FTX (with Sam Bankman-Fried & Mario Gabriele)
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Haircare listeners, David and I recording this in november of twenty twenty two. While lots of news is coming out about F, T, X is collapse in real time, we recorded this episode about a year ago, and we want to do acknowledge there has been lots of accusations and lots of very apparent wrongdoing by F T X, and potentially alimta since we recorded this. We wanted to leave this up for posterity. We recorded this interview. We think it's worth watching with full context.

indeed, rather than making any sort of statement. Instead, we just finished recording a three plus hour long episode about the history of iron, which felt like, uh, much more appropriate, acquired way to add the conversation around F.

T, X. If you're watching this, we also recommend watching the non episode and hearing the discussion on that show as well.

With that, under the easy with.

Say is another story on the way.

Welcome to season nine, episode seven of acquire the podcast about great technology companies and the stories and playbooks behind them. I'm then gilbert, and I am the co founder and managing director of seattle based pioneer square labs and our venture fund.

psl ventures. I'm David resent fall, and i'm an Angel investor based in safety, cisco.

and we are your hosts today. We are telling the story of the crypto trading exchange. F T X started just two and a half years ago, and today they worth over twenty five billion dollars there.

By far the fastest scoring crept exchange. In the research, I found that they grew an astonishing ten x by volume in the year twenty twenty. I went to look if they repeated that unbelievable feet in twenty twenty one, and found out that they actually ten next, just in the first half.

and unbelievable.

So th Epace i s a ccelerating f or F T X. We're still waiting on end of year numbers, but this company is just astonishing. So F T X is now the sponsor of the miami heats basketball arena, F, T X arena.

And you can see their logo on every major league baseball empire uniform. You can see time, brady and jail and F T X commercials. It's wild.

So what is going on here and how did they get so big, so fast? And what's with these huge brand deals today? We're going to tell the story with the CEO and founder, sam bank man fried sam, as a genius and effective altruism.

He's also the wealthiest person under thirty in the world with an estimated network of nearly nine billion dollars. And we are trying something new. IT acquired.

We have a guest host here with us today. We've brought an mario got from the generalist to team up for this episode. Welcome, mario.

Thank you guys so much for having me. I'm quite honor to get to be the first .

you bet listeners if you haven't ready yet, mario did a three part epic series on F T X over the generalist. And I think it's safe to say, mario, you are truly a world expert on this company. After writing, I think thirty six thousand words yeah.

IT was a long series. Brevity is never really my strong suit, but I really let myself sort of fly on this one.

I think that's why us and you and packed.

I get along so well. We are all birds of a feather.

So before we get in, is IT right to say, maria, this this company, the only two hundred employees, and I think maybe started the year a few dozen employees.

yeah, that's right. When I sort of wrote my pieces in summer, IT was closer to, I want to say, seventy, seventy five. So they are growing extremely fast. But still, when you look at the output, the leverage on each individual person is astonishing.

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Yeah, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service. Now document slash A I dash agents. Our listeners, we are dive in here, please know, and maybe even more than usually when we tell you this, but this is not investment advice.

We may have investments in the projects, the tokens, the companies that we discuss. This show is for informational and entertainment purposes only. Mario, I think if we want to make sure that we say this and cover you as well, that you may have interest in things discussed and during research.

With that on to our interview with sam backman freed. Sam backman freed. Welcome to required.

Thanks for having me.

Well, IT is our pleasure and our privilege to really get to have you tell the story of F, T, X. Today of automated research how this whole crazy thing came to be and really help us analyze the cyp to assets ecosystem today.

It's a crazy world.

Well, the first question I have for you is how did this all get started? Take us to the moment where you became crypto, curious for a lack of a Better term, or maybe a tongue cheek term, and how you started digging at all this?

yes. So the first thing I did, I can actually step by step, go through. This is pretty simple process.

I went to coin market cap dot com, I put on big coin, and then I clicked on markets. That was my first investigation, and i'll do that right now to see what IT shows this. I think you can be an interesting contrast.

So if you do that day, it's going to show you a bunch of markets for a bitcoin. And just of looking across the Prices here, the data here is not perfect. They don't understand others pricing extremely well.

But sort of the range of numbers that i'm seeing with a few exceptions that we get to is forty eight thousand, two hundred and eighty at the low end and forty eight thousand three hundred twenty at the high end. And so that's like a ten basis point different, I think, between that of like the low and and highland of racing of a big coin across major gypt current exchanges. And that's like about typical today.

If you're thinking like is there an arbitrage in bitcoin, the answers maybe sort of I mean, we're going to be paying a few basis points fees on both sides, right? This stated like it's not perfect and perfectly synchronised or not pricing tether, quite right. So really the answers like yeah kind of border line. So it's a couple basis points.

And when you went to coin market cap way back when and looked was your intention, hey, is there an arata age here? Is there a large spread?

Yeah basically was looking for there's just an incredibly simple calculation you can do to get some sense of maybe kind of sort of what one could maybe do if for some reason, everything was easy and all the data was right and it's sweeping a lot under the rug but he gives you him up a bound on how much you could make doing and what is that bound where you take the difference in pricing between major exchanges, right?

That's like the ammo t maybe you could make on each trade. You've will fly by the daily trading volume across these exchanges. And then you say, I don't know, maybe will be a percent of volume, I don't know, sort of making that up again, this isn't meant to be precise. And back then, so daily train following was only like a few billion dollars.

I think. And what year is this?

This is late twenty seventeen. So it's a lot lesson today. The spread between the exchanges was about five to ten percent. Wow was so so IT was about a thousand times bigger than the spread today.

And with that, even across major exchanges, not even go in esoteric .

coin based a bit, stamp is usually like one or two percent, and that's not even look at bit for next or anything based on todor or japan or korea or anything like that, right, which would sometimes to get the twenty years of percent. So okay, what's this number? Save some number of percent and let's say two percent.

Maybe you could make times a few billion, times one percent of volume. So one percent of volume is twenty million dollars of volume or something like that. Make two percent on that.

I think that's like two hundred brand. And so okay, that's an ask me for how much money maybe you could make per day doing arbitrage. And that's a lot of money to make each day like a service sounds like, oh, oh, I mean, I can I don't know this all might be fake. If it's not fake, that's pretty compelling and that was enough for medal. Like go create some accounts on exchanges and try, do and see what happened.

Sam, do you remember where you were when you first looked at that coin market cap page and sort of the sensation of recognizing opportunity?

There I was in california. I moved to how fund a shortly after leave ing jay street. And I sarti looked through IT. And IT was very hard for me to do anything, but immediately go try to do that.

It's one of these things where you see IT and set of the way had been trained to think with IT was painful every day. You don't do that. Do you see a great train front of you and you're not doing IT? And that should be painfully.

There should be a negative feedback. Why are you not doing that thing right now? right? Why are you missing this opportunity? And so just like I just need to fuck and .

do this right now to set some context, you are a trader at gene street capital, which is one of the top quantitative hedge funds in the world, said that two hundred thousand dollar a day, potential arbitrage, ppo bitcoin. How did that compare to the best trades you sign and traditional markets at James street?

So it's interesting and without going into detail about I P sensor of things here, I guess well says first of how much volume did gene street trade per day? I don't know there's a public number here, but I can tell you that eggy markets some number of hundreds of billions of dollars per day, maybe a trillion per day, depending on how you count. And like this is one of the big players in IT.

We this is not the biggest bi volume, generally like A T H F T form would be. But okay, the volume numbers that you d be talking about there would be way bigger then the volume numbers that we are seeing. I mean, maybe if you're traded a hundred percent of crypt of volume, but you're not can do that right? On the other hand, if you can make one basis point on a trade entrail finances, that's a good trade, no forms like all.

You're only making IT this on IT by bother. If you can get to done any day or something, right, say, like, yeah, here is like a shortage time he will training or make a bed planning for, like, yeah, go do that trade that sounds great, can do a big, do a big that sounds very good or happy with that. Maybe can make two bases when i'd be even Better.

three. wow. Ted basis points. Come talk to us if it's big because we all make sure not missing something about access. Ss, a lot of basis points .

and you're looking at ten, ten to twenty percent here.

right? I just blew out of the water. And so I don't want to say this would have made a lot of money compared to the total amount of money that the top trading firm would make.

I would not believe that statement, but I do think that in terms of percentages, i'd never seen anything like that before. One percent, I don't know that i'd ever done to say goodby. One percent before in my life on anything maybe I had in some weird, tiny, illiquid shit, which is like college chick guys.

This trade good by one percent. So like thirty eight dollars and grt, sam. So yeah, that spreads here.

We're just unheard of, if true. But of course, maybe they weren't true. You know maybe all fake data. no. Or they said no that .

you had left je street and you went to california, was IT like the classic, I don't want to be a trader. I'm leaving this world. I'm thinking about what i'm doing next, but you've got pulled back in because the opportunity was .

just so uni gns able only sort of, I really, really love my job at the street. I really enjoyed IT. IT was a good fit for me, and they were also just really good to me.

They are into moose to their employees. IT was a good place to be. And IT suffered from basically none of the problems that you generally care about on wall street.

I think many places do suffer from those problems. IT mostly didn't. So I was super happy there.

IT was more than I sort of set down and thought about what I want to with my life and felt like I don't know what the answer is, but there are a lot of things I have to try before I die. There are a lot of things that I want to give a shot. I think they're extremely high outside.

I don't know how good it'll be. Like I listed ten, and like a boy, there are ten compelling things. Probably one of them can be great.

What was on that list?

So IT was a pretty diverse list examples of things on that list. Politics going into politics is one of them. Becoming a journalist was one of them working at an on profit was one of them just bubbling around the barry and seeing what happened with one of them trying to find some startup.

I don't know what was one of them. You fund raising for non on profits was one of them. I didn't feel very confident about what direction to go. And so I kind of felt compelled on a lot of different conflicting ways.

So it's kind of impossible from the outside looking at you in the story not to make the analogy to thirty years earlier. Jeff, is mario made that analogy and his great pieces. How does that resent to you, of course, to jeff leaving d shah. Quality trade cats found, because he saw the huge opportunity of the internet was like, I don't know what i'm to do in the internet.

but I to do something. So I didn't know that story at the time. I think you probably would have resonated with me how I known IT, but all those stories are thinks that I didn't dig in to until more recently. But I think there are a lot of parallels .

are at the time that you looked at coin market cap, how much knowledge did you have about bitcoin in general? Have you been introduced to the White paper where some of your friends talking about IT?

I'm trying to decide whether nothing is the right answer IT might be i'm not sure if its quite the right answer, not sure it's not the right answer, but it's pretty close to that. Like we ask me what is a bitcoin. I would not have been able to give you an answer other than a thing that trades on some exchanges and the centralization, I don't know.

kind of Better than everyone else at the moment. A lot of the time.

maybe right. I got one word further, but I could have described a block chain. I guess was I like, you know, they chained the blocks with the transactions in them.

I really who they was, I don't know. The block change does IT. I really didn't know what propter was when I first jumped in .

a fascinating way to come to IT because there are so many other folks. I mean, I can remember in twenty twelve or twenty thirteen seeing brian armstrong at south by southwest and getting obsessed with the notion of decentralized, but totally coming from the product manager developers side, never having experience in finance and the fact that IT was a traitor asset was the part that was the completely foreign thing to me all these years later. It's fascinating to me how technologies see the core technology. People from the finance world see the core change in the financial asset in this lazy soup that we're in is because those two things are merging.

I think that's right. In one thing which we really try to maintain as a company is that people understand both of those sides. I mean, I did not before.

I do not understand what a blockin is, but we want our business development team to understand what a blocking is and how that works. And we want our developed our team to understand what a trade is and how that works. And I think it's really hard to make good decisions.

I'll give you example. We want to listen a new asset and we have think about risk parameters for IT. Is there some interplay between blockchain confirmation times and initial margin to even know whether there is interplay between those, whether that is a thing you have to think about, you have to have some instinct on both sides.

But you have to be able to tell me, IT takes about five minutes to send something on a block, and that number quick IT up to five hours during congested periods. And you also have to know, we care about movements on the order of a few percent for risk purposes, and we don't credit people for margin purposes until lands. So we're not usually take credit, but maybe for some block chains, we want to and we have to do some extent.

I say we don't procreate IT, but how many confirmations do we require for biquet? It's not infinity. I think the answer is mostly there isn't a lot of interplay between those two things, but I think it's really hard to know there is interplay unless you can serve, go through that all process on both sides, be able to know what to think about, how to ball pocket.

Well, I want to take us back. Cro, logically, you talked about pull up coin market cap. You think maybe there is an opportunity to make two hundred thousand dollars a day.

You end up finding a trade that makes about twenty million dollars a day. How did that transformation happen? And how long was that opportunity available?

Basically, the best trade we found was the japan erb. So Green bitcoins ins were trading ten to fifty percent of both american bitcoins. And lots of people said, we want to buy american big money to something Green.

And the answer is, a Green wants a restricts. Renzi, you can't get the Green one out of korea. You can't sell IT for dollar easily. Say goodbye. You know, a ten thousand dollar in sell IT for thirteen thousand lars in korea of crane won.

Now if crane won a craye exchange and knows anything you do that buy a big went back for thirteen thousand dollars, right? I'm being a little big club like there's some things maybe you can do, but like you couldn't fundamentally just do that. Trade nearby, though, japanese bitcoins are trading five to twenty percent higher than american bins, still quite a bit.

And the japanese, and is not a restrictive currency in theory, you buy american big queen ended chavez, and seven, twenty percent higher turns the end back into dollars wired back to america, and you have just made a bunch percent. So any way we try to get set up to do that and was incredibly logistically complex to do so. But around the start of twenty eighteen, we finally were able to turn IT.

And when you say we, who's in the room there at this point.

twenty eight people who weed cover together at the last moment, myself, some high school, college, friends of mine, some people from the effective vulture and community, some people who are friends of friends of friends, I mean, we only existed for like a month two, and, you know, have been surfing ticals, trying to put together something that looked like a team is very serve at all. And he was, was the scale of IT.

Well, in theory, if I had infinite capital, one could have the ten percent on a few hundred million dollars a day maybe. So I think twenty million was the size of this trade. Now we did not have a few hundred million dollars of capture of the time, which is very frustrating. We still made like a million dollars a day from IT during that period. So we still fantastic trade.

But meantime, we are doing everything we could do to scale up our capital base because there's just like what we can just like print in state, like what's the API if this is a number that doesn't even sound real, like say IT you like you hear that number like a yeah on zi scheme. And unfortunately, we basically scaled up capital based the day that the art went away. And so we failed to really ever get to the point where we could have gotten with a bit still amazing trade for the three year for a weeks that both we were active and IT was alive.

And so we, at this point, is automated research. This all predates F, T, X.

That's right. And are you thinking you guys are gonna D, A crypto quantitative trading firm at this point?

We were thinking that and while doing that trade, we were doing a lot of other trades, much smaller. Our vision was looked. This probably won't be the last good trade ever. We should build a firm here, whatever that means.

We want to be scaling up like what was fundamentally happening here, incredible amount of a cosme excitement about kepta, right? You huge buying and telling pressure, usually buying pressure, but at some of each in exchanges and juristic tions in tokens all over the place. And very little liquidity, none of the institutional liquidity virus were in this space.

So like yeah, when japan was buying four hundred million dollars a day of crypto, there was no firms set up to like build a pride that liquidity and this is like giant mismatch of liquid demanded liquidity supplies that that was creating gigantic spreads. Customers were getting terrible Prices, and there is a pretty big opportunity to comment and provide on both sides of that. And the japan are was just one example .

of that before you guys ramped up on the lp side, where you guys just running your own money into .

this basically yeah so IT was, you know, money we call all together like I know a little leftover. I mean, we called together a few million dollars then you know of flight iterated on the capital base over time, although without ever taking external equity or anything like that without naming names because i'm sure .

you can do you any funny meetings of what I was like to walk into a pitch like any memory that sticks in your mind where you're trying to raise capital and you're describing the trade that you're making.

Yeah so people are really excited hearing that what they had, all these questions and the question is keep coming ing about how to handle a and b and c and d and e and like risk in custody and things like that and we're trying to answer them. But what's the honest answer where we really actually coming from? I know we just fuck and started this company two months ago, and we're trying to scale extremely quickly.

We don't have great answers to some year question. You know what's your policy on x? And we even write a policy on x been a violent for two months and we've been desperately trying king to bank out the whole time.

So definitely there are locked before like i'm super excited to this. Can you show me your audits even like literally no crypto company is ever got nodded IT before of any type. And we've been around for two months.

Obviously, we don't have a nodded, 真 so those a lot of the pain of doing IT was just people were like provided some reasonable assurances that every other investment we've ever made has been to able to provide us like， oh, boy, that sounds hard. Other things that we're going on basically were, you know, we're trying to do what we can to have optimize this opportunity. But this was a period encysted when a lot of people made a lot of money.

We weren't the only ones who thought that we had a pretty good opportunity. So how do you compare a quantity trade firm? Two, for instance, someone who had just issued to token and then went up a lot and like, well, our returns are three trillion billion percent and it's like a little bit of a silly comparison, but it's not like completely obviously a stupid comparison like IT.

It's a little bit complicated to think about what the right way think about that is there's no clear right answer sometimes. And so we are simultaneous ly like fighting for capital versus a lot of firms like that. And you know, Frank people, tokens made a lot money. Well, sometimes I IT depends when you mark to and from, but those are probably the two biggest things. I think I came up during our conversations and .

you're referred the fact that you're doing all this just after the ico boom. So there is a lot of people that we're sort of inventing security, not securities, out of nothing. And then those would go up rapidly and could also go down rapidly.

Yeah, that's right. IT would serve at the tail end of the ico boom. The ico boom had not actually quite ended yet as of that. And L.

P, S. Are essentially looking at IT as just high risk capital. And so the opportunity to earn a trillion, billion percent versus ten percent, there are sort of try to weigh those two things in a category that they think, what hello, I risk anyway.

Yeah, that's sort of right. And we fell in a little bit an awkward in between, Frankly, where on the one hand, we were high risk in that. Like who the fuck out of these people .

and IT has the word cyp to in IT.

so IT as the word cypher in IT. But we're else like what we're lover. We're doing our retrials, you know and those in a firm exactly for extremely risky, low risk investments that make a fair bit of return but less than extremely risky ones do. IT was trying to appeal to non existent niche.

and that definitely made IT harder. okay. So why start F, T X? You've got this one crypto trading firm.

It's going well with almeta. You're finally landing some big institutional capital to have real A U M. Here that you can make interesting money with, so you decide to start the futures exchange.

right? So I guess there are few things going on there. And the first is, Frankly, when you do the math, in order to really scale where IT needed to go, allow me to would have needed, and he did eventually succeeding this, but to actually get a substantially bigger capital based on its head.

If you look at, I mean, the amount that we are paying on capital combined with just a bunch of other certain difficulties there. The bigger thing though was, I mean one cool thing about cyp du is is very transparent from some perspectives, is very easy to see how much are the exchange is making as an example, right? That is be sick public.

And it's also big, like really big to give some sort like sense of what that means. Like how big is big? Well, again, it's all public.

You can do the math. This is circuit. Wait twenty eighteen. Well, they were transacting. How much for day, globally, five to ten billion dollars.

What were their fees? They are making like four basis points on averages on that, that a few million dollars a day, that they're making seven billion dollars a year of revenue, a lot of revenue. And the core business in all of an exchange from some kind of like really simpler stic perspectives is very simple. Now I wonder, this is really a reductiones perspective. They did not ultimately think really reflected reality like the corpus model is you have a matching engine and you you let people submit bidding .

and offers to IT that called a billion dollar running revenue for the industry, which I was. I was growing superfast to very high margin revenue. That's not for a revenue .

high margin revenue. And we kind of pretty deeply understood what product one would need to make if you want to do this, what you need to do dancers like, oh, no, actually that's pretty straight ford. We could do that.

And for all of our listeners out there who are not familiar with the trading world, i'm going to make way over simplified compares in here. But imagine running, uh, airbnb or uber. But you don't actually have the hard part of any humans or any cars or any airbnb s, you just have pure matching of supply to demand of a purely digital asset.

So you're variable cost near zero zero. yeah. I mean.

it's sort of very near zero. It's a definition issue like maker rebates that a variable costa gy decrease or have whatever, but IT basically near zero. And so we serve at look, we've been using these products.

We understand IT. It's a big business, but okay, fine, whatever understand amazon sort of it's making a lot of money and not starting amazon keep. I know tomorrow we're going to sell socks, but then thought of that one.

So what was the other thing? The other thing was that in theory, I think in exchanging much more complex business than what I described in practice exchanges circuit twenty eighteen were not. And there's A A lot of other things you might think you would have to do as an exchange, and you mostly be right that you have to do them. But that doesn't mean people did do that.

We're not that far removed from the mount gair. I have this point, right?

We're not. And you think back to that, you're like, well, okay, obviously you can beat malos by just not booking everyone's money.

It's a killer feature.

IT really is right. And okay, that's being a good but what were the killer feature is back in twenty eighteen, I mean, something they weren't that much charter than just don't lose everyone's money. The biggest exchange of the time was bleeding each day about a million dollars of customer assets to a risk on that didn't work.

Oh, can you explain what that means?

So let's say that you have futures on a platform as one dots, right? So people are taking leverage positions on these features, and they put on leverage position and didn't go so well. They can to start losing to a nothing certain.

All that exciting has happened. Markets are moving in surprises. There are three x long, and they put on a five hundred million dollar position because people do that sometimes, right? And then markets go down fifty percent now, all of a sun, their accounts worth how much?

So they lost two hundred fifty million dollars. And the beginning around equity was, what? Like a hundred seventy million dollars or something so negative, eighty million dollars of account value right now. What's that mean for them to have a negative account?

Who holds that back? right?

right? exactly. You can call them up and ask for eighty million dollars and we'll say, hi. Ha, no.

So are they basically not liquidating people's positions fast enough when the markets starts to turn against the leverage, but they are making .

that's exactly right. That is exactly what they are messing up. And they are messing this up extremely consistently.

IT wasn't just like, oh yeah, you know, something weird happened that day and they didn't quite get their liquidations on in time. That sad IT was like, yeah, it's tuesday. I guess they lost eight hundred and twenty three thousand dollars today. Oh, that wasn't so bad. Wedding day was worse.

And this is okay because they're making so much money. So like if this were purely what was happening to their cash flow, they would be at a business immediately. But they're making so much money in, they're just running super inefficiently because they have .

this problem actually worse that so sorry, you made assumption there. Can you offer that assumption? I know if you realized you made assumption there.

My assumption is if they're taking three to four basis points of everybody's trade, then they have this nice fat revenue stream that they can afford to make these screw ups and not liquidate people at their fast enough.

You are making a more fundamental assumption.

is the assumption that depends making that the exchange are covering the losses?

Yeah, that was assumption .

because they are not right.

They're not so okay, but that's weird because again, the person is not going to pay up. So what's going on that who is covering the losses? The answer is the customers.

So each week they would detail the customers and be like, congrats, you got eighty three percent of european this week. The other seventeen percent went to bail out people who are underwater and now it's just happening every week. It's like, yeah no, you do average whatever some eighty something percent of your positive.

If you lost money force, you do all of that almost. You lost more than all of your money, in which case you couldn't more than all you, right? So that's what was happening and that was not good.

And since aloma was a customer of these other exchanges, you were getting these emails and you're like.

way to minute. Oh yeah. I mean, we saw this first time. We just saw happening every real time and IT wasn't fun. That's not how I would describe IT.

And at this point, sam IT feels like if i'm not wrong, the futures market is particularly uncompetitive. I remember talking to Christmas race capital and talking through how they thought about investing in f tx, c round as like spot and futures are almost equivalent in market size, but there are much less competitive players and much less robust exchanges when IT comes to futures. Was that something that you guys thought .

about at the time? absolutely. Basically just a couple players who are the entire futures ego system.

And just for definitions, the spot market being able to buy and sell the underlying asset, kind of like how coin base started. I got a coin base. I buy a bit coin, a spot trade, future trade being more complex, derivable instruments.

That's exactly right. And so basically, like, look, the futures markets have the total market. There are only two real players in IT and there are hitches.

But they're still printing money.

right? But they're still printing money despite being shooes. That's right, which is an interesting combination.

Yeah, your margin is my opportunity, as someone once said.

exactly. And that was sort of the plan at which we felt like, look, this is a huge opportunity. And people just to say they're not nAiling IT would be like a bit of an understatement.

And so we just felt like, you know, rocket, we can do Better than this. This is the bar. We will beat this bar. And I also think that we were in a position where we could really directly tackle this. We weren't sort of like IT wasn't like this sort like dark room and we're like a round literature.

And one day we say, like what if we just tried increasing the Price we displayed by a percent? No, that makes no sense. Like we serve like understand these problems very deeply and understood like exactly what we could do and what would make them more powerful.

That helped quite a bit. And in the end, it's taking a ton of work and iteration. And some of they just saying like, yeah, having a good product is important, but it's just incredibly important part of the sector, which was not done well. And I think that maybe another thing worth emphasizing. Why and exchange why not like a custody firm or like I I don't know, right?

There's lots of other players in this potential value chain here.

right? And to why exchange, the answer is that they're actually warrant a lot of other players in this value chain. And that's one of the bigger differences between what we see in crypto and think what we see in, in most financial ecosystems where usually by the time from starch to finish how many people are involved in an average equity trade. It's a pretty big number. In fact.

as we learned with the whole Robin hood situation.

as we learned with that thing, right, like what actually happened, the Robin hood situation, if you set of trace IT through, well, they're broker dealer. I guess they have a mobile b that then goes to some peace of firms separately, leaders like the clearing, the settings of that, then they go to an h, goes to another P, F, firm stock loan.

Yeah a third very stock loan dest involved somewhere here probably right you you start going through you know like go thirty twelve firms because you buy side in cells de and then I was like, well, okay, was this train fully funded? What you mean? This trade technical? There were twelve trades involved in the one trade. IT wasn't actually the case that one trade is even really the right way to think about IT.

So is the thought that if you're starting the exchange, then you can sort of take on more, more play on each side and basically turn IT all into one transaction instead of this strategy mess.

And in fact, that is how most for the exchanges work. How they work then and how they work today is, if you look at the traditional cyp to exchange, who is actually involved in IT from start to finish, well, there's a buyer, there's a seller, there's exchange that's actually yet oh, so the point you're making is because .

this is a whole brand new system. There's actually not all this craft of all the players involved in every transaction. You kind of can't be anything but .

an exchange that's right. And that kind of is how crp to happens to all that way. And not necessarily saying that needs to have, but I did well.

certainly seems like the period form of making a market, I think that's right.

I think is probably the right way involved. Yes, there a lot of advantages of that system. You know and which of the intermediaries and nutritional system were providing large value? Have you come out saying like .

you maybe one of .

them was it's not total clear, maybe zero, I don't know. So I I think that makes a lot of sense of system and I don't think sequence inside job there. But because IT did the exchange is the important piece is just like there's no ambiguity about that. And so if you're going to do something at encrypt, you were gonna a do IT at the exchange left on the infrastructure side. That's where the value is.

And of course, at this point time, I think the whole even idea of a dex of a decentralize exchange didn't even exist yet, right?

Let me think I did technically exist, but IT just wasn't really much of a developed thing.

Certainly siren wasn't around because that would be years later. But you guys, uni sw hadn't started yet.

And v one, yes, exactly right.

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X. And this is a not so list. I mean, blackrock, I V P, sqa capital, softbank, race capital baLance, there's I don't know, thirty firms and all of them. It's like the who's who. So your founders ies, once you decide over starting a company called F T X, and it's an exchange for crypto derivative products, this seems to go very well, very quickly, as opposed to automate to, which seems like kind of a grind to get off the ground.

So why is IT ais there? A lot of things that went into IT. I think eventually the story that convinced to us that f jacks would be exciting convinced a lot of people IT just passed diligence. The more diligence you did on IT, the more seems like of that kind of checks out. We're kind like, look, the existing exchanges have serious issues and people look just like, yeah, okay, we've talked a lot of people use some kind of agree really compelling reasons to be able to do Better.

I think that there is maybe a more general thing going on here of like it's not like they messed up a few specific things but were great otherwise are serve addictive of like execution ability and think someone also just made a lot of money and piece out you know that yeah but not going why would you shy hard now you know I think the other things were that is a much more legible company when we talked about like we're currying revenue. They sort like doesn't exist. A clear example of that then like I know we have volume each day, we turned to transaction the on the right incredibly clean people like is this revenue real? Yeah I know it's all public .

versus the story of, hey, this ara charge opportunity exists and we're onna keep doing IT and IT may may not there tomorrow. And if it's not, we'll find others right?

In theory, that actually goes away over time. The more apparent this opportunity becomes, the less money you can make worries and this one that scales beautifully, the more money you can make.

the bigger you get totally. I think I tend to find some things more credible than other people do. Sometimes intensively, a little bit more things might be great even if it's not provable or something like that go for at every reason that sort of was the case. And so yeah, IT just was a more logical product and IT was from that perspective of a nice one.

And then isn't IT almost exactly around the same time as you guys announced your seed round that artha hay sea of bit max, which is I think the biggest player at that point, is like getting into real trouble with the C F, T. C. So if there's a sign that like there is an opening here, IT really seems to all be happening amid to early july of twenty nineteen.

Yeah you know, I adding some of this was coming from the perspective of you, oh wow, who incidentally, a lot of good things happen for us. You would have thought I think somebody is also a lot of hypotheses about ways that product differences would happen in the exchange. They started playing.

Where are like, look, this is a big problem that some people have we think is going to get worse over time. And like I know, sort started happening. And an important background for this, like how high surface standard do we need to hold ourselves to? The answers incredibly high because we're coming from behind.

We don't have a user base, you don't have a brand name. We are coming from a perspective of everyone knows our competitors and no one knows us. And just being a vote as good is just not worth thing is he's like whatever okay, your about as good as the other people does I can cause someone to change. What do you say .

and see what were the things you were really intentional about as you realized, okay, we're going to build a company and during institution here, an Operating company with F, E, X. Because IT seems like the crew that you've got together for alamito IT was like, this is crazy opportunity. We have to go exploit.

Go, go, go. Will probably exploit more opportunities the future. But now suddenly you're realizing you're building a company that's going to become a key piece of infrastructure in this next. So what did you have to be super intentional about?

I think maybe splaying us up to two things. One of which is internally, what did we have been intentional about? And another of which is, from a communication perspective, I think one thing both who is traced down to his a long term plan, the plan not just being, I don't know, we'll do the best thing at every point in time. Ask me in ten seconds, i'll tell you what that is. In ten seconds, I can't tell you what that is now because the world might change, which is honestly sometimes how we think about things that the world does change and you have to adapt, but starting to think about, let's try and understand where this could be going and what we could do now to prepare for that and how we can communicate that to our audience, to investors, to regulators, to users, to the company internally. And so I think that that's probably the single thing that we've gotten the most serve increasingly intense know about.

You know, one of the things that then pulled up was the sort of analog to bastos IT feels like there was also some kind of a case of the amazon aw s first best customer principal here where you were building this exchange. And you also kind of knew that element could really benefit from having something like this in the ecosystem.

Yeah, I think that having a building example of like we are quite confident that this is going to a product with demand because like we've wanted this product for a while, this isn't sof like some hypothetical. Maybe someone wanted type thing. This is like a jesus is IT here yet type .

thing and is the killer feature i'm assuming is IT literally just to straight for IT is look, with the crappy platforms out there today, I get net eighty three percent of my profits. We're going to get you much closer to one hundred percent your profits.

So that was the most thing at the time. I mean, one of them was like we'll have an actual compliance department and we'll engage with regulators in a productive way. One of them is like our deposit with roles will hopefully work most of time, will get banking.

One of these is we will innovate, will build new products, will explore other products areas. And if we can integrate IT into this system, we will be able to find a way to build cool things in the U. N.

A. States as well as outside of IT. There are sort of eventually a lot of things that end up becoming pretty relevant here.

But I think the most legible thing, and the most like a greece's thing at the time, was this sort of eighty three percent of profits thing. Where is just like, okay, like that will change. That has to change. So there's no way that that's how the world's going to remain IT is .

worth noting because you just brought up this in the united states and outside the united states for our half of listening ers. They are in the us. You'll note that the thing you can use when I can use F, T, X, U, S is not a derivative platform.

It's just to trade the underlying assets. And it's a very, very simplified version of the complex platform that you built them at fx. Can you talk a little bit about your realization of that really on that actually, international is kind of the addressing opportunity for now and how you structure the company to be able to go after that?

I A S A should also exit tly fly that my thoughts on this have, to sum extent, changed over time, that I think my thoughts have become a bit more nuanced. And I think that I was a little to be skeptical of the U. S. Opportunities when we first started.

Thank you for being with us because you testify in front of congress yesterday. So we really appreciate all your testimony, be you being here with us.

Thank you.

I wanted you to rock back up on the suit sand.

I know right now that went gone for good. I actually thought about leaving at my brother lives in dc. I thought about just leaving at his house.

Self quick is, are going to be back right once the next time i'm going to wear IT, right? Like probably you see. But thinking about this for me, like this is a limited time opportunity potentially.

What is the fastest way to get something compelling here? If you look at the U. S. Grip to ecosystem, the product that is relatively clean, at least today, eat off the ground, is a spot thick on USD or more. And think about that is clean but is not super compelling as a product.

A lot of people have that product and innovation is harder with IT because just the I know the core product is what is to a greater extent and you know a lot of his customer acquisition, which that is our weak test point, right? We're coming from zero on that side. So that would serve like not the most compelling thing to start with if you want to build something more, if you want to build the products that there is really demand for and where most of them was trading at this point, those were the derivatives.

And it's a really long process to launches in the united states. IT takes probably five years from the start. And so you know what's the opportunity? The opportunity is elsewhere to start at least he was as if when we started. And so you know, we started by not servicing americans, just had a really long regulatory regime.

And so you lived in separate ago and at some point, you didn't. Did you have to move to launch that product? Did everyone else have to move? Had that work more or less?

yeah. And so when we launched, I moved to hong kong when we started building IT out. I guess this is late twenty eighteen at this point, and we launch spring twenty nineteen. And so yeah, we built IT out from hongkong and I at least as well. So I was at the time and then launched.

do eat right? You're in the bahamas now.

That's right. You mention in the things that you are going to have to do. You knew to build this out.

You know, regulatory was the first thing you mentioned. You are signing yourself up to completely change your life. That is a big decision. Yeah.

that happens of intervening bit by bit. But IT felt like the right thing to do, I guess. And in the end, I serve, have out and continue to feel like this is the most important thing i'm going to do.

And whatever I can do to make this go well is what matters to me. And so IT never felt like I don't even know that choices is exactly the word I would use to describe how I felt. IT is felt like is more like, yeah, that's the thing i'll i'll do here. And this.

why did i've heard you to say in the past that you can't take zero risk? I always think that's an interesting point because everything has some amount of risk associated with that. Otherwise, you're just sitting in your chair doing absolutely nothing.

And not only is there no economic opportunity, but you're also not gona live your life or build anything. And so I think it's interesting how you've decided to live your life in this way that you are saying, look, we don't know the regulations yet. So like i'm not doing anything currently wrong.

I don't know what the future holds. We are doing our absolute best to do all of the know your customer, all of the and time, money, laughing ing requirements we possibly can. We're getting as many licenses that as many places as we can and also wear brand new and doing something in a brand new ecosystem. And I think it's a as i've been preparing for this epsom as really sort of brought me this perspective of actually everything in life is a risk reward calculation, and you just have to make IT a lot more often than the other people do.

That's right. I knew, as you said, we will do the best we can. We'll get every license that we can get, and you can get more licenses than everyone you can get.

And that sort of how IT is. And IT sounds very risk. Nothing is zero risk, but so be IT. And that in the end, the perspective that I think we've taken reserve had to take, and I think it's been the right one to take, although not always the easiest one to take.

And I think that involves accepting that I have to go on a limb and you're enough to make judgment calls because there's always judgment calls involved in all these things. And again, that's just how IT is. There is no point pretending IT isn't.

which honestly, and someone this feels like almost a fairly singular or unique stance in many respects. There's the more us centric exchanges, which I would say have maybe moved a little bit more slowly but have been super cautious about regulation.

And and there are maybe more foreign focused exchanges that moved to super, super fast and are basically like, listen, we're not going to sweat this too hard, whether I think you guys have really managed to thread the needle by saying we're going to innovate, we're going to push new products forward, but we're also like here to push the regulatory side of things for as well. And you yesterday was obviously an example of that, too. I think that's right.

I think that in the end of our sense of this is, look, this isn't you can choose to be complaint or you can choose to be functional and like you have to which company you are launching. And I think you know the way we think was in the same way that you can make informed. Reasonable decisions on one front, you can make inform reasonable decisions on another front.

We will come back to some of this in our analysis section, but just to kind of finish out the growth of the company and bring us to today. Now one of the ways that you requiring customers is by owning naming rights to arenas and patches on majority baseball lomaque and only things, celebrity commercials. I imagine when you launched in january twenty, twenty, that wasn't the strategy. So how did you get your early customers? And then you've been pretty much explosive growth from the gets go, if my understanding is correct.

in terms of the early customers, right, the ones before we sort of started building out the parent time that we have now, it's a good question. And I think the basic answer is you do what you can. And what that meant for us basically was we think we have a good product, right? That's where a lot of this started from, our strengths.

our problem. And to be super clear for people because same, you're not good at bragging you have an unbelievably reliable and fast product with some of the cheapest transaction fees on the market. So we think we have a good product translates into that.

I appreciate .

that this is a market where it's easy to objectively measure the quality of product.

That is true. That is an interesting piece of IT and is transparent, right? For Better, for worse and usually for Better. But that means that yeah you can often deserve say like what is a good product mean well, you know there's an answer to that.

And so I think that what do you do if you think you have a good product, like what's the right place to start? But I can think that the place we start then is let's try to reject the people who care the most about the product, the people who are going to be really receptive to. We have a good product, and those generally are the power users.

Those are the people who are using IT every day, who use IT deeply and intensely, who explore every angle of IT. There's the ones who really care the most, right? And so we basically started trying to get out to the people who use crypto exchanges the most and say, hey, you know, march tries out and tell us if you don't like IT and if you don't like IT, great, tell us why. And we'll see what we can do about that.

And by the way, we've got a giant amount of volume from our sister company automate on the platform. So there's a big counter party if you want to trade with us, right.

right? How basically solve this sort of a problem of all just staring up an exchange? Sometimes there is a catch twenty two.

We're like, how do you get volume without liquidity? How do you get liquidity without volume? And this serve gave a solutions that of new, basically starting with liquidity, so people could come and trade. We took a lot of feedback.

We have determined in the end, most of our initial growth came from power users, the people who, you know spending hours a day in the ecosystem and would try out every new exchange I can and use the ones that they like the most like that was the best bit. And we really do marketing persave. Eventually, we learn how to tweet that was about IT.

which is very important encrypt .

to is very important encrypt. But you know, importantly, we didn't need to use facebook guys, right?

Those are night customers, right?

There's still go on the market like there's no exchange. Let me try IT, right? Easy creates a bad as that of her. Our initial growth.

but presumably also, sam, like those initial customers were mostly institutions. Is that right?

They were about half and half in the thing that really set them part with less being institutions and more being power users. And some of those were institutions, some of those were individuals. Crypto is somewhat unique.

Neutral fn stone exist. Tension fn stone exist, right? So individuals don't all fund all of their activity through a few central counterparties.

Encrypt u they actually do with themselves. And so you inform really high volume uses. A surprising number of them are individuals and also .

you at this point, we're already kind of the avatar r of the traders trader in crypto. I remember reading interviews from twenty thousand and people are talking about your arb. People were talking about aleta. And I think Christmas can I can't remember which product this was on, but weren't you at the top of a leader board for your trades? Yeah.

i'll need to was for a little while while is on a few of your boards, some of them more more obvious than others.

So people knew you were this guy who was sort of deep in the weeds. And so you had a lot of authenticity when you were talking to a power user because you were a power user.

Yeah, I adding the biggest thing that that helped with was not so much convincing people that this was what they should use and more convincing people that they should think about using that. You know. And I think that, that was where a lot of server initial growth really came from.

Well, rather than going through blow by blow over the last couple years from your launch, can you just fast forward us to today? And what are some of the high level public stats that you can share on F, T, X as a business right now?

So yeah where we today, I mean, we've grown obviously or nothing a few years ago, a year ago, maybe like down twelve or so biggest globally day. We are the third biggest by volume, were the second biggest by open interest and actually pretty close to first just realized. And we have fifteen billion dollars of volume globally in the last day.

That's typically where we are. And you know, obviously, there is some volatile in that from day to day. I guess we have a few million users.

We have F, G, X, us. As well. So we opened up a us. Branch about a year and a half ago, and today, I guess, has done in a few hundred million dollars of volume.

The biggest thing for that is that we're anticipating is the launch of derivative, hopefully sometime in the next year that we think could really bring a lot that's been missing to the market because again, like the us, players just have not had a soph travails. sweet. And we acquired logix now of taxus atis and you know say to work with cftc on products through that. I think those are probably the biggest of headline stats about know where we are today.

How about in terms of your strategy and how you think about things? Obviously, IT makes so much sense in the early days. This is the market where there are strong power users.

There's a power lock her to the customers in the market. You can objectively measure product quality. Of course, you're going to graph the power users.

Maybe you learn to tweet along the way. Now you're doing all those things. Spend mention in a minute ago buying sports, the naming rides is said that feels very different. Is IT that now that you've won that initial b tid market, is IT now more about expanding the whole market? Or why this huge change?

It's like a barbell almost that seems like you're skipping the middle. You're getting this institutional multi billion dollar trader and then you're trying to get, you know me in the nose .

plates at a heat game, right? And so it's going on there. Well, people spend up into a few different pieces. So I having this strategy to meaningfully different from different perspectives to some extent, just keep doing what we're doing.

I'm going to ignore that piece, although it's important, but keep trying to growing out amongst power users, ignoring that what else is IT. So one big thing is the U. S.

F. S. Play drafts ves are two thirds of global volume.

And cypher, that's not unusual. Let's threw most basic classes. Private ves are generally more by vsi.

t. But in the united states, strivin tips are less than half of value. And the reason is, well, there's basically new real driver tips. And you the us, I guess, did he surfed the missing segment because you need to see ftc license for and basically, none of the none of the egyptair extension have that see. We're really excited to build out that products week and I think could be like somewhat transformational for the ecosystem, is just like it's a huge thing that doesn't exist today.

And should sets of another piece of this and then you know, party aside those and they serve web through gaming, which I think we see is a potentially huge job attourney words or work out a lot of partnerships with an in general, when you look at as the Cosmos ization side, I think it's easy to see a lot of the endorsement deals that we've done and think that, that is like customer opposition. It's actually not really how we think of IT. It's not the most effective way to require customers is gone to some, not an enormous number.

We think of IT as brand rather than marketing, if that makes sense. The diametric opposition is a facebook add, right? No one sees a facebook that is like, oh well, that's a goal flocking company.

They see IT and like like maybe they accept put on IT. That's the hope. It's like pretty directly just trying to acquire customers. And when we think about what's the purpose of the partnerships and endorsements that we're doing, the biggest things we're thinking about are how do we communicate to people who F T X is in a way which is kind of meaningful and which will hopefully leave a little bit of a mark, I guess, because if no one knows who we are, it's can be really hard to convince them like use our product or anything. If we just some serve anonymous, you know, random crypto company, I guess that's not a very compelling thing for most people.

And so instead, what we're thinking is how do we really communicate who we are to people in a way which is can be sticky, compelling? And when I say people here, I don't just mean potential direct users of fg X A platform. I also mean institutional counterparties serve all the way through the spectrum.

How do we communicate who we are? Because this is something which he sends a lot beyond just users and preference. All of our partnerships is everything. And then the other thing is, how do we establish our brand in such a way that we do eventually go down more of just a drug marketing road, that it's going to mean something to people and that people will be compelled by IT rather than just saying off whatever another scheme crypto marketing thing I am getting, ignore that. And so I I think that sort of he's like the more general vision behind the partnerships that we're doing.

What feels like for crypto, so much of the battle globally is just the question of trust and especially may be coming into A U. S. Market as a late mover. I think you know you guys have been. Incredibly savi about building that trust by aligning yourselves with entities that are part of people's lives in really meaningful ways and that they have long standing emotional connections to.

That's the hope it's so easy.

So I will get to keep going back to IT. But going back to the basis analogy, it's so early we're in like nineteen ninety two, three, like I don't know relative to the internet, you can't trade derivatives in the U. S.

The biggest part of the market doesn't even exist yet in the biggest financial market in the world. So like if you're playing the long game here, laying the infrastructure of trust is so much more important than acquiring customer. Am I thinking about that? right?

That's not how we think about .

IT able to move us here into our analysis section of the show. There is a section that we always do something called power, which is based on a book by hamilton hammer called power, which is an analysis of why a business what is IT about a particular business that enables them to achieve persistent differential return sort of long term durable profitability. And there's seven of these, as you can imagine.

And there's counter positioning typically versus and incoming scale economies, switching costs, network economies between participants in the network process power, which is usually we know how to do something that simply not transferable because it's too complex branding and then a cornered resource. We have something that are people don't and i've been thinking a little bit about what applies here. I think a lot of F T X is success to date is because you guys have executed fallest ly very rapidly as mario puts IT speed running the market in his piece, when there's just a massively growing pie and huge amounts of opportunity opening up. And I actually haven't given a lot of thought yet to well, as there becomes more and more players and more and more competition, therefore, profits get arbiters away, what is IT a about F T, X that will enable IT to be dorough ly profitable as competition poor in? And i'm curious how you think about that.

I don't think the answer that is obvious. I don't think that is sort of like, oh yeah, obviously like we're good at left clicking. No one else know such a left click. They always right clicking. IT doesn't take more trying to go.

And I think that part of that is like you look at the breath and to some extent, Frankly, random of the type of things that we've tried to do so little all over the place, which I think is also a sign of it's going to a fuck with some narratives. Maybe one way think is like what you have amazon, right? And amazon is AWS and they have their store.

And I don't know, I chAllenge you to be compelled by the narrative what those have in common. You know, i'm not i'm not held by that. I'm actually not of the opinion .

that is value creative for them to be under the same corporate umbrella.

I'm not sure that is if someone that look those, you are obviously just feel like different brand. I don't know. Maybe I don't see compelling reasons either way. I sort of feel like, yeah, I could be one other and whether there should be the same for hand. Quite the flip side of this is what certainly seems to work for them.

I guess from our perspective, what do I see value creative for us or as like a persistent something I think she's good execution, which is certain A A lime thing to say. But I think that's the honest answered a part of IT. I could try and point to maybe what do you think you're like some things that cause that I guess, like what about us allows us to do that.

And I guess, part of IT as well, I guess I think that we like have built a strong team and we've been really intention about IT and in particularly about not overgrowing the team. If you're too aggressive about overgrowing the team, then you get deserve monsters city that no one can control anymore and is like an underestimated factor often. And we see time and time again, this sort of really fucked with people and companies just like lose their ability to Operate effectively because of IT.

So I think that's like sort of a piece of IT, although again, I think it's like I don't want to try and make that sound more compelling than I think IT is. I think it's like only sort of compelling. I think that like somebody really is just like the world is messy.

There's like a lot of things that we try to do Better than other people. Maybe we do some of them Better than other people that helps us do well. And that sort of lame but true.

Well, there are also very intrinsic things about the business model that you are executing that have very natural scale economies and network economies where an exchange requires counterparties that requires liquidity for the spreads to be very narrow, everyone gets the best Price. And the fact is you were able to build volume very quickly in a market that was early on. And so therefore, you'll read the benefits of being a scale player forever as long as you keep executing well from being there at the right place, the right time. In doing that.

there is an interesting thing. We're also that we started coming from behind.

though the market was still in the takeoff face. You were coming from behind against D, F, T, X today.

That's right. But we are coming from behind with respective today. Some of the things were trying to do, some of the segment that we're trying to get at. We don't currently have that much penetration in. So I do think we're still trying to do that. But I agree that like there's some extent to which you can get liquidity modes and just customer motes and things like that and regulating most than whatever there are a lot of modes .

I think can exist here is IT Better characterize F, T, X as a whole is like you have the exchange business, both spot and derivatives as the bigger part of IT. And that's a great business. And you've built certainly network economies and scale economies power there. But I think if i'm hearing you're right, you're thinking about in the long term, there is A A lot more opportunity for F, T, X to serve, build products and serve here than just beyond that gaming being just one of those.

I think that's right. And I think maybe another I know it's another way say that a consequence of that, I know what follows what exactly, but maybe a related statement is that I don't think of us as we've built the hard thing and that we're coasting. I don't think that is like great. We have remote nellis run with that.

You know you've mentioned in the past how one of the growth strategies you guys might deploy is through acquisitions. And everyone enjoyed IT when you talked about maybe buying women sex or know what was the other one. One of the major exchanges, block folio, seemed like IT was a pretty quietly transformational pick up for your U.

S. business. I'd love to hear more how you think about that in particular and in general where there is opportunity.

Yeah I mean, think IT represented a pretty clear strategy that we'd not previously been emphasizing where you know we're looking beyond the power user. And I think we serve the some one moment of like we are now looking at the full spectrum of users. And I think that, that is powering is important. I think that represents maybe an example of something that serve talking about earlier where we're coming from behind very much on that front, but we're going for IT anyway as you .

think ahead to future m na. Do you want like maybe this isn't a binary o dichotomy. Do you think the play is expand beyond cyp to and find new places for F, T, X to implicate itself in users lives? Or is IT double down on these other cyp to areas where we don't yet have a good base like nfs is still too new for us? We should be finding a way to make a blocker lio style move there. Same for web 3 gaming， except the yes. And or is there some sense of preference there?

He is closer to do a yes. And at least long term, we really want to try hard not to cut off avenues that we think are going to be valuable and will have prioritization, certainly, but we want to be pretty mindful of keeping the ultimate upside in mind.

Well, thinking about sort of the playbook that you've implemented to run F, T X, of course, we have talked about some these acquisitions. Another one is a remarkable amount of transparency. And of course, you've got this great blog that describe all the volume that happened over the course, the year.

You're very public tweet. You also gave mario access to your entire data room so that he could write his pieces. What's the thinking behind this? And why are you doing that when classically no one in their right mind would do that?

I think that I think I think about what is sure. Okay, you say people do x tell me more, why do people do x? Do people do x for a good reason? Convince me that x is the right thing for people to do here? And I think often I sort of some way feeling like I was not convinced.

They said, do that. And we looked into IT see a reason why and you should always update on the fact people think you should do something. Often there's a good reason for that.

I don't want to dismiss that, but sometimes there isn't. And like when you think something is dumb, it's a good flag to book a twitch bother you're done or its dumb. Sometimes this one, sometimes it's the other. And so I think this is serving a case maybe of like I don't know, this is basically going to be public anyway, like no matter what we do like and ever you can see this deck like there's a number of people who can choose something to after which it's not meaningful ly private and I think this is like part of how I felt about IT.

IT feels like that sort of ties back in a way to how you guys think about hiring and training your employees, which is like, no, you have to know both the technical side of things and the sort of crypt on native side of things as well as the financial side of things. I remember in our conversation, you really said that it's very hard for you to know whether to trust someone's opinion because they don't have context. And so I think one of things you do really well, both internally IT sounds like, but also externally, is like give people all the context they need so that they can actually, hopefully sense make from the data, and then you can decide so of whether to agree with that internally or how to set of communicate with that externally.

Yeah, I think that's basically right. I think that's basically right.

Just updating your mental models. Everybody believes the thing because of some underlying set of fundamental. And those fundamentals change, but often times people still give out the same advice even though the world's changed. Don't share your private company data, made sense in a certain time, in a certain market and may just not make as much sense for your particular scenario. Now I may think .

and makes sense in a lot of times and a lot of context, but not literally all times in all context. And I think, yes, might be one work doesn't and we're pretty comfortable in general being like rocket, you know guess kind of weird. But like I don't know, like I don't actually see the harm in doing IT. I see the benefits. Yeah, let's do IT this.

So I think one of the most clearest examples of a company we've looked at in really the history of required all six, six years of, like you are building improvement, you are of analyzing that is what F, T X N S P F are doing. If that is the case, you want as many people to understand as much about what you're doing is possible. You're not trying to keep anything secret. You're no longer in the world way you've got some arb and you want to exploit before anybody else does. Yeah.

I may think this right and is basically right.

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Yeah, vana is the perfect example of the quote that we talk about all the time here and acquired jeff bases his idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually gonna move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. IT plays a major role enabling revenue because customers and partners demand IT. But yet IT adds zero flavor to your actual product that IT takes .

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acquired sam. You know we talked a little bit earlier about over hiring and and the risk of that, something that i've always been curious about, given the amount of leverage you guys seem to have managed to extract from a very small team, is like what do you look for when you are hiring folks you personally or or the team? Are there certain things that just stand out to as this is someone that I think can sort of hang at the velocity that we Operate .

that so hard when you're in a few, Frankly, to do this, a lot of this is something that you have to figure out over time. But I think a lot of this is like you put someone in an uncertain, messy situation where there is no obvious right answer.

There is no like, well, yeah, you do this and it's going to go, well, tight thing, right? And you kind of see how that goes, right? And you just like Frankly, continue to stress the situation of IT, make this situation, messer and messer, and see if they like just continue to roll with a villager yet out a bit macer whatever will make another informed decision here.

This is a new situation. I'll do the best I can and stock can be perfect or whether eventually they just started like shut down and like this is too messy. There's no good answers here. And what you have says, okay, then choose a bad one. You say there's no good answers here that doesn't an there is not the best answer.

So that sounds like one of the selections then is people comfortable with limited changing information and that are happy to an absence of certainty commit to some path .

yeah and you know to do the best they can given that. And obviously you always want you the best you can. Sure, but I think he's actually kind of meaningful in the end.

I think that in practice that she's like in something that people always do. I think often people kind of get flustered and end up doing nothing close to the best they can because they're just like o jest and even know what to do here. There is no good decisions, as is 这样。 I agree more.

You rote about this in your great pieces a little bit, but I think that that cultural value actually is quick different from web to and traditional silicon valley companies in hiring, which mostly I was this gross generalization, and obviously not every company fts this. But mostly, I think is over the past ten, fifteen years, been hiring for experience. You scale google, come to facebook. You skewed facebook, come to snapp chat, uh, you know at at, at, at and on and on and that's really very different than what you're saying.

Yeah, experience is very much not what we hire for, right? In fact, sometimes wrong most like I went quite a where anti slighting for IT. But like we like flexibility, like I don't know, we can teach things like if there's something you don't know, you can overcome that so much hard to overcome. You can't teach someone necessarily how to like stay cool under pressure or something like that.

I'm going to move us to our grading section here and C M. On our classic episodes. When one company would buy another, we'd grade how good of a use of capital was IT for big code to buy.

I start up and classically instagram you a plus. They turned to billion dollars and the like path, trillion and lots of examples of ones that are way worse for these guest episodes. We were like the stories being written in real time.

We tend to try and do IT on a future looking basis and say, like, okay, well, F, T X has a set of resources right now. IT has human capital, IT has financial capital, lots of IT, and it's got time. And so if we look out, I know, let's call five years from now, what's the scenario where you would reflect back five years and say, with all the resources we had, that was an a plus outcome.

What are the things that you can achieve where that would be the case? And then paint me the other side where you're like that was a fAiling grade based on what we had? Or potentially more interesting, what's like the sea?

Yeah what are the matters judge ourselves by? And one of them is just like, did we become the biggest photo exchange that's clearly gonna be one of the kind of coral metrics s here. Anything thinking about like did we ever succeed at getting retail users at pantry in that market is going to be one of the things that I think we're going to greater ourselves on, which I think answered cautiously optimistic about.

But we have improved that. We've never really gone big in that segment before. And so I think that, that can be one of the big things here. And then I think, like, did we man should expand beyond script is going to, I think, one of the big matrix s.

because in other jurisdictions, you can trade equities at nine P M. On a saturday, or at least assets that look like equities on new york exchange, I go pi text stock ish.

That's right. I think that's something that we think is important that we continue to move in that direction over time. So I think that, that of is another the piece of this and I guess like what else do I think is going to be important, obviously, regulatory things, right?

Did we match the license where we wanted to do IT? Did we manage to continue to maintain good relationships there? That can be one of things we're looking at. But some of this, I mean, there's such a huge diety of things weren't to be looking at. And and I think some of this really is like we don't even know what some of the mariya and that's okay.

Yeah what about the c because the F, C, Z, like everyone can be like I we want on a business or something. What's the plausible sea .

buying a plausible seas, which is kind of really grow? You kind of look back at us in a year or in five years. And where is f, tx.

now? And the answers like, you know, one of the bigger, but not like the biggest cripp exchange there are like new number two, they sort of like doubled in other shit. I didn't really go that far.

They they grown. The retailers are based a little bit, but like common, that's not really what they have. I think those are kind of things that you would say in in the c case.

I was smiling so much, I totally agree with you. I love that is so awesome that you're saying like and IT would like. I'd give yourselves to see if for the second, bigger rip change in the world in five years.

that's so great. You know how that is, right? So we're moving at a grading.

Normally we'd go to car fouts or something, but we've got mario here. So mario, the philosophical fox, take us somewhere interesting.

I'll try to. Basically, the set up that I have in mind is that certain eura tend to have a sort of light guide artist, someone who just understands the sensibilities of the modern day in some way and can play with them productively to create businesses, to create art, to create value.

Sam, after studying you for a long time, in a strange way where IT not for a newsletter, IT strikes me that you're like probably one of the best desire guide artists we have right now. You are incredibly attuned to pop culture in an interesting way, crypto in an interesting way, certainly the markets. And I think it's part of the reason that you're like uncommonly popular on twitter. And so IT feels like a good chance to ask you, how would you define this current era were in if we try and step out of IT by one hundred years or fifty years? What will we say about today?

I think that the finding property of today probably is social media. I think that is change. A lot of aspects of today, I think that like investing has become quite different because of IT.

And I think so what's great, great ways with series, the power to the people, I think that people's lives have been changed quite a bit by IT. I think that new cycles have been sped up quite a bit by IT. New cycles are no longer controlled by editorial cycles, right? It's tweet cycles now, and that's just ita much more quickly.

I think that you're seeing a lot of parallel worlds being spent out because you can split into different social media for Better for works, right? So I think all of those are like pretty big changes. I think you look at means which has come to dominate, not just sort of like laughter, but finance and presentin elections maybe.

And again, that's something on social media. I think that this is like, again, for Better for worse. I think that served defines the transitions that we're seeing today.

where in this cycle of this era, do you think we are to call IT the social media era? Are we towards the end or we just the beginning? Every in the middle?

I think we're like a cord the way or something like I still think we basically don't know where IT ends. I think we're basically still kind of making this up as we go and that it's probably going to be a while before people feel like I we now understand all the implications that, that ended up having for society, right? Like I know that we're closed, that we're starting to understand the aspects of IT, but like we still haven't always seen how society what the new society that that forms is .

yeah and and let me take you to like A S M P five hundred graph for a moment. So new cycles are faster because they're tweet cycles, not editorial cycles. And that tends to mean that these market cycles are faster, too.

I mean, it's amazing even just watching the crypto areas, the crypto winters are getting shorter. And of course, this looks similar in the traditional stock market as well. So everything's moving faster. But do you think there's the G D P, like the total value being created in the world is accelerating also or we just increasing the volatility while th Epace o f i nnovation a nd v alue c reation a ctually r emains e ither s teady o r a t t he s ame s ort o f r ate t hat I T a lways h as?

So I think, yes, sorry, I want to say absolutely five leaves and bounds. But that sort of relies on some sense of like how valuable that should work creating is when was all bananas? IT was easier to answer that.

But when it's not just bananas, also like nf intangible assets, right? I think that you started to get to pretty deep questions about like how you feel about market market values of intangible assets. And that becomes like just actually important part of the answers that question. So yeah, the this is kind of complicated, I think of my answers that is probably yes, but I was like as obviously yes as IT would otherwise be because of that.

Is there one way to look at IT? The number of market participants in markets that matter has grown exponentially and is growing expansion? Ally, that feels to me like one of the homer characteristics of the social media area.

You know, IT used to be your career. You know, there's James street, a handful of other like massive firms that make profits by trading in traditional market. And then you said yourself, we are talking about who the power users are encysted you like some institutions? It's a lot of people too like that, different. That feels like value creative to me.

I think IT probably is. I don't feel like getting concerted oah value increase right there. He is. How conserve define IT? I kind of think IT should be, like I said, have fairly strong prior that IT is.

But I say that again, without wanting to express total confidence in that, if that makes sense, like anything more feel like I think IT probably is. I think that's the right prior to have about IT. And so like i've mean with a attentively or something like that, if that makes sense.

that's great. Well, sam, thank you so much for joining us today. Is there anywhere you know, we ve got a bunch of smart people after listening who might wanna work at F, T.

X. They might wana trade and cyp do. What did you direct folks towards?

Yeah, I mean, my twitter is like, certainly a good place looking. Go to F, G, X stock comer. F, G, set us, if you in the us. And the files support ticket there, if that's where most our communication is nowadays, I guess those are probably easy ways to reach me.

I will say actually this episode came about because of a support ticket.

That's so true.

I forgot about that.

So interesting.

We try to OpenAInstitutional ac count fo r ac quired an d so me ye ah.

well, here we are and that that our process suck at least .

a little bit. IT was great.

All right. Thanks so much. Sam, thank you. Well, listeners, thank you so much for joining us. Mario, thank you for joining us for the interview. Sam.

a man, I had a blast. Thank you guys so much. Uh, what an interesting dude.

Whenever David I do an episode, we have like a seminal thing that we started our research with, and back in the day, used to be the wikipedia page for more of the things that we be doing recently. You know, we read the canonical book on the subject, if IT exists and convenience. There is a book on F, T, X. And you rode IT and publish IT on your website in three parts. So thank you for being the canonical piece of research that we used.

And thank you. I am always humbled when you guys use something I wrote, and you have look forward to these podcast so much as a listener. So was a treat to get to be a part of one.

you put on a tear with some other great web three stuff recently. Two, you had a metam ask peace. That was really interesting. What was the other one that I read? Oh my god, you are terra luna exploration that was like a whole new world for me.

Oh, that would be a great acquired. You get here he is. Fascine.

yeah, he lives in a little bit of the other corner of cyp dal and getting sepa at the top of an escalator or on the way to give us a talk at a conference. Yes.

yes, he doesn't indeed. And then counter .

suing crazy listeners. If you're interested this, you should definitely go read marios piece on terror. Subscribe to the generalist. It's awesome and we we love collaborating with you.

mario. Thank you so much. Likewise, guys.

it's so cool now that like literally then was joking, but it's like the books are being written real time on new lot in social media and like you are writing in you at one of the foremost chonita ers of this new era. Thank you for the work you've doing.

Uh, thanks men. Well, back at you guys, you guys have let the way in this space for a long time, and I think made IT a lot easier for folks like me, packed y to get to jump in and be a part of the the movement in a little way. So I know that you guys feel the same, but I just feel so lucky that I get to do this and have so much fun getting collaborate with you.

awesome. Well, thank you. Listeners, if you want more web three content, cyp to web three, I got ta figure out what my umbrella term is here. We did great deep dives on both brain trust and audience recently and actually with kal semi on how to run a crip to fund over at multiple in all of those. And every other back aloe episode are now public of the L P show.

So if you just search acquired L P show in any podcast player or click the link in the show notes, you can go find all that and more. With that, you can join the slack coming out with us. Talk about the episode at acquire df m slash slack. Go subscribe to the journalist, read the journalist dot com. We will see you next time.

See you next time.

Thanks, guys.

Easy you, easy you, busy you who got.