July 10, 2021 • 25 mins
This week, Chad Cascarilla, the co-founder and CEO of Paxos, a regulated blockchain platform that has its own stable coin, came on to talk the use and regulation of stable coins. Sam Bankman-Fried, the founder and CEO of FTX, a cryptocurrency derivatives platform, discussed their recent publicity push becoming the official crypto partner of Major League Baseball and getting the naming rights to the Miami Heat stadium. Dragonfly Capital general partner Tom Schmidt demystified DeFi, decentralized finance. Then Craig Fuller, founder and CEO of FreightWaves, the leading provider of data and analytics to the global logistics and supply-chain market, came on to talk about the bottlenecks and explain why trucking companies are not honoring their contracts due to such high demand.
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Speaker 1 (00:08):
Welcome to What You Missed This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do You miss It's
the perfect way to kick off your weekend. This week,
we took a deep dive into the use and regulation
of stable coins with Chad Cascarilla, the co founder and
(00:28):
CEO of Paxos, are regulated blockchain platform that has its
own stable coin. Pasos is working to re platform the
financial system, arguing that all assets can exist on a blockchain.
Chad thinks it's just a matter of time of bringing
the financial system onto the technology that we have available today,
and so we started by asking Chad why people should
feel comfortable that stable coins are not a systemic threat
(00:49):
and are really backed by what they say they are
backed by. Well, um, it really does come down to
what is the stable coin, and so they're not all
created equal. Our stable coin is a little different from
others because we're fully backed, we're fully audited, we're fully regulated,
and so the token itself has been approved by a
primary regulator, in this case, the New York Ment financial
(01:11):
services that's different from others. Uh. And of course there's
been a lot of talk about tether and other stable coins.
Are they a systemic risk? What could happen over time?
And I think the point is the technology itself is
unlocking a new way to be able to move money,
which is really important and clearly has a lot of
interest and a lot of demand. But also at the
(01:32):
same time you want to have the right type of oversights.
That's what Paxos has always done from the very beginning,
which is being highly regulated, make sure that we can
create the trust level that's needed to make this adoption
happen at a mainstream level, not just for early adopters
and maybe crypto enthusiasts. And so I think that's the
shift that needs to happen here for the industry is
how you build you know, industrial strength, institutional grade products.
(01:56):
Chat obviously come must give you a competitive edge. Fact
that you've gone through this process, you've got regulated, you've
got audited, will not inherently happen to the others. Do
you think this will weed out? Will eventually? Will we
see certain stable coins fade away? Why haven't more gone
through that process? Do you think, yeah, it's a it's
a very good question. I think, frankly, in some ways,
(02:17):
being regulated and such an early stage is a hindrance. Uh,
you know, you have to move slower, there's more oversight. Um.
But on the other hand, our view has always been
that how are you going to change the financial system
in the long term? How are you going to change
people's lives every single day? And you can't do that,
in my opinion, if you're unregulated, if you're not trustworthy,
(02:37):
if you're not built for mainstream adoption, and so I
think it's hard in financial services to go back and
ask for permission. Uh. You really have to have done
in the very beginning and um. And so there's a
real difference between building it the right way from the
beginning and building it with a back film mentality. I
think that can work in other industries, but in financial services,
(02:59):
certainly one that's highly regulated, like financial services, that's not
really I think the right approach to take. And I
think we're going to see that over the next year
or two because you have to move beyond the crypto
early adopters, and that's what we've done. I think see
some really big names come in start to use this
technology over the next six or twelve months, and it
(03:19):
can really change the payment system, and it can really
change how consumers have access to financial services, which is important. Fundamentally,
stable coins allow there to be a lot more inclusion,
and I think that's probably one of the most important
attributes of them. One our own reporting at Bloomberg says
that there are some regulators who are concerned about stable
coins from say, you know the same things that people
are worried about with other crypto money laundering terrorists, the
(03:41):
inability to track it. There are mixers on the internet,
there are places where you could sort of deposit a
stable coin, put them in a place and you can't
really track it, and then someone else picks it up
and it's very hard to follow the whole trail of payments.
Is there going to be more, in your view, more
coming to sort of get more aggressive or make it
(04:01):
easier for regulators to track every little hop, skip and
a jump to know who's holding it at any given time,
or is it already sufficient to regulation. I think there's
a couple of components to this, and you're eraising some
really good points. Um. I think you know, if you
look at what's the number one currency that's used for
money laundering. It's physical US dollars. Uh. Now that's not
meant to be said in some type of cheeky way.
(04:23):
I mean that that's the fact UM creating a stable
coin UM is going to allow you to be able
to understand each hop along the way, it's publicly available. UM,
it's not fully anonymous, it's what's called pseudo anonymous, and
the the amounts that move are well known to everybody,
and they're by the way, fully auditable forever. And so
(04:44):
we've seen this uh create an ability for law enforcement
to understand what's happening in a better way. But partly
what needs to happen is the stable point itself regulated.
And so it's not enough just to be able to
have auditability and to understand what's happening. You have to
make sure that whoever is issuing these stable coins, and
by the way, I think ideally that should be a
(05:04):
central bank at some point in the future. But there's
so much discovery that needs to happen that before you
get to a central bank issuing it, you're gonna want
to see the market be able to winnow out what
works and what doesn't. Work, and I think being regulated
is one of the things that's going to be proven
to show what works, and that will then allow us
to say, Okay, how do we want to construct the
right types of controls? Because ultimately all these stable coins
(05:28):
are on smart contracts. You can develop all types of
controls in there. It's not like a cryptocurrency like Bitcoin,
where it's fully decentralized, fully open, nobody is overseeing it.
There is an issuer of all stable points. Now. We
also got some more perspective on crypto and the recent
volatility in the space with Sam Bankman Freed, the founder
and CEO of f TX, cryptocurrency derivatives platform that is
(05:51):
having a moment here in the US. Well, they probably
aren't as well known as some of their competitors, like
say coin base, they have been getting their name out there,
becoming the official crypto partner a Major League Baseball and
getting the naming rights to the Miami Heat Stadium. We
started by asking Sam what was behind the push and
what he sees as the market opportunity for f TX totally,
(06:12):
and I think you know, the big context behind the
push is we're really proud of the products we've felt
we put a lot of work into them and you
know think that they are you know, the best products
in this space UM, and we have lots offered users.
We're also one of the newest trip to exchanges and
we have a lot less name recognition because of that.
And so I think the biggest thing that we're looking
to do UM is to get our name out there
(06:34):
because you know, we think people will will offer products
if they try them UM, but don't have that that
same brand name as as you know some of the
other venues. Some who are you interested in therefore, because
it feels if you're going into stadiums, into into gaming,
it feels like it's a retail player, but like an
educated one who usually likes the game or gamble on
(06:54):
on sports. But I also know you've been interested in
institutional you're like built by traders for traders. Who who
has a swing spot? Yeah, it's a really good question.
And you know, historically our our biggest sweet spot has
been the really highly engaged users, the professional users UM.
You know, the people who think very hard about a
platform they use UM. And you know, we've put a
(07:15):
lot of our effort into trying to build the best
institutional grade liquidity platform that that we can in crypto UM.
But one of the things that means is that as
we now start to look at the consumer demographic as well, UM,
we already have uh you know, a really well built
back end technology UM. And that makes it pretty easy
for us to roll out a lot of products on
(07:37):
the consumer side, UM, because we have all of the
backing that we need for them in terms of technology,
in terms of products, liquidity uh and and everything else. UM.
And so it just makes it much easier roll out
on that side. And we're pretty excited to get involved
in that game. UM. You know, it hasn't historically been
our biggest source, but we think that there's a lot
(07:57):
of room to move that space forward as well. And
so I think you're exactly right. This is this is
looking at a different demographic than what has been the
largest user so far UM of f t X is
that what you see is the big selling point that's
sort of just the the user experience every time their
stress or major volatility in the market or maybe a
rival exchange people having trouble accessing it. You make a
(08:21):
point on Twitter and talking about f t X is
still up, We're still running. You make a point also
about the sort of like changing liquidations policy versus others
talk to us about what you see as the f
t X difference in why out of nowhere because like
a year and a half ago, don't I've ever heard
of you? Yeah, So, you know, I think a lot
of this is a combination of features. I think you
hit on some of them. One of them is up time.
(08:43):
We spent a ton of time working on our back
end technology. And you know this often isn't present in
the retail facing products, but when you put stress on
the systems, all of a sudden it is. And if
your technology isn't top end, um, you're gonna have downtime,
even on your mobile app. Um. And you know we've
sort of industry leading up time this year. That is
one piece of it, um. You know. I think another
(09:04):
thing is that you know, we've rolled out a lot
of cool products, many of them have been international so far. Um.
And I think you know, on the international state, we
have a lot of pretty unique experiences for people. You know,
with the world second most liquid Trump contract for instance,
uh which treated you a few hundred million dollars on
election night. But now in the United States we have
our eyes on a lot of really cool features, UH
(09:27):
that we're hoping to roll out over the next year
that we think we'll will really sort of set UM
set us apart, not just in terms of the stability
and experience, but in terms of the breadth of offerings.
What's been sort of attracting attention to ft X has
been the way that you've been able to be so nimble,
so and be able to like say, oh, you want
lumber here, I'll give you lumber. The ability to sort
(09:47):
of hear what your customers want and have fun with it.
As you get bigger, as you raise more money, as
institutional clients not only become your clients but also fund
you do you why that that will kind of fall
away a little bit, that you have to become more
quote unquote professional. It's a really good question. No, UM.
I do think that we're gonna get a lot of
pressure to UM. And you know, I think that we
(10:11):
want to be professional in the ways that matter and
the ways that that are meaningful. And I think we
try really hard to treat our customers well and with respect, UM,
and to build institutional grade tools. UM. You know what,
I think we're going to kind of you know, really refuse.
The pressure to do is to have massive, sprawling growth
in employee base in a way which is sort of
(10:33):
chaotic and and you know, reduces our ability to operate well.
And you know, we would love to be way bigger
than we are in terms of workforce we have. We
have demand for it um but you know, and we're growing.
You know, we've tripled this year so far in in
employee base, but we're not going to have thousands of
people anytime soon. And the reason is that, you know,
(10:53):
we're worried that if we do that, we're not going
to have the managerial capacity for it, and we're gonna
see what we seen other exchanges. We're in grow as
fast as we can while maintaining the culture that lets
us do what we need to do, but not at
the expense of that. So Sam, obviously ft X has
been this huge success, but your success within crypto goes
beyond that the hedge fund or crypto trading fund. You're
(11:16):
also a backer of a very rapidly growing layer one platform, Salana.
We you know, in the beginning I mentioned bitcoin the theory,
which everyone knows is the goal of Salana to to
be better than Ethereum, and is the vision that it
could replace it and be bigger than it one day, Sue,
I'm sure if not, Here's what I'll say. I think
that there's a really exciting and ambitious goal for Salana
(11:38):
that I think doesn't fit the theory um, and that
goal is to be a blockchain platform that could support
a billion users, that could potentially support you know, pcent
of the world's economic activity on it. I'm not saying
that will happen, but what I'm saying is that the
goal is to build a platform that could do that,
so that the technology isn't bounding the growth this from
(12:00):
the get go and it can get as big as
it makes sense to get and hopefully provide a tone
of value. And I think that needs a massively scaling
blockchain technology. That's what Salana is. That's its founding principle
is this guy in light and it's done really innovative
things to do that. And that's not what Ethereum is.
And so, you know, I think is it is it
sort of complementary or competitive with theorem? I know that
(12:22):
depends on what you think. You know, your view of
the goal of Etherorum is and I think that, you know,
one thing we're seeing is ethereum being service story value
for some people. And you know that's totally fine with me,
Like that's not um you know uh that that that's uh,
you know not not sort of contradictory with Salana seeing
blockchain growth. I can imagine if there was any regulator
(12:43):
listening in right now, they go, you want fifteen percent
of economic value to go onto this blockchain. Well, Salana,
that I don't know about. How are you finding that
discussion going when you do think you'll be allowed to
get that to that sort of scale. When you've got
us thinking about a fed coin China trying to promote
its own you know, it's really hard to know, Like
I don't want to try and make you know, I
(13:05):
have no clues to real answer there. There's so many
variables there. And so instead of thinking if it's like
it is going to get there, because that would be
insane thing to to to feel confident about the way
I think about it is the upside, the really big
upside where a lot of the expected value is are
cases where you get to at least hundreds of millions
of users in DeFi and what that means when we're
(13:25):
thinking about what do now give that were ways away
from that, right, Like the number of DE five users
is tiny, it's like a hundred thousand. It's you know,
smaller than a single centralized exchange. UM. What that means
right now is building the technology such that you don't
constrain yourselves away from it. Maybe it will happen, maybe
it won't. You know, certainly probably won't reach as big
(13:46):
as it could possibly get. Um, but it would be
really sad if you just cross that off your list
immediately as hopeless. Sam. When I look at f t
X dot com, it has all this cool stuff lumber
prediction markets and so forth. Ye. When I look at
the US Kitty version that's like regulated, it's like, oh,
you can buy like bitcoin. Is this like the old
poker where it's like there's the cool site that Americans
(14:07):
can access? Yeah? Um, I mean yes, Like right now
that they're they're they're you know, two sites to exchanges
to matching engines. Well them has a lot more products
than the other. Um. And this is because of because
of licensing. You know, this is and I don't want
to freeze this says a good and bad thing necessarily
like UM but you know, uh as it is there.
The US tends to take a license approach to everything,
(14:30):
which makes sense a lot of cases. What we find
ourselves here is in a situation where there are a
number of products that I think are super cool that
the US takes a stance a require licensing to offer
in the United States, but hasn't released a clear licensing,
uh you know, regime for it. And I think that
when you look at even crypto futures follow in this
category right now, there is no crypto futures exchange license,
(14:51):
but the CEE if he says, you need one. And
we also took some time this week to demystify Defy
the centralized find with Tom Schmidt, general partner at Dragonfly Capital,
which invests in this space. We started by asking how
he thinks about what makes a good project in this
space when we don't have the sorts of traditional metrics
like we do and established past classes. I mean, I
(15:15):
think that's actually what's cool about Defy is that, you know,
unlike a traditional company where you might not have access
to the company financials or there might be fraud, there
might be issues with it, we defy all the data
all the activities actually occurring on chain. So if I
want to go and I want to see, you know,
let's say something like Compound Finance, for example, their decentralized
money market, I can go and see how many depositors
do they have, how many borrowers do they have, you know,
(15:37):
with their LTV ratio, what kind of assets do they
have as collateral? And so you can actually go on
chain and see what users are doing with that, with
the products that are actually live. And that's a really
novel breakthrough that just isn't really possible with the traditional
company decentralized finances. Of course, what all this is And
I'm interested why a lot of the biggest companies within
crypto that get their names, you know, some of whether
(15:59):
it be MACE that's already listed, or companies that are
looking to raise funding in the crypto space end up
doing it in the normal way. They get money from
private equity or they get money from from VC. Why
don't they just do Why doesn't every woman in the
crypto sphere just want to make create their own token
go through it from a deep decentralized financial kind of way.
(16:20):
M I mean, I think a lot of people saw
the issues with sort of you know, true free for
all when it comes to uh you know, capital information
and financing with sort of the twenty seventeen I c
O phase. I think a lot of traditional companies still
do raise money initational way from venture capitalists like myself, um,
you know, such as a block thigh, which is you
know one a little larger private companies right now. I
think what's interesting about about defies sort of twofold one.
(16:44):
A lot of the financing that does happen is pretty
small and occurs pretty early in the company's life cycle,
where uh vcs or early investors really act as partners
to sort of help build, but you don't see the
sort of later stage series D, series C investments. Traditionally,
a company if they want to issue token, the issue
it earlier on and they started giving it away to
early users. It's as if you know, Uber, instead of
(17:05):
raising you know, ten different venture rounds, start giving away
uberstoctor early drivers and early writers to incentive them to
help make the product better and to use it. And
so you know, again, these things want to be decentralized,
they want to be sort of user controlled, and so
it doesn't really make sense to you know, take on
traditional funding and instead actually have the users who are
you know, operating the protocol um take ownership of it.
(17:26):
But I am curious here, Tony, I mean Tom, excuse me.
We talk a lot about the comparisons to the Internet,
or at least what the Internet used to be, but
of course the Internet has sort of become concentrated, at
least the main drivers of it have been now concentrated
amongst a few players here, And I'm wondering, is there
a risk, given the general structure of what the blockchain
is supposed to be and all this sort of ancillary assets,
(17:46):
is there a risk that we could see that concentration
there or is there some sort of buffer that would
prevent that. I think certainly these things have really powerful
network effects, and that sort of you know, gets these
these concentrations where hey, if I'm a borrower, I'm a
trade or I want to be where there's liquidity and
and vice versa, and so you get these virtuous cycles
which can create these, you know, really big products. I
would say, the big difference with something like defied sort
(18:09):
of twofold one. These things again, are you know, always transparent,
always on and so you don't have this sort of
potentially ex systemic essential systemic risk that you do with
you know, potentially a large bank for example. Um. The
other interesting thing is that again this is all permission
list to build on top of the remix. So UM,
let's say you know, a product gets gets really large
and they're doing a really great job. All this code
is open source, so I can take it, um, I
(18:31):
can change it, I can redeploy it, and so um.
You know, it's a lot more like open source software
in that way, where if a new better product comes along,
anyone can come and just deploy and build and have
other people start using it, unlike something like Facebook, which
is completely closed source. And then we wrapped up the
week with something outside of crypto, the the Global supply
(18:53):
chain crand full Of, the founder and CEO of Fruitly,
was the leading provider of data and analytics to the
global logistics and supply chain market, came on to talk
about the bottlenecks that explain why trucking companies are not
honoring their contract to do this touch high demand. Now
there's you know, the capacity shortages. The gonna stay current
(19:13):
and persistent at least through the rest of the year
it is. UH. We have the potential of seeing some
relief UH as we move into two thousand and twenty two. UH,
probably after the first quarter. But right now capacity is
super tight. The labor market is certainly not helping because
it's so tight, and it's nearly impossible for trucking companies
(19:34):
to find truck drivers to take the jobs that they
have available. What about sort of pinch points from within
the US and and externally. I know you're looking globally
as well. How much is this purely a US issue
or is this something you're saying absolutely worldwide? Now it's
it's certainly worldwide. All aspects of freight capacity are at
(19:58):
all time low in terms of availability at a time
that demand is really off the charts and unprecedented. So
we see it in global shipping, we see it in
the rail markets, we see it in air freight UH,
and we also see it in trucking. So it's really
ubiquito US across all modes of traffic UH, and it's
something that the global economy is played with. UH. In
(20:21):
the United States, trucking is seventy of all freight is
moved by trucks, So we certainly feel it through that,
and we don't have a lot of options for drivers
in terms of employment optionality. So a lot of carriers
rely on the same pool of truck drivers to pull from,
and when you have record demand, they just don't have
(20:43):
a lot of choices to to be able to fill
those trucks. So, Craig, I mean, we just had on
the screen some data here on truckload transactions. Here, I'm
wondering what happens if some of these trucking companies if
they actually reject a load. I mean, what happens? Is
it just sit in a warehouse? Does it go? I mean,
what happens to that, to those to those goods now. So,
(21:03):
a rejection is basically a contracted load or a load
that has a fixed price. So big shippers like a
Walmart or Proctor and Gamble or large scale companies try
to every year they do a bid and they try
to lock in the trucking prices or rates for the
rest of the year. UH. And so they go through
(21:23):
the cycle locking it in and they get trucking companies
to commit to that capacity. UH. When they send those
transactions that they send them basically two days before they
are scheduled to pick up. The trucking company has the
option to either accept the load until the shipper that
they will pick up the load, or they have the
opportunity to reject it. And a rejection is a message
(21:46):
that says they're not going to honor UH that load
request for whatever reason. So it could be that they
don't like the rate that they had been on and
previously committed to, or it could be and most likely, dude,
they have better options UH to do with their capacity.
So when we look at a high tender rejection, which
we're over, it means one out of every four truckloads
(22:08):
in the United States that's under a contracted rate is
being turned down by carriers. They're just refusing to pick
up that load UH, and it's going then into UH
to the second position, and then eventually it ends up
in the spot market. And that's where you see high
inflation and transportation costs, where the cost between the spot
and the contract rate it could be as much as double.
(22:30):
And that's where a lot of people are talking on
social media and just in public about having to pay
these exorbitant freight rates to get capacity because they're having
to buy it in the spot market and not under
their contracted rates. Those contracted rates were previously committed to,
but they're just not the truck and companies just aren't
honoring it because they have so much demand. So what
(22:52):
are the obligations, I mean the sort of contractual or
legal obligations you mentioned. These relationships are made and then like, nah,
you know what, We're not gonna do that, and you've
gotta pay us a lot more. So, what is technically
being agreed to in these ostensible agreements there? It's basically
that they agree to a rate, but they're not actually
agree They may agree with volume commitment, but it's a commitment.
(23:15):
It's not a contracted guarantee. So there is no futures
market and trucking, and there's really not a ford market
and trucking either. So the commitments is just that they
have best intent to pick up the load at that rate.
But it's no different than your lawn care provider gives
you a rate to cut your lawn until summer comes
(23:35):
along and he finds that the golf course down the
street's paying twice as much and he goes over there.
So it's the same thing you get in trucking. Is
that the trucking companies will honor those rates as long
as the conditions in the market are stable. But if
capacity tightens up and they can get twice or three
times as much for the same truck on that particular load,
(23:57):
they'll take the higher paying load. And where you see
a lot of supply chain disruptions and breakdowns, and that
we call routing guides where shippers just can't secure capacity.
So that is what's causing this additional strain on the
supply chain, is that trucking companies are refusing freight and
shippers just don't have a lot of backup options to
(24:18):
deal with. It feels like a great deal if you're
in the trucking business right now. But great right now,
But remember shippers play this game just as well as
the characters do. So when the market reverted to the
other end and capacity soft, shippers will oftentimes not honor
their commitments. So where they may have agreed to give
a trucking company ten modes a day, they may end
up only giving them one mode a day, and they'll
(24:41):
end up buying capacity in the spot market at a
much cheaper level. So it's it creates a lot of
structural issues Joe and I talked about on on the podcast,
just how cyclical this market because of the cicality. Demand
is cyclical, and so is rape, and for those reasons,
it creates a ton of structural issues and eventual bankruptcies
(25:01):
in the market. And that's it for what you missed
this week. If you like to show, and make sure
to subscribe and rate us an Apple podcast or wherever
you listen to podcast, you can catch our show every
weekday from three thirty to five pm on Bloomberg TV
and from four to five pm on Twitter. Thanks for
listening and have a great week.
Welcome to What You Missed This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do You miss It's
the perfect way to kick off your weekend. This week,
we took a deep dive into the use and regulation
of stable coins with Chad Cascarilla, the co founder and
(00:28):
CEO of Paxos, are regulated blockchain platform that has its
own stable coin. Pasos is working to re platform the
financial system, arguing that all assets can exist on a blockchain.
Chad thinks it's just a matter of time of bringing
the financial system onto the technology that we have available today,
and so we started by asking Chad why people should
feel comfortable that stable coins are not a systemic threat
(00:49):
and are really backed by what they say they are
backed by. Well, um, it really does come down to
what is the stable coin, and so they're not all
created equal. Our stable coin is a little different from
others because we're fully backed, we're fully audited, we're fully regulated,
and so the token itself has been approved by a
primary regulator, in this case, the New York Ment financial
(01:11):
services that's different from others. Uh. And of course there's
been a lot of talk about tether and other stable coins.
Are they a systemic risk? What could happen over time?
And I think the point is the technology itself is
unlocking a new way to be able to move money,
which is really important and clearly has a lot of
interest and a lot of demand. But also at the
(01:32):
same time you want to have the right type of oversights.
That's what Paxos has always done from the very beginning,
which is being highly regulated, make sure that we can
create the trust level that's needed to make this adoption
happen at a mainstream level, not just for early adopters
and maybe crypto enthusiasts. And so I think that's the
shift that needs to happen here for the industry is
how you build you know, industrial strength, institutional grade products.
(01:56):
Chat obviously come must give you a competitive edge. Fact
that you've gone through this process, you've got regulated, you've
got audited, will not inherently happen to the others. Do
you think this will weed out? Will eventually? Will we
see certain stable coins fade away? Why haven't more gone
through that process? Do you think, yeah, it's a it's
a very good question. I think, frankly, in some ways,
(02:17):
being regulated and such an early stage is a hindrance. Uh,
you know, you have to move slower, there's more oversight. Um.
But on the other hand, our view has always been
that how are you going to change the financial system
in the long term? How are you going to change
people's lives every single day? And you can't do that,
in my opinion, if you're unregulated, if you're not trustworthy,
(02:37):
if you're not built for mainstream adoption, and so I
think it's hard in financial services to go back and
ask for permission. Uh. You really have to have done
in the very beginning and um. And so there's a
real difference between building it the right way from the
beginning and building it with a back film mentality. I
think that can work in other industries, but in financial services,
(02:59):
certainly one that's highly regulated, like financial services, that's not
really I think the right approach to take. And I
think we're going to see that over the next year
or two because you have to move beyond the crypto
early adopters, and that's what we've done. I think see
some really big names come in start to use this
technology over the next six or twelve months, and it
(03:19):
can really change the payment system, and it can really
change how consumers have access to financial services, which is important. Fundamentally,
stable coins allow there to be a lot more inclusion,
and I think that's probably one of the most important
attributes of them. One our own reporting at Bloomberg says
that there are some regulators who are concerned about stable
coins from say, you know the same things that people
are worried about with other crypto money laundering terrorists, the
(03:41):
inability to track it. There are mixers on the internet,
there are places where you could sort of deposit a
stable coin, put them in a place and you can't
really track it, and then someone else picks it up
and it's very hard to follow the whole trail of payments.
Is there going to be more, in your view, more
coming to sort of get more aggressive or make it
(04:01):
easier for regulators to track every little hop, skip and
a jump to know who's holding it at any given time,
or is it already sufficient to regulation. I think there's
a couple of components to this, and you're eraising some
really good points. Um. I think you know, if you
look at what's the number one currency that's used for
money laundering. It's physical US dollars. Uh. Now that's not
meant to be said in some type of cheeky way.
(04:23):
I mean that that's the fact UM creating a stable
coin UM is going to allow you to be able
to understand each hop along the way, it's publicly available. UM,
it's not fully anonymous, it's what's called pseudo anonymous, and
the the amounts that move are well known to everybody,
and they're by the way, fully auditable forever. And so
(04:44):
we've seen this uh create an ability for law enforcement
to understand what's happening in a better way. But partly
what needs to happen is the stable point itself regulated.
And so it's not enough just to be able to
have auditability and to understand what's happening. You have to
make sure that whoever is issuing these stable coins, and
by the way, I think ideally that should be a
(05:04):
central bank at some point in the future. But there's
so much discovery that needs to happen that before you
get to a central bank issuing it, you're gonna want
to see the market be able to winnow out what
works and what doesn't. Work, and I think being regulated
is one of the things that's going to be proven
to show what works, and that will then allow us
to say, Okay, how do we want to construct the
right types of controls? Because ultimately all these stable coins
(05:28):
are on smart contracts. You can develop all types of
controls in there. It's not like a cryptocurrency like Bitcoin,
where it's fully decentralized, fully open, nobody is overseeing it.
There is an issuer of all stable points. Now. We
also got some more perspective on crypto and the recent
volatility in the space with Sam Bankman Freed, the founder
and CEO of f TX, cryptocurrency derivatives platform that is
(05:51):
having a moment here in the US. Well, they probably
aren't as well known as some of their competitors, like
say coin base, they have been getting their name out there,
becoming the official crypto partner a Major League Baseball and
getting the naming rights to the Miami Heat Stadium. We
started by asking Sam what was behind the push and
what he sees as the market opportunity for f TX totally,
(06:12):
and I think you know, the big context behind the
push is we're really proud of the products we've felt
we put a lot of work into them and you
know think that they are you know, the best products
in this space UM, and we have lots offered users.
We're also one of the newest trip to exchanges and
we have a lot less name recognition because of that.
And so I think the biggest thing that we're looking
to do UM is to get our name out there
(06:34):
because you know, we think people will will offer products
if they try them UM, but don't have that that
same brand name as as you know some of the
other venues. Some who are you interested in therefore, because
it feels if you're going into stadiums, into into gaming,
it feels like it's a retail player, but like an
educated one who usually likes the game or gamble on
(06:54):
on sports. But I also know you've been interested in
institutional you're like built by traders for traders. Who who
has a swing spot? Yeah, it's a really good question.
And you know, historically our our biggest sweet spot has
been the really highly engaged users, the professional users UM.
You know, the people who think very hard about a
platform they use UM. And you know, we've put a
(07:15):
lot of our effort into trying to build the best
institutional grade liquidity platform that that we can in crypto UM.
But one of the things that means is that as
we now start to look at the consumer demographic as well, UM,
we already have uh you know, a really well built
back end technology UM. And that makes it pretty easy
for us to roll out a lot of products on
(07:37):
the consumer side, UM, because we have all of the
backing that we need for them in terms of technology,
in terms of products, liquidity uh and and everything else. UM.
And so it just makes it much easier roll out
on that side. And we're pretty excited to get involved
in that game. UM. You know, it hasn't historically been
our biggest source, but we think that there's a lot
(07:57):
of room to move that space forward as well. And
so I think you're exactly right. This is this is
looking at a different demographic than what has been the
largest user so far UM of f t X is
that what you see is the big selling point that's
sort of just the the user experience every time their
stress or major volatility in the market or maybe a
rival exchange people having trouble accessing it. You make a
(08:21):
point on Twitter and talking about f t X is
still up, We're still running. You make a point also
about the sort of like changing liquidations policy versus others
talk to us about what you see as the f
t X difference in why out of nowhere because like
a year and a half ago, don't I've ever heard
of you? Yeah, So, you know, I think a lot
of this is a combination of features. I think you
hit on some of them. One of them is up time.
(08:43):
We spent a ton of time working on our back
end technology. And you know this often isn't present in
the retail facing products, but when you put stress on
the systems, all of a sudden it is. And if
your technology isn't top end, um, you're gonna have downtime,
even on your mobile app. Um. And you know we've
sort of industry leading up time this year. That is
one piece of it, um. You know. I think another
(09:04):
thing is that you know, we've rolled out a lot
of cool products, many of them have been international so far. Um.
And I think you know, on the international state, we
have a lot of pretty unique experiences for people. You know,
with the world second most liquid Trump contract for instance,
uh which treated you a few hundred million dollars on
election night. But now in the United States we have
our eyes on a lot of really cool features, UH
(09:27):
that we're hoping to roll out over the next year
that we think we'll will really sort of set UM
set us apart, not just in terms of the stability
and experience, but in terms of the breadth of offerings.
What's been sort of attracting attention to ft X has
been the way that you've been able to be so nimble,
so and be able to like say, oh, you want
lumber here, I'll give you lumber. The ability to sort
(09:47):
of hear what your customers want and have fun with it.
As you get bigger, as you raise more money, as
institutional clients not only become your clients but also fund
you do you why that that will kind of fall
away a little bit, that you have to become more
quote unquote professional. It's a really good question. No, UM.
I do think that we're gonna get a lot of
pressure to UM. And you know, I think that we
(10:11):
want to be professional in the ways that matter and
the ways that that are meaningful. And I think we
try really hard to treat our customers well and with respect, UM,
and to build institutional grade tools. UM. You know what,
I think we're going to kind of you know, really refuse.
The pressure to do is to have massive, sprawling growth
in employee base in a way which is sort of
(10:33):
chaotic and and you know, reduces our ability to operate well.
And you know, we would love to be way bigger
than we are in terms of workforce we have. We
have demand for it um but you know, and we're growing.
You know, we've tripled this year so far in in
employee base, but we're not going to have thousands of
people anytime soon. And the reason is that, you know,
(10:53):
we're worried that if we do that, we're not going
to have the managerial capacity for it, and we're gonna
see what we seen other exchanges. We're in grow as
fast as we can while maintaining the culture that lets
us do what we need to do, but not at
the expense of that. So Sam, obviously ft X has
been this huge success, but your success within crypto goes
beyond that the hedge fund or crypto trading fund. You're
(11:16):
also a backer of a very rapidly growing layer one platform, Salana.
We you know, in the beginning I mentioned bitcoin the theory,
which everyone knows is the goal of Salana to to
be better than Ethereum, and is the vision that it
could replace it and be bigger than it one day, Sue,
I'm sure if not, Here's what I'll say. I think
that there's a really exciting and ambitious goal for Salana
(11:38):
that I think doesn't fit the theory um, and that
goal is to be a blockchain platform that could support
a billion users, that could potentially support you know, pcent
of the world's economic activity on it. I'm not saying
that will happen, but what I'm saying is that the
goal is to build a platform that could do that,
so that the technology isn't bounding the growth this from
(12:00):
the get go and it can get as big as
it makes sense to get and hopefully provide a tone
of value. And I think that needs a massively scaling
blockchain technology. That's what Salana is. That's its founding principle
is this guy in light and it's done really innovative
things to do that. And that's not what Ethereum is.
And so, you know, I think is it is it
sort of complementary or competitive with theorem? I know that
(12:22):
depends on what you think. You know, your view of
the goal of Etherorum is and I think that, you know,
one thing we're seeing is ethereum being service story value
for some people. And you know that's totally fine with me,
Like that's not um you know uh that that that's uh,
you know not not sort of contradictory with Salana seeing
blockchain growth. I can imagine if there was any regulator
(12:43):
listening in right now, they go, you want fifteen percent
of economic value to go onto this blockchain. Well, Salana,
that I don't know about. How are you finding that
discussion going when you do think you'll be allowed to
get that to that sort of scale. When you've got
us thinking about a fed coin China trying to promote
its own you know, it's really hard to know, Like
I don't want to try and make you know, I
(13:05):
have no clues to real answer there. There's so many
variables there. And so instead of thinking if it's like
it is going to get there, because that would be
insane thing to to to feel confident about the way
I think about it is the upside, the really big
upside where a lot of the expected value is are
cases where you get to at least hundreds of millions
of users in DeFi and what that means when we're
(13:25):
thinking about what do now give that were ways away
from that, right, Like the number of DE five users
is tiny, it's like a hundred thousand. It's you know,
smaller than a single centralized exchange. UM. What that means
right now is building the technology such that you don't
constrain yourselves away from it. Maybe it will happen, maybe
it won't. You know, certainly probably won't reach as big
(13:46):
as it could possibly get. Um, but it would be
really sad if you just cross that off your list
immediately as hopeless. Sam. When I look at f t
X dot com, it has all this cool stuff lumber
prediction markets and so forth. Ye. When I look at
the US Kitty version that's like regulated, it's like, oh,
you can buy like bitcoin. Is this like the old
poker where it's like there's the cool site that Americans
(14:07):
can access? Yeah? Um, I mean yes, Like right now
that they're they're they're you know, two sites to exchanges
to matching engines. Well them has a lot more products
than the other. Um. And this is because of because
of licensing. You know, this is and I don't want
to freeze this says a good and bad thing necessarily
like UM but you know, uh as it is there.
The US tends to take a license approach to everything,
(14:30):
which makes sense a lot of cases. What we find
ourselves here is in a situation where there are a
number of products that I think are super cool that
the US takes a stance a require licensing to offer
in the United States, but hasn't released a clear licensing,
uh you know, regime for it. And I think that
when you look at even crypto futures follow in this
category right now, there is no crypto futures exchange license,
(14:51):
but the CEE if he says, you need one. And
we also took some time this week to demystify Defy
the centralized find with Tom Schmidt, general partner at Dragonfly Capital,
which invests in this space. We started by asking how
he thinks about what makes a good project in this
space when we don't have the sorts of traditional metrics
like we do and established past classes. I mean, I
(15:15):
think that's actually what's cool about Defy is that, you know,
unlike a traditional company where you might not have access
to the company financials or there might be fraud, there
might be issues with it, we defy all the data
all the activities actually occurring on chain. So if I
want to go and I want to see, you know,
let's say something like Compound Finance, for example, their decentralized
money market, I can go and see how many depositors
do they have, how many borrowers do they have, you know,
(15:37):
with their LTV ratio, what kind of assets do they
have as collateral? And so you can actually go on
chain and see what users are doing with that, with
the products that are actually live. And that's a really
novel breakthrough that just isn't really possible with the traditional
company decentralized finances. Of course, what all this is And
I'm interested why a lot of the biggest companies within
crypto that get their names, you know, some of whether
(15:59):
it be MACE that's already listed, or companies that are
looking to raise funding in the crypto space end up
doing it in the normal way. They get money from
private equity or they get money from from VC. Why
don't they just do Why doesn't every woman in the
crypto sphere just want to make create their own token
go through it from a deep decentralized financial kind of way.
(16:20):
M I mean, I think a lot of people saw
the issues with sort of you know, true free for
all when it comes to uh you know, capital information
and financing with sort of the twenty seventeen I c
O phase. I think a lot of traditional companies still
do raise money initational way from venture capitalists like myself, um,
you know, such as a block thigh, which is you
know one a little larger private companies right now. I
think what's interesting about about defies sort of twofold one.
(16:44):
A lot of the financing that does happen is pretty
small and occurs pretty early in the company's life cycle,
where uh vcs or early investors really act as partners
to sort of help build, but you don't see the
sort of later stage series D, series C investments. Traditionally,
a company if they want to issue token, the issue
it earlier on and they started giving it away to
early users. It's as if you know, Uber, instead of
(17:05):
raising you know, ten different venture rounds, start giving away
uberstoctor early drivers and early writers to incentive them to
help make the product better and to use it. And
so you know, again, these things want to be decentralized,
they want to be sort of user controlled, and so
it doesn't really make sense to you know, take on
traditional funding and instead actually have the users who are
you know, operating the protocol um take ownership of it.
(17:26):
But I am curious here, Tony, I mean Tom, excuse me.
We talk a lot about the comparisons to the Internet,
or at least what the Internet used to be, but
of course the Internet has sort of become concentrated, at
least the main drivers of it have been now concentrated
amongst a few players here, And I'm wondering, is there
a risk, given the general structure of what the blockchain
is supposed to be and all this sort of ancillary assets,
(17:46):
is there a risk that we could see that concentration
there or is there some sort of buffer that would
prevent that. I think certainly these things have really powerful
network effects, and that sort of you know, gets these
these concentrations where hey, if I'm a borrower, I'm a
trade or I want to be where there's liquidity and
and vice versa, and so you get these virtuous cycles
which can create these, you know, really big products. I
would say, the big difference with something like defied sort
(18:09):
of twofold one. These things again, are you know, always transparent,
always on and so you don't have this sort of
potentially ex systemic essential systemic risk that you do with
you know, potentially a large bank for example. Um. The
other interesting thing is that again this is all permission
list to build on top of the remix. So UM,
let's say you know, a product gets gets really large
and they're doing a really great job. All this code
is open source, so I can take it, um, I
(18:31):
can change it, I can redeploy it, and so um.
You know, it's a lot more like open source software
in that way, where if a new better product comes along,
anyone can come and just deploy and build and have
other people start using it, unlike something like Facebook, which
is completely closed source. And then we wrapped up the
week with something outside of crypto, the the Global supply
(18:53):
chain crand full Of, the founder and CEO of Fruitly,
was the leading provider of data and analytics to the
global logistics and supply chain market, came on to talk
about the bottlenecks that explain why trucking companies are not
honoring their contract to do this touch high demand. Now
there's you know, the capacity shortages. The gonna stay current
(19:13):
and persistent at least through the rest of the year
it is. UH. We have the potential of seeing some
relief UH as we move into two thousand and twenty two. UH,
probably after the first quarter. But right now capacity is
super tight. The labor market is certainly not helping because
it's so tight, and it's nearly impossible for trucking companies
(19:34):
to find truck drivers to take the jobs that they
have available. What about sort of pinch points from within
the US and and externally. I know you're looking globally
as well. How much is this purely a US issue
or is this something you're saying absolutely worldwide? Now it's
it's certainly worldwide. All aspects of freight capacity are at
(19:58):
all time low in terms of availability at a time
that demand is really off the charts and unprecedented. So
we see it in global shipping, we see it in
the rail markets, we see it in air freight UH,
and we also see it in trucking. So it's really
ubiquito US across all modes of traffic UH, and it's
something that the global economy is played with. UH. In
(20:21):
the United States, trucking is seventy of all freight is
moved by trucks, So we certainly feel it through that,
and we don't have a lot of options for drivers
in terms of employment optionality. So a lot of carriers
rely on the same pool of truck drivers to pull from,
and when you have record demand, they just don't have
(20:43):
a lot of choices to to be able to fill
those trucks. So, Craig, I mean, we just had on
the screen some data here on truckload transactions. Here, I'm
wondering what happens if some of these trucking companies if
they actually reject a load. I mean, what happens? Is
it just sit in a warehouse? Does it go? I mean,
what happens to that, to those to those goods now. So,
(21:03):
a rejection is basically a contracted load or a load
that has a fixed price. So big shippers like a
Walmart or Proctor and Gamble or large scale companies try
to every year they do a bid and they try
to lock in the trucking prices or rates for the
rest of the year. UH. And so they go through
(21:23):
the cycle locking it in and they get trucking companies
to commit to that capacity. UH. When they send those
transactions that they send them basically two days before they
are scheduled to pick up. The trucking company has the
option to either accept the load until the shipper that
they will pick up the load, or they have the
opportunity to reject it. And a rejection is a message
(21:46):
that says they're not going to honor UH that load
request for whatever reason. So it could be that they
don't like the rate that they had been on and
previously committed to, or it could be and most likely, dude,
they have better options UH to do with their capacity.
So when we look at a high tender rejection, which
we're over, it means one out of every four truckloads
(22:08):
in the United States that's under a contracted rate is
being turned down by carriers. They're just refusing to pick
up that load UH, and it's going then into UH
to the second position, and then eventually it ends up
in the spot market. And that's where you see high
inflation and transportation costs, where the cost between the spot
and the contract rate it could be as much as double.
(22:30):
And that's where a lot of people are talking on
social media and just in public about having to pay
these exorbitant freight rates to get capacity because they're having
to buy it in the spot market and not under
their contracted rates. Those contracted rates were previously committed to,
but they're just not the truck and companies just aren't
honoring it because they have so much demand. So what
(22:52):
are the obligations, I mean the sort of contractual or
legal obligations you mentioned. These relationships are made and then like, nah,
you know what, We're not gonna do that, and you've
gotta pay us a lot more. So, what is technically
being agreed to in these ostensible agreements there? It's basically
that they agree to a rate, but they're not actually
agree They may agree with volume commitment, but it's a commitment.
(23:15):
It's not a contracted guarantee. So there is no futures
market and trucking, and there's really not a ford market
and trucking either. So the commitments is just that they
have best intent to pick up the load at that rate.
But it's no different than your lawn care provider gives
you a rate to cut your lawn until summer comes
(23:35):
along and he finds that the golf course down the
street's paying twice as much and he goes over there.
So it's the same thing you get in trucking. Is
that the trucking companies will honor those rates as long
as the conditions in the market are stable. But if
capacity tightens up and they can get twice or three
times as much for the same truck on that particular load,
(23:57):
they'll take the higher paying load. And where you see
a lot of supply chain disruptions and breakdowns, and that
we call routing guides where shippers just can't secure capacity.
So that is what's causing this additional strain on the
supply chain, is that trucking companies are refusing freight and
shippers just don't have a lot of backup options to
(24:18):
deal with. It feels like a great deal if you're
in the trucking business right now. But great right now,
But remember shippers play this game just as well as
the characters do. So when the market reverted to the
other end and capacity soft, shippers will oftentimes not honor
their commitments. So where they may have agreed to give
a trucking company ten modes a day, they may end
up only giving them one mode a day, and they'll
(24:41):
end up buying capacity in the spot market at a
much cheaper level. So it's it creates a lot of
structural issues Joe and I talked about on on the podcast,
just how cyclical this market because of the cicality. Demand
is cyclical, and so is rape, and for those reasons,
it creates a ton of structural issues and eventual bankruptcies
(25:01):
in the market. And that's it for what you missed
this week. If you like to show, and make sure
to subscribe and rate us an Apple podcast or wherever
you listen to podcast, you can catch our show every
weekday from three thirty to five pm on Bloomberg TV
and from four to five pm on Twitter. Thanks for
listening and have a great week.
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