How On Earth Did This Happen? with Ram Ahluwalia

It feels like Season One of FTX: Trouble in Paradise has drawn to a close. SBF narrowly avoided jail thanks to a last-minute $250 million bond and is now chilling at home with his parents. Season Two will see him fighting for his freedom in court as his former friends, colleagues and lovers queue up to spill the beans. Everyone just wants to get the lightest sentence possible.

 

SBF’s next court appearance is scheduled for the 3rd of January, so it won’t be long before Season Two is up and running. In the meantime however, it feels like a good opportunity to pause and try to make sense of what has happened in the last few weeks. How on earth was it possible for this disaster to happen? When did everything start going wrong? And, how did a bunch of maths geeks who clearly weren’t very good traders manage to mislead the whole industry for so long?

 

To answer these questions and many others, I got together with Ram Ahluwalia, the co-founder and CEO of Lumida - an investment advisory firm that focuses on digital assets. Ram has worked in finance for most of his career and has a level of knowledge and experience that few can match. He recently published some intriguing threads on Twitter that delved into the FTX/Alameda debacle and, having read them, I knew I had to talk with him in depth. 

 

In our discussion we drilled down into Ram’s thoughts on the disaster and why he believes it was a long time coming - longer perhaps than many people believe. He also talked through some of the mysteries of high finance that seem to have helped thwart SBF and his cronies and explained how those who were able to play the game better were able to profit at FTX and Alameda’s expense. 

 

This was a fascinating conversation to have and I’m grateful to Ram for taking the time to talk to me. A few developments - including the arrest and extradition of SBF - have taken place since we talked, but what we discuss here is still hugely relevant to the situation and how things may play out in the coming months.

 

Follow Ram on Twitter: @ramahluwahlia  

Follow Lumida on Twitter: @lumidawealth or visit https://www.lumida.co/ 

 

We hope you enjoy the show.

 

Producer for iHeartMedia: Noel Brown

Editor: Semir Mutapcic

Theme music composed by: Noel Brown

 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Shortly before Christmas, Sam Bankman Fried, the disgraced founder of
f t X and Alameda Research, was arrested by authorities
in the Bahamas. After spending a few days in the
notorious Fox Hill prison there, he was extradited to the
United States and promptly bailed on a two hundred and
fifty million dollar bond. He's now at his parents house

(00:20):
in California awaiting trial. The saga of f t X
and Alameda drags on surely. Before sp f's arrest, I
sat down with Ram Alaualia, an expert on both digital
assets and the world of traditional finance, to discuss the
situation as it was then and try to understand how
it ever managed to get so far. Ram had recently

(00:42):
published some intriguing threads on Twitter outlining his unique perspective
on what happened, and I wanted him to elaborate on them.
There have been a fair few developments since we had
our conversation, but the vast majority of what we discussed
is still relevant. Ram argues that the seeds of this
crisis was sown further back than many believe, and that

(01:03):
SPF and some of his close colleagues perpetrated a fraud
bigger even than that of Bernie made Off. He also
explains some of the ins and outs of high finance,
helping shed light on some of the more complex aspects
of what ft X and Alameda were involved in. This
was a fascinating discussion to have, and Ram's expertise on
the matter is second to none. He's well worth following

(01:25):
on Twitter, and I'll leave links to his page and
other useful resources about him in the description of this episode.
Enjoy the show. Hello everyone, We're very lucky today to

(01:56):
be joined by a special guest, Ram Aluwalia. Ram has
an extraordinary CV. Really, He's worked in finance for over
twenty years. He held senior positions at the likes of
Merrill Lynch and Bank of America, and then went on
to be head of crypto and Digital Assets at Cross
River UM and is now the co founder and CEO

(02:18):
of Lumid, a wealth and that's a private investment company
that specializes in digital assets. Ram, thank you so much
for joining us today. I really appreciated Thanks for happy,
happy to be here. It's great to have you and Rum.
The reason I wanted to talk to you today was
because obviously this CV of yours. You have perhaps better
insight than anyone else into into, I guess, the kind

(02:40):
of mysteries of high finance. You know, the inner workings
of the of the financial system, and of course, because
you specialize in digital assets, how they sort of interlink
with the world of crypto. So inspiration to do this
came from a brilliant tweet thread that you put out
a few days ago talking about the collapse of f

(03:03):
t X and Alameda, And I'm just going to if
you don't mind, Ram, I'm just going to read that
that first bit out so as to give people a
kind of hypothesis. So it starts off, how do we
explain f t X is ten billion dollars in losses?
Where did the two billion in venture funds go? My
working hypothesis is that f t X was a fraud

(03:25):
even prior to recent events, and as far back as
one SPF will go down in history as a fraud
larger than Bernie made off. Wow. So what we'll do,
ram Is is is you know, we'll we'll go through
some of the things you you talk about in that threat.

(03:46):
But before we do that, can you just give us
where you've been working the last few years and and
kind of your experience with crypto in particular absolutely interesting.
Thank you for the kine instruction. Originally, wife's here to
hear that you know like an As you mentioned, my
background has been high financed twenty years two buckets of
banking in capital markets, within capital markets, and it's in

(04:07):
management around was actually active in statistical arbitrage and investing
high frequency trading strategies the most prior to toluminated. To
come back to the second, I was executive responsible for
building that crypto isn't that Carol Server from Service A
B two B to see Digital Infrastructure Bank. We raise

(04:28):
money from Andrew support Woods as recently as this April
around the crypto strategy, as well as other investors including Rivet,
which you may know as well. It's pre imper company.
It's a it's a world class business, highly profitable, f
d I C bank and ours, crypto companies and other
fintech so SILAR customers include coin Base. If you wire

(04:51):
or send money into coin Base, that jump up screen
will say from the server bank. So again we're behind
the scenes. We helped move money, We helped fin techs
and crypto companies issue loans and so on and so forth.
I've in crypto native for quite a while since the era.
My wife's been in crypto, my sisters in crypto, my

(05:12):
whole families in crypto, and so there's a tremendous opportunity.
After a cross river required my prior startup Pure at
q to to build a crypto business from scratch. UH
presently lead Lumita, where a digital wealth advisory firm, and
I recognized along with my co founders, that there is

(05:35):
an incredible opportunity really to create insight around crypto and
apply a traditional finance perspective and approach from the CFA
charter holder by co founders from Cambridge Associates. He's also
see a FA charterer holder and UH we have another
pin from from Gold and Sacks, Mary Lynch et CENTA.

(05:57):
We believe in the promise and potential of crypto, but
we think there's an opportunity to develover inside, deliver service
and deliver access to opportunities to invest in crypto responsibly.
And I guess, I guess around that makes you, you know,
part of this part of this vanguard of of trad
five people who have discovered crypto in the last few

(06:19):
years and really, I guess helped the crypto market mature
an awful lot in that time. I mean, obviously, crypto
has only been around for you know, since since two
thousand and eight, so there's got a lot of development
to do. But it really seems in the past, the
past few years that the market has matured enormously, and

(06:40):
that that seems to be because you know, people like
yourself in the trad five space have have seen the
potential of it and have started to started to explore,
started to develop new products, new services. And this in
a way, I think kind of leads into what happened
with f t X and Alameda absolutely not as well said,

(07:04):
crypto is an alternative capital market offers new payment rails.
These are services banks and Wall Street has done for
a long times. Its attracting a lot of people form
social fiance that see an opportunity for for crypto to
the world we live in before we dig into you know,
into your hypothesis rum and and you know, kind of

(07:24):
flesh out the flesh out the details of it more.
I think it would help if we, if you know,
for people watching or listening just to kind of go
through a very simplified overview of what happened with f
t X and Alameda, and maybe as we go through
you could you could maybe pick up on some of
the maybe you know, any of the errors there and

(07:46):
also maybe explain some of the terms, because again, I
think a lot of people have have felt that there's
you know, this thing gets more and more complicated with
each passing day. So if you're a right to contribute
as you you know, as as we go along, yeah, sure, yeah.
I'll summarize at the high level. And there are many
layers to this, so I'll start at the simplest level.

(08:09):
So f t X International or FTX Global, it's an
exchange exchange registrom the Bahamas. How do they make money, Well,
they enable their clients to buy and sell crypto and
then they charge transaction fees. F t X as a
sister company that's also controlled by sam Bank and Freed
called Alameda. And Alameda and f t X are inextricably linked.

(08:34):
They're attached the HIT. The reason for that is because
an exchange needs a market maker, right, So if I
have an exchange and you have a deposit, I gotta
make sure that's one for one back at the exchange.
So let's say a guy, you want to buy a token.
In order to enable you to buy that token, we
found a market maker. You need someone else on the

(08:56):
exchange that wants to sell a token at the exact
same time, the exact same amount, and the exact same price,
and doesn't happen. And so there's a need for liquidity.
This is what liquidity is all about. And that liquidity
is provided through a market maker. So what does the
market maker market? Market maker stands ready to offer a

(09:20):
security or token or buy a security or token, right,
they provide a quote that's called a bid and then ask.
A bide is a willingness to pay. The ask is
a willingness to sell at a certain price. That's just
kind of definition players in terms. My hypothesis at a
high level is that f t X had a bad

(09:44):
market making relationship with all made a They faced increasing
competition from better players like Jump at Wintermute. That market
making operation was negative. They were losing me Alameda had
to resort to more aggressive forms of risk taking to
attempt to make money. H f t X at some

(10:08):
point frost the line by tapping customer funds to avoid
UH an insolvency situation with with Alameda. So that's that's
why a high level story of what went wrong. Absolutely absolutely,
so I think a good starting point would be, I mean,
just to just to clarify one thing in particular around

(10:30):
this idea that f t X and Alameda were, you know,
sister companies. Is a term of herd used a lot.
I mean, what are the legalities of that? I mean,
having an exchange and a trading company sitting side by side.
Is that strictly allowed or is that something that's completely
illegal or is it is it? Is it kind of
in the middle. In the United States, it's strictly illegal.

(10:52):
And that's one of the reasons why this front took
place in the Bahamas. So in the United States, you
have this concept of the segregation of duties and functions.
Let me do example what I mean. So you can
have a concept of a broker, you have a concept
of an exchange, give a concept of a custodian. Let
me walk you through those briefly. I think we all

(11:14):
know what a broker is. You combine and sell stock
over the phone or online. That's your broker. The broker
can go to an exchange to actually execute that transaction.
That exchange could be the New York Stock Exchange, could
be mast Act, actually could be dozens of other exchanges
as well. After you buy that security, that security is
sustidied at a different kind of institution altogether. And that

(11:38):
institution could be say State Street or Perch King, for instance,
of the two leading custodians. One thing to point in mind, though,
you will never find New York Stock Exchange brokering now
security or custodiness security. These role distinct functions and it's
illegal to perform any more of those functions. And part

(11:59):
of that is because of things like the Madoff scandal,
in addition to other laws that predate that. So in
the case of burning mad Off, he had his own
accounting firm, he was his own broker, and he was
casting all acids, so there was no checks and balances
and there are no controls. And that is why f
t X US allegedly a sovereign and probably their customers

(12:22):
will receive their funds unless it's caught up in the
s bankruptcy proceeding and my ft X International bahamas Uh.
These these issues and I think a useful a useful
kind of analogy going back to Bernie Madoff and and
the fact that he was you know, he was fulfilling
all these roles. An analogy that you've touched on in

(12:43):
the thread is this idea of of a casino, of
gamblers at a casino and f t well in this
case Alameda, and is that you know an f t
X are the house. Then you have retail traders, you know,
playing at the tables, but all meters also playing at
the tables. And it's because it's so closely linked to

(13:04):
f t X, it's also able to see is also
able to see what everyone else is betting. So it's
got this huge, huge advantage supposedly that's right, I might
only walk through that house metaphor, it's it's a great
analogy here. So Burning Matto and SPF were both advertising,
and you can see some in the pitch book from SPF,

(13:25):
which is floating online. They were advertising the idea of
high consistent risk adjusted reference. That's part of the al
made up pitchbook, which sues you criticized yet some slides
out there on Twitter, right, and frequency training is actually
a very high profitable strategy and makes consistent money up

(13:47):
until a dozen and in that business, what you're doing
is you're making thousands, if not hundreds of thousands of
small micro bets, and those bets are in the provision
of liquidity to a client. What does that mean. It
means that if you got trying to buy a stock,
I'm gonna give you the look food and I'm gonna
sell you that, and I'm going to capture that bidst spread.

(14:08):
And that bidest spread is the gap between what I'm
willing to pay for a stock or a token what
I'm willing to sell for it. So long as I
get random ortars on either side of that, I will
capture that spread. I'm making a market. So it's a
good business if you're if you make money of those trades,

(14:31):
on hundreds of thousands of trades, you're gonna make money
due to the laws of probability. Now, what happened here
my thesis is that you had smarter, faster players enter
the category like Jump and Wintermute. In fact, you can
look at data on chain and it shows that Winter
Make was Winter. It was making a lot of money
trading against Alimta. It's a lot of data that so,

(14:54):
but FTX needs Alamata to make a market. Otherwise they
can't have an exchange. There's no liquidity, and that's how
FTX makes its revenue is changing these transaction fees and alimator.
To your point, they need an exchange because that's where
they have an edge. They had a compared advantage because
they can see this order flow. And it's alleged, it's

(15:16):
alleged that they had special treatment, they had like a
back door. They had no margin called process. There's a
no liquidation from from fts. The issue, however, is if
you want to be a good market maker, if you
want to be that house, you have to have a
little latency. That means having fast data plaps. And we'll

(15:37):
let me explain a little bit more what's going on there.
So what a market maker is doing is they're scanning
all the other exchanges. They're looking at coin based, we're
looking at binange, looking at all the major exchangers exchanges
to identify where the markets quoting, what's bid, what's asked,
because if you missed quote, let's say coin based quotes
twelve dollars for a token, they're bidding twelve dollars and

(15:59):
I bid too much, a bit higher than point base,
then some of like mont it's gonna sell me at
twelve dollars fifty cents and they're gonna and they're gonna
they can buy have an obstinating transactional coin based So
they made fifty cents and I'm out fifty cents. So
laaten seed speed matters and need to have great data tights,
and you to have ultra fast computers, you know, technology

(16:21):
like PHO located servers. You can't rely on Amazon Web Services,
which they were spending money on f t X and Alameda.
We're using we're using a WS and the Zion was
a creditor. Now presume they were using as other kinds
of things. But if you're using a RUS to go
to your market making, you're gonna lose. You're gonna lose

(16:42):
that battle. And this idea of this idea of high
frequency trading, I mean, this is the stuff that Michael
Lewis talks about in in Flash Boys. Isn't it these
guys spending spending literally, I mean it's hundreds of millions
of dollars, isn't it on on technology that will that
will buy them thousands of a second in these in

(17:03):
being able to exec up these trades that's right. In
the US equity markets, it's very advanced and much more
mature than in fipto, so as to be clar fipto
you don't need like microwave technology yet. But it's a
race to the bottom. Whoever is faster wins. So it's
a speed game, and to get speed, you have to
invest in infrastructure. So for example, one of the leaders

(17:23):
in the US market would be Citadel or Night Capital
Group or New Sigma or Renaissance. Technlogies are storied institutions.
They're very private, they're very profitable, and they invest billions
of dollars, billions of dollars, so much so that if
you've got a five optic cable Lincoln, say New York
City to the woman Stock Exchange, that's too slow because

(17:47):
the speed of light needs to bend and curb in
the water, and that creates a disadvantage. It's that that's
how important speed is, so they'll invest in microwave technology.
It's straightline half the refraction of light. Slow's creative disadvantage. Again,
that's not using cryptogy, but lit'll get there for sure,

(18:08):
it has to. And Okay, so it seems like it
seems like a Lameter. In Alameter in particular, they were
they were hopelessly out of their depth. I mean, you know,
to go back to the idea of the casino, they've
started to play sort of very high stakes poker, and

(18:28):
much bigger, much wilier, and more experienced players have come
in and sat down at the table with them and
just started started cleaning them out on every hand. Is
that is that fair analogy to use? That's generally right?
I'll say this, like the house generally has an edge, right,
casinoes make money kipt you opposite one of the probabilities.
So they're playing many many cooker hands on which they

(18:51):
were a small edged. However, one day the game changes
because better players show up and they have the edge
because of the speed game. So now Alameda starts to
use other types of techniques and takes on real risk.
Real risk means they're making a bet on the market direction.
Hr T never actually makes a bet in the market direction.

(19:11):
They're willing to buy and sell the same token. They're
just making a bet on that spread, on the gap
between the bid and the offer. That's it. They don't
have a view on where these prices are going because
they're entering an exiting position so quickly that they're actually
marketing neutral. So now Almeta starts investing in protocols and

(19:33):
they start doing like these VC strategies, meaning getting access
to the pre mind, offering to make a market uh
and then mandating that where they invest that their port
codes or portfolio companies have to custody at FTS. So
they started justing and Caroline discusses it from the tweet threat,

(19:53):
she acknowledges publicly that SPF change their strategy. So this
is purely because the ft X they're having to Alameda
are having to figure out new ways to make money.
You know, they're losing at this They're losing at this
market making game. They're being cleaned out by by people
with more experience and better, better equipment. So they look

(20:17):
to they look to other ways and and this is
when these directional bets on various on various ship cooins
start coming into play. Well, that's the idea exactly. They
have to find a new way to make money. Business
article that wasn't Forced that reports that in Luna prior
three years Capital part Genesis last year Bull Market that

(20:42):
f t X and al made a lost three point
seven billion dollars. So they were losing money and they
had to find a way to make money. And again
FETs now made a need each other with that alimate
ANX and exchange for liquidity. Ali made it without FTNS
has no edge, and that's a business is to go
trade make markets. So yes, I believe that's exactly the case.

(21:06):
They started to shift their approse shift strategies, taking out
a real risk, and they started losing money on those
risks on those bets as well, and they of course
added leverage and then things and then things start to
just keep you know, the slide just accelerates. I guess

(21:26):
that's right, that's right. You know, here's an example. So
apparently Alameta lost a billion dollars via a lever bet
on mobile coin. Right, so that's another loss. Consider that
FKX only raised two billion dollars in equity canpable. By
the way, they raised two billion dollars in equity capable,

(21:47):
they lost three point seven billion dollars before this year,
so the fraud must have happened before this year. They're
losing more money then, almost twice as more as the
money they raised in capital, so they must have tapped
customer funds well, but well before this crypto bear market, right,

(22:12):
But it gets work because when the crypto bear market starts,
what happens. Most people on exchangers are selling. That's what
a bear market is, and more sellers and buyers. So
who's making their market Alameda Alamada has gotta make a market.
They gotta take the other side of these trade. So
people are selling, they're dumping on who Alameda, So they're

(22:33):
they're not in a good position, and their positions deteriorating.
Of course, somewhere along the line, somewhere along the way
FTX tries to issue this f t T token. They
do issue it, it creates some capital for them, and
you know, I think you've probably analyzed this guy and
guy about how they were borrowing against this illiquid token
f t T, right, So that doesn't help anything. But

(22:55):
you know, my water point was that I think initially
three or four weeks ago, people focused on that and
so that was the downfalls element. It wasn't no, no, no no, no.
That was actually a survival tactic by a TS after
they were earning the full They're throwing stuff at a
wall and seeing what sticks. At that point, and I

(23:16):
mean presumably for you know, this being the case, if
if this hole sort of opened up in in one
you know, it's been money has just been pouring into
it ever since. So every move that f t X
and Alameda have made in over the last year or so,
over the last eighteen months, however long it's been since,

(23:37):
you know, since they really started to bleed, every move
they've made has been presumably to try and and plug
this hole that gets ever bigger no matter what they try.
That's right. They've they've tried to do two things. So
when has plugged the hole by pivoting trying to make
money here they're taking on more risks trying to raise
money which no one's doing, tapping on the chistomer. Also,

(24:01):
they took steps to hit from being discovered. They never
had a CFO. Yeah, what does that make any sense?
They didn't have border directors that met the controls, They
never had a real big for arter. So not only
were they trying to survive illegally by commuting fraud and

(24:24):
multiple layers are fraud to be clear, they also two
steps to a stop any type of scrutiny, checks and balances, controls,
or even management their their head of compliance. Was was
a was working at a previously at a fraud over betting,

(24:49):
so it's a built It's my opinion is that this
is a deliberate, willful fraud, and therefore it's bigger than
burning made off. The destruction of capital and the losses
and the uss have spread out across at least a
million investors globally, Unlike Matta was concentrated amongst fewer wealthy people,

(25:09):
and they were able to recover the vast majority of
the principle and making many of these investors poll. That
will not happen in the case of f t X.
That's why f t X a bigger fraud than burning
Matto and the pain that he caused two small investors globally,
and the loss of confidence in not just f t

(25:32):
X but crypto institutions. Everything's been tested. The consequences of
this are are severe, and we're still going through kind
of the involving in that concasion, like the long term
secular promise for crypto was there. However, Uh, you know,
we were in a winter before f t X, and
I've got a winter within a winter, and it's I mean,

(25:56):
even those people who didn't have any funds on ft
X who never interacted with it at all. You know,
if you're in crypto, if you're in this industry in
any way, shape or form, you are affected no matter
no matter what your exposure to f t X or LaMDA.
And I guess with with Maddof, it was it was,
as you say, a lot more a lot more concentrated,

(26:17):
a lot more localized amongst you know, a relatively smaller
pool of of investors and a wealthy yeah, not just
not just you know, the average people. And of course
these stories about people with really not very much to
lose in the first place, losing everything you know, that's

(26:40):
still being stuck on the exchange. It's it's terrible. It's
a heart heartbreaking, absolutely, And I mean madd Off didn't
Maddof didn't act alone, did he. I mean, you know,
some people close to him seemed to have known what
was going on, but you know, it was obviously the buck.
That buck eventually stopped with him for a fraud this size.

(27:03):
For what's been going on at ft X and Alameda
for the past eighteen months or so, I mean, SPF
seems to be the big kind of lightning rod for
criticism here partly I guess, because he's out there, you know,
running his mouth with a sort of verbal diarrhea at
the moment, just you know, just spewing forth these these
attempts to kind of, you know, launder his reputation, I guess.

(27:26):
And everyone else involved has kept so so quiet. But
I mean other people that f t X and Alameda
must have known about this. This can't this can't just
be SPF Surely that would be my conclusion. That would
be my conclusion as well. And I'll come back to
then a second. But one thing I'll say is regarding
the sam's verbal diarrhea, he has a deliberate strategy here.

(27:50):
His argument in a nutshell. He is creaming he was
a negligent. He is claiming he was grossly negligent. Of course,
it's a legal term that implies civil liability, meaning he's
saying he's essentially saying doing That's what he's saying. But
he's saying he's not a criminal. He didn't commit fraud.
That's why he's interviews. He's saying off shots should have

(28:14):
done actuldn't better, by the way, and that George Stefanopolis
video interview. He says not that he didn't focus on risk.
He didn't do it full stop, just clearly gross negligence. Right,
But he's not owning fraud. So there there's a there's
a method to his verbal diarrhea. He's trying to he's
trying to focus on that right now, on your point,

(28:38):
guy around others involved. Look, Alameda allegedly had a back
door that exempted them from liquidations versus other customers. So
that was coded. Now that coding took place either at
the direction of SAM or someone coded it. Okay, I'm
pretty sure it came from SAM. But still someone had

(28:59):
to coded. Second, you had a director of compliance that
had an obligation, had a duty. Even Also, if you
don't have to see a foe. Someone is looking at
the pan L, the profit and loss or income statement.
By the way, this is the one thing that is
completely the s S S stand keeps staying saying, oh, well,
we don't have the numbers. But here's the thing. The

(29:22):
Exchange and Alimta every day would have something called the
trading pan L. It shows all the open positions and
it shows how much money you made or loss that day.
It's like thinking the house casino, how much money do
we make or lose this day? And do they new
analysis of that? Are we making money on this trade
or losing this trade? Not just on the exchange where

(29:45):
they're doing, but also on the margin. And they say, okay,
how many loans we have out standing? What's an interesting
come on those loans? Are those loans backed by the
appropriate collateral? Um? Do assets equals liabilities and equities? A
basic things? It's not. It's not like he's trying to
make the argument that risk management was supposed to happen

(30:05):
somewhere else and he didn't do it. But in the
nature of an exchange and the training, it's the same thing,
Like you need that dashboard that says here's a training piano,
and of course he had that. This is a guy
that was doing sweet threads on coin bases pianola very
precisely analyzing transaction fees, and he's saying he doesn't have that.

(30:28):
He doesn't have that reporting or infrastrate he acknowledges he dashboards, right,
he doesn't have the central bashford describing his own piano
and makes no sense. It's yeah, I guess, and I
mean it's it's focused, isn't it Negligence carries a lot
lighter sentence than than criminality than outright fraud. So I mean,

(30:49):
I guess, I guess what we're seeing now is the
you know, is the start of of SPF's defense. But
and I guess it's gonna be it's going to be
so interesting to see what's what happens with these with
these other people, the likes of the likes of Caroline,
the likes of Sam Trabuco and people like that, and
and Gary Wang who have all kept very very quiet. Um.

(31:12):
But I guess you know, the speculation, isn't there that
that that Caroline maybe may have cut a plea bargain
if if this photo of her in New York not
far from the District Attorney's office is to be believed.
Do you do you see that as as as as
a kind of likely outcome to this rum that you know,
the others at ft X and Alameda will seek to

(31:34):
pin this on Sam as as much as possible. I'm
not a from a defense attorney, but your your reasoning,
that sounds sounds right. Sure, these are young people in
their careers. They trusted Sam. There's some kind of hero
worship going on here, some of them may have been naive. Uh,

(31:54):
and I think it's in their best interest to cooperate
with Passe years and can I can I just pick
up on that on that point, you make realm about
these you know, these guys are young, their naive. So
many people have have commented on this, haven't they. It's like,
how on earth were these guys, you know, not that

(32:16):
long out of out of college, not that long out
of university. How on earth were they? Were they able
to run this thing? And when I was looking, you know,
when I was thinking about this obviously, and this is
this is related to what you talked about in the
tweet thread. But to go back just very briefly to
the sort of early days of Alameda Research. So I

(32:36):
think most people now are aware that that Alameda, that
Sam and Alameda kind of started off basically doing arbitrage trades,
trading the trading the kimchi premium, and you know, that
is how Alameda kind of made its name and you know,
got its kind of startup capital. I guess I think

(32:56):
the story is that they supposedly started with with two
dollars and you know, grew that by making these arbitrage
trades into into millions. Um, So, I guess does that
explain in a way that you know, these guys the
reason that they were able to get to this position
is because they started off doing something kind of relatively simple.

(33:18):
I mean, arbitraging is is is not a particularly sophisticated
trading strategy, as I understand it, and especially in a
market like crypto, which is still relatively unsophisticated. And and
back then, you know, I think we're talking kind of
you know, the fact that you've got this massive difference
in the price of all this appreciable difference in the

(33:41):
price of bitcoin on an exchange in the US, and
then you know, a different price in in South Korea
and Japan. I guess these guys kind of started off playing,
you know, playing a very simple game, if you like.
And as you say that Kuy developed over time, you know,

(34:02):
arbitraging becomes I guess, I guess is it a case
that the big players just got in and it and
and we're better at arbitraging than them, or do you
think it's more a case that the market itself just
just got a bit more sophisticated and these and these
arbitrage bets became kind of harder to make well. So

(34:27):
first off, arbitrage is rare and fleeting, and it generally
doesn't exist in markets. That's one. So that kim tree
trade you describe is very close to arbitrage. Arbitrage, of course,
is a riskless trade. You buy something in market X,
you sell in market Y simultaneously, so you don't have
any exposure. The kimchi trades close to that, but there's

(34:49):
some like time delays between various sections. Um you know.
Of course, that trade went away, and then they got
into marketing making, which is own high frequency training kind
of business. As we described, that's not ourb trush though
you're taking risk. HFTs can lose money too. Now when

(35:09):
a HPT was money, they stopped. But the thing he
didn't do, you stopped doing that business. You can see
it every day. You can see you have an edge
like the house. The house makes money fix cent of
the time, then fifty cent of the time, then fifty three,
and you can see, oh, you know what, we're making
less money every day. That would have been their experience.

(35:30):
When you get to fifty one, than fifty, then fifty
now you're just treading water. Then forty nine and a half,
then forty nine. That's the point when you exit side.
As I mentioned, my prior like I used to have
these kids out of trush strategies. So one day we
sat like okay, We're like, okay, two Sigma is investing.
We're pretty sure who's on the other side of this.

(35:51):
Maybe it's time for us to move on. So you
exit the business. That's what you're supposed to do. So
to your point, I think what happened here is they
had faster, more nimble, better equipped players like Winter, mut
like Jump, like Jane. They're all the model they stepped
in and again you can see this in the on

(36:12):
chain data. So where are the two billion dollars and
equity go? Here? Was part of what happened is it
went to their customers, which was ironic enough, certain customers,
the most sophisticated customers because they it's called the vig.
You know, where do you go for the vig? And
if you talk to traders internationally, sophisticated even smaller ones

(36:34):
by the way, don't have to be that large. I mean,
the VIG was attractive f t X. The same strategy
wouldn't work on coin base, but it will work on FPS.
Global because the quoting machine that did ask machine was broken.
It was spinning out stale prices, not the best prices.
So I think it was with the entrance of new

(36:54):
players that caused them to lose their edge and caused them,
you know, to to lose money. Okay, and okay, so
let's let's kind of fast forward a bit. Then let's
let's go because again, like I think, a lot of
the prevailing narrative up to now has been that, you know,
prior to kind of May this year, it feels it

(37:16):
feels such a long time ago, even though it's even
though it was only this year, it feels like years ago,
given given everything that's happened since. But obviously that the
prevailing narrative before before this was that everything was kind
of okay, and then terror happened, and you know this,
the market kind of goes into world that Ust and

(37:37):
Luna go into this death spiral and everyone starts hemorrhage
in cash. Everyone is, you know, everyone is taking huge losses.
And and then we see this contagion spread. We see
three arrows capital go down, and then we see the
likes of you know, these centralized lending and borrowing platforms
and likes of Celsius and Voyager and Blockfire and all

(37:58):
this go down, and then we have this extraordinary situation
whereby f t X and Alameda are kind of the
white Knights coming to the rescue and being like, okay, well,
you know, we'll, we'll buy we'll take you out of
you know, we'll we'll we'll give you an injection of liquidity?
Will you stave off bankruptcy? So what exactly was going

(38:21):
on there? Great ridge topics to go down? Actually, so
first off, one is what is the cause of the
decline and the systematic risk in crypto? Are I ever
get a different tweet thread that's actually not Luna. It
starts with the gray scale discount whining and the end

(38:41):
of the g BTC car track. We'll come back to
that in a moment if you'd like that. It's interesting
thread to go down. So then you know the second
round around concasions. Of course, you know you had pleasures
like Genesis and had impaired loans for two three rs capable,
which has caused a credit season and a testing of

(39:06):
various curies. Well let's look at you know this idea
of you know the three A C and and the
kind of Celsius route because I think that was again
something that affected I think has affected kind of you know,
your average crypto holder, perhaps more than what's been going on,
you know with Genesis and gray Scale, because obviously gray

(39:26):
scale in particular is an institutional vehicle, isn't it? Certain
points they're connecting in this way. So let's let's frame
it up. Do you have these non banks for tunity
b banks who do? I mean there, Celsius, Voyager, block Fire,
and they've all failed three for three. Now there's one
question is did they fail because of bad management bad

(39:46):
risk manager? And that's an areave out there, that's the
conventional wisdom. I'm saying no, no no, no, no, they failed
because of their business model. If you're a non bank cotmmunity,
a bank that ends in tears, why let me let
me lay this out here. What these actors were doing
is they were taking in the deposits deposit or funding

(40:08):
kind of advertising as a bank, or using these earned programs.
Then they were lending. And that's what banks do. You're
taking short term deposits and those deposits are liquid, I mean,
you can take your deposits out tomorrow or in a
short period of time. But then they're lending on assets.
One of those assets were those are loans to hedge funds.
So they're risky. First of all, they're making loans hege funds,

(40:32):
and those loans are ill liquid. There's no market for them.
It's not like lending a house of mortgage. A mortgage
as actually living market for mortgages. Fanny name Freddy mac
buy them, right. So what happens here borrowing. They're borrowing
from short term depositors paying out a lower interest a

(40:54):
percent to percent and hey days to be obviously more.
They lend up to these hetch funds that are paying
five seven eight, and they're trying to capture that spread
like we call that an interest marginment bank. The thing
is the bank is protected from a bank run because
of two things. One, they have deposit insurance in the

(41:17):
in the form of the f d I C. F
d i C says I'll protect your deposits up to tars,
so people are secure in depositing at their bank. As
much as we hate the banks, they still like depositing
at the bank, right. That's one. The second thing is
I got a lender of last resort, which is the
Federal reserve. So if you get in a bank run,

(41:40):
what the bank can do is they can take their
assets which are illequate and they can pledge those. That's
a certain eligible assets, I should say to be clear,
they can pledge those. That's the federal reserve and the
federal reserve. We're gonna liquidity cash to meet the demands
of depositors. Now, Paul, back in two eight, we saw
this thing half in there to you remember, a general

(42:01):
electric ge can bomba herd out a little bit here.
G E Capital was borrowing in these short term commercial
paper because commercial papers seven seven day loan on average
seven day loan. It's just a corporate borrowing market, so
borrowing there, and they're making these longer term loans. But

(42:21):
what happens is if those investors in that commercial paper,
those depositors, if they don't keep stepping on every seven
days and rolling over that investment, then they can't fund
these loans which have a longer duration of one of three, five, seven,
whatever it is, and they can't sell those loans that

(42:42):
they're making because it's not liquidity. And if they have
this se the loan and somehow they can magic this
of the loan. They're selling that loan at a much
lower price than the face value belan, and that creates
what's called that impairment. That impairment eats into the equity
ballot and valor, and it creates the risk of insolvency.

(43:05):
So that's what happened with Celsius, block Fire and Voyager.
It's not a managing thing, although there were management deficiencies
absolutely and lousy risking management, yes, overriding you know the
forms article that came out well this yesterday. However, it's
broader than that. It's a business model issue. Only banks
by the United States aren't permitted to. It's called we hyperificate.

(43:28):
We hyproplicate is the technical term for taking your customer
funds and then lend them out term an authority and
do that unless you're a bank in the United States.
This is why Block five a hundrellion dollar five from
the SEC. They said, hey, blocks by, you're you're not
a bank. You've got this part that pays out yield.

(43:49):
So if you're not the only banks can pay out
deposit deposit interest rate. So if you're not a bank,
then that must be security. That's how they analyze it,
but that security is not registered with the SEC and
therefore here's a high million dollar fine. And see some
assist that, right, yah, yeah, And of course I mean

(44:10):
these you know, Celsius in particular is the one that
comes to mind. But I mean these guys, you know,
they explicitly and advertise themselves as as not being banks.
You know, I'm bank yourself. That was the That was
the Celsius one that you know, that's what Alex Maszinski
had to have on his on his T shirt. But
all the while sort of not being you know, saying
that they're not banks, but trying to actually act like

(44:33):
banks even though they're not allowed to do that. They
are breaking the law. I'm disappointed that Alex Mashinsky, in
my opinion, hasn't been indicted, and that's unfortunate. And by
the way, I was the last person to get a
panel with Alex in late May, and I called out
some of these issues and threatened to throw me off
stage when there's a writer broad so and that was

(44:55):
uncomfortable before these players blew up. So here's a guy
with a million people on Twitter, and it's not pleasant,
but you're right, look there they're my opinion, I say
my opinions, I don't want a definition case is that
they were breaking the law. And and do you think,

(45:15):
I mean, you know, whether whether they were breaking the
law or not. As you say, this is you know,
primarily a failure of a business model. You know, Celsius
Voyager and block Fire, by the sound of it, were
We're never really going to We're never really going to work,
even if they were being run properly behind the scenes.
This you know, this, this is a this is a

(45:36):
gravy train that could only run for so long. That's right,
that's right. Ultimately, you're having process of the crop confidence,
and people will want to know, are my fund secure?
Is my savings secure? When savings people don't expect principle loss,
they want safety. And what happens is when those are

(45:57):
prices of the confidence, people want to test that and
they say, know, I'm gonna take my funds back, and
then they start experience experiencing issues that have gotten If
yourself sis, you've gotta sell an asset to create liquidity,
but again those assets aren't in the liquid market, and
to create a putt, you've got a semite discommute, which
forces a loss upon them. But you right, it's fundamentally

(46:18):
a business model issue, which is another wonderful army of crypto,
which is that crypto trust still matters in a trustless world.
Cryptospremous on trustlessness. I'm sympathetic to that. I wrote a
Wall Street Journal op ed in October with former SEC
chair author Levitt espousing the the ability of Crypto two

(46:39):
for the first time enable transactions without intermediaries like banks
or exchanges. That's phenomenal technologies never existed before human history.
It's like a civilization upgrade that we can transact without
a trusted party metal. However, the full crypto staff isn't
decentralized yet, so you have thrust for requirements at different points,

(47:02):
namely the on rep key point. However, you get your
own new crypto, you gotta wire a c H funds
to some party that you need to trust. It could
be a trust bank, it could be exchanged, a coin base,
or in this case could be an ft X or
a celsius. That's and there are other elements that are
not decentralized. So we're not yet ready for a full

(47:23):
web three world. We're not there yet. So what do
you need? You need a web two point five world.
You need a world where you have trusted institutions that
are well capitalized, to have liquidity, that to look reporting
and yes, put the assets and the liabilities on chain
in real time with third party audits and controls. That's

(47:48):
that's the world we need to move towards on the
journey towards a greater world of decentralization and economic sovereigntain
human freedom. Because it's seen that you know, it seems
that we've kind of fallen victim I guess too well.
Opportunism on the one hand, you know, we've had these
you know, we've had these services like Celsius Voyager in

(48:11):
block fire, you know, and also like f t X
and Alameda come in and exploit the fact that the
crypto is a young market, that crypto doesn't have these
sort of you know, these protections that that banks have
and kind of take advantage of that offer people offer
people high yield, you know, offer people, you know, what
they can't what they can't get anywhere else. So there's

(48:34):
the opportunism from these players on the one hand, and
obviously when the tide goes out, they get you know,
we see we see just how opportunistic they were being.
But of course, on the other hand, that opportunism can't
flourish if if there are if there are regulations, if
if there are procedures safeguards in place, like the banking

(48:57):
industry has. And as you say, rom, I mean we
you know, we're us in crypto, we're very you know,
we look down on banks, were very rude about them
and stuff. But I mean the banking industry, I guess
has you know, you have this to say for it has?
It has a lot of it has many you know,
many decades, many centuries behind it of you know, of
innovation and these things, and you know experience, I guess,

(49:20):
And and these protections are kind of a hard one
because I guess you know, the banking sector went through
these sorts of convulsions many years ago and and came
out the better for it. Yes, you're absolutely right. You
know two things. First off, defied has where want to
be clear on that. And I see the promise and potential.
Off it's a shame that these institutional lenders weren't using

(49:43):
defy to manage their risk. I've seeing lava and the
reasons why that happened, we don't spent too much time
around that because Defy International wasn't ready for institutions, ready
for the retail through these stapts, right, ne ap need
a lot of other things get institutional already, and some
of used to go build that would be a really
exciting product. But to your point, in the nineteenth century,

(50:05):
bank blow ups and failures happen every recession. Every eight
to ten years, you see scores of banks go bankrupt.
And in the Great Depression, you know, it's not been
really the last ten, fifteen, twenty years people have discoversed.
Bernky won a Nobel prize for really coffrecting the history.
It wasn't the collapse of nine stock market at the

(50:25):
start of the depression. It wasn't uh, the erection trade bear.
It's not it. This is what we learned in school
growing up. Right. What it was is the bank failure.
The Federal Reserve let a major bank fail, and that
caused a crisis of confidence and people lost confidence in
the banking system. People through their funds and the same

(50:49):
situation they have these long term liquid assets, they cannot
deliver the change that the depositors thought was safe. And
the rest of history. But we've learned from that as
a species. Don't let the banks fail. Don't let the
banks fail. Make sure it's a line in the last resort.
Have deposit insurance, and yes, have oversight and control. It's

(51:11):
not easy being a bank. You can't start a bank tomorrow.
It's multiple years. You have to have capital, have to
have oversight. You have visits from the FBI, c in
the Federal Reserve. They can look at your books whenever
you want. They can examine the camp out on your offices. Meanwhile,
these exchanges are very lightly regulate. The regulator is like

(51:32):
money services business or money transmission business, which is the
same standard of regulation as a as like a check
casher on the corner and the low incremati, by the way,
or like the if you go to the airport, you know,
like when you trade, when you exchange money, that's a
money service of business. Exchanges even in the US are

(51:52):
regularly at that level, by the way, at that level, okay,
let's go. However, some adopt a higher level of reggio lation,
like Anchorage is regularly like a trust bank or paxes
regularly a trust bank, and that means they have to
uh they're subject to you you, and they're embracing a much

(52:13):
higher standard of control, supervision, regulation, capital, et cetera. The
penalties of breaking the laws of bank are severe, are
very severe, not just management expulsion. They can kick away
your charter, they can take away your right to do banking,
civil penalties and if you if you break sanctions law,

(52:35):
criminal penalties. But on the flip side, that fates trust.
So you know, we still use banks and much we
hate that. Yeah, there is there is that trust, there
isn't it. And I mean, I guess yeah, as you
as you point out that the bitter irony of all
this is that crypto is was invented with this idea
of trustlessness in mind. And yet we've we've allowed these

(52:58):
we've allowed these opportunists to in and and you know,
let ourselves trust them because you know they are I
guess because in a way they make it easy. You
talk about, you know, you talk about the difficulties of
of getting you know, of getting money into crypto and
and storing it and all this sort of stuff, and
I guess these guys, these guys kind of fit the

(53:18):
bill in that in that sort of respect, didn't they
And they made it very made them very easy to use,
whereas Defy. You know, defy is is complicated, defy is
still is still hard. The average person doesn't want to
touch that yet. You know you had these the c
fire players go, hey, you know this is easy. This
looks just like this looks just like your bank's website.

(53:40):
Nothing nothing to worry about here. Yeah, I know, exactly right. Okay,
I think defy has extraordinary potential. I'm really excited about
what we can do with DeFi I think can strengthen
the banks and strengthens on my get so you can
avoid two doesn't support not ready. Yeah, we vest one

(54:00):
and you write people of value. Convenience over security happens
all the time. It happens all the time. Why do
we like the microwave. It's not because it makes great chicken.
It's because it's fast and easy to use, right, the
same reason why people don't want to memorize a sea
phrase or have to interact with their hardware wallet. The

(54:23):
normy population, which is the bulk of the world. If
you want to if you want to cannot crypto. If
you want to bring crypto the next level, it's not
going to be through teaching ember one. How to use
my grammar is not gonna use the hardware. It's going
to be through channels that they understand and relate to,

(54:44):
that are easy to acce, that highly usable, where they
against service and it goes back to the trust. It
will be familiar in the same way. No one talks
about t C P, I P. It's all in the background,
but it's using every Internet unction and data transelection in
the same way when the door cheese, it's success on.

(55:04):
It's only something in the background. Our starts will be
tokens and chin. Let's say, money will be unshained. Money
is already actually in a card to stable coin. There's
more ado around there, and there's yeah, there's there's just
there's so much building still to be done, isn't there.
There's there's so much you know, this stuff kind of
talking in a similar way rounds similar to what to
what you do? You know, what you guys do and

(55:25):
what you've done through a lot of your career is,
as you say, kind of providing these you know, these
gears behind the scenes, kind of greasing the wheels behind
the scenes. You know, people don't really people don't really
know what you know, what happens, but they don't care.
They just want it to be. They want it to
be a seamless experience. They want to know that they're
not going to you know, that their deposits are covered.

(55:46):
Then they want to know that it's not going to
all disappear tomorrow. And I guess until Krypto can offer
those sorts of guarantees, it's going to be it's going
to be a hard sell for for the average person.
The challenges ahead. I agree. I think I think you
said it well. I think you said, well, like you
need investment in infrastructure, you also need better policy and

(56:08):
more education out there, and so over the same lessons.
Every cycle comes back to the same components. But I'd
also say like that, you know, crypto DeFi right now
doesn't offer much field for reasons we know. So it's
it's hard to currently grow the ecosystem and giving exactly
what we said getting it, But there are there are
other ways, like dislocations do you create opportunities? Right? So,

(56:30):
and this is not financial advice. Went through your own
analysis on this, right, guys smirking, because whenever someone says
not financial advice, you know they're about the diffinancial advice
than this is truly not financial advice, but just you know,
dislocations and rising the rates have been when votively goes up.
For instance, there's a coin base about and adding with
that's just in a few weeks. You want to do
analys on it, but it's it's treating like sixty cents

(56:54):
on the dollar and now it's got a twelve percent
coop on or interest. Great, so you buy that bond
and that bond short curation meaning it will pay back
as principle in the next couple of years, and that
bond will go from sixty cents to a dollar provided
that coin based deliver as its scheduled principle and interest payments.

(57:16):
And they've got five billion dollars in cash on the
balance sheet and it's paying off talks and interest is
better than what you get on these other platforms. And
that's legal, it's compliant. So you know there are opportunities
out there. I'd say again, talk to a an advisor.
I think that knows what they're doing. You know, we

(57:38):
work with crypto Wales, that's our area of expert piece.
So happy to have a conversation around the shoots an
email and happy to have, but there are other opportunities
like that in the market that are emerging because of
these dislocations. And it's interesting that you that you that
you cite coin based there run because obviously coin based
US based exchange, it has had to jump through so

(57:59):
many regulatory hoops. I mean, I take your point about
the fact that it's you know, it's still not as regular,
not nearly as regulated as a bankers or anything like that.
But you know, as as crypto exchanges go, the likes
of coin base and crack and Gemini, you know, these
US these exchanges that are you know, based in the
mainland United States, they have they have gone through a

(58:23):
lot more of the regulatory procedures than than a lot
of others have and have been kind of criticized for
it in the past. You know, they've had to charge
higher fees and things like that, and you know, maybe
haven't been able to offer the same you know, the
same kind of services or the same kind of alk
coins and things like that that other exchanges you know
that haven't been as compliant, you know, have they've been

(58:44):
able to be more nimble, um, But this really shows
that perhaps you know that that these policy the this,
this going down, this going down, the you know the
proper channels to do it properly, may well may well
be paying off. I think it's a good I think
it's a good conclusion. You look, trust all matters in

(59:05):
the trust. This world need players that are compliant and
playing the long game, that are leading with trust and integrity.
I would never have it's so surprising to say that
a differentiator in trypto is that this player conducts themselves
with integrity. In any other industry, that's the assumption that

(59:26):
they conduct themselves with integrity. Right, You really can't make
this up. And here in crypto were saying, well, coin
based leads with integrity, but players and embrace regulations is
where you wanta is where you want to focus. Specifically,
look for trust to banks because trust banks have the

(59:48):
highest standard, the only standard with a few standards. Fair
that these are subtle points, but want to be like
a full service bank, a full service bank, a trust
bank doesn't necessarily have f d I C. Super Trust
banks have significant controls and a third parties and audit
firms protect against fraud, and multiple parties at the bank

(01:00:12):
with different roles and responsibilities protect against fraud by the
law law and okay, um, I'm I'm conscious that I've
taken up a lot of your time on you know,
on on this Friday, But I want to end with
I want to end with a with a with a
question for you sort. So we've seen we've seen this year,

(01:00:36):
I mean, twenty two has been has been just you know,
the year of the beast in in in crypto terms.
And we keep seeing this, don't we We saw it
with we saw it with Mount Cox and then you know,
we had this, we had terror earlier this year, and
now we've had f t X. You know, we've had
these these convulsions in the industry that we've had to

(01:00:57):
go through and kind of each time, I'm the bus
the industry has kind of picked itself up, shaking, It's
dusted itself off and kept going. Do you think do
you think this is a watershed moment or do you
think you know, down the line, we're going to have
to We're going to have to go through more of
these convulsions. We're going to have to keep learning these

(01:01:18):
lessons the hard way. That's a great question, guy, Look,
human nature, our guests after a few years, so this
will happen again. It happens every sniggle I mentioned G
Capital two does. But people on crypto don't know what

(01:01:39):
the heck G campitbal was and and this happened ten
years before that, and it will happen again and again
and again. So however, the infrastructure improves and the service
providers improved and customers start to learn, so there is progress.

(01:02:00):
There is an improvement. You know, it'll get better. So
you just got to keep your wits about you, do
your homework. Wealth creation doesn't happen through an overnight that
rich quick scheme betting on a mean point. Any winner
there has a matching loser somewhere else. Okay, play the
long game, preserve your wealth. You know what Albert Einstein

(01:02:23):
said that the eighth miracle the world has compounded returns, right,
and you have an environment where our dislocation, so there
are opportunities I think you can do well. Uh and
maybe early stage crypto VC firms that have a real
skill know what they're doing. We allocate to what we
think of the best firms a little bit that do this.

(01:02:46):
So I think that's that's all I'm saying on that front.
And I guess it's up to It's up to the
crypto user, whether they're you know, whether they're a retail investor,
whether they're a retail trader, whether they're institution whatever, to
us kind of vote with their feet. In many ways,
it's like, we know, identify who the good players, who
the good players are, ask the hard questions about, you know,

(01:03:09):
things like reserves and liabilities. You know, there's so much talk,
isn't there at the moment of exchanges publishing, you know,
publishing proof of reserves, proof of liabilities and things like this.
It's like we as we as crypto users, have to
have to demand it and say, Okay, it's hard, it's
China there here, here's what I'm kind of makes that

(01:03:30):
So for my main messages focused on the most regulated player,
here's what. I was on a panel with Alex and Maschinski,
and I asked it, why don't you put your assets
and liabilites and change? He said, he did, and it's
an ansense he did not much less likely, so people
will say all sorts and ansts, oh, it's not change.
Wh was validating the contents of the change. That's the

(01:03:51):
no validation mechanism for the balance. In other words, the
technical expertise to assess the comments of these people's very high.
I spent twenty years doing this stuff, so I know
where to focused. And even then you don't get all
the data you want. It's very difficult even for someone
like me. So my main messages focus on the most

(01:04:13):
regulated players, focus on trust banks. There's actually it's a
specifically regulatory term, trust bank, at least in the United States.
If you're the US, you avoid asked, what's the jurisdiction
of this player? Who is their primary regulator? And seek
the highest form of regulation. If you're going through that

(01:04:33):
from the channel, then yeah, we should still have this,
for instance in my abilites, and she gives we should.
But how can you trust these players when they're saying
they're doing these things and they're blowing up who or
three months later? I don't trust what they say. There's
a lot to do back to you, myn infrastructure. In

(01:04:53):
a few years from now, we could have the infrastructure
can verify these things on chain. But when I can
have it overnight, even the mexic won't. It won't be there.
Even you see the data and the equivalent of like
either scale. Let's say that you know the oracles could
have fault the inputs that fee either scale. Yeah, yeah,

(01:05:14):
I mean, I mean we we you know, we don't
know what's going on behind the scenes, do we. In
the immediate kind of fallout of FTX, when when everyone
was kind of scrambling to to offer proof of reserves,
you know, there were suspiciously large amounts of crypto kind
of moving between various exchanges for for reasons that were
never sort of satisfactorily explained. So yeah, you're right, Ram,

(01:05:37):
It's yeah, we we can't. We can't rely on these Certainly,
the technology doesn't exist for us to be you know,
for for these things to be proved beyond doubt, we
have to we have to take the steps ourselves. That's right,
That's right, exactly. Well, Ram, thank you, thank you so
much for today. I I've taken up so much of

(01:05:59):
your time, and I really appreciate you. You're shedding some
light on all this for us. We you know, we
kind of we we covered ft X and Alameda and
then kind of, you know, wandered across to this sort
of the broader kind of spectrum of crypto and you know,
how we how we kind of navigate that landscape, But
there is there is still so much to unpack about

(01:06:20):
ft X and Alameda that's obviously going to come out
in the next few weeks, And obviously I guess we're
probably going to be looking ahead to Tuesday. Is SPF
going to pitch up and and testify before Congress, perhaps
perjure himself before Congress, or is he going to risk
a subpoena instead. There's there's so much still to happen, right,

(01:06:44):
We'll see what happens. I'm sure gonna have a lot
of phrases involving the explansion to my knowledge and as
I can store, as I can recollect. But first off,
I think you It's been a pleasure, and I appreciate
your leadership in the category you're a shirt offer many
investors and appreciate your leadership and the thoughtful questions how
would it pay forward and do the best I can

(01:07:05):
contribute here? So thank you, so much, Thank you rum Yeah,
well we must, we must do this again. Sometimes perhaps
perhaps when there are you know, yet more of these
gory details emerge, we can we can get together again
and unpack some of them absolutely, Until then, you know,
you can find me at Ramalla Laia. You know it's

(01:07:26):
a mouthful at Ramallah Wallia or at Lumita. Well, we
published real time research and takes there. We're gonna have
a nice threat on silver Gate in a few days
and another threat on DCG Genesis. I thought we'd beat
that to death apparently from that, so there's more, there's
more to come on that one. Crypto always keeps us busy.

(01:07:46):
That's worth sure. Wow. Yeah, I was going to say, actually, folks,
you you must follow Ram on Twitter. I will I
will leave links in the description to Ram and Lumina
as well. But yeah, Ram, you've done a fantastic job
of of breaking down some of these things and I
really appreciate it, and I know lots of other people
in the community appreciate it as well. So please keep

(01:08:07):
up that good work and h and let's chat again
in the future. Thank you, my pleasure. Thank you so much.
Have a good one. Well, thank you so much. Great,
great question, it's great, great questions. And I thought you
you you took him good directions and you gave me
a good you key up the softball so I could
drop in the campent there, so that was as as well. Now,

(01:08:31):
so it's definitely, thank you, thank you. Yeah. It's it's
a funny thing this, you know, this this kind of
thing of interviewing people, you know, talking to people and
interviewing him. It's it's something that I've sort of only
kind of just started doing and you realize just how
how difficult it is. But so I right back at you.
I appreciate you. I appreciate you sort of you know,

(01:08:53):
taking you know, taking any any bones that I throw
and running with them. It's uh yeah, um yes, yeah.
And we moved out September. Cool. What's the best conference
in Dubui for crypto to attend? You think, wow? There,

(01:09:14):
I mean, there are so many. Um, the only one,
the only sort of one that I've been to was
was Future Blockchain, this part of this huge gi tech
summer and that was back in that was back in October.
That was that was good. It was it was part
of this larger, huge technology conference. So the kind of
crypto bit was was quite separate. Um, I've heard, I'm

(01:09:36):
I mean, I'm looking to go to some you know,
looking to go to some more, especially especially in the
new year. I think they can they tend to be
a little dry. I'm told you know, they're not quite
as not quite as as good far as things like
Bitcoin Miami or things like that. We're actually trying to
do some some crypto events here, you know, under the
Coin Bureau brand, because yeah, we're planning. We're planning a

(01:10:01):
sort of B two B event in March, I think,
and then a big sort of beta C thing in London.
We did it earlier this year in May, so I
think we're going to do another one of those in
the summer. So if you fancy, yeah, if you if
you fancy a trip over to Dubai or to London,
it would be it would be great to have you
at one of these events. You'd be I'll give you

(01:10:21):
a holler yeah, no, certainly, let me know trip out.
There are some dear crypto ference in Dubai as well.
If you're in New York in your holoto, we we
have these private dinners like Tenda twenty people, but they're
all they're all operators of the season the New York market.
So if you if you get to New York in
meat like a two week notice, I can organize a

(01:10:42):
dinner and get together. It's informal, you know, we pick
up the tabs it's proven really great people together and
it's awesome, you know, and these are your people from
genesis from the crypto VCS points only two is there,
Apollo is there. I mean it's it's and it's the
best idea for this. We everyone go on the room
and say one best idea crypto or our crypto to

(01:11:03):
invest in. It's like a little icebreaker and keep I
have a drink and just hang out. So it's it's chanting.
It's private apple station. So you do that about once
a month or so. But yeah, if you're in our
neck of the words, skimmia holler or I'll be able
to coin having too happy to get a beverage and
you great to you know, you know a person at
some point, so absolutely stuff. Absolutely, oh well, this has

(01:11:26):
been great. Thank you rum And yeah, like I said,
like I said in the you know in the interview itself,
I'd love to I'd love to do this again sometime
if you'd be if you'd be up for it, if
you absolutely absolutely and keep up with the great works.
Thank you again. Thank you have going take about cheers.
Thank you so much for listening to the coin Bureau podcast.
If you'd like to learn more about cryptocurrency. You can

(01:11:48):
visit our YouTube channel at YouTube dot com forward slash
coin Bureau. You can also go to coin bureau dot
com for loads more information about all things crypto. You
can follow me on Twitter at at coin Bureau all
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