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

Speaker 1 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?

Speaker 2 It was because he was threatening me.

Speaker 1 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.

Speaker 1 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.

Speaker 1 It doesn't matter how little time he spent with the company. It doesn't matter how he treated employees internally.

Speaker 2 Architect, it makes it really easy to access kind of all corners of the digital asset ecosystem.

Speaker 1 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.

Speaker 1 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.

Speaker 1 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.

Speaker 1 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.

Speaker 1 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.

Speaker 1 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?

Speaker 2 I think on net, it's good. I think that

Speaker 2 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 of diversified instruments.

Speaker 2 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.

Speaker 1 Yeah. So maybe it's good for individual investors to put their money in passive

Speaker 1 investments, but what about like the health of the market as a whole? Is it hampered by how much money goes into passive investments?

Speaker 2 It's hard to be able to tell what it would look like if there was less money in passive investment now.

Speaker 2 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.

Speaker 2 So,

Speaker 2 you know, if like when Tesla gets added to the S ⁇ P 500, like... Tesla doesn't like suddenly become a different company whose market value is

Speaker 2 fundamentally changing, but yet yet it's going to start moving very differently in terms of its beta correlation between other instruments in the SP 500, purely as a function of all the passive investing that moves these instruments in the same direction.

Speaker 2 So that's the sense in which I think it could be detrimental.

Speaker 1 Naively, you would assume that

Speaker 1 efficient market hypothesis would say that if people know that

Speaker 1 Tesla stock price would irrationally climb when it's including the SP 500, then people would short it and then there should be no impact from this irrelevant information. Why isn't that the case?

Speaker 2 It probably mostly is.

Speaker 2 I think that sometimes there can be liquidity differences that cause at least temporary dislocations in stocks.

Speaker 2 Like, I mean, the simplest example is like you have an ADR, like an American depository receipt that's sort of expungable for some underlying foreign stock.

Speaker 2 And these two things should be like almost the same value at all times, like net of currency conversion and conversion ratios.

Speaker 2 But if one of the markets is highly illiquid or difficult to access, then there's going to be dislocations in price.

Speaker 2 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.

Speaker 2 So I'm sure there are people who are understanding like the fundamentals of individual names in the SP 500. And when there's like American news and the entire SP falls,

Speaker 2 they are, you know, maybe buying S P and selling individual names and expecting that relative value spread to come in over time.

Speaker 1 Speaking of, by the way, these firms,

Speaker 1 you don't actually tell me specifics, but how similar are the strategies for market making or trading that Jane Street versus Citadel and these firms?

Speaker 1 Is it the same sorts of strategies or are they pretty different?

Speaker 2 I think a lot more differences than people appreciate from the outside.

Speaker 2 Different companies have

Speaker 2 established different niches and areas. Like Jane Street established its early niche in ETFs

Speaker 2 at kind of like a mid-frequency level. So, not like ultra-fast, but not like long-term year-long discretionary macro.
Whereas maybe your

Speaker 2 Citadel securities

Speaker 2 kind of firm got, you know, built their niche more in like lower latency, you know, options market making. So, like, it could be all over the place.

Speaker 2 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.

Speaker 2 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,

Speaker 2 days to weeks to months, long trades too.

Speaker 2 A lot of the infrastructure can be similar.

Speaker 2 Either way, you need to be able to connect to exchanges, download market data, establish simulation platforms, build 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.

Speaker 2 But beyond that, the actual strategies and the ways they make money can be very different.

Speaker 1 Famously, in other kinds of development, there's these very famous hacks and algorithms, right?

Speaker 1 So in gaming and graphics, John Carmack has the famous fast inward square root for doing graphics calculations, normalizing vectors faster.

Speaker 1 You were not only a developer in finance, I know what the exact term is for that,

Speaker 1 but you led teams of hundreds of people who are doing that kind of development.

Speaker 1 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.

Speaker 2 There's tons of hacks and tricks and things like that. I think,

Speaker 2 for example, here's

Speaker 2 a famous one, not famous. I think I read it in a paper and a bunch of other developers from different other companies told me about this.
It's not something I saw at places that I worked, but

Speaker 2 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?

Speaker 2 It's a TCP IP-wrapped message with a particular proprietary protocol that NASDAQ implements.

Speaker 2 Well, let's say your goal is, you know, you know, you're going to trade Apple, but you're not sure what price and at what time.

Speaker 2 And you're kind of waiting for some signal to buy Apple as fast as possible.

Speaker 2 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 bytes 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.

Speaker 1 That's awesome.

Speaker 2 I think the analogy to video games is a good one because, just like in

Speaker 2 video game graphics, what's the end goal? It's not to produce the most theoretically perfect simulation of environmental graphics.

Speaker 2 It's to have something that looks good enough and is fast enough for the user.

Speaker 2 And that's also true in HFT and quantitative finance, where the goal is to get to the approximately right trade as fast as you can.

Speaker 2 It's not to have the perfect theoretical model of underlying price dynamics.

Speaker 1 That is so fascinating.

Speaker 1 But this actually raises an interesting question.

Speaker 1 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 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.

Speaker 1 What fundamentally is the advantage to society as a whole?

Speaker 1 from us getting that sort of information faster? Is this just sort of a zero-sum game of who can get that, incorporate incorporate that signal faster? Like, why is it good for society that

Speaker 1 so many resources and so much brain power is spent on these kinds of hacks and these kinds of optimizations?

Speaker 2 Yeah, so I think if you start from the premise that having liquid, tight, efficient markets is important for the world, and you say, How do I design a system that optimizes for that?

Speaker 2 I think you want

Speaker 2 smart, sophisticated technologists competing at the margins.

Speaker 2 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, maybe when things were slower and tick sizes were wider.

Speaker 2 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.

Speaker 2 You know, 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

Speaker 2 minuscule. But at the same time, I think it's not zero-sum for society for

Speaker 2 technologists to be creating 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.

Speaker 2 Who knows if like that our microwave network that we built out in the US could have like greater use cases than just for quantitative finance, but quantitative finance subsidized the creation of these towers.

Speaker 1 Okay. But so that's sort of like a contingent potential benefit.
I guess people tell a similar story about NASA, right?

Speaker 1 In this case, literally microwaves, 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 yeah,

Speaker 1 whatever tricks they come up with might be useful elsewhere. But that's not a story about how it's directly useful to have

Speaker 1 nanosecond-level latency for filing your Apple stock or something like that. Why is that useful? Directly, I mean.

Speaker 2 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

Speaker 2 the gap between like source of truth event and ultimate price discovery to be as small as possible.

Speaker 2 I think if you believe, if you want to question whether getting

Speaker 2 a few extra like milliseconds or microseconds or nanoseconds is worth it, I think you're then putting some kind of like value judgment on

Speaker 2 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.

Speaker 2 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.

Speaker 1 I'm only asking more about this because this is really interesting to me. There is some level of resources where we would say that at this point, it's not worth it, right?

Speaker 1 Like, let's say $5 trillion a year was spent on getting it down from like two nanoseconds to like one nanosecond.

Speaker 1 I know that that's probably not a realistic number, but just like there's some margin at which for some weird reason, the said there's a society here to spend so many resources on it.

Speaker 1 Would you say that we haven't reached that margin yet where it's not socially useful, the amount of brain power and resources that are spent on getting these tight spreads? And

Speaker 2 I don't know how large a percentage of like GDP prop trading is. I suspect it's not that large.
So I don't think we're close to that

Speaker 2 theoretical limit of where I would start to feel that it's a waste.

Speaker 2 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.

Speaker 2 So, somehow, like, 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.

Speaker 2 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.

Speaker 1 Got it. Has being a market maker changed your views about civilizational tail risk? Because you're worried and like

Speaker 1 you're worried about personally getting run over, right, by some sort of weird event in adverse selection. Does that change how we think about societies getting

Speaker 1 run over by a similar thing? Or

Speaker 1 are the mental models isolated?

Speaker 2 So I think working in

Speaker 2 high-speed finance teaches you to understand

Speaker 2 how to more correctly estimate the probability of rare events. And in that sense,

Speaker 2 working in finance makes me think more about the likelihood of civilization ending

Speaker 2 problems. But it doesn't suggest to me different solutions.

Speaker 2 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?

Speaker 2 That's like a closed system that you can actually model and do something about.

Speaker 2 Having like a trader mentality on future pandemics, I don't think helps you much.

Speaker 1 I think maybe it

Speaker 2 slightly changes your ability to kind of estimate the probability of such events.

Speaker 2 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 unknown, unknown about whatever the event is.

Speaker 2 And I think those kinds of solutions should be left to the experts in those particular fields and not up to traders.

Speaker 2 In other words, I don't think having the trader mentality about rare events in normal civilization outside of finance really kind of helps you much.

Speaker 2 And maybe in some ways has led people to think more hubristically that they can do something about it.

Speaker 1 Gee, who could be talking about?

Speaker 1 That's really interesting, you would say that.

Speaker 1 I would have like famously, you know, these market-making firms really care about having their employees be well calibrated and good at sort of thinking about risk.

Speaker 1 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.

Speaker 2 Yeah, again, I think it helps you at estimating probability of rare events,

Speaker 1 but

Speaker 2 it does not translate super well to what action then do you take in the face of knowing those rare events.

Speaker 1 Were your circles or people in finance earlier to recognize the dangers of COVID?

Speaker 2 That's a good question.

Speaker 2 I think that people in my circles were

Speaker 2 quicker to take action in the face of knowing about COVID.

Speaker 2 You know, there are a lot of people who like kind of stuck around in,

Speaker 2 you know, cities and their existing, like, you know, particular situations, like not knowing kind of where this was going to head long term.

Speaker 2 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 kind of financial circles kind of immediately recognize, okay, there's this big risk, this unknown, and I don't want to get adverse selected against in terms of being able to get out of the locus of bad pandemic activity.

Speaker 2 And so people immediately were fleeing cities, I think, faster than other people.

Speaker 1 That seems to point in the opposite direction of them not being able to,

Speaker 1 you know, estimate and deal with geopolitical risk.

Speaker 2 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.

Speaker 2 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.

Speaker 1 Or what do we do about the next potential, you know, biological weapon or the next pandemic that could occur yeah uh speaking of covet you were at you were head of semi-systemic technology at citadel when covet hit right yes exactly what how did you know these h5d firms react to covet what was what was it like during covet because obviously the market moved a lot but on the inside was it good bad or

Speaker 1 yeah i mean

Speaker 2 all the companies i mean citadel securities and but really all of the ones in this sort of uh this finance sphere I think were extremely resilient.

Speaker 2 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 like a you know 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 are used to be able to have like eye contact with each other at all times need to adjust to this you know pandemic world And they largely did.

Speaker 2 I think, at least from a profitability perspective, it was some of the best years of HFT firms, PLs in recent history.

Speaker 1 Matching engines already have to deal with the fact that you can have orders coming from Illinois, you can have orders coming from Japan, and given light speed, they're not going to arrive at the same time.

Speaker 1 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?

Speaker 1 Could we ever have a market between like us and alpha centauri or even us with mars or is it lag too much for that to be possible

Speaker 2 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 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.

Speaker 2 And therefore, like there's probably a lot of adverse selection sending a market order from halfway across the world than in a co-location facility.

Speaker 1 So

Speaker 2 you can technologically run an interstellar exchange. It just might not be good for that person living on the moon.

Speaker 1 Is there any way to make it more fair?

Speaker 2 Yeah, so I think there's actually a kind of real-world analog of that, which is

Speaker 2 like automated market makers on slow blockchains.

Speaker 2 Because if you're used to working on NASDAQ, where NASDAQ processes like a single message in somewhere between like tens and hundreds of nanoseconds per order, a blockchain like Ethereum processes what, like, you know, 15 to 50 messages per second.

Speaker 2 So significantly slower by like numbers of orders of magnitude.

Speaker 2 And yet they've been able to establish like pretty mature like financial marketplaces by saying that rather than you having to send orders with prices on them and then cancel them when the prices aren't good anymore, there will be kind of an automated function that moves the prices at the matching engine.

Speaker 2 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.

Speaker 2 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.

Speaker 1 But there's other things you can do too.

Speaker 2 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.

Speaker 1 Yeah, it's actually something else I want to ask you about.

Speaker 1 What is your opinion of periodic frequent batch auction systems?

Speaker 1 Should we have more of that instead of...

Speaker 2 So in theory, they

Speaker 2 help mitigate the advantages of high frequency trading.

Speaker 2 Because

Speaker 2 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.

Speaker 2 It's really the price that determines whether you're going to get filled, not something to do with particular latency to the exchange.

Speaker 2 I think in practice, the couple of exchanges around the world that used to have those have switched away from them.

Speaker 2 Like, I think the Taiwan stock exchange used to have a periodic auction system, and they just thought the

Speaker 2 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.

Speaker 2 So, I guess, in practice, it doesn't quite work as well,

Speaker 1 but it's hard to tell.

Speaker 2 It's really hard to tell.

Speaker 1 What country, I mean, in your long experience of doubling financial infrastructure, what country do you feel has the best

Speaker 1 infrastructure and setup for

Speaker 1 good

Speaker 2 I would say the United States, except what's happened is U.S. companies like NASDAQ have licensed their exchange matching engine technology to other exchanges around the world.

Speaker 2 So, like, the NASDAQ OMX technology powers a number of the exchanges in Europe and some in Asia.

Speaker 2 So, it's hard to sort of say that, like,

Speaker 2 is the technology American? Like, I guess so.

Speaker 2 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 product set allowed in the world.

Speaker 1 How do adverse selection in trading and hiring differ?

Speaker 1 In

Speaker 2 hiring, there are one, many more opportunities for positive selection versus the negative selection you usually encounter in finance.

Speaker 2 And the other thing is that

Speaker 2 most financial markets are like, you know, in the US, when you think about like trading in general, you're thinking about like liquid markets.

Speaker 2 The hiring market is highly inefficient.

Speaker 2 You know, maybe the like pipeline of, you know, orders from like Harvard, MIT, Princeton, Yale to Jane Street and Siddhal Securities is like a very liquid pipeline.

Speaker 2 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.

Speaker 2 So you might end up with like a resume from

Speaker 1 some

Speaker 2 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

Speaker 2 person,

Speaker 2 if he's willing to put themselves out there and apply to your company from this

Speaker 2 relatively unknown university, then that might be the signal that that is like the best person in that entire region. And that might be a positive selection.

Speaker 2 So I think that it's not exactly the same like adverse selection dynamics as there is in the traditional trading world.

Speaker 1 Yeah, yeah, definitely. Especially if you have like, I guess mission-oriented companies have a especially good way of getting rid of adverse selection, right?

Speaker 2 Yeah, yeah, exactly.

Speaker 2 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.

Speaker 2 Like they couldn't do like basic math and they just were just like the worst candidates compared to other people that they were able to find.

Speaker 2 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 like amazing work environment that all of a sudden all the people getting through the pipeline from Harvard were like really, really great.

Speaker 2 And it wasn't like the quality of students at Harvard changed. There's probably a bell curve there like there is everywhere else.

Speaker 2 It was just like the positive selection resulting from the branding efforts and the like mission-driven

Speaker 1 focus of the company that really brought that positive selected pop volume to them yeah that's really interesting should jane street replace ocaml with rust

Speaker 2 no because there's too much infrastructure already in ocamel yeah but starting from scratch so i guess the world is um if they could like snap their fingers and suddenly replace all their ocam infrastructure with rust at like zero cost like would it be worth it yeah um

Speaker 2 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 one you can write in OCaml.

Speaker 2 Because of the way OCaml is designed,

Speaker 2 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.

Speaker 2 And so you have to write very, very careful OCaml that almost ends up looking like C

Speaker 2 in order to end up staying in functional programming land, but not actually creating tons of memory on the heap or the stack that ends up getting collected later.

Speaker 1 I guess you've been playing around with Rust a lot recently, right? Yeah.

Speaker 1 What is your impression of the language? Have you been enjoying it?

Speaker 2 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.

Speaker 2 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.

Speaker 2 And so, compared to what I had last looked at it a couple years ago, it's a lot easier to write really good, sophisticated programs now in Rust and get all of the type safety and the speed that you get, which is very comparable to C on the speed side.

Speaker 1 Well, when I'm writing programs, they're not large code bases with many people contributing.

Speaker 1 When I use Rust, it's just like a huge pain. Like, why is, I just want to do something very simple.
Why did I have to put like an an arc instead of a box instead of an option?

Speaker 1 But I can totally understand if you have something where like billions of dollars are at stake.

Speaker 2 There is definitely a learning curve. And I think for basic scripting, you want to use something like Python.
Right.

Speaker 2 But exactly. If you're writing like low-latency distributed infrastructure that has to never fail, Rust is a pretty good choice.
Yeah.

Speaker 1 Speaking of Jane Street, why does a company pay interns like 16 or 17K a month for their summer internships?

Speaker 1 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

Speaker 2 you know the starting salary for

Speaker 2 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 talents pool is extremely competitive from the employer side.

Speaker 2 So if you start with that as like a reasonable salary plus bonus for an employee, I think Jane Street's mentality is these interns who are coming here, like they're doing real work.

Speaker 2 They should be paid like a full-time employee, just like paraded for the time where they're actually here. And so that ends up like checking out to be like the right numbers.

Speaker 1 Wait, on net, are interns...

Speaker 1 I mean, forget about the salary. Are they actually on net contributing, given that subtracting away the time of the traders who are training them?

Speaker 2 Maybe it sort sort of breaks even if you consider like the time to train them.

Speaker 2 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.

Speaker 2 and only the ones that really liked it and were good come back.

Speaker 2 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.

Speaker 1 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.

Speaker 1 And like, is there some sort of free rider problem there?

Speaker 2 There for sure is, 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.

Speaker 1 You know, like, when you go to Dane Street, like, not only do you like learn a lot, but like, they pay you really well.

Speaker 2 And also, like, you get to, you know, visit one of the foreign offices for like a week or something.

Speaker 2 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.

Speaker 2 And they have, you know, like parties and all sorts of stuff. And it adds to the experience of thinking, okay, this is the place I want to work.

Speaker 2 I don't want to take my training and go to the competitor. I want to come to you.

Speaker 1 I clearly got in the wrong business with podcasts.

Speaker 1 Why did you pursue

Speaker 1 finance dev instead of trading? Why did that appeal more to you?

Speaker 2 Yeah, so.

Speaker 2 In college, I studied computer science and math, and

Speaker 2 I really liked programming, but I think I didn't quite know what a career in programming looked like.

Speaker 2 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.

Speaker 2 I'm going to be miserable. And it's not going to be a very social job.
And I consider myself like a pretty social person.

Speaker 2 And I had a lot of friends who had had these various internships in quantitative finance, mostly from the trading side.

Speaker 2 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,

Speaker 2 the traders are much more, much closer to like the real action of the company. And like, 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.

Speaker 2 And I realized like very soon into that that one,

Speaker 2 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.

Speaker 2 It was just much more at my alley and my training. And so I ended up going that route instead.

Speaker 1 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.

Speaker 1 What is the main difference between Silicon Valley tech culture versus you know quant New York culture? Sure. Or like a Chicago culture.

Speaker 2 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

Speaker 2 finance 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.

Speaker 2 Like you know what the outcome is, is to like, you know, be the most profitable at the strategy.

Speaker 2 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,

Speaker 2 I think the Silicon Valley culture is much more about creativity and doing things that are like new that no one else has done before.

Speaker 2 A healthy amount of cross-pollination would be good for both, where I think a lot of trading firms are doing like the exact same things that all the other trading firms are doing.

Speaker 2 And some like healthy injection of creativity into some of that stuff to maybe think slightly outside the box of like, you know, as you said earlier, like get slightly faster to go to NASDAQ or something, which is like, okay, it's probably, might be fine, but it's like not that, not that creative, would be good for those plant firms.

Speaker 2 At the same time, the like sheer approach to pragmatically getting something done and out there and sold and making money would help a lot of Silicon Valley firms to kind of like hang out in this sort of creative land for too long and don't end up getting a product to market.

Speaker 1 Yeah, I know. I definitely, it seems like there should be one founder from both those cultures at every single startup.

Speaker 1 It's similar to what you were saying earlier with like SPF and like visionaries versus fragmentists in that context.

Speaker 1 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 rise over their careers.

Speaker 1 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?

Speaker 2 It's a lot closer to Walmart t-shirts than it is Wolf of Wall Street. I mean, certainly it is now.
Even when I started, it was pretty inconspicuous.

Speaker 2 I don't think it was that way in like the previous decade or two before I joined finance.

Speaker 2 I guess I'm not really sure, but I get the sense that the current culture around inconspicuous consumption is sort of a function of millennial consumption habits where people are focusing a lot more on like experiences than having shiny material objects.

Speaker 2 I think that's had a lot large effect on kind of like the high-earning tech and finance culture that exists today.

Speaker 1 Well, I guess are they spending that much money on experiences either? Because how expensive is a flight to Hawaii, right?

Speaker 1 Even after you subtract that, like where is this money going? Are they just saving it?

Speaker 2 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

Speaker 2 you know, get involved in like a charitable organization in a way that like someone who is 24 like normally wouldn't be able to do, cheerly by able being able to like donate a lot.

Speaker 1 Yeah. What is the

Speaker 1 social consequence, for lack of a better word, of having a bunch of young, nerdy people, often male, often single, having this extraordinary level of wealth? Like

Speaker 1 what impact does it have? I don't know if a society is the right word, but

Speaker 1 what is the broader impact of that class of people?

Speaker 2 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

Speaker 2 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,

Speaker 2 they kept it to themselves and kind of waited till later in life to do anything with it and were 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, 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 whomever, will go on to like found new companies.

Speaker 2 And maybe they'll be able to seed the company themselves with their own money and have a lot easier time bringing interesting new things to market.

Speaker 2 Or they'll be able to donate to 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 give to or contribute to that don't just involve getting their name on a building of a school or something.

Speaker 1 Yeah, yeah. That's a very optimistic story.
I hope that's the way it plays out.

Speaker 1 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,

Speaker 1 one bug in your code. And there are historical cases of this, like where entire firms go down because of a bug.

Speaker 1 Like, what is the sort of like day-to-day psychological impact of that kind of responsibility?

Speaker 2 Maybe the job selects for the people who don't kind of crumble under the like, you know, theoretical stress of that job. But personally, like, I don't lose sleep overnight at night over that because

Speaker 2 Within any like mature financial institution, like a trading firm, there are typically like 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 messages you can send to the exchange.

Speaker 2 And then there's like limits on like the individual trader and desk level and firm level. And there's like layers of different checks.

Speaker 2 Often there are actual rules, like regulatory rules to comply with in market access checks, like FINRA's like 15c35.

Speaker 2 And so when you're writing new code, it's not like a completely like blank blank slate thing where you're connecting directly to an exchange and hoping for the best.

Speaker 2 Usually you're embedding some piece of code within some very large established framework where the goal is to make something trader-proof.

Speaker 2 No matter what some trader clicks on or does or configures with their system, there's a limit to how

Speaker 1 badly they can actually go.

Speaker 2 And so especially in my particular role as a developer, like actually being able to understand the technological stack and say like, oh, I can tell and can sort of, you know, verify that these particular safeguards are in place.

Speaker 2 And it is actually as trader-proof as I think it is. Like, I sort of can sleep at night knowing nothing too bad is going to happen.

Speaker 2 I mean, the times I actually lose sleep are like, you know, a trader in like London or Hong Kong calls me like the middle of the night to say, like, hey,

Speaker 2 can you explain how this thing works? I need your help. Like, those are the times where I actually lose sleep, but it's not over being concerned about risk.

Speaker 1 Yeah, that's interesting.

Speaker 1 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,

Speaker 1 what would the majority of them say that, like, I'm doing something really valuable?

Speaker 1 Would they say, like, 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 value they're creating?

Speaker 2 It really depends on the company and depends how diffuse the culture is. At like older firms that have like,

Speaker 2 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

Speaker 2 you know the firm is really run by like

Speaker 2 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 to the present day and with that like large number of people at the top in a very flat environment environment, have actually been able to propagate that culture and maintain it throughout the company.

Speaker 2 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

Speaker 2 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.

Speaker 1 That seems very abstract.

Speaker 2 And

Speaker 1 while

Speaker 1 it is probably very well correct and is very valuable for society, it might not seem that tangible to somebody who's working in that space. Is there some technique that these firms have of

Speaker 1 making visceral the impact these traders have? I don't know.

Speaker 1 Do they bring out some child who benefited from efficient markets or something?

Speaker 2 I think, well, it's probably not children. I think it's more like anecdotes about

Speaker 1 the pension

Speaker 2 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 five billion dollar 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 amount 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.

Speaker 2 And so like there's like a direct connection there.

Speaker 1 Okay, let's start by addressing the elephant in the room, which is FTX.

Speaker 1 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.

Speaker 1 So I was at Jane Street from 2010 to 2018.

Speaker 1 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 Ocamel Boot Camp.

Speaker 1 It was a yearly course for the new trader hires to spend four weeks with me learning programming

Speaker 1 in Ocamel, which was like the esoteric programming language that we use at Jane Street, along with a lot of our other proprietary systems.

Speaker 1 And Sam was in our, 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.

Speaker 1 He was nice.

Speaker 1 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.

Speaker 1 Although then again, the bar was extremely high at Jane Street. So I think that's already sort of a compliment.
But

Speaker 1 yeah, but

Speaker 1 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?

Speaker 1 It slowly started to. You know,

Speaker 1 Sam was on one of the largest trading desks at Jane Street

Speaker 1 and had 50 or 60 people on it. He had several managers.

Speaker 1 And one of my roles at Jane Street was to work with all of the different trading desks on the designs of their particular strategies and systems.

Speaker 1 And so I would frequently go over to his desk and talk with his managers about stuff.

Speaker 1 And I started pulling him into conversations more and more, specifically to talk about some of the like lower latency ETF-R stuff we were doing, some of the original like OTC automation things we were working on.

Speaker 1 And so he started actually contributing more to the actual like design and thought behind some of these systems and thought he was precocious and had a lot of really good intuitions about the markets.

Speaker 1 Got it. Okay.

Speaker 1 And so what exactly was your role at Gene Street at this time? And what was his?

Speaker 1 Yeah, so at this time, I was sort of leading the group of software developers building the technology that was closest to actual trading.

Speaker 1 You can think in a 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.

Speaker 1 So we were in the part of the spectrum that was closest to actual trading.

Speaker 1 And so my job was to 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.

Speaker 1 Okay. And did SVF at this point have any sort of reputation of either being uncooperative or being cooperative or

Speaker 1 anything ethical or professional that's noteworthy at this time? I don't think there was much that stood out, although, you know, he was, again, pretty precocious at that particular time period.

Speaker 1 One anecdote that sort of 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.

Speaker 1 And so I once went down to meet with a development person from

Speaker 1 a nonprofit that works in animal welfare. and something that my wife and I had donated to for a long time.

Speaker 1 And I met with this guy and he said, you know, you're the second person I from Jane Street today, which was wild because Jane Street was like only a couple hundred people there.

Speaker 1 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.

Speaker 1 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.

Speaker 1 We were both, you know, vegans. And we sort of bonded over that.
That's how we kind of became friendly. Got it.
And

Speaker 1 so so it seems then his interest in effective altruism was genuine at this point. And early on, it was like there was a history of this.
Yeah.

Speaker 1 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.

Speaker 1 Among this like younger crew of Jane Streeters, there was definitely, I think it was because of a lot of association prior to joining Jane Street. that they sort of were into effective altruism.

Speaker 1 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.

Speaker 1 And Sam was one of them. And

Speaker 1 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.

Speaker 1 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.

Speaker 1 You know, when I first left Jane Street and he left Jane, sorry, yeah, when we both left Jane Street around the same time, him before me, you know, he had told everyone at Jane Street that he was leaving to join the Center for Effective Altruism full-time.

Speaker 1 And I guess he did that.

Speaker 1 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.

Speaker 1 But it was funny. We had a phone call and he told me that it wasn't really going super well.

Speaker 1 He said it was really great in the beginning. Like they made a lot of money.
They had this arbitrage trade. And then a few things kind of went by the wayside.

Speaker 1 And, you know, they had taken out these huge loans to be able to get their initial capital for Alameda.

Speaker 1 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.

Speaker 1 And he said he was 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.

Speaker 1 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 is moving to Chicago, taking a new role.

Speaker 1 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.

Speaker 1 Yeah, yeah.

Speaker 1 That's really interesting. Do you have some sense of what it was that went sideways?

Speaker 1 So I'm pieced together some details over the years because he told me a little bit more after I first joined.

Speaker 1 I heard a little bit more later from other people and saw some reporting kind of post-FTX collapse. I think there were two things.

Speaker 1 One was

Speaker 1 the infrastructure they had built, I think, was really poor in the beginning. A lot of like Python scripts, like slapped together.

Speaker 1 And a couple of times they had sent tokens to the wrong wallet and ended up losing millions in the process. And they had some big non-arbitrage directional bet on in some token.

Speaker 1 It might have been ETH or something. And it went against them.
And so they lost a lot of their trading capital.

Speaker 1 And then the other thing was that after some of their technical problems, there were internal disagreements, supposedly, this is what Sam told me, about how to move forward with tech.

Speaker 1 You know, there was half the crew that wanted to kind of rewrite everything from scratch in a different programming language.

Speaker 1 There was 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.

Speaker 1 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?

Speaker 1 Or is it something piece together? Yeah, not at all. I mean, Sam told me a little bit about it, but this was over the course of

Speaker 1 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.

Speaker 1 So all this stuff was happening in the background, and I had no clue.

Speaker 1 In fact, 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 like Sam Eggman-Fried guy? And I was like, Yeah, a little bit.

Speaker 1 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,

Speaker 1 what? Since when?

Speaker 1 And then started 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.

Speaker 1 And that's kind of when I got back in touch with him and we started talking a little bit.

Speaker 1 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 2018. Okay.
Yeah. Got it.
Got it. So

Speaker 1 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.

Speaker 1 Yeah, like very briefly, you know, a text every now and then. Okay.
And then at some point,

Speaker 1 you're you become president of FTXUS. So do you, do you want to talk about like, I guess, how he approached you about that and what was going on at the time? Yeah, it was interesting.

Speaker 1 So at the time, I was

Speaker 1 running what was called the semi-systematic trading technology at Citadel Securities. And so this was the

Speaker 1 group of technologists working on systems for ADRs, ETFs, options, and OTC market equities. It was around 100 software engineers or so that rolled up to me.
And that was going well.

Speaker 1 But Sam and I started talking. It was, I guess, March of 2021.

Speaker 1 And

Speaker 1 he was like telling me a couple of things going on at FTX. And then he said,

Speaker 1 if you're interested in coming over to FTX, we would still love to have you.

Speaker 1 And I thought, well, still,

Speaker 1 we've never talked about doing this before. But sure, let's entertain this.
And we started talking. And he had me meet him and Gary and Nashad.

Speaker 1 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.

Speaker 1 And very quickly, like an offer came together.

Speaker 1 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've done in the past. And I signed up.
Got it. Okay.

Speaker 1 And

Speaker 1 where was FTX at this point in terms of its sort of business development? Yeah, so FTX was doing quite well.

Speaker 1 I mean, it was basically finished its first, its second year of operation, and it was maybe the fourth or fifth largest exchange in the world by volume, if you include crypto, spot crypto and crypto derivatives.

Speaker 1 And it was also one of the primary destinations for institutions,

Speaker 1 proprietary trading firms, hedge funds to trade crypto and derivatives, especially because of how it was designed. And so it was doing really well.
FTXUS was virtually non-existent.

Speaker 1 They had started the, they formed the entities.

Speaker 1 They had started the exchange, I think, in either December 2020 or January 2021, but it had like the minimum volume compared to the other exchanges around the world, especially in the US too.

Speaker 1 And Sam talked to me a lot about a lot of the aspirations for the US business.

Speaker 1 One, to grow the spot exchange, of course.

Speaker 1 Two, was to be able to find a regulated path for bringing some of these offshore products like Bitcoin and Ether futures and options onshore in a regulated way.

Speaker 1 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.

Speaker 1 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.

Speaker 1 Okay, got it. And so, he, and the initial offer was specifically for the president of FTSUS, right? Yeah, and Sam wasn't someone who loved thinking hard about titles.

Speaker 1 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.

Speaker 1 I think Sam wanted me to write software for FTX and FTXUS. Sorry, for FTX US.

Speaker 1 But to me, I sort of thought there was like this bigger opportunity to kind of

Speaker 1 work with Sam to lead this other startup, which was FTXUS, and kind of build build it up and sort of follow in FTX's footsteps and its success.

Speaker 1 And that was the part that was most exciting to me because this is what I've been doing now for years: is like managing large teams of people, thinking about strategy, getting people together, you know, occasionally doing some software development myself.

Speaker 2 But, you know, that was the primary reason for wanting to join.

Speaker 1 Got it. And what was the relationship between FTX and FTXUS at that time? Were they kind of subsidiaries? Were they separate entities? They were separate entities.
They weren't subsidiaries.

Speaker 1 There was technology sharing between them. So like the FTXUS exchange technology was like licensed from FTX.

Speaker 1 You can think of FTXUS 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.

Speaker 1 And when I joined, there were very few people within FTXUS, maybe like two or three dedicated people.

Speaker 1 So

Speaker 1 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.

Speaker 1 Was Chicago the initial base of that operation?

Speaker 1 Yeah, I mean, for selfish reasons. Like, I have my family here, you know, and

Speaker 1 I wasn't going anywhere. But also, I thought Chicago is 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.

Speaker 1 We have the CME,

Speaker 1 we have many of the top proprietary trading firms, a lot of the Futures Commission merchants and various brokers are all here.

Speaker 1 Historically,

Speaker 1 the floor of the Chicago Board of Trade and the Chicago Mercantile Exchange, they're here. And so it kind of felt like a good place to be.
And at this point,

Speaker 1 I guess before you joined, did you get a chance to ask him about the relationship between FTX and Alameda?

Speaker 1 Yeah, I did. I mean,

Speaker 1 it was definitely of interest to me, like, you know, because,

Speaker 1 I mean, the primary reason being that I wasn't interested in doing prop again. You know, like, I worked at Jane Street.
I worked at Headlands Tech. I was at Citadel Securities.

Speaker 1 If I wanted to continue doing prop trading,

Speaker 1 I would have stayed at one of those places, you know?

Speaker 1 So

Speaker 1 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.

Speaker 1 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.

Speaker 1 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.

Speaker 1 And so I thought they were just basically separate. And did you ask to,

Speaker 1 I guess, audit their sort of financials or this relationship before you joined?

Speaker 1 No, I mean, I don't know about you, but I've never like gotten an offer to a company and said, like, well, before I sign, please show me your audited financials.

Speaker 1 It's just like not a thing that happens. Right.
Right. Okay.

Speaker 1 Fair enough. So you joined FTX, and then you mentioned some of the stuff you were working on, the operational, legal,

Speaker 1 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?

Speaker 1 Yeah, I guess on on a professional and personal front.

Speaker 1 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.

Speaker 1 So, for example, Ledger X, 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.

Speaker 1 And it was an extremely innovative proposal, and it felt like we were making real progress towards establishing like new and very exciting regimes for you know cfdc regulated derivatives in the us

Speaker 1 i also established a broker dealer in the u.s for the purposes of letting people trade stocks like similar to robin hood i wrote like 90 of all the code for that stocks platform myself um

Speaker 1 and

Speaker 1 Yeah, I was very proud of that accomplishment. And then on a personal front, it was great to get embedded into the crypto industry.
I was very excited by everything that I saw.

Speaker 1 It was great to make all the connections, you know, through FTX with like the different people in the crypto ecosystem and become friends with these people.

Speaker 1 And that certainly has an influence where I am today. So I'm sort of proud of all of that.

Speaker 1 How did you manage the management of,

Speaker 1 I don't know how big the team was at a speak. And it sounds like you were heavily, I mean, involved is an understatement in the actual engineering.

Speaker 1 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 U.S. And it was challenging.

Speaker 1 It was one of my biggest complaints, which I'm sure we'll get into, which was that, you know, yes, I can write code, but I feel like that's my comparative advantage is helping kind of to leverage teams of people to get them to, you know, work towards the common goal of

Speaker 1 building out large 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.

Speaker 1 every night while trying to keep on board with what all the personnel were doing.

Speaker 1 So I really wanted to grow the US team significantly to at least be

Speaker 1 more than a handful of developers.

Speaker 1 And so, yeah, that was one of the initial points of contention. Okay.

Speaker 1 Speak more about that. So he was opposed to growing the team? Sam would frequently talk publicly about how

Speaker 1 proud he was that all of FTX was built by like two developers.

Speaker 1 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.

Speaker 1 And there's some truth to that. You know, I do think

Speaker 1 the conventional wisdom now is a lot of big tech companies over-hired. for software engineers.

Speaker 1 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.

Speaker 1 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.

Speaker 1 But once you're like a north of $10 billion valuation company, like promising the world to like customers and investors,

Speaker 1 two software developers doesn't really cut it anymore. I mean, at some point, you have to like, you know, grow up and

Speaker 1 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

Speaker 1 there was always pushback.

Speaker 1 People will tell me, 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.

Speaker 1 And most importantly, they didn't want two separate development teams, like one in the US, one in the Bahamas.

Speaker 1 Like 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.

Speaker 1 Like if you run a broker dealer in the US, you need to have staff that is specifically allocated towards broker-dealer activities.

Speaker 1 It can't be that if you say FINRA comes and says, Well, who's working on the broker dealer? You say, well, it's like this Gary guy who lives in the Bahamas, who sometimes is awake at like 4 a.m.

Speaker 1 and spends 20 minutes a day thinking about stocks. That can't fly.
Right, right. And it has no images of him on now.

Speaker 1 Okay, so

Speaker 1 were Nishad and Gary contributing code to the FTXUS code base? Remember, the FTXUS side of things was a strict subset of FTX. So in that sense, it kind of flowed into FTXUS.

Speaker 1 With the exception of the FTX US derivatives, the Ledger X stuff was actually a completely separate team because that was through an acquisition.

Speaker 1 When you're talking about the code of the matching engine or things like that, was the code shared between FTX and FTXUS? Yes. Okay.

Speaker 1 That

Speaker 1 who was in charge of ultimately

Speaker 1 the push,

Speaker 1 the pull request, approving the pull request, basically, of the FTXUS code base. Yeah, it was like all Gary and Nashad.
Okay, got it.

Speaker 1 And so the code you were contributing was also going to the sort of like universal global code base. Yeah.
Got it. Did you have sort of access to the entire code base or just the FTX US side? Or?

Speaker 1 Yeah, again, it was one share repo. I mean, there was an enormous amount of code.

Speaker 1 And one of the big problems, another problem that I raised while I was there was that, you know, 90 plus percent of all the code of FTX was written by these two people.

Speaker 1 And

Speaker 1 it was very hard to follow. I don't know if you've ever seen like a large Python code base before.

Speaker 1 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,

Speaker 1 call Gary,

Speaker 1 which I also knew to be like unsustainable from the organizational perspective. Like, one of the guiding principles at Jane Street, for example, was

Speaker 1 mentor your junior dev so that you can hand off all your responsibilities to them.

Speaker 1 And in the process of handing off responsibilities, you make the code better, more automated, more robust, problems, more easily debuggable in real time.

Speaker 1 If you hoard everything to yourself in your own brain, you end up with a code base that is just only understandable by that one person.

Speaker 1 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,

Speaker 1 FTX is done. It's done.
It was done. Exactly.
Exactly. So what do you think was the motivation?

Speaker 1 behind this? Was it just that he wanted to keep, wanted to avoid the sort of like Google growing to 100,000 people kind of thing? Or was there something else going on?

Speaker 1 Like why did it why why this sort of concentration? Well, clearly there was something else going on.

Speaker 1 I think an open question now, only thinking about this in hindsight, was how much of this

Speaker 1 very cloistered

Speaker 1 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?

Speaker 1 Or was it really this sort of like one, ultra paranoia about growing too large too quickly and getting losing control of the organization? And two,

Speaker 1 an almost like

Speaker 1 sort of cult-like belief in this small team like being the but for cause of all past, present, and future success?

Speaker 1 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.

Speaker 1 What were the things you did control? Yeah, hiring, for example, like I began pushed for many months that we should hire more people.

Speaker 1 Eventually, I

Speaker 1 got permission for us to interview people, but then those would ultimately have to get finally approved by the people in the Bahamas.

Speaker 1 And they would frequently say no to people who I thought were good candidates. Finally, we hired one person,

Speaker 1 and this person was doing well. He was here in Chicago, and

Speaker 1 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 ramp up on the system.

Speaker 1 And this person comes back to Chicago and they say, you know what? Like, I really want to move to the Bahamas. They really kind of convinced me to do it.

Speaker 1 And it was so frustrating. It was just coaching from your own company.
Exactly. It was such a constant battle.

Speaker 1 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.

Speaker 1 So, I mean, the bottom line is, you you know, I, on kind of like the day-to-day operational stuff,

Speaker 1 especially the decisions within some of the things I was responsible for, like the stocks,

Speaker 1 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

Speaker 1 management and advice and direction. But

Speaker 1 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.

Speaker 1 side. And we would just sort of find out things were happening.

Speaker 1 Is there a specific example or set of examples that comes to mind?

Speaker 1 Sure.

Speaker 1 The biggest example for me was this was sort of post-my kind of effective resignation, but some of these

Speaker 1 strategic acquisitions that were being done in the U.S. during the summer of 2022,

Speaker 1 I would find out from like the news or like it would sort of be mentioned on a signal chat or something that this was happening.

Speaker 1 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.

Speaker 1 And it wasn't clear if this was a good decision or a bad decision. It was like a unilateral decision that was made.

Speaker 1 Like, oh, this company, 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

Speaker 1 unwise?

Speaker 1 That, like, I don't know, you try to speak out against.

Speaker 1 I mean, you mentioned some of them, right? Like, not hiring enough people and not getting more, yeah, not getting more developers.

Speaker 1 But are there other things like that that stick out to you as bad decisions? A lot of the spending,

Speaker 1 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 within the company where

Speaker 1 people asked,

Speaker 1 when does this stop? To what end are we doing a lot of these things?

Speaker 1 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,

Speaker 1 this is ridiculous. Like, this is not doing anything for the company.

Speaker 1 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.

Speaker 1 And did you bring this up directly with SBF? Yeah, multiple times. And how would he respond? Sometimes he was

Speaker 1 nice about it and he would say, you know, like, yeah, I see where you're coming from.

Speaker 1 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.

Speaker 1 You know, a lot of this sort of like hedging language that. was ultimately non-confrontational, non-committal.

Speaker 1 I mean, he was a very non-confrontational person, very conflict-avoidant person within the company. So,

Speaker 1 and then at worst, it would just, you know, there were other times where I brought up like specific things that I thought like he was doing wrong.

Speaker 1 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.

Speaker 1 And

Speaker 1 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.

Speaker 1 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, is one of my superpowers

Speaker 1 of just like not being afraid of just like saying when something seems wrong to me. And sometimes, like, I'm just totally wrong and don't understand the full picture.

Speaker 1 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.

Speaker 1 And so I said to Sam, you know, I think you're doing way too much PR and media. Like,

Speaker 1 first of all, it's really diluting you you and the FTX brand to constantly be doing

Speaker 1 TV interviews and podcasts and flying to banking and private equity conferences. And

Speaker 1 it was so much time spent on this stuff. And also, it was completely taking away from the management of the company.

Speaker 1 People would sometimes send Sam Slack or signal messages and not get responses for weeks at a time.

Speaker 1 And it felt like he was spending virtually no time

Speaker 1 helping the company company move forward. It was so much about image and brand and PR.

Speaker 1 And he was really angry at hearing this criticism directly.

Speaker 1 How did he react? I mean, he was just

Speaker 1 sort of emotional. He was worked up.
He told me, I completely disagree with you. I mean, he said, I think you're completely wrong.

Speaker 1 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.

Speaker 1 And

Speaker 1 I realized at that moment that this was not really going to work super well long term.

Speaker 1 Like, if we're not in a relationship where I can give sort of my direct superior like real, honest, you know, constructive criticism that I thought was for the good of the company, that this wasn't really going to work.

Speaker 1 He actually did my podcast about, I don't know, eight months ago or something. And while it was like very grateful, he did it, even at the time, I'm like,

Speaker 1 I don't know if I would have agreed to this if I was in charge of a $30 billion empire.

Speaker 1 Yeah, I mean,

Speaker 1 sometimes, like, some reporters would say to me, like,

Speaker 1 you know, do you can you like get me in touch with Sam?

Speaker 1 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.

Speaker 1 And I would say, like, okay, but you're going to be like the sixth one this month.

Speaker 1 There's no exclusives here. So I guess to steal Matt his point, he did get a lot of good PR at the time, right? Potentially, well, not potentially, like actually,

Speaker 1 too much and in a way that like really created,

Speaker 1 at the time, sort of like the king of crypto sort of image. So,

Speaker 1 I mean, was he right about the impact of the PR at the time?

Speaker 1 Or maybe

Speaker 1 let me ask the question a different way. How did he create this image? I mean, people were saying that he's the JP Morgan of crypto, like he could do no wrong.

Speaker 1 Even things that in retrospect seem like clear mistakes, like only having a few developers on the team.

Speaker 1 Universally praised, you know, huge empire run by a few developers.

Speaker 1 How was this image created? I think that media was primed for

Speaker 1 the archetype that was Sam, this sort of young upstart

Speaker 1 prodigy in the realm of fintech.

Speaker 1 You know, we have a lot of these characters in the

Speaker 1 world of, you know, big tech. And I think that he he had a particular role to play in the world of finance.

Speaker 1 And

Speaker 1 by making himself so accessible all the time,

Speaker 1 he gave people a drug that they were addicted to, which was like that constant access.

Speaker 1 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.

Speaker 1 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

Speaker 1 very insightful person who knew a lot what was going on in the industry and can give them like insight and tips.

Speaker 1 And I think

Speaker 1 there was some amount of what I like to call like reputation laundering going on here, where it was like,

Speaker 1 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.

Speaker 1 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 like match the underlying reality of who he was at the company And what was the reaction of other employees at FTX of the sort of not only the media hype train, but also the amount of time Sam was spending with the media.

Speaker 1 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.

Speaker 1 On the other hand, so many people within the company just hero worship Sam.

Speaker 1 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 on FTX, they really, really believed in Sam.

Speaker 1 And it 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

Speaker 1 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.

Speaker 1 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?

Speaker 1 Other than, I guess, obviously, the micromanaging aspect of it, or feel free to speak more on that as well.

Speaker 1 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?

Speaker 1 In the beginning, when I joined FTX, my initial impressions were that he

Speaker 1 had

Speaker 1 pretty clear intuition

Speaker 1 and insight into

Speaker 1 the simple things to do that would work.

Speaker 1 You know,

Speaker 1 in many ways, if you think about what FTX did, it wasn't really super complicated. It was like just be operationally good

Speaker 1 and

Speaker 1 give your trading customers as predictable of an experience as possible with regards to collateral management and auto-liquidation and mashing engine behavior and latency.

Speaker 1 And so they did it. I would say, aside from the intuition,

Speaker 1 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.

Speaker 1 I think, besides that, as a leader, I thought he was, you know, fairly incompetent. I thought he was...
you know, very conflict avoidant.

Speaker 1 You know, he didn't like to get into direct confrontation with any of his employees, where

Speaker 1 most of the reasons why people needed to talk to him were because there were significant issues,

Speaker 1 whether those were personnel or otherwise.

Speaker 1 And he just blew them off. I mean, that was a frequent occurrence within the company.
I mean, he was,

Speaker 1 if you went to Bahamas, and I went only a couple of times to actually visit the office,

Speaker 1 if he was in the office, he was there all day on calls.

Speaker 1 All day, whether those were with investors or with media, podcasts, whatever. It was just consistently just doing that.

Speaker 1 And I saw very, very little time where he actually got up and talked to anyone else within the company about anything. You know, so I think

Speaker 1 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

Speaker 1 that role in the absence. Got it.
And then so who was making these day-to-day decisions in the absence of sam

Speaker 1 on the

Speaker 1 foreign side on the in the bahamas nishhad 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

Speaker 1 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.

Speaker 1 But again, it was always, we were always sort of below the decision-making authority that was happening in the Bahamas, especially inside of the home where they were all living.

Speaker 1 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.

Speaker 1 Was this competence sort of built while SBF was still doing media stuff or was this built before he kind of went on the PR trade and like

Speaker 1 how was this product built while the CEO was kind of distracted?

Speaker 1 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.

Speaker 1 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.

Speaker 1 Having been 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 EtherSpot position on this one exchange,

Speaker 1 you could get liquidated on your EtherFutures position, even if you had enough EtherSpot as collateral, because you needed to have that SPOT crypto within the Ether Futures Spot collateral wallet, which was different than the EtherSpot wallet.

Speaker 1 And so

Speaker 1 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.

Speaker 1 And so Sam told and worked with Gary and Nisha to build basically a cross-collateralization system where you have just one wallet with all of your assets. all

Speaker 1 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.

Speaker 1 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%.

Speaker 1 It would

Speaker 1 automatically start liquidating small percentages of your portfolio at a time to try to minimize market impact.

Speaker 1 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.

Speaker 1 And so it was much more orderly, it was much more predictable.

Speaker 1 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?

Speaker 1 So I do think in the beginning, they were really working on that product together. And then once the success came and Sam got, you know, drunk on the celebrity of

Speaker 2 being so

Speaker 1 out there and known and having all these newfound connections, that things started to go by the wayside.

Speaker 1 You mentioned that one of these things that he was doing was making these sort of exorbitant deals and

Speaker 1 with celebrities, with acquisitions, branding. What was your understanding at the time of where the money to do this was coming from?

Speaker 1 Yeah, so for example, when I joined the company,

Speaker 1 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?

Speaker 1 But at the time, you could see the

Speaker 1 publicly reported volume on FTX.

Speaker 1 It was something around 15 to 20 billion in notional per day.

Speaker 1 The fee schedule was also public. So even at the

Speaker 1 highest volume tiers,

Speaker 1 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,

Speaker 1 which because like crypto trades every single day, you can get a sense of how much money FTX was making a year.

Speaker 1 And at the time, I think the run rate for FTX was something like close to a billion dollars in income.

Speaker 1 And

Speaker 1 you think, okay, is $19 million

Speaker 1 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.

Speaker 1 Like, how much does Coca-Cola spend per year on marketing as a percentage of their income?

Speaker 1 It's probably somewhere between like 50 and 130%. You know, I don't actually know what it is.
It doesn't seem crazy.

Speaker 1 Yeah, but if you add on top of that the real estate, the other sort of acquisitions. Well, first of all, that stuff came later.

Speaker 1 And secondly, a lot of that wasn't known to

Speaker 1 the employees within the company. Most of the venture deals, the value of the real estate, et cetera, was

Speaker 1 non-public within the company. There were hundred plus million dollar investments into various companies and other investment funds that were never discussed openly, at least to the US people.

Speaker 1 So it wasn't like there was sort of this clear internal accounting where people could look at it and say, hey, like, are you really spending all this money on all this stuff?

Speaker 1 No, I think Sam very deliberately kept all that stuff within his innermost circle for a reason, because he didn't want the criticism on what he was spending on.

Speaker 1 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?

Speaker 1 I had zero access to like, you know, bank account stuff or financials on the FTX.com side.

Speaker 2 On the U.S., I had some.

Speaker 1 but remember now,

Speaker 1 knowing what we now know about

Speaker 1 even recent

Speaker 1 the guilty pleas from the Shad and seeing the complaints from the SEC, CFDC,

Speaker 1 they were deliberately falsifying information that went into ultimately the audited financials. So in order to actually

Speaker 1 have suspected anything, one would have to not only disagree with all of the kind of internal, you know, 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.

Speaker 1 So

Speaker 1 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.
Sure, sure.

Speaker 1 Let's talk about Alameda. So I guess, again, maybe the best point to start this story is also with Jane Street,

Speaker 1 where Caroline Ellison, who went out to become the CEO of Alameda,

Speaker 1 was a trader.

Speaker 1 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.

Speaker 1 It all starts there. Yeah.

Speaker 1 But besides those early interactions, I barely interacted with Caroline, 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,

Speaker 1 the FTX US people communication-wise were walled off

Speaker 1 from Alameda. So we didn't really

Speaker 1 cross paths almost at all.

Speaker 1 What was your understanding of the relationship between Alameda and FTX?

Speaker 1 It was

Speaker 1 this is a completely separate company. Sam doesn't really do anything for them anymore because he is 100% focused on FTX.

Speaker 1 It's separately being run by Caroline and Sam Trabuco.

Speaker 1 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,

Speaker 1 Alameda wasn't even a significant percentage of the exchange volume anymore.

Speaker 1 They weren't in the top 20 market makers on FTX.com or something like that. You mentioned that you had

Speaker 1 contributed to the code base and you had access to the code base. It's people have been speculating about whether Gary or Nashad had hard-coded some sort of special limit for Alameda.

Speaker 1 Did you see any evidence of that in the code base?

Speaker 1 I mean, definitely not.

Speaker 1 You mentioned that you visited the Bahamas offices a few times, and there,

Speaker 1 like the Alameda, there's like four huts, and

Speaker 1 there's like a meeting room, there's where Sam and the engineers are,

Speaker 1 there's the future fund, and then there's like the Alameda hut. Yeah.
Did the physical proximity between the offices, and of course, the fact that the leaders were living together,

Speaker 1 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.

Speaker 1 So I think I didn't fully grasp the extent to which they were all like living in this particular arrangement. But

Speaker 1 I understood that,

Speaker 1 you know, as long as Sam was going to be the 90%

Speaker 1 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 that it had like physical separation from minute to minute.

Speaker 1 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.

Speaker 1 So to some extent, it felt like, well, at least they're going through the right motions of setting up physical separate buildings. I mean, also, this is not uncommon within

Speaker 1 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 you know different institutions.

Speaker 1 And the way they do that is they put them like on different floors in the same building, right?

Speaker 1 And sure, like they can meet each other for lunch in the lobby, but like they set up some actual physical separation.

Speaker 1 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

Speaker 1 a particularly strange thing to me at all.

Speaker 1 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?

Speaker 1 Yeah, the most obvious thing only in hindsight was that

Speaker 1 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 they were like semester bonuses.

Speaker 1 And in the previous semesters, he had paid them early, like in May for the first semester, in November or early December for the second one.

Speaker 1 And he was extremely late in doing the mid-year 2021, 2022 bonuses.

Speaker 1 So much so that people within the company started to freak out. Because there was a lot of bad news in the press about other companies doing layoffs or folding.

Speaker 1 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 is just there's very little communication around this and people were very concerned so

Speaker 1 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, it felt like there was some clear liquidity issue.

Speaker 1 That was probably the most obvious thing. I think everything else is all just

Speaker 1 things that were red flags about the organization, not red flags about potential liquidity issues or fraud. Things like

Speaker 1 the complete inability to hire more people, especially on the developer side, not allowing me to establish separate sort of C-level staff on the US side that would have authority that was really separate from the ones in the Bahamas.

Speaker 1 How completely tightly controlled the dev team was around access to

Speaker 1 the code base 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 Nashad.

Speaker 1 Those seem like red flags now.

Speaker 1 Yep, but not at the time. Did you notice anything weird during the Terra Luna collapse?

Speaker 1 Because in the aftermath, people have said that that's probably when Alameda defaulted on some loans and maybe some

Speaker 1 the sort of like hole dug itself deeper.

Speaker 1 Really, nothing at all. Okay.

Speaker 1 I mean, maybe that's a function of being here in Chicago and just not seeing

Speaker 1 a group of people freaking out, but

Speaker 1 nothing seemed wrong at all. In fact, we started having conversations around

Speaker 1 paying out mid-year bonuses. a couple weeks later after Terra announcement and

Speaker 1 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.

Speaker 1 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.

Speaker 1 So

Speaker 1 all the signs pointed to like things as normal.

Speaker 1 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

Speaker 1 issue or addiction issue at the time.

Speaker 1 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.

Speaker 1 You know, when I knew Sam when he was 21, 22 years old,

Speaker 1 he was like a happy, like healthy-looking kid who was,

Speaker 1 you know, very positive, very talkative,

Speaker 1 got along super well with his, you know, cohort of traders. The people on the desk really liked him.

Speaker 1 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.

Speaker 1 You know, he couldn't get through a conversation without shaking his leg.

Speaker 1 That wasn't at Jane Street, he wasn't like that?

Speaker 2 Not something I remember at all.

Speaker 1 You know, he would snap easily. He would not respond to messages for long periods of time.

Speaker 1 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,

Speaker 1 like his diet, lack of exercise. I mean, people had plenty of

Speaker 1 thoughts about what could be causing it all, but something definitely had deteriorated mentally and physically about him from who I remembered.

Speaker 1 If you had to guess most likely cause of that, what would you say?

Speaker 1 I don't know. I think that's

Speaker 1 up for a professional with credentials that I don't have, but I do think

Speaker 1 it was probably a combination of everything.

Speaker 1 The lack of sleep, the stress he probably was under, not just being in his role, but having...

Speaker 1 kept this secret for so many years around you know whatever was happening with the holes in the exchange and

Speaker 1 the lying he was doing to his own employees, to investors, to auditors.

Speaker 1 Maybe that weighed on him. Maybe it had something to do with his medications.

Speaker 1 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.

Speaker 2 I really don't know. Maybe a mixture of everything.

Speaker 1 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?

Speaker 1 Yeah, so the top three things were one,

Speaker 1 to communicate more with me in particular.

Speaker 1 I could 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.

Speaker 1 I basically said like, we have to talk every week.

Speaker 1 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.

Speaker 1 Number two

Speaker 1 was to establish

Speaker 1 a separate, you know, especially C-level management staff on the U.S. side.

Speaker 1 If Sam was going to be so busy doing what he was doing, at least he needed to delegate that responsibility to like a set of professional managers who could actually take care of the day-to-day operations within the company.

Speaker 1 And it felt like things were starting to unravel in the absence of that. And then the third was to

Speaker 1 grow the tech team and move a lot of the authority and management of that team away from Nashad 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, you know, assigning ourselves and trying to build all these new business lines.

Speaker 1 That pretty much summarizes it. Yeah.
How regularly were you talking? I mean, it wasn't regular.

Speaker 2 I was on chat groups that he was in.

Speaker 1 And so, you know, occasionally he would respond to something I say on that group.

Speaker 1 But one-on-one conversations, I think there were fewer than 10 for my entire tenure. Wow, okay.

Speaker 1 And that was over a year, right? A year and a half. A year and a half, five conversations.
So about like less than one every two months. Yeah.

Speaker 1 How did he respond to this letter?

Speaker 1 So it took a little while before we got on the phone and

Speaker 1 he went through every point and refuted every one.

Speaker 1 Starting with communication, he said, I think phone calls are a waste of time.

Speaker 1 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.

Speaker 1 He said, I think we have the best developer team in the world. And I think anyone who suggests otherwise is completely wrong.

Speaker 1 And if we add more dev a lot more people to the dev team, if we move them to the US and move them away from the Bahamas, we're going to be worse as an organization.

Speaker 1 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

Speaker 1 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.

Speaker 1 He said, we're not fixing anything.

Speaker 1 And then what happened next was he had deputized another person within a company

Speaker 1 to come here to Chicago and pull me into a side room and say,

Speaker 1 You are probably going to be fired for this letter that you wrote.

Speaker 1 And not only are you going to be fired, but

Speaker 1 like your TM is going to destroy your professional reputation. Like, where do you think you're going to be able to work after FTX after all this happened?

Speaker 1 And it was, he was threatening me. And then, not only that,

Speaker 1 he had said,

Speaker 1 if you are going to have any hope of staying, and if you can forget about getting paid bonuses,

Speaker 1 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.

Speaker 2 And I said, like, absolutely not.

Speaker 1 Like, this isn't like a mafia organization. This is like, this is extremely unprofessional.

Speaker 1 And I knew at that point there was absolutely no way I was staying. And it was a matter of when, not if.

Speaker 1 And, but what I did know was that like, I'm still a professional. I'm still loyal to the company.

Speaker 1 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.

Speaker 1 side, and I wasn't going to abandon them.

Speaker 1 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

Speaker 1 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 then early fall.

Speaker 1 And did that happen? Like did after you left, did the did he like try to injure your professional reputation? And

Speaker 1 he did.

Speaker 1 The most, the acute thing that happened was,

Speaker 1 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 FTXUS.

Speaker 1 And he said, no, like, I want you gone, you know, more quickly.

Speaker 1 And so I should say he said that, but he was communicating through other people. He wasn't talking to me directly at that point.

Speaker 1 And so he said, I want you gone on September 27th. So, okay, that's fine with me.
On September 27th, not only did he announce to the company my resignation,

Speaker 1 he also announced that he was closing the Chicago and San Francisco offices and that everyone had to move to Miami.

Speaker 1 And basically, if they didn't move to Miami by a certain date, they were not going to be at the company anymore.

Speaker 1 So

Speaker 1 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

Speaker 1 my leaving was a combination of resignation and firing.

Speaker 1 And that one of the reasons that I had to leave was because I refused to move my family to Miami.

Speaker 1 So basically, I was constructively fired.

Speaker 1 That he had closed down this office that I would, that I had built and that like if I weren't wasn't going to move, that I couldn't have had no role left at the company.

Speaker 1 And so that took a little bit to crawl out from.

Speaker 1 You know, I had to tell people like, well, it's completely false. It didn't happen at all.
And yeah, and he was telling people that he fired me.

Speaker 1 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 an architect have already,

Speaker 1 you already had that idea by this point?

Speaker 1 Yeah, 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,

Speaker 1 you know, do you have Sam's blessing to do this? And I was thinking, why do I need Sam's blessing? I've resigned, I don't work there anymore.

Speaker 1 And 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

Speaker 1 and kind of figure out what he's doing, find out if he wants to invest to

Speaker 1 before we kind of talk to you 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?

Speaker 1 Were they like trying to invest in FTX in the future?

Speaker 1 They were existing FTX investors. And I think it really mattered to them what Sam thought of them.

Speaker 1 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

Speaker 1 potential conflict investing in me too. Was any part of that because Sam had a reputation as, I don't know, if an investor invested in somebody he disapproved of, he would get upset in some way?

Speaker 1 No,

Speaker 1 well, if that happened, I don't know about it, but I think it was just Sam had such a

Speaker 1 kind of magical hold over the entire industry, from investors to media to politicians, that they looked to him for approval.

Speaker 1 Okay, yeah. So at this point, you've left FTX US and you're starting to work on

Speaker 1 your own company. And when is this exactly? This is.

Speaker 1 So I left at the end of, well, my official resignation was the end of September. I had like stopped working earlier than that.

Speaker 1 And so I kind of started to start working on fundraising for the company in October. And then a month later, the thing complodes.
So

Speaker 1 when did you hear the first inkling that there might be some potential trouble?

Speaker 1 The first thing I heard was the

Speaker 1 night before

Speaker 1 the announcement that Binance might be buying FTX.

Speaker 2 I was just looking at Twitter and just saw all of this fear-mongering.

Speaker 1 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's toast.

Speaker 1 And then once Alameda goes under, oh, that's going to be a problem for FTX.

Speaker 1 Pull your funds from FTX.

Speaker 1 And I was just sort of laughing at this because, like, whatever, I'm used to people saying things on Twitter that seem nonsensical.

Speaker 1 And

Speaker 2 first of all,

Speaker 1 Sam and Caroline are great traders. Like, if anything, like, maybe they'll profit from all this volatility and tokens.
And they don't understand.

Speaker 1 Like, there's no way anything's going to happen to Alameda. But also,

Speaker 1 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 at all.

Speaker 1 So I was like, well, you know, this will boil over in a couple of days, like everything else.

Speaker 1 And the next morning, you know, I

Speaker 1 was actually busy talking to like my own lawyers and investors for the company because we were actually closing up our investment round.

Speaker 1 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.

Speaker 1 It was like the worst timing in crypto fundraising history.

Speaker 1 And

Speaker 1 so I was busy all morning.

Speaker 1 And then I went, you know, online and checked Twitter and then saw Sam's tweet that said, you know, like what comes around goes around, and we're going to get acquired by Binance. And I,

Speaker 1 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.

Speaker 1 So before then,

Speaker 1 like, you, you did not think this was possible. And so the

Speaker 1 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.

Speaker 1 And then how did that week unfold for you? You were, I guess, almost about to close your round.

Speaker 1 What happened to the round? And then how were you processing the information? I mean, it was like a crazy week after. right? Yeah.

Speaker 1 The deal falls apart,

Speaker 1 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.

Speaker 1 I mean, first of all, Architect became priority number 1,000 on everyone's list.

Speaker 1 Secondly, a number of those investors

Speaker 1 were trying to do damage control themselves. You know, they either were themselves investors in FTX or FTT.

Speaker 1 They had companies who part of their runway was held on FTX, or they were expecting to get investment from FTX.

Speaker 1 So people were just trying to assess what was happening with their own companies. They were not writing checks into new companies anymore.
So I had to hit pause on the whole thing.

Speaker 1 I mean, for their sake and for my sake. And yeah, just

Speaker 1 what could one do in that situation except for

Speaker 1 just read the news all week? Because

Speaker 1 everything that came out was something brand new and unbelievable, more unfathomable than the thing before.

Speaker 1 And it was a mixture of like rumors on Twitter and articles coming out in major media publications and the kind of the announcement of the bankruptcy. It was just information overload.

Speaker 1 And it was very difficult to parse fact from fiction. And so it was an emotional time.
Yeah, yeah. Understatement, right? All right.
So we've kind of done the whole story of you joining to

Speaker 1 the company collapsing.

Speaker 1 I want to do a sort of like overview of,

Speaker 1 I guess, like what exactly was happening that caused the company to collapse and I guess the lessons there, right? So,

Speaker 1 okay, so in the aftermath, SBF has been saying that FTXUS is fully solvent. They wanted to, they could start processing withdrawals.

Speaker 1 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

Speaker 1 the solvency of FTXUS? The short answer is: I really don't know.

Speaker 1 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? Like, of course, everything's fine.

Speaker 1 Now, it's very difficult to understand what is going on. I mean, first,

Speaker 1 the level of

Speaker 1 deception

Speaker 1 that was

Speaker 1 created by this inner circle of Sam's and now reported through the various complaints and the indictments from DOJ,

Speaker 1 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.

Speaker 1 And then secondly, it sounded like in the week prior to the bankruptcy, there was this flurry of intercompany transfers.

Speaker 1 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.

Speaker 1 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.

Speaker 1 I mean, I was totally cut off from everything FTX at the time that I left.

Speaker 1 Before you left, were the assets of FTXUS custody 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.

Speaker 1 You know, the exchange itself was like a separate database of customers. It ran in like a different AWS cloud than the one that the International Exchange ran on.
Okay, got it. And

Speaker 1 you had full access to this and like it checked out basically more assets and liabilities.

Speaker 1 Right, but remember that the thing that makes them not separate is the fact, and this was completely public, that

Speaker 1 Sam was the CEO of FTX and FTXUS, and Gary was the CTO of FTX and FTXUS, and Nashai was the director of engineering for FTX and FTXUS.

Speaker 1 And so as long as there wasn't this like completely separate Waldoff governance that we were trying to establish while I was there,

Speaker 1 there was never going to be perfect separation between the companies. This was like a known problem.

Speaker 1 And, you know, that's what makes it so difficult to sort of understand the nature of what was potentially happening behind the scenes.

Speaker 1 So I guess we've been talking about the sort of management organizational issues of FTX.

Speaker 1 Were these themselves not like some red flag to you that,

Speaker 1 I don't know, something really weird could be happening here, even if it wasn't like fraud, right? Like they're...

Speaker 1 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.

Speaker 1 Was that itself not something that concerns you? I mean, it concerned me, and I tried to raise concerns multiple times.

Speaker 1 If you raise concerns multiple times and they don't listen, what can you do other than leave? But

Speaker 1 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.

Speaker 1 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.

Speaker 1 And then

Speaker 1 the reins of the company are eventually handed over to professional managers who sort of take it into its maturation phase.

Speaker 1 And I thought, well, really, I'm not that person because, you know, Sam and I have interpersonal issues. But there's 100 plus major investors in FTX.

Speaker 1 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.

Speaker 1 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.

Speaker 1 But there might be, I guess, these sorts of visionaries. A lot of them might have like, you know, problems, to put it

Speaker 1 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.

Speaker 1 That for somebody who's in charge of a multi-billion dollar empire, I don't know, it seems like something that's

Speaker 1 I can't quite speak to like whether people would think there are mental health issues of like other like, you know, people who are supposed to be the kind of figureheads of large companies.

Speaker 1 But remember, at this point, Sam is not leading the day-to-day operations of the company, like many other people are, right?

Speaker 1 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.

Speaker 1 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.

Speaker 1 So,

Speaker 1 you know,

Speaker 1 I didn't witness anything like the addiction stuff firsthand. I definitely thought he was not as happy a person as I met, you know, a long time ago.

Speaker 1 But could you blame a person for, you know, inheriting a $20, $30 billion company and, you know, not taking it super well when you're 29 years old? I think so.

Speaker 1 I mean, you mentioned that, like, given the fact that all hundreds of accredited investors presumably had done good due diligence,

Speaker 1 that gave you some comfort about the ultimate, I guess, soundness of the company.

Speaker 1 But potentially, those hundreds of investors who are relying on the experienced high-level executives that SPF 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.

Speaker 1 And so, in some implicit way, you're lending your credibility to FTX, right?

Speaker 1 And

Speaker 1 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 FDX, they must have done the due diligence themselves.

Speaker 1 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 of it.

Speaker 1 Remember, regardless of how experienced or inexperienced people within the company are, regardless of how many or few investors there are, how many senior lateral hires there are,

Speaker 1 if

Speaker 1 a very small group of individuals who are very smart and very capable

Speaker 1 intentionally

Speaker 1 put forth schemes that deceive people within the company and outside the company about the veracity of records,

Speaker 1 what can you do?

Speaker 1 What is one supposed to do in that situation? If the

Speaker 1 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.

Speaker 1 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.

Speaker 1 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.

Speaker 1 You have more than 10 years of experience in finance. You like saw Lehman happen.

Speaker 1 You've managed really large teams in TradFi. And then you have the skills and the experience.

Speaker 1 And if somebody with your skills and experience, and not only that, your position in FTX as president of FTXUS, if you can't see it coming, and maybe you couldn't, right?

Speaker 1 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.

Speaker 1 But, like, is there somebody who outside of the inner circle you think should have been able to see it coming?

Speaker 1 I don't know. It's a good question: like, when a major fraud happens in such a way where

Speaker 1 it was

Speaker 1 very expertly crafted to

Speaker 1 be hidden from the people who could have done something about it.

Speaker 1 What should one do? I mean, one answer is never trust anyone, right?

Speaker 1 Like every company I ever work for in the future, every time like we say we've like done some transaction, I will ask them to show me the bank records and like give me the number of the bank teller I can call to have them like independently verify every single banking transaction.

Speaker 1 I mean, this is sort of like impractical and ridiculous. It just like it doesn't happen.
And so I think like like it sounds like the counterfactual here is one where,

Speaker 1 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.

Speaker 1 Oh, actually, I want to start auditing all bank transactions for the company that I don't work for.

Speaker 1 Also, I want to like disbelieve audited financials from respected third-party auditors.

Speaker 1 also want to look into the possibility that Sam is like lying under oath in congressional hearings about segregation of customer funds.

Speaker 1 Also, I should disbelieve all of the trusted media outlets and also a hundred financial institutions that have invested in FTX.

Speaker 1 It's like the chain that you have to go through in order to get to a point where you start to

Speaker 1 be able to figure out something is wrong is,

Speaker 1 I think, really impossible. And And I think the bottom line is

Speaker 1 there, you know, for sure should be mandated, you know, at certain stages of company growth,

Speaker 1 independent boards.

Speaker 1 And

Speaker 1 I think that a lot of that has to do with 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.

Speaker 1 I think that maybe could have helped, but besides that, I think this is ultimately a job for enforcement.

Speaker 1 Like, people will commit crimes, and there's nothing one can do to stop all people from committing all possible future crimes.

Speaker 1 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.

Speaker 1 But I guess they're not letting you hire people.

Speaker 1 They're like overseeing writing the actual code for FTXUS from the Bahamas.

Speaker 1 Not something that makes you think, why are they doing this? It's like a little odd. I just thought it was not the right way to run the company.

Speaker 1 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?

Speaker 1 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,

Speaker 1 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?

Speaker 1 I mean, obviously, it's very admirable

Speaker 1 that you put this in 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.

Speaker 1 But but like, is there something else that somebody should do?

Speaker 1 I would say within any company, and I would expect that like the overwhelming majority of companies, if you see bad management, bad management, it does not imply fraud.

Speaker 1 But there's lots of places with bad workplace culture and people are making bad management decisions.

Speaker 1 And it should be that if you find yourself in that position, there is someone you can go to to talk to.

Speaker 1 It might be your manager, 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.

Speaker 1 And then you should see how they handle it. You know, do they take it seriously? Do they make changes? Do they look into the stuff you're talking about?

Speaker 1 Do they encourage cooperative, positive discussion? Do they threaten you? Do they retaliate

Speaker 1 against you in some way? Do they start excluding you from conversations? Do they threaten to withhold pay? If you're in that latter camp, what do you do at that point?

Speaker 1 It's easy for me to say, and I've been in sort of 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.

Speaker 1 But I do think that at some point you have to start making plans. Because what can you do in the face of a giant organization that you disagree with other than leave?

Speaker 1 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 you were heavily involved with talking to them.

Speaker 1 What was their attitude towards FTX like before it fell?

Speaker 1 All the regulators were, I think, in the common belief that crypto was a large and viable asset class.

Speaker 1 And

Speaker 1 in order for it to grow grow in a responsible way, it needs to come within the regulatory envelopes that already exist in whatever way that's appropriate for crypto.

Speaker 1 And crypto could mean a lot of different things. We have to maybe distinguish between centralized and decentralized finance here.
But

Speaker 1 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.

Speaker 1 When I was preparing to interview SPF, actually, I got a chance to learn about your proposal to the CFTC to, 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 US, but to derivatives for stocks and other assets.

Speaker 1 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?

Speaker 1 Like, what is the future of that innovation to the financial system look like? Yeah, I definitely think it's been set back.

Speaker 1 You know, it's interesting.

Speaker 1 Walt Lucan from the Futures Industry Association, in a conference that was shortly after the class of FTX,

Speaker 1 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,

Speaker 1 the idea of

Speaker 1 building a future system that can evolve with a 24-7

Speaker 1 world

Speaker 1 is still a worthwhile endeavor and something that we should consider and pursue and be ready for.

Speaker 1 We are 3D printing organs and coming up with like specially designed mRNA vaccines, but like you still can't get a margin call on a Saturday for an SP 500 future.

Speaker 1 There's like some real lack of evolution in market structure in a number of areas of traditional finance and

Speaker 1 I think it's still a worthwhile endeavor to pursue it. I think the Lao Ledger X proposal makes a lot of sense.

Speaker 1 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.

Speaker 1 And there were still unaddressed questions there.

Speaker 1 But I still think that it was the right idea.

Speaker 1 During those hearings, I guess the establishment, you know, CMU and others brought up criticisms like, oh, we have these sort of biscuit relationships with our clients.

Speaker 1 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 algorithm.

Speaker 1 And you have this sort of cascade where the bottom falls out. And

Speaker 1 even though 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?

Speaker 1 A lot of FCMs have auto-liquidation.

Speaker 1 There is one particular one where they actually automatically close you every day at 4 p.m.

Speaker 1 and they do it in a really bad way. So the idea of auto-liquidation is not new.

Speaker 1 The idea of direct to customer clearing is not new. The idea of cross-collateralization is not new.

Speaker 1 The thing thing I think that was novel about FTX was putting all together. It was direct to customer, margining, cross-collateralization, auto-liquidation.
And so

Speaker 1 in order for

Speaker 1 the

Speaker 1 regulators to get comfortable with the application, they had to understand that FTX was one entity, was performing the roles that typically multiple different entities perform.

Speaker 1 And you always need 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?

Speaker 1 I think that remains to be seen. And I think we don't have enough experience, especially in the U.S., with that kind of model to be able to say whether it actually works better or worse.

Speaker 1 I think either way, it was worth a try.

Speaker 1 And I think maybe the biggest misconception about the application was that

Speaker 1 if we got approved, it meant suddenly FTX is going to list everything from corn to soybeans to oil to S ⁇ P 500 overnight and completely destroy the existing derivatives landscape.

Speaker 1 I think what would have actually happened was FTX would have gotten permission to list one contract on kind of small size,

Speaker 1 and there would have been experience with the platform and it would have

Speaker 1 been assessed compared to the alternatives on traditional CCPs. And if it was worse, changes would have been made.

Speaker 1 And if it was better, it would evolve and the market would basically decide what people wanted to trade on.

Speaker 1 I do think 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 an auto-liquidation cascade?

Speaker 1 Then again, on large TCPs now in the US and Europe, there are margin breaches all the time. So the current system is far from perfect.

Speaker 1 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?

Speaker 1 You had to go through the lengthy approval process if you're a giant company to begin with.

Speaker 1 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.

Speaker 1 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?

Speaker 1 I think I disagree with the premise. Like I don't think the point of crypto is regulatory arbitrage.
I think the

Speaker 1 while crypto remains unregulated,

Speaker 1 it is easier to get something set in crypto than if it were regulated. That's sort of like totological.

Speaker 1 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.

Speaker 1 Maybe it's like the 50 state regulators in the US or it's some combination of like

Speaker 1 money transfer and

Speaker 1 CFD or broker-dealer activity in Europe.

Speaker 1 So I think this is, 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.

Speaker 1 One very important question about the whole FTX thing is like, what did 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?

Speaker 1 Like, what do you know was different than what has been reported?

Speaker 1 I actually think

Speaker 1 not much. And I think the reason for that is,

Speaker 1 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

Speaker 1 to the credit of the investigators working on this case, they moved so quickly that they had unsealed indictments within, what, two months of this going down.

Speaker 1 And so having kind of a lot of the truth

Speaker 1 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.

Speaker 1 And whether that's from like a Twitter troll or if it's from Sam Fankman Freed 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.

Speaker 1 What did you make of his press tour in the aftermath?

Speaker 1 Like, why did he do it? And like, yeah, what was your impression of it?

Speaker 1 I'm not going to really speculate what's inside Sam's head.

Speaker 1 I think

Speaker 1 Sam had built up his empire through partly

Speaker 1 his control over media.

Speaker 1 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?

Speaker 1 And maybe I can sway public opinion. If I can sway public opinion, maybe I can sway

Speaker 1 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.

Speaker 1 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

Speaker 1 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.

Speaker 1 There's many different organizations who

Speaker 1 have had their alumni go on to have really incredible careers in technology.

Speaker 1 Famously, PayPal had a mafia, so-called mafia, where they wanted to found YouTube with Elon Musk, you know, SpaceX, Tesla, so many other companies came out of the people who came out of PayPal.

Speaker 1 And Bern Hobart has this interesting theory that 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 go then go on to

Speaker 1 do powerful things with the network and the skills they've accumulated.

Speaker 1 Do you think that there will be an FTX mafia?

Speaker 1 The number of the most talented people within FTX FTX are leaving

Speaker 1 FTX in a slightly different position than the people exiting PayPal at acquisition. I would say they're in positions more like actual mafia people.

Speaker 1 But 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

Speaker 1 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.

Speaker 1 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.

Speaker 1 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.

Speaker 2 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.

Speaker 1 Yeah.

Speaker 1 I'm not sure I have enough context to understand all of that. So

Speaker 1 I don't know, but

Speaker 1 a few grade levels below.

Speaker 2 Sure.

Speaker 1 So like, like backing up like very high level.

Speaker 2 So let's say you are someone who wants to trade crypto in some way. Or

Speaker 2 what do you actually have to do?

Speaker 2 So imagine you want to do something slightly more than just like sign up for Coinbase and like clip the buttons there. Like let's say you would like to find the best price across multiple exchanges.

Speaker 2 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.

Speaker 2 And maybe not only that, you also want to store your assets in off-exchange custody as much as possible.

Speaker 1 Well,

Speaker 2 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 those different exchanges, if you actually want to build a system that unifies all these things, you have this buy versus build choice.

Speaker 2 And the build choice looks like hire like five to ten software developers and get them to write code that understands all the different protocols and different exchanges, all the idiosyncratic to them, that downloads market data, that stores the market data, that connects to these different custodians, that kind of bridges all these things together, that provides some kind of like user interface that pulls it all together.

Speaker 2 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.

Speaker 2 And as a trader, you want to focus your time on like strategy development and alpha and monetization and not on like, how do I connect to random exchange?

Speaker 2 So the goal of Architect is to build this sort of like commodity software that people can then sort of deploy out of the box that gives them access to all of these different venues all at the same time.

Speaker 1 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.

Speaker 2 So I think that's like the place we want to start.

Speaker 2 But one phenomenon in crypto that I think is somewhat new and exciting is the fact that,

Speaker 2 okay,

Speaker 2 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, you know, get...

Speaker 2 hooked up to an existing broker. You need to get market data, which can be very expensive.

Speaker 1 Like Like the

Speaker 2 full depth of book feed from NASDAQ costs like tens of thousands of dollars per month.

Speaker 2 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.

Speaker 2 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 the incumbent players.

Speaker 2 Whereas in crypto, many of the markets are just in the cloud, like in Amazon's cloud or Alibaba's cloud.

Speaker 2 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.

Speaker 2 All the market data is free. The order entry is free.
The protocols are usually fairly simple.

Speaker 2 Like you can use like, you know, JSON over a WebSocket as opposed to speaking like Fix over some private line.

Speaker 2 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 quick trading or like simple algos using Python or whatever.

Speaker 2 And they can do that and experiment easily because of the open access of crypto markets. And so

Speaker 2 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 prop shops and different institutions.

Speaker 1 And is the goal to

Speaker 1 is crypto the ultimate market you're targeting or are there other asset classes that you also want to provide the service to?

Speaker 2 We're building very general infrastructure and you know we think crypto is a viable asset class but it's one of many.

Speaker 2 And our goal is to provide like institutional grade connectivity and software to anyone who wants to participate in trading in a semi-sophisticated way.

Speaker 2 So I think over time, we'll want to grow our offering as much as possible.

Speaker 1 Given the fact that NASDAQ or whatever already have these

Speaker 1 barriers, is it possible for someone to remove those barriers with a solution like yours? Or

Speaker 1 I mean, I guess an analogy that comes to mind is,

Speaker 1 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

Speaker 1 NASDAQ?

Speaker 2 Yeah, you can't connect to NASDAQ without connecting to NASDAQ. You can't not go through a broker-dealer.

Speaker 2 But I think that we could eventually try to get the appropriate licensing required to be an intermediary that is focused on being a technology-forward

Speaker 2 interface towards people being able to do more program trading. And so,

Speaker 2 if the mission of our company is to provide better access, I think we can do so within within the existing system.

Speaker 1 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,

Speaker 1 why haven't these exchanges built this stuff already? I mean,

Speaker 1 you're a part of one such exchange and maybe you function better than the other ones, but

Speaker 1 I mean, you know, they're highly profitable, they have a bunch of money, why haven't they invested in making their infrastructure really great?

Speaker 2 So, in many cases, their infrastructure is very good. It's more a question of what's the incentive of the exchange.

Speaker 2 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 like market fragmentation problem.

Speaker 2 And the question is, whose responsibility is it to make software that helps solve that problem?

Speaker 2 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 like make my exchange better.

Speaker 2 So I'm going to put all of my RD dollars into providing new products and offering new different kinds of services or maybe investment advisory or lowering the barrier to entry to connecting to my own exchange, but not creating this sort of like pan asset class, pan

Speaker 2 exchange interconnectivity software.

Speaker 1 Got it. Got it.

Speaker 1 And

Speaker 1 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.

Speaker 1 What is your estimate of the relative trading volume of CeFi versus DeFi? Do you think it'll change over time?

Speaker 2 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.

Speaker 1 So,

Speaker 2 you know, people after FTX had asked me, like, hey, why don't you try to start your own exchange?

Speaker 2 Like, take all your knowledge from FTX US and, you know, maybe even like raise money to buy the IP out of bankruptcy and like start a new exchange.

Speaker 2 And my feeling is I don't want to bet personally on the exact direction of crypto trading.

Speaker 2 Like I could see it continuing status quo where like your Coinbases and Binances of the world kind of maintain market share.

Speaker 2 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 decentralized trading environment.

Speaker 2 I could also see it going the complete opposite direction and having the existing highly regulated exchange players like

Speaker 2 NYSE and ASDAC and SIBO, like 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.

Speaker 2 So I'm much more excited about providing the kind of kind of connectivity layer to all of them and saying, regardless of where the liquidity ends up, we'll be able to facilitate it.

Speaker 1 Speaking of FTX, how has your experience with FTX informed the development of Architect? Yeah.

Speaker 2 I mean, first of all, working at FTX, you know, has given me an appreciation for

Speaker 2 just how behind a lot of the infrastructure is on other exchanges.

Speaker 1 You know,

Speaker 2 people really liked trading on FTX. Institutions, especially, really like trading on FTX because the API like made sense.

Speaker 2 It like really did follow kind of the kind of standard state machine of any kind of financial central limit order book that you you would see on a place like NASDAQ or CME.

Speaker 2 Whereas there are a lot of exchanges that have crazy behavior. Like you send a cancel for an order, you get to acknowledge that your order has been canceled, and then you get a fill.

Speaker 2 And you actually get traded on your thing that you supposedly thought you canceled. And things that you think shouldn't be possible are possible.

Speaker 2 So actually, my time at FTX is interesting with relation to Architect because at FTX, it gave me an appreciation for how to design a good API for especially institutions that want to be able to trade all the time.

Speaker 2 And the protocols in some of these other exchanges aren't quite as good. So I think it's informed how

Speaker 2 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.

Speaker 2 I think that's like thing one. I think two is

Speaker 2 Obviously, with 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.

Speaker 2 And so we're thinking a lot about how to design architect such that the user can connect to all these places and hook up their wallets without needing to ever give us any of their private credentials.

Speaker 2 And so that's like another

Speaker 2 particular inspiration from everything that's happened in FTX.

Speaker 1 What is your opinion of crypto in general at this point? Like,

Speaker 1 how has your sort of perception of its promise changed, if at all, given the things?

Speaker 2 Yeah, I mean, I feel the same way now as I did then, which is it's a one to three trillion dollar asset class that is traded by every major institution, that is being invested in by every major institution.

Speaker 2 And so

Speaker 2 it's totally viable and it needs good, mature infrastructure to support its growth.

Speaker 1 Got it. But

Speaker 1 is the motivation also

Speaker 1 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 market exists.

Speaker 1 I don't know what it's going to be good for, but it needs this solution?

Speaker 2 It is. I think, you know, I certainly do believe that that is like a likely future for crypto.

Speaker 2 But to me, like, the interest in it starts with knowing that this is a huge asset class with like, that needs better infrastructure for trading it.

Speaker 1 And in the aftermath of FTX and other things, I mean, all crypto companies have like a special scrutiny on them. And fairly or unfairly, if there's like FTX alumni, it'll be even more so.

Speaker 1 Like, how, how are you convincing potential clients, investors that

Speaker 1 crypto is safe, FTX alumni are safe?

Speaker 2 Yeah, on the FTX alumni side, I just personally haven't had those issues really.

Speaker 2 You know, in like recent months, as 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.

Speaker 1 But by the way, is that like some sort of ARB basically that the overall hiring market is overcorrected on them or something? 100%. Yeah.
And not just an FTX.

Speaker 2 Like right now, like it is, you know, March 2023 as we're recording this, like there is like a huge ARB in the hiring market.

Speaker 2 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.

Speaker 2 I had like the best people who worked for me at FTX US. I had ex-colleagues of mine

Speaker 2 from former jobs that come work with me here. And we actually didn't have to

Speaker 2 do any formal recruiting efforts because of just how much supply there now is on the

Speaker 2 job market for, especially in tech and finance. Luckily, I've had a long career history prior to FTX.
And even at FTX, we built really great stuff.

Speaker 2 We had very good connections, relationships with our customers and our investors.

Speaker 2 There would be times where on Twitter, I would answer a customer's

Speaker 2 support question at 2 o'clock in the morning. And I maintained a lot of those relationships even through the collapse.

Speaker 2 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.

Speaker 2 So all that stuff has remained intact. So I don't really have a concern there.

Speaker 1 What is institutional interest in crypto like at this point, given what's happened?

Speaker 2 I think it is just as great as it was before.

Speaker 2 Every like major investment bank in the U.S. has announced some

Speaker 2 plan to do something with blockchain technology still, even like post-FTX. The top trading institutions in the world are all continuing to trade it.

Speaker 2 I think as of what we're speaking about right now, you know, volumes are down because people are sort of generally fearful.

Speaker 2 But I expect that to turn around pretty quickly. And the institutional interest still remains really high.
People are definitely expecting and waiting for

Speaker 2 proper regulatory oversight, especially in the U.S. That's still happening.
People are waiting for

Speaker 2 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.

Speaker 2 But otherwise, the interest is all completely there.

Speaker 1 A broader question somebody could have about crypto at this point is,

Speaker 1 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?

Speaker 1 You can tell a story that, listening, helps capital allocation,

Speaker 1 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?

Speaker 2 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?

Speaker 2 Like, how important is it for the world that people can trade gold efficiently or they can trade oil efficiently?

Speaker 1 I think the answer is...

Speaker 2 like if people have a use for the underlying commodity, then it's important. And so like, what's maybe then is like, like, well, what's the use of crypto?

Speaker 2 Well, I think like 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.

Speaker 1 But if

Speaker 2 you believe in Bitcoin as sort of like a store of value and a great medium of exchange, then it's important that there's a good, fair price for Bitcoin to enable that.

Speaker 2 If you think that the Ether token is important for like the the gas fees required to run like a decentralized computer and you think that the programs running on a decentralized computer are important, then it's important for there to be like a good price for Ether that's fair.

Speaker 2 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.

Speaker 2 And sometimes there are tokens that have more security-like properties where they are like trading Apple stock.

Speaker 1 You know, basically, like

Speaker 2 there is a, was an initial offering of that token, and then if people bought it, it actually directly funded the product behind the token.

Speaker 2 And then the efficient trading of that token is sort of of a barometer for the health of that particular company.

Speaker 2 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.

Speaker 1 That's a great leading to the next question, which is:

Speaker 1 will there ever be a time when

Speaker 1 things that are equivalent to stocks or other kinds of equities will be traded on change in some sort of decentralized way?

Speaker 2 I think it's likely.

Speaker 2 I think the primary reason is that

Speaker 2 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.

Speaker 2 So equities are a prime example of this.

Speaker 2 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.

Speaker 2 that one told you like what trades were settled and two told you things like if any corporate actions had occurred overnight, like paying a dividend or a share split.

Speaker 2 And they would frequently be wrong.

Speaker 2 Like the dividend would be wrong, or it would be missing, or like the share split or amount was for the wrong amount, or they missed the day that it happened, or they messed up some trades, it didn't get reported properly.

Speaker 2 And there were just frequently mistakes. And it feels like there should be some easy, transparent, kind of open, decentralized settlement layer for like all things that you can trade.

Speaker 2 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.

Speaker 2 Because fixed income products have even worse settlement cycles than equities.

Speaker 1 Should the marginal crypto trader stop trading?

Speaker 1 Maybe this might also be a good question to ask about the marginal trader for, I don't know, on Robin Hood or something, but.

Speaker 2 I have a couple of thoughts about this. So, the first is that I don't think crypto markets are as efficient as equity markets.

Speaker 2 So, there's probably more opportunities for short and long-term edge as a trader in crypto than there would be in equities.

Speaker 2 That being said, I think

Speaker 2 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.

Speaker 2 And I actually think it's the wrong conventional wisdom to think that if you are not Dane Street or Citadel or Hutton River or Tower or jump trading, then you have no chance of being able to profit in markets except for luck.

Speaker 2 I do think there are a lot of people who trade and it's like pure speculation. It's not really on me to tell them that they shouldn't speculate.

Speaker 2 They probably derive some personal enjoyment from speculation besides the opportunity for profit. But I do think

Speaker 2 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.

Speaker 1 Okay, so that is, I think, a good point to end the conversation. We got a chance to talk about a lot of things.

Speaker 1 Let's let the audience know where they can find out more about Architect and also where they can find your

Speaker 1 Twitter and other sorts of links.

Speaker 2 Sure. Yeah.
So Architect's website is architect.xyz.

Speaker 2 We also have architect underscore xyz on Twitter, and I'm Brett Harrison88 on Twitter.

Speaker 1 Okay, perfect. Awesome.
Brett, thank you so much for being on the Lunar Society. This was a lot of fun.

Speaker 2 Thank you so much.

Speaker 1 Hey, everybody. I hope you enjoyed that episode.

Speaker 1 Just wanted to let you know that in order to help pay for the bills associated with this podcast, I'm turning on paid subscriptions on my SEP stack at warcachebatel.com.

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Speaker 1 I appreciate your listening. I'll see you next time.
Cheers.