Brett Harrison — FTX US former president speaks out

I flew out to Chicago to interview Brett Harrison https://twitter.com/BrettHarrison88, who is the former President of FTX US President and founder of Architect https://www.architect.xyz/. In his first longform interview since the fall of FTX, he speak in great detail about his entire tenure there and about SBF’s dysfunctional leadership. He talks about how the inner circle of Gary Wang, Nishad Singh, and SBF mismanaged the company, controlled the codebase, got distracted by media, and even threatened him for his letter of resignation. In what was my favorite part of the interview, we also discuss his insights about the financial system from his decades of experience in the world's largest HFT firms. And we talk about Brett's new startup, Architect https://www.architect.xyz/, as well as the general state of crypto post-FTX. Watch on YouTube https://youtu.be/yXgDlIlB93A. Listen on Apple Podcasts https://podcasts.apple.com/us/podcast/brett-harrison-ftx-us-former-president-hft-finance/id1516093381?i=1000603958700, Spotify https://open.spotify.com/episode/3Fib8ZVk4mzkUnNH6iB2Ro?si=ZmAEUy7HSD-FnKmUZIOyuw, or any other podcast platform. Read the full transcript here https://www.dwarkeshpatel.com/i/108062468/timestamps. Follow me on Twitter https://twitter.com/dwarkesh_sp for updates on future episodes. Timestamps (0:00:00) - Passive investing & HFT hacks (0:08:30) - Is Finance Zero-Sum? (0:18:38) - Interstellar Markets & Periodic Auctions (0:23:10) - Hiring & Programming at Jane Street (0:32:09) - Quant Culture (0:42:10) - FTX - Meeting Sam, Joining FTX US (0:58:20) - FTX - Accomplishments, Beginnings of Trouble (1:08:11) - FTX - SBF's Dysfunctional Leadership (1:26:53) - FTX - Alameda (1:33:50) - FTX - Leaving FTX, SBF"s Threats (1:45:45) - FTX - Collapse (1:53:10) - FTX - Lessons (2:04:34) - FTX - Regulators, & FTX Mafia (2:15:42) - Architect.xyz (2:30:10) - Institutional Interest & Uses of Crypto This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.dwarkesh.com https://www.dwarkesh.com?utm_medium=podcast&utm_campaign=CTA_1

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  You are probably going to be fired for this letter that you wrote. Sam is going to destroy your professional reputation. Like, where do you think you're going to be able to work after FTX? It was, he was threatening me. When I knew Sam, when he was 21, 22 years old, he was like a happy, healthy-looking kid. When I got to FTX, I saw someone who was very different than that person I remember. And it felt like he was spending virtually no time helping the company move forward. It was so much about image and brand and PR. Media was primed for the archetype that was Sam. Doesn't matter how little time he spent with the company, doesn't matter how he treated employees internally. Architect, it makes it really easy to access kind of all corners of the digital asset

• 0:45Speaker 00

  ecosystem.

• 0:46Dwarkesh Patel?

  Okay, today I have the pleasure of speaking with Brett Harrison, who is now the founder of Architect, which provides traders with infrastructure for accessing digital markets. Before that, he was the president of FTX US. And before that, he was the head of ETF technology at Citadel. And he has a large amount of experience in leadership positions in finance and tech. So this is going to be a very interesting conversation. Thanks for coming on the Lunar Society, Brett.

• 1:15Speaker 00

  Yeah, thanks for coming out to Chicago.

• 1:17Dwarkesh Patel?

  Yeah, my pleasure, my pleasure. Is the growth of ETFs a good thing for the health of markets? There's one view that as there's more passive investing, you're kind of diluting the power of smart money. And in fact, what these active investors are doing with their fees is subsidizing the price discovery that makes markets efficient. And with passive investing, you're sort of free riding off of that. You were head of ETF technology at Citadel, so you're the perfect person to ask this. Is it bad that there's so much passive investing?

• 1:48Speaker 00

  I think on net, it's good. I think that most investors in the market shouldn't be trying to pick individual stock names. And the best thing people can do is invest in sort of diversified instruments. And it is far, far, far less expensive to invest in like indices now than it ever was in history because of the advent of ETFs.

• 2:15Dwarkesh Patel?

  Yeah, so maybe it's good for individual investors to put their money in passive investments. But what about like the health of the market as a whole? Is it hampered by how much money goes into passive investments?

• 2:28Speaker 00

  It's hard to, it's hard to be able to tell what it would look like if there was less money in passive investment now.

• 2:33Dwarkesh Patel?

  Yeah.

• 2:34Speaker 00

  I do think one of the potential downsides is ending up creating extra correlated activity between instruments purely by virtue of them being included in index products. So, you know, if like when Tesla gets added to the S and P 500, like Tesla doesn't like suddenly become a different company. Whose, you know, market value is like fundamentally changing, but yet it's going to start moving very differently. You know, in terms of its beta correlation between other instruments in S and P 500 purely as a function of all the passive investing that moves these instruments in the same direction. So that's the sense in which I think it could be detrimental.

• 3:13Dwarkesh Patel?

  But naively, you would assume that like efficient market hypothesis would say that if people know that Tesla stock price would irrationally climb once included in the S and P 500. Then people would short it and then it, there should be no impact from this irrelevant information. Why isn't that the case? Like why?

• 3:29Speaker 00

  It probably mostly is. I think that sometimes there can be liquidity differences that cause at least temporary dislocations in stocks. Like, I mean, the simplest example is like you have an ADR, like an American depositary receipt. That's sort of expangible for some underlying foreign stock. And these two things should be like almost the same value at all times, like net of currency conversion and conversion ratios. But if one of the markets is highly illiquid or difficult to access, then there's going to be dislocations in price. And that's like the job of like the Jane Streets of the world to kind of arbitrage away the price over time. And so long run, you wouldn't expect these things to be dislocated for that long.

• 4:11Speaker 00

  So I'm sure there are people who are understanding like the fundamentals of individual names in S and P 500. And when there's like American news and the entire S and P falls. They are maybe buying S and P and selling individual names and extracting that relative value spread to come in over time.

• 4:29Dwarkesh Patel?

  Speaking of, by the way, these firms, you don't have to show me specifics, but how similar are the strategies for market making or trading that Jane Street versus Citadel and these firms? Is it the same sorts of strategies or are they pretty different?

• 4:43Speaker 00

  I think a lot more differences than people appreciate from the outside. Different companies have, they establish different niches and areas. Like Jane Street established its early niche in ETFs at kind of like a mid-frequency level. So not like ultra-fast, but not like long-term, year-long discretionary macro. Whereas maybe your Citadel Securities kind of firm got, built their niche more in like lower latency options market making. So it could be all over the place. There are some where they are trying to optimize for really short-term, like microstructure alphas, like trying to predict where the order book is going to move over the course

• 5:28Speaker 00

  of anywhere from milliseconds to seconds. There are firms that care more about the relative convergence of instruments over the course of hours to days. There's sophisticated quantitative trading firms that are doing longer-term, days to weeks to months-long trades too. A lot of the infrastructure can be similar. Like either way, you need to be able to connect to exchanges, download market data, establish simulation platforms, build like tools for traders to be able to grasp what's going on in the market and especially be able to visualize like their own proprietary models and alphas. But beyond that, the actual strategies and the ways they make money can be very different.

• 6:07Dwarkesh Patel?

  Famously, in other kinds of development, there's these very famous hacks and algorithms, right? So in gaming and graphics, John Carmack has the famous fast inner square root for doing graphics calculations, normalizing vectors faster. You were not only a developer in finance, I know what the exact term is for that, but you led teams of hundreds of people who were doing that kind of development. Are there famous examples like this in finance, the equivalent of fast inner square root, but for the kinds of calculations you guys do?

• 6:39Speaker 00

  Yeah, they're like all over the place. There's tons of hacks and tricks and things like that. I think. Like, for example, here's a famous one, not famous, I think I read it in a paper and like a bunch of other developers from different other companies told me about this. It's not something I saw at the places that I worked, but if you're sending a message to, let's say, NASDAQ to buy stock and you want to get there as fast as possible, well, what is a message to NASDAQ? It's a TCP IP wrapped message with a particular proprietary protocol that NASDAQ implements. Well, let's say your goal is, you know, you know, you're going to trade Apple, but you're not sure like what price and at what time, and you're kind of waiting for some

• 7:24Speaker 00

  signal to buy Apple as fast as possible. So what you can do is you can preconstruct the entire TCP IP message, like first put the TCP header on there, then the IP header, then like the kind of outer protocol that NASDAQ specifies, and the inner protocol except for like the byte slot where you put in the price, and then preload that message into the network card's sending buffer, so that once you're ready to send, you can just like pop in the price and send it off and incur as little latency as possible.

• 7:58Dwarkesh Patel?

  That's awesome.

• 7:59Speaker 00

  I think the analogy of video games is a good one, because like, just like in, you know, video game graphics, what's the end goal? It's not like to produce the most theoretically perfect simulation of environmental graphics, it's to have something that like looks good enough and is fast enough for the user. And that's also true in like HFT and quantitative finance, where like the goal is to get to like the approximately right trade as fast as you can. It's not to have like the perfect theoretical model of, you know, underlying price dynamics.

• 8:28Dwarkesh Patel?

  That is so fascinating. But this actually raises an interesting question. If you have some sort of algorithm like this that gets you a few nanoseconds faster to the NASDAQ exchange, and that's why you have edge, or you've like leased microwave towers to get from New Jersey to Chicago faster, or you've bought an expensive server in the same place that like NASDAQ is housed, what fundamentally is the advantage to society as a whole from us getting that sort of information faster? Is this just sort of a zero sum game of who can get that incorporate that signal faster? Like, why is it good for society that so much, so many resources and so much brain power is spent on these kinds of hacks and these kinds of optimizations?

• 9:10Speaker 00

  Yeah, so I think if you start from the premise that having Liquid, tight, efficient markets is important for the world. And you say like, how do I design a system that optimizes for that? I think you want smart, sophisticated technologists competing at the margins. And of course, the more they compete, the smaller the margins become. To the point where you think like, the little extra activity people are doing to get slightly better, don't seem to be greatly affecting the whole system as much as it was in the earlier days, and when things were slower and tick sizes were wider. I think it's difficult to imagine designing a market where you say like,

• 9:53Speaker 00

  okay, everyone should innovate up until this point, and then stop competing, and then just stay stasis. And maybe you can create certain regulatory or market structures to try to prevent that. But I think on average, you want people competing at the margins, even if they seem like they are miniscule. But at the same time, I think it's not zero sum for society, for technologists to be creating like super fast, ultra low latency, very sophisticated algorithms. Like, maybe, I don't know, we have a lot of geopolitical instability in the world. Who knows if our microwave network that we built out in the US could have like greater use cases than just for quantitative finance? But quantitative finance subsidize the creation of these towers.

• 10:37Dwarkesh Patel?

  Okay, but so that's sort of like a contingent potential benefit. I guess people tell us more story about NASA, right? In this case, literally, microwaves, that they subsidize a lot of the science that ended up becoming into products. So that's an interesting account of the benefits of finance that it has to say. Yeah, whatever tricks they come up with might be useful elsewhere. But that's not a story about how it's directly useful to have nanosecond level latency for filing your Apple stock or something like that. Why is that useful, directly, I mean?

• 11:11Speaker 00

  If there is some kind of news that happens in one part of the world, and that should affect the current price of stock in a different part of the world. I think that if you care about efficient markets, you want the gap between like source of truth events and ultimate price discovery to be as small as possible. I think if you believe, if you want to question whether getting, you know, a few extra like milliseconds or microseconds or nanoseconds is worth it, I think you're then putting some kind of like value judgments on like the, what is the optimal time it

• 11:52Speaker 00

  takes to get from to price discovery and saying like, you know, a second is too slow, but a millisecond is too fast, or a millisecond is too slow, but a microsecond is too fast. And I just don't think we're like in a position to do that. I think we kind of always want as close to instantaneous price discovery as possible.

• 12:08Dwarkesh Patel?

  I'm only asking more about this because this is really interesting to me. There are some level of resources where we would say that at this point, it's not worth it, right? Like, let's say $5 trillion a year was spent on getting it down from like two nanoseconds to like one nanosecond. I know that that's probably not a realistic number, but this is like, there's some margin at which for some weird reason, the inside does society are just spending so many resources on it. Would you say that we haven't reached that margin yet where it's not socially useful, the amount of brain power and resources that are spent on getting these tight spreads?

• 12:43Speaker 00

  I don't know how large a percentage of like GDP prop trading is. I suspect it's not that large. So I don't think we're close to that, you know, theoretical limit of where I would start to feel that it's a waste. But I also think like, there's a reason why they're willing to spend the money on this kind of technology, because they're obviously profiting from doing so. And it has to come from somewhere. So somehow like the market is subsidizing the creation of this technology, which means that there's still ability for value capture, which means there's still a service that's being provided in exchange for some kind of profit. I think we wouldn't spend $5 trillion in a microwave network

• 13:25Speaker 00

  because there isn't $5 trillion of extra value to be created in doing so.

• 13:31Dwarkesh Patel?

  Got it. Has being a market maker changed your views about civilizational tail risk? Because you're worried and like,

• 13:41Dwarkesh Patel?

  You're worried about personally getting run over, right? By some sort of weird event and adverse selection. Does that change how you think about societies getting run over by a similar thing? Or is it, are the mental models isolated?

• 13:54Speaker 00

  So I think working in, you know, high-speed finance teaches you to understand how to more correctly estimate the probability of rare events. And in that sense, you know, working in finance makes me think more about the likelihood of, you know, civilization-ending, you know, problems. But it doesn't suggest to me sort of different solutions. You know, there's a very big difference of being in a financial setting where, you know, your positions are numbers that you can put in a spreadsheet and you can model like, what happens if like every single position goes against me, you know, 3X the wrong way? And what instruments would I have to buy or sell in order to be able to hedge that portfolio?

• 14:35Speaker 00

  That's like a closed system that you can actually model and do something about. Having like a trader mentality on, you know, future pandemics, I don't think helps you much. I think maybe it slightly changes your ability to kind of estimate the probability of such events, but the actual solutions to these problems are a combination of like, you know, collective action problems plus, you know, being able to sort of model the particular type of, you know, unknown, unknown about whatever the event is. And I think those kinds of, you know, solutions should be left to the experts in those particular fields and not up to traders. In other words, I don't think like having the trader mentality about rare events in like normal civilization outside of finance really kind of helps you much.

• 15:20Speaker 00

  And maybe in some ways it's led people to think more hubristically that they can do something about it.

• 15:24Dwarkesh Patel?

  Gee, who could we be talking about?

• 15:27Dwarkesh Patel?

  Well, that's really interesting you would say that. I would have, like famously, you know, these market making firms really care about having their employees be well-calibrated and good at sort of thinking about risk. I'm surprised you think that the transfer between thinking about that in financial context and thinking about that in other contexts is that low.

• 15:49Speaker 00

  Yeah, again, I think it helps you at estimating probability of rare events, but it does not translate super well to what action then do you take in the face of knowing those rare events?

• 16:00Dwarkesh Patel?

  Were your circles of people in finance earlier to recognize the dangers of COVID?

• 16:07Speaker 00

  That's a good question. I think that people in my circles were quicker to take action in the face of knowing about COVID.

• 16:21Speaker 00

  You know, a lot of people who like kind of stuck around in, you know, cities and like kind of their existing, like, you know, particular situations, like not knowing kind of where this was going to head long term. And I think if you have the like the fortune of having the financial flexibility to be able to do something like this, a lot of like the people in kind of the financial circles kind of immediately recognize, okay, there's this like big risk, this unknown, and I don't want to get like adverse selected against in terms of being able to like get out of the like locus of, you know, bad pandemic activity. And so people immediately were fleeing cities, I think faster than other people.

• 17:00Dwarkesh Patel?

  That seems to point in the opposite direction of them not being able to, you know, estimate and deal with geopolitical risks.

• 17:07Speaker 00

  Well, I mean, there, there you have like an actual event that has occurred. And then in the face of the event, what do you do right now?

• 17:14Dwarkesh Patel?

  Yeah.

• 17:14Speaker 00

  I think that's different than like, what do we do about the potential for, you know, AI to destroy civilization in the next hundreds of years?

• 17:22Dwarkesh Patel?

  Yeah.

• 17:23Speaker 00

  Or, or what do we do about the next potential, you know, biological weapon or the next pandemic that could occur?

• 17:31Dwarkesh Patel?

  Yeah. Speaking of COVID, you were at, you were head of semi systemic technology at Citadel when COVID hit, right?

• 17:39Speaker 00

  Yes, exactly.

• 17:40Dwarkesh Patel?

  What, how did, you know, these HFT firms react to COVID? What was, what was it like during COVID? Because obviously the market moved a lot, but how, on the inside, was it good, bad, or?

• 17:51Speaker 00

  Yeah, I mean, all the companies, I mean Citadel Securities and but really all of the ones in this sort of this finance sphere, I think were extremely resilient. I think a lot of them found that. There are pre-existing ideas that in order for the team to succeed, everyone needed to be in the exact same place. And it was very important from like a, you know, IP perspective to make sure that people weren't taking a lot of this work home with them, completely went out the window. And people had to completely adjust to the idea that actual trading teams that are used to be able to have like eye contact with each other at all times, need to adjust to this, you know, pandemic world. And they largely did. I think, at least from a profitability

• 18:32Speaker 00

  perspective, it was some of the best years of, you know, HFT firms, you know, P and Ls in recent history.

• 18:39Dwarkesh Patel?

  Matching engines already have to deal with the fact that you can have orders coming from like Illinois, you can have orders coming from Japan, and given light speed, they're not going to arrive at the same time. You still kind of have to work around that. Is there any hope of a single market and matching engine for once humanity goes interplanetary or interstellar? Could we ever have a market between like us and Alpha Centauri, or even us and Mars? Or is it lag too much for that to be possible?

• 19:07Speaker 00

  Yeah, so I mean, without making any changes to a matching engine, there is nothing that, you know, says that when an order comes in, it can't be older than, you know, X time, right? What it does mean is that like the the actual sender, if like they're sending a market order from halfway across the world, by the time that the order reaches the exchange, they might end up with a very different price than the one that they were expecting when they sent it. And therefore, like, there's probably a lot of adverse selection sending a market order from halfway across the world than in a colocation facility. So you can technologically run an interstellar, you know, exchange. It just might not be good for that person living on on the moon.

• 19:49Dwarkesh Patel?

  Is there any way to make it more fair?

• 19:51Speaker 00

  Yeah, so I think there's actually a kind of real world analog of that, which is Like automated market makers on slow blockchains. Because if you're used to working on NASDAQ where NASDAQ processes like a single message in somewhere between like tens and hundreds of nanoseconds per order. A blockchain like Ethereum processes what like 15 to 50 messages per second. So significantly slower by like numbers of orders of magnitude. And yet they've been able to establish like pretty mature like financial marketplaces by saying that rather than you having to like send orders with prices on them and then

• 20:36Speaker 00

  cancel them when the prices aren't good anymore, like there will be kind of an automated function that moves the prices at the matching engine. And so whenever your order reaches the exchange, it'll always be kind of a predetermined fair price based on the kind of prevailing liquidity at the time. So one can imagine like building a NASDAQ for like intercellar market is kind of similar to building like Uniswap now on Ethereum in terms of order magnitude and speed. But there's other things you can do too, like you could establish like periodic auctions instead of like continuous matching and things like that. And that could potentially help mitigate some of these issues.

• 21:17Dwarkesh Patel?

  Yeah, it's actually something else I want to ask you about. What is your opinion of periodic, you know, frequent batch auction systems? Should we have more of that instead of?

• 21:25Speaker 00

  So in theory, they help mitigate the advantages of high frequency trading. Because if you know there's going to be an auction every 30 seconds and it's not going to be by time priority, it's going to be by price, then it doesn't matter if you send that order at the beginning of the 30 second period or the end of 30 second period. Like it's really like the price that determines whether you're going to build, not something to do with like particular latency to the exchange. I think in practice, the couple of exchanges around the world that used to have those have switched away from them. Like I think the Taiwan Stock Exchange used to have periodic auction system and they just thought the liquidity and price discovery wasn't good and it was like complained about

• 22:08Speaker 00

  a lot and they eventually moved off of it to a continuous matching system. So I guess in practice, it doesn't quite work as well, but it's hard to tell. It's really hard to tell.

• 22:18Dwarkesh Patel?

  What country, I mean, in your long experience of developing financial infrastructure, what country do you feel has the best? Infrastructure and setup for good markets.

• 22:30Speaker 00

  I would say the United States, except what's happened is US companies like NASDAQ have licensed their exchange matching engine technology to other exchanges around the world. So like the NASDAQ OMX technology powers a number of the exchanges in Europe and some in Asia. So it's hard to sort of say that like the, is the technology American? Like, I guess so. I'm not sure exactly who wrote a lot of the stuff underneath, you know, NASDAQ technology, but I do think the US markets are some of the most, you know, efficient and low latency and expansive and product set allowed in the world.

• 23:11Dwarkesh Patel?

  How do adverse selection in trading and hiring differ?

• 23:16Speaker 00

  In hiring, there are, one, many more opportunities for positive selection versus the negative selection you usually encounter in finance. And the other thing is that

• 23:30Speaker 00

  most financial markets are like, you know, in the US, when you think about like trading in general, you're thinking about like liquid markets. The hiring market is highly inefficient. You know, maybe the like pipeline of, you know, orders from like Harvard, MIT, Princeton, Yale to Jane Street and Citadel Securities is like a very liquid pipeline. But like, there are many, many universities and colleges throughout the country and the world that have extremely talented individuals whose resumes will like never end up on your doorstep. So you might end up with like a resume from, you know, some, you know, graduating senior from college who has no internship experience. And your trader mindset might think, okay,

• 24:13Speaker 00

  this is terrible adverse selection. But it actually could be that like, That person, if he's willing to put themselves out there and apply to your company from this relatively unknown university, then that might be the signal that is the best person in that entire region, and that might be a positive selection. So I think that it's not exactly the same adverse selection dynamics as there is in the traditional trading worlds.

• 24:36Dwarkesh Patel?

  Yeah, yeah, definitely. Especially if you have like, I guess, mission-oriented companies have a especially good way of getting rid of adverse selection, right?

• 24:43Speaker 00

  Yeah, yeah, exactly. The companies with really strong brands. I mean, that's one of the things we saw at Jane Street was like, I heard stories in the old days of Jane Street that the first resumes from Harvard were like, the people were terrible. They couldn't do like basic math, and they just wrote this like, the worst candidates compared to other people that they were able to find. And then they established this brand and this recruiting pipeline and this reputation for having very difficult interviews and for paying people really well and having this like amazing work environments that all of a sudden, all the people getting through the pipeline from Harvard were like really, really great. And it wasn't like the quality of students at Harvard changed, it was probably a bell curve there like there is everywhere else. It was just like the positive selection resulting from the branding efforts and the

• 25:26Speaker 00

  like mission-driven focus of the company that really brought that positive selection pipeline to them.

• 25:32Dwarkesh Patel?

  Yeah, that's really interesting. Should Jane Street replace OCaml with Rust?

• 25:37Speaker 00

  No, because there's too much infrastructure already in OCaml.

• 25:41Dwarkesh Patel?

  Yeah, but starting from scratch.

• 25:42Speaker 00

  So I guess the world is, if they could like snap their fingers and suddenly replace all their OCaml infrastructure with Rust at like zero cost, would it be worth it?

• 25:52Dwarkesh Patel?

  Yeah.

• 25:53Speaker 00

  In that case, I would say yes, because I think that you get a lot of the sort of static typing and compile time safety in Rust that you get from OCaml, but the base level program that you can write in Rust is much, much faster than one you can write in OCaml. Because of the way OCaml's designed... Where there's this kind of automatic garbage collection, the worst thing you can do in high-speed finance is do any memory allocation that results in garbage collection. And so you have to write very, very careful OCaml that almost ends up looking like C in order to end up, you know, staying in functional programming land, but not actually creating tons of memory on the heap or the stack that ends up getting collected later.

• 26:37Dwarkesh Patel?

  I guess you've been playing around with Rust a lot recently, right?

• 26:40Speaker 00

  Yeah.

• 26:41Dwarkesh Patel?

  What is your impression of the language? Have you been enjoying it?

• 26:44Speaker 00

  It's great, and it's come a very long way in the last three to five years. I think crypto has something to do with that. It seems to be like one of the like languages of choice for people to write like blockchain and smart contracts. And so there's been an enormous amount of like open source contribution to Rust. And so compared to when I like last looked at it a couple of years ago, it's a lot easier to write like really good sophisticated programs now in Rust and get all of like the type safety and the speed that you get, which is like very comparable to C++ on the speed side.

• 27:19Dwarkesh Patel?

  Well, when I'm writing programs, there are not large code bases with many people contributing. So what I use for Rust is just like a huge pay and like, why is, I just want to do something very simple. Why did I put like an arc instead of a box instead of an option? Like, but I can totally understand if you have something where like billions of dollars are at stake.

• 27:36Speaker 00

  There's definitely a learning curve, and I think for basic scripting, you want to use something like Python.

• 27:42Dwarkesh Patel?

  Right.

• 27:43Speaker 00

  But exactly, if you're writing like low latency distributed infrastructure that has to never fail, Rust is a pretty good choice.

• 27:49Dwarkesh Patel?

  Yeah. Speaking of Jane Street, why does a company pay interns like 16 or 17K a month for their summer internships? Is the opportunity cost for one of these smart students that high in the summer?

• 28:04Speaker 00

  The short answer is yes, but the long answer to why I think they do that is You know, the starting salary for the top people in not just finance, but in tech is sort of in this like low to mid six figures now. And you can like debate whether you think that's like the appropriate starting salary for a person with like no experience coming out of college or not. But just sort of the reality is that the talents pool is extremely competitive from the employer's side. So if you start with that as like a reasonable, you know, salary plus bonus for an employee. And I think Jane Street's mentality is these interns who are coming here, like they're doing real work. They should be paid like a full-time employee, just like prorated for the time when they're actually here. And so that like ends up like checking out to be like the right numbers.

• 28:49Dwarkesh Patel?

  Wait, on net, are interns, I mean, forget about the salary, like are they actually on net contributing, given that subtracting away the time of the trainers who are training them?

• 28:59Speaker 00

  Maybe it sort of breaks even if you consider like the time to train them. But it's extremely worthwhile because when those interns come back full-time and Jane Street hires a significant percentage of its incoming classes from their internship program, that they're already trained, they're ready to go day one, they're almost immediately useful because they had that like three-month period where they got trained. And only the ones that really liked it and were good come back. So it's like, rather than wait for them to come on-site, train people and maybe half of them aren't good, or half of them don't fit with the culture, and you kind of don't know what to do with them. The internship program provides like a really good place to get like on-the-job training,

• 29:42Speaker 00

  and then only kind of select on both sides for the ones that are the best.

• 29:45Dwarkesh Patel?

  Is there a free rider problem with internships where if like a company like Jane Street puts in the effort to train somebody for three months, they might get some of them to work for them, but they've also trained some people who might work for the competition? And like, is there some sort of free rider problem there?

• 29:58Speaker 00

  There for sure is, which is why the companies have to work as hard as possible to make their experience as good as possible, which is like, it's good for the interns. You know, like- When you go to Jane Street, like not only do you like learn a lot, but like they pay you really well. And also like you get to, you know, visit one of the foreign offices for like a week or something. Also, like they have all these like really fun programs where they bring like famous speakers to come to the office and speak to the whole, you know, intern class. And they have, you know, like parties and all sorts of stuff. And it adds to like the experience of thinking like, okay, this is the place I want to work. I don't want to like take my training and go to the competitor. I want to come to you.

• 30:40Dwarkesh Patel?

  Yeah, I clearly got in the wrong business with podcasts.

• 30:43Dwarkesh Patel?

  Why did you pursue finance dev instead of trading? Well, why did that appeal more to you?

• 30:52Speaker 00

  Yeah, so in college, I studied computer science and math. And I really liked programming, but I think I didn't quite know what a career in programming looked like. I think the conventional wisdom, at least like in 2009 when I was applying for internships, was like, okay, I'm going to sit in the cubicle and like stare at a screen for 16 hours a day. I'm going to be miserable and it's not going to be a very social job. And I consider myself like a pretty social person. And I had a lot of friends who had had these like various internships in quantitative finance, like mostly from the trading side. And so when eventually I went to Jane Street as an intern, I had kind of like a hybrid summer, like doing some dev stuff and some trading stuff.

• 31:35Speaker 00

  And to me, I thought like, okay, the traders are much more, much closer to like the real action of the company. Like I want to be a part of that. And so when I joined Jane Street, I was hired as a trader on the ADR desk. And I realized like very soon into that, that one, no, like actually the developers have like just as much, if not more, impact on the outcome of success of the company. And two, I just like enjoyed it a lot more and it was just much more up my alley in my training. And so I ended up going that route instead.

• 32:07Dwarkesh Patel?

  I want to ask about the culture at these sorts of places like Citadel or Jane Street. I mean, you spend some time in Silicon Valley and around like traditional sort of like startup scene as well. What is the main difference between Silicon Valley tech culture versus, you know, quant New York culture?

• 32:26Speaker 00

  Sure.

• 32:26Dwarkesh Patel?

  Or I guess Chicago.

• 32:27Speaker 00

  Yes, I have a ton of personal experience like in, in the Silicon Valley culture or like the tech culture, since I've only really worked that kind of finances my finance business my whole life. But the sense I get is that. The kind of New York-Chicago quant finance dev culture is one about extreme pragmatism. Like, you know what the outcome is. It's like, you know, be the most profitable at the strategy. And you kind of try to draw a straight line between what you're doing and that profitability as fast as you can. Compared to, I think the Silicon Valley culture is much more about creativity and doing things that are new, that no one else has done before.

• 33:11Speaker 00

  A healthy amount of cross-pollination would be good for both. Where I think a lot of trading firms are doing like the exact same things that all the other trading firms are done. And some like healthy injection of creativity into some of that stuff to maybe think slightly outside the box of like, you know, as you said earlier, like get slightly faster to go to NASDAQ or something, which is like, okay, it's probably fine, but it's like not that creative. Would be good for those quant firms. At the same time, the sheer approach to pragmatically getting something done and out there and sold and making money would help a lot of Silicon Valley firms to kind of like hang out in this sort of creative land for too long and don't end up getting a product to market.

• 33:52Dwarkesh Patel?

  Yeah, I know. Definitely. It seems like there should be one founder from both those cultures at every single startup. It's similar to what you were saying earlier with like SBF and like visionaries versus pragmatists in that context. How conspicuous, I mean, you were just mentioning earlier that these traders are making mid-six-figure salaries to begin with, let alone where they arise over their careers. How conspicuous is their spending and lifestyle? Is it close to Wolf of Wall Street? Is it just Walmart t-shirts? Like, where are we talking?

• 34:23Speaker 00

  It's a lot closer to Walmart t-shirts than it is Wolf of Wall Street. I mean, certainly it is now. Even when I started, it was pretty inconspicuous. I don't think it was that way in like the previous decade or two before I joined finance. I guess I'm not really sure. But I get the sense that the current culture around inconspicuous consumption is sort of a function of millennial consumption habits, where, you know, people are focusing a lot more on like experiences than, you know, having shiny material objects. I think that's had a lot, large effect on kind of like the high-earning tech and finance culture that exists today.

• 35:02Dwarkesh Patel?

  Well, I guess, are they spending that much money on experiences either? Because how expensive is a flight to Hawaii, right?

• 35:10Dwarkesh Patel?

  Even after you subtract that, like, where is this money going? Are they just saving it?

• 35:14Speaker 00

  Maybe it's not like just a flight to Hawaii, but it's like bring your 10 friends to Hawaii with you or something. Or it's, you know, get involved in like a charitable organization in a way that like someone who is 24 like normally wouldn't be able to do, cheerfully by able to be able to like donate a lot.

• 35:32Dwarkesh Patel?

  Yeah. What is the social consequence, for lack of a better word, of having a bunch of young nerdy people, often male, often single, having this extraordinary level of wealth? Like, what impact does it have? I don't know if society is the right word, but like, what is the broader impact of that, that class of people?

• 35:54Speaker 00

  I think we'll have to play this out over the next decade or two to really see where this goes. If I'm going to be an optimist about this, I'd like to think that when it was like older, you know, single or married males, you know, getting, you know, hoarding a large amount of wealth, that for the most part, they kept it to themselves and kind of waited till later in life to do anything with it and were the kind of people who really like saved their same career their whole lives. As opposed to if younger and younger generations are amassing wealth through, you know, the, what they can actually perform with their skills, then I think that hopefully injects more dynamism into the distribution of that wealth later on.

• 36:40Speaker 00

  Because those millennials will then like, or Gen Z or whoever, will go on to like found new companies. And maybe they'll, they'll be able to seed the company themselves with their own money and have a lot easier time like bringing like interesting new things to market. Or they'll be able to donate to like really interesting causes. Or they'll be able to, you know, help out their friends and family more easily from a young age. Or they'll be more selective in the kinds of things that they, you know, give to or contribute to that don't just involve like getting their name on like a building of a school or something.

• 37:09Dwarkesh Patel?

  Yeah, yeah, that's a very optimistic story. I hope that's the way it plays out. To tell me about the psychology of being a quant or a trader or a developer in that space, because you're responsible, like one wrong keystroke and you've lost millions of dollars, you know, one bug in your code. And there are historical cases of this, like where entire firms go down because of a bug. Like, what is the sort of like day-to-day psychological impact of that kind of responsibility?

• 37:39Speaker 00

  Maybe the job selects for the people who don't kind of crumble under the like, you know, theoretical stress of that job. But personally, like, I don't lose sleep overnight over that, because within any mature financial institution, like a trading firm, there are typically like many layers of safeguards in place, like, you know, limits on like how many dollars you can trade in a minute, and how much you can trade overall, or for your desk, or like how many messages you can send to the exchange. And then there's like limits on like the individual trader and desk level and firm level. And there's like layers of different checks. Often, there are actual rules, like regulatory rules to comply with

• 38:20Speaker 00

  in market access checks, like, you know, FINRA is like 15c35. And so when you're writing new code, it's not like a completely like blank slate thing where you're connecting directly to an exchange and like hoping for the best. Usually, you're embedding some piece of code within some very large established framework where the goal is to make something trader-proof. No matter what some trader clicks on or does or configures with their system, there's like a limit to how badly it can actually go. And so especially in my particular role as a developer, like actually being able to understand the technological stack and say like, oh, I can tell and can sort of, you know, verify that like these

• 39:03Speaker 00

  particular safeguards in place. And it is like actually as trader-proof as I think it is. Like, I sort of, I can sleep at night knowing like nothing too bad's going to happen. I mean, the times I actually lose sleep are like, you know, a trader in like London or Hong Kong calls me like in the middle of the night to say like, hey, can you explain how this thing works? I need your help. Like, those are the times where like I actually lose sleep. But it's not over like being concerned about risk.

• 39:25Dwarkesh Patel?

  Yeah, that's interesting.

• 39:28Dwarkesh Patel?

  If you asked the people who work in these firms, what is the social value you're creating? Separate from the question of what the correct answer to that question is, well, would the majority of them say that like I'm doing something really valuable? Would they say like, um, it's like I'm indifferent to it, but it's earning me a lot of money? Like, how, what is, what is their understanding of value they're creating?

• 39:51Speaker 00

  It really depends on the company and depends how diffuse the culture is. At like older firms that have like, um, you know, sort of fewer people impacting the culture on any significant way. I, I think you might not get a clear answer on this. I think for a place like Jane Street where, you know, the firm is really run by like thirty or so, you know, partners and senior employees who have like been there for a really long time and have carried through the core culture of that company up till the present day. And with that like large number of people at the top in a very flat environment have actually been able to like propagate that culture and maintain it throughout the company.

• 40:35Speaker 00

  I think you'll find a much more kind of homogeneous view on their social value, which I think they would say is that they provide like the best like pricing and access to markets that are critical for facilitating like capital allocation throughout the world and allow people to very efficiently invest in vehicles that are global in nature.

• 40:58Dwarkesh Patel?

  That seems very abstract. And while, while like it, it is probably very well correct and is very valuable for society. It might not seem that like tangible to somebody who's working in that space. Is there some technique that these firms have of this making visceral the impact these traders have? I don't know. Do they, do they bring out some like child who benefited from efficient markets or something?

• 41:22Speaker 00

  I think, well, probably not like children. I think it's more like anecdotes about like the pension.

• 41:30Speaker 00

  Like fund behind this like state government like needed to get exposure to, you know, some diversified asset class and came to one of these companies and said, like, we want to move like a $5 billion portfolio. Can you help us do it in an efficient way? And it ends up saving them like significant numbers of like percents or basis points over what would happen if like they went to the market. And you can say, well, like, there's like a direct connection between like the price that someone like Jane Street gives them and the amounts of money that they ultimately get to save and ultimately pass on to the people in their state who are part of their pension plan. And so like, there's like a direct connection there.

• 42:10Dwarkesh Patel?

  Okay, let's start by addressing the elephant in the room, which is FTX. Let's begin at Jane Street, which is where you met SBF. Can you tell us sort of the origin story of how you first met him and what your first impressions were?

• 42:25Speaker 00

  Yeah, absolutely. So I was at Jane Street from 2010 to 2018. Sam was at Jane Street for a couple of years in the middle of that, I think 2013 and 2017. And one of the things I did at Jane Street was I started this program called OCaml Bootcamp. It was a yearly course for the new trader hires to spend four weeks with me learning programming in OCaml, which was like the esoteric programming language that we use at Jane Street, along with a lot of our other proprietary systems. And Sam was in our, was in one of the first cohorts of students. And so I got to meet him through that experience.

• 43:02Dwarkesh Patel?

  Got it. Okay. And what was your impression of him?

• 43:05Speaker 00

  Yeah, he was a smart kid. He was nice. He kind of got along well with other people in his class. You know, he was definitely, you know, above average, but not like, you know, completely stand out at the top, although then again, the bar was extremely high at Jane Street. So I think that's already sort of a compliment. But, uh, yeah, but, you know, people liked him a lot and thought he had a lot of promise. But, you know, he was a young guy like everyone else.

• 43:29Dwarkesh Patel?

  Got it. And did that perception change over time while you were at Jane Street?

• 43:33Speaker 00

  It slowly started to, you know, Sam was on one of the largest trading desks at Jane Street. And you know, had 50 or 60 people on it. He had several managers. And one of my roles at Jane Street was to work with all of the different trading desks on the designs of their particular strategies and systems. And so I would frequently go over to his desk and talk with his managers about stuff. And I started pulling him into conversations more and more, specifically to talk about some of the like lower latency ETF stuff we were doing, some of the original like OTC automation things we were working on. And so he started actually contributing more to the actual like design and thought behind some of these systems and thought he was, you know, precocious and had a lot of really good intuitions about markets.

• 44:17Dwarkesh Patel?

  Got it, okay. And so what exactly was your role at Jane Street at this time? And what was his?

• 44:23Speaker 00

  Yeah, so at this time, I was sort of leading the group of software developers, building the technology that was closest to actual trading. You can think of HFT or any kind of sort of trading firm. There's lots of different developers, people who work on, you know, stuff really relating specifically to the trading technology, people who work on kind of the core systems, networking, kind of internal automation tools, tools for developers. So we were in the part of the spectrum that was closest to actual trading. And so my job was to like go over to the different trading desks within the company, talk to them about their specific strategy for the products they traded, understand how to like their priorities about what venues they want to connect to, what different systems they want to create, what different parameter changes they need in their like automated

• 45:07Speaker 00

  trading systems, what kind of research tools will help them do their job better, what user interface would make it easier for them to understand what's going on in the market and kind of all of that.

• 45:14Dwarkesh Patel?

  Okay. And did SVF at this point have any sort of reputation of either being uncooperative or being cooperative or anything ethical or professional that's noteworthy at this time?

• 45:28Speaker 00

  I don't think there was much that stood out, although, you know, he was again, you know, pretty precocious at that particular time period. One anecdote that sort of drew me closer to him was Jane Street's offices were in 250 Vesey, they still are in New York City, and there's a big food cart on like the second floor. And so I once went down to meet with a development person. From a nonprofit that works in animal welfare and something that my wife and I had donated to for a long time. And I met with this guy and he said, you know, you're the second person I met from Jane Street today, which was wild because in true it's like only a couple hundred people there. This is like a pretty niche, you know, organization. And I was like, that's crazy. Who did you meet? And they said, oh, you know, Sam Bankman Freed.

• 46:12Speaker 00

  And I was like, you know, Sam, I just came down from talking with him upstairs. And so I went back and we sort of realized we had this kind of shared interest in helping kind of animal welfare causes. We're both, you know, vegans. And we sort of bonded over that. That's how we kind of became friendly.

• 46:28Dwarkesh Patel?

  Got it. And so it seems that his interest in effective altruism was genuine at this point and early on. It was like, there was a history of this.

• 46:37Speaker 00

  Yeah, you know, it wasn't like EA was super popular at Jane Street. I feel like that's a bit of like recent sampling bias. Among this younger crew of Jane Streeters, there definitely, I think it was because of a lot of association prior to joining Jane Street. That the sort of were into effective altruism, but there were a couple of people there who really were fairly vocal about the fact that they were, you know, donating the majority of their yearly salary and bonus to charitable causes and Sam was one of them. And, and yeah, started to become known for that.

• 47:08Dwarkesh Patel?

  Got it. Okay. So I guess fast forward to he's no longer at Jane Street, you're no longer at Jane Street. And you're at Citadel. He started FTX. Actually, before we go there, were you in contact with him up until the point where you had started talking about a potential?

• 47:26Speaker 00

  Yeah, off and on. You know, when, when I first left Jane Street and he left, Jane, sorry, yeah, when we both left Jane Street around, around the same time, him before me. You know, he had told everyone at Jane Street that he was leaving to join the Senator for Effective Altruism full time. And I guess he did that. I'm not sure if it actually happened because he very soon after started this trading firm and tried to pull lots of Jane Street people to join him to do this trading firm, which didn't make people super happy. But it was funny, we had a phone call and he told me that it wasn't really going super well. He said it was really great in the beginning, like they made a lot of money. They had this arbitrage trade and then a few things kind of went by the wayside. And, you know, they had taken out these huge loans to be able to get their initial capital for Alameda.

• 48:11Speaker 00

  And also there was a big fracture within the company, you know, half the company split. People left. He really didn't tell me much about that at the time. And he said he was probably going to do something else. And when I asked him, he said, I think I'm going to work on like political prediction markets. And I was like, okay, it doesn't sound super exciting to me. I'm going to continue on with what I was doing, which was moving to Chicago, taking a new role. But then fast forward, I guess that idea, maybe he wasn't telling me the whole truth at the time, but I guess that idea became FTX and he had supposedly like resuscitated Alameda in the process.

• 48:43Dwarkesh Patel?

  Yeah, yeah. That's really interesting. Do you have some sense of what it was that went sideways?

• 48:50Speaker 00

  So I pieced together some details over the years because he told me a little bit more after I first joined. I heard a little bit more later from other people and then saw some reporting kind of post FTX collapse. I think there were two things. One was the infrastructure they had built, I think, was really poor in the beginning. A lot of like Python scripts like slapped together. And a couple of times they had sent tokens to the wrong wallet and ended up like losing millions in the process. And they had some big non arbitrage directional bet on in some token. It might've been ETH or something and it went against them. And so they lost a lot of their trading capital.

• 49:32Speaker 00

  And then the other thing was that after some of their technical problems, there was internal disagreements supposedly, this is what Sam told me, about how to move forward with tech. You know, there was half the crew that wanted to kind of rewrite everything from scratch in a different programming language. There was another half that said like, okay, we can make some small incremental changes from here and fix things up. And Sam and Gary and Ashad were more in that latter crew. That former crew kind of broke off and started their own thing. And that's what originally happened.

• 50:02Dwarkesh Patel?

  Okay, got it. And were you aware of? The extent of this at the time? Or is this something?

• 50:07Speaker 00

  No. Not at all. I mean, Sam told me a little bit about it, but this was over the course of years now, where I had two different roles, one at Headlands, one at Citadel Securities. Sam was starting Alameda. We spoke maybe once a year briefly on the phone. So all this stuff was happening in the background and I had no clue. Like, the first time I even heard about FTX was one of my colleagues from Citadel Securities told me, "Hey, did you ever work with this Sam Beckman-Fried guy?" And I was like, "Yeah, a little bit. Why?" And they're like, "You know, he's like a billionaire and he has this Hong Kong crypto exchange." I'm like, "What? No? What? Since when?" And then started to see him pop up in articles. There was like a Vox article about him and a few other things, especially related to

• 50:51Speaker 00

  his political donations. And that's kind of when I got back in touch with him and we started talking a little bit.

• 50:56Dwarkesh Patel?

  When was it that he called you to say that there are potentially troubles and I'm considering starting a political prediction market?

• 51:03Speaker 00

  That was in 2018.

• 51:05Dwarkesh Patel?

  Okay.

• 51:05Speaker 00

  Yeah. So it was right after I left Jane Street.

• 51:10Dwarkesh Patel?

  Got it. Okay. And so now you've moved on to Citadel. And so I guess you're still in touch at this point?

• 51:16Speaker 00

  Yeah, like very briefly, you know, a text every now and then.

• 51:19Dwarkesh Patel?

  Okay. And then at some point, you become president of FTX US. So do you want to talk about, like, I guess, how he approached you about that and what was going on at the time?

• 51:32Speaker 00

  Yeah, it was interesting. So at the time, I was running what was called the semi-systematic trading technology at Citadel Securities. And so this was the group of technologists working on systems for ADRs, ETFs, options, and OTC market equities. So it's around 100 software engineers or so that rolled up to me. And, you know, that was going well. But, you know, Sam and I started talking, it was, I guess, March of 2021. And, you know, he was like telling me a couple of things going on in FTX. And then he said, you know, If you're interested in coming over to FTX, we would still love to have you. And I thought, still, we never talked about doing this before.

• 52:17Speaker 00

  But sure, like, let's entertain this. And then we started talking and he had me meet him and Gary and Nishad over, you know, video call. I was in Chicago, they were in Hong Kong at the time. These calls were taking place like late at night, my time. And very quickly, like, an offer came together. And I thought, you know, this is like a really cool opportunity to jump into a field and take a role that was very different from stuff I'd done in the past. And I signed up.

• 52:43Dwarkesh Patel?

  Got it, okay. And what, where was FTX at this point in terms of its sort of business development?

• 52:49Speaker 00

  Yeah, so FTX was doing quite well. I mean, it was basically finished its first, its second year of operation. And it was maybe the fourth or fifth largest exchange in the world by volume. If you include crypto, spot crypto and crypto derivatives. And it was also one of the primary destinations for institutions, you know, proprietary trading firms, hedge funds to trade crypto and derivatives especially because of how it was designed. And so it was doing really well. FTX US was virtually non-existent. You know, they had started the, they formed the entities, they had started the exchange,

• 53:31Speaker 00

  I think in either December 2020 or January 2021. But it had like the minimus volume compared to the other, you know, exchanges around the world, especially in the US too. And you know, Sam talked to me a lot about a lot of the aspirations for the US business. You know, one, to grow the spot exchange, of course. Two was to be able to find a regulated path for bringing some of these offshore products like, you know, Bitcoin and Ether futures and options onshore in a regulated way. And on top of that, Sam had also told me about Kind of longer term desires to be a single app or marketplace for everything, not just crypto. So be, you know, launching a stocks trading platform as well.

• 54:14Speaker 00

  And so that was, I think, one of the reasons I think he wanted to bring me on was because I had all this experience kind of inside of regulated broker dealers and sort of knew roughly what it took to get that started.

• 54:22Dwarkesh Patel?

  Okay, got it. And so he, and the initial offer was specifically for President of FTX US, right?

• 54:31Speaker 00

  Yeah, and Sam wasn't someone who loved thinking hard about titles. And even like what my original title is going to be was like a point of contention. But I'm not sure it was clear exactly what my role was going to be. I think Sam wanted me to like write software for FTX and FTX US, sorry, for FTX US. But to me, I sort of thought there was like this bigger opportunity to kind of, kind of work with Sam to lead this other startup, which was FTX US, and kind of build it up and sort of follow in FTX's footsteps and its success. And that was the part that was most exciting to me, because this is what I've been doing now for years. It's like managing large teams of people, thinking about strategy, getting people together, you know, occasionally doing some software development myself. But, you know, that was the primary reason for wanting to join.

• 55:17Dwarkesh Patel?

  Got it. And what was the relationship between FTX and FTX US at that time? Were they kind of subsidiaries? Were they separate entities?

• 55:25Speaker 00

  They were separate entities. They weren't subsidiaries. There was technology sharing between them. So like the FTX US exchange technology was licensed from FTX. You can think of FTX US as like FTX stripping away like most of the interesting parts of FTX, right? Because it was just, you know, a dozen or two spot tokens. And when I joined, there were very few people within FTX US, you know, maybe like two or three dedicated people. So over the course of the next year or so, you know, my Job that I sort of fit for myself was to like open up some offices, like hire a bunch of people, establish like separate compliance and legal and operational and support teams, start to build out these regulated entities.

• 56:08Dwarkesh Patel?

  Was Chicago the initial base of that operation?

• 56:12Speaker 00

  Yeah, I mean, for selfish reasons, like I have like my family is here, you know, and I wasn't going anywhere. But also, I thought Chicago was a great place for FTX US because if our main goal was to establish, you know, regulated derivatives, like Chicago is really the place where that happens. We have like the CME, we have many of the top proprietary trading firms, a lot of like the futures commission merchants and various brokers are all here, you know, historically, like the kind of the floor of like the Chicago Board of Trade and like the Chicago Mercantile Exchange, like they're here. And so it kind of felt like a good place to be.

• 56:49Dwarkesh Patel?

  And at this point, I guess before you joined, did you get a chance to ask him about the relationship between FTX and Alameda?

• 57:00Speaker 00

  Yeah, I did. I mean, it was definitely of interest to me, like, you know, because, I mean, the primary reason being that I wasn't interested in doing prop again, you know, like I worked at Jane Street, I worked at Headlands Tech, I was at City Health Securities. If I wanted to continue doing prop trading, I would have stayed at one of those places, you know? So I wanted to do this exchange business. And what Sam told me was the same thing he said publicly everywhere, which is that, yeah, like Alameda is basically running itself all of Sam's time is on FTX. They're kind of walled off from the FTX people. And, you know, their access to the exchange is just like any other market maker. Like there's like the public API feeds, you know, there's, you know, benefits from market makers

• 57:45Speaker 00

  that trade enough volume, but it's not like, you know, Alameda had any special privileges in that sense. And so I thought they were just basically separate.

• 57:51Dwarkesh Patel?

  And did you ask to, I guess, audit their sort of financials or this relationship before you joined?

• 57:59Speaker 00

  No, I mean, I don't know about you, but I've never like gotten an offer to a company and said like, well, before I sign, please show me your audited financials. It's just like not a thing that happens.

• 58:09Dwarkesh Patel?

  Right, right. Okay. Fair enough. So you join FTX and then you mentioned some of the stuff you were working on, the operational, legal, getting the organization set up. But yeah, feel free to talk in more detail about what were the things that came up during your tenure and what are the accomplishments you're proud of?

• 58:29Speaker 00

  Yeah, I guess on a professional and personal front. So I guess on a professional front, I'm most proud of establishing out our team and making significant headway to a lot of our goals to establish as regulated businesses. So for example, LedgerX, we acquired LedgerX and we had this application to the CFTC to enable real-time direct-to-customer 24/7 margining and cross-collateralization. And it was an extremely innovative proposal and it felt like we were making real progress towards establishing new and very exciting regimes for CFTC regulated derivatives in the US. I also established a broker-dealer

• 59:12Speaker 00

  in the US for the purposes of letting people trade stocks, similar to Robinhood. I wrote like 90% of all the code for that stocks platform myself. And yeah, I was very proud of that accomplishment. And then on a personal front, it was great to get embedded into the crypto industry. I was very excited by everything that I saw. It was great to make all the connections through FTX with the different people in the crypto ecosystem and become friends with these people and certainly has an influence where I am today. So I'm sort of proud of all of that.

• 59:47Dwarkesh Patel?

  How did you manage the management of, I don't know how big the team was at its peak, and it sounds like you were heavily, I mean, involved is an understatement in the actual engineering. How were you able to manage both roles at the same time?

• 1:00:01Speaker 00

  Yeah, so we were like between 75 and 100 total people in the US and it was challenging. It was one of my biggest complaints, which I'm sure we'll get into, which is that You know, yes, I can write code, but I feel like that's my comparative advantage is helping kind of to leverage teams of people to get them to, you know, work towards the common goal of, you know, building out large distributed systems that are, you know, complex and multivariate in nature. And the best use of my time was not, you know, me programming between the hours of like 10:00 PM and 2:00 AM every night while trying to keep on board with like what all the personnel were doing. Yeah. So I really wanted to grow the US team significantly to at least be, you know,

• 1:00:46Speaker 00

  more than a handful of like developers. And so, yeah, that was one of the initial points of contention. Okay. Speak more about that. So he was opposed to growing the team? Sam would frequently talk publicly about how proud he was that all of FTX was built by two developers and all of these crazy organizations that hire thousands of developers and can't get anything done, like they should learn from me about how like a small lean team can be, you know, much more effective. And there's some truth to that. You know, I do think the conventional wisdom now is a lot of big tech companies over hired for software engineers. And not only was it sort of an expense on the balance sheet, but it

• 1:01:29Speaker 00

  was also expensive in terms of slowing down the kind of operational efficiency of the organization. And having a small lean team can help you get to your, you know, your first or your nth product a lot more quickly. That's great for a startup, but once you're like a north of $10 billion valuation company, like promising the world to like customers and investors, two software developers doesn't really cut it anymore. I mean, at some point you have to like, you know, grow up and face the reality that it's time to actually grow an organization into a real kind of managed enterprise with teams of software engineers specializing in certain tasks. And so there was always pushback, you know?

• 1:02:15Speaker 00

  People will tell me like, "Look, we're not trying to be like Jane Street or Citadel in terms of our number of software engineers. Like, we want to stay lean. That's our comparative advantage." And most importantly, they didn't want two separate development teams, like one in the US, one in then the Bahamas. Like, they wanted to keep the nexus of software development underneath, you know, Nishad and Gary in the Bahamas, which I just thought wasn't going to be sustainable long-term. Like, if you run a broker-dealer in the US, you need to have staff that is specifically allocated towards broker-dealer activities. It can't be that if FINRA comes and says, "Well, who's working on the broker-dealer?" You say, "Well, it's like this Gary guy who, like, lives in the Bahamas, who sometimes is awake at,

• 1:02:58Speaker 00

  like, 4:00 AM, and spends 20 minutes a day thinking about stocks." Like, that can't fly.

• 1:03:03Dwarkesh Patel?

  Right, right. And has no images of him on the internet.

• 1:03:06Speaker 00

  Yeah.

• 1:03:07Dwarkesh Patel?

  Okay, so were Nishad and Gary contributing code to the FTX US codebase?

• 1:03:14Speaker 00

  Remember, like, the FTX US side of things was a strict subset of FTX. So, like, in that sense, it kind of flowed into FTX US, with the exception of the, like, FTX US derivatives, the LedgerX stuff, was like actually a completely separate team, because that was through an acquisition.

• 1:03:32Dwarkesh Patel?

  When you're talking about the code of, like, the matching engine or things like that, was the code shared between FTX and FTX US?

• 1:03:39Speaker 00

  Yes.

• 1:03:39Dwarkesh Patel?

  Okay. That, who, like, who was in charge of ultimately, like, the push, the pull request, like, approving the pull request, basically, of the FTX US codebase?

• 1:03:49Speaker 00

  Yeah, it was, like, all Gary and Nishad.

• 1:03:51Dwarkesh Patel?

  Okay, got it. And so the code you were contributing was also going to the sort of, like, universal global codebase?

• 1:03:57Speaker 00

  Yeah.

• 1:03:57Dwarkesh Patel?

  Got it. Did you have sort of access to the entire codebase or just the FTX US side, or?

• 1:04:04Speaker 00

  Yeah, again, it was one shared repo. I mean, there was an enormous amount of code. And one of the big problems, another problem that I raised while I was there, was that, you know, 90-plus percent of all the code of FTX was written by these two people. And it was very hard to follow. I don't know if you've ever seen, like, a large Python codebase before. And so whenever there were issues that arose, you know, "Oh, like, there's, like, this particular problem with, like, an account on the exchange," the only answer was, like, "Call Nishad. Call Gary."

• 1:04:38Speaker 00

  Which I also knew to be unsustainable from the organizational perspective. Like, one of the guiding principles at Janentry, for example, was mentor your junior devs so that you can hand off all your responsibilities to them. And in the process of handing off responsibilities, you make the code better, more automated, more robust, problems more easily debuggable in real time. If you hoard everything to yourself in your own brain, you end up with a codebase that is just only understandable by that one person. And so it was the kind of thing where, and a lot of people talked about this internally, like, if Gary got hit by a bus and couldn't come to work anymore...

• 1:05:18Dwarkesh Patel?

  FTX is done.

• 1:05:19Speaker 00

  It's done, it's done, exactly, exactly.

• 1:05:22Dwarkesh Patel?

  What do you think was the motivation behind this? Was it just that he wanted to avoid this sort of like Google growing to 100,000 people kind of thing? Or was there something else going on? Like, why this sort of concentration?

• 1:05:35Speaker 00

  Well, clearly there was something else going on.

• 1:05:39Speaker 00

  I think an open question now, only thinking about this in hindsight, was how much of this very hoisted organizational decision around the development team was a function of the various things they were doing that they were hiding from the rest of the company? Or was it really this sort of like one ultra paranoia about growing too large too quickly and losing control of the organization? And two, an almost cult-like belief in this small team being the but for cause of all past, present, and future success?

• 1:06:23Dwarkesh Patel?

  What was the discretion that you had at FTX US? It sounds like you weren't even given the capacity to hire more engineers if you wanted to. What were the things you did control?

• 1:06:35Speaker 00

  Yeah, hiring, for example. I began to push for many months that we should hire more people. Eventually, I got permission for us to interview people, but then those would ultimately have to get finally approved by the people in the Bahamas. And they would frequently say no to people who I thought were good candidates. Finally, we hired one person. And this person was doing well. He was here in Chicago. And they invited him to go spend like a month into Bahamas to kind of hang out with them. And, you know, supposedly just like to ramp up on the system. And this person comes back to Chicago and says, you know what, like, I really want to move to the Bahamas. They really kind of convinced me to do it. And it was so frustrating.

• 1:07:17Dwarkesh Patel?

  Right. Poaching from your own company.

• 1:07:19Speaker 00

  Exactly. It was such a constant battle. And at some point, I kind of gave up on this idea that I was going to be able to actually grow a separate developer team. So, I mean, the bottom line is, you know, I, I'm kind of like the day to day operational stuff, especially the decisions within some of the things I was responsible for, like the stocks, you know, trading platform that I was working on, you know, I had a fair amount of discretion. And people certainly looked up to me for, you know, management and advice and direction. But ultimately, the discretion ended up with this small group in the Bahamas, who not only, you know, had final say on decisions,

• 1:08:03Speaker 00

  but would often make decisions and not communicate with the senior people on the US side. And we would just sort of find out things were happening.

• 1:08:11Dwarkesh Patel?

  Is there a specific example or set of examples that comes to mind?

• 1:08:14Speaker 00

  Sure. You know, I, the biggest example for me was, this was sort of post my kind of effective resignation. But some of these strategic acquisitions that were being done in the US during the summer of 2022, I would find out from like the news. Or, or like, it would sort of be mentioned on a Signal chat or something that this was happening. And there was like no opportunity to actually like wade into the discussion about how this is like going to greatly affect like the US business. It's going to greatly affect our priorities. And it wasn't clear if this was like a good decision or a bad decision. It was just like a unilateral decision that was made, like, oh, this company, we're acquiring this company or we have the option to acquire this company.

• 1:08:55Dwarkesh Patel?

  Are there decisions that were made from the Bahamas that stick out to you as being? Unwise that like, I don't know, you try to speak out against, I mean, you mentioned some of them, right? Like not hiring enough people and not getting more, yeah, not getting more developers. But are there other things like that that stick out to you as bad decisions?

• 1:09:16Speaker 00

  A lot of the spending, I mean, on everything from like lavish real estate to all of these like partnerships, to very, very large venture deals, like these were the kinds of things in the company where people asked, like, when does this stop? Like to one end, are we doing a lot of these things? And some of those resulted in sort of like direct confrontations, like just, you know, why are we doing yet another deal with like a sports person or a celebrity? This is like, this is ridiculous. Like this is not doing anything for the company. And we're completely distracting from the role that we thought we all had, which is to build a really great core product for, you know, people trading crypto and crypto derivatives.

• 1:10:00Dwarkesh Patel?

  Yeah. And did you bring this up directly with SBF?

• 1:10:03Speaker 00

  Yeah, multiple times.

• 1:10:04Dwarkesh Patel?

  And how would he respond?

• 1:10:06Speaker 00

  Sometimes he was, you know, nice about it and he would say, you know, like, yeah, like I see where you're coming from. I do think what we've done so far has been really valuable and we probably should do some more of it, but maybe at some point we should stop. You know, a lot of this sort of like hedging language that was ultimately non-confrontational, non-committal, I mean, he was a very non-confrontational person, very conflict avoidant person within the company. So, and then at worst, it would just, you know, there were other times where I brought up like specific things that I thought like he was doing wrong. There was one really unfortunate time where I, it was the first time I visited the Bahamas in, I think it was like November of 21. And I'm the kind of person who like,

• 1:10:49Speaker 00

  if I see something wrong at a company, it doesn't matter what company I've worked at or how junior or senior I've been, like I like to go to the person most senior in charge and tell them like, this thing seems wrong to me. And that's, I feel like is one of my like superpowers. I'm just like not being afraid of just like saying when something seems wrong to me. And sometimes like I'm just totally wrong and don't understand the full picture. And sometimes it results in something better happening and people will, you know, thank me for having been honest and bringing to attention something that's actually wrong. And so I'd said to Sam, you know, I think you're doing way too much PR and media, like.

• 1:11:25Speaker 00

  First of all, it's really diluting you and the FTX brand to constantly be doing TV interviews and podcasts and flying to banking and private equity conferences. And it was so much time spent on this stuff. And also, it was completely taken away from the management of the company. People would sometimes send Sam Slack or Signal messages and not get responses for weeks at a time. And it felt like he was spending virtually no time helping the company move forward. It was so much about image and brand and PR. And he was really angry at hearing this criticism directly.

• 1:12:09Dwarkesh Patel?

  How did he react?

• 1:12:10Speaker 00

  I mean, he was just, he was sort of emotional. He was worked up. He told me, I completely disagree with you. I mean, he said, I think you're completely wrong. He said, I think the stuff that I've done for PR is maybe the greatest thing that's happened to this company. I should do more of it. I didn't think it was physically possible to do more of it. And I realized at that moment that this was not really going to work super well long term. If we're not in a relationship where I can give my direct superior, like real, honest, constructive criticism that I thought was for the good of the company, that this wasn't really going to work.

• 1:12:49Dwarkesh Patel?

  He actually did my podcast about, I don't know, eight months ago or something. And I was like, very gratefully did it. Even at the time, I'm like, I don't know if I would have agreed to this if I was in charge of a $30 billion empire.

• 1:13:03Speaker 00

  Yeah, sometimes like some reporters would say to me, like, you know, do you, can you like get me in touch with Sam? And I would say, you know, why? Like, I'm not really his keeper. You could contact him yourself. They're like, oh, because we want to come to Bahamas and do a special on him. And I would say like, okay, you're going to be like the sixth one this month.

• 1:13:22Dwarkesh Patel?

  There's no exclusives here. So I guess to steal man his point, he did get a lot of good PR at the time, right? Potentially, well, not potentially, like actually, too much and in a way that like really created, at the time, sort of like the king of crypto sort of image. So, I mean, was he right about the impact of the PR at the time? Or maybe, maybe, maybe, let me ask a question a different way. How did he create this image? I mean, people were saying that he's the JP Morgan of crypto, like you could do no, do no wrong. Even things that in retrospect seem like clear mistakes, like only having a few developers on the team. Universally praised, you know, huge empire run by a few developers. How, how was this image created?

• 1:14:08Speaker 00

  I think that media was primed for the archetype that was Sam. This sort of young upstart prodigy in the realm of fintech.

• 1:14:24Speaker 00

  You know, we have a lot of these characters in the, the world of, you know, big tech. And I think that he had a particular role to play in the world of finance. And by making himself so accessible all the time, he gave people a, a drug that they were addicted to, which was like that constant access. I feel like any time of day or night, someone could text Sam and get him on the phone with them if they were in media. And they loved it. It was like getting access to a direct expert who was also this famous person, who was also this billionaire, who was also this extremely well-connected person, who was also this very insightful person, who knew a lot was going on in the industry and can give them like insight and tips.

• 1:15:09Speaker 00

  And I think there was some amount of, well, I like to call like reputation laundering going on here, where it was like, okay, so you get the famous celebrity to endorse Sam, which makes, you know, this, you know, politician think highly of Sam because they also like that celebrity. And then also the investors are writing really great, positive things online about it. But also the media is enforcing how cool it is that Sam is doing all these other things. And it all sort of fed into this like flywheel of building up Sam's image over time in a way that didn't necessarily need to like match the, the underlying reality of who he was at the company.

• 1:15:52Dwarkesh Patel?

  And what was the reaction of other employees at FTX of this sort of, not only the media hype train, but also the amount of time Sam was spending with the media?

• 1:16:02Speaker 00

  You know, on one hand, I think people were growing frustrated within the company because of the lack of direction and some of like the power vacuums that resulted from Sam's continual absence.

• 1:16:16Speaker 00

  On the other hand, so many people within the company just hero worship Sam. You know, when you hear all like the really tragic stories now of all the employees who kept all of their like funds and life savings on FTX, they really, really believed in Sam. And it doesn't matter how little time he spent with the company, it doesn't matter how he treated employees internally. It was like he was this sort of genius pioneer and that image couldn't be shaken.

• 1:16:47Dwarkesh Patel?

  And I certainly don't blame anybody for it. I interviewed him. I tried to do a lot of research before I interviewed him and I certainly was like totally taken with this, right? I thought he was the most competent person who had ever graced crypto. But so what was he actually like as a manager and leader, other than I guess obviously the micromanaging aspect of it? Or feel free to speak more on that as well, but in terms of the decisions he would make in terms of business development and prioritizing things, can you describe his sort of management style and leadership?

• 1:17:17Speaker 00

  In the beginning, when I joined FTX, my initial impressions were that he had pretty clear intuition and insight into the simple things to do that would work. You know, in many ways, as you think about what FTX did, it wasn't really super complicated. It was like just be operationally good and give your trading customers as predictable of an experience as possible with regards to collateral management and auto liquidation

• 1:17:55Speaker 00

  and matching engine behavior and latency. And so they did it. I would say, aside from the intuition, Sam wasn't a details man. Like that was usually left up to the people below him to really take care of. It was like to drive a project to completion, to figure out all the details that had to be done. I think besides that, as a leader, I thought he was fairly incompetent. I thought he was very conflict avoidant. You know, he didn't like to get into direct confrontation with any of his employees where most of the reasons why people needed to talk to him were because there were significant issues, whether those were personnel or otherwise.

• 1:18:40Speaker 00

  And he just blew them off. I mean, that was a frequent occurrence within the company. I mean, he was, if you went to Bahamas, and I went only a couple of times to actually visit the office, he was, if he was in the office, he was there all day on calls.

• 1:18:59Speaker 00

  All day, whether those were with investors or with media, podcasts, whatever. It was just consistently just doing that. And I saw very, very little time where he actually got up and talked to anyone else within the company about anything, you know? So I think, to me, that was the primary impression I got of his leadership was virtually that there was none, which, you know, made me feel a lot like I and others needed to step up and sort of take, you know, that role in the absence.

• 1:19:28Dwarkesh Patel?

  Got it. And then so who was making these day-to-day decisions in the absence of Sam?

• 1:19:34Speaker 00

  On the foreign side, in the Bahamas, Nishad was really like the number two person there. I mean, he was making a lot of decisions. There were a couple others in the Bahamas who were taking kind of swaths of the company, whether it was like investments or marketing or legal, things like that. On the US side, we had like a different crew trying to make decisions where we could on for like US regulated matters. But again, it was always, we were always sort of below the decision-making authority that was happening in the Bahamas, especially inside of the home where they were all living.

• 1:20:11Dwarkesh Patel?

  So it seems like FTX was a really good product compared to other crypto exchanges. I've heard a lot of like traders praise it. Was this, was this competence sort of built while SBF was still doing media stuff? Or was this built before he kind of went on the PR train? Like, how was this product built while the CEO was kind of distracted?

• 1:20:38Speaker 00

  So I think the core of the product was built before my time. And my understanding was in the transition from Alameda to FTX, where there was no publicity around Alameda. There wasn't any publicity around FTX. It was very much like heads down build mode for several months. And just think, think, think about the core product. Having been a trader on these different exchanges around the world that also offer derivatives and knowing all their problems. Like, for example, if you had an Ether Futures position and also an Ether Spot position on this one exchange, you could get liquidated on your Ether Futures position, even if you had enough Ether Spot as collateral, because you needed to have that spot crypto

• 1:21:23Speaker 00

  within the Ether Futures Spot collateral wallet, which was different than the Ether Spot wallet. And so it was this game of shifting assets around to different wallets to make sure you kept meeting your collateral requirements, which was just an operational nightmare. And so Sam told and worked with Gary and Ashad to build basically a cross collateralization system where you have just one wallet with all of your assets, all, you know, hair cut it appropriately based on volatility and liquidity, but then summing up to a single collateral value that represents, you know, what you can put on in terms of margin for all of your positions.

• 1:22:06Speaker 00

  Or having an auto liquidation system that doesn't just, the second that you're slightly below your margin fraction, send a giant market order into the book and dislocate the order book by 10%. It would automatically start liquidating small percentages of your portfolio at a time to try to minimize market impact. And then if the position got too underwater, it would auction that position off to backstop liquidity providers, a number of them, who would then take on that position again without having to kind of rip through the book and cause dislocation. And so it was much more orderly. It was much more predictable. And that had to have come from the initial intuitions that Sam and his colleagues

• 1:22:49Speaker 00

  got from being traders on these exchanges and thinking, how should this work if it were perfect? So I do think in the beginning, they were really working on that product together. And then, once the success came and Sam got drunk on the celebrity of being so out there and known and having all these newfound connections, that things started to go by the wayside.

• 1:23:15Dwarkesh Patel?

  You mentioned that one of these things that he was doing was making these sort of exorbitant deals with celebrities, with acquisitions, branding. What was your understanding at the time of where the money to do this was coming from?

• 1:23:29Speaker 00

  Yeah, so for example, when I joined the company, FTX had just inked that Miami Heat deal, and I think it was something like 19 million a year. And I was like, oh, that sounds like a lot of money, right? But at the time, you could see the publicly reported volume on FTX. It was something around 15 to 20 billion in notional per day. The fee schedule was also public. So even at like the highest volume tiers, the take fee would be something like two basis points per trade. So if you just did like $20 billion traded per day, times two basis points, times 365,

• 1:24:14Speaker 00

  which because crypto trades every single day, you can get a sense of how much money FTX was making a year. And at the time, I think the run rate for FTX was something like close to $1 billion in income. And you think, okay, is $19 million a reasonable percentage of the total income to spend on a very significant, important marketing play? I don't know. It feels kind of reasonable. Like, how much does Coca-Cola spend per year on marketing as a percentage of their income? It's probably somewhere between like 50 and 130%. I don't actually know what it is. It doesn't seem crazy.

• 1:24:51Dwarkesh Patel?

  Yeah, but if you add on top of that, the real estate, the other sort of acquisitions...

• 1:24:58Speaker 00

  Well, first of all, all that stuff came later. And secondly, a lot of that wasn't known to...

• 1:25:06Speaker 00

  The employees within the company, most of the venture deals, the value of the real estate, et cetera, was non-public within the company. There were hundred-plus-million-dollar investments into various companies and other investment funds that were never discussed openly, at least to the US people. So like, it wasn't like there was sort of this clear internal accounting where people could look at it and say, "Hey, like, are you really spending all this money on all this stuff?" No, I think Sam very deliberately kept all that stuff within like his innermost circle for a reason, because he didn't want the criticism on what he was spending on.

• 1:25:44Dwarkesh Patel?

  And did you have access to, or did you ask to see, I guess, the balance sheet or any of the sort of financial documents?

• 1:25:51Speaker 00

  I had zero access to like, you know, bank account stuff or financials on the FTX.com side. On the US, I had some. But, you know, remember now, knowing what we now know about even like recent, like the guilty pleas from the SHAD and seeing like the complaints from like the SEC, CFDC, they were like deliberately falsifying information that went into ultimately the audited financials. So in order to like actually have suspected anything, one would have to not only like disagree with all of the kind of internal, you know, conventional wisdom around how

• 1:26:32Speaker 00

  the company was doing, but also have to basically distrust audited financials coming back to the company. Combined with having any concerns about income when it seemed like we were generating income faster than any startup in history. So I think it was very difficult for anyone within the company, especially on the US side, to have a clue what was going on.

• 1:26:54Dwarkesh Patel?

  For sure. Let's talk about Alameda. So I guess, again, the maybe the best point to start this story is also with Jane Street, where Caroline Ellison, who went on to become the CEO of Alameda, was a trader.

• 1:27:11Dwarkesh Patel?

  Did you happen to cross paths with her at Jane Street?

• 1:27:14Speaker 00

  So it's hard to remember because it was like the early days, but I'm pretty sure she was also one of my bootcamp students.

• 1:27:21Dwarkesh Patel?

  It all starts there.

• 1:27:22Speaker 00

  Yeah. But besides those early interactions, I barely interacted with Caroline, not in the same way that I had done with Sam, just based on the trading desk he was on. And when I joined the company, you know, the FTX US people, communication wise, were walled off from Alameda, so we didn't really cross paths almost at all.

• 1:27:47Dwarkesh Patel?

  What was your understanding of the relationship between Alameda and FTX?

• 1:27:51Speaker 00

  It was, this is a completely separate company. Sam doesn't really do anything for them anymore because he is 100% focused on FTX. You know, it's separately being run by Caroline and Sam Trabuco. They have the same access to the exchange, like data feeds and API as any other market maker on the exchange. And also, you know, especially towards the time that I left, that Alameda wasn't even a significant percentage of the exchange volume anymore. You know, they weren't in like the top 20 market makers on FTX.com or something like that.

• 1:28:25Dwarkesh Patel?

  You mentioned that you had, you were contributing to the codebase and you had access to the codebase. It's, people have been speculating about whether Gary or Nishad had hardcoded some sort of special limit for Alameda. Did you see any evidence of that in the codebase? Or?

• 1:28:40Speaker 00

  I mean, definitely not.

• 1:28:42Dwarkesh Patel?

  You mentioned that you've visited the Bahamas offices a few times and there, like the Alameda, there's like four huts and there's, there's like a meeting room, there's where Sam and the engineers are, there's the future fund, and then there's like the Alameda hut.

• 1:29:01Speaker 00

  Yeah.

• 1:29:02Dwarkesh Patel?

  Did the physical proximity between the offices and of course, the fact that the leaders were living together, was that something you like inquired about or were concerned with?

• 1:29:11Speaker 00

  I never visited the places where they lived in that Albany section of the Bahamas. So I think I didn't fully grasp the extent to which they were all like living in this particular arrangement, but.

• 1:29:27Speaker 00

  I understood that, you know, as long as Sam was going to be the 90% owner or something of Alameda, he would want oversight there. And so having them close by made sense. But the actual hut setup was such, it had like physical separation from minute to minute. So it wasn't like Alameda could overhear stuff happening on the exchange, or people in the exchange could overhear stuff that was happening at Alameda. So to some extent, I felt like, well, at least they're going through the right motions of setting up like physical separate buildings. I mean, also, this is not uncommon within like trading firms and investment banks, right? Like if you imagine there needs to be wall separation between like buy side and sell side at different institutions. And the way they do that is

• 1:30:11Speaker 00

  they put them like on different floors in the same building, right? And sure, like they can meet each other for lunch in the lobby, but like they they set up some actual physical separation. This is like super par for the course when it comes to financial firms that have these businesses that need to be walled off from each other. And so that didn't seem like a particularly strange thing to me at all.

• 1:30:31Dwarkesh Patel?

  Were there, is there anything that in retrospect seems to you like a yellow flag or a red flag, even if at the time it's something that might make sense in the grand scheme of things?

• 1:30:42Speaker 00

  Yeah. The most obvious thing, only in hindsight, was that Sam liked to do bonuses for the employees twice a year. And, you know, once at the end of June, once at the end of December. So they were like semester bonuses. And in the previous semesters, he had paid them like early, like, you know, in May for the first semester, in November, or just early December for the second one. And he was extremely late in doing the mid year 2021, 2022 bonuses. So much so, that people within the company started to freak out. Because there was a lot of bad news in the press about other companies doing layoffs

• 1:31:25Speaker 00

  or folding. And it was, you know, two to three months late. And people were like expecting to get bonuses, to pay rent and, you know, do whatever. And this was just, there's very little communication around this. And people were very concerned. So.

• 1:31:42Speaker 00

  At the time, you know, people said, look, Sam's like really busy. He's flying to DC every week. He has all this stuff going on, like he just hasn't gotten around to it, but don't worry, it's coming. In hindsight, I felt like there was some clear liquidity issue.

• 1:31:56Dwarkesh Patel?

  Oh wow.

• 1:31:57Speaker 00

  You know, that was probably the most obvious thing. I think everything else is all just things that were red flags about the organization, not red flags about, you know, potential liquidity issues or fraud. Things like, you know, the complete inability to hire, you know, more people, especially on the developer side. Not allowing me to like establish separate sort of C-level staff on the US side that would have, you know, authority that was really separate from the ones in the Bahamas. How completely tightly controlled the dev team was around access to the codebase and the inner workings of all the exchange and really wanting to keep that nexus of developer,

• 1:32:41Speaker 00

  the developer group in the Bahamas next to Gary and Ashad. Those seem like red flags now.

• 1:32:47Dwarkesh Patel?

  Hmm. Yep. But not at the time. Did you notice anything weird during the Terra Luna collapse? Because in the aftermath, people have said that that's probably when Alameda defaulted on some loans and maybe some, um, the, the sort of like hole dug itself deeper.

• 1:33:05Speaker 00

  Really? Nothing at all?

• 1:33:07Dwarkesh Patel?

  Okay.

• 1:33:08Speaker 00

  I mean, maybe that's a function of being here in Chicago and just not seeing a group of people freaking out, but nothing seemed wrong at all. In fact, we started having conversations around, you know, paying out mid-year bonuses. A couple of weeks later after Terra announcement and everything seemed very normal. Sam like sent out an announcement to the whole company, basically saying like, okay, like we're going to be paying out bonuses soon. People should expect they're going to be like a little bit lower because we have very similar revenue to last year, but we've also grown in size and also like the market is slowing and we need to be a little bit more conservative. So all the signs pointed to like things as normal.

• 1:33:50Dwarkesh Patel?

  You said, so you had a thread sort of boiling down this experience on Twitter. And one of the things you pointed out there is that you saw the sort of symptoms of a sort of mental health or issue or addiction issue at the time.

• 1:34:07Dwarkesh Patel?

  Are you there, are you referring to these sort of management mishaps and bad decision making? Or is there, was there something more that made you come to this conclusion?

• 1:34:17Speaker 00

  I think it was more than that, you know, when I knew Sam, when he was 21, 22 years old, he was like a happy, like, healthy looking kid who was, you know, very positive, very talkative, got along super well with his, you know, cohort of traders, the people on the desk really liked him. When I got to FTX, I think over the course of my time there, I saw someone who was very different than that person I remembered. I think he was angrier, seemed more depressed, more anxious, you know, he couldn't get through a conversation without shaking his leg.

• 1:34:58Dwarkesh Patel?

  That, that wasn't, at Jane Street, he wasn't like that?

• 1:35:00Speaker 00

  Not something I remember at all. You know, he would snap easily, he would not respond to messages for long periods of time. And people had different theories, I mean, people would attribute it to the unbelievable stress of being in the position that he was in, the like, complete lack of sleep, like, his diet, lack of exercise. I mean, people had, you know, plenty of, you know, thoughts about what could be causing it all, but something definitely had deteriorated, like, mentally and physically about him from who I remembered.

• 1:35:29Dwarkesh Patel?

  If you had to guess, most likely cause of that, what, what would you say?

• 1:35:34Speaker 00

  I don't know, I, I think that's up for a, you know, professional with credentials that I don't have, but I do think it was probably a combination of everything, that the, the lack of sleep, the stress he probably was under, not just being in his role, but having kept this secret for so many years around, you know, whatever was happening with the holes in the exchange and, and. The lying he was doing to his own employees, to investors, to auditors. Maybe that weighed on him. Maybe it had something to do with his medications. Maybe it just had to be just a plain deterioration in mental state or some kind of, you know,

• 1:36:17Speaker 00

  personality disorder or a different kind of anxiety disorder. I really don't know. Maybe a mixture of everything.

• 1:36:23Dwarkesh Patel?

  Yeah, got it. You said you gave him a sort of ultimatum letter where you said, unless you change these things, I'm resigning. What were the things you asked that be changed in that letter?

• 1:36:37Speaker 00

  Yeah, so the top three things were, one, to communicate more with me in particular.

• 1:36:46Speaker 00

  I can probably count on one hand, the number of times I had like a one-on-one phone call with Sam, which probably seems insane, given like the position I was supposed to be in. I basically said, like, we got to talk every week. It's impossible for me to get anything done if I don't have the authority, but I have the responsibility to be able to push this company forward, and we're not talking at all. So that was number one. Number two was to establish a separate, you know, especially C-level management staff on the US side. If Sam was going to be so busy doing what he was doing, at least he needed to delegate that responsibility to, like I said, a professional managers who could actually take care of

• 1:37:31Speaker 00

  the day-to-day operations within the company. And it felt like things were starting to unravel in the absence of that. And then the third was to grow the tech team and move a lot of the authority and management of that team away from the shot in Gary so that we could actually spread the knowledge and be able to keep up with a lot of the tasks that we were, you know, assigning ourselves and trying to build all these new business lines. That pretty much summarizes it.

• 1:37:59Dwarkesh Patel?

  Yeah. How regularly were you talking?

• 1:38:02Speaker 00

  I mean, it wasn't regular. I was on chat groups that he was in. And so, you know, occasionally he would respond to something I say on that group. But one-on-one conversations, I think there were fewer than 10 for my entire tenure.

• 1:38:19Dwarkesh Patel?

  Wow, okay. And that was over a year, right?

• 1:38:23Speaker 00

  A year and a half.

• 1:38:23Dwarkesh Patel?

  A year and a half, five. So about like, less than one every two months?

• 1:38:27Speaker 00

  Yeah.

• 1:38:29Dwarkesh Patel?

  How did he respond to this letter?

• 1:38:31Speaker 00

  So it took a little while before we got on the phone and

• 1:38:37Speaker 00

  he went through every point and refuted everyone.

• 1:38:42Speaker 00

  He, starting with communication, he said, I think phone calls are a waste of time. I think that if I, you know, promised people regular phone calls, they will use it to waste my time. And it's not an efficient mode of communication. He said, I think we have the best developer team in the world. And I think anyone who suggests otherwise is completely wrong. And if we add more, a lot more people to the dev team, if we move them to the U.S. and, you know, move them away from the Bahamas, we're going to be worse as an organization. He kind of ignored the point about separate leadership. I think he hated the idea of giving other people kind of titles that would reflect kind of greater responsibility within the company. And then, so that conversation ended with us kind of not knowing what the future was going to be.

• 1:39:26Speaker 00

  Because I basically said, like, I'm going to resign if you don't fix this. He said, we're not fixing anything. And then what happened next was he had deputized another person within the company

• 1:39:39Speaker 00

  to come here to Chicago and pull me into a side room and say, you are probably going to be fired for this letter that you wrote. And not only are you going to be fired, but like your, Sam is going to, you know, destroy your professional reputation. Like, where do you think you're going to be able to work after FTX, after all this happened? And it was, he was threatening me. And then, not only that, he had said, if you are going to have any hope of staying, and if you can forget about getting paid bonuses, you need to write Sam an apology letter and show it to me first because I'm going to edit it. And I'm going to tell you what to say.

• 1:40:23Speaker 00

  And I said, like, absolutely not. Like, this isn't like a mafia organization. This is like, this is extremely unprofessional. And, and I knew at that point, there was absolutely no way I was staying. And it was a matter of when, not if.

• 1:40:39Speaker 00

  And but what I did know was that like I'm still a professional. I'm still loyal to the company. I still believe the company itself had an incredible potential to continue its sort of road of profitability. And I really liked all my employees here on the US side, and I wasn't going to abandon them. So I sort of thought like a three to six month time period is about standard to take the time to unwind responsibilities, to finish the stocks platform that I was working on, to, you know, get my team in a position where I knew they would be in good standing and they wouldn't be like retaliated against after I left. And took the time to do that before officially resigning in kind of the end of the summer and early fall.

• 1:41:23Dwarkesh Patel?

  And did that happen? Like, did after you left, did the, did he like try to injure your professional reputation?

• 1:41:32Speaker 00

  He did. The most, the acute thing that happened was, so Sam, I actually offered to stay on longer. You know, I said, like, I could stay on for a couple more months and help this transition to whomever you name as the successor president of FTX US. And he said, no, like, I want you gone, you know, more quickly. And so I should say he said that, but he was communicating through other people. He wasn't talking to me directly at that point. And so he said, like, I want you gone on September 27th. So, okay, that's fine with me. On September 27th, not only did he announce to the company my resignation, he also announced

• 1:42:12Speaker 00

  that he was closing the Chicago and San Francisco offices and that everyone had to move to Miami. And basically, if like they didn't move to Miami by a certain date, they were like not going to be at the company anymore. So the employees were distraught. And what I had learned later from several investors and reporters who had talked to me was that when they talked to Sam about my leaving, Sam told them that my, my leaving was a combination of resignation and firing. And that one of the reasons that I had to leave was because I refused to move my family to Miami.

• 1:42:55Speaker 00

  So basically that guy was constructively fired. That he had closed down this office that I had built and that if I wasn't going to move, that I had no role left at the company. And so that took a little bit to crawl out from. You know, I had to tell people like, well, it's completely false. It didn't happen at all. And yeah, and he was telling people that he fired me.

• 1:43:15Dwarkesh Patel?

  And when he said that, I mean, he was still at a sort of like peak of hype, so to speak, right?

• 1:43:22Speaker 00

  Absolutely.

• 1:43:23Dwarkesh Patel?

  So, I mean, did the idea forming Architect have already, you already had that idea by this point?

• 1:43:29Speaker 00

  Yeah, knowing that I was going to leave, I started thinking what I was going to do next and thought, well, like, if I think I can run a company better than Sam, I should like put my money where my mouth is and start a company.

• 1:43:38Dwarkesh Patel?

  Yeah.

• 1:43:38Speaker 00

  But I had this, you know, a couple of ideas and I had this particular idea for Architect and it was starting to really form kind of towards the end of my time at FTX, but I hadn't started anything. And so finally, like, I left FTX and then took a little bit of time off and then started to talk to investors about, you know, maybe raising some money for starting this company. And there were a few investors that basically said like, you know, do you have Sam's blessing to do this? Why do I need Sam's blessing? I've resigned. I don't work there anymore. And I said, like, we really would feel more comfortable if we could talk to Sam first and kind of like, you know, make sure things are okay and kind of figure out what he's doing, find out if he wants to invest to before we kind of talk to you further.

• 1:44:23Speaker 00

  And it was impossible to escape the like the Sam kind of hype bubble, even having left the company.

• 1:44:32Dwarkesh Patel?

  Why do you think they were so concerned about, were they like trying to invest in FTX in the future or?

• 1:44:37Speaker 00

  They were existing FTX investors.

• 1:44:39Dwarkesh Patel?

  Okay.

• 1:44:40Speaker 00

  And I think it really mattered to them what Sam thought of them. And if, they didn't know the full story and if they were being told that like Sam fired me. Then I think they were concerned about, you know, potential conflict investing in me too.

• 1:44:54Dwarkesh Patel?

  Was any part of that because Sam had a reputation as, I don't know, if like an investor invested in somebody he disapproved of, he would get upset in some way or?

• 1:45:02Speaker 00

  No, if that, well, if that happened, I don't know about it. But I think it was just Sam had such a kind of magical hold over the entire industry, from investors to media to politicians, that they looked to him for approval.

• 1:45:20Dwarkesh Patel?

  Okay, yeah, so at this point, you've left FTX US and you're starting to work on your, your own company. And when is this exactly? This is?

• 1:45:33Speaker 00

  So I left at the end of, well, my official resignation was the end of September. I had like stopped working earlier than that. And so I kind of started to start working on fundraising for the company in October.

• 1:45:44Dwarkesh Patel?

  And then a month later, the thing implodes. So when did you hear the first inkling that there might be some potential trouble?

• 1:45:56Speaker 00

  The first thing I heard was the night before the announcement that Binance might be buying FTX. I was just looking at Twitter and just saw all of this fear mongering. It was like, okay, well, CZ says he's selling FTT and so FTT is going to go down. And people were saying, well, that means Alameda is toast. And then once Alameda goes under, oh, that's going to be a problem for FTX. Pull your funds from FTX. And I was just sort of laughing at this because like, whatever, I'm used to people saying things on Twitter that seem nonsensical. And first of all, Sam and Caroline are great traders.

• 1:46:40Speaker 00

  Like if anything, like maybe they'll like profit from all this volatility and tokens. And they don't understand like there's, there's no way anything's going to happen to Alameda. But also what this connection between the price of FTT token and the ability for customers to withdraw their funds from the exchange, like this is did not compute for me at all. So I was like, well, you know, this will blow up oil over in a couple of days like everything else.

• 1:47:05Speaker 00

  And the next morning, you know, I was actually busy talking to like my own lawyers and investors for the company because we were actually closing up our investment round. Actually, the closing docs for my investment round went out that morning, the morning that FTX announced they were going to be bought by Binance. It was like the worst timing in crypto fundraising history. And so I was busy all morning and then I went, you know, online and checked Twitter and then saw Sam's tweet that said, you know, like what comes around goes around and we're going to get acquired by Binance. And I, I don't know, I felt dizzy.

• 1:47:47Speaker 00

  I had no idea what was going on in the world at FTX. I just couldn't put the pieces together in my head. It just didn't make any sense to me.

• 1:47:57Dwarkesh Patel?

  So before then, like you, you did not think this was possible. And then so

• 1:48:04Speaker 00

  I, I kept a bunch of money on the exchange. I was still an equity holder in FTX and FTX US. Like I was still very, very pro FTX in spite of my, you know, experience with Sam.

• 1:48:18Dwarkesh Patel?

  And then how did that week unfold for you? You were, I guess, almost about to close your round. What happened to the round? And then how were you processing the information? I mean, it was like a crazy week, right?

• 1:48:29Speaker 00

  Yeah.

• 1:48:32Dwarkesh Patel?

  The deal falls apart. There's like bankruptcy, hacking. Anyways, tell me about that week for you.

• 1:48:37Speaker 00

  Sure. So, I mean, first, the investors, you know, we all had to hit pause. I mean, first of all, Architect became, you know, priority number 1,000 on everyone's list. Secondly, a number of those investors were trying to do damage control themselves. You know, they either they were themselves investors in FTX or FTT. They had companies who part of their runway was held on FTX or they were expecting to get investment from FTX. So people were just trying to assess like what was happening with their own companies. They were not writing checks into new companies anymore. So like I had to hit pause on the whole thing. I mean, for their sake and for my sake.

• 1:49:21Speaker 00

  And yeah, I just, what could one do in that situation except for? Just read the news all week because everything that came out was something brand new and unbelievable, more unfathomable than the thing before. And it was a mixture of rumors on Twitter and articles coming out in major media publications and the announcement of the bankruptcy. It was just information overload and it was very difficult to parse fact from fiction. And so it was an emotional time.

• 1:49:55Dwarkesh Patel?

  Yeah, yeah, understatement, right? All right, so we've kind of done the whole story of you joining to the company collapsing.

• 1:50:06Dwarkesh Patel?

  I want to do a sort of like overview of, I guess, like what exactly was happening that caused the company to collapse and I guess the lessons there, right? So, okay, so in the aftermath, SBF has been saying that FTX US is fully solvent. They wanted to, they could start processing withdrawals. He had a soft stack recently in January where he said that it had $400 million more in assets and liabilities. What is your understanding of the sort of relationship between the solvency of FTX US?

• 1:50:38Speaker 00

  The short answer is I really don't know. If you had asked me about the solvency of FTX US at the time that I left, I would have said, why are you asking about this? Like, of course, everything's fine.

• 1:50:48Dwarkesh Patel?

  Right.

• 1:50:51Speaker 00

  Now, it's very difficult to understand what is going on. I mean, first, the level of deception that was created by this inner circle of Sams and now reported through like the various complaints and indictments from DOJ. They were doing things to intentionally manipulate internal records in order to fool like the employees and auditors and investors. So, everything's out the window at that point. And then secondly, it sounded like in the week... Prior to the bankruptcy, there was this flurry of intercompany transfers.

• 1:51:35Speaker 00

  And given all that that's happened, it's impossible to say what state we are in now compared to where we were several months prior. So it's impossible to know.

• 1:51:45Dwarkesh Patel?

  Who took over management of FTX US when you left?

• 1:51:47Speaker 00

  I'm not sure.

• 1:51:48Dwarkesh Patel?

  Was it a single individual or was it just rested back to the Bahamas?

• 1:51:52Speaker 00

  I really don't know. I mean, I was totally cut off from everything FTX at the time that I left.

• 1:51:57Dwarkesh Patel?

  Before you left, were the assets of FTX US custodied separately to FTX International's assets?

• 1:52:05Speaker 00

  Yes, they were.

• 1:52:06Dwarkesh Patel?

  Okay.

• 1:52:07Speaker 00

  So we had a separate set of bank accounts, separate set of crypto wallets. You know, the exchange itself was like a separate database of customers. It ran in like a different AWS cloud than the one that the International Exchange ran on.

• 1:52:21Dwarkesh Patel?

  Okay, got it. And you had full access to this and it checked out, basically, more and more assets and liabilities?

• 1:52:28Speaker 00

  Right. But remember that the thing that makes them not separate is the fact, and this was completely public, that Sam was the CEO of FTX and FTX US and Gary was the CTO of FTX and FTX US. And Nishad was Director of Engineering for FTX and FTX US. And so as long as there wasn't this completely separate walled off governance that we were trying to establish while I was there, there was never going to be perfect separation between the companies. This was a known problem. And that's what makes it so difficult to sort of understand the nature of what was potentially happening behind the scenes.

• 1:53:08Dwarkesh Patel?

  So I guess we've been talking about the management organizational issues of FTX. Were these themselves not like some red flag to you that, I don't know, something really weird could be happening here, even if it wasn't fraud, right? Like, these people are responsible for tens of billions of dollars worth of assets and they don't seem that competent. They don't seem to know what they're doing. They're making these mistakes. Was that itself not something that concerned you?

• 1:53:37Speaker 00

  I mean, it concerned me and I tried to raise concerns multiple times. If you raise concerns multiple times and they don't listen, what can you do other than, you know, leave? But You have to understand that every company I've ever worked at, and I would think any company anyone's ever worked at, has management problems and growing problems. And especially for a super high-growth startup like FTX, it's a very natural progression to have the visionary CEO who brings that product to product-market fit, who enjoys that explosive success. And then the reins of the company are eventually handed over

• 1:54:20Speaker 00

  to professional managers to take it into its maturation phase. And I thought, well, really, I'm not that person because Sam and I have interpersonal issues. But there's 100-plus major investors in FTX. Someone will figure out how to install the correct management of this company over time, and we'll bring it to a good place. Like, one way or another, this is going to succeed. There are too many people with vested interests in doing so. And so, no, I wasn't concerned that FTX wouldn't somehow figure this out. I still thought FTX had an extremely bright future.

• 1:54:56Dwarkesh Patel?

  But there might be, I guess, these sorts of visionaries. A lot of them might have problems, to put it in that kind of language. But I don't know. I don't know how many of them would make you suspect that there's mental health issues or there's addiction issues. That, for somebody who's in charge of a multibillion-dollar empire, I don't know, seems like something that's especially concerning.

• 1:55:20Speaker 00

  I can't quite speak to whether people would think there are mental health issues of other people who are supposed to be the figureheads of large companies. But remember, at this point, Sam is not leading the day-to-day operations of the company. Many other people are, right? And as the public figurehead of the company, Sam was obviously doing a very good job. He was extremely successful at raising money. He was extremely successful at building a positive image for the company. And so, in that sense, that was all going fine. And the rest of the company was being run by other people. So, you know, I didn't witness anything like, you know, the addiction stuff firsthand. I definitely thought he was not as happy a person as I met, you know, a long time ago.

• 1:56:04Speaker 00

  But could you blame a person for, you know, inheriting a 20, 30 billion dollar company? And, you know, not taking it super well when you're 29 years old?

• 1:56:13Dwarkesh Patel?

  Right.

• 1:56:13Speaker 00

  I think so.

• 1:56:15Dwarkesh Patel?

  I mean, you mentioned that, like, given the fact that all hundreds of accredited investors presumably had done good due diligence. That, you know, that like gave you some comfort about the ultimate, I guess, soundness of the company. But potentially those hundreds of investors who are relying on the experienced, high level executives that SBF had brought on, that is thinking that, listen, if somebody from Citadel and Jane Street is working at FTX, that's a good indication that, you know, they're doing a good job. And so in some implicit way, you're lending your credibility to FTX, right? And so I guess was there just this sort of circle of trust where the investors are assuming if

• 1:57:00Dwarkesh Patel?

  this person who has tons of leadership experience in traditional finance is coming to FTX, they must have done the due diligence themselves. And then you are assuming that the investors have done this. And then so it's like nobody's role to be the, you know, the guy who's like, this was my job and I was the person in charge of it.

• 1:57:15Speaker 00

  Remember, regardless of how experienced or inexperienced people in the company are, regardless of how many or few investors there are, how many senior lateral hires there are, if a very small group of individuals who are very smart and very capable, intentionally put forth schemes that deceive people within the company and outside the company about the veracity of records.

• 1:57:47Speaker 00

  What can you do? What is one supposed to do in that situation? If the public reporting matches private reporting, if investors have done their own diligence, if we've joined the company and we see nothing wrong within the company from a financial perspective, if we can see the public volume on the exchange and it all like matches up with our internal reporting and we know how much fees we'll be able to collect and all that, and it seems like a lot of income compared to our expenses for a 200 or 300 person company. At what point do you like go against all of that and say, in spite of the overwhelming evidence to the contrary, I think something is wrong?

• 1:58:28Dwarkesh Patel?

  Yeah, but someone might look at this and say, listen Brett, you weren't like a junior trader who was like right out of MIT or something who just joined FTX. You have more than 10 years of experience in finance. You like saw Lehman happen. You know, you've like managed really large teams and TradFi. And then you have the skills and the experience. And if somebody with your skills and experience, and not only that, your position in FTX as President of FTX US, if you can't see it coming, and maybe you couldn't, right? Whose job was it to see it coming? Like, it doesn't seem that anybody other than the inner circle could have been in a better position. And maybe nobody could have seen it, but like, is there somebody who, outside of the

• 1:59:12Dwarkesh Patel?

  inner circle, you think should have been able to see it coming?

• 1:59:15Speaker 00

  I don't know. It's a good question of like, when a major fraud happens in such a way where it was, you know, very expertly crafted to be hidden from the people who could have done something about it, what should one do? I mean, one answer is never trust anyone, right? Like, every company I ever worked for in the future, every time like we say we've like done some transaction, I will ask them to show me the bank records and like give me the number of the bank teller I can call to have them like independently verify every single banking transaction. I mean, this is sort of like impractical and ridiculous. It just like, it doesn't happen.

• 1:59:59Speaker 00

  And so I think like, it sounds like the counterfactual here is one where... Okay, first, I have to believe that there is some kind of fraud, which I don't. Then I have to say, okay, I would like to start auditing all bank transactions. Oh, actually, I want to start auditing all bank transactions for the company that I don't work for. Also, I want to like disbelieve audited financials from respected third-party auditors. I also want to look into the possibility that Sam is like lying under oath in congressional hearings about segregation of customer funds. Also, I should disbelieve all of the trusted media outlets and also 100 financial institutions

• 2:00:44Speaker 00

  that have invested in FTX. It's like the chain that you have to go through in order to get to a point where you start to be able to figure out something is wrong is, I think, really impossible. And I think the bottom line is there, you know, for sure should be mandated, you know, at certain stages of company growth, independent boards. And I think that a lot of that has to do with like where the like nexus of control of the company really is and making sure it's in a place where there is appropriate regulatory

• 2:01:26Speaker 00

  oversight and appropriate financial oversight. I think that maybe could have helped, but besides that, I think this is ultimately a job for enforcement. Like, people will commit crimes, and there's nothing one can do to stop all people from committing all possible future crimes. What one can do is come up with the right structures and incentives so that we can build like a trust-based system where people can innovate and build great companies and people who are bad actors can get flushed out, which is ultimately what I think is happening.

• 2:01:57Dwarkesh Patel?

  But I guess they're not letting you hire people. They're like, they're like overseeing, writing the actual code for FTX to us from the Bahamas.

• 2:02:05Speaker 00

  Yep.

• 2:02:05Dwarkesh Patel?

  Not, not something that makes you think like, why are they doing this? You know, it's like a little odd.

• 2:02:09Speaker 00

  I, I just thought it was not the right way to run the company. There's a very large chasm between I don't think they're doing a good job running the company and I think that customer funds are at risk, right?

• 2:02:22Dwarkesh Patel?

  Yeah, fair enough. What should someone who sees bad organizational practices, there's no board, they're making a ton of really weird investments and acquisitions. And not only that, like most importantly, they're they are responsible for managing tens of billions of dollars worth of other people's assets. What should somebody do when they're seeing all this happening? I mean, obviously, it's like very admirable and that you put this in like writing to him, you gave it to him and then you resigned when he refused to abide by it. But so maybe the answer is just that, but like, is there something else that somebody should do?

• 2:03:02Speaker 00

  I always say within any company and I would expect that like the overwhelming majority of companies, if you see bad management, mad management, it does not imply fraud.

• 2:03:14Speaker 00

  But there's lots of places with bad workplace culture and people are making bad management decisions. And it should be that if you're in find yourself in that position, there is someone you can go to to talk to. It might be your manager, it might be your manager's manager, it could be someone in your HR department. But there should be like a designated person within the company for you as an employee that you know you have a safe space to bring complaints about the workplace and about the company's strategy. And then you should see how they handle it. You know, do they take it seriously? Do they make changes? Do they look into the stuff you're talking about? Do they encourage, you know, cooperative, positive discussion? Do they threaten you?

• 2:03:59Speaker 00

  Do they retaliating against against you in some way? Do they start excluding you from conversations? Do they, you know, threaten to withhold pay? Like if you're in that latter camp, what do you do at that point? It's easy for me to say, and I've been in fortunate positions within companies and have personal flexibility, it might not be so easy for the average person to sort of get up and leave a job. But I do think that at some point you have to start making plans. Because like, what can you do in the face of a giant organization that you disagree with, other than leave?

• 2:04:31Dwarkesh Patel?

  Let's talk about regulators and your relationship with them while you were at FTX. I mean, obviously, as head of FTX US, I imagine you were heavily involved with talking to them. What was their attitude towards FTX like before it fell?

• 2:04:47Speaker 00

  All the regulators were, I think, in the common belief that crypto was a large and viable asset class. And in order for it to grow in a responsible way, it needs to come within the regulatory envelopes that already exist, in whatever way that's appropriate for crypto. And crypto can mean a lot of different things. We have to maybe distinguish between centralized and decentralized finance here. But I would say regulators saw FTX as at least one of the companies that was very willing to work directly and collaboratively with regulators as opposed to trying to kind of skirt around the regulatory system.

• 2:05:30Dwarkesh Patel?

  Well, when I was preparing to interview SPF, actually, I got a chance to learn about your proposal with the CFTC to, we were just talking about, you were explaining this earlier, but the auto liquidation and cross margining system, bring that not only to crypto in the US, but to derivatives for stocks and other assets. I thought, and I still think it's a good idea, but do you think there's any potential for that now, given that the company most associated with that has been blown up? Like, what is the future of that innovation to the financial system look like?

• 2:06:01Speaker 00

  Yeah, I definitely think it's been set back. You know, it's interesting, Walt Lukin from the Futures Industry Association, in a conference that was shortly after the class of FTX, you know, talked about FTX in sort of a speech, but specifically made a call to the fact that, in spite of what happened to FTX, the idea of

• 2:06:25Speaker 00

  Building a future system that can evolve with a 24/7 world is still a worthwhile endeavor and something that we should consider and pursue and be ready for. We are 3D printing organs and coming up with like specially designed mRNA vaccines, but like you still can't, you know, get margin call on a Saturday for S and P 500 future. There's like some real lack of evolution in market structure in a number of areas of traditional finance. And I think it's still a worthwhile endeavor to pursue it. I think the Lao Ledger X proposal makes a lot of sense. I think it's understandable where some of the concerns were around how that could really

• 2:07:09Speaker 00

  dramatically alter the landscape for, you know, derivatives regulatory structure and market structure. And there were still unaddressed questions there, but I, I still think that it was the right idea.

• 2:07:22Dwarkesh Patel?

  During those hearings, I guess the establishment, you know, CME and others brought up criticisms like, oh, we have these sort of business relationships with our clients. And if you just have this algorithm take its place, you can have these liquidation cascades where illiquid assets, you know, you, they start getting sold that drive, drives their price even lower, which causes more liquidations from this algorithm. And you have this sort of cascade where the bottom falls out. And even though this might not be an accurate way to describe what happened with FTT and FTX, because there was like obviously more going on, do you think that they maybe had a point, given how FTX has played out?

• 2:08:01Speaker 00

  A lot of FCMs have auto liquidation. There, there is one, you know, particular one where like they actually automatically close you every day at 4:00 PM and they do it like in a really bad way. So like the idea of auto liquidation is not new.

• 2:08:19Speaker 00

  The idea of direct-to-customer clearing is not new. The idea of cross-collateralization is not new. The thing I think that was novel about FTX was putting it all together. It was direct-to-customer, margining, cross-collateralization, auto-liquidation. And so in order for the regulators to get comfortable with the application, they had to understand that FTX as one entity was performing the roles that typically multiple different entities perform. And you always need to ask yourself the question of like, was there something worthwhile about having those different entities be separate? Or not?

• 2:09:03Speaker 00

  Is it just sort of like legacy regulatory structure? I think that remains to be seen. And I think we don't have enough experience, especially in the US, with that kind of model to be able to say whether it actually works better or worse. I think either way, it was worth a try. And I think maybe the biggest misconception about the application was that, you know, if we got approved, it meant suddenly FTX is going to list like everything from like corn to soybeans to oil to S and P 500 overnight and completely destroy the existing derivatives landscape. I think what would have actually happened was FTX would have gotten permission to list like one contract on kind of small size. And there would have been experience with the platform

• 2:09:48Speaker 00

  and it would have like, you know, been assessed compared to the alternatives on traditional CCPs. And if it was worse, changes would have been made. And if it was better, it would evolve and the market would basically decide what people wanted to trade on. I do think like the auto-liquidation part was the main piece that people were hung up on, which was like, how do you provably show the kind of worst-case scenario in auto-liquidation cascade?

• 2:10:14Speaker 00

  Then again, on large HCPs now in the US and Europe, there are margin breaches all the time. Like, the current system is far from perfect.

• 2:10:24Dwarkesh Patel?

  Backing up to, I guess, regulation more generally, I mean, many people saw crypto as a sort of regulatory arbitrage, where because regulations are so broken in finance, I guess, evidence would be that you're not allowed to do this manually, right? You had to go through this lengthy approval process if you're a giant company to begin with. The entire point of crypto was to get around the regulators and not go through them to get approval for things and hand over that kind of approval process to them. Do you think that working with the regulators and then also being part of crypto was a sort of, like, it kind of defeated the point of crypto?

• 2:11:00Speaker 00

  I think I disagree with the premise. Like, I don't think the point of crypto is regulatory arbitrage. I think that while crypto remains unregulated, it is easier to get something done in crypto than if it were regulated. That's sort of like, et ala logical. I also think that most people, especially on the institutional side who trade crypto, believe that we are in a temporary state that cannot last forever, which is that crypto is largely unregulated, or has a weird patchwork of, you know, regulatory authority. You know, maybe it's like the 50 state regulators in the US, or it's some combination of like, you know, money transfer and, you know, CFD or broker-dealer activity

• 2:11:43Speaker 00

  in Europe. So, I think this is, it's absolutely a worthwhile endeavor, knowing that there's going to be some regulation for at least part of the crypto ecosystem, to work with regulators to make sure that it's done well.

• 2:11:56Dwarkesh Patel?

  One very important question about the whole LTX thing is like, what did the conventional narrative about how it went down and why it went down? What did it get wrong? Given that you were on the inside, like, what do you know was different than what has been reported?

• 2:12:11Speaker 00

  I actually think... Not much. And I think the reason for that is, you know, typically when something like this goes wrong and it becomes this media frenzy, there's like plenty of opportunity for misinformation to spread. But to the credit of the investigators working on this case, they moved so quickly that, you know, they had unsealed indictments within, what, two months of this going down? And so having kind of a lot of the truth, you know, being able to be spelled out in facts in a public written document, I think quelled a lot of the opportunity for misinformation to proliferate.

• 2:12:55Speaker 00

  And whether that's from like a Twitter troll or if it's from Sam Bankman-Fried himself, you know, trying to like spread misinformation about what happened. I think a lot of it wasn't really given the room to breathe.

• 2:13:07Dwarkesh Patel?

  What did you make of his press tour in the aftermath? What, like, why did he do it? And like, yeah, what was your impression of it?

• 2:13:15Speaker 00

  I'm not going to really speculate what's inside Sam's head. I think Sam had built up his empire through partly his control over media. And he did that by being available all the time and being ostensibly open and honest with them all the time. And probably thought, why can't the same strategy work now? And maybe I can sway public opinion. If I can sway public opinion, maybe I can sway, you know, regulators and, you know, law enforcement. And it turns out that is definitely not true. So I don't really know. It could just be an addiction to the media.

• 2:13:59Speaker 00

  He couldn't stand people talking about him and him not being part of the conversation.

• 2:14:04Dwarkesh Patel?

  Yeah, yeah. And I guess the earlier account you gave of his. Day-long media cycles kind of lends credence to that mentality. I have a question about the future of the people who write FTX. There's many different organizations who have had their alumni go on to have really incredible careers in technology. Famously PayPal had a mafia, so-called mafia, where they wanted to found YouTube with Elon Musk, you know, SpaceX, Tesla. So many other companies came out of the people who came out of PayPal. And Bern Hohbard has a theory. The reason that happens is when a company exits too fast, you still have these people

• 2:14:46Dwarkesh Patel?

  who are young and ambitious in the company who go then go on to, you know, do powerful things with the network and the skills they've accumulated. Do you think that there will be an FTX mafia?

• 2:14:56Speaker 00

  The, the number of the like most talented people within FTX are, are leaving FTX in a slightly different position than, you know, the people exiting PayPal and acquisition. I would say they're in positions more like actual mafia people. But, so I'm not sure it's going to be like some giant, you know, FTX mafia, but I do think there are like a ton of talented people at FTX who are going to look to do something with their careers. And, and also a lot of those people, you know, came from very impressive backgrounds prior to FTX. So I expect them to want to continue to, you know, get back on track and build something great. And so I do think you're going to see at least a couple of people who emerge from this and do something really great.

• 2:15:41Dwarkesh Patel?

  That's a good note to close the FTX chapter of the interview on.

• 2:15:44Speaker 00

  Sure.

• 2:15:45Dwarkesh Patel?

  Let's talk about Architect, your new company. Do you want to introduce people to what Architect is doing and what problem it's solving?

• 2:15:53Speaker 00

  Sure. So the goal of Architect is to provide a single unified infrastructure that makes it really easy for individuals and institutions to access kind of all corners of the digital asset ecosystem, everywhere from individual crypto spot exchanges that are centralized to DeFi protocols, to qualified custodians and self custody and everything in between.

• 2:16:20Dwarkesh Patel?

  Yeah, I'm not sure I have enough context to understand all of that, so I don't know. But a few grade levels below.

• 2:16:29Speaker 00

  Sure, so like backing up a very high level. So let's say you are someone who wants to trade crypto in some way. Or what do you actually have to do? So imagine you want to do something slightly more than just like sign up for Coinbase and like click the buttons there. Like, let's say you would like to find the best price across multiple exchanges. Let's say that you not only want to find the best price across multiple exchanges, you also want to occasionally do borrow and lending from DeFi. And maybe not only that, you also want to like store your assets in like off-exchange custody as much as possible. Well, aside from doing all that manually by like opening up all the different tabs in your browser

• 2:17:14Speaker 00

  and like clicking all the buttons to move assets around and connect all these different exchanges, you actually want to build a system that like unifies all these things. You have this buy versus build choice. And the build choice looks like hire like five to 10 software developers and get them to write code that understands all the different protocols and different exchanges, all the synchronicity of them, that downloads market data, that stores the market data, that connects to these different custodians, that kind of bridges all these things together, that provides some kind of like user interface that pulls it all together. It's a significant amount of work that up till now, basically, all of these different companies are just reproducing. Like, they're all solving like the same problem.

• 2:17:58Speaker 00

  And as a trader, you want to focus your time on like strategy development and alpha and monetization and not on like, how do I connect to random exchange? So the goal of Architect is to build this sort of like commodity software that people can then sort of deploy out of the box that gives them access to all of these different venues all at the same time.

• 2:18:22Dwarkesh Patel?

  And so it sounds like this is a solution for people with significant levels of assets and investment in crypto. I'm assuming it's not for...

• 2:18:33Speaker 00

  So I think that's like the place we want to start.

• 2:18:35Dwarkesh Patel?

  Yeah.

• 2:18:35Speaker 00

  But one phenomenon in crypto that I think is somewhat new and exciting is the fact that... Okay, if you're, if you want to get into like sophisticated equities trading, well, what do you have to do? I mean, you usually have to either establish a broker dealer or, you know, get hooked up to an existing broker. You need to get market data, which can be very expensive, like the, you know, full depth of book feed from NASDAQ costs like tens of thousands of dollars per month. If you want to compete on latency, you have to get like a co-located server in the NASDAQ colo, which is also going to cost you tens of thousands of dollars per month. There's a significant time and money overhead to doing all this,

• 2:19:18Speaker 00

  which is why it's so hard to compete in that space against all like the incumbent players. Whereas in crypto, many of the markets are just in the cloud, like in Amazon's cloud or Alibaba's cloud, and you can just very cheaply and easily spin up like a server in there for like a couple of dollars a month and have the same access as like a big HFT. All the market data is free, the order entry is free. The protocols are usually fairly simple, like you can use like, you know, JSON over a web socket as opposed to speaking like fix over some, you know, private, you know, line. As a result, there is this large and growing class of kind of like semi-professional

• 2:20:00Speaker 00

  individual traders that have grown, where there are people who are smart individuals who have like maybe some wealth amassed and they want to be able to do kind of professional trading, whether that's like manual quick trading or like simple algos using Python or whatever. And they can do that and experiment easily because of the open access of crypto markets. And so there's a much wider customer base for something like this, which includes these kind of like high-powered individuals in addition to your small, medium, large hedge funds and prop shops and different institutions.

• 2:20:31Dwarkesh Patel?

  And is the goal to, is crypto the ultimate market you're targeting? Or are there other asset classes that you also want to provide the service to?

• 2:20:42Speaker 00

  We're building very general infrastructure and, you know, we think crypto is a viable asset class, but it's one of many. And our goal is to provide like institutional-grade connectivity and software to anyone who wants to participate in trading in a semi-sophisticated way. So I think, you know, over time, we'll want to grow our offering as much as possible.

• 2:21:05Dwarkesh Patel?

  Given the fact that NASDAQ or whatever already have these

• 2:21:10Dwarkesh Patel?

  Barriers. Is it possible for someone to remove those barriers with a solution like yours? Or, I mean, I guess like an analogy that comes to mind is, you know, I guess nobody before Mark Cuban's, whatever pharmaceutical company, just tried to go outside the insurance system and directly sell drugs to people. Is it possible to do something like that for NASDAQ?

• 2:21:31Speaker 00

  Well, yeah, you can't like connect to NASDAQ without, you know, connecting to NASDAQ. You can't like not go through a broker dealer. But I think that, you know, we could eventually try to get the appropriate licensing required to be an intermediary that is focused on being like a technology forward, you know, interface towards people being able to do more program trading. And so if like, if the mission of our company is to like provide better access, I think we can do so within the existing system.

• 2:22:00Dwarkesh Patel?

  Hmm. I guess this raises a broader question of if you're initially trying to solve for the problems that these exchanges should natively have solutions to, or at least or some of the problems are the ones that these exchanges should natively have solutions to. Why, why haven't this, these exchanges built this stuff already? I mean, you, you're a part of one such exchange. And maybe you function better than the other ones. But it, I mean, you know, they have, they're highly profitable. They have a bunch of money. Why haven't they invested in making their infrastructure really great?

• 2:22:31Speaker 00

  So in many cases, their infrastructure is very good. It's, it's more a question of what's the incentive of the exchange? And I think if you're, no matter what, no single exchange is going to have all of the market share. So there's always going to be this like, uh, market fragmentation problem. And the question is, whose responsibility is it to make software that helps solve that problem? If I'm some centralized exchange, my incentive is not to build software to make it easier for my customers to go to all the other exchanges. It's like, make my exchange better. So I'm going to put all of my R and D dollars into like, providing new products and, you know, offering you different kinds of services, or maybe investment advisory, or, you know, lowering the, uh, the

• 2:23:12Speaker 00

  barrier to entry to connect into my own exchange, but not creating this sort of like pan asset class, pan, uh, exchange, interconnectivity software.

• 2:23:23Dwarkesh Patel?

  Got it, got it. And?

• 2:23:26Dwarkesh Patel?

  Given the fact that you're trying to connect these different exchanges, I mean, currently, most of the volume in crypto is in centralized exchanges, is our like, what is your estimate of the relative trading volume of C5 versus DeFi? Do you think it'll change over time?

• 2:23:43Speaker 00

  So I do think it'll change over time. I think my view is I can't predict what way it's going to change. So, you know, people after FTX had asked me like, hey, why don't you try to start your own exchange? Like, take all your knowledge from FTX US and, you know, maybe even like raise money to buy the IP out of bankruptcy and like start a new exchange. And my feeling is I don't want to bet personally on the exact direction of crypto trading. Like, I could see it continuing status quo where like your Coinbase's and Binance's of the world kind of maintain market share. I could see it moving significantly to DeFi where people feel like this is the true spirit of crypto. It's in this sort of non-consensual, like fully decentralized trading environment.

• 2:24:29Speaker 00

  I could also see it going the complete opposite direction and having the existing highly regulated exchange players like Nice, Nisey and Azdeak and Sebo like start to enter the game on spot trading. And where is the ultimate like flow going to end up between these three possibilities? I have no idea. So I'm much more excited about providing the kind of connectivity layer to all of them and saying regardless of where the liquidity ends up, we'll be able to facilitate it.

• 2:24:58Dwarkesh Patel?

  Speaking of FTX, how has your experience with FTX informed development of Architect?

• 2:25:03Speaker 00

  Yeah. I mean, first of all, working at FTX, you know, has given me an appreciation for just how behind a lot of the infrastructure is on other exchanges, you know? People really like trading on FTX, institutions especially, really like trading on FTX because the API like made sense. It like really did follow kind of the kind of standard state machine of any kind of financial, you know, central limit order book that you would see on a place like NASDAQ or CME. Whereas there are a lot of exchanges that have crazy behavior, like you send a cancel for an order. You get acknowledged that your order has been canceled and then you get a fill. And you actually like get traded on your thing that you supposedly thought you canceled and like things that you think shouldn't be possible are possible.

• 2:25:49Speaker 00

  So actually, my time at FTX is interesting with relation to Architect because, you know, FTX, it gave me an appreciation for how to design a good API. For especially institutions to want to be able to trade all the time. And the protocols and some of these other exchanges like aren't quite as good. So I think it's informs how much the focus of Architect should be kind of wrapping up the complexity of these different exchanges. And providing like a really good API for institutions and individuals on our side. That's like thing one. Thing two is obviously what happened with FTX. People are much less likely to trust a centralized institution with their personal information.

• 2:26:34Speaker 00

  Especially things like the keys that allow you to trade on their exchange account or the keys that give you access to their wallet. And so we're thinking a lot about how to design Architect such that the user can connect to all these places and, you know, hook up their wallets. Without needing to ever give us any of their private credentials. And so that's like another, you know, particular inspiration from everything that's happened in FTX.

• 2:26:59Dwarkesh Patel?

  What is your opinion of crypto in general at this point? Like, how has your sort of perception of its promise changed if at all, given the things?

• 2:27:09Speaker 00

  I mean, I feel the same way now as I did then, which is it's a, you know, one to three billion dollar asset class. That is traded by every major institution that is being invested in by every major institution. And so.

• 2:27:24Speaker 00

  It's totally viable and it needs good mature infrastructure to support its growth.

• 2:27:30Dwarkesh Patel?

  Got it. But is the motivation also informed by a view that, I don't know, crypto is going to be even bigger or in some way going to solve use, really big use cases? Or is it simply that like, listen, this market exists, I don't know what it's going to be good for, but it needs this solution?

• 2:27:49Speaker 00

  It is. I think, you know, I certainly do believe that that is like a likely future for crypto. But to me, like the, the interest in it starts with knowing that this is a huge asset class with like, that needs better infrastructure for trading it.

• 2:28:06Dwarkesh Patel?

  And in the aftermath of FTX and other things, I mean, all crypto companies have like a special scrutiny on them. And fairly or unfairly, if there's like FTX alumni, it'll be even more so. Like, how, how are you convincing potential clients, investors that, you know, there's crypto is safe, FTX alumni are safe?

• 2:28:27Speaker 00

  Yeah, on the FTX alumni side, I just personally haven't had those issues really. You know, in like recent months, as we've been building out Architect, you know, I hired like three, almost five now employees from formerly at FTX to come work with me.

• 2:28:43Dwarkesh Patel?

  But by the way, is that, is that like some sort of R basically that the overall hiring market is overcorrected on them or something?

• 2:28:48Speaker 00

  Hundred percent.

• 2:28:49Dwarkesh Patel?

  Yeah.

• 2:28:49Speaker 00

  And not just in FTX. Like right now, like it is, you know, March 2023 is we're recording this. Like there's like a huge R in the hiring market. I mean, all the layoffs in tech and crypto, all of like the fear around various financial services means that like, we basically didn't need to work on recruiting. I had like the best people who worked at me, for me at FTX US. I had, you know, ex colleagues of mine, um, you know, from former jobs that come work with me here. And we actually didn't have to like, you know, do any formal recruiting efforts. Because of just how much supply there now is on the, you know, the job market for, you know, especially in tech and finance. Luckily, you know, I've had a long career history prior to FTX.

• 2:29:34Speaker 00

  And even at FTX, you know, we built really great stuff. We had a very good connections, relationships with our customers and our investors, you know. There will be times where like on Twitter, I would answer like a customer's you know, support question at 2 o'clock in the morning. And I maintained a lot of those relationships even through the collapse. And these are the kinds of people who are reaching out, like offering support, like offering to test out stuff. Who want to be customers, who are also having problems with existing crypto tools and looking for something better. So all that stuff has remained intact. So I don't really have a concern there.

• 2:30:08Dwarkesh Patel?

  What is institutional interest in crypto like at this point, given what's happened?

• 2:30:12Speaker 00

  I think it is just as great as it was before. Every like major investment bank in the US has announced some like plan to do something with blockchain technology, still, even like post FTX. The top trading institutions in the world are all continuing to trade it. I think as of what we're speaking about right now, you know, volumes are down. Because people are sort of generally fearful. But I expect that to turn around pretty quickly. And the institutional interest still remains really high. People are definitely expecting and waiting for, you know, proper regulatory oversight, especially in the US. That's still happening. People are waiting for, you know, higher grade professional tools that make it safe for them to trade and invest in crypto.

• 2:30:57Speaker 00

  I think that's obviously in the works for various things, architect and otherwise. But otherwise, the interest is all completely there.

• 2:31:03Dwarkesh Patel?

  A broader question somebody could have about crypto at this point is, or maybe not crypto generally, but crypto trading is, why is it good to have more crypto trading? At least with stocks and bonds and other kinds of traditional assets. As we were talking about earlier, you can tell a story that listening to helps capital allocation, projects that need funding, will get funding and so on. Why is it good if the price of Bitcoin is efficient? Why is building a product that enables that something that's socially valuable?

• 2:31:36Speaker 00

  I mean, I think it boils down to, like, first of all, do you think it's important for people to be able to trade commodities? Like, how important is it for the world that people can, you know, trade gold efficiently? Or they can trade oil efficiently? I think the answer is, like, if people have a use for the underlying commodity, then it's it's important. And so like, what's maybe then it's like, well, what's the use of crypto? Well, I think each crypto token might have its own use. I don't think everyone has a good use. I think that there's a bunch that do. But if, you know, you believe in Bitcoin as sort of like a store of value and a great medium of exchange, then it's important that there's a good fair price for Bitcoins to enable that.

• 2:32:18Speaker 00

  If you think that, you know, the Ether token is important for, like, the gas fees required to run like a decentralized computer, and you think that the programs running on a decentralized computer are important, then it's important for there to be like a good price for Ether that's fair. So I think it really depends on if you kind of believe in the underlying use case at all, in the same way you would for kind of any commodity.

• 2:32:41Dwarkesh Patel?

  Got it.

• 2:32:41Speaker 00

  And sometimes there are tokens that have more security-like properties where they are like trading Apple stock. You know, basically, like, there is a was an initial offering of that token, and then if people bought it, it actually directly funded the product behind the token, and then the efficient trading of that token is sort of a barometer for the health of that particular company, and they can like sell more tokens to raise more capital and secondary offerings, in which case it looks very much exactly like the stock market.

• 2:33:09Dwarkesh Patel?

  That's a great leading to the next question, which is, will there ever be a time when things that are equivalent to stocks or other kinds of equities will be traded on change in some sort of decentralized way?

• 2:33:23Speaker 00

  I think it's likely. I think the primary reason is that Existing settlement systems in traditional markets seem to be very slow and built on very outdated technology. That's like highly non-transparent and very error-prone. So equities are a prime example of this. Like, it still requires two business days to settle a stock. And a frequent occurrence when I was at trading firms was that, you know, you would get your settlement file that one told you like what trades were settled and two told you things like if any corporate actions had occurred overnight, like paying a dividend or share split. And they would frequently be wrong. Like, the dividend would be wrong, or it would be missing, or the share split amount was

• 2:34:08Speaker 00

  for the wrong amount, or they missed the day that it happened, or they messed up some trades and didn't get reported properly. There's frequently mistakes. And it feels like there should be some like easy, transparent, kind of open, decentralized settlement layer for like all things that you can trade. And rather than try to retrofit the existing settlement technology to be faster and better, starting from scratch with something like blockchain could make a lot of sense. Which is why you hear about a lot of like these investment banks working on settling fixed income products on-chain. Because fixed income products have even worse settlement cycles than equities.

• 2:34:45Dwarkesh Patel?

  Should the marginal crypto trader stop trading? Like, maybe this is, this might also be a good question to ask about like the marginal trader for, I don't know, on Robinhood or something, but...

• 2:34:57Speaker 00

  I think I have a couple thoughts about this. So, the first is that I don't think crypto markets are as efficient as equity markets. So, there's probably more opportunities for short and long-term edge as a trader in crypto than there would be in equities. That being said, I think there's still an enormous amount of room in both like traditional and crypto markets for even individuals to have and derive information that gives them profitable trading ideas. And I actually think it's the wrong conventional wisdom to think that if you are not Jane Street, or Citadel, or Hudson River,

• 2:35:37Speaker 00

  or Tower, or, you know, Jump Trading, then you have no chance of being able to profit in markets except for luck. I do think there are a lot of people who trade and it's like pure speculation. It's not really like on me to tell them that like they shouldn't speculate. They probably like derive some personal enjoyment from speculation besides the opportunity for profit. But I do think...

• 2:35:59Speaker 00

  The access to more sophisticated instruments and information has helped what have traditionally been, you know, players that have been unable to compete in the market actually be able to do so in a way that's systematically profitable.

• 2:36:12Dwarkesh Patel?

  Okay, so that is, I think, a good point to end the conversation. We got a chance to talk about a lot of things. Let's let the audience know where they can find out more about Architect and also like where they can find your Twitter and other sorts of links.

• 2:36:26Speaker 00

  Sure, yeah. So Architect's website is architect.xyz. We also have architect underscore xyz on Twitter and I'm Brett Harrison 88 on Twitter.

• 2:36:35Dwarkesh Patel?

  Okay, perfect. Awesome. Brett, thank you so much for being on the Lunar Society. This was a lot of fun.

• 2:36:40Speaker 00

  Thank you so much.

• 2:36:42Dwarkesh Patel?

  Hey, everybody. I hope you enjoyed that episode. Just wanted to let you know that in order to help pay for the bills associated with this podcast, I'm turning on paid subscriptions on my Substack at warkeshpatel.com. No important content on this podcast will ever be paywalled, so please don't donate if you have to think twice before buying a cup of coffee. But if you have the means and you've enjoyed this podcast or gotten some kind of value out of it, I would really appreciate your support. As always, the most helpful thing you can do is to share the podcast. Send it to people you think might enjoy it, put it in Twitter, your group chats, etc. Just blitz the world. Appreciate your listening. I'll see you next time. Cheers.