SBF – founder of Alameda Research, FTX, before that at Jane Street, one of world’s youngest billys
What’s your Truth North?
Day to day – efficient markets, does the risk engine work, does product design make sense (eg, equity markets currently are not 24/7, but it shouldn’t be that way, it’s more a historical artifact)
More generally – philanthropy (effective altruism / utilitarianism), how can I maximize my positive impact on the world
Lots of organizations having lasting impact on long-run future of world, the trillions of people to come after us
What’s become clear is society has no fucking clue what to do about pandemics – not restricted to just one country – even the countries thought to do well initially, economies stalled out, and not clear path forward
What would it have taken for us to be in a much better place?
1. Took a year after covid hit to begin distributing vaccine – could have had it in 2 months
2. Early detection systems, better vaccine production systems, reduced regulatory time for testing / approval
How much is society putting in to prepare better for next pandemic?
“I don’t know…zero?”
Doing things to solve this can save tens of trillions of dollars, and have enormous impact
What’s perfect state of markets?
Start with latency – how low does it need to be to capture most of economic value – as close as possible to release rate of new economic information
Milliseconds is probably enough
NYSE is milliseconds, but then it’s closed overnight, and on weekends and holidays – “which is sort of insane”
Always open is pretty important
Another easy win: Order books should be free and publicly available
That’s whole purpose of exchanges – so why hide it, except for people paying $50M/year – trading firms are paying it
Crypto exchanges – fees come from transactions
Equity exchanges – service is mostly a commodity, so only proprietary stuff is their data
Amount of intermediation is insane – mobile app, clearance custody, prime brokers, equity exchanges – all these intermediaries take fees, slow things down, add tape
Innovation slows down too – if exchange wants to move 24/7, needs everyone else to change too, “weakest link component”
Reasonable trading fee is 1 or a few bps (basis points) – larger fees mean less efficient pricing, less liquidity, less overall economic activity – total net fees not just matching engine fees
Crypto represents a migration to better end state – always on, more transparent, globally accessible
State of fairness in crypto markets today
-most important thing is transparency about transparency (everyone agrees what market structure looks like)
-having a level playing field to start with (it’s still a total mess, but less so than 3 years ago)
-eg in 2017 lots of Japanese got excited about bitcoin, but bitcoin price in Japan was a lot higher than rest of world (10% arbitrage opportunity) – exact opposite of inefficient market
-today these arbs still exist – eg, Coinbase trading higher than Gemini for weeks at a time due to flows – driven by lack of liquidity, idiosyncrasies with some assets (eg, Tether), lack of integration with fiat / banking
How to solve a lot of this?
“Stablecoins” – useful to move within the crypto system
eg, USDC – can move 24/7, fast and on blockchain, remove reliance on wire transfers
How much fiat inflow has actually gone into space?
Higher bound – Crypto market cap = $2.5 trillion (this was an old podcast)
Lower bound – $100B of stablecoins outstanding
Probably $400-500B in actual fiat has invested (20-25% of total market cap)
What will change the ratio – most financial institutions are PLANNING to buy bitcoin at some point – they now have mandates to get involved, but they all say “they’re not ready yet”
Should materialize in next few years
Probably the ratio will get closer to one (of actual fiat inflow to total market cap)
Huge demand for good infrastructure in crypto – exchanges still crashing during busy times
When SBF first entering crypto, hardest part of the crypto trade was the wire transfer
Lots of inefficiencies in traditional financial infra – wire to Nigeria is 10%, credit card fees are 3%
Crypto rails can help fix this – eg, all social data posted immediately on-chain, means a tweet can immediately be liked on Facebook, or a TikTok video can be instantly published to Instagram
If you’re in crypto and you’re not thinking extremely hard about regulation and compliance – you’re making a huge mistake
Must remain dynamic / flexible in long-term planning, to adapt to constantly changing environment
Crypto trades almost as much as US equity ($200B in global daily volume) – but US itself is far behind
Crypto is totally new asset class, born 5 years ago, and now is almost as large as the largest asset classes
Reasonable to find strategic parts of ecosystem to put bulk of regulations – eg, any centralized exchanges, or fiat-to-crypto conversion points
“Take steps in right direction” to protect consumers, detect financial crimes – will address most of large points of concerns, and help crypto ecosystem to thrive
There will be stable coins in world – if US bans them, then it will go to EUR or CNY
Why are derivatives so important for markets?
-in every asset class, there’s more derivatives trading volume – if you don’t need physical delivery, derivatives are more economically efficient
-average trade doesn’t require to get the actual thing (eg, a stock, or gold, or oil)
-so it requires less assets on balance sheets, more efficient markets, lowers capital requirements and transaction costs
What competitive differentiation among exchanges
-cross-margining (eg, FTX allows collateral to applies across multiple assets / trades)
Thoughts on paid acquisition
-most FTX users came from Twitter, from user memes and endorsements
-don’t buy FB / Google ads
-for hardcore traders, product is what drives it
-for new / casual traders, name recognition matters “and we’re way behind on that” (compared to Binance or Coinbase)
-want not just recognition of FTX the name, but create a powerful association
-only a few endorsements matter – should be extremely choosy
Thoughts on user generated asset era
-are books UGC? Sort of, but historically the gatekeepers are bookstores and publishing houses – it’s author UGC, but with bottlenecks and gate keeping
-before, 7 asset managers drove equity markets, now it’s social media and asking friends – Tesla is great example, people taking choices into their own hands
-NFTs are UGC, direct to consumer
-tokens / token economies are flourishing around the world, but not in the US due to regulations
-ultimately it’s good, more efficient markets, more dis-intermediation, and more curation will emerge naturally
Right now, there should be many Layer 1 blockchains, competition among them, to see what emerges
What’s end game that matters the most? 1 billion users using a chain, trillions of dollars using a chain
To get there, need millions of TPS (transactions per second)
You want to maximize composability, even across shards
If you don’t get there, you won’t be primary player to facilitate all the activity that’s required
5-10 TPS is not enough to be general purpose medium, but it DOES allow you to move bitcoin around – “has potentially a large role in the world” – it’s a different thing from ETH or Solana
Most economically efficient thing is single centralized server
Decentralized blockchains have maybe 10K servers? Will always be less efficient
Blockchains will be connection layers – across more efficient / centralized services
What he thinks he’s good at:
–number of concepts he can hold in his head, and reason about
–make sure not to lose the important threads
-maybe relatively better RAM (flexibility)
-not so good at long-term storage of info and facts
His wealth / fame has changed how people interact with him, but not huge change in his day-to-day life
All the expected value is in the upside tails not in the median outcomes, and you should take that seriously – often the right path is the one that might fail
As world speeds up and becomes wackier, this becomes more and more important
Acknowledge things that sound crazy and unlikely may not play out that way
When he started FTX, he was most optimistic on his team about success – thought it was 20%, team even more pessimistic
But even he was way under-estimating the upside
Straightforward EV analysis was the correct one
Most kindest thing anyone’s done for him: lot of people in effective altruism community have been dedicated and selfless, making personal sacrifices to seek the altruistic upside