The State of the Crypto Economy with Sam Bankman-Fried

Blockchain technology is facilitating a fundamental shift in power from centralized organizations to the individual. This shift has the potential to transform the economy: people can now actively participate in economic governance with the use of digital currencies. In this episode of The Money Movement, we dive deep into the blockchain-based economy and consider the impact of policies and regulations on the development of crypto’s economic infrastructure. 

Joining us this week to discuss this topic is Sam Bankman-Fried, Founder and CEO at FTX, a graduate from MIT with a degree in physics. He was a trader on Jane Street Capital’s international ETF desk, specializing in futures, currencies, equities, and various ETFs. He also designed their automated OTC trading system. Sam also worked as the Director of Development at The Centre for Effective Altruism, the CEO at Alameda Research, and now works as the Chief Executive Officer at FTX, a cryptocurrency derivatives exchange.

Jeremy Allaire: Welcome, Sam, how are you doing?

Sam: Doing well. How are you?

Jeremy Allaire: I'm great. It's great to have you back on the podcast, I got a lot of different things I want to chat with you about today, looking forward to the conversation a lot. I want to maybe just start, by stepping kind of way back a little bit and asking you some questions that are more broadly about crypto's impact on the world, and bigger questions about sort of, as I like to say, why bother?

I had, I remember in college, a professor he'd always ask like, "Why bother? Why are you doing what you're doing? What actually matters, et cetera." I think when people look at what's going on with crypto, there's very simplistic things that people can see. Obviously, you've talked a lot about effective altruism, and that kind of long game from a value creation perspective and the impact on the world, but really specifically when you think about like, why bother? Why are you working on what you're working on? I'd love to hear just some high-level thoughts on that. What makes this so significant as a problem space to work in?

Sam: I think there's a lot of angles of that. Maybe I'll start just from the market structure part of this, which I think is underrated and really influential, which is that crypto generally has a fairly direct market structure, where everyone has equitable access, it is what it is. You compare that to equities market structure, where you go through 10 different intermediaries, table consumer can't even see the order of what they're trading on unless you're paying tens of millions of dollars a year. It's an insane setup.

I think that there's a lot to be said for the direct equitable access of the crypto industry and for what that can help inform and contribute to other financial products. I'm really excited to work on that market structure piece of it, and hopefully, help bring what I think is a more appropriate market structure to consumers. I think that's something that, in one sense, it's an accident. Just like cryptos, new Earth gets to start from scratch and think about things again.

From another perspective, when you talk about custody and clearing and things like that, what does it mean to declare or custody a stock? There's no thing exactly that you're custodying, it's all just convention, and it makes that process pretty messy. Who is the arbiter of whether someone holds a stock? I don't know. You have to create a lot of infrastructures to even answer that question.

The fact that you can actually answer the question of who owns this Bitcoin, who owns this USDC, means that all of a sudden, you don't need to have this special clearing and custody firm-type object exactly. It's just like, who has custody? Well, you can look on the fucking blockchain and it says. I think that clears up part of the mess. I do think that the fact that it's happening on blockchain rails actually does help this to some extent, and that you don't need a ton of intermediaries to facilitate a transfer of an asset from one venue to another in crypto, you can just do it directly.

Jeremy Allaire: Yes. Maybe pushing on that a little bit, I'll ask the question again, why does that matter? Why does it matter that direct access to capital markets, aside from maybe making it more fair and equitable to participate in markets, more open, accessible markets, why does that matter? Why do markets matter at all? Why are we so passionate about solving this market structure issue? What is that going to do for society and improve the world?

Sam: I think I almost want to start with prediction markets, in a sense. What are prediction markets? I think they're a really cool idea, although we haven't seen them implemented I think yet in a way that that takes off. It's this idea of, if you want to figure out if something's going to happen in the world, you could create a market for it. If you want to figure out what the temperature is going to be in five years, you create a market for it, people can trade on that market.

Then you have market forces which can come to a conclusion about what is the market price of the temperature five years from now. Now, if you're anything from researching global warming and trying to understand the impact to your models, to working at a business that depends on temperature, whether it's in the energy sector, whether you're thinking about the impact on crops, or anything else, you can now get a consensus answer from that and help inform you.

That's just another way of saying, it's a way to get the wisdom of the crowds, combined with making people put their money where their mouth is. So that if someone's just totally full of shit and wrong about all their predictions, they cease to be an important market participant pretty quickly. Then you rewind and say, "Well, what do markets do nowadays?" They do that for different assets.

If you want to know, if you want to buy oil, first of all, it's important that you have a lot of liquidity to access that you don't get totally ripped off on you-- Or if you're buying corn. You're a supermarket, you don't want to pay five times as much as is fair. But who knows what fair is? Well, there's a market. Also, if you're doing financial planning as any sort of entity or business, and you want to know like, "Well, all right, we're going to be selling some corn, what should we be thinking at pricing it at? How is that going to flow through to our financials?" You're going to look at financial products on it and answer that.

Then you look at companies, why does the stock market matter for them? Well, investors have to figure out how much capital makes sense to allocate to them. How much it makes sense to be investing in their business so that they can help grow it out. If their business is twiddling thumbs, and we somehow end up in a world where twiddling thumbs gets like $3 trillion of our assets, it's going to be thumb for you, and that's a pretty big waste for the world. We need some way to say like, "No, that--

Jeremy Allaire: We want to avoid thumb-twiddling that's a good why bother. [laughs] I think part of what you're getting at here is markets and information, they're sort of like two sides of the same coin. At the end of the day, if markets produce information and they seek to have the best information and that's because it has value. [laughs] That information is extraordinarily valuable to some decision.

I think part of what you're saying is, crypto and blockchains have the potential to bring more truth-seeking in a sense and that truth-seeking can be incentivized so that we're getting to the best truths possible. That actors in the real world and the real economy are going to be able to have greater assurance and more effectiveness in using that information. Information and economic velocity on the planet can be enhanced by this kind of infrastructure.

Sam: I think that's exactly right. This starts to tie in as well to, you look at, and this is just another side of that same coin, and I think that's the easy overall point about why is money useful? Bartering kind of sucks.

Jeremy Allaire: Information system at the end of the day.

Sam: Exactly. There's a reason that we moved on from bartering to liquid sources of funds. I think this again, this is another piece of that picture.

Jeremy Allaire: Money is a record-keeping system and that's just an information organization system and it has a social convention, which is really useful to participants and the world we're-- This is just a way better one because it's trust minimized, global, extremely inexpensive to interact with, and so on.

Sam: When you start talking about money as a record-keeping system, all of a sudden, it starts to make sense why a ledger is the type of thing that-- Why is blockchain so useful for money? Well, blockchain is a global decentralized ledger, that's exactly what you need when you're trying to do record keeping, is a ledger. I think that's where that tie-in comes from.

Jeremy Allaire: I have a fun story which I've shared a few times, which is, I met with the CIO of the federal reserve some time ago, and I asked him, I said, "What is the actual dollar? Talk about the tech stack, what is the dollar?" I pressed on him and he said, "Well, what do you mean?" I was like, "Well, is it a database? What kind of database is it," and so on. It turned out the dollar is a cluster of Oracle databases running on like Sun Microsystem, clusters of Sun microsystems.

The [crosstalk] database. That's interesting. I jokingly asked, "When you guys go and buy $30 billion worth of mortgage-backed securities with quantitative easing, is that like a SQL INSERT statement, and then you have the $30 billion and then you go get the bonds?" [laughs]

Effectively, it is so. QE is just SQL INSERT statements in this cluster of Oracle databases. At the end of the day it's like, "Whose record-keeping system are you dependent on and whose record-keeping system do you trust? What's available most broadly to the most people on the planet to interact with and use?" I want to latter off this question a little bit, and this starts to get towards some of the higher-order policy discussions that are going on right now, which I know you're involved in and we are too.

There's a view that, I think that the traditional view of this whole space has been like, "This is the speculative assets and all this sort of stuff." We can set aside for a moment but there's another view which builds on a little bit of what we were just talking about. Which is that this is actually the next generation of economic infrastructure for the planet. This is actually an infrastructure that provides a new substrate for the organization of economic activity.

When you think about it in that lens, it takes on a whole new perspective for people. I think from a policy perspective it's like, "Wait a minute, we're not just talking about do we want to regulate whether people can trade Bitcoin or Stablecoins or whatever it is." It's sort of, this is actually a strategic infrastructure that's being worked on. That's being worked on collectively all around the world. Like, "What is this and what impact is it going to have?" I'd love to hear you talk a little bit about this whole space, crypto infrastructure itself, the market structure stuff that's happening on top of it, as economic infrastructure. It's like new economic infrastructure.

Sam: Let's talk about a remittance, or it could be social media message. I think the same story is going to work for both of them, which is interesting. Let's maybe do a remittance to start. You're trying to send money from someone in America to someone in Brazil, say. This gets back to your question pretty quickly to the Federal Reserve of, what is a $1? You're trying to send $1 from one to the other, what is this thing you're trying to send exactly? What do you mean $1 or is it a Brazilian real? Like what does that mean?

It gets worse because they don't talk to each other. The current system, it's, "Will the dollar and the real have completely non-overlapping systems?" That's weird. How could you send money from someone? What this gets to in the end is like, "If you want to have two different people communicate with each other and transfer information or assets or anything like that, you have three options. You can have some private company that stores a ledger." That's what we have on social media right now.

Jeremy Allaire: Yes. That's like PayPal or whatever.

Sam: Exactly. There are absolutely cases where I think that makes sense, but I think we've also seen a lot of cases where that causes problems in the world. All you have to do is try and look at the reaction to the various decisions Facebook has tried to make about whether to censor content around elections, to see some of those pain points. That's one thing you can do.

I think it makes a lot of sense in small isolated instances where you serve efficient and you can innovate quickly on it, but that's a very different thing from saying that that's the answer that we can trust for everything. I think it serves probably isn't that. That's one option. If you don't want that a variant is you could [unintelligible 00:12:16] be a government. You could say, what we're going to do is we're going to say that, who controls how these two systems talk to each other? How I try to [crosstalk]--

Jeremy Allaire: Who's got read/ write access to the regulated database basically.

Sam: You could say it's the government that does and like, "Okay," but you actually start getting some nasty questions pretty quickly around, "Okay, the government? Which government?" Again, this is a transfer between someone in Brazil and someone in the United States, which government was it again that was controlling this transfer. When you really specify actually that's going to be a problem and it's not obvious what the right answer should be there.

Even if you didn't have these two government question, if there's only ever one government, which is not the case, I don't know. When you're talking about systems that are giving feedback to the government, that sometimes is negative. I think maybe there were reasons to be a little bit concerned about the government controlling those rails. I think we see some countries today where that's how it works. I think it has some properties that many people are not a huge fan of.

What's the third answer? Which is neither of those. If it's not a corporation, and it's not a government, something else is holding this ledger, this record. What's the other option?

I think that blockchain technology is basically the first time that we've had a plausible answer to that. Of like, "What is the thing that's neither a corporation nor a government but that can transmit information?" The internet, sorry, actually, is more--

Jeremy Allaire: The internet, and this is just basically the next growth of the internet, in some ways. It's just like the next logical infrastructure layer, the next logical protocol layer of the internet. It's just taking on a greater role in society. It's just continuing to update that basis. The great examples of this are like, in the early days of the internet if you wanted to have a voice phone call with someone, for the most part actually, most of those voice phone calls were actually routed through infrastructure that were government-controlled in most places, and actually operated by national monopolies in those governments and the governments had backdoors to listen in on anything that was said.

The concept that you could freely interconnect to anyone over just open-source software and protocols on the internet was just like, "No way. People's heads exploded. The whole society is going to break down. Terrible things are going to happen." The world of information and communications was that and then it upgraded. We're basically seeing the same kind of thing happening here with this economic infrastructure.

Sam: That's basically right.

Jeremy Allaire: Coming back on the policy side, which is, if you are the government, let's say you're representing the interests of people in the country, say, Congress as an example. You're a congressperson or a senator and you're looking at this and you're trying to figure out like, "If this is this new economic infrastructure, what does that mean for the future development of our economy? What does that mean for the opportunities that this is going to create for households and for firms and things like that?"

"Should I as a policymaker be looking at this as this is super strategic economic infrastructure the US or other countries who are looking a this just need to invest in and lead and so on. Does this become an issue of national competitiveness to enable the development of this and enable society at large be able to interact with it and actually do no harm and create a way for that to take place?"

Sam: Certainly, at least to some extent. I think a lot of that question hasn't been answered yet by the world, and we're going to have to see how some things turn out. Here are at least some ways in which I think the answer to that is clearly going to be yes. One of them is we're talking about the rails, and which rails. Then we've been talking like, we've been saying watching, I think we've almost just been assuming without justification that we're talking about some open decentralized network that is agnostic.

That actually doesn't need to be the case, and there are in fact, a number of parties that would probably prefer that not be the case, and instead be a closed network that they themselves control. You could imagine a world where each government does this and censorship goes rampant, and no one can talk to anyone from another country. You probably don't want that. There's one part of this, which is supporting open, transparent--

Jeremy Allaire: Just make sure that the principles of the open internet are preserved in the context of this economic infrastructure, right?

Sam: I think that's one piece of it. A second piece though is when you're talking about open infrastructure, I think a great and terrible part of it, I think, is that good, but it's not safe, it gives people access and choice. People can choose which protocols do they want to access on this. Again, I think that's great. It's like, "If the worlds' citizens got more choice, I think that'd be good, and I think most people would think that'd probably be good."

What that means is that it matters which options there are. What we choose now is going to have long-run impact potentially, on what, in-practice, what decisions people make here. In one version of the world, you end up with, let's talk about stable coins, that is probably the clearest example right now. Right now stable coins, and people [unintelligible 00:17:53], it's so true people forget even that it's true, stable coin means US dollar stable coin. Right now there basically aren't other stable coins.

That's not the way the world needs to be. I could imagine having stable coins on anything, and I think it's an open question of where that ends up. If I were the Feds here, I'd be thinking like, "I had hoped the answer is US dollar, seems like a pretty good answer to me. I hope the answer isn't other currencies." I don't know, that seems like a real factor to me.

When you're thinking about what stable coin policy should be, there's going to be options for people to use.

I think it's in a lot of people's interests to think about what they want those options to be. I think stable coins are awesome in a lot of ways. Even if you don't, I think you should be asking yourself hard questions about whether that really means you should be trying to get rid of stable coins or whether that means that you should be thinking about it mattering which stable coins become the prominent ones.

Jeremy Allaire: Clearly, the overlap, and we made this point, obviously, a fair amount, which is the overlap of national competitiveness, competitiveness of the dollar, this new global economic infrastructure, which is going to achieve internet scale in the coming years. Those will matter a lot, will have a huge impact. I like to ask question like, if you're the US government, what would you like the currency of the internet to be? [chuckles]

I think that the point you were making earlier about just the criticality of just ensuring that people can choose what protocols to interact with, and that that openness is paramount and preserved, that piece, that's the air we breathe. I think we all experience that with the internet as a whole. It's just getting people to make that leap that actually, "No, that's going to need to be the case for your economic infrastructure as well."

It's just that hasn't been the case historically because it's been these regulated database operators that control that. Now we're saying, "No, it's the open internet." It's just hard for people to fully get themselves there.

Sam: Really makes sense.

Jeremy Allaire: Another piece, just a ladder off this, which relates to this, which is the latent technology potential. This concept of there's latent aspirations that people have. I've always liked that concept in technology. There was a latent aspiration to be able to have on-demand instant transportation anywhere through a seamless handheld device that was there, that could coordinate work and delivery and all this. Clearly, that was the latent aspiration we had but no one was asking for it. In 2007, when the iPhone came out, no one was saying like, "I want on-demand drivers that just works seamlessly."

The idea of the latent technology capabilities is that when you have these converging technologies and you have these new capabilities that can build, no one can actually predict yet what people are going to do with it. I think one of the really exciting things about crypto and about public chains and smart contracts is there's latent power to, just say the dollar itself, people oftentimes are saying, "Well, what can you use the stable coin for that you can't do with a traditional dollar, like the ACH money or whatever?"

There's a lot of answers to that that are really straightforward that you can give, but the ultimate answer that I like to give is like, "Actually, we don't know. Because programmable money has only ever existed for three years, and barely. Programmable dollars on the internet or programmable other currencies on the internet, that's a completely new thing." It gets back to this thing like there's this infrastructure that's being built and we don't yet know what people are going to do with it. We need optionality to be able to use these protocols, because of all the latent potential that's there.

I'd love to hear your thoughts on people throw around programmable money, but the latent power that exists from that, what do you think we're going to invent with programmable mobile money? What are the problems people can solve? What are the things that people are going to invent, whether it's in business models or other things? Because I think it's helpful to just shed a little bit of light on that so people can get a glimmer in their eye of how someone's going to build the Uber of money.

That's a stupid analogy, I realize. The idea that people are going to create things out of this substrate that just hadn't been done before. [unintelligible 00:22:32] as an example that to some degree, people are like, "Okay, this whole new model of earning through playing and so on." What are some things that you see in that context?

Sam: It's super interesting and of course, part of the answer has to be I don't know. Because the whole point is that you don't know and we'll be surprised by what we find. Ignoring that for a second and talking about, "Well, okay, fine, but seriously, what might happen?" I think interoperability is one thing I keep coming back to. Is this fact that we have so many systems today that are just not interoperable with each other.

I think people even forget that that's the case but it is very much the case. When you look at any two social media networks, for instance, totally not interoperable with each other.

When you take a step back, it's insane that I'm on Facebook, you're on Twitter, those don't talk to each other. It fractures communication. If you want to talk to someone in Korea, good fucking luck, [unintelligible 00:23:34] easy to talk? It's about how you connect with your friends. You have that problem, which I think is a real thing and something that again, I think people forget how important that is.

I think that's one thing. Two, I think another thing that I point to you is, and this is in the general direction, like banking, the unbanked, and equitable market access, that-- I can tell you that until I got into crypto and had to manage a business's bank account for the first time, I had no idea how hard it was. I just obstructed that away. It's like, "Then you like your bank transfer."

Then I try to do then and I'm like, "Oh, boy, we're spending five man-hours per day trying to do bank transfers and failing." It's like, "How can that be how our bank is--" It's insane. I think people just don't realize how hard it is to send money and we've obstructed away. Like how does the average everyday person pay for this? Well, it's credit card fees. It's like 3% of all of their expenses are going to pay overdraft.

Jeremy Allaire: You dig beneath the surface and that's actually just a giant amount of databases with secure FTP servers and CSV files. Is the underpinning of all that.

Sam: It's exactly right, and it's crazy. It's not how you build a system today and it has real consequences for people. Then you talk about people who are unbanked or underbanked and you listen to their frustrations and I think it's really interesting to do this. There is just not quite what you'd expect if you're not coming. If you're so fortunate the way that I had been, I forget what types of problems one might have.

[unintelligible 00:25:16] but they're really serious and they're weird. You listen like, "Oh, God, that's a problem. I don't even think about that but I guess now that you say it, sure." I don't like managing all the shit that's going on from credit card, overdraft payments, when everything is lagging and you don't even know if it's going to be an overdraft. Because I don't know, three days, I got to make the payment now, and then later I'll figure out whether I was allowed to. That's a little weird. There's like so many ways.

Jeremy Allaire: I just think that just getting clobbered in all these ways in some respects.

Sam: Exactly and it's insane. I think it has real costs for the world that I think people-- I know I can at least confidently say that I used to underestimate those costs. I think those are like two things I'd point to. Remittances is a similar thing. It's like [unintelligible 00:26:10] like, "20%, to transfer money to Nigeria, we're pretty good at it." I'm like "Jeez, that's pretty good at this." It means that your customers are losing 20% of their assets?

Jeremy Allaire: We're seeing so many startups that are building apps with USDC in Africa and in markets, and just trying to try to make that fast and inexpensive. It's pretty cool. I want to come back to a little bit of the theme of what can people do with this economic infrastructure that we haven't thought of. Obviously, Defy itself is a great example of programmable money. People are basically building protocols that allow people to interact with money in all these different ways.

The other one though that is, obviously, I think, fascinating is DAOs and basically, corporate forms that exist on chain. That's an example of programmable money and programmable governance and other things as well. As we use this framework of this is a new economic infrastructure layer of the internet and people are going to build things that just weren't possible before. This is essentially the new multinational.

[unintelligible 00:27:20] internet. I'd be interested in your view on obviously, there's a lot of experimentation in there and a lot of tooling and things being built, but when do these become producers of goods and services? When do these become entities that actually represent real new economic forums that are competitive with what we think of as traditional economic forums?

Sam: It's a really good question. My guess is that probably regulation is what that's waiting on, and in particular, let's say you have a DAO and you're like, you've got this new whatever, a new economic unit and we're going to do it by it a DAO, and that's what's going to make decisions. Then it makes a decision and that decision is different than what a ball would be like. If you instead went through court, the court would say X, [unintelligible 00:28:17] why, what happens?

I think no one really knows exactly what law governs DAOs. It's like, is this contracts law? I think that this is one of these things where I think it's going to be hard for it to play a huge role in society until we've started to go through that process. If you want to say what's an example of this, let's take one, let's take the DAO. Let's go all the way back to the beginning, the thing that ultimately called Aetherium classic board. Then there's the question of like, "Well, okay, what happens there? What determines whether or not those transactions are reversed?"

Is it, do you go to court and ask them to reverse a blockchain transaction? Do you have a vote of one of the networks if there's a [unintelligible 00:29:05], what does that mean? What's the real network and what does-- There's lots of interesting questions here. I don't know what the right answer is, but I think that there's a lot of work to do to resolve all those tensions before people can put a trillion dollars in a DAO, and feel like they know what that means.

Jeremy Allaire: It feels like we're going to see more experiments of DAOs trying to produce things and then people are going to deal with the huge complexity of how does the DAO contract? What does that mean? All of these forms of commercial law, labor law, all this stuff that interacts with it. I agree with the view that case law in a sense is going to be the laboratory of DAO. It's just people going to be doing things and be like, "Okay, well, what is this mean, and trying to walk through that."

It does strike me that this is one of those spaces where there's latent economic and technical potential and no one really knows what people are going to invent with that. It may be that there are labor market protocols that get invented that are really powerful that businesses can adopt that are pluggable protocols for labor. That becomes a new building block for commerce on the internet or things like that. Cool.

I want to change gears and ask you about tokens versus equity and really look at this through a couple of lenses. Like equity, you guys are looking at potentially offering equity trading on FTX US. Which was cool. I know you already do tokenized equity exists on, but how do you think about the difference between something that's natively a token versus tokenized equity? What do you think the advantages are on either side of that for people who are using these? I just would love to hear your thoughts.

Sam: I don't know how this is all going to end up. I can tell you how I think about it now, which is I think we're in the very early days of what will become, at least for some period, a situation where tokenized equity is the equity as stable coins are to dollars. What is tokenized equity? It's a tokenized wrapper on this underlying financial asset. One of the pros and cons of it is the same thing as talking about the pros and cons of stable coins versus dollars. Which is basically I think tokenize equities can be a lot easier to interface with and get a lot of advantages but at least for a while it's probably not going to be the actual equity, it's just going to be a proxy for the equity.

At least for a while, there going to be times when you need to convert back and forth in order to go between an ecosystem based on the tokenized version and the ecosystem based on the underlying version. I think there's going to be pressure over time to move more and more towards the tokenized version, or more systems move there. Because again, you can ask questions like who holds this asset and get answers in a clear, concise, and unambiguous way. Anyone can query that and I think there's a lot of power in that.

Jeremy Allaire: Taking these databases and just making them work on a blockchain and all the benefits that come from that. The other related question though is a token that exists on a project that's [unintelligible 00:32:22] a protocol and building something in that way. How do you think about the difference between a crypto token that exists in its native form versus something like equity, from a broader markets perspective?

Sam: I think it's still to be determined. I think that there's a lot of interesting things there that are going to depend on what the evolution of their protocol tokens look like. In particular, I think the questions this is going to center around are what is the decor schtick with protocol tokens? Are they given in collectors on-chain or are they governance mechanisms at their core?

Equity served as both traditionally. I think that to the extent that they end up really interestingly different, I think a lot of that's going to look at the governance aspect. I think governance is a lot clearer and easier to execute on-chain than through current corporate governance mechanisms, especially for people beyond the five people on the board or whatever.

When you're talking about random stakeholders, how can you coordinate between 10,000 stakeholders? The answers is, blockchain gives a way to do that and would have governance go to the stakeholders on-chain if you want. I think that's one big difference and I think that might end up being a really fundamental part of what makes governance tokens interesting. I think that's going to be a pretty clear distinction. The other thing is that you can have multiple governance tokens for different purposes. They can be different in lots of ways. You can technically have multiple share classes or something, but not in the sort of diversity of where you have lots of tokens associated with something.

Jeremy Allaire: [inaudible 00:34:06], for sure. It ties to why protocol dials are interesting. Because you can execute on all kinds of social coordination in ways that are really, really hard to do in the traditional [inaudible 00:34:21]. Cool.

I know we're going to come up on time here, but I want to talk about identity. A long time ago, I always felt like there are a couple of missing layers on the internet. One of the natural missing layers was money and another missing layer was identity. There are lots of reasons why money and identity, which are so related to each other as well, didn't really exist on the internet in any kind of protocolized way, but crypto primitives actually start to make it possible to solve both.

Obviously, we're seeing that solved with money. As you look at what's happening in crypto today, in crypto finance, and DeFi and DAOs and use of NFTs and all these things, how do you think about identity, both real-world identity expressed on-chain, as well as the multiple forms of identity tokenization that can be utilized with things like NFTs? What do you think needs to happen with identity to unlock more mainstream use of all this infrastructure?

Sam: I think that the big thing we're missing is on-chain identity. The reason for that is that right now when you think about identity, what you're thinking about something that only exists in centralized pools. There's identity on FTXs where a centralized exchange that can collect KYC information, there's no identity elsewhere. There's [unintelligible 00:35:47]. You have blockchain addresses, but you can always create new blockchain addresses.

I think that when identity gets on-chain, it unlocks a lot of things, and it is not that hard too. It's like these things we've talked of before. I'll give you a really dumb version of it, and I'm not saying this is the right way or the best way but it's like a pretty clear proof that it isn't that hard to do something here. Which is just like we [unintelligible 00:36:13] people's FTX account, we can create a button, you click that button, you type in your blockchain address.

We output some comments to the blockchain saying "We verify that this blockchain address is associated with the KYC to account on FTX." Now all of a sudden, any on-chain protocol can read that. There's lots of variants on that you can do but I think at its core you can have on-chain notices produced by centralized identities that represent or confirm identities, and all of a sudden now you can have on-chain applications that interface with identity. That's one big piece of this.

Then the second thing I want to talk about is a little bit of a different aspect of it, is like social identity. You see this with people's Twitter feeds, Facebook profiles, you see this with their in-game accomplishments in a video game. They're currently all fractured and there's not a coherent sense of someone's identity. There's their LinkedIn, there's their Facebook, there is their, whatever, League of Legends page displays their STATs. With some combination of on-chain identity with NFTs and other things, you can all of a sudden have a blockchain address which starts to accumulate various forms of identity from a lot of different sources, and everyone can read all of those.

All of a sudden, identity, it's like, "Who is Jim?" You send them an address and Jim pops up [unintelligible 00:37:37] like, "Oh, wow, I just learned a lot about Jim." You want an accomplishment that you had in some digital protocol to become a part of your identity. You could just add that, tack that onto your address, and then forevermore, it ease in a way any other person or application can see.

Jeremy Allaire: There's privacy [inaudible 00:37:57] with some of that, but there's [inaudible 00:37:59] commissioning and models. We're going to need a lot of different crypto addresses to deal with the fact that we deal with all these privacy preferences and stuff as well. As you know, we're optimistic about some [inaudible 00:38:13] in this space and now it's like a huge unlock for a lot of things. Cool. It was a pleasure to--

Sam: As always.

Jeremy Allaire: Thanks for joining the conversation and we'll see you really soon.

Sam: All right. Super excited, and excited for what hopefully the industry can become.

Jeremy Allaire: Totally.


[00:38:47] [END OF AUDIO]

Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Sam Bankman-Fried
CEO, FTX and Alameda Research

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