Unchained Podcast Ep 403: Sam Bankman-Fried on How to Prevent the Next Terra and 3AC
Primer: In this episode of Unchained, host Laura Shin invites Sam Bankman-Fried, the Founder and CEO of FTX, to share his thoughts on various issues ranging from the Terra Luna Collapse, his talks with Lawmakers, FTX, to his political affiliation.
Thoughts On The Current Market
The market will be responsive to general macro
Interest rate changes lead to the strengthening/weakening of fiat currencies
Crypto markets have stabilized/not seeing continuous outflows
Regulatory clarity would have the largest impact on the market:
If the Stabenow-Boozman bill passed, it would provide clarity for non-security token spot markets
Stablecoin bill to provide a regulatory framework for stablecoins
Pending registration with the CFTC for crypto futures
Thoughts On The Terra Luna Collapse
Categories Of Stablecoins
100% totally cleanly backed stablecoin (e.g. USDC, USDP). They are backed one-to-one with USD or treasuries in a US bank account
Stablecoins backed by debt instruments (e.g. USDT)
Traditional algorithmic stablecoins (e.g. DAI, in the past, before it was backed by USDC)
Other algorithmic stablecoins like LUNA
Could Algorithmic Stablecoins Ever Work?
It depends on what “could work” means
It’s a cool concept but it’s very risky
Preventing Blow-Ups like 3AC
What could the industry do to prevent blow-ups like 3AC again?
Voyager is going through bankruptcy right now because of unpaid debt from 3AC
This is reminiscent of 2008 where we have non-transparent systems and people putting on an amount of leverage that was not well understood
Despite these problems, crypto infrastructure is resilient
On-chain protocols do not have this problem as borrowing and lending is transparent
Have people better understand the risks that they are taking when they put capital in platforms like Voyager
Risk Management by FTX In Running A Crypto Lender
Working closely with the BlockFi team:
Understanding the nature of counterparties and distributing risks between them
Being careful about what collateral is taken
Having policies in place to margin call people in a hurry
His Conversations With Lawmakers
Crypto collapses had little impact on the conversations
Prior to that, they were already discussing how they can bring regulatory oversight to the space
Some regulators understood the distinction that that part of the crypto sector that got wiped out was more centralized/least crypto-like
Priorities of lawmakers are stablecoin regulation, marketplace regulation, and token registration
His Proposal To Change How Derivatives Are Cleared
Optimistic about it
Have went through a thorough process and submitted thousands of documents
His Philosophy On Financial Regulation
Very few of his policies fit neatly into buckets
Think that people are distracted between more regulation vs less regulation
Thinks that the most important axis is whether the regulation is fit for purpose
FTX
Why Is FTX Creating A Centralized Financial Supermarket In A Decentralized Space?
FTX is a centralized company. They are not pretending to be a decentralized one
They are hooked up by decentralized rails to the rest of the ecosystem
What Would It Take For FTX To Become A US Company?
If there are clear answers to how they can operate the futures and spot security and non-security token exchange in the US
His Plans For FTX
Have branched out into equities
Is a broker/dealer and a clearing firm offering equities to Americans
Working on FX support
Types Of Acquisitions That He Likes To Make
Their acquisitions are aimed at companies that have really impressive regulatory knowhow, standing relationships, licensure
Alignment With Crypto Critics
The loudest crypto critics tend to be democrats. Why is he aligned with them?
He has given to both sides
It’s policy, and not politics, that he cares about and supports
It’s not just specific to crypto, but how politicians are viewing the most important issues before us
Thoughts On The Crypto And TradFi Market
Guess that both markets will evolve towards each other
One of the first real, clear applications of blockchain is in market structure
When meme stocks ran wild, a lot of retail got liquidated even though they had unlevered positions. It takes 2 days for any equities transaction to settle in the US
Blockchain helps in financial settlement
Concerns About Owning Both FTX And Alameda
They are regulated in a large number of jurisdictions
They do not have any preferential treatment
Have not been working on Alameda for years. Is not involved in the day-to-day management there
Thoughts On The Ethereum Merge
It’s an amazing technical feat
Ethereum is a lot faster now
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