Sam Bankman-Fried: FTX & Project Serum – The World's First Decentralized Derivatives Exchange #363

Transcript

this is epicenter episode 363 with guest sam bankman freed [Music] hi i'm sebastian jiro and you're listening to epicenter the podcast where we interview crypto founders builders and thought leaders on this show we dive deep to learn how things work at a technical level and we fly high to understand visionary concepts and long-term trends if you like the podcast the best way to support us is to leave a review on apple podcasts if you're on a mac or ios device the easiest way to do that is to go to epicenter dot rocks slash apple

today our guest is sam bankman freed he's the ceo of ftx and alameda research fdx is a crypto derivatives trading platform and in just under two years of existence it's grown to become one of the top trading platforms for crypto trading over a billion dollars a day in derivatives ftx came out of alameda research sam's other company alameda is a quant trading fund and today manages over 100 million dollars in digital assets and while running this fund the team thought that there was space for a robust crypto derivatives exchange built for traders which solved some of the problems and issues that they saw in other derivatives trading platforms in the ecosystem the ftx team is also working on project serum this is an ambitious project to

create a fully decentralized and permissionless dex and defy ecosystem of course with most dexes there is usually a critical part of the infrastructure which is centralized usually it's the order book and this is because it would be far too costly and slow to run a fully decentralized order book on ethereum this is one of the reasons which led the team to build on solana which offers much higher transaction speeds and throughput than ethereum and the goal is to create a robust dex ecosystem which can compete with centralized exchanges on speed while being fully interoperable with ethereum so by the way we did an episode with solana's ceo anatoly yakovenko last year it's episode 312 if you're interested in learning more about solana

one thing to note about this interview we did not talk about sushi swap and sam's involvement in that matter first because there's just so much to discuss regarding ftx and serum and we wanted to give the most time to these topics but also because it's already been discussed and debated in my new detail on other podcast newsletters and on twitter and we didn't feel that we would have much to bring to that story in addition to what's already been said so my apologies if that's why you're here but there's no crypto drama in this one a little bit of housekeeping we're doing a meet-up this week it'll be on thursday it's at 8 00 p.m central european time noon pacific 3 p.m eastern i know those are different times from the ones i gave

last week but we just changed times in europe and so those are the new times if you want to register it's free and it's happening on zoom you can register at epicenter dot rocks slash meetup and we'd be happy to see you there since today's episode is all about trading platforms and derivatives i'd like to tell you about the types of things that you can build on algorand and in fact the algorand team is hosting a free webinar on november 17th to teach developers how they can use the platform to build sophisticated applications for things like crowdfunding asset tokenization supply chain management and even gaming applications i'll tell you a little bit more about that later in the interview but for now here's our conversation with sam bankman freed

we're here with sam bankman-freed sam thanks for joining us today yeah uh thanks for having me so yeah we've been wanting to get you on the show for for quite a while obviously you are quite well known in the space and particularly i think a lot of our listeners will know you from more recent times with everything that's happened around sushi swap but we're going to talk about a whole bunch of things today including alameda research ftx and the serum project uh but before we get started tell us about your background and how you became involved in crypto and specifically uh how you became so heavily involved in crypto trading yeah so

i you know i guess before any of this i was you know i was a etf trader jane street capital in new york uh trading international etfs which are basically u.s listed funds that hold foreign stocks and uh you know did that for about three years it was a really good place i had a lot of fun there and and had had a really good time and they they were good to me um but i think sort of wanted to try starting things on my own want to try you know seeing what would happen and um and there's sort of just a lot of pretty diverse things i wanted to you know think about doing with my life and sort of felt like the only way to really to really get a sense of them

would be to try and so uh you know i left in 2017 broadly speaking i was you know trying to think about what i could do that would have the most impact and you know at ftx i've been thinking you know about uh how could i be able to donate as much as i could and that was sort of the primary you know the primary means i think about impact and you know there are a lot of ways that you can have impact on the world that's certainly one of the clearest ones which is you know you could think about like you know working for some charity or you could think about instead of working for it you could you could think about well what if i worked somewhere else and donated to it sort of which would they prefer and you know for a lot of these places i i

think like sort of not a close call like they definitely would prefer my money than my time and so anyway you know left jane street and i you know tried a few things um including you know including working at a charity for a bit but also looked into crypto and you know sort of like pull up coin market cap looked at bitcoin prices across exchanges and because they're like oh those aren't the same number like and they're in fact like very much not the same number it's like oh yeah a few basis points off like probably one of these data feeds is lagging it's like five percent off and and so that means either the data is bad or something's weird or there's an arbitrage to do it wasn't totally clear

which of those it was going to be but sort of one of those and and so anyway i you know kind of opened up a poloniex and a beverage account so like maybe i can do this and i tried doing it the answer is no i couldn't but but sort of because of like things that could be fixed like things like you know oh okay like i could have done this except that i didn't have the withdrawal limits or something like that but sort of got the sense of like well probably there's something here like probably i can fight through a lot of these things and and end up being able to to do some pretty good arbitrages and that's sort of how it started and and so and we started alameda research say crypto quante of trading

firm uh you know started going up growing out the team and really just started diving in and doing everything we could to scale up sort of each part of the operation to the point where we'd be able to kind of put together another enough pieces and connectors that we could do some of these trades and how long ago was this approximately this was uh basically late 2017 so three years ago at this point and did you have like any further goals at that time or did you envision like creating your own exchange or was that like sort of the you know what were you just mostly voted focused on trading at the time and then this stuff came later it's somewhere in between and really

what happened was i actually pretty early on we did think about like everything from listing structured products to starting an exchange to a lot of other stuff and and sort of felt like okay clearly there's a lot of value there if we can do it but it's hard and and in particular we sort of kept running against like two different problems the first was just regulatory stuff and not so much like this is illegal as like is it clearly a complicated regulatory topic and boy do we not have the know-how and the corporate infrastructure to like be able to figure out how to structure these things and the second was we don't have any customers and we have no way to get them like like

just no idea you know like sure we could build some products could release them and just like hope people start using them you know you start standing there like all right guys you know new exchange times trade she like built a prototype exchange at one point and it's like cool we have a matching engine like what now you know where the customers of course there are no customers who haven't told anyone about it who do we tell about it i have no idea and that's sort of like the death of of our like early thoughts at you know building consumer-facing products and so from this quantitative trading firm when did you decide that you should build a product or when did you decide to build ftx

yeah so you know how did we get from sort of there to actually no wait we we have a an exchange now and basically the answer is like well a bunch of things happened over the course of 2018 particularly late 2018 one of which was just like it became more and more clear that existing derivatives exchanges had big problems and uh you know you can sort of see this in a bunch of ways but like huge clawbacks and uh and and just you know generally like like sort of like really poorly managed risk and margin huge pain to use not very many of them but they're huge and so sort of like you know felt more

and more like okay like we should really try and find a way to do this it was like what 350 million dollars lost to clawbacks or something in 2018. and uh which is basically like derivatives exchanges failing to liquidate people and so that's one piece of it but that sold solve any of the problems there was just like even more reason to want to do this if we could and so the other thing that happened was i moved to hong kong i'm sort of an accident i wasn't intending to move to hong kong but i did i sort of came here for a conference and then you sort of never left and all of a sudden like i mean first of all just you know my network just started like expanding pretty quickly as i talked to people here and so that's sort of one big change

and i sort of feel like oh wow like actually have some people that could reach out to about this and coordinate with and you know maybe customers or or partners um and the other thing was that al made building up an otc desk um which had become over the course of 2018 one of the larger otc desks in the industry and that that also meant that sort of there's a bit of a growing customer base almost all institutional it wasn't really a retail facing product but but anyway you know the combination of those meant that they're sort of like something to grab onto you know like some sort of a customer base and a network and and putting those together you know we and there's maybe one other factor actually sort of worth mentioning which was the opportunity

to talk about maybe white labeling it and you know one thing that we're thinking about was okay like even if we can't find customers if we can build a good product you know maybe there are some existing exchanges that don't have futures but want them and sort of don't really know how to build that and and maybe we could do that and so that's sort of the last piece of this and and putting all those together it felt like all right we should go for this we should try it and see what happens um and and so we did um you know we sort of started building it out uh late 2018 early 2019.

cool and so how big is fdx today it's you know probably the fifth biggest exchange it's uh depending on exactly how you count it's sort of like you know volume depends on on the environment um sort of all exchanges serve like you know grow and fall together but you know trade something a billion dollars a day a volume uh primarily futures although also some some spot and you know has a small customer base relative to to the volume i think it's probably you know whereas its volume is is you know a factor of eight below the largest exchanges um i think it's customer base is probably more like a a factor of like 50.

but it's been growing um it definitely started out very institutional heavy and over the course of 2018 it's becoming or 2020 sorry it sort of like has has been getting an increasing retail presence and just like that's a network that takes a lot of time and grinding to to sort of build out and anyways is a bunch of different tokens on it a bunch of products um you know derivatives spot markets fiat otc structured products and uh you know more coming so why the uh big focus on derivatives yeah so i think there are maybe a few reasons the first was like it was our differential advantage like we understood derivatives quite well and

and you know i think that like we weren't the only ones who did but most people didn't at least most people didn't understand them well enough to really know how to build a derivatives exchange and build it well and think well about things like risk parameters um and liquidations um second thing was that most the volume goes up in derivatives there's more volume in derivatives than in spot and so it seemed like that was where a lot of the value was there were only two big players in it when we started okay x and bit max so it's a relatively open space despite having like more than half of all the volume and it was a space that was having a lot of trouble scaling and a lot of trouble supporting the increasing volume and customer base and flow and so it just looked like both a sort of high

value opportunity and also like a relatively soft space to enter algorithms running a free webinar to teach developers how they can use the platform to build sophisticated applications for use cases like crowdfunding asset tokenization supply chain management and even gaming applications you'll learn how to get started with the command line tools and use the sdk and rest apis you'll also learn about the algorithm foundation's grant program and additional funding opportunities that the algorand ecosystem has to offer so if you're building on a blockchain protocol that has unfeasibly high transaction fees and doesn't provide the speed you need or if you work for a large enterprise or financial institution and are interested in

learning how to build applications that could integrate in your current technology stack or if you have no blockchain experience at all and just are looking to take that first step into something new well this webinar could be for you visit alagram.com epicenter to sign up once again it's free and it's happening on november 17th but if you're listening to this after that date no worries you can still go to that page and watch the replay we'd like to thank al grand for the support of the podcast [Music] and one of like you know the things i've heard about ftx is that you know it's it's a platform that's like very well designed for traders and you know your product design comes a lot from your experiences running an active trading firm

what does that mean like tangibly like uh what what are the sort of things that make ftx different than other exchanges there's a bunch of things there and i'll just give a few examples although a lot of this is in the details you know a lot of this is like a lot of just small tweaks and decisions that we made you know what are some of the bigger things so one thing is and maybe one of the the bigger and sort of like most you know sort of most visible things is how margin is handled you know i don't know if you've like how much you've used uh derivatives exchanges before but uh sort of the like the norm is that

every single margin account is separate and what i mean by that is like you know all right so you want to trade you know you want to trade bitcoin derivatives sure put bitcoin in in one margin account you want to trade eos derivatives all right put us in another margin account you want to trade ether put ethan a third you want to trade spot put that in a fourth account you want to trade spot margin well there's a fifth account and and many of these places have like 100 accounts or or some of them have way more than that and it just quickly becomes like you know if you if you basically haven't spent like 500 hours building out like a dedicated automated system to march it to like i'm managing

this it's like really hard to handle you know like you know there's just sort of like oh god like i really want to trade you know bch futures right now what do i need to do okay well first of all i need to remove some funds from wonderful account there and now i have to go use those and buy spot bch first of all why what the like here the whole point of trading future is not have to you know they don't have to have bch but now the first step of trading bch features is buying bch tokens and then you move them into the right account and then you can start trading and each time you want to scale up the position you have to like reach your things and then you start thinking about your risk profile right so real quick why do i have to buy bch in order to buy

futures yeah it's a really good question because on a lot of these venues the margin for bch futures is bch the only thing you're allowed to post collateral in is spot bitcoin cash and so uh you know if you want trade bitcoin cash street juice you need physical bitcoin cash and if you tried you want trade eos features you need physical eos and so you end up having to manage a spot book and all of these transfers all within the same exchange just to be able to trade the futures within it which which like serve really shouldn't be necessary um and then you know it gets worse when you start thinking about your risk profile cause you think about liquidations and these are all independent margin accounts even though they're within the same exchange and they're all within

your account and it's what that means is that there's separate liquidations for every single one and so you have to like manage like make sure that none of these 50 accounts you have within this one exchange are close to getting liquidated and if they are you have to like go in and like move funds around and so this is sort of like the extreme version of isolated margin as opposed to cross margining and it's just like a huge pain to to manage and you know i mean it's a huge pain for a sophisticated training firm with bots that move capital around automatically like you know it's so much bigger of a pain for i like manual trader you know who like what they have to like keep constantly

checking all these things like logging on to like you know move around their capital and do some trades to so on ftx it's just there's one account you can put anything in it you put any you know you put dollars in tether uh bitcoin bitcoin cash eth whatever you want it all accounts towards margin and it all powers all of the futures on it and so you never need to reshuffle things and so it's sort of like yeah gets rid of that that whole problem um unless you want to and if you want to if you want to isolate margin so that you have like clean trading records split up or so that you have uh you know margin onwards protected from liquidation on the other then you know you can open up a different sub account and do that so you can customize that how you want but like

by default you don't have to so it's sort of like one example of a thing where it's just a pain to use a lot of these platforms and and we tried to make it as flexible as possible and and you know another piece of that which is different is that you know ftx will take a lot of different things as collateral and so it's not like you know you have to store your collateral in in dollars or you have to sort in in bitcoin you can do either and and they'll both power all the futures so that's sort of like one example of a thing that ftx does differently that i think just makes it a way cleaner and more intuitive platform to use fdx is like one of the much larger derivatives exchanges but its spot volume is like you know not not that

high relative to like many other exchanges what do you guys like sort of use for like you know your oracles for your like you know liquidations and stuff is it your own spot markets or do you have like something more sophisticated than that yeah it's a really good question and basically it's um it's an average of a of a bunch of uh markets and so you know our own markets are one of the things um in some of these indexes but uh but not the only thing and so i you know typically we'll take you know four or five exchanges and and average those together and so you know we might have you know the fbx market binance spot market coinbase spot market and you know who will be okay x

and a few others all sort of in there all average together and you know throwing out outliers and you know just to try and make it sort of like at least like reasonably uh robust and uh and you know not too exposed to like weird prints on one of them one of the main feat uh products is you know big mac sort of invented this whole like perpetual uh uh stuff and you know you guys have uh very heavily like sort of you know improved upon the like algorithm what are some of the improvements that you guys had to make there and how does it differ to like sort of the perpetuals uh offered by other platforms like

bitpacks and binance and stuff so and you know perpetuals are you know the bulk of the volume on on ftx and increasingly everywhere i mean even places where it used to be where it used to be the quarterlys or used to be the spot markets uh perpetuals are sort of taking over so what are some differences that we make there are some sort of uh small things one thing our funding periods are different so we have funding periods once an hour instead of once every eight hours and it's like not a huge change uh the advantage is that is basically that you know you don't have these sort of cliffs three times a day where like funding is paid out and prices move but it's just not a huge difference either way the

bigger differences are around margin and so you know one thing which i talked about was sort of the flexible margining that you can put margin in whatever you want and it's all cross-margined between all of the products um other things that it does so they're linear and what what that means is that and this is related to how p l margin work is that if you buy for instance you know seven uh eth perpetual futures on ftx and then eath goes up 20. um you've made 140 and then you sort of close them out and and now you have 140 extra dollars in your account and you know it's sort of the same for all of them like what's your p l it's like movement in the price of the the perpetual trading times number of tokens

worth you bought which i think is probably like the intuitive way to think about this a lot of places use what's called uh inverted futures uh sometimes even more some sometimes it's quantos futures and what this means basically is when you see for instance the bitcoin usd order book on bit max or the perpetual order book um what they're showing you is not actually really the native uh the native version of the order book um and the reason is they don't have dollars they don't have anything like dollars on bit max but bitcoin's the only the only collateral so they can't settle anything in dollars and so what they do instead is really it's a usd against bitcoin order book so it's a usd future paid for in bitcoins

and what that means is that like really the price is like .0001 and the sizes you're trading are like a million if you want to trade 100 bitcoins and and so they're showing you sort of the inverse of the the true underlying matching engines order book and what that means is that like you know it's not like you buy 10 bitcoin perpetuals and then they go up of dollar each and you've made ten dollars it's that you buy like a hundred dollars worth of this bitcoin perpetual order book and then usd goes up a little bit against bitcoin and then you close out for your usd gain and you get paid in bitcoin they're basically equivalent like you can sort of convert between the two um it's not like a huge fundamental

difference it's just like a little bit more clunky and awkward like it's you know if you want to measure your p l you sort of like can't do the intuitive thing it does weird things if bitcoin crashes a lot because all the collateral is crashing too and also the p l you're getting paid is anything that's crashing and so again it's not not a huge difference but it's just sort of like you know it's just like it's just a little bit more awkward and clunky and less intuitive um and the reason for this in the end is that like historically these platforms haven't had dollars they've only had coins and so they couldn't settle anything in usd and so because of that they didn't try to they just settled in coins and

inverted everything um it also by the way does quite weird things if something might go to zero because if something might go to zero then well you can sort of think about what might happens you're settling something p l and a currency going to zero you have to settle infinity of it the contract prints up to a price of infinity it's like like it just breaks sort of like part of the story behind the bitcoin cash fiasco uh fork fiasco on okay a couple years ago and so that's sort of another difference and again it's it's not the biggest difference in the world it just sort of makes it cleaner and more intuitive so one of the things we wanted to ask you is with regards to alameda research and whatever activity is still going on there for

maybe like institutional customers um otc trading how do you position yourself there having sort of privileged information coming from ftx going into alameda so alameda itself it has an account on ftx it's one of the market makers there um its account is not really different from other people's accounts like it's just consuming the api feed like everyone else is and it so it doesn't have any you know more direct information you know than that it's placing its orders using the api feed or using the api um it doesn't have access to customer account info or anything like that so you know kind of structurally alameda's account is just like anyone else's on

ftx and the thing that makes it special is just that unlike everyone else on ftx almeida really wants ftx to do well i mean some other people also want to do well but almeida really wants it to do well and so what this means is that for instance you know at the beginning like more than half of all the in fact way more than half of all the liquidity on ftx was just alameda like it's just all alameda providing and that's changed over time now uh now all media is you know most of the liquidity is not coming from alameda but there's still some places where you can really see it and i think the clearest example of this is like you know we launched some new token and you know we launched like flamingo or or whatever futures on that and you know we

need quarterly futures you know we're listing quarterly futures on this thing that like no one's really thought about it's only existed for like an hour or something and the the thing falls apart if there's no liquidity in the order book like the liquidations don't work and so all of what this this comes down to is like you can't list a product tell you you're going to have liquidity in it and yeah it's one thing this is the new bitcoin quarterly future that a lot of market makers are going to be looking at it's another thing this is some coin no one cares about and like no one is going to want to bother trading this or prying liquidity on it really and that's where alameda is different sort of like alameda is is always happy to you know provide liquidity on ftx even for things

that are not gonna like see much volume because it's important for the platform and so one of the big things there is is like it lets us list products quickly because we just know there's going to be liquidity fire there and ready even if there's like not that much incentive for anyone to provide there what's the relationship between alameda and ftx like is there is alameda like an investor in fdx what is like the personnel over cross overlap other than you they're separate companies uh neither owns the other in fact neither has any equity in the other almeida does have a bunch of ftt tokens and so through that it does have a lot of uh you know exposure to the the

success of the product and you know inside of my management there's very little personnel overlap between the companies and alameda is primarily traders and settlement and uh ftx is primarily you know operations business development customer support compliance and and you know most of the work on ftx is sort of customer facing and most work on alameda is like you know strategic and and trading related and and liquidity related and so you know they're uh they're basically separate workforces and you know partially again that's because like they're fairly different jobs but partially that's because you know it is important that they be separate because you can have a moderately successful

exchange which is just an arm of a trading firm but it's hard to grow to get really big if you don't have that separation parts because it's hard to get a lot of players on board uh partially because it's just the kind of thing where like if you're thinking of the liquidity is as always only ever coming from one party that that's not going to scale as much as it needs to and so you know at the beginning alameda was a huge part of of ftx in addition to where a lot of the employees came from it was basically all the liquidity but you know over the last year and a half that's sort of been been decreasing uh quite a bit so moving on to serum can you describe

at a high level what it is and how it fits in your broader vision for ftx if it does fit in that in the product vision for fdx right so you know i think basically like you know we as ftx were thinking as d5 start getting more and more popular what's our plan here and part of the plan obviously was list a lot of d5 tokens and you know ftx did that um but that that's sort of like not a very ambitious thing to do in d5 and beyond that like one thing which i think became clear to us pretty quickly as we were thinking about this was like it's not a great fit for defy beyond things like listing d5 tokens because it is not decentralized like you know ftx

it isn't it's a centralized exchange and we could try and have like a you know ftx dex but it's sort of forever going to be tied to ftx and it's forever going to be you know limited in how decentralized it could get because of that and and so you know when we sort of decide not just to do something in d5 but to try and do something big and ambitious sort of seemed like the right way to do it was to do something separate like the right way to do it the way that could really scale was to build a new product um and there are some mirrors with ftx's launch there where rather than just like scaling up alameda's otc trading desk the really ambitious sort of scaling thing to do would be to start a totally new independent exchange

which obviously came from a lot of the alameda people but was its own product not tied to alameda and that that was going to be sort of necessary for it to be able to really get big and we felt a similar thing about serum that it needed to be its own thing and independent and and decentralized to really have that big of a future and so you know as we sort of started diving more into d5 and thinking about what we could do there um and particularly starting to think more you know started to think about bigger things and and and sort of like really what is the biggest upside here that's sort of what formed the initial parameters of serum and one of the biggest things was like is the goal to launch a defy token or is

the goal to build the best d5 project we think we can and if the goal is to launch a d5 token sierra is a terrible way to do that or is is really overkill and went quite well but it's massive overkill for that like you just like launch a token right like it's not hard to create near a c20 token some project associated with it whatever you know that the food industry has done quite a good job of this um that does serve one path but that was obviously not the ambitious path and not the path that would create a great long-term product that was sort of the path that would create a product and a token um but if we wanted to do the long-term thing you know we started asking questions like not like what would be a way to improve on d5 but like

what if we want to have a defy ecosystem that could support a billion users what does that look like because that like if you if the answer is that's impossible then you're sort of like already conceding from the outset that it's never going to be huge and we didn't want to do that we we really want to think about the upside here and so if you're doing that like you know what would it mean to try and you know start a d5 ecosystem that would have a chance to scale to a billion users well first of all it meant ignore what products are out there now try and build the best products it also meant wherever you're doing this has to be able to scale to a billion people or at least have a shot at it and it meant you know with all these decisions

and you know error towards the thing that has the biggest potential and so you know men certainly can't be on ethereum and in fact it's not just that you can't be on ethereum it can't be on most chains like it it would have to be on you know throughput is just going to be a limiting factor eventually and so the more the better and and yeah it meant like what are sort of the fundamental financial components order books are sort of probably the biggest sets of where it started was launching it fully on chain or booking probably the the fastest most performant on chain order book anyone's created and and then moving on to you know everything from structured products pools amms borrow lending margin derivatives

and sort of building out the core pieces of the financial ecosystem and then also thinking beyond the financial ecosystem about like what else could be on chain well a lot of things could you know instant messaging sure you know someone's built a prototype instant messaging encrypted instant messaging protocol where it's all on chain you know p2p stuff can be on chain a lot of what credit cards do could you you know just like a lot of things in the world could be so basically you know that was sort of where they started and and what generated a lot of the sort of like initial ideas behind it so where in your view does the do the existing tools and the existing products in d5 fall short you know of fulfilling this vision of

building scaling to a billion users yeah um well first of all just like chain throughput i mean ethereum is overloaded right now and that's at like you know what like 10 000 users or something and so uh you know you need like many many orders of magnitude and and even with the scaling solutions for it are not meant to scale that big you know most of the scaling solutions are meant to get another couple orders of magnitude second of all if you look at the products being built they're really tuned to that environment right you have like very simplistic amms because doing anything more complicated on ethereum would be too hard the borrow lending protocols which are fairly dumbed down but honestly work decently well i think they're like

one of the best pieces of d5 right now but then you ask like where's the rest of the financial ecosystem there isn't a lot like there's there really aren't and the derivatives are like really nasty compared to or off chain like there's two types of d5 derivatives there's off chain ones or there's ones which are massively over collateralized extremely reliant on not just oracles but on like weird collateral bases weirdly peer-to-peer without market makers like it sort of like is designed in a pretty constrained way as opposed to how fantastic usually views things and and so i think like for most of what you're looking at beyond a partial

exception of bar lending you know most of the real financial ecosystem is not built yet on default it's sort of like like these these toy versions of it built to suit an environment where your protocol is going to get like you know five actions a minute and that's it would you say that like you know what if we could get a lot of these d5 applications to move on to a faster blockchain like solana or something i mean do you think that solana can achieve those like many many magnitudes of like scalability over ethereum i think it can and so first of all it already has many i mean it already so ethereum's like 10 transactions

per second and salon is somewhere around 50 000 right now so it already has you know three orders magnitude above ethereum but the other thing is that so first of all it scales with moore's law so every few years its capacity is doubling and then there's another few orders of magnitude it can get just by optimizing the current protocol without sort of without massive changes to the to the blockchain there's just a lot of things that aren't optimized right now and the teams are aware of that and is working on these as one of the priorities and and that can you know get you know again another couple orders magnitude and so you know i think already you could probably get close to a million transactions a second with without better hardware and then you know yeah again in another decade you

know you add another factor of 10 to that or something and so is that going to be everything that you could possibly want no like more is always better and at some point you might have to think about charting it you might have to think about running multiple copies in parallel or something like that but at the very least it gets a very large number of you know more than what we have right now and enough to scale up to you know way more than for instance what a current leading cryptocurrency exchange supports and so at the very least it's it's sort of getting to the point where it can host a bunch of real sort of like global scale applications on it but like it comes at a trade-off right so solana today it's you know this ability to like scale with

moore's law it basically uses very high tech hardware it's not like your normal consumer grade hardware i've ran validators for solana before and you know you need to have like at least two top end gpus running just to even run a node which is not like you know most people don't have that laying around and they don't have light client proofs and stuff and so you know they choose a certain point on the trade-off curve and you know i completely accept that i my entire view of blockchain is that we should explore different trade-off schemes but why do you think that that's the right trade-off point for serum yeah and you know there is a trade-off here and sort of like i think a lot of what it's thinking about is like

you know well so the first thing i'll say some of this is not a trade-off some of it there are some of it which are not i wouldn't say free wins but just like a lot of optimizations you can make to be able to increase throughput um without sacrificing much beyond that though you know i think a lot of this is thinking about realistically speaking what are the benefits and costs to various levels of this and sort of like instead of thinking like that the whole blockchain has to fit on like 2018 cell phone or something like that and and that you know that has to be able to serve as a node um it's instead thinking like for anyone who's seriously interested in running a node this should be possible i think that is a change and there is a

cost associated with that but i don't think it's a super massive one because realistically speaking it's not sort of like people's cell phones running full clients which is powering basically any blockchain and and probably that that's going to remain true that it's it's you know people who are are seriously interested in it but at that level you know it's not super expensive it's you know for you know certainly less than a thousand dollars you can get a setup that can you know be a top-end salon validator well what about like clients though like there's no like client support i would be okay with that if there was some like middle ground where on my phone i could run a

light client but the problem is for me that doesn't exist yet yep and you know some versions of that are things that you can build although definitely the more you scale up the blockchain the more it's going to have to be losing and and you know you might start running into restrictions of how far back it can look and you know i think you might be in a place where like you could verify that the transactions are valid given a blockchain history as of yesterday or something like you know starting from the state of the blockchain yesterday taking that as a given or something like that as opposed to being able to replay the entire thing you know and verify it and so again i think that there is a cost to that but that if you look at where where people are right now

and where this is you know probably going to end up you know i think that realistically speaking you can still have a ton of validators you can still have anyone who's really interested in being one you can still have some amount of verification done by users and and that while that does sacrifice something i think you still keep most of the security and decentralization of blockchains you know i think that like you know most of it comes when you go from like some sort of like small tight-knit white-listed group of people verifying this to you know a third of the world could be doing it if they wanted to and so yeah basically i think there are

sacrifices but they're not that big in terms of the ultimate security and decentralization and what it lets you do is scale up by many many orders of magnitude it's it lets you go from like a thing which can support a few simplistic applications to something that can drive a lot of what the world's doing and and that that's a pretty big difference so let's get into the the technical weeds here a little bit and explore the the different components of serum so if you go to the website it says that there's seven components to serum so that's a good i think like a good starting point let's let's break those down and we can maybe talk about a little bit about each of them yeah and and you know one thing to note

obviously is that sort of like you know that's from the white paper and things have have grown a fair bit since then and so there's a lot of other components which are being built out as well and you know you'll notice that that things like amms yield pools things like that are not listed there but are looking like they're probably going to be a pretty central part of serum but you know if you do sort of look at at sort of you know the original pieces and one good place to start is the order book that that was sort of like one of the core visions for ceremonies can you have a fully on chain order book and the answer is yes you can have one it could be performant you can be fast it can be cheap it's really finicky to build but you can do it and you know we

did do it and it's live and you sort of like go to right now and trade on it as you know one second settlement 100th of a penny cost uh gas cost and um and you know fully on chain matching engine order book and everything else so and that that's sort of like really one of the core pieces of it um and also sort of proof that you can build real scale things on it um so sort of one of the first things that you know that we focused on and and you know one of the the you know the first really big thing that went live and so the order book is like the first thing that went live like i said what's unique about this particular order book and what kind of things does solana allow for that you don't see in

other order book dexes yeah so the big difference is that it's all on chain and if you look at other order book dexes usually one of the key components is is not on chain and they vary in how they do this but the matching engine often is not on chain often you'll submit orders to just a centralized server which will match and then the funds will be on chain and it'll be settlement on chain but the orders in matching engine won't be whereas with serum they are and so this means a few things first of all it means that you can see everything that's happening and prove that everything is happening as it should it also means that anyone can do this like anyone can run an order book on serum

it's not permissioned it's not centralized it's not like oh yeah the server is only supporting these it you know you can and in fact you know there's been code released now open source code just like click a button and add new order book there so when you say anyone can or you can create an order book like anyone can create a pair yep anyone could say you know exactly here to spl tokens click this button it'll run the code to instantiate a new order of book on zero interesting right i i wanted to ask about this like on the docs website you know it lists like a nut it's like oh here's a bunch of dexes on serum what does that mean yeah what does that mean yeah it's a good question and this really starts to

dig into what is in d5 what is a thing like and it's a tough question right like if it's all on chain code what is a dex exactly um i think someone had a post that was like a kind cool post which is like you know it's not clear like you could you know two parties could exchange things on chain what does it mean for there to be a dax if there's no centralized thing at all so what what that means is people who are hosting guise that allow you to trade on order books on serum and and so if you click through each of those it's you know different parties

which are hosting hosting you know their own gui which can access either sort of like markets that other people have created and nefern's looking at or i mean anyone can list their own markets and still see some dexes will you know create their own markets on serum and then have their decks point to those and so it's sort of this interesting in between thing where it's like you know if you're saying i want to host an ftx gui like what's that even mean it's sort of like you know is just like a front end whereas if you're to like build your own exchange that's your own thing what's it mean to be doing one of these things it's a little bit in between right like you list whatever markets you want you can have disappointed at your markets or you can have it pointed the same mark as

other dexes are running on so all the orders cross with each other and you know there is like some example code uploaded but you could you know write your own code and some people have customized it so i can have multiple markets for the same pair though yep if you wanted and obviously you know i expect people to congregate because it sort of likes a little ridiculous to have you know everyone pointing at a different bitcoin usct order book and like no one agreeing on it until like all the liquidity swifts um but yeah i'm sure they're like 20 bitcoin usdt order books at this point from various people who've tried out creating them do i have any incentive to make my own order book like as the gui can i like take my own fee if it's on like some

order book that i controlled yep it's a good question so i it's basically it doesn't have so much to do with which match engine or order books are you're pointing at and instead what it is is well by default without doing anything the guise do get a fraction of all the fees on serum and so i think 20 of all taker fees which is more than 100 of all fees because they're maker rebates go straight to whoever is hosting the gui and what that actually means if you drill into it is whenever you send an order there's just a field you can append to it which is like which spl address should get twenty percent of the fees and jordy gui probably you're gonna put your address in there for you know what the orders that the gui generates and so you know the people hosting guys

are all getting getting fees from this basically from the activity that flows through their gui so that's the basic thing obviously you can do whatever you want with it you could write a gui which takes standard gui code and like adds on and also you pay an extra percent to this address and like those are the you know orders that it generates and people could you know choose to use it or not so you could widen things out more if you wanted there's no like strict restrictions on that but the sort of default thing that's actually built into standard on-chain code here is is putting 20 of the fees to the gui owner's address and and sort of the cool thing because it's all on chain and permissionless is that anyone can do this it's not like

you work out a deal with someone it's like there's code you can run it you can build your own code you can point it whatever you want and you just like start running it i want to ask you also about cross chain swaps and how they work and which chains are compatible is it dependent on you know chains having compatible compatibility with solana or or you know do we have bridges for example for bitcoin or this sort of thing it's a good question and the basic answer is i mean sort of the stupid answer is i don't know it's whatever people you know people can build whatever they want but you know the real answer is like okay what had people built the first bridge live is uh the solid bridge um so something's built into one of the solana

wallets and this has bridges basically for erc20 tokens ethereum and bitcoin and you can sort of plug in any erc20 token it'll create an associated spl token and uh any sort of convert back and forth between them so sort of the first one that went live um and it's it's like fast and and cheap and generalizable but not the most decentralized and so the next one which i know about which is coming on is the wormhole bridge that's slated to come out in a couple weeks i think i i don't know exactly what come out means like that there's gonna be an auditing period and stuff like that for it so it depends on exactly when you find it as being live that's gonna be an ethereum to solana bridge um which is

gonna be it's it's gonna be more decentralized and basically i i think the way that it that it's going to work is basically it's sort of like a multi-sig bridge but the signers of the multi-sig are going to be i think a large subset of the solana validators and so because of this it's like you sort of have similar-ish security guarantees to what you have to the solana blockchain in some ways conserve the same people who are signing both of those although not not as much and obviously not the same as ethereum and so i think that's going to be sort of the next thing coming online and that'll be i think for arbitrary erc20

tokens to uh to spl tokens spl being the solana token standard and then the eventual product here which is and you know there are other people who i think are working on bridges as well some bitcoin bridges some ethereum bridges and some bridges with other blockchains and of course people can use whatever they want like in the end these aren't sort of like officially sanctioned bridges you're just like you know they're all sort of like different spl tokens that you can use anyone can create an spl token um and can sort of deem these to be what they want and then the other thing is that coming out at some point all this is going to be a much larger production is going to be full light clients with fraud proofs um at least between salon and ethereum

and this is a sort of thing which is like in some sense it's the holy grail of cross-chain swaps and it's it's really finicky the core process is not that difficult all those uh but but there's a just a ton of edge cases you have to deal with for it and so you know that's it's gonna take time i think for that to come online um but that is something that people are working on and that i would guess within the next year will be online and that will be something where it'll be more or less fully decentralized and that anyone could challenge it anyone can sort of like call out if there's a an incorrect swap done

and and anyone can sort of like get a swap through if it's you know if it is correct and so that will have basically no centralized um or even multi-sig reliances but sort of as part of that you it's going to be on chain code which means that you have to get it right you have to get it fully right and it can't be like there can't be like an ending complicated cases clause and so it has to understand forks and split chains and and you know everything else so one of the things i uh noticed you know i think i mentioned it on twitter once was you know you use the uh term like serum ecosystem quite interchangeably almost with solana

ecosystem and it's you put out this like call to like oh like start building on the serum essentially you're asking people to build on solana but you called it the serum ecosystem if i go build something on solana how meaningfully is it like part of the serum what do you define as the boundaries of the serum yeah that's a really good question and of course in the enthurian series i don't know they're just words but but but really how do i think about it i sort of think of like most things on solana probably being part of the serum ecosystem and if you want to sort of like dig into it maybe it's something like anything which composes with products on serum

is part of the serum ecosystem and so if you want composability with a serum order book or with a serum amm or with a serum you know pool or something like that then you're sort of like participating in some way in the serum ecosystem and so if you want you could sort of like start with the the serum token or a serum dex or anything that has fees which flow through to a buying burner yield for serum tokens or something like that and then grow out with things composing on that and things composing with those things and anything that's sort of participating in that and i think that like that's sort of how we think about the serum ecosystem i think that means that it's like not that different from the solana ecosystem and like practically i generally think

of like solana as the blockchain and and serum is a lot of the ecosystem on it you know if someone starts building a stand-alone application on solana then it's like not clear it has anything to do with serum but most things that are interfacing with solana are interfacing with serum as well why not build your own blockchain or why not just fork solana and like have a sovereign chain for the serum ecosystem and you know bring more value to the srm token by the way if you talk about what that whole what that token does and everything but yeah why not do that it's a good question and you know part of the answer is that is basically that like it's hard to write a good blockchain

it's even harder to write a great blockchain you know i think it's one of these things where like if we wanted to dedicate all of our time to just the blockchain then i think that would be very tempting to do but that would sort of take away from everything else and to some extent we want to be able to build with the the product that's already there because that makes our job a lot easier and and that sort of like naturally substantially increases the set of people who are you know the people who are building on this and the people who are are part of the ecosystem and i think like one thing that you see with you know other you know you can take like the like the the various binance chains and things like that

you know one problem that you often see in cases like that and one there's there's a lot of advantages to it and by some metrics they've done quite well but you know one power with the one problem with those is that it's often the blockchains themselves don't really ever get a whole lot beyond like a fork of ethereum or a fork of cosmos or something like like you know they usually get like or or really maybe more of a fork of tron i mean it's sort of like if you're thinking of like oh gee you know basically like proof-of-stake version of ethereum you know i think that that's sort of like one place that you'd look and you know i think what that means is that like you end up generally not having super impressive blockchains themselves

they're generally like perfectly okay blockchains but that's not the kind of thing that's going to scale as much as we'd want let's talk about the token and what its role is in all this there's two tokens i think there's this srm token and then the msrm oh yeah the mega serum the mega yeah yeah so serum serve the core token of you know well of serum basically what's that mean fees from a lot of things get paid to serum or you know go to a buy and burn of srm or or yield for it or something it's you know they're they're sort of staking rewards and staking yields related to that and and it's also a governance token of

the serum ecosystem and so it has you know governance rates over a bunch of things in it um including you know the structure of of fees in it and you know token naming services and sort of like other things like that and and it's sort of organized through nodes which are basically collections of stakers staking together and there's a lot of other things which are not sort of necessarily originally defined but which which have started to grow often probably more well and sort of one good example is eco serum which is a serum node which is sort of dedicated to helping projects build on sir and so it basically the you know sort of stake is there it's a combination of you know coordinating with people putting them in

touch with right people giving help and feedback and also giving grants to people and so there's a bunch of srm and fees set aside for grants for people building on serum you know that's sort of helping a lot to grow the the the you know serum ecosystem and uh and you know sort of more things like that uh forming what is mega serum then only also feed discounts for holding serum and stuff like that mega serum is a million serum put together so you can take a mega serum you can crack it open into a million serum and it can take a million serum you can combine them together to create a mega serum and it's basically like a million serum but a little bit better like it's a million serum but like you get a little bit higher rewards you know higher fee discounts

and and sort of everything else you know wherever you see serum you know probably get a little bit more for a mega serum than a million serum and uh and so why why hasn't everyone just turned their serum in to make a certain the answer is they're scarce so there's only a thousand mega serum just enough for a 10 percent fall serum to form it and so it's sort of like if you want to be a sort of like big you know core player in the ecosystem and and use it a lot you know trade a lot there you know govern vote stake and everything else then you sort of uh get a bit more of a boost uh if you do it through mega serum and so it doesn't sort of like really increase the total number of serums you have to like lock up you know serum in order to

to form them but yeah it gives it gives you a bit of a boost um and is you know trading at a premium to a million zero because of the scarcity interesting so so this token is sort of like a golden ticket sort of token that that gives you some additional privileges and benefits on top of already on top of the ones that crm provides that's right okay and so you mentioned governance uh i would like to dig in here a little more and ask you what is the governance mechanism and what is it that token holders govern upon and is is the government simply like a like a stake bank governance like 100 stake based or is there some other variable here that that kind of weighs

on the governance um yeah i mean it's it basically it's uh it's taking base governance and you know it sort of like organized around you know it's it's organized around nodes although anyone can form a node and you know basically nodes can have their own sort of standards for how voting works within them whether you want to do sort of proportional things or just like a majority vote of the node to uh to determine how the node votes and then nodes are uh you know they're basically waste like organized and then it has you know governance rates over everything is a little bit strong and in particular serum is sort of like some parts governance in some parts immutable

and this is to get around issues where you might be worried that governance would like do something crazy and break your tokens or something and so you know governance doesn't have the power for instance to like change an existing market on crm so all funds go to someone you know like like it doesn't have the ability to steal funds like that instead what is the ability to do is like you know vote on what should the standards be for you know new markets on crm how should fees work and what should be done with those funds you know including for instance voting in eco serum and you know how should nodes work how should voting and nodes work and things like that on the scalability aspect of like serum

solana one of the things to take into account is how many like total transactions per second it could do but also solana has really fast block times right like you know less than like half second block times so to what extent is this like more of an anti-feature where we're like recreating more hft-esque obviously this is nowhere on the scale of like hft just creating that kind of environment again and are there social benefits to actually having things run slower maybe using like batch execution things like this there's a few things there and the first elsa is like are there benefits to it and

there's a few layers of this but one thing that i'll say is that like the human time cl is an important one right like having things that can run at humans time scale is worth a fair bit and this actually gets it around there right like how quickly do humans operate humans operate on you about a one second time scale you know half second time scale human reaction time it's like it you know something like a tenth of a second you know maybe a little less and so you know what this means is that you can run things that aren't frustrating to use on it and so one example of that is you know trade settlement within a second which is sort of like about the amount of time that like a human user would care about it also means you know as an example

right if you want to have messaging applications or news or something else that people are sort of consuming in real time it has the speed that you know it has sort of like the block time that is necessary for that now if you got an either two orders magnitude of it it wouldn't do a whole lot for that because already it's sort of like you know about as fast as we expect but but you know you look at anything from yeah from communication to gaming to settlement and it gets it down to the scale where it it feels natural and smooth to humans i guess i'm talking more specifically about order books yeah and so right so if you're looking more at order books there's some volume which you need like microsecond scale

for i think that volume tends to be not worth a ton i think it is good but i think it's just very very very very slightly good and that like the amount that you sort of get even though it's maybe most of all volume i don't think it's most of all important economic information but one way to think of this is like how much more economically efficient does the system get if it gets faster or does it even i think the answer is it does and how much i think the right proxy to use for this is basically how much do markets move but during a settlement cycle however much they move during a settlement cycle is about how inefficient your market's going to be and it can sort of go more into that but i think basically retail just ends up losing that amount whenever they trade

and so if you think about you know how much two markets move during a microsecond the answer is about nothing how much do they move during five minutes the answer is sometimes a lot you know the answer can be a percent you know how much they lose during a second i know a basis point or two you know i think that's sort of like the scale that you're looking at and so i think what that means is if you get a lot longer than the surf salon scale block times you do start adding in you know basis points and tens of basis points of uncertainty into the pricing and of economic deadweight loss and you know failure to do transactions that would make sense and increase cost for retail associated with that i think you have some at the salon scale but i think that

it's less you know i think you're talking about a bip or two which is not the end of the world and and you know i think that if you could get it down by another factor of 10 to 100 you would get back most that bip or two and so i think that's sort of what you're fighting over and anyway i do think that it actually matters that it actually does matter for users and first of all it's super frustrating to try you try and do a trade and you're sitting there for like a minute not knowing if it happened but but second of all i do think that that just in terms of raw economic efficiency it is uh it is valuable also you know last week on twitter you got into quite a large like you know multi-thread debate about amms versus order books and you

know you and i have discussed this before and you know i think we're generally in agreement that order book you know just to summarize i i think like you know we both sort of agree that order books are the end state of any decently large pair mmms or artifact of like slow execution as well as they are useful for like tail end of assets you know one of the interesting arguments i saw from like the twitter debate last week was about like this notion that like obviously one of the benefits that amms have is the ability for like just completely dumb retail to provide liquidity which is something that they couldn't do before and the users want to use the amm

because they know that they're not like being adversely selected against really it's like the lps are the ones being adversely selected against while in order books it's usually the retail users who are and so the users are want to keep using the amms and they're willing to pay the larger fees for like the peace of mind of not being adversely selected against and that makes it worth it for the lp providers and it's like this mutually beneficial cycle what do you think about this argument i think it's wrong um i think in particular that like who ends up winning from well first of all i think there's just a deadweight loss to amms i think a lot of trades that should happen don't because of this loss but to the extent there's a winner who is it

i think it's it's the opposite of what people sort of think i think the winners the hfts like who wins from the existence of amms is people picking off the liquidity fighters right the people running bots they're just trading against lps and there's a lot there like there's significant loss each day from that you know we're talking tens to hundreds of millions of dollars a year that are lost but the liquidity providers are the ones losing that's right not the users well who are the liquidity providers right it's sort of unclear and it depends on whether you're viewing amms as they are now or maybe as they're originally envisioned where as they are now it actually is sort of the quote-unquote users often who are the liquidity fighters and

they're providing liquidity to get staking rewards if you turn back all of that if you imagine a world with no staking rewards right and a sort of an unincentivized system and then you say who are the liquidity providers this were none i mean not literally none but like the liquidity was really really bad in these things six months ago and so i think part of the answer is like i don't know who the he's going to be long-term like it's certainly it's not going to be hft firms it's a terrible place for pride maybe it's retail they're just going to lose on every move right now it's been a case has been compensated for by all this yield and again you can drop enough yield into any structure such that it's what people use but i don't think that the current

system you know survives in the form it is if you get rid of the yield but the problem is like you know if all the users refuse to move to like the traders refuse to move to a system that's better for the liquidity providers what eventually liquidity providers have to give in and provide liquidity on the amm oh at some point that's definitely right if if takers non-hft takers so people with natural demand are willing to pay five percent then yeah uh to trade on an amm instead of an order book then yeah they will that's what's going to happen it'd be a pretty weird state of the world i don't

know why they would decide that and when you zoom out a bit they haven't i mean when you zoom out a bit like almost all flows going through order box like the the flaw in amms is is is a small fraction of the orbital flow right now now it's not true in d5 and d5 it's mostly going through amms but a lot of that's because it's all on ethereum and ethereum can't have order books as a market maker like so you know one of the one of the things with amms is most of the liquidity on there is like unused liquidity right because like you know you're really only trading at like a certain tiny slice of the curve how much more efficient capital wise is like almeter for example than like a typical uniswap curve

yeah it's a really good question and it depends a lot on exactly what setup you have and on where you're trading but like most places you're doing margin trading as well so if you add that in right like margin trading versus am emming you know i think the margin trend gives you maybe a factor of two or three boost three boost maybe and then also you're not using like 80 or 90 percent of the amm liquidity and so i think the answer is like uh you know i think you're talking like 10 times as capital efficient or something ballpark so i'd like to as we come towards an end here bring it back to the d5 ecosystem and and ask you where do you think the d5 ecosystem is heading and what

what is needed in order for d5 to gain more legitimacy in sort of the broader financial world yeah it's a really good question and i think basic answer is the first answer and the biggest answer is scaling and just literally can't get more acceptance right now like you can't do any more than it is because it's out of throughput so has to start scaling that's a skeleton outside of that i think it has to be able to be faster and it has to get rid of failed transactions or at least have them be pretty rare and and sort of more generally it has to get to the point where it feels like you're not making a big compromise by using it right like

yeah sure it's one thing if you're like a big d5 person or even a big crypto person to get into d5 if you're talking to visa and you're telling them they should do defy right first they're going to laugh at you and like then if you somehow manage to get through to them they're not going to be like great is it no more than like three orders of magnitude worse than what we're doing right now that's not the standard the standards are going to be is this a better experience right and maybe you'll be like no but it's just as good and you get these other benefits and then they might take you seriously but like you have to get to the point where user experience on d5 where businesses can build on it without making real sacrifices and that that's a pretty big shift

and what that means really you know what would it take to get there boy like first of all again like way faster way higher throughput if you're talking finance it has to be able to support the infrastructure they're used to like market making order books otc quotes rfq systems if you're talking you know other protocols it has to kind of feel like they're just using a database and they just have to feel not super constrained and so yeah i think that's like a ton of tooling a ton of adoption a ton of things to compose on that are valuable a lot of useful primitives and the biggest thing is just speed throughput and cost it seems like at the moment a lot of the

enthusiasm for d5 has to do with regulatory arbitrage and i wonder if if that regulatory arbitrage disappears because of more strict regulations that like the enthusiasm for defy will will kind of dwindle but it seems like what you're saying is that the enthusiasm and the adoption of defy needs to come from scaling from larger financial institutions adopting it rather than say like enthusiasts and hobbyists and sort of the crypto space using d5 it's a really good question i don't know i i mean it's an important question it's not just i don't know i suspect no one knows this is like regulators don't know like i suspect that there are people starting to ask this question

right now and a lot of related questions and they're sort of like oh that's interesting hmm yeah we should think about that you know like this is crypto is new defy is newer and it's so far afield from what regulators are used to contending with that you know i i think that there's gonna be a lot of hard questions that they're going to be asking themselves but what exactly they mean defy means and what exactly their goals are and how do they feel about the fact that it's all on change is the fact that it's like does it matter if it's like privacy private versus not private are they particularly concerned about private defy like are there limitations on this does it matter if what does a centralized

party mean here who would be responsible for it i think there's questions of like you know do they just need to have access to the fiat ramps that plug into it i think there's a lot of uncertainties here i don't think it's obvious how it's going to shake out yeah if you ask the eu regulator at least in what it's currently put out that the answer to that is like d5 needs to be basically just the same as the existing financial system with blockchain and that means that none of the innovation that happens that currently happens on d5 should exist or like they fully just sort of uh you know negate the existence of all that stuff and they're like okay d5 should be for like funding products or you know funding

companies and this sort of thing like none of this other stuff even is in their purview at least in in the current draft regulation that um that they've put out so yeah i i don't know i mean i think that if regulators as we know kind of suspect they are being influenced by large financial institutions that's probably the direction in which things will go if regulators are more interested in in sustaining innovation and building something new then that would be good for the ecosystem or maybe somewhere somewhere in the middle and i think a lot of regulators aren't exactly either in either of those camps i think a lot of them they sort of have a role in a job and they're trying to do the best they can at it but it's

complicated and a huge surface area and they don't know what the right thing to do is and they just keep getting all of these more and more complicated situations thrown at them and have to to try and do something they think is reasonable given that balancing all of these things and and sort of like trying to to to prioritize and yeah they're trying to do the best they can but it's hard like all of finance is a big amount of finance to be regulating and the regulators are not as numerous or large or well funded as all of finances so i have like just two last questions for you so one is going back to like the effective altruism stuff you mentioned uh early on at the beginning of the

episode what do you do to like practically uh do this like do you do you donate a percentage of your income annually to particular causes or is this like yeah how do you kind of do this yeah it's a good question and i think basic answer is like eventually it'll be pretty much everything now if you do that right now then you don't have the ability to keep growing and so i think that there is this trade-off between you know business capital and donations and so you know for now donating some amount each year trying to make it enough that it sort of proves not just others but also to myself that this is still the ultimate goal and enough to make a difference in balancing that against

making sure not to you know not enter our ability to keep growing and i think that there is there's a balance there and there's a trade-off do you think there's a cool way to use like smart contracts to like you know make this more effective i you know one thing that i'll say is like i'm always a little bit nervous about you know giving up too much optionality but i think that some of this could be super cool i think that you know whether it's a smart contract that auto donates some fraction of some revenue stream or whether it's just making it super easy to donate it's worth a lot like for a lot of people like oh yeah i want to donate how to do that i don't know how do i do that to a really good place boy do i not know all

right let's think about it next year and so i think like just really clarifying and simplifying that process could be worth a time and then uh finally what what is like something what's what what in the crypto space are you most excited about outside of serum or anything that you're related to in some way i'm really excited to see the future of institutional adoption of bitcoin whether that happens how it happens but even more so integration of crypto with the rest of the world you know whether it's integration of crypto with fiat integration in terms of crypto offs but also non-crypto apps whether it's you know adoption of crypto within financial

ecosystems again whether it's using it as infrastructure or as a product that you can invest in and you know involvement in remittances and yeah i think just generally like super excited to see to see anything that you know really helps tie the crypto ecosystem to the rest of the world cool that's a great note to end on sam thanks for joining us today of course thanks for having me thank you for joining us on this week's episode we release new episodes every week you can find and subscribe to the show on itunes spotify youtube soundcloud or wherever you listen to podcasts and if you have a google home or alexa device you can tell it to listen to the latest

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