WBD583 Audio Transcription
The FTX Contagion with Jesse Powell
Release date: Monday 21st November
Note: the following is a transcription of my interview with Jesse Powell. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Jesse Powell is the co-founder and Chairman of Kraken. In this interview, we discuss the rising anger over the FTX collapse, parallels with Mt. Gox, FTX’s exploitation of regulatory arbitrage, odd mainstream media reactions, proof of reserves and the future of custodial services.
“I think we can’t lose sight of what we’re really fighting for here, which is all of those people to be included in the financial system, financial privacy, the separation of money and state; these things are way bigger than any centralised exchange.”
— Jesse Powell
Interview Transcription
Peter McCormack: All right, Jesse.
Jesse Powell: All right.
Peter McCormack: It's been a while.
Jesse Powell: Here we go. Yeah, too long.
Peter McCormack: Yeah. Are you good?
Jesse Powell: Yeah, all good.
Peter McCormack: Right, it's been a big week and I read your Twitter thread where you're particularly pissed off.
Jesse Powell: Super-pissed, yeah.
Peter McCormack: Yeah, and rightly so, and we should dig into that, and I think one of the reasons is you went through all of this with Mt. Gox. People might not know, we've got a lot of new people, new listeners, some might not even know what Mt. Gox is, what happened, but I know you flew out there, didn't you, to Japan?
Jesse Powell: I did, yeah. Well, I flew out the first time that they got hacked in 2011; the final explosion was 2014, but it seems like what happened in 2011 might have had a lasting impact on them. What we think happened in 2014 was that they'd actually had their private keys compromised at some point in the past, and that was their cold storage, and they kept using those wallets even after those keys had been compromised.
So, what the hacker was doing was he just kept slowly draining those wallets over time, and Mark just didn't notice; he had this wallet off, like in a vault, wasn't paying attention to it, and so, he was just like, "The hot wallet's too full; let me just throw this into the cold wallet", not paying attention to the cold wallet; it's basically continuing to get drained. So, at one point, the hot wallet was empty, he went to go get the cold wallet and the cold wallet was empty, but it should have had 600,000 Bitcoin in it.
Peter McCormack: Unbelievable.
Jesse Powell: Yeah, pretty crazy, but I think in total at the time, that was like $400 million and FTX is 20 times that.
Peter McCormack: Yeah, and there's no Bitcoin to recover with FTX.
Jesse Powell: It seems like not, yeah.
Peter McCormack: Yeah. So, for the context of people, what was the impact of Mt. Gox at the time; did that feel like that was a threat to the whole industry?
Jesse Powell: Yeah, absolutely. So, we were all super concerned about it, I talked to Mark about it, he was really trying to keep things going. He was extremely concerned about the impact on the industry of this blow-up and there were several efforts to try to raise money to save them and fill the hole, but nobody could get it done, and it's probably better that it didn't get done because there were a lot of systemic problems there that might have just perpetuated had we filled that hole at the time. So, I think sometimes it's better to just clean these guys out and start over. But at the time, yeah, everyone was thinking this is going to be a massive setback, and it was.
We had many banking relationships; back in 2014, it was really hard to get a bank to work with you. We were just on the edge of having several more banking relationships put together and other partnerships that just, after Gox happened, everyone just kind of backed off and there was a massive chilling effect on the whole industry. Everyone outside of the industry was scared, didn't want to touch it, and it took years to recover from that.
Peter McCormack: Yeah, kind of a brutal experience to go through, and I think we got some good things out it in that we got the whole the movement of "Not your keys, not your Bitcoin" to encourage people to self-custody. I wasn't around then so I didn't go through the experience, but one of things that stands out from that to now is that -- I mean what are we, eight years on from…?
Jesse Powell: Yeah, it was February 2014.
Peter McCormack: And people still haven't received their Bitcoin through the legal process of having them returned.
Jesse Powell: Right.
Peter McCormack: If they recover assets from FTX, which I don't know if they will because we'll get onto the hacker, but this is going to take years again to unwind.
Jesse Powell: Probably, yeah. I think the US bankruptcy could be faster than the Japanese bankruptcy, and there are some complications in Japan; because there was a hack, we didn't know if the data was reliable, there had to be an investigation, and hopefully that won't take as long here but we'll see. It's still not clear if there was a hack at FTX, but there are also frivolous lawsuits coming after the estate in Japan.
So you had like the CoinLab, Peter Vessenes, suing for tens of millions of dollars, basically just opportunistically over some bullshit contract that wasn't really enforceable, should not have been enforceable above the account holders. I mean, basically he's trying to sue for the balances of the users and saying that his business complaint with Mark should have preferential treatment above the account balances of the users, which is absolutely insane, but even if you could fight him out for years, he's basically saying, "Hey, I'm just going to drag this out, so do you just want to pay me off to go way?"
Peter McCormack: Is that still going on?
Jesse Powell: I think they've gotten rid of the lawsuits from him or somehow gotten past them; I think we're on schedule to return funds next year, but I've thought that for the last five years in a row so we'll see.
Peter McCormack: That was based on Mark doing a deal with Peter to allow them to launch an exchange in the US, right?
Jesse Powell: Right, yeah, it was basically for the US market, for the brand, the right to launch their own exchange under the Mt. Gox brand in the US.
Peter McCormack: Yeah, okay. All right, so we'll switch to FTX because there's a lot that's gone in the world of Bitcoin and crypto since then; we've had fork wars and various other things, but the exchange world has been relatively stable. I know we had what happened with Quadriga, but what was that, $250 million, was that?
Danny Knowles: I think maybe a little bit more than that.
Peter McCormack: But I know you dug into that one, and we've had some smaller exchanges but nothing huge blowing up. And then we get to this year, and on top of what's ever happened with LUNA and Three Arrows Capital, we've now got FTX. But just before we get into that, obviously you run an exchange and FTX is a competitor that kind of came out of nowhere and seemed to, I don't know, just at such rapid speed, become maybe on the brand side, one of the world's most well-known; you, looking from the outside, were you suspicious with any of that?
Jesse Powell: For sure. Their rise to fame was very fast and they were spending a ton of money. We knew from having built our own exchange over that last 11 years that the things they were doing could not possibly be done responsibly with the amount of time and staff and resources that they had. So, from our perspective, there was something really sketchy going on there. I thought, "Well, maybe Alameda's making shit loads of money trading Bitcoin", and I figured these guys could have built a reasonable exchange, but it was the custody stuff that I was really concerned about. We've just seen, in the last week as well, another exchange accidently send $400 million to the wrong address as well.
Peter McCormack: Yeah, but was it an accident?
Jesse Powell: Yeah, we'll find out, right?
Peter McCormack: Yeah.
Jesse Powell: Hopefully. I think there are some things that you build over time, and it seems like, from what we know of FTX, it was just a few people at the top that were doing everything with basically zero process, zero controls, zero accountability for anything; Sam could literally cut and paste a balance on a spreadsheet and move money between FTX and Alameda.
Peter McCormack: Was that known or was that something that people were just suspicious about?
Jesse Powell: I don't know if that's totally known; people suspected that, and Sam's made has made some statements that kind of allude to that and having a backdoor and the ability to move funds without them being noticed by other people. So, it does seem like FTX and Alameda kind of shared a common piggybank which was the users' funds. Kraken also went through a phase when we were very small, just like five guys in a room, where I could move the money around, or CTO could move the money around; that's understandable when you're an extremely small company like that.
I would tell VCs as well who, last year, were both looking at investing in us and FTX as the same time, and they would say things like, "Hey, you guys, you're like ten times the size of FTX, or your security team is 100 people; why is your security team 100 people? FTX is only 50 people in total, so Kraken seems very inefficient". And we explained to them, "This stuff exists for a reason. We're not sharing photos; we're trying to be like Fort Knox. We need to protect these funds at all costs, and that means, unfortunately, bureaucracy, protocols, headcount, having to build extra infrastructure to track all this stuff, reconcile accounts, make sure money isn't silently bleeding off over time, identify where there are discrepancies".
You have to build all this stuff, and if you're starting an exchange with a few people at the start of the bull market, and they got very lucky with the timing, it was another thing that really played into their favour, was the VCs would look at their growth charts versus our growth chart, and our growth chart comes with several cycles of bull and bear markets, and if you look at it over a longer time span, it just doesn't look like a total hockey stick; it's up and down. And FTX, coming in right at the start of the bull market, their growth just looks like a hockey stick, and the VCs are just extrapolating from there, not understanding the cycles in crypto or any of that.
I think that also played very well into their valuation and all the hype and allowed them to just fundraise basically with zero scrutiny, zero diligence. You've seen some of the statements from some of the VCs that they've paid --
Peter McCormack: Sequoia; I mean, what?!
Jesse Powell: Yeah, unbelievable like, "You guys just clearly did zero diligence on this. You put your name on this thing". I feel like they've got to have some accountability because people look at that name and assume, "Oh, you wrote these guys a nine-figure cheque, you must have done some diligence; you must have looked at this before you wrote off hundreds of millions of dollars to them?" but actually no, they actually didn't! They just wrote the cheque blindly basically, and I think a lot of people unfortunately relied on that stamp of approval. They saw those VCs being like, "Someone did some diligence here and put their name on this", and unfortunately they didn't, and I think that's the case for a lot of VCs who are just kind of piling into stuff, playing the greater fool strategy maybe, and people rely on that.
Peter McCormack: Yeah, it blew my mind, the Sequoia stuff, because you're looking at this and thinking, "You guys surely are smart, you employ smart people, you've got experience of investing in companies, you've got experience of looking at data", it just smacks to me that they'd got totally ahead of themselves, got excited and confident and just said, "Yeah, fuck it, let's write a cheque".
Jesse Powell: Yeah, that is definitely the case for many investors because we talked to many of the same investors and that's literally what they said, "We just threw a cheque in because things were moving so fast".
Peter McCormack: FOMO.
Jesse Powell: Yeah.
Peter McCormack: FOMO investing. So, I'm going to put your thread into the show notes; I think people should read it. I think there are two angles to your anger though; not only are you angry about what happened there but I think, rightly, you're also a bit pissed off with the way the press is dealing with different companies and different personalities, but we can get into both and we should get into both. Can you outline the background to why you're so pissed off about it?
Look, firstly, there's a good argument for this is good for Kraken, right, this is good for Kraken; when you go and raise money, you can go and say, "Look, this is what happens when you put money into a new business that isn't established, isn't experienced", and also, you've got a good argument for new customers coming in. I saw, you might have seen it, Travis Kling's fund, Ikigai, they lost a lot of money in this, and that might be the end of their fund. And for someone like that, I'm not going to get into those details because Travis is a friend and that's a terrible experience for him to go through, but other traders now, trust is going to become an important thing. That could be, obviously, a benefit to you, but at the same time, I guess this puts the industry back, so how do you square those?
Jesse Powell: Yeah, it's always nice to get a bad actor out of the industry. Obviously, it's nice to get rid of a competitor, but we never sought to be the only exchange that exists, and I think that when we're fighting these battles in DC, having more voices is better. Obviously, part of the reason for creating Kraken in the first place was what happened with Gox in 2011, and when Gox went offline for a week and a half due to a hack at that time, the whole industry was shut down; we had no price discovery, merchants couldn't accept Bitcoin, it was a massive problem and I thought, "We'd better have more than one exchange just in case so this doesn't happen again".
I think, for the industry, things this time are just moving on. We have a bunch of exchanges, there are a bunch of other places people can go trade; it's almost like FTX was never there except for this $10 billion crater in the ground. And yes, Kraken's getting more users signing up now than we were two weeks ago, we're also getting more funds coming off of the exchange, which I think is great, I think people should get their money off of exchanges; I think people should spread their money around, not have it all concentrated in one place, and self-custody as much as possible, so I'm not concerned about that. We don't get paid for holding people's balances; it's just like strictly a liability for us. So, I only want your balance on Kraken if you're going to be trading with it, otherwise it's just sitting there as something for me to possibly lose and I'm getting no compensation for taking that risk.
So, on one hand, yeah, it helps us in terms of our relative position in the market, maybe we're in the top three exchanges now instead of, whatever, the top four, so that's nice; but to your point about the broader industry, there's going to be another chilling effect, I think. I think that the media cycles, once they get over Sam and stop writing these puff pieces, if they ever will, the real story is going to come out and this is going to be extremely negative.
I think it's going to turn off retail investors, I think it's going to cause politicians to overreact and feel like they need to do something to clamp down on the space, which would be bad for everyone, and it could send us into an even deeper protracted bear market in winter. Just in the last week, the prices have come down; we hold a lot of Bitcoin and Ether on the balance sheet, and the prices are all down 25% from a week ago, so that's not great.
I think it could be a while before we recover from this, and there could be more contagion. We just saw BlockFi, and anyone else in the lending business I would have my eye on right now because there's just so much contagion and interconnectedness of these lenders and the collateral they were using. Many were giving just fully uncollateralised loans on the basis of someone's reputation, and FTX had a pretty great reputation, which was bought with client funds unfortunately. But a lot of people who should have known better said they extended FTX a lot of credit, or they just left a lot of money in FTX because they felt like this was unfathomable; the outcome they were worried about was a hack, they didn't think that it was possible that basically Sam was running a Ponzi the whole time.
Peter McCormack: Yeah. I think the speed at which it collapsed is what blew my mind. I had no suspicions about FTX; I never used them, never signed up, I might have registered once to look at the interface but I never put any funds on it, didn't have any interest in it, but I was impressed by the speed at which it grew, the sponsorships it took out. I just felt like, "This is impressive what they've done", but I didn't have any suspicions about it being a Ponzi or what was going on; I never really looked at it.
From the rumours to the collapse, the speed at which that happened kind of blew my mind, and I've been wondering who knew? Because my assumption, you can help me with this as somebody who's taken investment in, but my assumption is someone like a Sequoia, usually if they're a lead investor putting money in, do they get a board seat? If you're getting a board seat, aren't you doing constant diligence?
Jesse Powell: My understanding is that they gave away no board seats in the round; I guess they just managed to generate enough hype. It could also be that people didn't want a board seat because they really didn't want to know how the sausage was made, and maybe they were afraid to find out. So, I think it's actually somewhat difficult to find really great board members in crypto because people don't generally understand the risks or don't want to have that level of responsibility.
Peter McCormack: Do you think this was avoidable?
Jesse Powell: I don't think the world needed FTX to exist; I think there are plenty of great exchanges that have a proven track record. So from that perspective, I think we have to ask why did they exist and what is it that they did that no one else was doing that filled a hole in the market? I think this goes back to the problem of regulators and regulation by enforcement, and FTX's primarily innovation, in my view, was doing things that basically no one else could get away with because they were too heavily supervised or too heavily regulated because of all the licence accumulation and all of the interactions with regulators over the years.
As one example, Coinbase went to the SEC asking for permission to do this, it was like a 3% or 4% yield product, and they got rejected so they never launched a product, meanwhile FTX is offering basically the same service to Americans from the Bahamas with 10% yield; so, what is the regulator doing there? They're basically saying, "Okay, if you want this product, you're not allowed to get that product in the United States, you're not allowed to use a trusted, reliable, proven platform, like a Kraken or Coinbase, in fact you've got to go offshore to get this", so people did.
I think that was why FTX existed because for whatever reason, the regulators like to pick on the guys in their backyard, and they've explicitly said, we say, "Hey, why are you hassling us about this? There are like 20 other exchanges doing the same exact thing, why are you bothering us?" and they'll say, "Well, you guys are convenient. If we want to subpoena them or we want to go after them or they're in another country, it's very difficult, it's a hassle. We're just interested in putting notches on our belt, and you guys are within striking distance".
Peter McCormack: But they have been pretty good at scaring companies off offering services to Americans.
Jesse Powell: I don't know that they have; FTX, it's very easy to get an account there as an American. There was a time where KYC was almost non-existent there, or they're not checking for VPNs. I wouldn't be surprised if we found out that 50% of their users were Americans.
Peter McCormack: But they went after Arthur Hayes.
Jesse Powell: Yeah, I know, and maybe they would have eventually gone after Sam and FTX as well, but obviously it doesn't take that much time to build a bunch of balances and lose them, and Sam was very heavily donating to the powers that be.
Peter McCormack: Well, that was going to be my next question; do you think that helped?
Jesse Powell: I'm sure it did. I mean, Bernie Madoff was doing the same kind of stuff, schmoozing with these guys; the SEC even went to investigate him and found nothing even though it was right under their noses the whole time.
So I think if you just look at Sam's resume, he looks like a guy who would never scam anybody; he's got this great education, this great family, pedigree, family's very well connected, why would he scam anybody? It makes me think that this probably was not what he set out to do originally, steal a bunch of money, because it seems like he's already pretty well-off and doing fine in life. It actually makes me think more to these conspiracy theories which is that this is some kind of Fed op to take down Bitcoin because there's just so much contagion here; if you wanted to really screw the ecosystem, this would have been the perfect way to do it.
Peter McCormack: Yeah, but the contagion exists also because of the likes of what Voyager were doing, what 3AC were doing. Yeah, I don't think FTX on its own causes so much damage, it's because so many people were doing such reckless things.
Jesse Powell: I agree with that, but there is still a $10 billion hole that maybe belongs to a million people, so that money has been extracted from the ecosystem; where did it go? I don't know, to sports sponsorships, to the Democratic Party, who knows where else that went, real estate in the Bahamas? That's $10 billion that we don't have as an industry, as a community, to put into other projects to move our industry forward, that's just stolen from us. So, there's that, and also, they were prolific investors, they've been investing in everything; I think they had like 400-something investors.
Peter McCormack: Did you see that -- have you got that chart?
Danny Knowles: Oh yeah.
Peter McCormack: On my God, it's unbelievable.
Jesse Powell: Are you talking about their org chart or is this like their investments?
Danny Knowles: Yeah, the org chart.
Jesse Powell: Yeah, the org chart is also insane; it's like a maze inside of a spiderweb. So, they've invested in so many companies, I don't know if you've heard this, but when they made their investment, they required those companies to keep those funds that they invested on FTX.
Peter McCormack: Look at that!
Danny Knowles: I don't even know how you begin to read that!
Peter McCormack: Or manage it!
Jesse Powell: That's insane! How many people do they have in the whole company; have they got one person per entity?
Peter McCormack: Well, it's 50 people they said, or was that 50 FTX and then…?
Jesse Powell: Yeah, I guess they're probably split up between Alameda and who knows how many of these other companies?
Danny Knowles: I think it was 132 entities or something they wound down in the end.
Peter McCormack: How many entities do you have?
Jesse Powell: This is a good question because we do have entities out there that own a licence for a particular country or something like that, but it can't be more than 20 entities.
Peter McCormack: And you've built that up over ten years?
Jesse Powell: Right, yeah.
Peter McCormack: And there's a lot of work in integrating that, in reporting lines, in accounting?
Jesse Powell: Yeah, for sure. It's a total headache, and sometimes we shut entities down, because if we created it for a particular purpose, a GO, and maybe the market's just not there, we might just wind it down and close it because there's overhead in carrying that; you've got to file taxes for it, you've got to do reports, there are headcounts associated with maintaining those entities, so you wouldn't just do it for no reason.
Peter McCormack: And over that period, over that ten years, you're building up experience, you're learning, you're making mistakes, you're never a complete product? I'm assuming, yourself, you're still learning things now.
Jesse Powell: Yeah.
Peter McCormack: I think to Google, when Larry Page and what's the other guy who invented Google?
Jesse Powell: Sergey Brin?
Peter McCormack: Yeah, Sergey Brin, they realised they couldn't run the company, so they brought in a CEO, yet here we have a guy who's got no real experience running companies, who is being given hundreds of millions, it looks like his board is made of children, and they're now able to understand how to run human resources for the company, to scale a company this size. I'm not buying into the conspiracy, I'm going for the simplest answer, it's probably what it is, that they built something, it grew quickly, they got out of their depth, they made some mistakes, they built mistakes upon mistakes, and the whole thing crashed down; that's what I think happened.
People say, "Oh, he was connected to this person, therefore there's the conspiracy", and I'm thinking, "Well, maybe that person is what allowed him to raise money because he had those connections", so I'm going for the simplest version.
Jesse Powell: Yeah, I agree with your assessment, I think that's the most likely answer. The question in my mind is when did this become a Ponzi; when did it go from being a legitimate business to actually starting to trade or misappropriate client funds?
Peter McCormack: Yeah, that's hard to know, and that's hard to know where the first mistakes came. What stands out to me is obviously, Alameda were terrible traders, like fucking terrible traders if they've built that big a hole. There's a lot to be suspicious about with the FTT token. There was the token before it as well, wasn't there, Sovereign or something? I can't remember.
Jesse Powell: There was Serum.
Danny Knowles: I think it was Serum, yeah. So, I think it was most likely around the LUNA collapse that it all started going wrong.
Jesse Powell: It does seem like that was the big domino that kicked everything off and started this cascade of effects because this is like so incestuous, everyone had loans with everyone, and everyone was using everyone else's bullshit, like fake token collateral at 100% market price. So, I do think, yeah, LUNA, it seems like it was the first domino there.
Peter McCormack: In terms of Kraken and you've seen this lens of what everyone's done and all these mistakes -- actually let me ask a different question. When FTX were blowing up quickly, you see a competitor, and you know what it's like with a competitor, you want to go, "Well, what are they doing right; why is this happening; what can we learn from them? We don't want to lose ground to them", when you were looking at them, is there anything that you were looking at and thinking, "Yeah, actually they're doing this particularly well?"
Jesse Powell: Yeah, there were some things they did very well. I think the way that they constructed their futures contracts was good. I think that they had a pretty good trading interface, they were doing stuff that people wanted, obviously, like prediction markets; I thought that was really great. So, they were doing a lot of cool stuff and stuff that I would bring to our lawyers and go, "Hey, they're doing this; I wanted to do this two years ago. What's going on; how are they able to do it? Find out how they're doing it", and they would just come back and be like, "Yeah, this is like straight-up illegal; they're going to go to jail at some point". So, it was like, "Okay! Well, how we do make that happen faster because they're stealing all of our business right now?" or, "Tell me how we're going to somehow compete with this".
I think they did a lot of things right in terms of they found product market fit, they built stuff that people wanted, it was just stuff that unfortunately other venues could not offer because of the legal restrictions.
Peter McCormack: So, where does this put you, thinking about regulation? I think this is a tricky area; a lot of bitcoiners are anti-regulation, naturally, they don't want anything from the government to be told what to do. We're in a moment in time where there are regulations here but you can clearly skirt them by setting yourself up aboard, which make the US kind of anti-competitivist, creates an uncompetitive market. So, one answer is to deregulate this market within the US, but in doing so, when you deregulate it, you also open up the opportunity for more scams to be created. As somebody who's dealt with regulators and DC, where are you in this whole picture?
Jesse Powell: Yeah, I think it's a good question as to whether the regulations have actually prevented scams from happening or not; I would love to see some kind of data on that proving it. Going offshore, it doesn't mean you are not captured by the regulation, it just so happens that you're less likely to be enforced against, they're less likely to come get you if you're offshore.
So, the effect it ends up having is, basically just it's legal in the United States and de facto legal everywhere else because you're just too hard to go get, or they're too lazy to come get you. So, that's a huge problem, and I think that the US, I think, as a nation, has to decide what its national policy on Bitcoin is going to be; do we care about owning crypto basically as a country, in the way that we kind of own and control the internet, and do we want to be a player here or do we want to let some other country that has better laws be the central epicentre of everything happening in Bitcoin and crypto broadly?
I think we need new laws; the existing laws are bad, they go back 80, 100 years, pre-internet, when no one imagined the internet. They're talking about commodities, oranges, onions, stuff like that is what they're concerned about. And we take those laws and try to apply them to what's happening now today in crypto, and they just don't fit. This happened with Skype too as well; they couldn't launch because everyone was saying, "Well, these guys are a telephone company" and clearly they're not, but they were trying to fit Skype into that hole.
So, I think we've seen this a few times over history. I think you either have to back off, as a regulator, and just say, "All right, we're not going to control this; we're just going to back off and allow US companies to be competitive here and just hope that they stay here". The whole reason we set up in the US was because we felt like it would earn us more trust, we felt like most of the early adopters would be Americans, we felt like being here under the US legal system, and I think the legal system is one of the best things the US has going for it, and FTX even filed for bankruptcy in the US, we felt like being here would earn us a lot of trust, it was a better legal system and that was important to getting adoption.
I think they could do that, that would be one way, so just back off and we'll see if more scams happen, or if when good players are able to be competitive, if scams don't have a place to find a foothold, if they're not able to offer something that these legit businesses can't offer, then maybe they won't be successful, maybe they won't be able to attract people because people go the scams because they just can't get what they want at the place they trust. Like, if I could have traded Bitcoin at Bank of America, I probably would have never had a Mt. Gox account. So, that's one path.
The other path is they've got to start enforcing globally, and that's a big ask. Obviously, you can set up a Bitcoin exchange in your parents' garage from anywhere, you don't need a bank account, you can take USDC or Tether, or just Bitcoin and Ether, you don't need to have any kind of connections to the legacy world of gatekeepers. So, that's a pretty big ask, to go after everyone globally, but maybe you just do enough of it and you turn away other people from trying, but they've done almost none of that. So, we're sort of in the worst of both worlds right now where stuff that people want and are highly demanding and are going offshore to get is illegal in the US, illegal in the regulated markets broadly around the world; so, the UK is the same, Australia's the same, Japan's the same.
In some geos, you have to ask the regulator permission before you even launch a product. Japan is one example; they restrict the tokens that are allowed to be traded, and you want to trade in tokens, you have to go get approval, they might take six months to evaluate it, so that puts Japanese exchanges at a huge disadvantage globally. If you want to trade the hot new coin, the regulators are sleeping on it for six months, meanwhile you can trade at FTX in the Bahamas right now, so what are people going to do, right? Even if they want to support a domestic business, if you want to trade that asset, you're forced to go offshore.
So, I think we've got to pick one of these strategies and go with it because right now, we're just kind of forcing consumers into these sketchy operations that don't have a proven history, they're not working with regulators, and people keep getting hurt, so I think those strategies fail.
Peter McCormack: Although you say that, they still could have got hurt in a deregulated market with FTX just being in the US, if their practices were still the same.
Jesse Powell: That's for sure, but FTX might not have been as competitive. Imagine if Kraken, Coinbase and Gemini could do everything that FTX was doing, and we had an eight-year head start on them, would they be able to just pop out and do what they're doing and actually be competitive?
Peter McCormack: So, was the regulatory arbitrage their board?
Jesse Powell: So, regulatory arbitrage usually refers to, you can get away with something in one geo. An example would be there's something called reverse solicitation, and I think Australia might be an example of where this works. So, there are many countries where this works, where they say, "You can't offer this service from our country, you can't market it in our country, but if you're offering it from whatever, Cancun, Mexico, whatever --"
Peter McCormack: Bahamas?
Jesse Powell: Yeah, "-- and you don't market here, but people go to you, they proactively find you and seek you out and go sign up with you, then that's fine". The US doesn't operate like that; the US says, "We don't care how an American got on your platform, if you took them on then that's your problem and you have to follow our rules". But many other countries say, "Well, if they found you on your own and you're not marketing here then that's on them", so this is mostly a problem for the States. I would say they employed regulatory arbitrage for much of the world, but that doesn't really work for the US; the US would still say, "You should have been following our rules, even if you're based in the Bahamas, it doesn't matter".
Peter McCormack: But they weren't.
Jesse Powell: Yeah, they weren't, and we'll find out if criminal charges come as a result of that.
Peter McCormack: That's another thing that seems to be quite interesting is that, with everything that's happened this year, we haven't really seen people getting arrested. Now look, I know a couple of people have fled to Dubai where there's no extradition, but at the same time, I would have expected SBF to be in handcuffs right now.
Jesse Powell: Yeah, well, it took a little bit for Mark to get arrested as well. I'm surprised that the FBI is not up in there confiscating laptops and servers and stuff; I would have thought that they would do that immediately.
Peter McCormack: Yeah.
Jesse Powell: Maybe there are also some kind of jurisdictional issues going on there, maybe it's Sam's political connections, his family.
Peter McCormack: Made a few phone calls.
Jesse Powell: Yeah, it is really strange. He seems to be given the benefit of the doubt that the piece that we saw in The New York Times was just like --
Peter McCormack: Come on!
Jesse Powell: "Boo-hoo, a billionaire, he's just fumbled the ball, lost a little bit of money", no mention of, "You lost a million clients $10 billion!"
Peter McCormack: Yeah.
Jesse Powell: So, he's clearly got the mainstream media on his side, he's probably got a bunch of friends in Washington, maybe they're looking out for him.
Peter McCormack: How do you get The New York Times on side though because The New York Times must be aware that when you put an article out like this, you're going to get criticised; what is the upside to the New York Times to do such a puff piece?
Jesse Powell: Well, this guy that wrote this piece, he'd also written the hit piece of Kraken, and I think he covered Coinbase as well, so it's only been negative pieces.
Peter McCormack: It's not what's-his-name, is it, the guy who wrote Digital Gold?
Jesse Powell: No.
Peter McCormack: It's not Popper?
Jesse Powell: No, it's not Popper.
Peter McCormack: He did another hit piece on, was it Coinbase?
Danny Knowles: It was David Yaffe-Bellany.
Peter McCormack: Oh yeah, because Popper did another hit piece on Coinbase.
Jesse Powell: Oh, really? That's unfortunate.
Peter McCormack: I don't know if that was it. He might have been at Washington Post, I'm not sure.
Jesse Powell: Well, yeah, this guy, he's a young guy, and it sounds like he went out and spent some time with Sam in the Bahamas and he's talking about FTX condoms and stuff, and who knows, maybe he got wrapped up in the orgy situation there!
Peter McCormack: Got some amphetamines and had a party!
Jesse Powell: Yeah, and maybe Sam has some dirt on this guy, I don't know, but it's odd. The New York Times generally attacks tech, and they've attacked Kraken and Coinbase, and when FTX loses $10 billion of client funds, it seems like explicitly stole them, they write this piece that doesn't even mention anything about that, so it was very odd. It seems like the Times, or this particular guy and whoever the editor is, is captive somehow by somebody, or they're trying to protect their friend.
Peter McCormack: Compromise.
Jesse Powell: Sam, I think, at least his stated views, at the least the front that's trying to put on looks like that something that The New York Times would be aligned with.
Peter McCormack: Well, I think it's bullshit, personally. I read the piece attacking Kraken, didn't like it; I think I commented and said something to you about that.
Jesse Powell: Yes.
Peter McCormack: And I saw the piece yesterday and it was a puff piece, and following his tweets, which are coming across as quite psychopathic -- have you read the latest ones?
Danny Knowles: No, I haven't.
Peter McCormack: He's trying to save the world and make everyone whole again. Okay, so moving forwards and knowing what you know about DC, you've had to employ people to help with lobbying efforts.
Jesse Powell: Yeah, we've got a policy team, a lobbying team ourselves, it's growing; unfortunately it's probably going to have to get a lot bigger thanks to this. I think the blowback in DC is going to be big; I think they're going to try to attack the industry. There are a lot of politicians just waiting for anything to attack crypto, any excuse, and this is a gift to them. I think we, as an industry, really need to come together and stop fighting each other. It can't be about Bitcoin maximalism versus proof of stake or any of that. This is a time where we've got to be solid together in DC, all on the same team, because they're coming for us, and they're going to try to paint this as, "Crypto failed, DeFi failed. It needs to be regulated, this all has to be managed by BlackRock and Goldman Sachs", and that's obviously not what we want; we know that's not right.
Just as Bernie Madoff was not an indictment of the stock market or equities, this should not be seen as an indictment of crypto. It just so happens to be that the tool that the scammer used to steal from people was crypto. This is about fraud, this is about a scammer, and it has really nothing to do with crypto, but they're going to try to paint that story for sure.
Peter McCormack: Yeah, that's a massive uphill battle to try and get everyone to come together. Look, my show's a Bitcoin show, as you know, I happily had Kraken as a sponsor, I only talked about Bitcoin. I know when this show goes out there'll be a bunch of people who listen to it who really enjoy it, and then I know in the comments on YouTube there'll be, "Why have you got a shitcoiner on there?" There seems to be very little ability to get people from the maxi side to come across and say, "Let's work together", and that's fine, so be it; they think everything that isn't Bitcoin is a scam, and when things like this happen, they will point to that and say that.
I don't think you're going to be able to get people to come together on it; I think you're going to have to fight that battle as it is because I think the some of the maxis will see you as part of the battle because your exchange isn't Bitcoin only. So, I don't know how you make that change, I don't know if you can.
Jesse Powell: I'm still waiting to find out how we can have a Bitcoin-only exchange --
Peter McCormack: You can't.
Jesse Powell: -- because there's not much demand for Bitcoin pairs. People always say, "Why don't you delist all the shitcoins?" and I say, "The dollar would be the first thing I would delist as a shitcoin if we could, if we could still have a business and still make money doing that"; I think people don't get that. I don't think there's enough money to be made as an exchange, maybe as a broker, and there are many successful brokers that just only sell Bitcoin and that's fine, but what it takes to operate an exchange is very expensive and that requires a lot of smart people, and I don't think there's enough money to be made only trading Bitcoin versus fiat currencies.
So, I think people ought to think about it like these other coins, they might be shitcoins, just like maybe most of the stocks on Nasdaq are shitcoins, but they effectively subsidise the cost of offering a Bitcoin exchange for the good stuff; they help pay for the security of it, they help pay for the licences. So I think that personally, I think most of them are shitcoins and I personally would not hold them, but that also goes for most stocks as well, but I'm often wrong about the market and that's why we exist.
We exist for price discovery and for people to trade their disagreements and I don't take a moral position on which coin is better than others. Personally, I think Bitcoin is going to be the currency that becomes the global reserve currency; I thought Ether had a shot until it flipped to proof of stake, and I think I'm a little more sceptical of it for that reason. But I think all of these things, they have their place, some of them are experiments; we try things out, we see what works, maybe we can pull that back into Bitcoin eventually.
Peter McCormack: If it was Bitcoin only, is the point you're making is that these multicoin exchanges will still exist globally and therefore there won't be any competitive companies within the US who have enough money to be able to grow the industry, compete and work with the regulators; is that what you're basically saying?
Jesse Powell: Yeah. I think that if we were Bitcoin only, we wouldn't have a treasure chest to go and lobby for regulation to protect Bitcoin. So, I'm probably starting to sound like Sam right now, this is an effective altruistic statement, but we make money from trading shitcoins, and that money goes to pumping Bitcoin, basically defending Bitcoin, and maybe it's a necessary evil because we wouldn't have that money to buy those arms, those weapons for the battle for Bitcoin without that.
Peter McCormack: I think we're in a similar position in some ways; people are like, "Why do you have that sponsor, they're not a Bitcoin-only company?" The ability to take this team around the world and make this show is the fact that we work with companies who also have crypto; we don't promote their products, we only say, "Buy Bitcoin here", but that gives us the budget to do this, to take a team around the world, to have this equipment, to produce a great Bitcoin show. And I do wrestle with it, I'm sure you've wrestled with it as well.
Jesse Powell: Yeah, I don't tell my family to buy shitcoin number 5,000, I'm just saying basically, "Buy Bitcoin and put it away and don't look at it for another 20 years". But I think we've got to appreciate that these other coins are generating a bunch of revenue which does, ultimately, fund Bitcoin stuff, stuff that's getting this show out, getting us to lobby in DC, the massive security team that Kraken has that protects Bitcoin.
So, whether you're a Bitcoin maximalist or not, I think you can think Bitcoin is going to be the world's reserve currency, and you can think everything else is a shitcoin, and I think at the same time you can say, "Look, they're coming for all of us together"; if we're on the side fighting each other when they come, we're just going to get screwed, and for the sake of the future of the space, I think Bitcoin alone doesn't have enough firepower to win this and I think we've got to use everyone's troops together.
Peter McCormack: I wanted to talk a little bit about proof of reserves; do you know the company Hoseki?
Jesse Powell: Hoseki? No.
Peter McCormack: Yeah, it's a new company that's launched; we're about to use their software for our football team to show the proof of our little treasury and our little charity arm of our football club on our website, and that's a really cool thing to have. Everything that's happened with especially the lending platforms, there has been talk about we need more proof of reserves. There's also a stream of commentary on that coming out and saying, "Well, proof of reserves is a scam because how do you prove it? It's not a live feed of what you have, there's not proof of liabilities". You talked about the exchange sending $400,000 of ETH to, I think it was, was it Crypto.com to --
Danny Knowles: To Gate, I think.
Peter McCormack: -- to Gate, and it happened the day before they did their proof-of-reserves attestations.
Jesse Powell: Yeah, I think the timing worked out as to where it wasn't actually included in the audit.
Peter McCormack: Oh, it wasn't, okay?
Jesse Powell: Yeah.
Peter McCormack: But the point being could you do that; could you do a proof of reserves, and can you cheat proof of reserves? Essentially, if you don't have a live feed of your reserves that's an auditable live feed of your reserves and your liabilities, what use are proof of reserves? Actually, could that be used to kind of gaslight people that you do have the reserves? I know Kraken has done a proof of reserves.
Jesse Powell: For sure, yeah. Ours is combined, let's call it proof of assets plus proof of liabilities, so those liabilities being the client account balances. So, we use this Merkle tree system, basically, to generate this cryptographic proof that basically, all of the client balances were included in the audit, and then separately we sign a message from all of the wallets that we have that show that, in aggregate, we have more coins than we have client liabilities in their accounts. Yeah, that doesn't say that we haven't, on the side, taken out some huge uncollateralised loan from someone else or something like that, or we don't have some huge debt somewhere else.
So that's definitely a fair criticism, and yeah, you shouldn't ever take any kind of proof of reserves to mean that you have a complete picture of the business. Obviously, even in the traditional markets, this happens, like you have Enron situations where you can just hide stuff and you don't really know if a company's solvent or not, especially not a company with 300 entities underneath it, it's very hard to look at all that. And you can't just prove a negative, you can't prove that something's not there that people suspect is there.
So yeah, for us we think this is a good start, it's better than nothing, to take the sum of the client account balances and the sum of our balances and just show that we have at least that much money. You potentially could fake that for a one-off, but if you do these over time, more frequently, it's harder to get away with because you have to every time, if you were going to, say, borrow some money to fill a hole that you had, you might see that happen on-chain, you might say, "Before Kraken's proof of reserves, strangely a bunch of money came out of Roger Ver's wallet and then into Kraken and then went back to Roger Ver two days later"; you could see that stuff happen.
So, if we just did one, maybe you wouldn't see it happen because we have a bunch of time to kind of stage that. But if it's every quarter, if it's done randomly where maybe there's something on-chain that picks the time, any time in like a three-month period or something where the chain chooses, like "Okay, now you're going to do your audit today", I think that would be a good way to do it, to put somebody on the spot, and you can monitor it.
Peter McCormack: Is there any scenario where customer funds could be protected in a scenario where, say, an exchange was facing financial difficulty, was looking at bankruptcy? What I didn't realise is, with some of these scenarios, when they go bankrupt, the customer funds aren't the customers' first, actually it's the creditors that will be paid off first.
Jesse Powell: It depends on the geo, yeah; so, this was something that was addressed in Wyoming with the SPDI, was that the account holders are first and foremost the creditors, and you have this separation of the balances from sort of the business liabilities. So, it really depends on the geo, and I think this is also something that we could use more clarity on in many places. I don't know what the rules are in the Bahamas, but that certainly should be something that people are thinking about when they put their money with a custodian, is like, "Yeah, are my funds going to be mixed up with every other business creditor that this company has, or are the client funds separate and senior?"
Peter McCormack: What do you think the future is of custodial services? Very clearly, people have been coming out and saying again, "Not your keys, not your Bitcoin", at the same time, some people don't want to custody themselves, certainly large companies might not even be able to custody themselves because of the rules. What do you think the future is for custodial services?
Jesse Powell: I think hopefully, people demand more, but I thought after Gox that everyone had learned their lesson, but I think what we've seen is so many new people came into the space during the last bull market, they had no clue about Mt. Gox, they weren't digging into the history from six years ago to find out what had happened before them. So, I think people just didn't have that burnt into their minds like a lot of people that have been around.
So, I think you'll still see, even in the future, people that come into the space two years from now might have no idea about FTX, much less Mt. Gox, and so they're going to be ready to learn their lessons all over again. I think they'll be trusting of custodians because when you go set up a bank account you're not thinking about, "Is Bank of America solvent?" when you do that, you just presume, "Oh yeah, they're a legit bank".
Peter McCormack: Also, you have your FDIC protection anyway.
Jesse Powell: That's true.
Peter McCormack: We have it in the UK up to £80,000 you're protected.
Jesse Powell: Yeah. So, for most people, that's definitely enough to cover their accounts, so yeah, they can feel pretty good about the bank that they're doing to. You don't have that in crypto, and there's some confusion about this too I think, it's what kind of insurance crypto companies have, and for the most part, it's pretty much zero.
There are some exchanges which claim to have FDIC coverage, but the FDIC covers a bank failure, so that would be like, in the event that Silvergate fails, if we had money at Silvergate, we could get $250,000 back from Silvergate, for example, but it doesn't have anything to do with the exchange getting hacked or the exchange stealing money or anything like that. That FDCI doesn't cover really anything related to the exchanges' business, it's just the other custodian who's the bank that might be holding on to dollars, so there are misunderstandings there.
But yeah, you're right about the banks, and we don't really have anything like that for crypto, and there really can't be anything like that because who's going to print a bunch of extra Bitcoin when you lose it all?
Peter McCormack: That's true.
Jesse Powell: So, that just doesn't exist. The insurance to cover for hacks and things like that is insanely expensive.
Peter McCormack: Do you have it; do you use it?
Jesse Powell: We have a very low amount of insurance, yeah, but it's mostly to cover against lawsuits and to protect the directors from individual lawsuits and things like that.
Peter McCormack: I guess your insurance is your 100-person team and Nick Percoco.
Jesse Powell: Yeah, pretty much. We've seen in the space, there have been other venues that have insurance to cover cybersecurity and they've been hacked, and the insurance company just fights them on it, to the death. So even if you have it, there's not a guarantee that you're actually going to get the payout in the end, and the fight over whether you're going to get the payout could take years as well.
Peter McCormack: Are you still getting insane levels of constant attacks? We spoke about this like two years ago, I can't even remember -- when was Nick Percoco…?
Danny Knowles: I bet it was longer than two years ago.
Peter McCormack: Yeah, and one was the volume of attacks, but also the inventiveness of the attacks; it was kind of crazy. Is it just still the same, relentless?
Jesse Powell: Yeah, pretty much, always the same. There are always bots scanning the website looking for things like that. They're always testing whether we're vulnerable to some zero-day. I think the biggest risk is the people angle, like having a person, an insider, become compromised somehow, so we've also got systems to track for suspicious behaviour occurring inside the company, people trying to open files or things like that that they shouldn't normally be looking at.
So, there's a ridiculous amount of stuff that we've built behind the scenes to try to track all this, and I think you can never be 100% invincible, you've just got to hope that you have enough controls and monitoring in place that if someone does get in, that you catch them before they get too far.
Peter McCormack: And I can imagine both Coinbase and Gemini have similar large security teams, like you, and I guess then, when you look at FTX, and you're thinking, "Well, what did you have?"
Jesse Powell: Right. The team is so small that they couldn't possibly have had enough of a security team to protect what they were responsible for, which is tens of billions of client funds.
Peter McCormack: And now it's being hacked anyway post everything; I saw today, was it $200 million of ETH or something?
Jesse Powell: Well, yeah, if you can believe that was a legit hack. I think that's --
Peter McCormack: An inside job?
Jesse Powell: Could be an inside job, could be somebody covering their tracks. One thing that happened with Gox was, because there was a hack, we couldn't trust all the records, so it might be to cast doubt on whether the logs are accurate; maybe the hacker, at some point, is going to delete all of the systems and conveniently there'll be nothing for law enforcement to investigate. So, I'm kind of sceptical of a hack occurring now, if this is the first hack.
If this occurring now for the first time, that's what they're saying, I would go back and look and see, did these guys actually have access to your systems for a long time; was there another hack that actually created this insolvency earlier? But it seems unlikely that they would just be hacked now for the first time.
Danny Knowles: When all this first went out, I don't know if you can talk about this, but when the FTX stuff started falling apart, I saw Nick Percoco tweeted that there'd been a hack and that they knew who it was. Was it because someone tried to cash out through Kraken?
Jesse Powell: Yeah, there was some movement on an account on Kraken; we don't know if it was the hacker or not, or if this hacker's even real, but I think he was just saying that basically, whoever logged into that account seemed like they were the account owner or a known person, so we can't say that this was a hacker. It didn't seem like there was an account compromise, and we have a KYCed account.
Danny Knowles: So, what do you do with that information now?
Jesse Powell: Well, we're talking to law enforcement, so I probably can't say a whole lot about that, but law enforcement is involved, they're talking to us about it.
Peter McCormack: It seems like a dumbass move though.
Danny Knowles: To go through a KYCed...
Peter McCormack: Yeah, to go through a KYC exchange.
Jesse Powell: Well, I don't know how much of this I can say, but apparently they were leaving some amount of money on there; I guess it was safer on Kraken than it was on FTX. So, they're probably doing some trading, and maybe part of their market-making operation was to trade on several venues to get the best price. So, I'm not surprised that they had an account on Kraken. I think many exchanges have accounts on other exchanges, for their OTC desks, for example; our desk might get a request to trade a token that we don't trade on Kraken, so they might go use an account on another exchange to do that trade for somebody.
Peter McCormack: So, going forward, what now; what do you want to see happen? We've talked about the industry coming together, I'm doubtful that will happen, some people don't see it as one industry, but what else can be done?
Jesse Powell: Yeah, I'm really worried about the near-term blowback and kneejerk reaction from politicians. I think we've really got to be concerned about just kind of protecting the ground that we have, not giving up any ground in DeFi as a trade for some protection for centralised exchanges. I think we've got to protect as much of DeFi as we can because that's really the final ground we can retreat to eventually when things become too overbearing on the centralised system.
I think we'll probably just continue to see more encroachment on centralised venues to the point where basically, we're all just looking like PayPal all over again, which will have strict KYC rules and everything, all the transactions monitored, maybe you can't get an account unless you can produce all this stuff which will basically keep people out.
The whole great thing about crypto is that these 2 billion unbanked people in the world have a rail of last resort and something they can turn to when the legacy system fails them or refuses them service. I think we can't lose sight of what we're really fighting for here, which is all of those people to be included in the financial system, financial privacy, the separation of money and state; these things are way bigger than any centralised exchange, and I think we really need to fight to protect that ground that we have in DeFi.
We could burn down all the centralised exchanges for all I care as long as we still have that to fall back to because we can always rebuild these centralised exchanges, but once we give up the ground in DeFi, I don't think we're going to win it back, we're going to keep losing it.
Peter McCormack: What do you mean by the ground in DeFi?
Jesse Powell: I mean what you can do basically, fully on-chain, without interfacing with a real company, for example. Some of the bills that have been proposed are like, "Well, if you're to trade on a DEX you have to be KYCed", or, "To hold a Bitcoin wallet, you have to be KYCed", and we want to move to some kind of whitelist programme where you go register yourself at a local post office and, okay, now you have a wallet that you can use.
I think that we clearly don't want to get back to that because then it's an even more surveilled system that we have; the next step would just be to eliminate cash and then they'd be like, "Okay, great, everyone use our CBDC on your wallets that you got verified at the post office, and if we don't like you, we're going to blacklist your wallet now".
So, I think that the government will try to take little steps to gain ground, and people might say, "Well, this is what Sam was arguing for. Well, we're just giving up a little bit of ground in DeFi to get this help for the centralised exchanges to be able to offer more services", but DeFi's not his ground to give up, he doesn't own DeFi. DeFi belongs to humanity; that ground is all of ours and no centralised exchange, for the sake of their own business, should be basically giving up this tool for humanity. It'll be like Apple saying, "Yeah, we're happy to burn down all the libraries as long as you allow us to have our e-reader on the iPhone". Yeah, that's great for you, but what about everyone else in the world that doesn't want to have to buy an iPhone to read a book?
So, I think that's kind of what Sam was arguing for, and I think we'll see more stuff like that where people from the legacy financial system, that don't have crypto values at heart, come in and try to trade away what we have for some benefit to their own centralised business, so I'm really worried about that. Politicians have already come out and made statements. Elizabeth Warren has made some statements which just blows my mind because out of everybody, she's always hating on the banks.
Peter McCormack: I know.
Jesse Powell: And she's all for consumer protection; you would think that she would be all over Bitcoin as her favourite thing. So, I don't know what's going on there, but we obviously have a lot of work to do in Washington and to educate people. This is my top concern now really, is just the blowback from Washington and around the world, and it was all over the world for Mt. Gox as well, it wasn't just in the States.
Peter McCormack: This is everywhere, every UK news source I've been on, pictures of SBF and Caroline have been high up on the news list, and it's kind of amazing to see because usually they don't give a shit about what we do in this industry unless it's something like this. We never get the positive stuff reported, the stuff Alex Gladstein works on or cares about, and it's everywhere, it's high drama, but it's fucking frustrating.
Jesse Powell: Yeah, really frustrating, and I think it's going to be a long time before we're past it, and we've really got to make sure that the narrative gets switched quickly to, this was a scam artist, this doesn't really have anything to do with crypto other than the crypto community is the victim here.
Peter McCormack: I think that comparison to Bernie Madoff is a great one because they didn't close down Wall Street afterwards.
Jesse Powell: Yeah, exactly.
Peter McCormack: They isolated him, and I think it would help to put SBF in jail, and I think he is a criminal, should go to jail.
Jesse Powell: Mark went to jail, and arguably Mark was just the victim of a hack.
Peter McCormack: Yeah.
Jesse Powell: I think there's some evidence to suggest that he tried to cover that up and he tried to fill the hole, and I think that's what it's going to come down to here as well, is when did Sam turn from either getting hacked or from running a profitable business to actually misappropriating client funds, and he may go to jail. If Mark did time, obviously different legal regime, but I wouldn't be surprised if we see time for Sam as well.
I hope that we get past the news cycle and get back to building, and all the companies that FTX invested in, I think they had like 400 seed investments or something like that, those guys were all required to keep their funds that they raised on FTX.
Peter McCormack: So, they're all done.
Jesse Powell: Maybe, yeah. Was that the whole treasury; are there going to be 400 start-ups collapsing in the wake of this that really had nothing to do with FTX other than FTX was their investor who required them to use FTX as their bank account? So, I hope that we don't see 400 other start-ups fail, but the contagion, I think there's probably more to come.
Peter McCormack: More scrutiny on people in the future will be good.
Jesse Powell: Yeah, absolutely, that can't hurt. I hope people stay strong because we need everyone on deck to address this and hope people aren't turned off from crypto; it's a great thing, it does great things for the world. I think we need to tell more of that story as well of like, beyond the speculation use case, besides gambling on the prices, what crypto's actually useful for, I think that doesn't get enough publicly and it's really doing great things for people and has even more potential to help humanity. I think people are so fixated on the prices so much that we kind of lose sight of what this is all about.
Peter McCormack: Yeah, man. Well, listen, it has been too long, Jesse, so it was good to see you; we should do it again soon.
Jesse Powell: Yeah.
Peter McCormack: I don't want it to be another couple of years next time. Keep crushing it, keep doing what you're doing.
Jesse Powell: Thank you, likewise.
Peter McCormack: Sorry to see you go through a bit of stress with this. Like I say, for me, when I read your thread, I was like, "This is almost like Mt. Gox PTSD. Why the fuck are we here again? I knew it!" So, I'm glad you came in and talked about it and just stay in touch, man.
Jesse Powell: Thanks, man. Thanks for having me.
