Innovation and Regulation. East vs West

Transcript

all right so world's most boring topic regulation but it's super important for our industry as we know two of the most important factors in the past year have been probably regulation and macroeconomic factors two of the most important right and I think that regulation is continually coming to many of us as a as a surprise just empirically by observation I see that we're constantly caught off guard and so I wanted to talk a little bit today about uh my framework for trying to understand regulation and maybe make a little bit more sense of us of it because it is uh super important to our industry now I initially I had a quote from Confucius here to demonstrate that regulation is a pretty complicated topic

that we've been talking about and thinking about for thousands of years but I I couldn't resist this is a quote actually from Gary gensler's confirmation hearing uh showing how at least at one point we he was a lot more open-minded about our industry as we know right he was a professor at MIT who did a lot of work related to digital currencies and at least one point he had a more of an open mind so let's try to understand why when Gary actually uh went on the job his mindset shifted let's try to understand why we're not getting a fair handshake that's my purpose today okay so uh first of all I think it's important to understand the

challenge that Regulators face so I just wanted to to mention um that we we should all have a very clear understanding that uh disruptive innovation such as what we have in crypto is fundamentally outside the existing regulatory Frameworks and so entrenched power interest will uh will continuously try be trying to put us back in that box but we should understand that it's it's really a very difficult challenge to try to regulate an industry that says new and disruptive as what we have here so I just wanted to First give a shout out to that challenge um and again I feel like we're continuously being surprised so why is that why are we being surprised to see

that China is kicking out Bitcoin miners or that the SEC is going after coinbase things like that why would the government go to Such Great Lengths to basically attacked a listed company that's a billion dollar company that has actually gone way out of its way to be compliant and and my purpose is to try to better understand that today so here's my framework there's a concept which uh they teach in in business school which is an enormous waste of time don't go to business school but if you do or if you did there's a concept called The innovator's Dilemma and it's a framework to try to help us understand uh companies and their reaction to

disruptive innovation so for example why did Netflix beat out Blockbuster why was Amazon able to uh to compete so successfully against companies like Walmart when they didn't have of the advantages of an existing uh business and unlimited Capital to spend and things like that so I think that there are powerful incentives at play that that create this uh innovators dilemma it's a Well understood phenomenon right companies are trying to protect their Cash Cow number one number two when disruptive innovation first happens it happens in in very small ways that scale very fast if you're a company

like Walmart if you're a company like Blockbuster two famous examples of innovators dilemma traps you first are looking at disruptive innovation when it's 0.1 percent of your total revenue or even less and it's almost not even worth your time but you also see it as threatening it's something that's looking to eat your lunch and so you you get trapped you get trapped in to trying to protect your existing business you have a powerful incentive to push back against this technology this Innovation and that's why you constantly see big incumbent companies that lose out to uh to people that are hungrier

and don't have much to lose my suggestion is that what we're seeing in terms of Regulation is actually the innovator's Dilemma played out on a nation-state scale and I think that's the best way to understand uh the regular uh the regulatory developments that we are seeing so inner various dilemma that we talked about right so let's talk about the importance of Finance in the United States 500 000 people probably represents more more just you know the Wall Street population of people that work in finance there's hundreds of thousands of people if you have if you expand that to to people working in finance that are not on Wall Street Finance or adjacent

verticals you quickly get into the millions of people 3.59 trillion dollars so if you want to understand why the United States is not friendly to us why we're constantly feeling like we go we don't get a fair handshake I think the short and simple way to do that is to look at that number that's what's at stake why would they give us a fair shandshake we shouldn't view it through the prism of fairness we should view it through the prism of what's at stake 3.59 trillion dollars I think it's actually higher now I think we're in the nines for a percent of GDP and so the United States is the incumbent they are the Walmart they are the

Blockbuster and we are looking to be Amazon or Netflix and I think you have to constantly be evaluating different jurisdictions and you can say at the one extreme it's the United States that's IBM or Walmart or again Blockbuster we're the Blockbuster every country around the world is somewhere on that Continuum with the United States all the way to one side as as Blockbuster and the closer you get to finance being the incumbent the less likely you are to get a fair Shake and we should not expect that to happen even as uh some Wall Street players start to get very incentivized to participate in our economy as with the Bitcoin ETF

proposals the overwhelming momentum will still be to push back push us far further out if you can even slow our momentum for a year or two that's hundreds of billions of dollars for existing players that is what's at stake and that is why we will not get a favorable handshake so similarly there are other types of incentives at play so countries that have close currency regimes countries that do not have a free float like China and India are far less likely to give us a fair handshake and we should just be aware of that

there's just no way it's going to happen so where should we look so in in addition to in addition to the percent of GDP it's true that we can also look in terms of uh in terms of willingness to innovate and so I would kind of start here the UK the US and Mainland China for the foreseeable future are where we are least likely to get a fair handshake countries that have a greater percentage countries that are are more mature in terms of their existing Financial base and have a greater willingness to innovate that's our sweet spot for what

I would term as conservative but favorable regulation conservative but favorable incremental Fair incremental progress can be made there and we can get a fair handshake Dubai Singapore and Switzerland where are we gonna get the doors opening to us come on in set up shop we want you to come that's going to be only from countries that are extremely high on willingness to innovate and do not have existed and are not an existing Financial Powerhouse so hopefully we will see more El Salvador's and that's where the big breakthroughs could happen okay so just that's just my quick and

dirty way about how I think about crypto regulation and how we can better understand what's going to be where we can get a fair handshake where we can have results that are favorable to us and where we are likely to just be wasting our time because the fact is that we could all be spending hundreds of hours with lobbyists every day in DC we're not going to get anywhere because of that 3.59 trillion dollar number four things disrupting dilemma incentives and adoption and innovators dilemma and that's how that's my suggestion about how we can we can view regulation where we can get favorable treatment and where we should maybe just

not expect anything that's going to be good for us in the next three to five years unless we absolutely force it to happen thank you for your time today hope that framework can help you as it helps me