The Future of Crypto Exchanges with Brett Harrison of FTX.US

According to FTX.US President Brett Harrison, the purpose of FTX is to provide a comprehensive investment solution to consumers across all asset classes. In this episode, Harrison discusses the factors that make this feasible, including derivatives that are critical for institutional market involvement because they allow investors to efficiently deploy money across a number of positions without committing the full underlying asset.

Brett delves into what led to FTX's bigger vision. He discusses crypto exchanges and equities, highlights the prospects he sees in the crypto and blockchain development, NFTs platforms, and what the future holds for FTX.US and the crypto industry as a whole.

Brett outlines new criteria for how crypto exchanges could function as gatekeepers for the listing of crypto assets as more institutional investors enter the arena, as well as future market dynamics such as the discovery of pricing in an organized way. He also explains one of the fundamental roles of financial markets in allowing for the expression of opinions and the transfer of risk, and the current system architecture of crypto exchanges is constrained.

Joining us this week to explore this topic is Brett Harrison, President of FTX.US. Brett was previously the Head of Semi-Systematic Technology at Citadel Securities, where he was in charge of technology for the firm's worldwide options, ETF, OTC, and ADR trading. He started and spent most of his career at Jane Street, where he oversaw the development of the firm's algorithmic trading systems. He formerly worked as a senior software engineer at Headlands Technologies. Brett earned a master's degree and a bachelor's degree in computer science from Harvard University.

Jeremy Allaire: Hello, and welcome to the money movement. We are filming here from Davos at the World Economic Forum in May of 2022. I'm very excited to have as a guest, Brett Harrison, the President of FTX US. Welcome, Brett.

Brett Harrison: Thanks for having me to the show.

Jeremy: Absolutely, we had to come all the way to the mountains of Switzerland to do this.

Brett: That's right. New York or Chicago to Boston was way too short. We had to get all the way out here in Davos to make it happen.

Jeremy: This is good. We're actually in a prison cell in a building. Literally, no

[laughter]

Brett: Literally, yes.

Jeremy: No, we're not. It's great to have you here. Just because we're here, and I know this is your first time at the World Economic Forum. A lot of people were talking about how much crypto is at Davos. There's news articles and stuff about it. What's your take on that and what's your observations around that just for people who I'm sure are really interested in that phenomenon?

Brett: This is my first time here to WEF. What's interesting to see is the juxtaposition between the actual programming at the forum in terms of the talks. There's still a lot of skepticism here about crypto in general, its impact on energy use and climate, and whether it should be regulated, whether there should be CBDCs. On the other side of that, you see on the promenade here, the main street where different companies are sponsoring these houses on the front lines here, there's so much crypto here, everything Polkadot, Polygon, Tether, Filecoin, Circle. There's so much crypto present here, and so it's interesting to see those two things play off each other.

Jeremy: Yes, it is, it is. We got involved years ago, and it was really hard to actually get a crypto company to even be a member of the forum for a while. It's really interesting this year, there was a leading exchange from India, a leading exchange from Thailand, obviously, FTX and other some blockchains, and some DeFi protocols, and that's cool. I think part of my view on that is need to evolve the agenda from the inside. In a sense is like the more members there are, that are actually focused on this, the more that this is just going to get to be a bigger and bigger thing, and not just on the promenade, but in the forum itself.

Brett: With or without the crypto companies, the discussions is about crypto. Everyone is talking about crypto. We want to make sure that we're present in the room for those discussions, too, so that we can work with them, and develop all this new policy responsibly.

Jeremy: There are a couple of sessions like the US Economic Outlook or whatever, and all of a sudden, Senator Toomey was out there talking about stablecoin policy and the global economic outlook, which is like what's going to happen the whole economy? All of a sudden, the managing director of the IMF was talking about stablecoin and crypto and stuff. It is obviously, really, really topical. It's an interesting backdrop and certainly interesting times for FTX, and for you as well. I actually want to start with you a little bit. We met I think about a year ago. I think literally within the first couple of weeks of you starting at FTX.

Brett: Yes, it's right.

Jeremy: It's been quite a year.

[laugh]

Brett: A lot more grace here than a year ago. It's been a crazy year.

Jeremy: It has been a crazy year. Let's talk for a moment, though about life before FTX. For the viewers and listeners just a little bit about yourself. Obviously, I know you had a history with Sam and got brought in, but just take a minute on that, and then I may have a follow-up.

Brett: Sure. I was a computer scientist in college. At some point, I knew I wanted to do some kind of programming, and figured that at that time, it wasn't so obvious, there was this huge array of jobs that were available to programmers as there are now. Programmers are in such high demand right now. I thought, "Okay, either I end up at a big tech company like Google, or I'll stay and teach," so I thought the two options were. Then I had a lot of friends who are going into quantitative finance, companies like DE Shaw, and Jane Street. I had a bunch of friends who were going to be interning at Jane Street, and they said, "You should check this out, too."

I knew nothing about the world of finance, absolutely nothing, but then I followed them to Jane Street. I interned there, and I just loved it. I stayed there. Actually, I was first hired as a trader and then moved over to doing full-time development on things like the algorithmic trading systems and low latency order entry gateways and market data handlers, and these kinds of things. I then grew to manage teams of engineers building out large distributed systems.

It was while I was at Jane Street that I overlapped with Sam Bankman-Fried, CEO, co-founder of FTX, for about four years. We worked on a couple of projects together. We discovered we were both vegan and had shared interests in animal welfare, and so we soon became friends. Then we took our divergent paths in life for a little bit. He went to go found LME and FTX. I went to follow my wife to Chicago and start a family.

Then more recently, I was at Citadel Securities for a year and a half. Towards the end of my time there, Sam said, "Hey, you want to come over to FTX?" At the time, actually, I wasn't really following crypto too deeply, but this was such an exciting opportunity to get into this world. I said, "Yes, absolutely, when do I start?" Then, so I started on May 12, 2021, was my first day in FTX, and so it's been a little over a year.

Jeremy: It's been a while so a big change from your prior work into being the president of this high-growth crypto exchange, and company, and broader stuff, -

Brett: Absolutely.

Jeremy: -which is pretty amazing. I would actually want to drill into one thing, which is, I'm always interested in how people understand the role of markets. A lot of times when people think about a crypto exchange, or what is that? It's generally like, "Oh, that's a place people go to speculate on cryptocurrencies or whatever," which there's truth, obviously, in that.

Brett: Sure.

Jeremy: You've worked, it sounds, obviously, just from the prior work like on the deeper aspects of the function of a market. Just maybe philosophically, what do you think the role of markets are outside of crypto, just broadly? What do you think the role of markets are and then we can bring that into crypto and how it connects ultimately over time to the real economy?

Brett: I'll start by saying, one of the most common things people ask on Twitter to an exchange is when are you going to list this token, that token, my token? The question is, why does anyone care about listing a token on an exchange? The reason why you need that is because you have to have a central place for price discovery and liquidity. In general, in capital markets, the reason why companies can raise funds to develop their products and services and hire employees is because there's a liquid capital market where they can issue equity or sometimes debt, and then receive that investment back and have a place where people can have a transparent price discovery mechanism on the value of a company.

This is just completely critical to capital markets. The role of an exchange is to provide this central, very organized, orderly place for that price discovery to happen. From my background at Jane Street, where we were trading in 100 different markets around the world, and also different asset classes, equities, futures, bonds, different kinds of derivatives, there's not a single canonical way to set up a market. Every market has their own microstructure, their own rules, their ways of handling things like volatility halts, and circuit breakers. Some of them have closing auctions, and some of them have different hours of the day trading and different order types.

There's so much that goes into the design of an exchange, and a lot of the design of that exchange affects the ability for people to officially express their opinion about an asset. That's why there's competition among exchanges, and why it's so important for us to exist is because we're trying to innovate on that important, very fundamental mechanism in the token economy as a whole, which is to provide that central place for people to come together and express those opinions.

Jeremy: That makes sense. I think the role of capital markets, again, outside of crypto, for the time being, the role of capital markets is to support real economic activity. The price discovery is necessary because you need these markets such that, like you said, a business that is trying to grow or growth is obviously the biggest thing, or whatever that is. It's people who need to trade wheat because it's important to the commerce, all these things. It's information, it's signaling of information that's needed for economic actors, et cetera.

Brett: Not just on the growth side, it's maybe not great for the company, but for the general public good, it's important to be able to express the downside as well. If a company is not doing well, if there's something wrong with the company, if you find out a company's a fraud, you need a place where you can actually very transparently see the market expressed the opinion that company may not be worth as much so that investors understand that and can make an informed opinion. Otherwise, if everything is closed and off-market, you'll never be able to know what's going on.

Jeremy: Obviously, in Credify markets, these markets are amazing, but they're fairly, you've probably heard the phrase the longtail. The longtail theory of you've got the head, the torso, and the tail. The head is the biggest things out there. The torso is the fat middle. Then the tail is super niche. You have that in a lot of markets; you have these long tails. In traditional capital markets, the markets are mostly like the head and the torso at best. The things that trade on exchanges, for example, that have that liquidity and price discovery, like a small-medium enterprise, can't really do that. They can't get on there.

It's that whole mechanism of both capital formation, and access, and signaling, and information is only available to companies that are maybe bigger. They can get listed on the New York Stock Exchange or listed on an exchange. Similarly, there's a higher bar. There's these disclosures. You have these filings. They're extremely detailed, and higher threshold there. In crypto, it's a lot more open. I think there's pluses and minuses to that. I think when people react, sometimes crypto skeptics will say, "Well, there's 19,000 different cryptocurrencies," whatever that means. Markets in Credify play a gatekeeper role in a sense, in addition to regulators like the SEC.

Securities regulators, disclosures, risk, et cetera, accounting standards, everyone's playing by the same rulebook, so to speak. That doesn't really exist in crypto. There's not disclosure standards at this point. Obviously, as a market, you're making decisions about things just like, a traditional market would, but what do you see as the fundamental differences between digital asset markets, crypto assets, et cetera, and Credify, pluses and minuses, et cetera?

Brett: Backing up to traditional equity markets for a second, to just talk through what that currently looks like. I'm going to get the numbers not precise here, but there's something like 8,000 listed US equities. Places like the New York Stock Exchange, the NASDAQ Stock Exchange, the Cboe stock exchanges, they have these listing standards where you have to meet a certain market capitalization or various other standards in order to be able to list on the exchange. If you suddenly don't meet those standards anymore, you could get delisted. There's a venue called OTC Markets, with the capital M.

This is a place where companies whose stock don't meet the listing standards of these public exchanges, but still want a venue for the price discovery can list. There's a couple of example, like Fannie Mae or Nestle, and Nintendo's ADRs. These trade on OTC Markets. They don't meet the listing standards for NYSE or NASDAQ. There's probably 10 to 20,000 more equities on there. There's tens of thousands of stocks of various degree of listing standard quality out there for people to trade. Of course, as you get down the long tail, the requirements change. You might have to be a certain member of the exchange in order to be able to transact in these things.

You need certain licenses to be able to offer those kinds of securities. The degree of disclosure, the degree of safety goes up as you go down the tail. I think that's the system that basically works. In crypto, moving over crypto now, there is no clear market regulator for crypto exchanges in the US. We are regulated according to this 50-state money transmitter, money service business regime under FinCEN, which is very important for the movement of money, the money movement. The movement of money in and out of the exchange, but not so much for the functioning of the exchange itself. Standards around how the order book should behave or anti-market manipulation, but also listing standards.

Without that, the exchanges like ours are left to create that standard ourselves. We have those standards. They're very, very high in the US. We list something like 25 total tokens. We're way, way behind our competitors in terms of volume because we keep the standard very high. Also because there are securities laws issues, concerns there, but that aside, we have those standards. Even on the international side as well, we also have a listing standard that's evolving and developing.

We have a couple of hundred tokens on the foreign exchange ftx.com, a very small slice of the 19,000 available tokens. There's an interesting question about the role that we play as a gatekeeper. We don't want to be picking winners and losers of token projects, but we do want to make sure that there's a standard upheld so that we're not endorsing something we think has no future, as opposed to have some risk in volatility because there's lots things with risk and volatility on traditional exchanges, different risk profiles, you think disclosure's most important.

Jeremy: Thinly traded things, also more risky for market manipulation, and all kinds of things.

Brett: Absolutely. There are lots of thinly traded, volatile ETFs on ARCA. They meet a certain standard, a certain level of disclosure requirements. For our upcoming derivatives offering in the US, we've actually developed a listing standard that we've published online as a draft that we are intending to use for all of the assets going forward. We want to make sure people understand, what's the supply of the token?

Who are the people who could edit the code of the underlying protocol? Is it a governance token? Is it a protocol token? Is it a GameFi token? What is it? Who are the people who invented it? Where is the supply? Is it majority with a particular single owner? I think these things are going to help investors over time.

Jeremy: You're jumping out in front of these in a sense disclosure requirements because you're effectively saying, "These are the things that need to be disclosed," or that you're finding yourself-- [crosstalk]

Brett: Quite frankly, we've said to regulators, "We need a listing standard." Everyone's been saying that for years. We haven't gotten one, so we've said, "That's fine. We'll create our own. If a better one comes along, then we'll happily adapt." In the meantime, we want to come out ahead and say, "We really care about these kinds of disclosures and consumer protection. We're going to take the lead on this and publish something."

Jeremy: Which is great. I think another just pulling the thread here, talk about token classification a little bit, right?

Brett: Sure.

Jeremy: I think not all tokens are created equal.

Brett: That's obvious, right.

Jeremy: We're dealing with a new asset class very clearly, and a token that is involved in the functioning of a technology protocol that is involved in the functioning of governance of a technology protocol. That's just like a novel, a new thing that didn't exist, never existed before, et cetera. As you think about, the broad buckets, how do you think about those today?

Brett: It's a good question. A lot of people try to compare tokens to traditional stocks. Sometimes that works. There's a lot of companies out there, particularly non-US companies that they issue a token, that's like a proxy for a share in their company. Sometimes they even say, "We'll take the profits of the company and payout rewards to the token holders in proportion to our revenue." Well, that's like a dividend. Feels very much like a stock.

Jeremy: Yes, clearly.

Brett: Then you have things like a governance token. Owning this token gives you a share of a vote for future changes to a protocol. Well, that doesn't really sound like an equity in company at all.

Jeremy: You're not generating income.

Brett: No, exactly.

Jeremy: There's no promise of future cash flows.

Brett: Right, so you have things like, on one end of the spectrum, things that feel like investment contracts where someone telling you that they hope that you will receive a future return on this token based on the success of some project, some company. It's an investment contract. On the complete opposite end of the spectrum, you have something like Bitcoin, which feels very much like gold. I know it's cliche to call it digital gold, but it is very much--

Jeremy: Digital commodities.

Brett: It's a digital commodity. It basically something where the supply is completely known and fixed and capped. The distribution of it is completely known and fixed and capped. It otherwise, has no inherent utility except for people using it as a means of either transfer of value or store of value. Then you have this gigantic gray area in the middle between these things. Things like similar to Bitcoin, tokens that are rewards for people validating transactions in a network. They support the underlying protocol. You have governance tokens. You have utility tokens of various kinds that are rewards for actions and some sort of protocol. You have yield-bearing tokens that are part of some sort of Staking or DeFi protocol.

You have wrapped tokens. Token that purely exist as a derivative on something else to be able to bridge between different blockchains and NFTs, which are single, supply one token that could represent anything from art to music, to a climate carbon credit, and everything in between. There's not really a single answer and it's constantly evolving, but we're starting to see more of the Standard & Poor's creates their sectors for different kinds of stocks, industrials, energy, financials, technology. We're starting to see that similar classification happens in tokens.

Jeremy: Well, we were on a panel as you know yesterday or whatever, [laughs] and the question was like, how broad will tokenization go? How long tail did these markets get? I think arguing there might be millions of options or whatever that are out there and so on. As that classification goes, how do you think market participants can deal with the challenge of information and information asymmetry and just navigating that?

Do you think that there are ways to leverage models that we have in really large Internet marketplaces, whether it'd be like the Amazon marketplace or eBay, or YouTube, or whatever you think it was like a marketplace? How do we deal with that scale problem? Obviously, with FTX US, 25 tokens, not every problem today, but assuming that there's a regulatory framework that allows a clear understanding of all these classified things, and you can support it, and grow it, how do you think about that from an end-user perspective?

Brett: One meta point about this is, I think that we underestimate the retail investing class. We assume that they can't figure it out and get the information they need. Think about security, just that particular word, and how much that encompasses things from stocks to ADRs, to ETFs, to bonds to options, to security, futures, everything, all of these things are very different. Yet, retail customers have learned to figure out, "Well, if I'm going to buy an option, I need to understand what's the underlying? Is it a put or a call? What's the strike? What's the expiration as an American-European exercise?

People gain that knowledge through resources largely on the Internet, and to be able to educate themselves. Then you have people who invest in stocks because they heard someone else say they're going to invest in that stock, or because it's got the letter G in it and like, "Today, I feel really great about investing things with letter G." I think you're always going to have people who have a wide range of self-education in terms of investing.

The best thing that we can do as an exchange is provide as much material and disclosure as possible, and help people navigate this. It's one thing to say, "Okay, this is a stock that represents a food delivery company," and that feels like pretty intuitive to people. It's another thing to say, "Okay, well, this is a proof-of-stake validation reward token" to validators. We already lost 99% of the populace, so I think that we need to help create better materials for education, which is something that we're working on actually a lot.

Jeremy: That whole translation, in some ways, these new technologies and their coordination of economic activity, they're very new concepts. They're radically new concepts for a lot of people, and I think it's a bit of a labyrinth for a lot of people who are new to it.

Brett: Not just that, but it's-- I know you like to talk about how USDC is like the HTTP of money. When you think about HTTP, people use it every day. I've been using it for decades, but most people don't know what it is.

Jeremy: They have no idea it even exits.

Brett: Even if they know, they're supposed to type http:// and then URL, it's just like training. People just know they have to do it. Imagine now, that HTTP was backed by a token and suddenly, you require people to have some actual understanding of what the protocol mechanics are that produces this token's value. It's hard to think about. You're requiring people to really delve behind computer science a bit to understand some of this stuff, which is pretty wild.

Jeremy: Definitely. One follow-up on the markets piece, which is when do you think that crypto markets cross over into the real economy? There's a bit of softball because it's like, "Well, you crypto markets might actually start allowing people to trade stocks." Maybe you could talk a little bit about that because you already announced some stuff. Then beyond bringing existing stocks in, do you see an opportunity for this to extend the capital markets beyond what traditional stock markets do today?

Brett: Sure. There's essentially a couple of ways to think about that question. One is, to what extent will tokenization bleed back into traditional kinds of assets? Things like, at some point, we'll probably see tokenization of stocks in the US. Already ftx.com has tokenization of stocks, which is pretty amazing. It's basically completely instant settlement, 24/7 stock trading of US Securities. That might be one. I think we will see the tokenization of assets over time. Now, I think we need more support and cooperation with regulators in the US to bring that to life but--

Jeremy: Some standards for how that will really work cross-venue and all that.

Brett: Not just to pander the Circle, but I think we're already seeing that a lot with the digitization of money where exchanges are supporting the efficient conversion of fiat into stablecoins and stablecoins becoming not just a means participating in DeFi, but away for paying people for private equity. A lot of private equity deals that FTX ventures do, we say, "We really hope they accept USDC. It's so much easier to send 10 million USDC than it is in USD." That, in essence, has already bled over so what might be one thing you're talking about.

The other might be how does the technology that underpins crypto exchanges help affect traditional market structure. That's something we think about a lot because, for example, in our big application in front of the CFTC right now for our derivatives exchange, where we're looking to propose something pretty novel, which is the combination of real-time 24/7 direct-to-customer margin on derivatives, that is something that--

Jeremy: Something which you already technically do, it's--

Brett: Yes, we do that in ftx.com, looking to bring that model into the US CFTC regulatory envelope. That is an example of something that is not itself crypto. There's nothing really crypto about it. We're a centralized exchange. It's like a database, an algorithm inside of an exchange, but that is very much inspired by crypto being a 24/7, always online, real-time settlement--

Jeremy: I think you can consolidate the custody settlement matching everything all in this single set of software.

Brett: We don't need a network of 10 intermediaries to be able to affect those transactions. That's where we see things pulling over to the traditional side.

Jeremy: Yes, we see that even with USDC, the venture-investing example, like Circle ventures, we invest in USDC, of course. Clearly, even really large firms that trade huge volumes of securities bilaterally or equity swaps or other things, just like settlement in banking is not continuous 24/7/365. You're taking various types of collateral risks. You're taking all kinds of risks, and so something like USDC could cross over there.

I've long been interested in this idea that ultimately, smaller and smaller businesses would be able to efficiently access various forms of debt and equity-like capital market structures that were convened through digital, through blockchains, and where just like all of these longtail markets, whether it's content, or commerce, or transportation, or whatever that we see on the Internet, the Internet's really good at solving information asymmetry problems. Why is it that I trust that the seller on this marketplace, that the product is real, that it's what they say it is, and then I'm going to receive it?

There's been these risks and reputation and other things have happened, and so I have to believe that that can work for a new global capital market, which works at scale. Even for, I'm a small landowner in a country that needs capital to do something in a way to have a tokenized representation of future value that can become bundled into something then someone somewhere else is thematically investing, in a sense, into that, and that can all be settled seamlessly with stablecoins [crosstalk].

Brett: In my past life, we dealt with something called free of payment risk, where let's say you're doing arbitrage between the US and Brazil, and you have to go through a local Brazilian payments provider. There's this moment between the mismatch and settlement times where you have put up money for something, and then you're waiting for that thing to be delivered back and then crossing your fingers. What happens if that bank goes under in the intervening two or three days? That's the risk you're taking on the idea of just completely removing that risk from the market through instant settlement I think is extremely powerful.

Jeremy: We're also advocates of full reserve banking and sound money theory of fiat, and that's a whole another discussion I need to get into, but I think for settlement, at the end of the day, if it's like you know what this is and what this collateral is, it's not somebody else's debt obligation. It's actually the sound money, but another discussion, very interesting. I guess, let's just maybe pivot a little bit to the novelty of not only how FTX is built things, but how you're bringing that to Washington.

I know the whole FTX team is involved in that and putting forward a lot of ideas about new market structures and new proposals on how to supervise this. It seems like we're right on the cusp of potentially some groundbreaking ways to think about supervision in these markets. What are the high-level goals of that? I know there's legislation that's out in front on this, and then obviously, the specific application that you guys have in.

Brett: Sure. We definitely have a lot going on in Washington right now. It's been really exciting to be really front and center for a lot of interests and movement in digital asset regulation and policy-making right now. I'd say as an aside, one fun thing about all of this is that we've had such enormous success as a company by just showing up in person with us, the stakeholders of this company.

You'd be surprised how many meetings we've just been able to take by sending an email to someone fairly high-ranking and saying, "Hey, do you want to learn about digital assets? We're going to be in town. We'll answer any question you like. We have no agenda," and everyone takes those meetings. We've had really great conversations. It's just incredible.

Jeremy: It's always been our philosophy, walking through the front door and just being there to educate. It's like it's not that hard, no.

Brett: I asked Mark Wetjen, after one particularly exciting meeting we had, "How on earth did we get this meeting? Who did you have to go through?" He was like, "I just emailed them." [chuckles] It's like always a Gmail account and we email them. We have a couple of things going on right now. The biggest and most exciting thing for us is last October; we acquired a company called LedgerX, which is a CFTC-regulated derivatives exchange clearinghouse. However, as a clearinghouse, they were required to fully collateralize all positions.

That's because they were doing something pretty novel, which is well, not totally novel, as other clearing houses that do this, but something pretty interesting, which is going direct to the customer. The idea is that they could onboard a customer directly onto the clearing house in exchange without going through an intermediary broker or futures commission merchant FCM, which is how many of the traditional clearing houses work.

However, overseas, all of the other crypto exchanges, where more than 97% of all crypto derivatives volume is trading happens on these exchanges where, not only do they take the customers directly, but they offer margin. Derivatives are only really an interesting product to trade and a very important product to trade if you get the capital efficiency of not having to put up the full value of the position ahead of time. However, for volatile markets like cryptocurrencies, it's really important to be able to manage the risk efficiently and to do it 24/7.

Most traditional clearing houses do margin calculation once per day, five days a week, and not on weekends or holidays, which means if you put on some very large position on Friday at 3:00 PM, and then a war breaks out on Saturday, all of a sudden by Monday or Tuesday, your position has moved three days' worth of very high vol. People get liquidated. They've blown out huge prices locations. On FTX, we do margin calculations every 30 seconds, 24/7. This is the current world we live in of the Internet. It's inspired it. We have this very important application just in front of the CFTC.

Jeremy: Just about the capital market.

Brett: Absolutely, and that's what we strongly believe this is a clearly better functioning risk-reducing market. We have this application in front of the CFTC right now to be able to run that system in US. We have an 800-page application where we describe all the math behind the margin model and all the mechanics of the exchange. We've been making very good progress on that with the staff. There has been a public comment period on that. There's a round table happening literally today at the CFTC with academics and industry participants about the merits of the disintermediated clearing. That's one very exciting thing for us.

The second is, in general, we're trying to push for, as you guys are, responsible stablecoin legislation. We've been responsible helping comments on a couple of members of Congress's potential bills for just common sense small targeted legislation for stablecoin. Then the third is, we would really like to push for there to be comprehensive regulation of spot crypto exchanges in US, which currently don't have a good home among any of our regulators.

We have a couple of simultaneous paths there with the CFTC, with the SEC. We have this strategic partnership with IEX. The Form 1 Securities Exchange and working with them to try to figure out how to create a digital asset securities market regulation structure that would pass muster with the SEC and allow us to potentially bring digitized securities to market in US. There is a lot of stuff that we have going on right now there.

Jeremy: Yes. They all move at different paces.

Brett: Yes, absolutely.

Jeremy: Cool. I want to come back to maybe closer to where we started, which was your own journey into the space. You joined FTX, it sounds like we just talked about you've been really busy working on a lot of things, and obviously, building products, and hiring people, and going to Davos, and doing podcasts. On the job description, so to speak. I'm interested in your own technical explorations a little bit.

Are there innovations that you're seeing in the space where you're really excited, whether it's fundamental blockchain infrastructure, or protocol level, higher-level protocol, app-level protocol, innovations? Are there things that you're really excited about that you never thought of before until you got in the space and now it opened your eyes up?

Brett: Yes. Sure. There are a bunch of different things that come to mind. One thing that I'll mention is the question of how we're going to make blockchain scale for real-world high throughput applications are very interesting to me. We've, as a company, talked a lot about alternative Layer 1s like Solana, which have very high throughput capabilities, very low transaction costs. I personally read a lot about the new Layer 1s. There's more that comes out every week at this point.

Jeremy: It's a lot of work.

Brett: I don't think they're all going to exist in 10 years. It'll be interesting to see what the market picks as the winners there. Then there are these Layer 2 solutions where people really want to stick with Ethereum, for example, but they want to figure out how to roll up and compress transactions into chunks that allow for again, higher throughput at lower costs. One of the most interesting things for me is that as a student in college, I studied a lot of cryptography.

We talk a lot about zero-knowledge proofs. At the time, it was very much about theory. One of the classic example was you have a group of teachers who want to figure out if you're being underpaid or overpaid relative to the average without ever revealing any--

Jeremy: A really privacy-focused kind of application.

Brett: Exactly, without revealing any information-theoretic ideas about your own salary. The zero-knowledge proof of the average was created and to see that fast forward, or in about a decade being used to create these zero-knowledge rollups of transactions is pretty amazing to see theory to practice in such a short period of time.

Jeremy: That it's being applied as almost like a compute layer as a way to support a compute layer.

Brett: To see the innovations in consensus mechanisms go from to things like probabilistic consensus being 99.99% sure that there's no fraud in the system or things like very specific low latency hacks on EVM evaluation to try to improve upon EVM calculation without actually changing the underlying model. That's also very interesting to me. Just following the space of blockchain development has been one of the most interesting technological things for me. Again, to see global consensus actually deploy in the real world within companies I used to work for in the past, we used to try to do some kind of consensus between maybe different replicas of some state machine that were-

Jeremy: Classic distributed computing.

Brett: -very different from a 100 million person distributed-- [crosstalk]

Jeremy: That's securing hundreds of billions of dollars value.

Brett: That can never go down 24/7.

Jeremy: I don't think people really realize how marvelous of creations these are. They don't.

Brett: There's a lot of people say like, "I don't get it. It's just like a database." I'm like, "Well, it's a little bit more than that." [laughs]

Jeremy: No, for sure. That's cool. What about higher level again; I called it application layer kind of things?

Brett: What's interesting now is to see, I think in the beginning of the DeFi, application development required a lot of specialized knowledge and they were very low level close to the protocol. Things like creating again, yield-bearing tokens, yield vaults, and things like this. Now, we're seeing the next wave where it's abstracted away. One of the examples I like to smile about right now, is these walk-to-earn, move-to-earn apps where it's like, what they've done is they've completely wrapped up all of the intricacies of the actual, NFT creation, the blockchain asset movement into something that's fun and engaging. That's starting to look more like an iPhone app.

It is an iPhone app but it's more of that style of programming. I think when we get to this next layer of high-level app development, that's when I think we're going to hit that Cambrian explosion of innovation here. Then there's another metalevel on top of that, which is people are starting to think about how do I create the AppStore equivalent for DeFi and be able to have people discover what apps and protocols are out there, and easily move between them and--

Jeremy: Totally, I have a theory and just an idea that I actually believe there's going to be a crypto super app, but no one has invented it yet. I don't think it exists. It's not like MetaMask. It's not like Coinbase Wallet. It doesn't exist yet and it's going to solve for the paradigm of interacting with all of this infrastructure. It will probably weave together apps that are in messaging, and content, and communications, and finance, and payments, and tickets, and this. It's actually going to connect these things, be user control, but also not dangerous to the user.

Brett: Absolutely.

Jeremy: I think that'll come to being. Someone is going to create that. They probably haven't even started coding it yet, 'cause there's still enough primitive that aren't quite there, but that's going to happen. That'll get to like a billion users. I think that'll happen in the next several years.

Brett: I agree, totally. I know of a couple of things, which might have the potential to get there, but from our side, what FTX is trying to do is I think not build the DeFi super app, but to build the financial super app. That's why, yes, we're a crypto company, but we launched our vanilla stocks offering. We have NFTs. We're doing derivatives, futures, options, and eventually we'll have some kind of maybe savings type thing. To be able to bundle all that together into one app is really important because people don't want to have to move between wallets and protocols. It's just too much of a higher to barrier to entry that way.

Jeremy: Yes. No. I totally buy that. Very cool, good stuff, this has been a great conversation. It's amazing to see, not only what FTX is achieving, but what you're doing and all the progress you're making as a leader in the industry as well.

Brett: Thank you.

Jeremy: It's been awesome to watch that.

Brett: Awesome. Thanks for having me on the show.

Jeremy: You're welcome. Thanks, Brett.
Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Brett Harrison
President of FTX.US

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