Layer 1s, DeFi and Crypto Capital Markets
Dramatic growth in DeFI has given rise to a new generation on-chain decentralized finance infrastructure that is designed to scale to support global-scale capital markets activity. Notably, Project Serum, initiated by industry leader Sam Bankman-Fried of Alameda and FTX, launched recently on Solana, a fast-growing Layer 1 chain optimized for speed and scale, co-founded by Anatoly Yakovenk. With USDC digital dollars coming to this ecosystem, we're excited to have these founders join for a conversation about Layer 1s, DeFi and Crypto Capital Markets. Indeed, this is as much about the here and now as the foundations being laid for a new global capital market and monetary infrastructure.
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Jeremy Allaire: Hello, I'm Jeremy Allaire and welcome to the money movement is show where we explore the issues and ideas driving this brave new world of digital currency and blockchains I'm very excited for this week's show it's been it's been a big week all around.
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Jeremy Allaire: Yesterday, we launched us DC first Ilana center announced it as an official chain for us DC native us DC launched
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Jeremy Allaire: It launched on leading exchange sex and in in emerging and very exciting d five projects here on bitcoin cross 13 K. It was exciting to watch that happen on us DC on top of the serum decks.
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Jeremy Allaire: And we're, we're going to talk about that we're going to talk about why all this is so important.
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Jeremy Allaire: And I think the, you know, kind of bigger focus is going to be kind of zooming out and thinking about a few kind of big picture items that are really facing our industry today. So one is really just layer one blockchains. Where are we
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Jeremy Allaire: There's incredible innovation happening on chain. How do we meet the demands of that, whether it be like scaling out global consumer payments or scaling out market infrastructure scaling out defy
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Jeremy Allaire: Really critical topic we're going to drill into that defy itself on some, some of the fundamental primitives that have been built
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Jeremy Allaire: By leading firms.
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Jeremy Allaire: What is the future of that compose ability compose ability on these different layers of blockchains and then ultimately, like what are we building here.
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Jeremy Allaire: What do these crypto markets look like we kind of see a glimmer of that today on define, but what is this infrastructure. What is this all about what are we ultimately building. What is that going to do for the world at large.
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Jeremy Allaire: So we're in the here in the now, and many of the things that a lot of us have had dreamed about for years are really becoming possible
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Jeremy Allaire: And I think we're now entering an era where this can really truly deeply begin to change the world. So I love to have amazing people and projects on the show and
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Jeremy Allaire: I'm really blessed this week to have, I think, two of the most talented innovative people in the crypto industry here today so
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Jeremy Allaire: Really excited to welcome on a totally Yucca Benko who's co founder of Solana and saying bank been freed whose founder of elevated research sex and has helped kick off projects here and welcome, guys.
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Samuel Bankman-Fried: Yeah. Thanks for having us.
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Anatoly Yakovenko: Yeah. Thank you for having us.
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Jeremy Allaire: Yeah and there's so much, so much to talk about. I'm going to keep this like super simple. Just up front on maybe just quickly like 60 seconds on like what you're working on, and then we're going to get into a bunch of these topics, maybe on a totally, I'll start with you.
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Anatoly Yakovenko: Um, I'm working on Solano, which is kind of this hyper fast blockchain. And my day to day is just trying to make block times smaller and smaller, it's around 350 milliseconds today. So pretty proud of that.
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Jeremy Allaire: It's a good project.
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Jeremy Allaire: All right. I like that. That's all.
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Jeremy Allaire: Damn, how about you that was there.
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Jeremy Allaire: But you get
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Samuel Bankman-Fried: Um, oh boy. So I'm. My name is Sam I I'm surfing primarily doing two things. The first is running FDIC global crypto derivatives exchange.
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Samuel Bankman-Fried: And I mean, day to day. That's just a really wacky variety of things from, you know, thinking about what new products launched to responding to irate customers over email.
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Samuel Bankman-Fried: And I you know with with the rest of my time I'm shepherding Ford project serum, which is a decentralized ecosystem on so on and that also serve a wide variety of stuff, a lot of which is figuring out what things people want or need in order to start building on or using serum.
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Jeremy Allaire: Yeah. That's awesome. We're gonna, we're going to dive into that in a hole in a whole bunch more detail. I want to start with the first topic here, which is sort of layer one block chains and
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Jeremy Allaire: You know, I talked to people about this often and and there's lots of different metaphors. You can use
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Jeremy Allaire: But you know we're sort of in this space of like these, you know, third generation blocking. So on a very much as a third generation blockchain, you know, sort of Bitcoin being first generation during being second generation.
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Jeremy Allaire: And things like Salonen and others these third generation and
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Jeremy Allaire: I conceptualize this and you can help me if you think this is is is reasonable, but like I conceptualize these third generation changes essentially like new internet operating system layers.
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Jeremy Allaire: That are being built that people can build on top of that have a built in primitives for executing code managing screen, you know, transactions and associated data.
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Jeremy Allaire: And doing that, obviously, in this sort of open permission. This way. But I think for for people like why is that important.
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Jeremy Allaire: It's kind of like when we move from dial up to broadband and. And in fact, in reality, like a lot of the problems that
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Jeremy Allaire: We're trying to solve is about throughput. It's about speed. It's about how, how big of the place, as it were, to be able to do this and
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Jeremy Allaire: You know, I guess maybe starting with you on a totally. How are you thinking about how are you thinking about these things. When you think about what you're trying to accomplish with salon and you look at it that way. And then maybe just make the case for salon, a little bit. Um,
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Anatoly Yakovenko: Yeah, I'm here.
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Anatoly Yakovenko: Um, so I kind of, you know, got bit by the bug of like layer one of blockchain in a similar way as you described. It's kind of a new kind of operating system. It's a new way to run and deploy code that kind of runs there forever. It never gets shut down.
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Anatoly Yakovenko: That that's a cool kind of geeky thing.
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Anatoly Yakovenko: And the the way we've been approaching it is we kind of thought of, you know, what is like a lighthouse implement what is like a lighthouse.
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Anatoly Yakovenko: Like demo or use case that we could really go after that really proves this entire space.
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Anatoly Yakovenko: And fundamentally, I think trading and price discovery was this kind of like the hardest problem. How do we build a system that's open to everybody to us.
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Anatoly Yakovenko: Where it's fair for people to trade market make and do prices discovery, such that there is no like central party that can, you know, screw anyone else, right, like how do you actually like get it to a point where it's transparent and fair.
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Anatoly Yakovenko: And that's really what kind of we've been focusing on is building this this project like this operating system to support that.
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Anatoly Yakovenko: Because once we can accomplish that really all the other use cases, which I think might even be bigger than just trading on its own, you know, from social networks to payments to everything.
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Anatoly Yakovenko: Would work there as well. Right, this is kind of like, you know, you build windows to run a spreadsheet, right, or a browser, like everything else as possible.
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Jeremy Allaire: Yeah, I mean having these, you know, immutable data structures and program ability and scale like yeah I mean, absolutely. I mean, I know like jack Dorsey and team are thinking about like their own protocols for
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Jeremy Allaire: Being able to do decentralized Twitter and so on. Theoretically, right. You could do that on something like salon.
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Anatoly Yakovenko: Yeah, and like what what I see. Now that's really kind of like exciting is that I think we've solved this like
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Anatoly Yakovenko: The puzzle of of getting information that's replicated on these systems in a very quick and short timeframe to where
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Anatoly Yakovenko: You can post the trade and you see it notified and being in the order book like almost immediately. So that looks and feels like a central
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Anatoly Yakovenko: System that users are not even going to know that they're up like using, like, you know, centralized like a decentralized service versus a centralized one, and I think this is where like innovating to teams like you guys can now start like actually
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Anatoly Yakovenko: Breaking out into like the space of like competing with like the Visa, MasterCard some kind of established companies to where they don't have any advantages anymore. Right.
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Anatoly Yakovenko: To me, you guys don't know, I'll have all the advantages. So this has been like my dream like the last two years working on this as get getting into this point.
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Jeremy Allaire: Yeah i mean it's it's amazing and and you know this has been a dream, right, this idea that you could have representations of value, that value as well that could just
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Jeremy Allaire: Transmitted the speed of the Internet and with the interoperability and openness and and and cost efficiency of all that and effectively moving value becomes a commodity free service on the internet, right. So we're talking here.
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Jeremy Allaire: I heard you talk about, you know, the in, you said it in your info like this obsession with with speed.
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Jeremy Allaire: And I, and I heard you you know 350 milliseconds, that's pretty good for a decentralized. That's amazing. You know, for a decentralized
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Jeremy Allaire: That's that's computing and and processing transactions and
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Jeremy Allaire: I heard you talk about wanting to get to effectively like the the speed of light on fiber right 80 million
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Jeremy Allaire: And and that people who are like into, you know, electronic markets like that's meaningful right because you think about information moving. And then how do you respond to that and I mean is that in reach
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Anatoly Yakovenko: Yeah, so this is where, like, I think that this kind of Lighthouse like making sera like as good as the New York Stock Exchange. Yeah, this is what like we've been obsessed with internal and because
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Anatoly Yakovenko: If you have a system that can propagate state transitions as fast as the news.
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Anatoly Yakovenko: Yeah, it's going to be as good as the New York Stock Exchange at price discovery and you're still going to have these like local high frequency trading markets.
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Anatoly Yakovenko: But all they're doing is like taking orders from their customers and then doing statistical arbitrage against a global price point. Sam will probably have like a bunch of nuances and yesterday.
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Anatoly Yakovenko: But like, this is my, my understanding of it like we can get to that point, we can actually go faster than fiber, because you can, you know, build neutrinos and go through the center of the earth at 40 milliseconds and
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Anatoly Yakovenko: I fundamentally believe that if one of these networks, you know, if Ilana is the financial you know like infra for the entire globe it's worthwhile to good do that R amp D and do that.
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Anatoly Yakovenko: To capitalists 40 milliseconds.
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Jeremy Allaire: We're gonna come back to this a little bit because I want to talk about sort of
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Jeremy Allaire: Crypto markets capital markets like you know this concept of like markets, much, much more writ large, like, you know, it's a huge concept. It has huge implications, but like
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Jeremy Allaire: Token ization of information and the ability to exchange value or around that and other things become possible in this
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Jeremy Allaire: In this realm and you know you see experiments with that with with, you know, information markets today but but you can imagine that exploding right and being much, much larger
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Anatoly Yakovenko: I mean, you look at like advertisement, right, like that's a tradable market where people buy and sell pixels very small numbers right of like being exchanged like a
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Anatoly Yakovenko: You know, constantly. And I think that's one of those use cases where if we succeed, we can we can transform the web from being like parasitic to like
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Anatoly Yakovenko: stealing your data to like actually being you know symbiotic with you and you're in like your environment and like how you, how do you consume news. So, to me there's like just kind of like all this stuff is good. Like, it feels like a really good mission to to work on.
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Jeremy Allaire: And being able to move a fraction of a cent of value for a significant fraction of that like
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Jeremy Allaire: Why would I need that. Well, because you can revolutionize the business model of the web, right, the right and do some pretty amazing things with that Sam I want to talk about
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Jeremy Allaire: Layer two and and your choice in launching serum and working with the salon a team and, you know, looking at what's happening.
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Jeremy Allaire: You know out there and sort of saying, you know, you obviously have a deep understanding of like what what markets need to do and and what needs to be on top of those and just I'd love to hear your thoughts and then
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Jeremy Allaire: Yeah.
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Samuel Bankman-Fried: I mean, I think, to echo you know some of what you guys are pointing at on I think one one place where I definitely think about, you know, choosing
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Samuel Bankman-Fried: Change differently, certainly changed her frothy understood as, you know, including both layer ones or twos or whatever on
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Samuel Bankman-Fried: I is you rather than thinking like what sort of like, you know, what's the bigger biggest pressure point with the thing I'm trying to do right now, which I think is important.
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Samuel Bankman-Fried: Um, you know, I think, I think also kind of like trying to take a step back and say, like, where are we actually trying to go and what does that mean, and I think the big difference between that
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Samuel Bankman-Fried: Is when you ask the first question. When you ask the question of what's the biggest pressure point you know most people will say it's scaling like it is throughput. It is speed.
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Samuel Bankman-Fried: On you know the, like, in theory, massive days isn't scaling enough and you know we need to do something new.
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Samuel Bankman-Fried: On and and you know there's a lot of suggestions, whether it's at, you know, some other layer one any layer one, whether it's a layer two with some roll up, whether it's on waiting for 2.0 and
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Samuel Bankman-Fried: You know, a lot of those can solve the problem of making a, you know, of making boost of the current Ethereum apps on, you know, more cost effective, um,
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Samuel Bankman-Fried: But that's sort of not the end goal. The end goal is, you're thinking, you want a billion people to use this you know the end goal is like
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Samuel Bankman-Fried: What happens if instead of saying like, can we do a trade you say like, can we do most of our trading.
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Samuel Bankman-Fried: On this chain. What happens if you know as you guys are saying like could Twitter beyond changed. Yeah, it could, like, there's no reason it can't, you know,
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Samuel Bankman-Fried: And to expand from like this set of narrow things we're looking at now to like
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Samuel Bankman-Fried: Almost like, you know, a blacklist and whitelist of like what things can we get there. And can we get everything else, all of a sudden you're not saying like, Oh, shit. We need an extra factor of 10 you're saying like
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Samuel Bankman-Fried: Yeah, like we need as much as we can get trying to go for 1000 people 2 billion like
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Samuel Bankman-Fried: You know, and so, so the first thing that I would say is that, like everyone knows that like somehow we need to have something faster, but I think it's not just like a binary if like fast or not faster.
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Samuel Bankman-Fried: It's, it's how much faster. And I think how much faster really matters. Yeah, and
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Samuel Bankman-Fried: Um, and, and, and faster also means kind of two different things. Although they're correlated with each other. One of which is throughput is like how much stuff can you have on chain, which is sort of a lot of what this is, but
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Samuel Bankman-Fried: You know, another is also latency is like and latency. If there are lots of ways to define it for. Now maybe, let's just say latency is like, how long does it take for you to be like 99.999% sure
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Samuel Bankman-Fried: What a chain did like like for all intensive purposes. You can like start updating based on that.
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Samuel Bankman-Fried: And, um, any of that sort of like another variable there and and that also matters and what skills that matter at, you know, it sort of depends. Right. It depends for different people, but
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Samuel Bankman-Fried: But in general, humans reaction time hundred milliseconds. So that's like one guidepost right like of if something's like like that sort of the time scale which humans are really going to be able to tell
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Samuel Bankman-Fried: How much latency, something has. So there's a real difference between 50 milliseconds and 500 milliseconds and five seconds.
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Samuel Bankman-Fried: And, you know, more and more of that you're just hiding out more and more like you say, like, can you have Twitter instant messaging on chain. Well, it depends. At 100 milliseconds of latency. Yeah.
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Samuel Bankman-Fried: 10 seconds of latency, you don't really know, maybe, you know, and so on. And then you start say Well, how'd you need more you need like one millisecond, you need a microsecond blade z.
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Samuel Bankman-Fried: And the answer is, you know, for some things like there are things that are extremely latency sensitive and some HF T versus HF T trades.
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Samuel Bankman-Fried: Qualifiers that you know I'm there is, you know, a lot of like scientific instruments qualify as that.
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Samuel Bankman-Fried: And and so there's some things which is going to be very hard tough on any decentralized system is just the communication time between different nodes and speed of ladies too much, but
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Samuel Bankman-Fried: Um, but, so you can kind of chunk that out but you're still left with, like, you know, probably two thirds of what the world does you know
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Samuel Bankman-Fried: And so you know sort of what I'm thinking about is, like, how can we start to approach that remaining two thirds of like the activity of the world.
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Samuel Bankman-Fried: Getting on chain and and yeah like you know when we're sort of looking at blockchains
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Samuel Bankman-Fried: You know the thing that really stood out what's Lana was nauseous that they sort of like quoted a higher TPS number
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Samuel Bankman-Fried: And I think it actually like, you know, in fact, hold the higher ups but that like it mattered to them and you know there's sort of like trying to get faster. They had a roadmap for scaling over time.
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Samuel Bankman-Fried: You know, it wasn't sort of like
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Samuel Bankman-Fried: Y'all, yeah. Congrats. We get 2000 TPS checked that box is 2000 TPS not gonna be enough for effort, even if it's enough right now on. And, you know, thinking about scaling more saw thinking about squeezing out another few orders of magnitude. This all really matters.
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Jeremy Allaire: And the architecture of salon obviously just being able to like leverage Moore's Law and
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Jeremy Allaire: commoditization of HTC and just that constant cycle right
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Jeremy Allaire: Exactly, you can scale with that growth, which is so compelling.
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Samuel Bankman-Fried: Exactly. My whole thing was you designed from first principles with like actually really caring about this. Yeah, yeah, like
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Anatoly Yakovenko: People don't people don't realize how fast that stuff changes like yeah I'm 20 years ago I would be as crazy sounding to say that we're gonna have one gigabit at home as I am today saying we're gonna have one terabyte at home.
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Anatoly Yakovenko: No, literally, there's gonna be one terabytes connectivity 20 years from now.
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Jeremy Allaire: Yeah, I'm saying right like I can't even
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Anatoly Yakovenko: Imagine what the hell we're gonna do with it.
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Jeremy Allaire: The whole evolution of like the bandwidth on the internet and what the internet need possible. It's a really good analogy here right like
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Jeremy Allaire: You know, like I SDN was like we have copper wire and we had dial up and was really terrible. And then we were going to use that copper wire and we're going to just like roll ups on on copper fire right
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Jeremy Allaire: And and like it was like, okay, but like you couldn't like streaming HD video on that. And then, you know, you've gotten you've gotten
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Jeremy Allaire: Orders of magnitude jumps that are completely different architectures and it just radically changes what society and the economy and humans can do. And that's, I think, here in this this sort of trustworthy computing transactions arena. Right. That's what we're doing.
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Jeremy Allaire: Yeah. Cool. So um I you know I think like
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Jeremy Allaire: You know that the layer two efforts that are out there. I mean it ties into sort of what's happening with with the fly now and I think
00:33:20.970 --> 00:33:30.840
Jeremy Allaire: You know, we were all or I think probably all pretty interested in every tax returns, you know, white paper and a lot of the ideas around defy or were there back then and
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Jeremy Allaire: What galvanized so many people behind the theorem in in 2016 and 17 and then this like real build out that happened around these ideas and in 2017 and 18 and
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Jeremy Allaire: And really getting off the ground in the last year where those ideas. And I think that the the ideas are really profound and, you know, I kind of look at where we are now. And, you know, we introduced the SEC because something like a theory made made that possible.
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Jeremy Allaire: And then that now here we are in 2020 and there's all these protocols and there's compose ability and the we're seeing the
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Jeremy Allaire: The critical are harvesting of that, like, quite literally, and all this business model innovation around it which is which is amazing, but
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Jeremy Allaire: You know, it feels like you know we're potentially hitting a wall and
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Jeremy Allaire: And and I think just at a time when the potential for humanity and whether it be like how people move around, or how come markets can function right potentially hitting a wall.
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Jeremy Allaire: And and that's sort of why these choices around, you know, are we building a new infrastructure or or not become so profound
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Samuel Bankman-Fried: Yeah, no, I totally agree on and and yeah i think you know I think something with which, with few sets really want to echo is it's so easy to underestimate the importance of future
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Samuel Bankman-Fried: Improvements in capacity and speed on because, you know, you often think about them in terms of what you're doing right now and think that a factor of two is what you need.
00:35:09.360 --> 00:35:15.060
Samuel Bankman-Fried: Because you're not thinking about the like really unbelievable things you could accomplish if you had a factor of 10,000
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Samuel Bankman-Fried: And like the internet is not something that people were envisioning as it is mostly 50 years ago.
00:35:21.930 --> 00:35:30.960
Samuel Bankman-Fried: Because and a lot of that. It's nice that the structuring things just like they didn't realize, really. Wow, we're gonna get so much throughput. They were just fucking put everything there. Yeah.
00:35:31.770 --> 00:35:35.460
Jeremy Allaire: Yeah, yeah, all the world's knowledge. Every human communicating instantly.
00:35:35.490 --> 00:35:40.320
Jeremy Allaire: Yeah, every business all these ways it's phenomenal right so obviously like
00:35:41.550 --> 00:35:52.260
Jeremy Allaire: You're now I want to turn actually a little bit in terms of d phi right you've you've looked at a lot of innovations happening defect, both of you. And I think a big project here is
00:35:52.890 --> 00:36:03.330
Jeremy Allaire: Is saying, hey, with this greater capacity. What, what can be built. That's different. And you know project serum, you know, is
00:36:03.990 --> 00:36:14.940
Jeremy Allaire: Is obviously you know a lot of people go, it's a it's a dax or whatever. Obviously it's way, way, way bigger than that concept. And I think that's what makes it so exciting, but like, it feels like you're building
00:36:15.690 --> 00:36:29.070
Jeremy Allaire: A compostable comprehensive financial market infrastructure and, you know, talk just for a moment about the scope of that vision and what that is and then we'll get concrete because you're, you're, like, launching stuff with it.
00:36:29.160 --> 00:36:36.210
Jeremy Allaire: Yeah, velocity as well. So, but like you know that that vision that can kind of compostable financial market infrastructure. We'll talk about it.
00:36:37.170 --> 00:36:46.620
Samuel Bankman-Fried: Yeah, I totally agree. And I think you know the the surf like the first thing that came out really the first substantial thing that came out was an order book. And the reason for that is that first of all
00:36:46.890 --> 00:36:55.050
Samuel Bankman-Fried: It is sort of a fundamental building block of finance. I mean, it's just all over the place and finance like moose volume happens on an order book one way or another.
00:36:55.470 --> 00:37:03.780
Samuel Bankman-Fried: On and so I think it's, you know, a super important primitive thing that allows you to kind of just like Express arbitrary pricing opinions, you know,
00:37:04.200 --> 00:37:14.670
Samuel Bankman-Fried: Um, but the other reason is that it's it's sort of a proof of concept. It's sort of like it. This was the hardest thing like this is the thing that you couldn't really get to work on other chains.
00:37:15.270 --> 00:37:19.590
Samuel Bankman-Fried: And here you can just do it and it's syndicated clearly so real pain to launch
00:37:20.010 --> 00:37:23.820
Samuel Bankman-Fried: Because first of all, just building a pain. An exchange is a pain. I mean, it takes a lot of work to build one
00:37:24.180 --> 00:37:30.900
Samuel Bankman-Fried: And it's actually quite a bit harder if you're building a decentralized one because it's like, theoretically, it's the same like it.
00:37:31.230 --> 00:37:45.360
Samuel Bankman-Fried: You know, and in fact, it feels a lot more theoretically the same in some ways on salon it because, you know, it sort of built to mimic what normal computer programming feels like, to some extent, but, um, but it's just it's way less forgiving.
00:37:46.440 --> 00:37:52.650
Samuel Bankman-Fried: You know, building a different application. It's not as you can't fix bugs later. But you should take that to the extreme and
00:37:53.250 --> 00:37:56.340
Samuel Bankman-Fried: Usually when you're launching exchange like you just don't bother thinking like
00:37:56.610 --> 00:38:05.220
Samuel Bankman-Fried: What if someone tries to submit a bid for like 13 quadrillion dollars will that crash the exchange, you're like, No, no one's going to do that if someone does do it.
00:38:05.430 --> 00:38:13.200
Samuel Bankman-Fried: And it happens to bring down the front end and whatever will put some limit on was like yeah pay no more than like a billion dollars per bid. No one will care.
00:38:13.680 --> 00:38:18.900
Samuel Bankman-Fried: And like, if that turns out to like hit some edge case with Dodge queen. He's like, it's take sizes too small.
00:38:19.110 --> 00:38:27.300
Samuel Bankman-Fried: Then whatever once that'll happen to like, okay, fine. Yeah. Actually, it's like number of tokens on number, whatever, you know, you sort of like there are a lot of cases.
00:38:27.540 --> 00:38:31.290
Samuel Bankman-Fried: Where you just do something that you're sure will not be catastrophic. And we're like,
00:38:31.800 --> 00:38:37.710
Samuel Bankman-Fried: Probably work and like if something moderately bad happens from it. Whatever. You'll put some heuristic in later.
00:38:38.100 --> 00:38:47.580
Samuel Bankman-Fried: to patch it up and it's sort of ugly and like unseemly, and it's also just the truth of how the world works. And as you dig into these platforms you just see their, their fucking everywhere.
00:38:48.030 --> 00:38:54.270
Samuel Bankman-Fried: And as you're building one of these, obviously they're there. It's like it would take 20 times as long to build the platform. If you had to protect against
00:38:54.870 --> 00:39:02.400
Samuel Bankman-Fried: Literally any possible input sequence, you know, from the outset, right, and like someone asked for new API endpoint and you're like, Okay.
00:39:02.670 --> 00:39:08.100
Samuel Bankman-Fried: We can launch this in two years. Once we've done fuzzing on this with all possible input sequences.
00:39:08.490 --> 00:39:19.500
Samuel Bankman-Fried: And stress tested every single das protection, like, no, you're like, Okay, let's do something reasonable and like if someone brings down this endpoint. At one point, then we're after, like put in some regional protection.
00:39:19.920 --> 00:39:29.310
Samuel Bankman-Fried: The problem with building a dax like an on chain decks that you use a lot of that right you're sort of like, oh no, actually, if someone if it turns out that that's many trillion dollar
00:39:30.360 --> 00:39:41.760
Samuel Bankman-Fried: You know, a trillion dollar offer because the price is insane crashes, the decks because it just has some overflow error. Does that brick everyone's money in it in an unrecoverable way right
00:39:44.310 --> 00:39:44.790
Jeremy Allaire: Higher
00:39:45.300 --> 00:39:52.200
Samuel Bankman-Fried: Yeah, that that's what you have to worry about. And so, you know, a lot of the kind of trickiness of building something like decks.
00:39:52.770 --> 00:39:59.880
Samuel Bankman-Fried: You know, a lot of the time with just the intricacies of each of those and like thinking out like this is the number of bits and this number like
00:40:00.300 --> 00:40:09.150
Samuel Bankman-Fried: We have to make sure that, like, you know, no matter what. As long as it's like no bigger than this, it will overflow any of these buffers and and like you know
00:40:10.650 --> 00:40:19.860
Samuel Bankman-Fried: Theoretically technologically, it's easy, it's nothing is like impossible there. It just is finicky not forgiving. Um, but, but you can do it and
00:40:20.670 --> 00:40:28.740
Samuel Bankman-Fried: And, you know, after some amount of time on we did in fact to it and and and you know it's like there's an order book.
00:40:29.640 --> 00:40:39.840
Samuel Bankman-Fried: On on serum and it's basically the only like performance, you know, easy to use fully on chain order book and matching engine in the world.
00:40:40.350 --> 00:40:49.710
Samuel Bankman-Fried: On its it because he's like, You can do the math and like your tours ventured slower than salon it you can support like one of them yet, like your get your order book.
00:40:50.760 --> 00:40:51.990
Samuel Bankman-Fried: And so on.
00:40:53.580 --> 00:41:05.310
Samuel Bankman-Fried: But you use it and it. I mean, if you're a human. It just sort of feels like a centralized exchange. If you're bought you notice it's slower but but like it's a human, you click a button and second letter. Everything settled. Yeah, it's about, you know,
00:41:05.580 --> 00:41:07.170
Samuel Bankman-Fried: Certainly response time anyway.
00:41:07.350 --> 00:41:15.900
Samuel Bankman-Fried: So, um, so, so I think it's like super powerful and fundamental and a great proof of concept but but as he said that's it's just a start and like
00:41:16.710 --> 00:41:25.530
Samuel Bankman-Fried: You know what really is the envision envision is what if you got 30% of the world's infrastructure on chain well with a billion people using it. What would that look like
00:41:26.070 --> 00:41:37.020
Samuel Bankman-Fried: And and then what's between here and there are many, many things obviously many layers, but like, what might the next up. Well, first of all, just built out all like the important primitives, starting with maybe financial permits, but
00:41:37.260 --> 00:41:45.480
Samuel Bankman-Fried: When someone's building a messaging application to it. It works. There's. Oh, you go to project cern.com see some open source code doesn't have a great movie right now. So thank you, but
00:41:46.020 --> 00:41:56.310
Samuel Bankman-Fried: But, you know, watch this focused on financial infrastructure but um I, you know, the kind of building blocks of all of this to make it easy for people to then build their applications on top of it.
00:41:56.760 --> 00:42:05.010
Samuel Bankman-Fried: On. And as you said, like one of the really huge things here is composed ability and like what are the. Why would you bother a thief. I mean, there are lots of reasons.
00:42:05.340 --> 00:42:16.050
Samuel Bankman-Fried: I think sort of the permission listening and the restlessness is a big part of it, but I think another huge part of is the combustibility is that, you know, and totally built some application. And then, you know,
00:42:17.070 --> 00:42:21.540
Samuel Bankman-Fried: You want to build something that interfaces with it and you can just do it. You know, you can just
00:42:22.350 --> 00:42:30.270
Samuel Bankman-Fried: Like read all of it stayed on chain you can interact with you can send messages to it and you can serve composers that almost as if they just natively one application.
00:42:30.630 --> 00:42:40.410
Samuel Bankman-Fried: Without having to consult with him without having to get your permission and and that's just like so powerful. And I think is all of us know, you know,
00:42:41.310 --> 00:42:47.820
Samuel Bankman-Fried: There's this really tempting thing to do these like joint ventures with people where you're going to build together and
00:42:48.660 --> 00:42:52.350
Samuel Bankman-Fried: They can be really powerful. They're almost always unbelievably harder than they seem
00:42:52.650 --> 00:43:00.570
Samuel Bankman-Fried: Because of the scenes in the middle you spend all your time on like all far. We don't have an API endpoint for KYC data submission and the other side.
00:43:00.870 --> 00:43:06.480
Samuel Bankman-Fried: Doesn't want to submit PDFs because they're too big screen make this a JPEG, like that's what you spend all your time with
00:43:06.840 --> 00:43:14.130
Samuel Bankman-Fried: Is like these little interfacing blobs and like I'll fuck are now or D das protection is like shutting off our white labels and stuff. Um,
00:43:14.460 --> 00:43:24.870
Samuel Bankman-Fried: And if you do things on chain that all just drops away. And one really cool powerful example of this is if you guys haven't tested this you should do it. If you happen to know how to like spin up a server.
00:43:25.410 --> 00:43:32.010
Samuel Bankman-Fried: Is, do you wanna decks. You want a serum decks. If so, it can be yours in like 10 minutes like all you do is like there's open source.
00:43:32.400 --> 00:43:43.290
Samuel Bankman-Fried: Code, you can make whatever modifications you want to put it up on your server points, whatever markets, you want on new ones are existing ones point this sort of like goofy rebates to your address, and you're done.
00:43:43.500 --> 00:43:46.980
Samuel Bankman-Fried: Yeah, and you can't do that in sci fi
00:43:47.940 --> 00:43:49.860
Jeremy Allaire: Yeah, I mean, go ahead, down to it.
00:43:50.460 --> 00:43:58.530
Anatoly Yakovenko: I like just I have this like realization that like early on, but these networks are equivalent to when we went from like
00:43:58.830 --> 00:44:13.200
Anatoly Yakovenko: Analog communication direct copper line between two people to packet switching at store and forward we're literally like doing store and forward packets wishing, but for programs and like money and data. And that's kind of like mind blowing. Lee. Awesome.
00:44:15.720 --> 00:44:24.780
Jeremy Allaire: It's, it's really transformed. I want to get our actually want to come to like the bigger picture. Like, how does this change the world stuffing in a minute. I'm like,
00:44:25.530 --> 00:44:35.550
Jeremy Allaire: Like just back back on serum like you've obviously launch audiobooks, and there they themselves. That's this like it's an order book engine that is now compostable and anyone can build on top of it.
00:44:35.550 --> 00:44:36.630
Samuel Bankman-Fried: You got it, and
00:44:36.960 --> 00:44:43.290
Jeremy Allaire: You know, like us, DC is now obviously like a digital dollar that now can work in this infrastructure and people can compose with that.
00:44:43.890 --> 00:44:51.900
Jeremy Allaire: Program that obviously that becomes a really valuable in those order books, but, um, you know what, what are the other major
00:44:52.740 --> 00:45:02.190
Jeremy Allaire: near term kind of building blocks, you know, obviously there's sort of borrow land automated market makers liquidity pools, there's, you know, you have the pools concept which is
00:45:03.330 --> 00:45:09.450
Jeremy Allaire: That people can use and a lot of different ways. And what what happens with all that and yeah
00:45:09.810 --> 00:45:16.830
Samuel Bankman-Fried: I mean, I think, you know, everyone will not serve their own pet projects but and I don't know what that my senses. Right. But I think it's probably not crazy.
00:45:17.220 --> 00:45:21.840
Samuel Bankman-Fried: Of, like, you know, what are sort of really the core financial primitives or books clearly one of them.
00:45:22.290 --> 00:45:30.960
Samuel Bankman-Fried: On some sort of digitized dollar clearly one of them like you know you can't just have everything priced against themselves, you know, on
00:45:31.410 --> 00:45:41.340
Samuel Bankman-Fried: And on and then what are the other ones on some sort of margin or borrow lending or something like that is super crucial like it just underpins all of finance and
00:45:41.910 --> 00:45:51.120
Samuel Bankman-Fried: They're all these different systems for right they're structured products derivatives. There's borrow lending margin futures, you know, repo like like and
00:45:52.320 --> 00:46:00.690
Samuel Bankman-Fried: You know they are diverse and have their own twist, but at their core. They're all the same thing, like at their core. They're all away.
00:46:00.990 --> 00:46:13.290
Samuel Bankman-Fried: They can all just be represented by a bar, letting protocol. Like that's sort of the core underlying technology, but behind them all on is a way to be able to to I, you know,
00:46:13.320 --> 00:46:15.960
Anatoly Yakovenko: Use one piece of capital and
00:46:16.110 --> 00:46:24.630
Samuel Bankman-Fried: Take one piece of capital and and sort of like use it as if it were another one on you know lend it out to borrow another one, and whether these areas synthetic
00:46:25.230 --> 00:46:31.200
Samuel Bankman-Fried: Future capital, whether it's deliverable capital on whether it's like some rapper, however you want to put it
00:46:31.680 --> 00:46:38.610
Samuel Bankman-Fried: And so something like that is really crucial. And I know some people are working on some pretty cool or lending protocols right now.
00:46:39.150 --> 00:46:50.940
Samuel Bankman-Fried: On serum, which I, you know, can, can just power a ton of things and and i think one of my favorite examples of the power of defy and compose abilities like how would you build a margin trading exchange.
00:46:51.300 --> 00:47:01.230
Samuel Bankman-Fried: You have a decks a spot decks, you have a bar lending protocol and you're done. Like you just tie them together. And it's not like now you go build your margin trading decks. It's just like a wrapper on top.
00:47:01.500 --> 00:47:08.040
Samuel Bankman-Fried: That routes orders back and forth through them and in one click can send a margin trading order through those
00:47:08.280 --> 00:47:17.130
Samuel Bankman-Fried: Right. And, you know, theoretically, you can do this right now and crypto, you can go to coin base buy bitcoin sent it to will be lend it out, but it doesn't like
00:47:17.460 --> 00:47:17.700
Jeremy Allaire: Right.
00:47:17.730 --> 00:47:23.100
Samuel Bankman-Fried: You got to be a quantitative trading firms, if you want to, like, make that thing work right like it's a huge production.
00:47:23.640 --> 00:47:30.060
Samuel Bankman-Fried: Whereas, in defiance. It's like, yes, we don't build a website on top and on you know that just like wraps the the commands together.
00:47:30.420 --> 00:47:37.830
Samuel Bankman-Fried: So, um, so that that's one of the really core primitives on you know what else is there some sort of pool like object and
00:47:38.760 --> 00:47:46.770
Samuel Bankman-Fried: You know, a pool can mean a lot of different things. But at its heart, it's like a place that you can like put stuff and then muted token that represents ownership of that stuff.
00:47:47.340 --> 00:47:52.650
Samuel Bankman-Fried: And what does that allow you to do. It allows you to create structured products, obviously it surge in some sense.
00:47:53.280 --> 00:48:01.800
Samuel Bankman-Fried: A core underlying components of borrow lending have a member of a lot of other things. It allows you to do things like yield you know you can drop yield into pools or onto pool tokens.
00:48:02.220 --> 00:48:09.480
Samuel Bankman-Fried: On and it allows you to have multiple people joining together in the same trade or the same process as they joined the same pool.
00:48:10.020 --> 00:48:19.650
Samuel Bankman-Fried: And so I think that's a really powerful a building block for a lot of these things on and you know simultaneously. A lot of people are are close to releasing
00:48:20.430 --> 00:48:28.830
Samuel Bankman-Fried: Instances of pools, you know, a lot of a memes and things like that. And also sort of generalized pool code. So you can sort of like customize each little full endpoints, you know,
00:48:29.160 --> 00:48:33.090
Samuel Bankman-Fried: Sticking out of it. Um, so I think that's sort of another thing on
00:48:33.480 --> 00:48:42.630
Samuel Bankman-Fried: And then you know the stuff around the edges to plug into the rest of the world, whether you're talking about, you know, cross chain stuff, whether you're talking about VR on ramps off ramps, you know, somehow.
00:48:43.470 --> 00:48:52.260
Samuel Bankman-Fried: It has to touch the rest of the world. And I think stable winter. One example of that, you know, like, one way to do that is you can like send dollars and meant us DC and send it
00:48:52.860 --> 00:48:59.340
Samuel Bankman-Fried: To to serum. Another version is up you can interface with with, you know, if you're him or pick one block chains.
00:48:59.730 --> 00:49:08.010
Samuel Bankman-Fried: Or you know i centralized exchanges that are supporting SPL tokens, you know, but things that plug into it to let you access the system on
00:49:08.490 --> 00:49:15.420
Samuel Bankman-Fried: And I so I think that's another you know really crucial thing. And once you have those on
00:49:15.960 --> 00:49:22.470
Samuel Bankman-Fried: Almost everything that people are looking to build you can you can go ahead and build, you can kind of put those together, put tweaks on them.
00:49:22.980 --> 00:49:37.860
Samuel Bankman-Fried: And and just start releasing on. And so I think as those core pieces start coming into place on what you're going to see is that, um, that just sort of composing those together. Um, yeah, allows a lot, you know, it allows a lot of what people want to do
00:49:38.310 --> 00:49:50.490
Jeremy Allaire: Right, I mean it even where you said just mind blowing right where people. Anyone can create a market and theoretically create a market and anything, it can be $1 price market and that's like in the yellow right
00:49:50.880 --> 00:49:51.870
Jeremy Allaire: Yeah, and
00:49:51.900 --> 00:49:52.500
Samuel Bankman-Fried: Exactly.
00:49:52.620 --> 00:50:00.060
Jeremy Allaire: You know when when we talk about information markets and and other things that go beyond you know people who are building, you know,
00:50:01.470 --> 00:50:05.550
Jeremy Allaire: Financial primitives, but but actually, you know, creating markets, much more broadly.
00:50:06.570 --> 00:50:13.830
Jeremy Allaire: Is this is super exciting. I guess like that's like the bigger bigger picture kind of question, which is like
00:50:14.370 --> 00:50:23.520
Jeremy Allaire: We're talking about market infrastructure, we're talking about sort of capital markets more broadly as you're saying, Sam, like, you know, how do we move
00:50:24.030 --> 00:50:31.110
Jeremy Allaire: You know, two thirds of the world, or how do we move a third of what is the financial system or some huge amount on to this kind of infrastructure but like
00:50:32.100 --> 00:50:46.260
Jeremy Allaire: The big question is sort of like, why bother. I'm like, why bother. What, how is this going to improve the world and like what are the what are the Fundament. I mean, I have an intuition about that. Obviously, I have a lot of thoughts about that but like
00:50:47.160 --> 00:50:58.290
Jeremy Allaire: Ultimately, like these market infrastructure innovations should create fundamental improvements in like micro economic market structures in macro economic market structures in
00:50:58.770 --> 00:51:10.800
Jeremy Allaire: You know the nature of what even a corporation or or a collective vehicle of corporate form looks like, but like, what's the Why bother in both your minds about this.
00:51:13.500 --> 00:51:22.230
Anatoly Yakovenko: I can go first. I guess like I kind of have like a very. This is probably like to reductionist have, have you kind of like doesn't capture that a nuance, but
00:51:22.620 --> 00:51:31.620
Anatoly Yakovenko: Like if you look at Gartner reports and McKinsey reports finances like $20 trillion like some 20% of the world's GDP just moving numbers around
00:51:32.130 --> 00:51:40.410
Anatoly Yakovenko: If the systems that are provided sufficiently enough trust lists like censorship resistant computing can take a chunk out of it.
00:51:40.680 --> 00:51:53.610
Anatoly Yakovenko: I think the cost will reduce dramatically, you know, not by 90% that's literally giving everybody in the world that day off without hurting their standard of living like that that's I'm bound for that, right, like I want to work four days a week.
00:51:55.260 --> 00:51:57.150
Jeremy Allaire: It's like fundamentally returning economic
00:51:57.570 --> 00:52:00.870
Jeremy Allaire: Dude. Yeah, honestly just got it as yeah yeah
00:52:01.050 --> 00:52:13.110
Anatoly Yakovenko: It's not, there's no reason why it should cost more than like, you know, one like a few electrons to update numbers in the computer, right, no matter what those numbers are like how many billions of dollars represent
00:52:14.190 --> 00:52:22.980
Jeremy Allaire: Mega Sam, I'd love to hear you talk about this, like, just like the substance of what changes in the economy when we have a world like this.
00:52:23.400 --> 00:52:26.760
Samuel Bankman-Fried: Yeah, I mean a ton. Can one once or if like
00:52:28.170 --> 00:52:40.320
Samuel Bankman-Fried: One, you know, maybe one analog for this is, um, it's something that's happened in the, the kind of a fund in industry over the last 30 years
00:52:40.860 --> 00:52:51.090
Samuel Bankman-Fried: You know ETFs and mutual funds and things like that. And I mean, I sort of came of age as her already transitioning to the new standard, but, um, but, you know,
00:52:52.080 --> 00:53:00.600
Samuel Bankman-Fried: 2030 years ago you know when you're you know you had some money and you're going to invest it in the market. Just generally speaking, who knows what.
00:53:01.020 --> 00:53:09.510
Samuel Bankman-Fried: Right, maybe some broad market fund what fund would you put it in what fees. Would you pay and like how much you know how much Middleman taking away with their be
00:53:09.900 --> 00:53:16.410
Samuel Bankman-Fried: Who knows. It could be anything. Right. Like, what would you kind of like giving your financial advisor. Well, I click on the one button that you're like portal has
00:53:16.740 --> 00:53:26.580
Samuel Bankman-Fried: To have like some random fee likes it a bit. The years at 5% here. I don't know. I mean it's, it is what it is. You know, I like your financial advisor. Like, I recommend this fun for you. I think it's really
00:53:27.030 --> 00:53:38.820
Samuel Bankman-Fried: Yeah, I really think I have confidence in and be like, all right, fine. I don't understand any of these names. Anyway, right, and just have an extra 3% of your attacked on in fees and like, you know, so be it. Like, is that the fair costless who the fuck knows
00:53:39.240 --> 00:53:53.130
Samuel Bankman-Fried: Um, and, and every and like they're all these industries that existed in finance that were just products of this like all these subdivisions of investment banks that they're only business. The only real business was like, how do we
00:53:53.610 --> 00:54:01.230
Samuel Bankman-Fried: Like create some PowerPoint presentations around this product we're trying to launch to convince people to buy it.
00:54:01.590 --> 00:54:08.910
Samuel Bankman-Fried: Even though it's fees or an extra 2% a year, right. Like, how do we convince people that you know whatever the, you know, like
00:54:09.330 --> 00:54:17.940
Samuel Bankman-Fried: Morgan Stanley special opportunities. Blue Chip fund is what they should put their money in despite the, the high management fee.
00:54:18.300 --> 00:54:26.100
Samuel Bankman-Fried: And the reason is, like, they even talk about the high management fee. They talked about the special opportunities. Don't even knows what the management fees are supposed to be. It's like to frame like
00:54:26.670 --> 00:54:39.030
Samuel Bankman-Fried: Um, and then what happened. What happened with the internet happened and I don't think it's obvious different at the time, but it's really fucking brutal for this business model like really bad for it. And the problem is they're just websites, you can go to a website now.
00:54:40.110 --> 00:54:41.340
Jeremy Allaire: Zero and like
00:54:42.060 --> 00:54:44.130
Jeremy Allaire: Symmetry was sort of blown out of the water.
00:54:44.220 --> 00:54:50.460
Samuel Bankman-Fried: Exactly. Just type in s&p 500 ETF, you get the list of them, you're like, Okay. Seems like there's 20,000 that charge 10 bucks a year.
00:54:50.790 --> 00:55:02.970
Samuel Bankman-Fried: And like mine searching 2% a year and I secure place number 30,000 maybe I should not buy this thing that my financial advisor said I should buy and maybe she spy like VO VO I instead, you know,
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Samuel Bankman-Fried: And, and, like, just like over a decade just completely killed these funds that never served any purpose, except for up charging people because there's this is like global trusted database.
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Samuel Bankman-Fried: Of all the options and enrich the number in the end management fee and now you just can't really get away with time management fees.
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Samuel Bankman-Fried: And yeah, there are things you can do like that. There's people are still finding ways to charge people, but it actually did take 80% of the money out of that game for, you know, getting people to invest in funds, you know,
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Samuel Bankman-Fried: And each year. You can look at open interest graph for ETFs, and each year. It takes a little bit more in the direction of the low cost funds.
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Samuel Bankman-Fried: You know vanguards just like
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Samuel Bankman-Fried: Slowly going up on and and that's great. It's sort of cut out a ton of bloat. On and on that sort of very similar to a lot of what I you know you get by, I
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Samuel Bankman-Fried: Or you could get by putting things on chain is you get an open ecosystem, you get an ecosystem where
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Samuel Bankman-Fried: Everyone has access to everything and everyone can see everything.