Brett Harrison - FTX US Former President & HFT Veteran Speaks Out

You are probably gonna be fired for this letter that you wrote. Sam is gonna destroy your professional reputation.
Like, where do you think you're gonna be able to work after FTX? It was, he was threatening me. When I knew Sam, when he was 21, 22 years old, he was like a happy, healthy-looking kid.
When I got to FTX, I saw someone who was very different than that person I remember. And it felt like he was spending virtually no time helping the company move forward.
It was so much about image and brand and PR. Media was primed for the archetype that was Sam.
It doesn't matter how little time he spent with the company. It doesn't matter how he treated employees internally.
Architect makes it really easy to access all corners of the digital asset ecosystem asset ecosystem. Okay, today I have the pleasure of speaking with Brad Harrison, who is now the founder of Architect, which provides traders with infrastructure for accessing digital markets.
Before that, he was the president of FTXUS. And before that, he was the head of ETF technology at Citadel.
And he has a large

amount of experience in leadership positions in finance and tech. So this is going to be a very

interesting conversation. Thanks for coming on the Lunar Society, Brett.
Yeah, thanks for coming

out to Chicago. Yeah, my pleasure.
My pleasure. Is the growth of ETFs a good thing for the health

of markets? There's one view that as there's more passive investing, you're kind of diluting the

Thank you. Is the growth of ETFs a good thing for the health of markets? There's one view that as there's more passive investing, you're kind of diluting the power of smart money.
And in fact, what these active investors are doing with their fees is subsidizing the price discovery that makes markets efficient. And with passive investing, you're sort of free riding off of that.
You were head of ETF technology at Citadel. So you're the perfect person to ask this.
Is it bad that there's so much passive investing? I think on net, it's good. I think that most investors in the market shouldn't be trying to pick individual stock names.
And the best thing people can do is invest in sort of diversified instruments. And it is far, far, far less expensive to invest in like indices now than it ever was in history because of the advent of ETFs.
Yeah. So maybe it's good for individual investors to put their money in passives investments.
But what about like the health of the market as a whole is it hampered by how much money

goes to the passive investments it's hard to it's hard to be able to tell what it would look like if there was less money in passive investment now yeah i do think one of the potential downsides is ending up creating extra correlated activity between instruments purely by virtue of them being included in index products uh So, you know, if like when Tesla gets added to the S&P 500, like Tesla doesn't like suddenly become a different company whose, you know, market value is like fundamentally changing, but yet it's going to start moving very differently, you know, in terms of its beta correlation between other instruments and S&P 500 purely as a function of all the passive investing that moves these instruments in the same direction. So that's the sense in which I think it could be detrimental.
Naively, you would assume that like efficient market hypothesis would say that if people know that Tesla stock price would irrationally climb when it's included in the S&P 500, then people would short. And then there should be no impact from this irrelevant information.
Why isn't that the case? It probably mostly is. I think that sometimes there can be liquidity differences that cause at least temporary dislocations in stocks.
I mean, the simplest example is you have an ADR, like an American depository receipt that's sort of expungible for some underlying foreign stock. And these two things should be like almost the same value at all times, like net of currency conversion and conversion ratios.
But if one of the markets is highly illiquid or difficult to access, then there's going to be dislocations in price. And that's like the job of like the Jane Streets of the world to kind of arbitrage away the price over time.
And so long run, you wouldn't expect these things to be dislocated for that long. So I'm sure there are people who are understanding like the fundamentals of individual names in the S&P 500.
And when there's like American news and the entire S&P falls, they are maybe buying S&P and selling individual names and expecting that relative value spread to coming over time. Speaking of, by the way, these firms, you don't have to tell me specifics, but how similar are the strategies for market making or trading that Jane Street versus Citadel and these firms have? Is it the same sorts of strategies or are they pretty different? I think a lot more differences than people appreciate from the outside.
Different companies have, they establish different niches and areas like Jane Street established its early niche and ETFs at kind of like a mid-frequency level. So not like ultra fast, but not like long-term long discretionary macro.
Whereas maybe your Citadel Securities kind of firm got, you know, built their niche more on like lower latency, you know, options market making. So it could be all over the place.
There are some where they are trying to optimize for really short term, like microstructure alphas, like trying to predict where the order book is going to move over the course of anywhere from milliseconds to seconds. There are firms that care more about the relative convergence of instruments over the course of hours to days.
There's sophisticated quantitative trading firms that are doing longer term, days to weeks to months long trades too. A lot of the infrastructure can be similar, like either way, you need to be able to connect to exchanges, download market data, establish simulation platforms, build like tools for traders to be able to grasp what's going on in the market, and especially be able to visualize like their own proprietary models and alphas.
But beyond that, the actual strategies and the ways they make money can be very different. Famously, in other kinds of development, there's these very famous hacks and algorithms, right? So in gaming and graphics, John Carmack has the famous fast inverse square root for doing graphics calculations, normalizing vectors faster.
You were not only a developer in finance, I know what the exact term is for that. But you led, you know, teams of hundreds of people who are doing that kind of development.
Are there famous examples like this in finance, the equivalent of fast under square root, but for the kinds of calculations you guys do? Yeah, they're like all over the place. There's tons of, you know, hacks and tricks and things like that.

I think, like, for example,

here's a famous one,

not famous.

I think I read it in a paper

and like a bunch of other,

you know, developers

from different other companies

told me about this.

It's not something I saw

at places that I worked,

but if you're sending a message

to, let's say, NASDAQ to buy stock

and you want to get there

as fast as possible,

well, what is a message to NASDAQ? It's a TCP IP wrapped message with a particular proprietary protocol that NASDAQ implements. Well, let's say your goal is, you know, you know, you're going to trade Apple, but you're not sure like what price and at what time.
And you're kind of waiting for some signal to buy Apple as fast as possible.

So what you can do is you can pre-construct the entire TCP IP message. Like first put the TCP header on there, then the IP header, then like the kind of outer protocol that NASDAQ specifies and the inner protocol, except for like the byte slot where you put in the price and then pre-load that message into the network cards sending buffer so that once you're ready to send, you can just like pop in the price and send it off and incur as little latency as possible.
That's awesome. I think the analogy to video games is a good one because like just like in, you know, video game graphics, what's the end goal? It's not like to produce the most theoretically perfect simulation of environmental graphics.

It's to have something that like looks good enough and is fast enough for the user.

And that's also true in like HFT and quantitative finance where like the goal is to get to like the approximately right trade as fast as you can.

It's not to have like the perfect theoretical model of, price dynamics. That is so fascinating.
But this actually raises an interesting question. If you have some sort of algorithm like this that gets you a few nanoseconds faster to the NASDAQ exchange, and that's why you have edge, or you've like leased microwave towers to get from New Jersey to Chicago faster, or you've bought an expensive server in the same place that NASDAQ is housed.

What fundamentally is the advantage to society as a whole

from us getting that sort of information faster?

Is this just sort of a zero-sum game of who can incorporate that signal faster?

Why is it good for society that so many resources and so much brain power is spent on these kinds of hacks and these kinds of optimizations? Yeah. So I think if you start from the premise that having liquid, tight, efficient markets is important for the world, and you say, like, how do I design a system that optimizes for that? I think you want smart, sophisticated technologists competing at the margins.
And of course, the more they compete, the smaller the margins become to the point where you think like the little extra activity people are doing to get slightly better don't seem to be, you know, greatly affecting the whole system as much as if, you know, as it was in the earlier days, even when things were slower and tick sizes were wider. I think it's difficult to imagine designing a market where you say like, okay, everyone should innovate up until this point, and then stop competing, and then just stay stasis.
And maybe you can create certain regulatory or market structures to try to prevent that. But I think on average, you want people competing at the margins, even if they seem like they are, you know, minuscule.
But at the same time, I think it's not zero sum for society for, you know, technologists to be creating like super fast, like ultra low latency, very sophisticated algorithms. Like maybe, I don't know, we have a lot of geopolitical instability in the world.
Who knows if like our microwave network that we built out in the U.S. could have like greater use cases than just for quantitative finance.
But like quantitative finance subsidized the creation of these towers. Okay.
But so that's sort of like a contingent potential benefit. I guess people tell us a little story about NASA, right? In this case, literallyaves, that they subsidize a lot of the science that ended up becoming into products.
So that's an interesting account of the benefits of finance that it has a same, yeah, whatever tricks they come up with might be useful elsewhere. But that's not a story about how it's directly useful to have nanosecond level latency for filing your Apple stock or something like that.

Why is that useful?

Directly, I mean. If there is some kind of news that happens in one part of the world, and that should affect the current price of stock in a different part of the world.
I think that if you care about efficient markets, you want the gap between source of truth events and ultimate price discovery to be as small as possible.

I think if you believe, if you want to question whether getting, you know, a few extra like milliseconds or microseconds or nanoseconds is worth it, I think you're then putting some kind of like value judgments on like the,

what is the optimal time it takes to get from to price discovery and saying like, you know, a second is too slow,

but a millisecond is too fast or a millisecond is too slow,

but a microsecond is too fast.

And I just don't think we're like in a position to do that.

I think we kind of always want as close to instantaneous price discovery as possible. I'm only asking more about this because this is really interesting to me.
There are some level of resources where we would say that at this point, it's not worth it, right? Let's say $5 trillion a year was spent on getting it down from like two nanoseconds to like one nanosecond. I know that that's probably not a realistic number, but just like there's some margin at which for some weird reason, the incentives of society are just spending so many resources on it.
Would you say that we haven't reached that margin yet where it's not socially useful, the amount of brainpower and resources that are spent on getting these tight spreads? I don't know how large a percentage of GDP prop trading is. I suspect it's not that large.
So I don't think we're close to that theoretical limit of where I would start to feel that it's a waste. But I also think there's a reason why they're willing to spend the money on this kind of technology because they're obviously profiting from doing so.

And it has to come from somewhere.

So somehow the market is subsidizing the creation of this technology, which means that there's still ability for value capture, which means there's still a service that's being provided in exchange for some kind of profit. I think we wouldn't spend $5 trillion on a microwave network because there isn't $5 trillion of extra value to be created in doing so.
Got it. Has being a market maker changed your views about civilizational tail risk? Because you're worried about personally getting run over by some sort of weird event in adverse selection.
Does that change how we think about societies getting run over by a similar thing? Or are the mental models isolated? So I think working in high-speed finance teaches you to understand how to more correctly estimate the probability of rare events. And in that sense, working in finance makes me think more about the likelihood of civilization ending problems.
But it doesn't suggest to me different solutions. There's a very big difference being in a financial setting where your positions are numbers that you can put in a spreadsheet and you can model what happens if every single position goes against me 3x the wrong way and what instruments would I have to buy or sell in order to be able to hedge that portfolio.
That's like a closed system that you can actually model and do something about. Having a trader mentality on future pandemics, I don't think helps you much.
I think maybe it slightly changes your ability to kind of estimate the probability of such events. But the actual solutions to these problems are a combination of like, you know, collective action problems, plus, you know, being able to sort of model the particular type of, you know, unknown, unknown about whatever the event is.

And I think those kinds of solutions should be left to the experts in those particular fields and not up to traders. In other words, I don't think like having the trader mentality

about rare events in like normal civilization outside of finance really kind of helps you much.

And maybe in some ways, it's led people to think more hubristically that they can do something

about it. Gee, who could we be talking about? That's really interesting, you would say that.
Famously, these market-making firms really care about having their employees be well-calibrated and good at sort of thinking about risk. I'm surprised you think that the transfer between thinking about that in financial context and thinking about that in other contexts is that low.
Yeah, again, I think it helps you at estimating probability of rare events, but it does not translate super well to what action then do you take in the face of knowing those rare events. Were your circles of people in finance earlier to recognize the dangers of COVID?

That's a good question. I think that people in my circles were quicker to take action in the face of knowing about COVID.
um you know there are a lot of people who like kind of stuck around in you know cities and

their kind of their existing and their existing particular situations, not knowing where this is going to head long term. And I think if you have the fortune of having the financial flexibility to be able to do something like this, a lot of the people in financial circles immediately recognize, okay, there's this big risk, this unknown.
And I don't want to get like adverse selected against in terms of being able to like get out of the like locus of, you know, bad pandemic activity. And so people immediately were fleeing cities, I think faster than other people.
That seems to point in the opposite direction of them not being able to, you know, estimate and deal with geopolitical risk.

Well, I mean, there you have like an actual event that has occurred. And then in the face of the event, what do you do right now?

Yeah.

I think that's different than like, what do we do about the potential for, you know,

AI to destroy civilization in the next hundreds of years?

Yeah.

Or what do we do about the next potential, you know, biological weapon or the next pandemic that could occur? Yeah. Speaking of COVID, you were head of semi-systemic technology at Citadel when COVID hit, right? Yes, exactly.
What, how did, you know, these HFT firms react to COVID? what was it like during COVID? Because obviously the market moved a lot, but on the inside, was it good, bad, or? Yeah, I mean, all the companies, I mean, Citadel Securities, and, but really all of the ones in this sort of, this finance sphere, I think were extremely resilient. I think a lot of them found that their pre-existing ideas

that in order for the team to succeed,

everyone needed to be in the exact same place.

And it was very important from an IP perspective

to make sure that people weren't taking a lot of this work home with them.

Completely went out the window.

And people had to completely adjust to the idea

that actual trading teams that used to be able to have

eye contact with each other at all times need to adjust to this, you know, pandemic world. And they largely did.
I think at least from a profitability perspective, it was some of the best years of, you know, HFT firms, you know, P&Ls in recent history. Matching engines already have to deal with the fact that you can have orders coming from like Illinois, you can have orders coming from japan and given light speed they're not going to arrive at the same time you still kind of have to work around that is there any hope of a single market and matching engine for once humanity goes interplanetary or interstellar could we ever have a market between like us and alpha centauri or even us with mars or Or is it lag too much for that to be possible? Yeah.
So, I mean, without making any changes to a matching engine, there is nothing that, you know, says that when an order comes in, it can't be older than, you know, X time, right? What it does mean is that like the actual sender, if like they're sending a market order from halfway across the world, by the time that the order reaches the exchange, they might end up with a very different price than the one they were expecting when they sent it. And therefore, there's probably a lot of adverse selection sending a market order from halfway across the world than in a co-location facility.
So you can technologically run an interstellar exchange.

It just might not be good for that person living on the moon.

Is there any way to make it more fair? Yeah. So I think there's actually a kind of real world analog of that, which is like automated market makers on slow blockchains.
because if you're used to working on NASDAQ,

where NASDAQ processes a single message

in somewhere between tens and hundreds of nanoseconds per order, a blockchain like Ethereum processes what? Like, you know, 15 to 50 messages per second. So significantly slower by like numbers of orders of magnitude.
And yet they've been able to establish like pretty mature, like financial marketplaces by saying that rather than you having to like send orders with prices on them and then cancel them when the prices aren't good anymore, like there will be kind of an automated function that moves the prices at the matching engine. And so whenever your order reaches the exchange, it'll always be kind of a predetermined fair price based on the kind of prevailing liquidity at the time.
So one can imagine like building a NASDAQ for like, you know, interstellar market is kind of similar to building like Uniswap now on Ethereum in terms of order magnitude and speed. But there's other things you can do too.
Like you could establish like periodic auctions instead of like continuous matching and things like that. And that could potentially help mitigate some of these issues.
Yeah, it's actually something else I want to ask you about. What is your opinion of periodic, frequent batch auction systems? Should we have more of that instead of? So in theory, they help mitigate the advantages of high-frequency trading.
Because if you know there's going to be an auction every 30 seconds, and it's not going to be by time priority, it's going to be by price, then it doesn't matter if you send that order at the beginning of the 30-second period or the end of the 30-second period. It's really the price that determines that you're going to build, not something to do with particular latency to the exchange.
I think in practice, the couple of exchanges around the world that used to have those have switched away from them. I think the Taiwan Stock Exchange used to have a periodic auction system.
And they just thought the liquidity and

price discovery wasn't good. And it was complained about a lot.
And they eventually moved off of it to a continuous matching system. So I guess in practice, it doesn't quite work as well.
But it's hard to tell. It's really hard to tell.
What country, I mean, in your long experience of doubling financial infrastructure, What country do you feel has the best infrastructure and setup for good markets? I would say the United States, except what's happened is US companies like NASDAQ have licensed their exchange matching engine technology to other exchanges around the world. So like the NASDAQ OMX technology powers a number of the exchanges in Europe and some in Asia.
So it's hard to sort of say that like, is the technology American? Like, I guess so. I'm not sure exactly who wrote a lot of the stuff underneath, you know, the NASDAQ technology.
But I do think the US markets are some of the most efficient

and low latency

and expansive and products

that allow in the world.

How do adverse selection

in trading and hiring differ?

In hiring,

there are one,

many more opportunities

for positive selection

versus the negative selection

usually encounter in finance.

And the other thing is that most financial markets are like, you know, in the U.S., when you think about like trading in general, you're thinking about like liquid markets. The hiring market is highly inefficient.
You know, maybe the like pipeline of, you know, orders from like Harvard, MIT, Princeton, Yale to Jane Street and Seattle Securities is like a very liquid pipeline. But like there are many, many universities and colleges throughout the country and the world that have extremely talented individuals whose resumes will like never end up on your doorstep.
So you might end up with like a resume some graduating senior from college who has no internship experience. And your trader mindset might think, okay, this is terrible adverse selection.
But it actually could be that that person, if he's willing to put themselves out there and apply to your company from this relatively unknown university, then that might be the signal that it's like the best person in that entire region and that might be a positive selection so i think that it's not exactly the same like adverse selection dynamics as there is in the traditional trading worlds yeah yeah definitely especially if you have like uh i guess mission-oriented companies have a especially good way of getting rid of adverse selection, right? Yeah. Yeah, exactly.

Like the companies with really strong brands.

I mean, that's one of the things we saw at Jane Street was like, I heard stories in the old days of Jane Street that like the first resumes from Harvard were like, the people

were terrible.

Like they couldn't do like basic math and they just wrote this like the worst candidates

compared to other people that they were able to find.

And then they established this brand and this recruiting pipeline and this reputation for having very difficult interviews and for paying people really well and having this amazing work environment that all of a sudden, all the people getting through the pipeline from Harvard were really, really great. And it wasn't like the quality of students at Harvard changed.
There's probably a bell curve there like there is everywhere else. It was just like the positive selection resulting from the branding efforts and the like mission driven, like, you know, focus of the company that really brought that positive selected pipeline to them.
Yeah, that's really interesting. Should Jane Street replace OCaml with Rust? No, because there's too much infrastructure already in OCaml.
Yeah, but starting from scratch. so i guess the world is um if they could like snap their fingers and suddenly replace all

their l-camel infrastructure with Rust at zero cost, would it be worth it? Yeah. In that case, I would say yes, because I think that you get a lot of the sort of static typing and compile time safety in Rust that you get from OCaml, but the base level program that you can write in Rust is much, much faster than when you can write in OCaml.
Because of the way OCaml is designed, where there's this kind of automatic garbage collection, the worst thing you can do in high-speed finance is do any memory allocation that results in garbage collection. And so you have to write very, very careful OCaml that almost ends up looking like C in order to end up, you know, staying in functional programming land, but not actually creating tons of memory on the heap or the stack that ends up getting collected later.
I guess you've been playing around with the Rust a lot recently, right? Yeah. What is your impression of the language? Have you been enjoying it? It's great.
And it's come a very long way in the last three to five years. I think crypto has something to do with that.
It seems to be like one of the languages of choice for people to write like blockchains and smart contracts. And so there's been an enormous amount of open source contribution to Rust.
And so comparison, when I had last looked at it a couple of couple years ago it's a lot easier to write like really good sophisticated uh programs now and rust and get all of like the type safety and the speed that you get which is like very comparable to c++ on the speed side well when i'm writing programs they're not large code bases with many people contributing so So what I use for us is just like a huge pay.

And like, why is, I just want to do something very simple.

Why did I put like an arc instead of a box instead of an option?

But I can totally understand if you have something where like billions of dollars are at stake.

There is definitely a learning curve.

And I think for basic scripting, you want to use something like Python.

But exactly.

If you're writing like low latency distributed infrastructure that has to never fail, Rust is a pretty good choice. Yeah.
Speaking of Jane Street, why does a company pay interns like 16 or 17K a month for their summer internships? Is the opportunity cost for one of these smart students that high in the summer? The short answer is yes. But the long answer to why I think they do that is you know the the the the the the the the the the the the the the the the the the

the

the

the

the

the

the

the

the for one of these smart students that high in the summer? The short answer is yes.

But the long answer to why I think they do that is,

you know, the starting salary for the top people

in not just finance, but in tech,

is sort of in this like low to mid six figures now.

And you can like debate whether you think

that's like the appropriate starting salary

for a person with like no experience

coming out of college or not. But just sort of the reality is that the talent pool is extremely competitive from the employer side.
So if you start with that as a reasonable salary plus bonus for an employee, and I think Jane Street's mentality is these interns who are coming here, they're doing real work. They should be paid a full-time employee, just paraded for the time when they're actually here.
And so that like ends up like checking out to be like the right numbers. Wait, on net, are interns, I mean, forget about the salary.
Like are they actually on net contributing given that subtracting away the time of the traders who are training them? Maybe it sort of breaks even if you consider like the time to train them. But it's extremely worthwhile because when those interns come back full time and Jane Street hires a significant percentage of its incoming classes from their internship program, that they're already trained, they're ready to go day one, they're almost immediately useful because they had that like three month period where they got trained and only the ones that really liked it and were good come back.
So it's like, rather than wait for them to come on site, train people and maybe half of them aren't good or half of them don't fit with the culture and you kind of don't know what to do with them. The internship program provides like a really good place to get like on the job training and then only kind of select on both sides for the ones that are the best.
Is there a free rider problem with internships where if like a company like Jane Street puts in the effort to train somebody for three months, they might get some of them to work for them. But they've also trained some people who might work for the competition.
And like, is there some sort of free rider problem there? There for sure is, which is why the companies have to work as hard as possible to make their experience as good as possible, which is like, it's good for the interns. You know, like, when you go to Jane Street, like not only do you like learn a lot, but like they pay you really well.
And also like you get to, you know, visit one of the foreign offices for like a week or something. Also, like they have all these like really fun programs where they bring like famous speakers to come to the office and speak to the whole, you know, intern class and

they have, you know, like parties and all sorts of stuff. And it adds to like the experience of thinking like, okay, this is the place I want to work.
I don't want to like take my training and go to the competitor. I want to come to you.
Yeah. I clearly got in the wrong business with podcast.
Why did you pursue finance dev instead of trading? Why did that appeal more to you? Yeah. So in college, I studied computer science and math.
And I really liked programming. But I think I didn't quite know what a career in programming looked like.
I think the conventional wisdom, at least like in 2009, when I was applying for internships was like, okay, I'm going to sit in the cubicle and like stare at a screen for 16 hours a day. I'm going to be miserable.
And it's not gonna be a very social job. I consider myself like a pretty social person.
And I had a lot of friends who had had these like various internships and quantitative finance, like mostly from the trading side. And so when eventually I went to Jane Street as an intern, I had kind of like a hybrid summer of like doing some dev stuff and some trading stuff.
And to me, I thought like, okay, the traders are much more, much closer to like the real action of the company. I want to be a part of that.
And so when I joined Jane Street, I was hired as a trader on the ADR desk. And I realized like very soon into that, that one, no, like actually the developers have like just as much, if not more impact on the outcome of the success of the company.
And two, I just like enjoyed it a lot more and it was just much more up my alley in my training. And so I ended up going that route instead.
I want to ask about the culture at these sorts of places like Citadel or Jane Street. I mean, you spend some time in Silicon Valley and around like traditional sort of like startup scene as well.
What is the main difference between Silicon Valley tech culture versus, you know, quant New York culture? Sure. Or I guess Chicago culture.
Yes. I have a ton of personal experience like in the Silicon Valley culture or like the tech culture since I've only really worked at kind of finances my whole life.
But the sense I get is that the kind of New York, Chicago, quant finance dev culture is one about extreme pragmatism.

You know what the outcome is.

It's like, be the most profitable at the strategy. And you kind of try to draw a straight line between what you're doing and that profitability as fast as you can.
compared to, I think the Silicon Valley culture is much more about like creativity

and doing things that are new that no one else has done before. A healthy amount of cross-pollination would be good for both.
Where I think a lot of trading firms are doing the exact same things that all the other trading firms are done. And some healthy injection of creativity into some of that stuff to maybe think slightly outside the box of like, as you said earlier, like get slightly faster to go to NASDAQ or something, which is like, okay, it might be fine, but it's not that creative.
It would be good for those plant firms. At the same time, the sheer approach to pragmatically getting something done and out there and sold and making money would help a lot of Silicon Valley firms that kind of like hang out in this sort of creative land for too long and don't end up getting a product to market.
Yeah, I know. Definitely.
It seems like there should be one founder from both those cultures, every single startup. It's similar to what you were saying earlier with like SBF and like visionaries versus pragmatist in that context.
How conspicuous, I mean, you were just mentioning earlier that these traders are making mid six figure salaries to begin with, let alone where they arise over the careers. How conspicuous is their spending and lifestyle? Is it close to Wolf of Wall Street? Is it just Walmart t-shirts? Like where are we talking? It's probably a lot closer to Walmart t-shirts than it is

off of Wall Street. I mean, certainly it is now.
Even when I started, it was

pretty inconspicuous. I don't think it was that way in like the previous

decade or two before I joined finance. I guess I'm not really sure, but

I got the sense that the current culture around

inconspicuous consumption is sort of a function of

millennial consumption habits, where, you know, people are

Thank you. current culture around inconspicuous consumption is sort of a function of millennial consumption habits where, you know, people are focusing a lot more on like experiences than, you know, having shiny material objects.
I think that's had a lot large effect on kind of like the high earning tech and finance culture that exists today. Well, I guess, are they spending that much money on experiences either?

Because how expensive is a flight to Hawaii, right?

Even after you subtract that,

like, where is this money going?

Are they just saving it?

Maybe it's not like

just a flight to Hawaii,

but it's like,

bring your 10 friends

to Hawaii with you or something.

Or it's, you know,

get involved in like a charitable organization in a way that like someone who is 24 normally wouldn't be able to do, purely by being able to donate a lot. Yeah.
What is the social consequence, for lack of a better word, of having a bunch of young, nerdy people, often male, often single single having this extraordinary level of wealth like

what impact does it have i don't know if society's the right word but like what is what is the broader impact of that that class of people i think we'll have to play this out over the next decade or two to really see where this goes if i'm going to be an optimist about this, I'd like to think that when it was like older, you know, single or married males, you know, getting, you know, hoarding a large amount of wealth, that for the most part, they kept it to themselves and kind of waited till later in life to do anything with it. And we're the kind of people who really like saved their same career their whole lives, as opposed to if younger and younger generations are amassing wealth through, you know, the, what, what they can actually perform with their skills.
Then I think that hopefully injects more dynamism into the distribution of that wealth later on, because those millennials will then like, or Gen Z or whoever will go on to like found new companies. And maybe they'll be able to seed the company themselves with their own money and have a lot easier time like bringing like interesting new things to market.
Or they'll be able to donate to like really interesting causes. Or they'll be able to, you know, help out their friends and family more easily from a young age.
Or they'll be more selective in the kinds of things that they, you know, give to or contribute to that don't just involve like getting their name on like a building of a school or something. Yeah, yeah.
That's a very optimistic story. I hope that's the way it plays out.
To tell me about the psychology of being a quant or a trader or a developer in that space, because you're responsible, like one wrong keystroke and you've lost millions of dollars, one bug in your code. And there are historical cases of this, like where entire firms go down because of a bug.
What is the sort of day-to-day psychological impact of that kind of responsibility? Maybe the job selects for the people who don't kind of crumble under the theoretical stress of that job.

But personally, I don't lose sleep overnight over that because within any mature financial institution like a trading firm, there are typically many layers of safeguards in place. like, you know, limits on like how many dollars you can trade in a minute and how much you can

trade overall or for your desk or like how many dollars you can trade in a minute and how much you can trade overall or for your desk or how many messages you can send to the exchange. And then there's limits on the individual trader and desk level and firm level.
And there's layers of different checks. Often there are actual rules, regulatory rules to comply with the market access checks like FINRA is 15C35.
And so when you're writing new code, it's not like a completely like blank slate thing where you're connecting directly to an exchange and like hoping for the best. Usually you're embedding some piece of code within some very large established framework where the goal is to make something trader proof.
No matter what some trader clicks on or does or configures with their system, there's a limit to how badly they can actually go. And so especially in my particular role as a developer, actually being able to understand the technological stack and say, oh, I can tell and can verify that these particular safeguards are in place, and it is actually as trader-proof as I think it is, like I sort of, I can sleep at night knowing like nothing too bad is going to happen.
I mean, the times I actually lose sleep are like, you know, a trader in like London or Hong Kong calls me like in the middle of the night to say like, hey, can you explain how this thing works? I need your help. Like those are the times where like I actually lose sleep, but it's not over like being concerned about risk yeah that's interesting if you asked the people who work in these firms what is the social value you're creating separate from the question of what the correct answer to that question is well would the majority of them say that like i'm doing something really valuable with them would they say like um it's like i'm indifferent to it but it's earning me a lot of money like how what is what is their understanding of the value they're creating it really depends on the company and depends how diffuse the culture is at like older firms that have like um you know sort of fewer people impacting the culture on any significant way i i think you might not get a clear answer on this.
I think for a place like Jane Street, where, you know, the firm is really run by like 30 or so, you know, partners and senior employees who have like been there for a really long time, and have carried through the core culture of that company up till the present day. And with that large number of people at the top in a very flat environment have actually been able to propagate that culture and maintain it throughout the company.
I think you'll find a much more kind of homogeneous view on their social value, which I think they would say is that they provide the best pricing and access to markets that are critical for facilitating capital allocation throughout the world and allow people to very efficiently invest in vehicles that are global in nature. That seems very abstract.
And while it is probably very well correct and is very valuable for society it might not seem that like tangible to somebody who's working in that space is there some technique that these firms have of this making visceral the impact these traders have i don't know do they do they bring out some like child who benefited from efficient markets or something i think well not like children. I think it's more like anecdotes about like the pension, like fund behind this like state government, like needed to get exposure to, you know, some diversified asset class and came to one of these companies and said, like, we want to move like a $5 billion portfolio, can you help us do it in an efficient way? And it ends up saving them, like significant numbers of like percents or basis points over what would happen if like they went to the market.
And you can say, well, like, there's like a direct connection between like the price that someone like Jane Street gives them, and the amounts of money that they ultimately get to save, and ultimately pass on to the people in their state who are part of their pension plan. And so there's like a direct connection there.
Okay, let's start by addressing the elephant in the room, which is FTX. Let's begin at Jane Street, which is where you met SBF.
Can you tell us sort of the origin story of how you first met him and what your first impressions were? Yeah, absolutely. So I was at Jane Street from 2010 to 2018.
Sam was at Jane Street for a couple of years in the middle of that, I think 2013 to 2017. And one of the things I did at Jane Street was I started this program called OCaml Bootcamp.
It was a yearly course for the new trader hires to spend four weeks with me learning programming in OCaml, which was like the esoteric programming language that we use at Jane Street, along with a lot of our other proprietary systems. And Sam was in one of the first cohorts of students.
And so I got to meet him through that experience. Got it.
Okay. And what was your impression of him? Yeah, he was a smart kid.
He was nice. He kind of got along well with other people in his class.
You know, he was definitely, you know, above average, but not like, you know, completely stand out at the top. Although then again, the bar was extremely high at Chain Street.
So I think that's already sort of a compliment. But yeah, but, you know, people liked him a lot and thought he had a lot of promise.
But he was a young guy like everyone else. Got it.
And did that perception change over time while you were at Jane Street? It slowly started to. Sam was on one of the largest trading desks at Jane Street and had 50 or 60 people on it.
He had several managers. and one of my roles at Change Street was to work with all of the different trading desks on the designs of their particular strategies and systems.
And so I would frequently go over to his desk and talk with his managers about stuff. And I started pulling him into conversations more and more, specifically to talk about some of the lower latency ETFR stuff we were doing, some of the original OTC automation things we were working on.
And so he started actually contributing more to the actual design and thought behind some of these systems and thought he was precocious and had a lot of really good intuitions about markets. Got it.
Okay. And so what exactly was your role at GeneStreet at this time? And what was his? Yeah.
So at this time, I was sort of leading the group of software developers building the technology that was closest to actual trading. You can think of HFT or any kind of sort of trading firm.
There's lots of different developers, people who work on, you know, stuff really relating specifically to the trading technology, people who work on kind of the core systems, networking, kind of internal automation tools, tools for developers. So we were on the part of the spectrum that was closest to actual trading.
And so my job was to like go over to the different trading desks within the company, talk to them about their specific strategy for the products they traded, understand how to like their priorities about what venues they want to connect to, what different systems they want to create, what different parameter changes they need in their automated trading systems, what kind of research tools will help them do their job better, what user interface would make it easier for them to understand what's going on in the market, and kind of all of that. Okay.
And did SVF at this point have any sort of reputation of either being uncooperative or being cooperative or anything ethical or professional that's not worthy of this time? I don't think there was much that stood out, although he was, again, pretty precocious at that particular time period. One anecdote that drew me closer to him was Jane Street's offices were in 250 Vesey.
They still are in New York City. And there's a big food cart on like the second floor.
And so I once went down to meet with a development person from a nonprofit that works in animal welfare and something that my wife and I had donated to for a long time. And I met with this guy and he said, you know, you're the second person I met from Jane Street today, which was wild because Jane Street was like only a couple hundred people there.
This is like a pretty niche, you know, organization. And I was like, that's crazy.
You know, who did you meet? And they said, oh, you know, Sam Bankman Freed. And I was like, you know, Sam, I just came down from talking with him upstairs.
And so I went back and we sort of realized we had this kind of shared interest in helping kind of animal welfare causes. We were both, you know, vegans.
And we sort of bonded over that. That's how we kind of became friendly.
Got it. And it was so it seems that his interest in effective altruism was genuine at this point and early on.
It was there was a history of this. Yeah.
You know, it wasn't like EA was super popular at Jane Street. I feel like that's a bit of like recent sampling bias.
Among this younger crew of Jane Streeters, there definitely, I think it was because of a lot of association prior to joining Jane Street that they sort of were into effective altruism. But there were a couple of people there who really were fairly vocal about the fact that they were, you know, donating the majority of their yearly salary and bonus to charitable causes.
And Sam was one of them. And, and yeah, started to become known for that.
Got it. Okay.
So I guess fast forward to he's no longer at Jane Street, you're no longer at Jane Street. And you're at Citadel.
He started FTX. Actually, before we go there, were you in contact with him up until the point where you had started talking about a potential?

Yeah, off and on. When I first left Jane Street and he left – sorry, when we both left Jane Street around the same time, him before me, he had told everyone at Jane Street that he was leaving to join the Center for Effective Altruism full time.
And I guess he did that. I'm not sure if it actually happened because he very soon after started this trading firm and tried to pull lots of Jane Street people to join him to do

this trading firm, which didn't make people super happy. But it was funny.
We had a phone call and

he told me that it wasn't really going super well. He said it was really great in the beginning.

They made a lot of money. They had this arbitrage trade.
And then a few things kind of went by the

wayside. And they had taken out these huge loans to be able to get their initial capital for Alameda.
And also there was a big fracture within the company. You know, half the company split.
People left. He really didn't tell me much about that at the time.
And he said he's probably going to do something else. And when I asked him, he said, I think I'm going to work on like political prediction markets.

And I was like, okay, it doesn't sound super exciting to me.

I'm going to continue on with what I was doing,

which was moving to Chicago, taking a new role.

But then fast forward, I guess that idea,

maybe he wasn't telling me the whole truth at the time,

but I guess that idea became FTX

and he had supposedly like resuscitated Alameda in the process.

Yeah, yeah.

That's really interesting.

Do you have some sense of what it was that went sideways?

So I pieced together some details over the years because he told me a little bit more

after I first joined.

I heard a little bit more later from other people and then saw some reporting kind of

post FTX collapse.

I think there were two things.

One was the infrastructure they had built, I think was really poor in the beginning, a lot of like Python scripts like slapped together. And a couple of times they had sent tokens to the wrong wallet and ended up like losing millions in the process.
And they had some big non arbitrage directional bet on in some token. It might have been ETH or something, and it went against them.
And so they lost a lot of their trading capital. And then the other thing was that after some of their technical problems, there was internal disagreements, supposedly, this is what Sam told me, about how to move forward with tech.
You know, there was half the crew that wanted to kind of rewrite everything from scratch in a different programming language. There's another half that said like, okay, we can make some small incremental changes from here and fix things up.
And Sam and Gary and Ashad were more in that latter crew. That former crew kind of broke off and started their own thing.
And that's what originally happened. Okay, got it.
And were you aware of the extent of this at the time? Or is this something pieced together? Not at all. I mean, Sam told me a little bit about it.
But this was over the course of years now where I had two different roles. One at Headlands, one at Citadel Securities.
Sam was starting Alameda. We spoke maybe once a year briefly on the phone.
So all this stuff was happening in the background and I had no clue.

Like the first time I even heard about FTX was one of my colleagues from Citadel Securities told me,

hey, did you ever work with this Sam Begman-Fried guy?

And I was like, yeah, a little bit. Why?

And they're like, do you know he's like a billionaire and he has this Hong Kong crypto exchange?

I'm like, what? No. What? Since when?

And then it's hard to see him pop up in articles. There was like a Vox article about him and a few other things, especially related to his political donations.
And that's kind of when I got back in touch with him and we started talking a little bit. When was it that he called you to say that there are potentially troubles and I'm considering starting a political prediction market? That was in okay yeah uh so i it was right after i left jane street got it okay and so now you've moved on to citadel and so i guess you're still in touch at this point yeah like very briefly you know a text every now and then okay and then at some point you're uh you become president of FTXUS.

So do you want to talk about, I guess, how he approached you about that and what was going on at the time? Yeah, it was interesting. So at the time, I was running what was called the semi-systematic trading technology at Citadel Securities.
And so this was the group of technologists working on systems for ADRs, ETFs, options, and OTC market equities. So it's around 100 software engineers or so that rolled up to me.
And, you know, that was going well. But, you know, Sam and I started talking, it was, I guess, March of 2021.
And, you know, he was like, telling me a couple of things going on at FTX.. And then he said, you know, if you're interested in coming over to FTX, we would still love to have you.
And I thought, still, we never talked about doing this before. But sure, like, let's entertain this.
And we started talking and he had me meet him and Gary and Nishad over, you know, video call.

I was in Chicago. They were in Hong Kong at the time.

These calls were taking place like late at night, my time.

And very quickly, like an offer came together.

And I thought, you know, this is like a really cool opportunity to jump into a field and take a role that was very different from stuff I'd done in the past.

And I signed up.

Got it. Okay.

And where was FTX at this point in terms of its sort of business development?

Yeah, so FTX was doing quite well. I mean, it was basically finished its second year of operation, and it was maybe the fourth or fifth largest exchange in the world by volume if you include spot crypto and crypto derivatives.
And it was also one of the primary destinations for institutions, proprietary trading firms, hedge funds to trade crypto and derivatives, especially because of how it was designed. And so it was doing really well.
FTX US was virtually non-existent. They formed the entities.
They had started the exchange, I think, in either December 2020 or January 2021. But it had de minimis volume compared to the other exchanges around the world, especially in the US too.
and Sam talked to me a lot about a lot of the aspirations for the U.S. business.
You know, one, to grow the spot exchange, of course.

Two, was to be able to... the U.S.
too. And Sam talked to me a lot about a lot of the aspirations for the U.S.
business,

you know, one, to grow the spot exchange, of course. Two, was to be able to find a regulated path for bringing some of these offshore products like, you know, Bitcoin and Ether futures and options onshore in a regulated way.
And on top of that, Sam had also told me about kind of longer term desires to be a single app or marketplace for everything, not just crypto. So, you know, launching a stocks trading platform as well.
And so that was one of the reasons I think he wanted to bring me on was because I had all this experience kind of inside of regulated broker dealers and sort of knew roughly what it took to get that started. Okay, got it.
And so he and the initial offer was specifically for president of FTX US, right? Yeah, and Sam wasn't someone who loved thinking hard about titles. And even like what my original title is going to be was like a point of contention.
But I'm not sure it was clear exactly what my role was going to be. I think Sam wanted me to write software for FTX and FTX US, sorry for FTX US.
But to me, I sort of thought there was like this bigger opportunity to kind of work with Sam to lead this other startup, which was FTX US and kind of build it up and sort of follow in FTX's footsteps and its success. And that was the part that was most exciting to me, because this is what I've been doing now for years.
It's like managing large teams of people, thinking about strategy, getting people together, you know, occasionally doing some software development myself, but you know, that was the primary reason for wanting to join. Got it.
And what was the relationship between FTX and FTX US at that time? Were they kind of subsidiaries? Were they separate entities? They were separate entities. They weren't subsidiaries.
There was technology sharing between them. So like the FTX US exchange technology was like licensed from FTX.
You can think of FTX US was like FTX stripping away like most of the interesting parts of FTX, right? Because it was just, you know, a dozen or two spot tokens. And when I joined, there were very few people within FTX US, you know, maybe like two or three dedicated people.
So over the course of the next year or so, you know, my job that I sort of, you know, fit for myself was to like open up some offices, like hire a bunch of people, establish like separate compliance and legal and operational and support teams, start to build out these regulated entities. Was Chicago the initial base of that operation? Yeah, I mean, for selfish reasons.
Like I have like, my family is here, you know, and, you know, I wasn't going anywhere. But also I thought Chicago was a great place for FTX US because if our main goal was to establish regulated derivatives, like Chicago is really the place where that happens.
We have like the CME. We have many of the top proprietary trading firms.
A lot of like the Futures Commission merchants and various brokers are all here. You know, historically, like the kind of the floor of like the Chicago Board of Trade and like the Chicago Mercantile Exchange, like they're here.
And so it kind of felt like a good place to be. And at this point, I guess before you joined, did you get a chance to ask him about the relationship between FTX and Alameda? Yeah, I did.
I mean, it was definitely of interest to me, like you know because i mean the primary reason being that i wasn't interested in doing prop again you know like i i worked at jane street i worked at headlands tech i was at citadel securities if i wanted to continue doing prop trading i would have stayed at one of those places you know so i i wanted to do this exchange business and what Sam told me was the same thing he said publicly everywhere, which is that, yeah, like Alameda is basically running itself. All of Sam's time is on FTX.
They're kind of walled off from the FTX people. And, you know, their access to the exchange is just like any other market maker.
Like there's like the public API feeds, you know, there's, you know, benefits from market makers that trade enough volume, but it's not like, you know, Alameda had any special privileges in that sense. And so I thought they were just basically separate.
And did you ask to, I guess, audit their sort of financials or this relationship before you joined? No, I mean, I don't know about you, but I've never like gotten an offer to a company and said, like,, before I sign, please show me your audited financials. It's just like not a thing that happens.
Right. Right.
Okay. Fair enough.
So you joined FTX and then you mentioned some of the stuff you were working on, the operational, legal, getting the organization set up. But yeah, feel free to talk in more detail about what were the things that came up during your tenure and what are the accomplishments you're proud of? Yeah, I guess on a professional and personal front.
So I guess on a professional front, I'm most proud of establishing out our team and making significant headway to a lot of our goals to establish these regulated businesses. So for example, Ledger X, you know, we acquired Ledger X and we had this application to the CFTC to enable kind of real-time direct to customer 24-7 margining and cross-collateralization.
And it was an extremely innovative proposal. And it felt like we were making real progress towards establishing new and very exciting regimes for CFTC regulated derivatives in the US.
I also established a broker dealer in the US for the purposes of letting people trade stocks, like similar to Robinhood. I wrote like 90% of all the code for that stocks platform myself.
And yeah, I was very proud of that accomplishment. And then it was on a personal front.
It was great to get embedded into the crypto industry. I was very excited by everything that I saw.
It was great to make all the connections, you know, through FTX with like the different people in the crypto ecosystem and, you know, become friends with these people. And that certainly has an influence where I am today.

So I'm sort of proud of all of that.

How did you manage the management of,

I don't know how big the team was, I'd speak.

And it sounds like you were heavily,

I mean, involved is an understatement in the actual engineering.

How were we able to manage both roles at the same time?

Yeah, so we were like between 75 and 100 total people

in the US and it was challenging. It was one of my biggest complaints, which I'm sure we'll get into, which is that, you know, yes, I can write code, but I feel like that's my comparative advantage is helping kind of the leverage teams of people to get them to, you know, work towards the common goal of, you know, building out large distributed systems that are distributed systems that are complex and multivariate in nature.
And the best use of my time was not me programming between the hours of 10 p.m. and 2 a.m.
every night while trying to keep on board with what all the personnel were doing. So I really wanted to grow the U.S.
team significantly to at least be more than a handful of developers. And so, yeah, that was one of the initial points of contention.
Okay. Speak more about that.
So he was opposed to growing the team? Sam would frequently talk publicly about how proud he was that all of FTX was built by two developers and all of these crazy organizations

that hire thousands of developers and can't get anything done. Like they should learn from me

about how like a small lean team can be, you know, much more effective. And there's some truth to

that. You know, I do think the conventional wisdom now is a lot of big tech companies overhired

or software engineers. And not only was it sort of an expense on the balance sheet, but it was

All right. And the conventional wisdom now is a lot of big tech companies overhired for software engineers.
And not only was it sort of an expense on the balance sheet, but it was also expensive in terms of slowing down the kind of operational efficiency of the organization. and having a small lean team can help you get to your, you know, your first or your nth product a lot more quickly.

That's great for a startup. But once you're like a north of $10 billion valuation company, like promising the world to like customers and investors, two software developers doesn't really cut it anymore.
I mean, at some point, you have to like, you know, grow up and face the reality that it's time to actually grow an organization into a real kind of managed enterprise with teams of software engineers specializing in certain tasks. And so there was always pushback.
People would tell me like, look, we're not trying to be like Jane Street or Citadel in terms of our number of software engineers. We want to stay lean.
That's our comparative advantage. And most importantly, they didn't want two separate development teams, one in the US, one in then the Bahamas.
They wanted to keep the nexus of software development underneath Nishad and Gary in the Bahamas, which I just thought wasn't going to be sustainable long term. If you run a broker-dealer in the US, you need to have staff that is specifically allocated towards broker-dealer activities.
It can't be that if FINRA comes and says like, well, who's working on the broker-dealer? You say, well, it's like this Gary guy who like lives in the Bahamas, who sometimes is awake at like 4 a.m. and spends 20 minutes a day thinking about stocks.
That can't fly. Right, right.
And has no images of him on the internet. Okay, so we're Nishad and Gary contributing code to the FTX US code base? Remember, like the FTX US side of things was a strict subset of FTX.
So in that sense, it kind of flowed into FTX US. With the exception of the FTX US derivatives, the Ledger X stuff was actually a completely separate team because that was through an acquisition.
When you're talking about the code of the matching engine or things like that, was the code shared between FTX and FTX US? Yes. Okay.
Who was in charge of ultimately approving the pull request, basically, of the FTX US codebase? Yeah, it was like all Gary and Nishad. Okay, got it.
And so the code you were contributing was also going to the sort of like universal global codebase? Yeah. Got it.
Did you have sort of access to the entire codebase or just the FTX US side? Yeah, again, it was one share repo. I mean, there was an enormous amount of code.
And one of the big problems, another problem that I raised while I was there was that 90 plus percent of all the code of FTX was written by these two people. And it was very hard to follow.
I don't know if you've ever seen like a large Python code base before. And so whenever there were issues that arose, you know, oh, like there's like this particular problem with like an account on the exchange.
The only answer was like, call the shot, call Gary, which I also knew to be like unsustainable from the organizational perspective. Like of the guiding principles at Janetree, for example,

was mentor your junior dev

so that you can hand off all your responsibilities to them.

And in the process of handing off responsibilities,

you make the code better, more automated,

more robust problems,

more easily debuggable in real time.

If you hoard everything to yourself and your own brain,

you end up with a code base that is just only understandable by that one person. And so it was the kind of thing where, and a lot of people talked about this internally, like if Gary got hit by a bus and couldn't come to work anymore.
F-Tase is done. It's done.
It's done. Exactly.
Exactly. What do you think was the motivation behind this? Was it just that he wanted to keep wanted to avoid as a sort of like Google growing to 100000 people kind of thing? Or was there something else going on? Like, why did it? Why? Why this sort of concentration? Well, clearly there was something else going on.
I think an open question now, only thinking about this in hindsight, was how much of this very cloistered organizational decision around the development team was a function of the various things they were doing that they were hiding from the rest of the company? Or was it really this sort of like one ultra paranoia about growing too large too quickly and losing control of the organization? And two, an almost like sort of cult-like belief in this small team, like being the but for cause of all past, present and future success. What was the discretion that you had at FTXUS? It sounds like you weren't even given the capacity to hire more engineers if you wanted to.
What were the things you did control? Yeah. Hiring, for example, I began pushed for many months that we should hire more people.
Eventually, I got permission for us to interview people, but then those would ultimately

have to get finally approved by the people in the Bahamas. And they would frequently say no

to people who I thought were good candidates. Finally, we hired one person and this person

was doing well. He was here in Chicago and they invited him to go spend like a month in the Bahamas to kind of hang out with them and, you know, supposedly just like a ramp up on the system.
And this person comes back to Chicago and said, you know what? Like, I really want to move to the Bahamas. They really kind of convinced me to do it.
And it was so frustrating. Right.
It was just poaching from your own company. Exactly.
It was such a constant battle. And at some point I kind of gave up on this idea that I was going to be able to actually grow a separate developer team.
So, I mean, the bottom line is, you know, I kind of like the day-to-day operational stuff, especially the decisions within some of the things I was responsible for, like the stocks, you know, trading platform that I was working on. You know, I had a fair amount of discretion.
And people certainly looked up to me for management and advice and direction. But ultimately, the discretion ended up with this small group in the Bahamas who not only had final say on decisions, but would often make decisions and not communicate with the senior people on the U.S.
side. And we would just sort of find out things were happening.
Is there a specific example or set of examples that comes to mind? Sure. The biggest example for me was, this was sort of post my kind of effective resignation, but some of these strategic acquisitions that were being done in the U.S.
during the summer of 2022, I would find out from the news. Or it would sort of be mentioned on a signal chat or something that this was happening.
And there was no opportunity to actually wade into the discussion about how this is going to greatly affect the U.S. business.
It's going to greatly affect our priorities. And it wasn't clear if this was a good decision or a bad decision.
It was just a unilateral decision that was made. Like, oh, we're acquiring this company or we have the option to acquire this company.
Are there decisions that were made from the Bahamas that stick out to you as being unwise that, I don't know, you try to speak out against? I mean, you mentioned some of them, right? Like not hiring enough people and not getting more, yeah, not getting more developers. But are there other things like that that stick out to you as bad decisions? A lot of the spending, I mean, on everything from like lavish real estate to all of these like partnerships to very, very large venture deals.
Like these were the kinds of things in the company where people asked like, when does this stop? Like to one end, are we doing a lot of these things? And some of those resulted in sort of like direct confrontations. Like just, you know, why are we doing yet another deal with like a sports person or a celebrity? This is like, this is ridiculous.
This is not doing anything for the company. And we're completely distracting from the role that we thought we all had, which is to build a really great core product for, you know, people trading crypto and crypto derivatives.
Yeah. And did you bring this up directly with SBF? Yeah, multiple times.
And how would he respond?

Sometimes he was, you know, nice about it.

And he would say, you know, like, yeah, I see where you're coming from.

I do think what we've done so far has been really valuable.

And we probably should do some more of it.

But maybe at some point we should stop.

You know, a lot of this sort of like hedging language that was ultimately non-confrontational, non-committal. I mean, he was a very non-confrontational person, very conflict avoidant person within the company.
So, and then at worst, he would just, you know, there were other times where I brought up like specific things that I thought like he was doing wrong. There was one really unfortunate time where I, it was the first time I visited the Bahamas in, I think it was like November of 21.
And I'm the kind of person who like, if I see something wrong at a company, it doesn't matter what company I've worked at or how junior or senior I've been. Like, I like to go to the person most senior in charge and tell them like, this thing seems wrong to me.
And that's, I feel like it's one of my superpowers. Uh, I'm just like not being afraid of just like saying when something seems wrong to me.

And sometimes it's like, I'm just totally wrong and don't understand the full picture. And sometimes it results in something better happening.
And people will, you know, thank me for having been honest and bringing to attention something that's actually wrong. And so I said to Sam, you know, I think you're doing way too much PR and media.
First of all, it's really diluting you and the FTX brand to constantly be doing TV interviews and podcasts and flying to banking and private equity conferences. And it was so much time spent on this stuff.
And also it was completely taken away from the management of the company. People would sometimes send Sam Slack or signal messages and not get responses for weeks at a time.
And it felt like he was spending virtually no time helping the company move forward. It was so much about image and brand and PR.
And he was really angry at hearing this criticism directly. How did he react? I mean, he was just, he was sort of emotional.
He was worked up. He told me, I got completely disagree with you.
I mean, he said, like, I think you're completely wrong. He said, I think the stuff that I've done for PR is maybe the greatest thing that's happened to this company.

I should do more of it.

I didn't think it was physically possible to do more of it.

And I realized at that moment that this was not really going to work super well long term.

If we're not in a relationship where I can give my direct superior real, honest, constructive criticism that I thought was for the good of the company that this wasn't really going to work. He actually did my podcast about, I don't know, eight months ago or something.
And I, while I was like very grateful, he did it. Even at the time I'm like, I don't know if I would have agreed to this if I was in charge of a $30 billion empire.
Uh, yeah. I mean, sometimes like some reporters would say to me, like, you know, do you, can you like get me in touch with Sam? And I would say, you know, why? Like, I'm not really his keeper.
You can contact him yourself. They're like, oh, because we want to come to Bahamas and do a special on him.
And I would say like, okay, you're going to be like the sixth one this month. There's no exclusives here.
So I guess to steal Matt and his point, he did get a lot of good PR at the time, right? Potentially, well, not potentially, like actually too much and in a way that like really created at the time sort of like the king of crypto sort of image. So, I mean, was he right about the impact of the pr at the time or maybe maybe let me ask a question a different way how did he create this image i mean people were saying that he's the jp morgan of crypto like you could do no do no wrong even things that in retrospect seem like clear mistakes like only having a few developers on the team universally praised you know huge empire run by a few developers.
How was this image created? I think that media was primed for the archetype that was Sam, this sort of young upstart prodigy in the realm of fintech. You know, we have a lot of these characters in the world of, you know, big tech.
And I think that he had a particular role to play in the world of finance. And by making himself so accessible all the time, he gave people a drug that they were addicted to, which was like that constant access.
I feel like any time of day or night, someone could text Sam and get him on the phone with them if they were in media. And they loved it.
It was like getting access to a direct expert who was also this famous person who was also this billionaire, who was also this extremely well-connected person, who was also this very insightful person who knew a lot was going on in the industry and can give them like insight and tips. And I think there was some amount of what I like to call like reputation laundering going on here, where it was like, okay, so you get the famous celebrity to endorse Sam, which makes, you know, this, you know, politician think highly of

Sam because they also like that celebrity. And then also the investors are writing really great positive things online about it, but also the media is enforcing how cool it is that Sam is doing all these other things.
And it all sort of fed into this like flywheel of building up Sam's image over time in a way that didn't necessarily need to match the underlying reality of who he was at the company. And what was the reaction of other employees at FTX of this sort of, not only the media hype train, but also the amount of time Sam was spending with the media? You know, on one hand, I think people were growing frustrated within the company because of the lack of direction and some of like the power vacuums that resulted from Sam's continual absence.
On the other hand, so many people within the company just hero worship Sam. You know, when you hear all like the really tragic stories now of all the employees who kept all of their like funds and life savings on FTX, they really, really believed in Sam.
And doesn't matter how little time he spent with the company, doesn't matter how he treated employees internally. It was like he was this sort of genius pioneer and that image couldn't be shaken.
And I certainly don't blame anybody for it. I interviewed him.
I tried to do a lot of research before I interviewed him. And I certainly was like totally taken with this, right? I thought he was the most competent person who had ever graced crypto.
But so what was he actually like as a manager and leader? Other than, I guess, obviously the micromanaging aspect of it, or feel free to speak more on that as well.

But in terms of the decisions he would make in terms of business development and prioritizing things, can you describe his sort of management style and leadership? In the beginning, when I joined FTX, my initial impressions were that he had pretty clear intuition and insight into the simple things to do that would work. In many ways, if you think about what FTX did, it wasn't really super complicated.
It was like, just be operationally good and give your trading customers as predictable of an experience as possible with regards to collateral management and auto liquidation and matching engine behavior and latency. And so they did it.
I would say, aside from the intuition, Sam wasn't a details man. Like that was usually left up to the people below him to really take care of was like to drive a project to completion to figure out all the details that had to be done.
I think besides that, as a leader, I thought he was fairly incompetent.

I thought he was very conflict avoidant.

He didn't like to get into direct confrontation with any of his employees where most of the reasons why people needed to talk to him were because there were significant issues, whether those were personnel or otherwise. And he just blew them off.
I mean, that was a frequent occurrence within the company. I mean, if you went to Bahamas, and I went only a couple of times to actually visit the office, if he was in the office, he was there all day on calls.
All day, whether those were with investors or with media, podcasts, whatever. It was just consistently just doing that.
And I saw very, very little time where he actually got up and talked to anyone else within the company about anything. So I think to me, that was the primary impression I got of his leadership was virtually that there was none, which made me feel a lot like I and others needed to step up and sort of take that role in the absence.
Got it. And then so who was making these day-to-day decisions in the absence of Sam? On the foreign side, in the Bahamas, Nishad was really like the number two person there.
I mean, he was making a lot of decisions. There were a couple others in the Bahamas who were taking kind of swaths of the company, whether it was like investments or marketing or legal, things like that.
On the U.S. side, we had like a different crew trying to make decisions where we could on for like U.S.
regulated matters. But again, it was always, we were always sort of below the decision decision making authority that was happening in the Bahamas, especially inside of the home where they were all living.
So it seems like FTX was a really good product compared to other crypto exchanges. I've heard a lot of like traders praise it.
Was this was this competence sort of built while SPF was still doing media stuff?

Or was this built before he kind of went on the PR train?

How was this product built while the CEO was kind of distracted?

So I think the core of the product was built before my time.

And my understanding was in the transition from Alameda to FTX, where there was no publicity around Alameda, there wasn't any publicity around FTX. It was very much like heads down build mode for several months and just think, think, think about the core product.
Having been a trader on these different exchanges around the world that also offer derivatives and knowing all

their problems. Like for example, if you had an Ether futures position and also an Ether spot position on this one exchange, you could get liquidated on your Ether futures position, even if you had enough Ether spot as collateral, because you needed to have that spot crypto within the EtherFutureSpot collateral wallet, which was different than the EtherSpot wallet.
And so it was this game of shifting assets around to different wallets to make sure you kept meeting your collateral requirements, which was just an operational nightmare. And so Sam told and worked with, you knowishah to build basically a cross-collateralization system where you have just one wallet with all of your assets, all haircutted appropriately based on volatility and liquidity, but then summing up to a single collateral value that represents what you can put on in terms of margin for all your

positions. Or having an auto liquidation system that doesn't just the second that you're slightly below your margin fraction, send a giant market order into the book and dislocate the order book by 10%, it would automatically start liquidating small percentages of your portfolio at a time to try to minimize market impact.

And then if the position got too underwater,

it would auction that position off to backstop liquidity providers, a number of them, who would then take on that position again without having to kind of rip through the book and cause dislocation. And so it was much more orderly, it was much more predictable.
And that had to have

come from the initial intuitions that Sam and his colleagues got from being traders on these exchanges and thinking, how should this work if it were perfect? So I do think in the beginning, they were really working on that product together. And then once the success came, And Sam got drunk celebrity of, of being so out there and known and having all these newfound connections that things started to go by the wayside.
You mentioned that one of these things that he was doing was, you know, making these sort of exorbitant deals and with celebrities, with acquisitions, branding.

What was your understanding at the time of where the money to do this was coming from? Yeah. So for example, when I joined the company, FTX had just inked that Miami Heat deal.
And I think it was something like 19 million a year. And I was like, well, that sounds like a lot of money, right? But at the time, you could see the publicly reported volume on FTX.
It was something around 15 to 20 billion in notional per day. The fee schedule was also public.
So even at like the highest volume tiers, the take fee would be something like two basis points per trade. So if you just did like $20 billion traded per day times two basis points times 365, which because like crypto trades every single day, you can get a sense of how much money FTX was making a year.
And at the time, I think the run rate for FTX was something like close to a billion dollars in income. And you think, okay, is $19 million a reasonable percentage of the total income to spend

on a very significant, important marketing play? I don't know. It feels kind of reasonable.
Like,

how much does Coca-Cola spend per year on marketing as a percentage of their income? It's's probably somewhere between like 50 and 150%. You know, I don't actually know what it is.
It doesn't seem crazy. Yeah.
But if you add on top of that, the real estate, the other sort of acquisition, first of all, that stuff came later. And secondly, a lot of that wasn't known to the employees within the company.
Most of the venture deals, the value of the real estate, et cetera, was non-public within the company. There were a hundred plus million dollar investments into various companies and other investment funds that were never discussed openly, at least to the US people.
So like, it wasn't like there was sort of this clear

internal accounting where people could look at it and say, Hey, like, are we really spending all

this money on all this stuff? No, I think Sam very deliberately kept all that stuff within

like his innermost circle for a reason, because he didn't want the criticism on what he was spending

on. And did you have access to or did you ask to see, I guess, a balance sheet or any of the sort of financial documents? I had zero access to like, you know, bank account stuff or financials on the FTX.com side.
On the US, I had some. But, you know, remember now, knowing what we now know about even like recent, like the guilty pleas from the shot and seeing like the complaints from like the SEC, CFTC.
They were like deliberately falsifying information that went into ultimately the audited financials. financials.
So in order to like actually have suspected anything, one would have to not only

like disagree with all of the internal conventional wisdom around how the company was doing, but also have to basically distrust audited financials coming back to the company. Combined with having any concerns about income when it seemed like we were generating income faster than any startup in history.

So I think it was very difficult for anyone within the company, especially on the U.S. side, to have a clue what was going on.
For sure. Let's talk about Alameda.
So I guess, again, maybe the best point to start this story is also with Chain Street, where Caroline Ellison, who went out to become the CEO of Alameda, was a trader. Did you happen to cross paths with her at Jane Street? So it's hard to remember because it was like the early days, but I'm pretty sure she was also one of my boot camp students.
It all starts there. Yeah.
But besides those early interactions i barely interacted with caroline this not in the same way that i had done with sam just based on the trading desk he was on and when i joined the company you know the ftx us people communication wise were walled off from excuse me from alameda so we didn't really cross paths almost at all. What was your understanding of the relationship between Alameda and FTX? It was, this is a completely separate company.
Sam doesn't really do anything for them anymore because he is 100% focused on FTX. It's separately being run by Caroline and Sam Tribuco.
They have the same access to the exchange

data feeds and API as any other market maker on the exchange.

And also, especially towards the time that I left,

that Alameda wasn't even a significant percentage of the exchange volume anymore.

They weren't in the top 20 market makers on FTX.com

or something like that. You mentioned that you were contributing to the code base and you had access to the code base.
It's people have been speculating about whether Gary or Nishad had hard coded some sort of special limit for Alameda. Did you see any evidence of that in the code base or? I mean, definitely not.
You mentioned that you visited the Bahamas offices a few times. And there, like the Alameda, there's like four huts.
And there's like a meeting room. There's where Sam and the engineers are.
There's the Future Fund. And then there's like the Alameda hut.
Yeah. Did the physical proximity between the offices and, of of course the fact that the leaders were living together, was that something you like inquired about or were concerned with? I never visited the places where they lived in that Albany section of the Bahamas.
So I think I didn't fully grasp the extent to which they were all like living in this particular arrangement.

But I understood that, you know, as long as Sam was going to be the 90%, you know, owner or something of Alameda, he would want oversight there. And so having them close by made sense.
But the actual hut setup was such, they had like physical separation from minute to minute. so it wasn't like Alameda could overhear stuff happening on the exchange or people in the exchange could overhear stuff that was happening at Alameda.
So to some extent, it felt like, well, at least they're, you know, going through the right motions of setting up like physical separate buildings. I mean, also, this is not uncommon within like trading firms and investment banks, right? Like if you imagine there needs to be wall separation between like buy side and sell side at different institutions.
And the way they do that is they put them like on different floors in the same building, right? And sure, like they can meet each other for lunch and lobby, but like they set up some actual physical separation. This is like super par for the course when it comes to financial firms that have these businesses that need to be walled off from each other.
And so that didn't seem like a particularly strange thing to me at all. Is there anything that in retrospect seems to you like a yellow flag or a red flag, even if at the time it's something that might make sense in the grand scheme of things? Yeah.
The most obvious thing only in hindsight was that Sam liked to do bonuses for the employees twice a year. And, you know, once at the end of June, once at the end of December.
So there were like semester bonuses. And in the previous semesters, he had paid them like early, like, you know, in May for the first semester, in November or early December for the second one.
And he was extremely late in doing the mid-year 2022 bonuses. So much so that people in the company started to freak out because there was a lot of bad news in the press about other companies doing layoffs or folding.
And it was, you know, two to three months late and people were like expecting to get bonuses to pay rent and, you know, do whatever. And this was just, there's very little communication around this and people were very concerned.
So at the time, you know, people said, look, Sam's like really busy. He's flying to DC every week.
He has all this stuff going on. Like he just hasn't gotten around to it, but don't worry, it's coming.
In hindsight, I felt like there was some clear, you know, liquidity issue. You know, that was probably the most obvious thing.
I think everything else is all just things that were red flags about the organization, not red flags about, you know, potential liquidity issues or fraud. Things like, you know, the complete inability to hire, you know, more people, especially on the developer side, not allowing me to like establish separate sort of C-level staff on the U.S.
side that would have, you know, authority that was really separate from the ones in the Bahamas, how completely tightly controlled the dev team was around access to the codebase and the inner workings of all the exchange and really wanting to keep that nexus of developer, the developer group in the Bahamas next to Gary and Nishad. Those like red flags now.
Yep, but not at the time. Did you notice anything weird during the Terra Luna collapse? Because in the aftermath, people have said that that's probably when Alameda defaulted on some loans and maybe the sort of hole.
Really nothing at all. Okay.
Um, I mean, maybe that's a function of being here in Chicago and just not seeing a group of people freaking out, but nothing seemed wrong at all. In fact, we started having conversations around, you know, paying out mid-year bonuses a couple of weeks later after the Terra announcement

and everything seemed very normal.

Sam like sent out an announcement to the whole company basically saying like, okay, we're

going to be paying out bonuses soon.

People should expect they're going to be like a little bit lower because we have very similar

revenue to last year, but we've also grown in size and also like the market is slowing

and we need to be a little bit more conservative.

So all the signs pointed to like things as normal. You said, so you had a thread sort of boiling down this experience on Twitter.
And one of the things you pointed out there is that you saw the sort of symptoms of a sort of mental health or issue or addiction issue at the. Are you there? Are you referring to these sort of management mishaps and bad decision making? Or was there something more that made you come to this conclusion? I think it was more than that.
You know, when I knew Sam, when he was 21, 22 years old, He was like a happy, healthy-looking kid who was very positive, very talkative, got along super well with his cohort of traders. The people on the desk really liked him.
When I got to FTX, I think over the course of my time there, I saw someone who was very different than that person I remembered. I think he was angrier, seemed more depressed, more anxious.
He couldn't get through a conversation without shaking his leg. That wasn't, at Jane Street, he wasn't like that? Not something I remember at all.
He would would snap easily he would not respond to messages for long periods of time um and people had different theories i mean people would attribute it to the unbelievable stress of being in the position that he was in the complete lack of sleep uh like his diet lack of exercise i mean people had you know plenty of uh you know thoughts about what could be causing all, but something definitely had deteriorated like mentally and physically about him from who I remembered. If you had to guess most likely cause of that, what, what would you say? I don't know.
I think that's, uh, up for a, you know, professional with, uh, credentials that I don't have, but I do think it was probably a combination of everything. The lack of sleep, the stress he probably was under, not just being in his role, but having kept this secret for so many years around, you know, whatever was happening with the holes in the exchange and the lying he was doing to his own employees, to investors, to auditors.
Maybe that weighed on him. Maybe it had something to do with his medications.
Maybe it just had to be just a plain deterioration in mental state or some kind of personality disorder or a different kind of anxiety disorder. I really don't know.
Maybe a mixture of everything. Yeah, got it.
You said you gave him a sort of ultimatum letter where you said, unless you change these things, I'm resigning. What were the things you asked that be changed in that letter? Yeah, so the top three things were one, to communicate more with me in particular.
I can probably count on one hand the number of times I had like a one-on-one phone call with Sam, which probably seems insane given like the position I was supposed to be in. I basically said like we got to talk every week.
It's impossible for me to get anything done if I don't have the authority, but I have the responsibility to be able to push this company forward and we're not talking at all. So that was number one.
Number two was to establish a separate, especially C-level management staff on the US side. If Sam was going to be so busy doing what he was doing, at least he needed to delegate that responsibility to, like I said, a professional managers who could actually take care of the day-to-day operations within the company.
And it felt like things were starting to unravel in the absence of that. And then the third was to grow the tech team and move a lot of the authority and management of that team away from Nishad and Gary so that we could actually spread the knowledge and be able to keep up with a lot of the tasks that we were assigning ourselves and trying to build all these new business lines.
That pretty much summarizes it. Yeah.
How regularly were you talking? I mean, it wasn't regular. I was on chat groups that he was in.
And so, you know, occasionally he would respond to something I say on that group. But one-on-one conversations, I think there were fewer than 10 for my entire tenure.
Wow. Okay.
And that was over a year, right? A year and a half. A year and a half.
So about like less than one every two months. Yeah.
How did he respond to this letter? So it took a little while before we got on the phone and he went through every point and refuted everyone. Starting with communication, he said, I think phone calls are a waste of time.
I think that if I promise people regular phone calls, they will use it to waste my time and it's not an efficient mode of communication. He said, I think we have the best developer team in the world.
And I think anyone who's just otherwise is completely wrong. And if we add a lot more people to the dev team, if we move them to the U.S.
and, you know, move them away from the Bahamas, we're going to be worse as an organization. He kind of ignored the point about separate leadership.
I think he hated the idea of giving other people kind of titles that would reflect kind of greater responsibility within the company. And then, so that conversation ended with us kind of not knowing what the future was going to be, because I basically said, like, look, I'm going to resign if you don't fix this.

He said, we're not fixing anything.

And then what happened next was he had deputized another person within a company to come here to Chicago and pull me into a side room and say, you are probably gonna be fired for this letter that you wrote. And not only are you gonna be fired, but Sam is gonna destroy your professional reputation.
Like, where do you think you're gonna be able to work after FTX, after all this happened? And he was threatening me. And then not only that, he had said, if you are going to have any hope of staying and if you can forget about getting paid bonuses, you need to write Sam an apology letter and show it to me first because I'm going to edit it.
And I'm going to tell you what to say. And I said, like, absolutely not.
Like, this isn't like a mafia organization. This is like, this is extremely unprofessional.
And I knew at that point, there was absolutely no way I was staying. And it was a matter of when, not if.
And, but what I did know was that, like, I'm still a professional. I'm still loyal to the company.
I still believe the company itself had an incredible potential to continue its sort of road of profitability. And I really liked all my employees here on the U.S.
side, and I wasn't going to abandon them. So I sort of thought like a three to six month time period is about standard to take the time to unwind responsibilities, to finish the stocks platform that I was working on, to, you know, get my team in a position where I knew they would be in good standing and they wouldn't be like retaliated against after I left and took the time to do that before officially resigning in kind of the end of the summer and early fall.
And did that happen?

Like did, after you left,

did the, did he like try to enjoy

your professional reputation?

He did.

The most, the acute thing that happened was,

so Sam, I actually offered to stay on longer.

You know, I said like,

I could stay on for a couple more months

and help this transition to whomever you name

as the successor, president of FTX US.

I think it's fine with me. On September 27th, not only did he announce to the company my resignation,

he also announced that he was closing the Chicago and San Francisco offices and that everyone had to move to Miami.

And basically, if, like, they didn't move to Miami by a certain date,

they were, like, not going to be at the company anymore.

So the employees were distraught. And what I had learned later from several investors and reporters who had talked to me was that when they talked to Sam about my leaving, Sam told them that my, my leaving was a combination of resignation and firing.
And that one of the reasons that I had to leave was because I refused to move my family to Miami. So basically, I was constructively fired.
That he had closed down this office that I had built and that if I wasn't going to move, that I had know role left with the company. And so that took a little bit to crawl out from, you know, I had to tell people like, well, it's completely false.
It didn't happen at all. And, and yeah, and he was telling people that he fired me.
And when he said that, I mean, he was still at a sort of like peak of hype, so to speak, right? Absolutely. So, I mean, did the idea of forming architect have already, you already had that idea by this point? Yeah.
Knowing that I was going to leave, I started thinking what I was going to do next and thought, well, like if I think I can run a company better than Sam, I should like put my money where my mouth is and start a company. Yeah.
But I had this, you know, a couple of ideas and I had this particular idea for architect and it was starting to really form kind of towards the end of my time at FTX. But I hadn't started anything.
And so finally, like I left FTX, and then took a little bit of time off, and then started to talk to investors about, you know, maybe raising some money for starting this company. And there were a few investors that basically said, like, you know, do you have Sam's blessing to do this? Why do I need Sam's blessing? I've, I've resigned.
I don't work there anymore. They said like, we really would feel more comfortable if we could talk to Sam first and kind of like, you know, make sure things are okay and kind of figure out what he's doing, find out if he wants to invest to before we kind of talk to you further further and it was impossible to escape that like the sam kind of hype bubble even having left the company why do you think they were so concerned about were they like trying to invest in ftx in the future or they were existing ftx investors okay and i think it really mattered to them what sam thought of them and if they didn't know the full story and if they were being told that like Sam fired me, then I think they were concerned about, you know, potential conflict investing in me too.
Was any part of that because Sam had a reputation as, I don't know, if like an investor invested in somebody he disapproved of, he would get upset in some way or? No, if that happened, I don't know about it. But I think it was just, Sam had such a kind of magical hold over the entire industry, from investors to media to politicians, that they looked to him for approval.
Okay, yeah. So at this point, you've left FTX US US and you're starting to work on your own company.
And when is this exactly? So I left at the end of, well, my official resignation was the end of September. I had like stopped working earlier than that.
And so I kind of started to start working on fundraising for the company in October. And then a month later, the thing implodes.
So when did you hear the first inkling that there might be some potential trouble? The first thing I heard was the night before the announcement that Binance might be buying FTX, I was just looking at Twitter and just saw all of this fear-mongering. It was like, okay, well, CZ says he's selling FTT, and so FTT is going to go down.
And people were saying, well, that means Alameda is toast. And then once Alameda goes under, oh, that's going to be a problem for FTX, pull your funds from FTX.
And I was just sort of laughing at this because like, whatever, I'm used to people saying things on Twitter that seem nonsensical. And first of all, Sam and Caroline are great traders.
Like if anything, like maybe they'll like profit from all this volatility and tokens and they don't understand, like there's no way anything's going to happen to Alameda. But also this connection between the price of FTT token and the ability for customers to withdraw their funds from the exchange, like this just did not compute for me at all.
So I was like, well, you know, this will boil over in a couple of days, like everything else. And the next morning, you know, I was actually busy talking to like my own lawyers and investors

for the company, because we were actually closing up our investment round. Actually,

the closing docs for my investment round went out that morning, the morning that FTX announced they were going to be bought by Binance. It was like the worst timing in crypto fundraising history.
And so I was busy all morning. And then I went, you know, online and checked Twitter and then saw Sam's tweet that said, you know, what comes around goes around and we're going to get acquired by Binance.
And, I don't know, I felt dizzy. I had no idea what was going on in the world at FTX.
I just couldn't put the pieces together in my head. It just didn't make any sense to me.
So before then, like you, you did not think this was possible. And then so I kept a bunch of money on the exchange.

I was still an equity holder in FTX and FTX US.

Like I was still very, very pro FTX in spite of my experience with Sam.

And then how did that week unfold for you?

You were, I guess, almost about to close your round.

What happened to the round? And then how were you processing the information? I mean, it was like a crazy week on Twitter, right? The deal falls apart. There's bankruptcy, hacking.
Anyways, tell me about that week for you. Sure.
So, I mean, first, the investors, you know, we all had to hit pause. I mean, first of all, Architect became priority number 1,000 on everyone's list.
Secondly, a number of those investors were trying to do damage control themselves. Either they were themselves investors in FTX or FTT.
They had companies who part of their runway was held on FTX, or they were expecting to get investment from FTX. So people were just trying to assess like what was happening with their own companies.
They were not writing checks into new companies anymore. So like I had to hit pause on the whole thing.
I mean, for their sake and for my sake. And yeah, just what could one do in that situation except for just read the news all week because everything that came out was something brand new and unbelievable more unfathomable than the thing before and it was a mixture of like rumors on twitter and articles coming out in you know major media publications announcement of the bankruptcy.
It was just information overload. And it was very difficult to parse fact from fiction.
And so it was an emotional time. Yeah.
Yeah. I understand, man.
Right. All right.
So we've kind of done the whole story of you joining to the company collapsing. I want to do a sort of like overview of, I guess, like what exactly was happening that caused the company to collapse and I guess the lessons there, right? So, okay, so in the aftermath, SPF has been saying that FTX US is fully solvent.
They wanted to, they could start processing withdrawals. He had a stuff stack recently in January where he said that it had $400 million more in assets and liabilities.
What is your understanding of the sort of relationship between the solvency of FTXUS? The short answer is I really don't know. You know, if you had asked me about the solvency of FTXUS at the time that I left, I would have said, why are you asking about this? Of course everything's fine.
Now it's very difficult to understand what is going on. I mean, first, the level of deception that was created by this inner circle of SAMs and now reported through the various complaints and indictments from DOJ, they were doing things to intentionally manipulate internal records in order to fool the employees and auditors and investors.
So everything's out the window at that point. And then secondly, it sounded like in the week prior to the bankruptcy, there was this flurry of intercompany transfers.
And given all that that's happened, it's impossible to say what state we are in now compared to where we were several months prior. So it's impossible to know.
Who took over management of FTXUS when you left? I'm not sure. Was it a single individual or was it just rested back to the Bahamas? I really don't know.
I mean, I've totally cut off from everything FTX at the time that I left. Before you left, were the assets of FTXUS custodied separately to FTX International's assets?

Yes, they were.

Okay.

So we had like a separate set of bank accounts,

separate set of crypto wallets.

You know, the exchange itself

was like a separate database

of customers.

It ran in like a different AWS cloud

than the one, you know,

that the international exchange ran on.

Okay, got it.

And you had full access to this

and like it checked out basically more assets assets and liabilities right but remember that the thing that makes them not separate is the fact and this was completely public that sam was the ceo of ftx and ftx us and gary was the cto of ftx and ftx us and the shy was the director engineering for FTX and FTX US. And so as long as there wasn't this like completely separate walled off governance that we were trying to establish while I was there, there was never going to be perfect separation between the companies.
This was like a known problem. And, you know, that's what makes it so difficult to sort of understand the nature of what was potentially happening behind the scenes.
So I guess we've been talking about the sort of management organizational issues of FTX. Were these themselves not like some red flag to that? I don't know, something really weird could be happening here, even if it wasn't like fraud, right? Like these people are responsible for tens of billions of dollars worth of assets and they don't seem that competent they don't seem to know what they're doing they're making these mistakes was that was that itself not something where that like concerns you i mean it concerned me and i tried to raise concerns multiple times if you raise concerns multiple times and they don't listen, what can you do other than leave? But you have to understand that every company I've ever worked at, and I would think any company anyone's ever worked at, has management problems and growing problems.
And especially for a super high growth startup like FTX, it's a very natural progression to have the visionary CEO who brings that product to product market fit, who enjoys that sort of explosive success. And then the reins of the company are eventually handed over to professional managers who sort of take it into its maturation phase.
And I thought, well, really, I'm not that person because, you know, Sam and I have interpersonal issues, but there's a hundred plus major investors in FTX. Someone will figure out how to install the correct management of this company over time and we'll bring it to a good place.
Like one way or another, this is going to succeed. There are too many people with vested interests in doing so.
And so, no, I wasn't concerned that, you know, FTX wouldn't somehow figure this out. I still thought FTX had an extremely bright future.
But there might be, I guess, these sorts of visionaries. A lot of them might have like, you know, problems to put it in that kind of language, but I don't know.
I don't know how many of them would make you suspect that there's like mental health issues or there's addiction issues that for somebody who's in charge of a multi-billion dollar empire, I don't know. It seems like something that's especially concerning.
I can't quite speak to like whether people would think there are, you know, mental health issues of like other, like, you of other people who are supposed to be the kind of figureheads of large companies.

But remember, at this point, Sam is not leading the day-to-day operations of the company like many other people are.

And as the kind of public figurehead of the company, Sam was obviously doing a very good job.

He was extremely successful at raising money. He was extremely successful at building a positive image for the company.
And so in that sense, that was all going fine. And the rest of the company was being run by other people.
So, you know, I didn't witness anything like, you know, the addiction stuff firsthand. I definitely thought he was not as happy a person as I met, you know, a long time ago.
But could you blame a person for, you know, inheriting a 20, 30 billion dollar company and, you know, not taking it super well when you're 29 years old? I think so. I mean, you mentioned that, like, given the fact that all hundreds of accredited investors presumably had done good due diligence, that, you know, that gave you some comfort about the ultimate, I guess, soundness of the company.
But potentially, those hundreds of investors were relying on the experienced high-level executives that SBF had brought on that is thinking that, listen, if somebody from Citadel and Jane Street is working at FTX, that's a good indication that they're doing a good job. And so in some implicit way, you're lending your credibility to FTX, right? And so I guess, was there just this sort of circle of trust where the investors are assuming if this person who has tons of leadership experience in traditional finance is coming to FTX, they must have done the due diligence themselves.
And then you are assuming that the investors have done this. And then so it's like nobody's role to be the, you know, the guy who's like, this was my job and I was the person in charge.
Remember, regardless of how experienced or inexperienced people in the company are, regardless of how many or few investors there are, how many senior lateral hires there are. If a very small group of individuals who are very smart and very capable intentionally put forth schemes that deceive people within the company and outside the company about the veracity of records, what can you do? What is one supposed to do in that situation? If the public reporting matches private reporting, if investors have done their own diligence, if we've joined the company and we see nothing wrong within the company from a financial perspective, if we can see the public volume on the exchange and it all matches up with our internal reporting and we know how much fees we'll be able to collect and all that, and it seems like a lot of income compared to our expenses for a 200 or 300 person company.
At what point do you go against all of that and say, in spite of the overwhelming evidence to the contrary, I think something is wrong? Yeah. But someone might look at this and say, listen, Brett, you weren't like a junior trader who was like right out of MIT or something who just joined FTX.
You have more than 10 years of experience in finance. You like saw Lehman happen.
You, you know, you've like managed really large teams and TradFi. And then you have, you have the skills and the experience.
And if somebody with your skills and experience, and not only that, your position in FTX as president of FTX US, if you can't see it coming and maybe you couldn't, right? Whose job was it to see it coming? Like, it doesn't seem that anybody other than the inner circle could have been in a better position. And maybe nobody could have seen it.
But like, is there somebody who outside of the inner circle you think should have been able to see it coming?

I don't know. It's a good question of like when a major fraud happens in such a way where it was very expertly crafted to be hidden from the people who could have done something about it, what should one do? I mean, one answer is never trust

anyone, right? Like every company I ever worked for in the future, every time we say we've done

some transaction, I will ask them to

show me the bank records and give me the number of the bank teller I can call to have them independently verify every single banking transaction. I mean, this is sort of impractical and ridiculous.
It doesn't happen. And so I think it sounds like the counterfactual here is one where, okay, first I have to believe that there is some kind of fraud, which I don't.
Then I have to say, okay, I would like to start auditing all bank transactions. Oh, actually, I want to start auditing all bank transactions for the company that I don't work for.
Also, I want to disbelieve audited financials from respected third-party auditors. I also want to look into the possibility that Sam is lying under oath in congressional hearings about segregation of customer funds.
Also, I should disbelieve all of the trusted media outlets and also 100 financial institutions that have invested in FTX. It's like the chain that you have to go through in order to get to a point where you start to be able to figure out something is wrong is, I think, really impossible.
And I think the bottom line is there, you know, for sure should be mandated, you know, at certain stages of company growth, independent boards.

And I think that a lot of that has to do with like where the nexus of control of the company really is and making sure it's in a place where there is appropriate regulatory oversight and appropriate financial oversight. I think that maybe could have helped.
But besides that, I think this is ultimately a job for enforcement. Like people will commit crimes and there's nothing one can do to stop all people from committing all possible future crimes.
What one can do is come up with the right structures and incentives so that we can build like a trust-based system where people can innovate and build great companies and people who are bad actors can get flushed out, which is ultimately what I think is happening. But I guess they're not letting you hire people.
They're like, they're like overseeing writing the actual code for FTX-US from the Bahamas. Not something that makes you think like, why are they doing this? You know, it's like a little odd.
I just thought it was not the right way to run the company. There's a very large chasm between, I don't think they're doing a good job running the company.
And I think that customer funds are at risk, right? Yeah, fair enough. What should someone who sees bad organizational practices, there's no board, they're making a ton of really weird investments and acquisitions.
And not only that, like most importantly, they are responsible for managing tens of billions of dollars worth of other people's assets. What should somebody do when they're seeing all this happening? I mean, obviously, it's like very admirable and that you put this in like writing to him, you gave it to him, and then you resigned when he refused to abide by it.
But so maybe the answer is just that. But like, is there something else that somebody should do? I would say within any company, and I would expect that the overwhelming majority of companies, if you see bad management, it does not imply fraud.

But there's lots of places with bad workplace culture and people are making bad management decisions.

And it should be that if you find yourself in that position, there is someone you can go to to talk to. It might be your manager.
It might be your manager's manager. It could be someone in your HR department.
But there should be like a designated person within the company for you as an employee that you know you have a safe space to bring complaints about the workplace and about the company strategy. And then you should see how they handle it.
Do they take it seriously? Do they make changes? Do they look into the stuff you're talking about? Do they encourage cooperative, positive discussion? Do they threaten you? Do they retaliate against you in some way? Do they start excluding you from conversations? Do they threaten to withhold pay? If you're in that ladder camp, what do you do at that point? It's easy for me to say, and I've been in fortunate positions within companies and have personal flexibility. It might not be so easy for the average person to sort of get up and leave a job.
But I do think that at some point you have to start making plans because like, what can you do in the face of a giant organization that you disagree with other than leave? Let's talk about regulators and your relationship with them while you were at FTX. I mean, obviously as head of FTX US, I imagine we're heavily involved with talking to them.
What was their attitude towards FTX like before it fell? All the regulators were, I think, in the common belief that crypto was a large and viable asset class. And in order for it to grow in a responsible way, it needs to come within the regulatory envelopes that already exist, in whatever way that's appropriate for crypto.
And crypto can mean a lot of different things, and we have to maybe distinguish between centralized and decentralized finance here. But I would say regulators saw FTX as at least one of the companies that was very willing to work directly and collaboratively with regulators as opposed to trying to kind of skirt around the regulatory system.
Well, when I was preparing to interview SPF, actually, I got a chance to learn about your proposal to the CFTC. We were just talking about, you were explaining this earlier, but the auto liquidation and cross margining system bring that not only to crypto in the U.S., but to derivatives for stocks and other assets? I thought, and I still think it's a good idea, but do you think there's any potential for that now, given that the company most associated with that has been blown up? What is the future of that innovation to the financial system look like? Yeah, I definitely think it's been set back.
You know, it's interesting. Walt Lukin from the Futures Industry Association in a conference that was shortly after the class of FTX, you know, talked about FTX in sort of a speech, but specifically made a call to the fact that in spite of what happened to FTX, the idea of building a future system that can evolve with a 24-7 world is still a worthwhile endeavor and something that we should consider and pursue and be ready for.
We are 3D printing organs and coming up with specially designed mRNA vaccines, but you still can't get a margin called on a Saturday for an S&P 500 future. There's like some real lack of evolution in market structure in a number of areas of traditional finance.
And I think it's still a worthwhile endeavor to pursue it. I think the LedgerX proposal makes a lot of sense.
I think it's understandable where some of the concerns were around how that could really dramatically alter the landscape for derivatives, regulatory structure and market structure. And there were still unaddressed questions there.
But I still think that it was the right idea. During those hearings, I guess the establishment, you know, CME and others brought up criticisms like, oh, we have these sort of bisqueuric relationships with our clients.
And if you just have this algorithm take its place, you can have these liquidation cascades where illiquid assets, you know, they start getting sold, that drives their price even lower, which causes more liquidations from this this algorithm and you have this sort of cascade where the bottom falls out and even this might not be an accurate way to describe what happened with ftt and ftx because there was like obviously more going on do you think that they maybe had a point given how ftx has played out a lot of fcms um have auto liquidation. There are, there's one particular one where like they actually automatically close you every day at 4 PM and they do it like in a really bad way.
So like the idea of auto liquidation is not new. The idea of direct to customer clearing is not new.
The idea of cross-collateralization is not new. The thing I think that was novel about FTX was putting all together.
It was direct-to-customer margining, cross-collateralization, auto-liquidation. And so in order for the regulators to get comfortable with the application, they had to understand that FTX as one entity was performing the roles that typically multiple different entities perform.
And one always needs to ask yourself the question of like, was there something worthwhile about having those different entities be separate or not? Is it just sort of like legacy regulatory structure? I think that remains to be seen. And I think we don't have enough, you know, experience, especially in the US with that kind of model to be able to say whether it actually works better or worse.
I think either way, it was worth a try. And I think maybe the biggest misconception about the application was that, you know, if we got approved, it meant suddenly FTX is going to list like everything from like corn to soybeans to oil to S&P 500 overnight and completely, you know, destroy the existing derivatives landscape.
I think what would have actually happened was FTX would have gotten permission to list like one contract on kind of small size.

And there would have been experience with the platform and it would have like, you know, been assessed compared to the alternatives on traditional CCPs. And if it was worse, changes would have been made.
And if it was better, it would evolve and the market would basically decide what people wanted to trade on. I do think like the auto liquidation part was the main piece that people were hung up on, which was like, how do you provably show the kind of worst case scenario in auto liquidation cascade? Then again, on large ECPs now in the US and Europe, there are margin breaches all the time.
So like the current system is far from perfect. Backing up to, I guess, regulation more generally, I mean, many people saw crypto as a sort of regulatory arbitrage where because regulations are so broken in finance, I guess evidence would be that you're not allowed to do this manually, right? You had to go through the lengthy approval process if you're a giant company to begin with.
The entire point of crypto was to get around the regulators and not go through them to get approval for things and hand over that kind of approval process to them. Do you think that working with the regulators and then also being part of crypto was a sort of like it kind of defeated the point of crypto or? I think I disagree with the premise.
Like I don't think the point of crypto is regulatory arbitrage. I think that while crypto remains unregulated, it is easier to get something done in crypto than if it were regulated.
That's sort of like tautological. I also think that most people, especially on the institutional side who trade crypto, believe that we are in a temporary state that cannot last forever, which is that crypto is largely unregulated or has a weird patchwork of regulatory authority.
Maybe it's like the 50 state regulators in the US or it's some combination of money transfer and CFD or broker-dealer activity in Europe. So I think it's absolutely a worthwhile endeavor, knowing that there's going to be some regulation for at least part of the crypto ecosystem to work with regulators to make sure that it's done well.
One very important question about the whole FTX thing is, what did the conventional narrative about how it went down and why it went down, what did it get wrong? Given that you were on the inside, like, what do you know was different than what has been reported? I actually think not much. And I think the reason for that is, you know, typically, when something like this goes wrong, and it becomes this media frenzy, there's like plenty of opportunity for misinformation to spread.
But to the credit of the investigators working on this case, they moved so quickly that, you know, they had unsealed indictments within what, two months of this going down. And so having kind of a lot of the truth, you know, being able to be spelled out in facts in a public written document, I think quelled a lot of the opportunity for misinformation to proliferate.
And whether that's from like a Twitter troll or if it's from Sam Bankman-Fried himself, you know, trying to like spread misinformation about what happened. I think a lot of it wasn't really given the room to breathe.
What did you make of his press tour in the aftermath? Well, like, why did he do it? And like, yeah, what was your impression of it? I'm not gonna really speculate what's inside Sam's head. I think Sam had built up his empire through partly his control over media.
And he did that by being available all the time and being ostensibly open and honest with them all the time. And probably thought, why can't the same strategy work now? And maybe I can sway public opinion.
If I can sway public opinion, maybe I can sway, you know, regulators and law enforcement. And it turns out that is definitely not true.
So I don't really know. It could just be an addiction to the media.
He couldn't stand people talking about him and him not being part of the conversation. Yeah, yeah.
And I guess the earlier account you gave of his day-long media cycles kind of lends credence to that mentality. I have a question about the future of the people who are at FTX.
There's many different organizations who have had their alumni go on to have really incredible careers in technology. Famously, PayPal had a mafia, so-called mafia, where they wanted on to found YouTube with Elon Musk, SpaceX, Tesla.
So many other companies came out of the people who came out of PayPal. And Bern Hobart has a space-reaching theory.
The reason that happens is when a company exits too fast, you still have these people who are young and ambitious in the company who then go on to do powerful things with the network and the skills they've accumulated. Do you think that there will be an FTX mafia? The number of the most talented people within FTX are leaving FTX in a slightly different position than the people exiting PayPal and acquisition.
I would say they're in positions more like actual mafia people. So I'm not sure it's going to be like some giant FTX mafia, but I do think there are a ton of talented people at FTX who are going to look to do something with their

careers. And also a lot of those people came from very impressive backgrounds prior to FTX.
So I expect them to want to continue to get back on track and build something great. And so I do think you're going to see at least a couple of people who emerge from this and do something really great.
That's a good note to close the FTX chapter of the interview on. Sure.
Let's talk about Architect, your new company. Do you want to introduce people to what Architect is doing and what problem is solving? Sure.
So the goal of Architect is to provide a single unified infrastructure that makes it really easy for individuals and institutions to access kind of all corners of the digital asset ecosystem. Everywhere from individual crypto spot exchanges that are centralized to DeFi protocols to qualified custodians and self-custody and everything in between.
Yeah, I'm not sure I have enough context to understand all of that.

So I don't know, but a few great levels below.

Backing up a very high level.

So let's say you are someone who wants to trade crypto in some way.

Or what do you actually have to do?

So imagine you want to do something slightly more than just like sign up for Coinbase and click the buttons there. Like let's say you would like to find the best price across multiple exchanges.
Let's say that you not only want to find the best price across multiple exchanges, you also want to occasionally do borrow and lending from DeFi. Maybe not only that, you also want to like store your assets in likeexchange custody as much as possible.
Well, aside from doing all that manually by opening up all the different tabs in your browser and clicking all the buttons to move assets around and connect all these different exchanges, you actually want to build a system that unifies all these things. You have this buy versus build choice.
And the build choice looks like higher,

like five to 10 software developers and get them to write code that understands all the different protocols and different exchanges, all the distinctiveness of them, that downloads market data, that stores the market data, that connects to these different custodians, that bridges all these things these things together, and provide some kind of like user interface that pulls it all together. It's a significant amount of work that up till now, basically all of these different companies are just reproducing.
They're all solving like the same problem. And as a trader, you want to focus your time on strategy development and alpha and monetization and not on how do I connect to random exchange.
So the goal of Architect is to build this commodity software that people can then deploy out of the box that gives them access to all of these different venues all at the same time. And so it sounds like this is a solution for people with significant levels of assets and investment in crypto.
I'm assuming it's not for... So I think that's like the place we want to start.
But one phenomenon in crypto that I think is somewhat new and exciting is the fact that, okay, if you want to get into like sophisticated equities trading, well, what do you have to do? I mean, you usually have to either establish a broker dealer or get hooked up to an existing broker. You need to get market data, which can be very expensive.
The full depth of book feed from NASDAQ costs like tens of thousands of dollars per month. If you want to compete on latency, you have to get like a co-located server in the NASDAQ colo, which is also going to cost you tens of thousands of dollars per month.
There's a significant time and money overhead to doing all this, which is why it's so hard to compete in that space against all like the incumbent players. Whereas in crypto, many of the markets are just in the cloud, like in Amazon's cloud or Alibaba's cloud.
And you can just very cheaply and easily spin up like a server in there for like a couple of dollars a month and have the same access as like a big HFT. All the market data is free, the order entry is free.
The protocols are usually fairly simple. Like you can use like, you know, JSON over a WebSocket as opposed to speaking like fix over some, you know, private line.

As a result, there is this large and growing class of kind of like semi-professional individual traders that have grown, where there are people who are smart individuals who have like maybe some wealth amassed, and they want to be able to do kind of professional trading, whether that's like manual click trading or like simple algos using Python or whatever. And they can do that and experiment easily because of the open access of crypto markets.
And so there's a much wider customer base for something like this, which includes these kind of like high powered individuals in addition to your small, medium, large hedge funds and prop shops and different institutions. And is the goal to, is crypto the ultimate market you're targeting or are there other asset classes that you also want to provide the service to? We're building very general infrastructure.
And we think crypto is a viable asset class, but it's one of many. And our goal is to provide the institutional grade connectivity and software to anyone who wants to participate in trading in a semi-sophisticated way.
So I think over time, we'll want to grow our offering as much as possible. Given the fact that, you know, NASDAQ or whatever already have these barriers, is it possible for someone to remove those barriers with a solution like yours? Or, I mean, I guess like an analogy that comes to mind is, you know, I guess nobody before Mark Cuban's whatever pharmaceutical company just try to go outside the insurance system and directly sell drugs to people.
Is it possible to do something like that for NASDAQ? Yeah, you can't like connect to NASDAQ without, you know, connecting to NASDAQ. You can't like not go through a broker dealer.
But I think that, you know, we could eventually try to get the appropriate licensing required to be an intermediary that is focused on being like a technology forward, you know, interface towards people being able to do more program trading. And so if the mission of our company is to like provide better access, I think we can do so within the existing system.
I guess this raises a broader question of if you're initially trying to solve for the problems that these exchanges should natively have solutions to,

at least, or some of the problems are the ones

that these exchanges should natively have solutions to,

why haven't these exchanges built this stuff already?

I mean, you're a part of one such exchange

and maybe you function better than the other ones,

but I mean, they're highly profitable. They have a bunch of money.
Why haven't they invested in making their infrastructure really great? So in many cases, their infrastructure is very good. It's more a question of what's the incentive of the exchange.
And I think if you're... No matter what, no single exchange is going to have all the market share.
So there's always going to be this market fragmentation problem. And the question is, whose responsibility is it to make software that helps solve that problem? If I'm some centralized exchange, my incentive is not to build software to make it easier for my customers to go to all the other exchanges.
It's to make my exchange better. So I'm going to put all of my R&D dollars into like providing new products and, you know, offering new different kinds of services and maybe investment advisory or, you know, lowering the barrier to entry to connecting to my own exchange, but not creating this sort of like pan asset class, pan exchange interconnectivity software.
got it got it and given the fact that you're trying to connect these different exchanges

i mean current interchange interconnectivity software. Got it.
Got it. And given the fact that you're trying to connect these different exchanges, I mean, currently most of the volume in crypto is in centralized exchanges.
What is your estimate of the relative trading volume of C5 versus DeFi? Do you think it'll change over time? So I do think it'll change over time. I think my view is I can't predict what way it's going to change.
So, you know, people after FTX had asked me like, hey, why don't you try to start your own exchange? Like take all your knowledge from FTX US and, you know, maybe even like raise money to buy the IP at a bankruptcy and like start a new exchange. And my feeling is I don't want to bet personally on the exact direction of crypto trading.
Like I could see it continuing status quo where like your Coinbase's and Binance's of the world kind of maintain market share. I could see it moving significantly to DeFi where people feel like this is the true spirit of crypto.
It's in this sort of non-custodial, like fully centralized trading environment. I could also see it going the complete opposite direction and having the existing highly regulated exchange players like NYSE and ASDAQ and SIBO start to enter the game on spot trading.
And where is the ultimate flow going to end up between these three possibilities? I have no idea. So I'm much more excited about providing the kind of connectivity layer to all of them and saying, regardless of where the liquidity ends up, we'll be able to facilitate it.
Speaking of FTX, how has your experience with FTX informed the development of Architect? Yeah. I mean, first of all, working at FTX, you know, has given me an appreciation for just how behind a lot of the infrastructure is on other exchanges.
You know, people really like trading on FTX. Institutions, especially, really like trading on FTX because the API like made sense.
It like really did follow kind of the kind of standard state machine of any kind of financial, you know, central limit order book that you would see on a place like NASDAQ or CME. Whereas there are a lot of exchanges that have crazy behavior.
Like you send a cancel for an order, you get acknowledged that your order has been canceled and then you get a fill and you actually like get traded on your thing that you supposedly thought you canceled and like things that you think shouldn't be possible or possible so actually my time at ftx is interesting with relation to architect because you know ftx it gave me an appreciation for how to design a good api for especially institutions to want to be able to trade all the time and the protocols and some of of these other exchanges aren't quite as good. So I think it's informed how much the focus of architects should be kind of wrapping up the complexity of these different exchanges and providing a really good API for institutions and individuals on our side.
I think that's thing one. I think thing two is, obviously, what happened with FTX, people are much less likely to trust a centralized institution with their personal information, especially things like the keys that allow you to trade on their exchange account or the keys that give you access to their wallet.
And so we're thinking a lot about how to design architect such that the user can connect to all these places and, you know, hook up their wallets without needing to ever give us any of their private credentials. And so that's like another, you know, particular inspiration from everything that's happened at FTX.
What is your opinion of crypto in general at this point? Like, how has your sort of perception of its promise

changed, if at all, given

the things?

I mean, I feel the same way now as I did then, which

is, it's a, you know, $1 to $3 trillion

asset class that

is traded by every major

institution, that is being invested

in by every major institution.

And so

it's totally viable and it needs good mature infrastructure to support its growth. Got it.
But is the motivation also informed by a view that, I don't know, crypto is going to be even bigger or in some way going to solve really big use cases? Or is it simply that like, listen, this i don't know what it's going to be good for but it needs this solution it is i think you know i i certainly do believe that that is like a likely future for crypto but to me like the the interest in it starts with knowing that this is a huge asset class with like that needs better infrastructure for trading it and In the aftermath of FTX and other things, all crypto companies have a special scrutiny on them. Fairly or unfairly, if there's FTX alumni, it'll be even more so.
How are you convincing potential clients, investors, that crypto is safe, FTX alumni are safe? Yeah, on the FTX alumni side, I just personally haven't had those issues really. You know, in like recent months, we've been building out Architect, you know, I hired like three, almost five now employees from formerly at FTX to come work with me.
But by the way, is that like some sort of R basically that the overall hiring market is overcorrected on them or something? A hundred percent. Yeah.
And not just an FTX. Like right now, like it is, you know, March 2023 is we're recording this.
Like there is like a huge R in the hiring market. I mean, all the layoffs in tech and crypto, all of like the fear around various financial services means that

like we basically didn't need to work on recruiting.

I had like the best people who worked at me for me at FTX US.

I had ex-colleagues of mine, you know, from former jobs that come work with me here.

And we actually didn't have to like, you know, do any formal recruiting efforts because

of just how much supply there now is on the, you know, in tech and finance. Luckily, I've had a long career history prior to FTX.
And even at FTX, we built really great stuff. We had very good connections, relationships with our customers and our investors.
You know, there would be times where like on Twitter, I would answer like a customer's, you know, support question at two o'clock in the morning. And I maintained a lot of those relationships, even through the collapse.
And these are the kinds of people who are reaching out, like offering support, like offering to test out stuff, who want to be customers, who are also having problems with existing crypto tools and looking for something better. So all that stuff has remained intact.
So I don't really have a concern there. What is institutional interest in crypto like at this point, given what's happened? I think it is just as great as it was before.
Every major investment bank in the U.S. has announced some plan to do something with blockchain technology.
Still, even post-FTX. The top trading institutions in the world are all continuing to trade it.
I think as of what we're speaking about right now, volumes are down because people are generally fearful. But I expect that to turn around pretty quickly.
And the institutional interest still remains really high. People are definitely expecting and waiting for proper regulatory oversight, especially in the US.
That's still happening. People are waiting for higher grade professional tools that make it safe for them to trade and invest in crypto.
I think that's obviously in the works for various things, architect and otherwise. But otherwise, the interest is all completely there.
A broader question somebody could have about crypto at this point is, or maybe not crypto generally, but crypto trading is,

why is it good to have more crypto trading, at least with stocks and bonds and other kinds of

traditional assets, as we were talking about earlier, you can tell a story that

listening to helps capital allocation, projects that need funding will get funding,

and so on.

Why is it good if the price of

Thank you. listening to helps capital allocation, projects that need funding will get funding and so on.
Why is it good if the price of Bitcoin is efficient? Why is building a product that enables that something that's socially valuable? I mean, I think it boils down to, like, first of all, do you think it's important for people to be able to trade commodities? Like how important is it for the world that people can, you know, trade gold efficiently, or they can trade oil efficiently? I think the answer is, like, if people have a use for the underlying commodity, then it's important. And so like, what's maybe then it's like, well, what's the use of crypto? Well, I think each crypto token might have its own use.
I don't think everyone has a good use. I think that there's a bunch that do.
But if you believe in Bitcoin as sort of like a store of value in a great medium of exchange, then it's important that there's a good fair price for Bitcoin to enable that. If you think that the Ether token is important for the gas fees required to run computer.
And you think that the program is running on a decentralized computer are important. Then it's important for there to be like a good price for ether.
That's fair. So I think it really depends on if you kind of believe in the underlying use case at all in the same way you would for kind of any commodity.
And sometimes there are tokens that have more security likelike properties where they are like trading Apple stock. You know, basically like there is a, there was an initial offering of that token.
And then if people bought it, actually directly funded the product behind the token. And then the efficient trading of that token is sort of a barometer for the health of that particular company.
And they can like sell more tokens to raise more capital and secondary offerings, in which case it looks very much exactly like the stock market. That's a great leading to the next question, which is, will there ever be a time when things that are equivalent to stocks or other kinds of equities will be traded on change in some sort of decentralized way? I think it's likely.
I think the primary reason is that existing settlement systems in traditional markets seem to be very slow and built on very outdated technology. That's like highly non-transparent and very error-prone.
So equities are a prime example of this. It still requires two business days to settle a stock.
And a frequent occurrence when I was at trading firms was that you would get your settlement file that one told you what trades were settled and two told you things like if any corporate actions had occurred overnight, like paying a dividend or share split, and they would frequently be wrong. Like the dividend would be wrong or it would be missing or the share split amount was for the wrong amount or they missed the day that it happened or they messed up some trades and get reported properly.
They're just frequently mistakes. And it feels like there should be some like easy, transparent, kind of open, decentralized settlement layer for like all things that you can trade.
And rather than try to retrofit the existing settlement technology to be faster and better, starting from scratch with something like blockchain could make a lot of sense, which is why you hear about a lot of like these investment banks working on settling fixed income products on chain. Because fixed income products have even worse settlement cycles than equities? Should the marginal crypto trader stop trading? Maybe this might also be a good question to ask about the marginal trader on Robinhood or something.
I have a couple of thoughts about this. The first is that I don't think crypto markets are as efficient as equity markets.
So there's probably more opportunities for short and long term edge as a trader in crypto than there would be in equities. That being said, I think there's still an enormous amount of room in both traditional and crypto markets for even individuals to have and derive information that gives them profitable trading ideas.
And I actually think it's the wrong conventional wisdom to think that if you are not Jane Street or Citadel or Hudson River or Tower or jump trading, then you have no chance of being able to profit in markets except for luck. I do think there are a lot of people who trade and it's like pure speculation.
It's not really like on me to tell them that they shouldn't speculate. They probably like derive some personal enjoyment from speculation besides the opportunity for profit.
But I do think the access to more sophisticated instruments and information has helped what have traditionally been, players that have been unable to compete in the market actually be able to do so in a way that's sort of systematically profitable. Okay, so that is, I think, a good point to end the conversation.
We got a chance to talk about a lot of things. Let's let the audience know where they can find out more about Architect and also like where they can find your, you know, other sorts of links sure yeah so architect's website is architect.xyz we also have architect underscore xyz on twitter and i'm brett harrison 88 on twitter okay perfect awesome brett thank you so much for being on the lunar society this was a lot of fun thank you so much hey everybody i hope enjoyed that episode.
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