you know, prospective customers. We actually had a meet-in-the-street-street event yesterday at Zucati Park, which I believe is where the first U.S. stock exchange got its early beginnings almost 200 years ago. And, you know, it was really

Starting point is 00:05:22 interesting. So far the feedback we're getting is the campaign has really struck a chord, especially with a group of folks who actually believe in crypto. They've been reading about it for years, and they don't really need to be sold on the dream of crypto or its promise. What they're unsure about is how to engage in crypto in a safe and compliant manner. And so we're really trying to just start the conversation and let people know that there are regulated exchanges and custodians like Gemini, where you can easily buy, sell, and store your crypto, and it's not some wild west. We have to continue to change the narrative. I'm sure you remember the Silk Road days where you couldn't really read a single article without some mention, usually it was a headline

Starting point is 00:06:12 or, you know, in the first part of the article about Silk Road and how Bitcoin is anonymous and only use for illicit activity. And we know how wrong that narrative is and really has proven to be. But that didn't take weeks or months to shake. It took years. And even to this day, there are a lot of people who still believe Bitcoin is truly anonymous. It's simply not the case. So it's really important for the community, for us to really start continuing the dialogue and educating people that this is a very valid technology and there's safe ways to engage with it. Because what we really don't want is a lot of sophisticated people who believe in the technology who miss out on that next wave of getting involved.

Starting point is 00:07:01 Yeah, the conversation today is so much different than it was even two years ago. People believe that this space is the future. They believe in the dream of crypto. They just don't know how to get involved with the business. dream without getting burned. And so that's really where the dialogue is right now. And this isn't about building rules for crypto itself. We think the rules of math and cryptography are quite good. This is about building rules for their crypto companies that people rely on and trust with their money. This is about Mount Cox type scenarios. This isn't a crypto problem per se.

Starting point is 00:07:46 And just under curiosity, who came to Zucati when you were saying that those people were receptive and were saying that they were responding well to the ads? Like, who were those people? They were people who a lot of them worked in the financial district. So they were going for a cup of coffee or lunch or commuting to work or leaving work. A lot of people, the professionals in the area. And then some people who came specifically to the area because they saw the church, tweet and we also had a crypto bus, which was super hard to miss. It had some advertising slogans on it.

Starting point is 00:08:22 And we had free coffee from Brooklyn Roasters. So that, you know, that alone could have excited people to show up. And so it sounds like it was kind of the traditional financial services community. You know, there's people who are already in crypto. There's people who aren't in crypto, but said, hey, you know, I'm going to think about this again. I'm going to go talk. There's one, I think, One gentleman said, you know, I'm going to talk to my son. My son's been talking to me about this for years. And as soon as I get home, I'm going to restart that conversation because he wasn't really sure about a safe way to engage. So there was a real big mix.

Starting point is 00:09:02 Because the thing is that, you know, at least on crypto Twitter, it didn't seem like the community has responded super well to the ads. I'm sure you've seen the tweets because they keep tagging you. So for instance, or they keep attacking Gemini, like Eric Voorhees, the CEO of ShapeShift, tweeted, and this was in response to one of the ads that says crypto needs rules. He said, hey, Gemini, crypto has lots of rules already. Crypto is rules. These rules are stronger than any political inscriptions. They are objective, open and knowable to all parties. They transcend borders and they are enforced by mathematics. Crypto is a system of laws and not men. I saw Dan McArdle, the co-founder of Masari, said the ads prompted him to close his Gemini account. So what's your response to these negative reactions?

Starting point is 00:09:46 Well, we certainly know that we're not going to please everybody. And I will say that I actually agree with Eric. Eric's a very thoughtful thinker and an excellent writer. And I agree, crypto doesn't need rules because it has the rules of math and cryptography. The rules that we're talking about are the regulation and oversight on how people use the technology and how how people build the technology and how companies like Gemini, for example, custody assets and what kind of oversight. We have a regulator who checks to make sure that we're doing what we're saying we're going to do. But the great thing about crypto is it's really a continuum. It's a gradient. You can participate in a centralized fashion. You can sign up to Gemini, download our mobile app,

Starting point is 00:10:36 on board in about two minutes and you can store your crypto with us. But whenever you decide that you don't want to be in the centralized sort of off-chain part of that crypto experience, you can opt out a Gemini at any point and withdraw your assets into the decentralized blockchain and store it yourself. So effectively, you know, Gemini's oversight, we believe the majority of people are going to want that type of experience. But there's nothing preventing people from living in more of a P-to-P decentralized version. For the same reason, you know, there's some people who don't want to store their cash in a bank. Their alternative is, for the most part, storing it in a mattress.

Starting point is 00:11:25 Most people don't do that. Some people do. Most people, if they want to buy gold or exposure to gold, they buy a gold ETF. There are certain individuals who do not like the idea of their gold bars stored with a qualified custodian and they want to store it themselves. So they go through the effort and the trouble of building a safe and securing it. But one of the interesting things about crypto is that if you want to live in the decentralized version of the world, it's actually a lot more viable and practical. You can actually move substantial amounts of value through the blockchain. It's much more practical than actually storing a lot of cash or moving gold bars. When the zombies come running, it's really hard to outrun them if you're carrying a bunch of gold bars. But if you're

Starting point is 00:12:22 carrying a treasure wallet with crypto, that's actually a viable strategy. And so, you know, there are going to be folks that that don't ever want to engage with with Gemini. And we think that's totally fine, right. Yeah, that could be your next ad campaign, outrun the zombies with your crypto. Totally. And just to further hit the point, you know, there's a lot of people who drive sport utility vehicles, SUVs. And I would venture a bet that 99% of those folks never go off-roading. and never will go off-roading.

Starting point is 00:12:59 They're staying on the highways. They're commuting around suburbia. But having that optionality, it's nice to know that they have it. And the same thing with Gemini. If you want to stay on Gemini, that's great. If you want to go off-roading and crypto and take your crypto with you wherever you go, you can do that too. That's great.

Starting point is 00:13:19 Right. But when you talk about a Bitcoin exchange, there are humans involved. There are people. It's not this lab experiment. that's all software and protocols, there are entrepreneurs who are making decisions about how to store your value, and there are serious ramifications if they get that wrong.

Starting point is 00:13:40 So I think that's what we're talking about. It's a sort of simplistic reading of the ad campaign to say, oh, we think, you know, the Bitcoin protocol should be regulated. That's not really what we're talking about. We're talking about places that act like banks or exchanges that interact with. with the protocols that need regulatory oversight in a thoughtful way. If Mount Cox had been under regulatory oversight, it would have been a lot harder for that

Starting point is 00:14:11 to have happened, what happened. It would be a lot less likely. And that's really the point that we're making. And that's really the point that people interact with. They recognize if they want to go and get involved in crypto and buy some, they're going have to do it most likely interface with a company. And what is that company doing? Who's behind it? Who's watching, who's guarding the guards themselves, so to speak? For us, it's the state of New York and the New York Department of Financial Services. For other financial institutions, it's other

Starting point is 00:14:44 regulators. But we think that that's a really important piece of the larger puzzle in the ecosystem. And that's been important in the financial industry. And that's been important in the financial industry for a long, long time. We're a New York trust company under New York banking law, and history over the last 100 years or so has taught us that thoughtful regulation builds the healthiest, most vibrant markets like the U.S., for instance. And that's what we really want to bring to crypto. We want to get rid of the chaos and the Wild West and sort of the mystery. Because like I said before, a lot of people who believe in the dream, they just don't, they're scared of and they don't understand how to become part of it.

Starting point is 00:15:29 Yeah, but I think, so I still think that there is a certain tension there. The way that you've been talking in your answer, it's kind of like you have been positioning it almost as sort of different choices, you know, like in terms of convenience, right? Like, are you going to keep the gold bars yourself or are you going to have someone else monitor them and safeguard them for you, that kind of thing? But, you know, I just, I also know there's this other. analogy you guys have used a lot, which is you have often said that finance should work like email and that it should be available 24-7 and you shouldn't have to wait three or five days to

Starting point is 00:16:07 send somebody money. But then, you know, as you've been discussing, you also say that you believe that cryptocurrency investors need the same protections that investors get in more traditional markets. And so the traditional financial system has a lot of surveillance built into it. So if anyone does anything shady with their money, banks will have to let regulators know via a suspicious activity report. And that doesn't happen with email, right? Gmail does not screen all the messages and, you know, keep track of who all the senders and recipients are of all the messages and then cut off people from their email if they're caught engaging in illicit activity. But, you know, that does happen with the financial system. So in that regard,

Starting point is 00:16:55 like, you know, those are really different visions. So how do you square those two kind of visions for what crypto could be? So I think with respect to email, I think it's important to note that email providers are subpoenaed around the clock for information related to any kind of illegal activity from state, federal, international law enforcement and governmental authorities. So I don't think it's quite so black and white. You're not operating an email in this space where your activity isn't being monitored if you're up to bad activity. But I think that, look, we're talking about value.

Starting point is 00:17:41 And people, value enables bad actors to commit atrocious acts. Terrorist financing is a real thing. Being a New Yorker and living in New York, you know, September 11th is a real thing. And that's really, that's the overarching goal of BSA AML. It is not to create a big brother state or a surveillance state. It is to prevent these horrible crimes from happening. And it's pretty darn effective. And I think for the vast, vast majority of people, they're okay living with that reality that, you know, their transactions may be monitored. And that's fine.

Starting point is 00:18:23 And taking it over to the sort of the market surveillance piece of it, every capital market in the equities and derivatives world has robust market surveillance. Every time you buy a share of Apple or Tesla, that is routed presumably almost always to an exchange where there is monitoring going on. And that is to protect you. The key thing here is consumer protection. It's not consumer violation of privacy. It's consumer protection. And quite frankly, a lot of the email providers and a lot of the social networks, I'm not so sure they aren't reading everything you send.

Starting point is 00:19:04 I'm like every time I look at a product on the internet, in fact, I was listening to a podcast over the break. And the same, you know, an Apple podcast, the same podcast, the same podcast, was being shown up in my YouTube feed. So that's a Google company, and I was listening to an Apple, on an Apple device and an Apple service. So I'm kind of wondering,

Starting point is 00:19:29 you know, these guys aren't just like looking for themselves. They also seem to be talking to each other. So I think that there's a lot of that actually going on. Oh, you're right. Now that I think about it, I was Googling something on my Apple iPhone in Safari. And then later my YouTube kept giving me an ad for,

Starting point is 00:19:48 Anyway, okay, you're right. Clearly everything going on on the internet is shady. But I wanted to ask you about, because you brought up the market surveillance, you have this new technology, the NASDAQ smart market surveillance technology to monitor the Gemini marketplace. So what exactly is that doing? So basically the idea is you're monitoring for manipulative and deceptive practices. So people are trading in a way that's abusive and unfair.

Starting point is 00:20:16 And what we're doing here is we're not reinventing the wheel or bringing something that's so different to the table that you don't already experience in. So when you trade a share of Apple through your e-trade account, these market surveillance products are working on the exchanges where you purchase that share. And it affords you a safe conda rules-based marketplace. and we just want to bring the same standard to the crypto space. And the regulators want us to do that too. And they've made that pretty abundantly clear in terms of the SEC, CFDC. They want to see exchanges surveilling the marketplace for bad practices. And they also want to see them coordinating and talking with each other to make sure,

Starting point is 00:21:11 you know, manipulation doesn't always happen in a vacuum on one. one place. It's usually someone trading on multiple venues. So there has to be just similar to the equities world or the derivatives and futures world. These exchanges talk to each other and they identify these practices that are unfair. And we want to provide the same level of fairness and experience to our marketplace in the crypto industry. That's what this boils down to. That's where it's coming from. And it's also been requested pretty openly in many shapes and forms from the regulators. And it's basically a homework assignment that we and everyone else in the industry have to do in order to push the ball forward. If we want to see things like crypto ETFs and more crypto

Starting point is 00:22:07 futures products and more great financial instruments using crypto, we've got to answer this call with these types of solutions. And that's just not me saying that. That's the regulators of the most sophisticated financial market in the world saying that. All right. So we're going to talk more about regulators and the Bitcoin ETF in a little bit. But actually, first, I want to talk with you about your stable coin, the Gemini dollar. So why did you decide to launch a stable coin? And how is it differentiated from the others? Particularly something like the Paxo standard, which as far as I can tell pretty much is roughly the same structure? You know, the stablecoin is a really interesting project and we felt pretty passionate about it.

Starting point is 00:22:52 I think it's, our view is that the first use case scenario for crypto was bringing commodities onto a blockchain. We consider Bitcoin a commodity the CFTC does and most U.S. regulators put in that jurisdiction. And that was the first use case of crypto as we know it ever. And then there was the whole, then people figure out how to put securities on the blockchain. And what most people read about and saw was the ICO craze, which I sort of refer to as noncompliant securities. The new rebranding these days is SCO security token offerings. And I call them the pets.com of security token offering, the ICOs.

Starting point is 00:23:40 Yeah, the ICS were, the first way that people didn't realize they had to follow securities rules. Although, however, I must know that you guys did invest in TASOS, which had an ICO, so. Yeah, and definitely, so it's a really umbrella term. And Cameron's more referring to the way things that were securities didn't follow securities laws. And so it's sort of a misfire. The new school of ICOs, rebranded as SCOs, RACOs.

Starting point is 00:24:08 recognize that, hey, if we're a security, we've got to follow securities laws, which have been in place and well tested and understood for the last 80 years. So it's been really interesting to see this evolution from you've got commodities on the blockchain, Bitcoin and Ether, and maybe Ether arguably started off as a security, but now it's jumped over the chasm into commodity land because it's sufficiently decentralized and no longer trips up the the Howie test. But there hasn't really been a currency on the blockchain, a good medium of exchange. And even though Bitcoin was called a digital currency from many years, almost from inception,

Starting point is 00:25:01 and oftentimes that's the umbrella term for, for the industry, Bitcoin's really been a virtual commodity. And it was the only one. When Gemini started, it was really a Bitcoin exchange because there's nothing else. And then people figured out virtual securities. They were called ICOs now today. Everyone wants to call them SCOs. But there really wasn't a digital asset that act like a currency and a good medium of exchange and unit of account.

Starting point is 00:25:31 commodities like Bitcoin, we believe our stores of value. It's really hard to, you don't really want to spend a good store of value. If you invest in a share of Apple, you don't want to use it to buy your cup of coffee because you're hoping that goes up. And so no one wants to be the person who buys the Bitcoin pizza again. The $60 million, the pizza that costs $20. which was 10,000 Bitcoin, something like, I don't know, eight years ago. But today, it's something like a $50 million, depending on the price pizza.

Starting point is 00:26:14 It's a Papa John's pizza. It might have been really good, but it probably wasn't that good. Definitely not. And we actually did this, too. We bought a couple of things with Bitcoin. We bought tickets to space on Richard Ransson's Virgin Galactic. And in hindsight, it turns out we probably overpaid 10x. We actually invested in certain ICOs and TASOs with Bitcoin.

Starting point is 00:26:41 And depending on how much TASOs appreciates versus Bitcoin, we may have really overpaid. We had preferred to make that investment in just cash because we kind of know it doesn't have the volatility. It's more stable. And it's not, cash is not a great sort of value. Over the last, I don't know, 40 years, the purchasing power of a dollar has lost, you know, 87% of its purchasing power, whereas something like gold, on the other hand, has gone up 23 times. So you got gold on the blockchain, you got securities in the blockchain. We need to get dollars in blockchain.

Starting point is 00:27:22 And forgive me if there's a long way of saying, that's exactly what the Gemini dollar is. It's putting dollars on the blockchain that will empower and fuel the decentralized app movement and all these other cool use case scenarios. But prior to the launch of that, you had Tether, the Circle, or USDA, which was by Circle. People can listen to my episode with the co-founders of Circle to hear more about that. You had through USDA, I mean, there were kind of a lot, obviously make or die is a, you know, a popular. stablecoin. So there were a lot of other options. And so why did you guys decide to launch a new one? And how is it different from some of these others, in particular, the Paxos one? So I think it's important to note that we launched in September. I think that, you know,

Starting point is 00:28:15 we weren't aware of the other projects. Obviously Paxos launched the same day and circle, I think, followed a month thereafter. So we, you know, I think our view, obviously tether is tether. I don't I think we need to spend a whole lot of time on why that's problematic as a stable coin. But I think one of the biggest difference, perhaps, between the Gemini dollar and the other stable coins is we have exhaustively and publicly stated where the dollars are held, what bank. And that bank is State Street. It's one of the largest custodians in the world. It took us a very long time to build that relationship, go through the diligence process.

Starting point is 00:29:00 But the great thing about State Street is it has a tremendous balance sheet. It has effectively unlimited capacity. And it's been around for 225 years or so. It's the second oldest company in America. In America. And we're really proud of that. And so when you effectively hold a Gemini D. dollar out in the ether, you know that the dollar backing that that token is held in a institution

Starting point is 00:29:32 that has safety and soundness. And and I think that no other stable coin issuer discloses their banking partner. And I think there's two reasons for that. One, they're not proud of their partner. It could be somewhat of a fleabag bank and doesn't have, you know, much of a reputation or credibility. Or the second it reason, which is, quite frankly, a lot worse, is that the bank doesn't know what they're banking. And so there's some kind of layer between the stable coin bank account. And so they have this omnibus account, which is holding these dollars. And they just assume, well, it's another business with dollars. And we saw this a lot in the early days of Bitcoin where companies were opening up bank accounts.

Starting point is 00:30:34 And then eventually compliance department does an account review. They look at the bank account and they say, oh, my God, what is this? We're banking a Bitcoin or a crypto company. This is not what we understood. This is not what we signed up for. and they effectively give you 30 days to, you know, close the account and remove the funds. And so nobody knows where True USD is banking. I have no idea where Circle stores their dollars.

Starting point is 00:31:05 I have no idea where Paxos stores their dollars. So it's impossible to assess the counterparty risk of holding that stable coin. Is the bank solvent? Is it sound? Is it safe? Is it in the U.S.? Is it in the U.S.? So is it afforded FDIC insurance? Is Treasury going to wake up one day and say, we're going to freeze that and take a look in there and unwind it?

Starting point is 00:31:32 And if that is the case, which has happened before, look back to Mount Gox and the Diwali wallets, I think the Fed sees somewhat something like $10 million of value. And those take a long time to unwind and figure out. And so then you're stuck with a stable coin that doesn't actually have. dollars backing it. And that's a problem. And it's sort of like a game of musical chairs, right? For the for the people holding those coins. And that sort of goes back to the heart of our marketing campaign is that for these type of situations, consumers should understand where their dollars are. And that's the kind of rules and transparency that the market desperately needs. Yeah. And I just want to clarify, I do think Tether has revealed its banking relationships,

Starting point is 00:32:19 but you're right, they don't have the same stature of State Street. But I also did then want to ask, you know, obviously it is a choice to kind of make the trust in that system or make the source of the trust in that system a bank like State Street. Whereas when you have something like MakerDAO where it's controlled by smart contracts and it's over collateralized and you can sort of see everything that's happening on the blockchain, why did you sort of choose against something in that thing? So I think part of it is just simplicity. People understand the U.S. dollar.

Starting point is 00:32:57 And so simply putting it on the blockchain, it sort of removes the whole educational barrier. Most people around this world are perfectly fine holding dollars. In fact, they would love to hold dollars instead of their local currency, like the boulevard in Venezuela. or, you know, if you're in Zimbabwe, they've got the trillion dollar, trillion dollar bill, hyperinflation. You know, I think something like 66% of $100 bills, U.S. dollar bills, are outside the country. They're in Russia. They're in Cuba.

Starting point is 00:33:32 They're in places where they're desperate for, you know, a U.S. dollar, which is not arguably, again, not necessarily the best store of value, but substantially better than what they, the other alternative that they have. the simple, elegant nature of it. And the other thing is most people still, well, they, I'd say almost everybody still denominates things in dollars. We buy our groceries in dollars. We think about value. I think about Bitcoin in dollars. So that was probably the big, the big thing there. With the make or die, there's an issue with, obviously, as you mentioned, the over collateralization. And then one other point, though, I think is that there's also a tremendous amount of misinformation around which of these products are licensed. The Gemini Dollar, we worked with New York DFS for over a year to get approval to issue

Starting point is 00:34:29 effectively virtual currency in the form of the Gemini Dollar. I believe Pax received the same approval. Circle is not a licensed issuer. They do not have approval from a regulatory authority to issue. True USDA does not have regulatory authority. It is a, and neither it is Tether. I know that's probably obvious, but it's worth, worth saying it again because, because people on Twitter, they say, wait, tether's registered as an MSB with Finsen, therefore, their license.

Starting point is 00:35:01 No. That is not a license. That is simply saying, hey, I've got, you know, reporting obligations and we're going to try and file it. Well, that's one piece of the puzzle, and that's the easiest piece. It's actually, if you do the legal analysis, you need, it's much. money transmission on a state-by-state basis. And I've yet to see the licensing for True USC in many of these projects that's sufficient and really covers the 49 state licensing.

Starting point is 00:35:31 But backing up a little bit, this is really a trust product, and we're pretty good at trust. We're a trust company. We've been doing this for a while. People tend to trust us. there's no way to get around the trust and the humans behind it because it's centrally issued. And that's why the regulatory oversight is so important. We have oversight. State Street has oversight. Our auditor is a licensed CPA. They have oversight with a security pen test team, pen test the contract. So we built this network in web of trust. And we think we've done that better than anybody. All right, we're going to keep discussing a few other issues with the stablecoin and also discuss the Bitcoin ETF in a moment, but first a quick word from our fabulous sponsors. Within months, cryptocurrency anti-money laundering regulations go global. Are you ready? Avoid stiff penalties or blacklisting by deploying effective anti-money laundering tools for exchanges and crypto businesses, the same tools used by regulators. CipherTrace is securing the crypto economy. Face it, regulations can stall or

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Starting point is 00:38:02 and how to get started, visit AKA. or follow them on Twitter at MSFT blockchain. Issuing a digital security on the blockchain can be a significant undertaking, particularly to ensure compliance requirements are met. Tokensoft's trusted platform provides security in a world of uncertainty by working with top legal and financial experts so that your digital assets are secure. Tokensoft leads the market in providing technological tools to support tax, banking,

Starting point is 00:38:35 and securities regulations for issuers of digital assets. We are honored to have supported leading companies in 2018. To learn more about issuing digital securities successfully, visit tokensoft.io or follow them on Twitter at Tokensoft, Inc. Back to my conversation with Cameron and Tyler. There has been a controversy over discounts that you offered on the Gemini dollar to over-the-counter trading desks, which incentivized some traders to buy large volumes of Gemini.

Starting point is 00:39:05 with the discount and then exchange those Gemini dollars for the Paxos standard, redeem those for dollars, and then pocket the difference, which is basically like a very easy 2% profit. So I guess these traders were trying to withdraw their packs through the Hwobie exchange. And Haube has this $10,000 withdrawal limit. And so these users were creating sometimes like up to 30 different accounts under different names. So what was the intended effect of? of offering the discount and did you get the effect that you wanted?

Starting point is 00:39:38 I think almost every stable coin that we're aware of offer some sort of incentive. And that's typical of any marketplace, whether it's a stable coin or trying to incentivize price discovery and liquidity and tight spreads. To be honest, we're a little bit mystified by that sort of article in the sense that it seems to us like the answer is pretty simple. People just don't want to hold packs. Yeah. I mean, have you ever heard of sour grapes? It just feels like someone who created a product and the market's spoken and they don't really want to hold the product. They're redeeming that product because they don't like it and they prefer other products like Gemini. Dollar. And that's what happening. And someone went out to a journalist and sold that story, and the journalist, you know, bought it hookline and sinker. Well, I think, yeah.

Starting point is 00:40:42 I think Chad Caspera and the CEO, he just wrote a blog post about it. That's what it felt like. Yeah. And packs offers incentives too. So you've got two products that are offering incentives. And the market has spoken. And they decided that they don't want to hold packs. And it will.

Starting point is 00:41:01 But one other thing that happened as a result of this is, that Hwobi ended up having more than three quarters of all GUSD. Is that a problem for you? Does that matter in any way? I mean, how much percentage of tether does Binance have? Okay, so you base it's just like immaterial. Is that what you're saying? I think when people, but I think like that so like I'm, my guess is that finance has

Starting point is 00:41:24 30, 40% of the tether in circulation. That just means what it means. We don't, we don't determine where Gemini dollars go or are used. You know, our user agreement prohibits them from black markets and other nefarious illicit areas. But if you, Laura, if you create a DAP tomorrow and people want to bring millions of Gemini dollars to your incredible DAP because they love it, they want to play it, use it. We don't govern that. we don't we don't take a position on that we're totally agnostic and if people want to take

Starting point is 00:42:03 jemite dollars to holby and trade it there that's none of our business um and if people like don't like paxos standards and they prefer jemite dollars that's great but that's not like again that's between that's their decision not ours and i think the the the idea that a lot of people signed up accounts of Wobie? I mean, has anybody verified that claim? I mean, how would, how would you know that? How would Chad know that? I mean, I don't think. I don't remember what he said in the blog post. I'm pretty sure Wobie, out of respect and confidentiality for their clients, would not be disclosing that type of stuff if it, if it even happened. So nobody's verified it. It's just made up. Yeah. I mean, well, Chad, in his blog post, he said,

Starting point is 00:42:58 that's something about how I verified it with the actual perpetrators, or maybe perpetrators is the wrong word. But anyway, actually, I want to move on to the Bitcoin ETF because like that kind of you guys have alluded to that through the conversation. And I think it's a really important topic. So one of the main reasons your ETF application was rejected had to do with the unregulated nature of the crypto cash markets. And obviously Gemini itself has rules and oversight, but more than 95% of all crypto trading volume still happens offshore on unregulated. unregulated exchanges. And you said in your in your AMA on Reddit recently that you're still committed to making the ETF a reality. So how do you plan to overcome this hurdle to get the

Starting point is 00:43:39 SEC comfortable that the underlying markets are not prone to manipulation? So the the quick answer is is answering their call and requests for more market surveillance on the crypto marketplace. And we've started to do that. that with the Virtual Commodity Association, SRO, and bringing NASDAX-smarts technology to our marketplace. And those are the step in the right direction to getting regulators comfortable with eventually approving an ETF-like product. And so also now to argue sort of against my last question, I want to also ask about SEC Commissioner Hester Pierce's dissent from the rejection of your ETF, she said that the SEC's decision basically

Starting point is 00:44:33 rested on an incorrect interpretation of the regulations. She was saying that the regulation instructs the commission to determine whether the rules of the exchange are, among other things, quote, designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, end quote. She asserts that your application met that standard and that if that yardstick were actually applied across the board, then there are other commodity-based exchange traded products that would simply not have made the cut. And she also continues on explaining like the commission's mission is to just ensure that investors have the information they need to make

Starting point is 00:45:18 intelligent investment decisions and that the rules of the exchange should be designed to provide transparency and prevent manipulation, and she said your application satisfied those requirements. So do you agree that the SEC held you to a standard that was beyond what the regulation outlined? So I think that certainly a lot of people agree with her dissent, but at the same time, look, we understand that Bitcoin is a totally new asset class, and we've got to get it right. And so if the commission is taking a very conservative viewpoint in this regard, because it's really going to be the first of many in open the floodgates, you know, we can live with that. I'm okay with that. And we understand it. And we're going to work hard towards meeting that. I think that investors deserve the same protections that they get if they buy a share of Tesla or Apple. And I don't think it's unreasonable for regulators to strive for that. And especially since, as Cameron mentioned, this would be the first of many.

Starting point is 00:46:32 It's much more than just one product. It's a really big, it opens a big frontier. And it's got to be open correctly. So one other thing I wanted to ask about from her dissent, she said that their decision not to approve the ETF inhibits institutionalization. and that it also dampens innovation. What do you think of those points? It's an interesting point, and there's a lot of truth to it.

Starting point is 00:46:58 I don't know how you have it both ways. I see both sides of it, but it's definitely a chicken and egg problem. It does make it harder to get more institutions without a regulatory blessing, although I understand how they feel that certain commissioners feel that it's not necessarily ready for prime time. And it's a classic chicken and egg. The best we can do is continue to build and mature this market with things like market surveillance and best practices. So you brought up the Virtual Commodity Association, which is your self-regulatory organization

Starting point is 00:47:39 that you're trying to establish. I guess right now you just have a working group for it. So do you intend for the VCA to be a true self-regulatory organization that has the backing of a regulator that can levy enforcements upon violators, or will it be more like a trade association? So like just for listeners who don't know, like for instance, FINRA is the SRO of the securities world, but it's backed by the SEC. And so if you guys do become a true SRA, who will the VCA be backed by? So the goal long term is definitely to try and seek SRO status. And that's achieved, I believe by an amendment of the Commodies and Exchange Act that would give it authority similar

Starting point is 00:48:23 to what happened with the National Futures Association. I should point out that it took the NFA seven years to get that authority whereby anybody who traded derivatives and the like had you become a member of NFA and sort of prescribe or subscribe to the best practices. Now, whether we get there, you know, that remains to be seen and how long it takes. You know, it seems like there's a lot of appetite in the CFTC, especially with Commissioner contends, to build a SRO that is self-policing. And the reason for this, and I'll just quickly lay this out, is that securities have, the SEC and FINRA have direct supervision over securities markets. and the trading thereof.

Starting point is 00:49:15 The CFTC only has direct supervision over the derivatives. And the NFA is the SRO of the derivatives world. It's like the FINRA equivalent, but they don't have direct supervision on cash spot commodity markets like Gemini and such. They do in the event of fraud or manipulative behavior, they then can exercise direct supervision. vision, but generally speaking, these markets are not, they don't have that layer of exchange

Starting point is 00:49:48 coverage. And that's why an SRO is super important here. And it's further compounded by the fact that there's a lot of retail consumers in this market. It's a very retail driven market. So unlike other commodity cash markets where like agriculture or energy, where it's a lot of sophisticated players and it's big boy, big girl rules, we have a lot of mom and pops and and people who are getting into this, the world of crypto, which is phenomenal and fantastic. And it's probably the first time that Wall Street's going to be the last people into the deep end.

Starting point is 00:50:23 And it's a great sort of inversion and opportunity for people to get access to this amazing asset class. But we need to have some coverage and protection. So that is definitely the goal. Whether it gets there is another question, but that's the goal. So obviously regulation is a huge theme of this podcast. And I just feel like this is kind of this demarcating line that I'm seeing in the crypto space in general. But there are a lot of companies that have opted out of the kind of strict regulatory regime that you guys choose to operate in. And the Bit license, I guess, is one really big example of that. But a lot of those companies that have opted out, they have much higher trading volume than an exchange like Gemini. And I guess I would say, you know, buying. finance is probably the prime example of this. So how do you guys plan to compete with the likes of an exchange like finance?

Starting point is 00:51:19 So I think it's a great point and a very true observation. And we view this very much as a marathon event. We're in the first or second mile, if that. Some people are going to sprint out the gate. I mean, you know, I could probably lead the New York Marathon for a step, even though I'm not a marathoner. And so I think this is a long game that is very true and core to our values as a company. We often talk about, you know, we're not building a unicorn.

Starting point is 00:51:56 We're building a centurion. We're trying to build a company that lasts for 100 more years. If you look at some of the most established and trusted institutions out there, State Street being one of them, It's a double centurion, whatever. I don't know if there's another term for that, but it's over 200 years old. And that's what we're playing for. And so, look, if we could cut corners and go offshore and didn't have to follow the rules, we would probably have a lot more volume, too.

Starting point is 00:52:27 But that's not the game we're playing for. And we think that as more and more institutions and people come into the space, they're going to, they really will not interact with an unregulated offshore venue. They simply won't and they simply can't. And so we think, you know, that's long term will be very competitive. Yeah, our motto is we're just trying to be the fastest tortoise in the race. Okay, that's a great motto. So I also wanted to ask because you wrote in a recent blog post,

Starting point is 00:53:05 that your goal is to bring cryptocurrencies to the people and places that need it the most. But I couldn't help but notice that your areas of operation are the U.S., the United Kingdom, Hong Kong, South Korea. These are all very developed countries with high functioning financial services. So how do you square that mission with what you've done so far? Great question. So that's kind of one of the unfortunate, I don't know if it's a tragedy of technology, but the places that need it the least to get it the first,

Starting point is 00:53:36 if you look at sort of the telecom and how that developed, we got cell phones in the developed world really quickly, used them, but we had a lot of great other alternatives, landlines and all that stuff. The developing world, you know, they got it later, but then they also had the benefit, or they have the benefit of not having to lay all those copper lines and whatnot. They can sort of leapfrog into that next level of technology.

Starting point is 00:54:09 So that's kind of, that is one of, that's sort of where we are right now in many ways. People didn't wake up, you know, in the U.S. and say, man, like credit cards are so horrible. I wish there was a better payment system. Venmo and PayPal are just not cutting it. sure like we have we don't you know there's there's issues with them and we can do better um but we're not suffering from hyperinflation or the the real problems of of the economies in in other parts of the world but we'll get there and and the gemini dollar can get there right now and all you need is an internet connection so it's it's definitely a a long-term goal of our company we believe

Starting point is 00:54:54 that there will be, you know, there is a value revolution going on right now. It's going to re-architect the internet. We've all sort of thought about the decentralized web, web three, what that looks like. And getting, you know, banking the unbanked is a huge piece of that future. And we're going to get there. But it probably, you know, it's not going to happen right away. But that's a goal. And I also wanted to ask about your listing. process. You guys have been even more conservative than Coinbase in terms of adding new assets. And I didn't know if part of that had to do with the regulation. So I was just curious to know,

Starting point is 00:55:35 what is the process for deciding which new coins to list? And how does that affect, you know, how quickly you can roll things out? Because like I couldn't help but notice that you launched Bitcoin cash trading in December. But that was a month after the Bitcoin Cash hard fork, which I'm sure did not lend any more credibility or confidence in that cryptocurrency. So I sort of assumed that maybe you had started the process to add Bitcoin Cash prior to the hard fork, but that maybe getting approval from the New York State of Department of Financial Services may have held that up. So can you describe the whole process for me? Yeah.

Starting point is 00:56:13 So we actually had approval for Bitcoin Cash prior to the fork. and we decided as a team that we were going to wait the fork out rather than lists and then deal with the fork aftermath. And a lot of that is just geared towards protecting our customers because if there isn't replay protection or there's some kind of funniness that you can't model out or protect against or anticipate, as is the case with a lot of these forks, there's unfortunately not a ton of information. and sometimes exchanges are like an afterthought. People in the different communities are so focused on the philosophical differences of their different coins and the protocols and not about the realities of operating exchange and trying to support it. So we said, you know what, we're going to wait this out and let the dust settle. It probably costs us two months or maybe three months in terms of listing the coin.

Starting point is 00:57:13 There's no doubt lost revenue. But it just didn't feel right putting it live with that risk hanging out there. So we're really conservative. And I think, you know, as we've said before, we're just trying to be the fastest tortoise in the race. We're not we're not trying to be any faster than that. But yeah, so I don't like I don't, so I don't know what standards coins have to meet in order to be listed.

Starting point is 00:57:41 But I just want, so first of all, what is that? And then second, did the hard fork kind of like, you know, I guess change your perception of whether or not Bitcoin Cash met that standard? So we are developing in internal rules. We haven't publicly sourced them or published them yet because they're still in process. For each coin up to this point, it's been a sort of a case-by-case situation. We look at the team, the use case, the proposition of the coin. Is it doing something unique or is it just another Me Too? And is it truly, you know, solving an authentic problem? Those are the general common sense things that we look at.

Starting point is 00:58:25 And will it pass muster with regulators? Obviously, we listed Zcash. We didn't attempt to list Minero. And we felt that Zcash was the privacy coin that we could get our regulators comfortable with. we are definitely looking at and thinking about a framework, but what we don't want to do is publish a framework that we don't follow or that we have to unpublish our men. So we're being, again, super conservative.

Starting point is 00:58:52 I think you'll see something from us over the coming year, but we're not quite ready to go live. And I should also point out we never listed Ethereum Classic. And we just haven't gotten comfortable with it. And there is a 51% attack. Very recent. Yes. Yes.

Starting point is 00:59:12 Super. That was maybe one of the more insane things I've seen in my coverage. So one other thing I wanted to ask you was you guys did an AMA on Reddit. And I couldn't help but notice there was this one question that I think was asked more than once that you guys didn't answer. So I was going to ask it here. Why should users use Gemini when Coinbase Pro has cheaper fees? It's a good question. So I think we are probably going to be up.

Starting point is 00:59:39 updating our fee schedule in this quarter, I think we'll be super competitive. But we are more competitive than Coinbase in a lot of regards in terms of fees. Our mobile app fees are more competitive. We don't charge 4% to redeem our stable coin. They charge, I think, 4% on the USC. So it's not a correct assertion on the commenter. All right. And then the last thing I want to ask about was you guys secured insurance coverage for the digital assets in your online hot wallet. So what does that mean exactly? In what instances is, does the insurance apply for how much? So we have coverage of the entire hot wallet.

Starting point is 01:00:24 We, I don't think we've disclosed the amount, but it's significant. And I think that it is the most of any crypto custodian in exchange on the market. And effectively, there is not. an infinite amount of appetite among insurers. There's there's sort of an amount of coverage that that is out there. And I think we did a good job of impressing them with the underwriters, that is, with our cold storage system and our procedures and policies and protocols. So I think we achieve the highest level, the highest aggregate amount. And that applies if you guys are hacked or if there's like employee theft or something, but it doesn't apply if I've lost my

Starting point is 01:01:12 password or if my account was compromised. Is that correct? It does not. So if you were to have your credentials compromised, it does not cover sort of your behavior. But we have, we force two-factor authentication. So you'd kind of have to jump through some hoops on your end and make a lot of big mistakes to lose your credentials to a fisher, and I don't, a fishing attack or a spear fishing attack, I'm not sure if it was clear before, but the insurance coverage covers the entirety of the assets that we hold on customers' behalf in our hot wallet. And so if our hot wallet has an incident or is hacked, then it would be covered. Okay. Actually, I do want to add one last question, which is you guys have been largely, if not completely self-funded. Do you envision ever accepting

Starting point is 01:02:09 outside capital for your business? And also just out of curiosity, how do Gemini employees feel about the lack of external capital raises and valuation milestones? So we've always thought about raising capital and we'll continue to always think about it. It's not something we're not into capital raise now. We're not thinking about one anytime soon. But we always explore options and every option is sort of on the table. But just because we haven't raised from, you know, Sandhill Road VC doesn't mean that our employees don't have equity value that is significant. And we're not really, we don't play this like, oh, we're chasing a valuation game. We're just building sustainable value in a great company.

Starting point is 01:03:00 And like Cameron mentioned, a company that lasts for, over 100 years, the Centurion, our opinion, everything else will fall into place. Equity value, people doing, getting rewarded handsomely for all of their efforts. That'll come. You don't have to raise money from like a third party investor on Sand Hill Road and keep chasing valuation games for people to get the same result. So that's kind of our stance on it. A lot of companies raise money and that's like this thing that they preyed around. And it becomes a lot of times it's like the last good thing they do.

Starting point is 01:03:44 And they run out of money. Yeah. And I think that almost all of our core founding team, the 10 or first 10 to 15 people, are still with the company four plus years post. and a lot of these people have moved well past the four-year vesting date. And so we have a ton of institutional knowledge and cultural carriers in the company who have seen it grow from, you know, a 10-person outfit to the 200-person outfit today. And, you know, the human body, I think every seven years, we have like a completely regenerated

Starting point is 01:04:24 cells. And yet somehow, you know, every cell in your body down to your bones is new. and yet we retain our memory somehow. I don't know how that works. But Gemini, we have our corporate memory and history, and we have a tremendous amount of senior leaders and early people. At a lot of the companies that have raised, there is tremendous turnover,

Starting point is 01:04:49 and there's not a lot of faces that have been there early on. I think that counts for something. It allows us to be really tight. We're great at kind of communicating. internally and understanding each other and being aligned on the mission at hand. All right. Well, we'll check back in with you in a few years again, I guess, with the same, or roughly the same interval, maybe not as long as the last time.

Starting point is 01:05:15 Hopefully sooner. Yeah, maybe sooner. We'll see. We'll see. Well, it's been so great having you. Where can people learn more about you and Gemini? Gemini.com's a great starting point. We've also got a mobile app in the Play Store and the iOS Apple Store.

Starting point is 01:05:34 And then we've got a medium blog where we write a lot of content and talk a lot about what we're up to, how we think about the space. And, of course, your podcasts every two years when we're on it. All right. Great. Well, thanks so much for coming on Unchained. Thanks for having us, Laura. Thank you. Thanks so much for joining us today.

Starting point is 01:05:54 To learn more about Cameron, Tyler and Gemini, check out the show notes inside your podcast player. New episodes of Unchained come out every Tuesday. If you haven't already, rate review and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn. And if you're not yet subscribed to my other podcast, Unconfirmed, I highly recommend you check it out and subscribe now. Unchained is produced by me, Laura Shin, with help from Rayling Gallipali, Fractial Recording, Ford and Fife, Jenny Josephson, and Daniel Ness. Thanks for listening.

Unchained - Tyler and Cameron Winklevoss on Being the 'Fastest Tortoise in the Race' - Ep.103

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