Defending Crypto to the Middle-Class American | Austin Campbell

Do you remember the 2008 crisis? It left a mark on many of us, fueling a distrust of bankers and politicians, and leading us to crypto as an alternative to the broken system. Today’s guest, Austin Campbell, a professor and former Chief Risk Officer at Paxos, explains how crypto, especially stablecoins, can protect everyday Americans from the risks of traditional banks. He’s here to show why the middle class should care about the future of finance. ------ 🎬 DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-the-austin-campbell-interview ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🗣️TOKU | CRYPTO EMPLOYMENT https://bankless.cc/toku ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/70?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS 0:00 Intro 5:18 Austin’s Tweet Defending Crypto 13:55 How the Banking System Works 23:19 Who Manages Bank Risk? 32:37 Depositor Bailouts 41:36 Stablecoin Solution? 59:51 Stablecoin Impact on Banks 1:06:44 U. S. Payments Outdated? 1:10:15 Global Implications of Crypto Adoption 1:17:46 U. S. Regulatory Stance on Crypto 1:24:55 Anti-crypto Policy Motivation 1:32:13 Austin's Advice to Crypto Community 1:35:22 Closing & Disclaimers ------ RESOURCES Austin Campbell https://x.com/CampbellJAustin Must Read Threads https://x.com/CampbellJAustin/status/1817590780879397114 https://x.com/CampbellJAustin/status/1821591319816581469 https://x.com/campbelljaustin/status/1823362155984388226 ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

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

• 0:00Ryan Sean Adams?

  They charge you money if you don't have money in your account, right? Like, what is that?

• 0:04Speaker 01

  Hold on, let's talk about check cashing fees. Like, what happens if you don't even have an account, right?

• 0:14David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is David Hoffman, here with Ryan Sean Adams, and we're here to help the US banking system get an upgrade, so you, listener, can become more bankless. Bankless listeners, do you remember the 2008 crisis? Did it leave an impression upon your younger self? Did it radicalize you against corrupt bankers and politicians? Many of us on the Bankless journey have found crypto as a reaction to the 2008 financial crisis, and the impression that it left us about money, finance, and banks. Bitcoin, of course, was birthed in the wake of the 2008 crisis and has turned into not just a solution, but also a symbol for opting out of that system. But most people have not found this path. And despite the bankless tools that crypto has to offer, the current US banking system

• 0:58David Hoffman?

  is still structurally the same as it was when the housing market crashed in 2008. Inherent leverage in the system, normal middle American depositors putting their savings into banks, which then put that capital at risk, capture all the profit, and socialize all the losses. Today on the show, we have Austin Campbell, who presents a new way for the crypto industry to rebuild the financial system into a new structure that does not connect mom and pop stores or your average wage saver from being exposed to the risky choices being made by the world's largest banks. Bitcoin allows you to escape from monetary disbasement, but that solution has only gone so far with protecting the world's financial system. Austin, on the show today, presents a new mechanism for 2008-proofing our financial

• 1:42David Hoffman?

  system and protecting all users of the financial system from the risk that they did not sign up for.

• 1:46Ryan Sean Adams?

  Guys, this has been one of my personal favorite episodes of the year. I don't think I mentioned that, David, but after recording, this was just awesome. It was maybe because it was so unexpected, but Austin Campbell was great in this episode. And also, there's a call to action at the end of this episode, but if you liked this episode, send it to someone who needs to hear it. I think it's a different route in to helping them understand what this crypto thing is all about. And of course, leave us a review, too. That helps the episode propagate whether you're on Spotify, like it on YouTube, subscribe on YouTube. All of these things help the bankless message spread. All right, guys, we're getting right to the episode. But before we do, we want to thank Kraken, our recommended exchange for 2024. Go create an account.

• 2:25David Hoffman?

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• 3:09David Hoffman?

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• 3:55David Hoffman?

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• 4:11David Hoffman?

  Launching a token? Don't let complex legal and tax issues slow you down. Toku provides specialized support to optimize your launch and ensure that you, as a founder, and your team, and your investors, get the most tax-efficient outcomes. The Toku team understands the crypto space inside and out and will ensure your token launch is fully compliant while maximizing tax efficiency. Toku can connect you with the best attorneys, if you need them, to make sure that you have the best advice, and Toku can help to optimize your taxes so you pay the least possible amount of taxes while still maintaining legal compliance. With Toku's guidance, you can concentrate on building your company while Toku handles the logistics. Token launches don't have to be complicated. Talk to Toku today to get a free initial token valuation. Bankless Station, I'm excited to introduce you to Austin Campbell, a professor at Columbia

• 4:53David Hoffman?

  Business School, where he teaches on blockchain markets infrastructure. Austin previously worked as the Chief Risk Officer over at Paxos, the stablecoin issuer, so he knows a thing or two about stablecoins. But he's also worked at Citi and JP Morgan, so he also knows a thing or two about TradFi. Today, he's here to defend crypto to the middle-class American who has no idea about why they should care about crypto. Austin, welcome back to Bankless.

• 5:18Speaker 01

  Thank you very much. Happy to be here again.

• 5:20David Hoffman?

  So Austin, not too long ago, you put out this tweet thread that kicked off this podcast episode. I thought, I wanted to do a podcast episode, but even halfway through reading the thread, I thought it was very interesting. I want to read this first tweet, really to kind of set the table, set the agenda for us. And you invoke this guy, Gary Winslet, and we'll kind of go into who he is. You say, "So Gary Winslet recently asked for a defense of crypto and why he, as a well-situated, middle-class American, who largely thinks our system works, should believe in it or support it. I think this is a totally legitimate question to ask and one that cuts to the heart of the debate which has been so broken. I think it was asked in good faith, so I believe it deserves a real answer. One of my criticisms of the crypto space is that CT has a bad habit of just screaming

• 6:03David Hoffman?

  at people instead of actually debating real concerns and questions, and I don't want to behave like that myself. Thus, I'm going to endeavor to answer Gary in a few parts and specifically point to some things that I think align with the worldview of many anti-trust folks, yimbies, classical liberals, and the who care about..." About financial inclusion. In other words, good question, Gary. I'm glad you asked. And Bankless Nation and myself, you might be asking, who's Gary Winslet? Turns out he's a PhD and a political science and econ professor at Middlebury with a focus on the technology sector as it relates to cooperation with regulatory concerns and the government. I think perhaps, Austin, the specifics of who Gary Winslet is, I'm not sure matters. I'm sure he's a great guy.

• 6:46David Hoffman?

  But I'm kind of interested in the audience that Gary represents, an audience that largely thinks our banking system already works and that crypto really can't benefit middle America. So as we proceed in this conversation, how can we frame who this target audience really is for the content that we're about to discuss? Is this like for middle America who still remembers the trauma of 2008? Bankers who think our banking plumbing works just fine? Politicians who don't see how crypto fits into America? Who's this conversation for?

• 7:16Speaker 01

  Yeah, I would say my target when I was discussing this are, to put it simply, a lot of the people I run into in my everyday life, right? Because, you know, crypto, you live on Twitter, you go to conferences, you have people that you talk to on Telegram. It's a very sort of unique and insular community in some ways. And it doesn't well represent the concerns of the average person, right? So if you're like a small business owner running a restaurant, if you're somebody who's like a public school teacher, if you are a PhD student, you know, many of these people probably don't care about, don't think about and don't know about crypto. And I don't mean that in some sort of negative or offensive way. I mean it in they genuinely think it's not relevant to them

• 8:00Speaker 01

  and probably don't understand why there's a lot of sound and fury around this topic. Secondarily, the other group of people I'm talking to is, quite frankly, most of my former TradFi colleagues, right? Many of whom are very familiar with the traditional financial system. And honestly, if you were to, you know, get them off the record, familiar with a lot of the failings of the traditional financial system, but probably haven't looked into Bitcoin or crypto beyond like headlines they're going to see in the Journal or Bloomberg or something like that. And thus are probably not so Much opposed to, but rather unaware of many of the elements that the crypto community brings into the financial discussion.

• 8:37Ryan Sean Adams?

  Austin, as you've, I think I know a lot of the people who you just mentioned particularly in that, in that first group. I've gotten to know some TradFi folks too, but in that first group, it's everybody. I mean, it's the people like I, I go to the bus stop with, with like my kids. It's the people I hang out with. It's kind of the average American. Let's call it at least in my social circles. And I, I often, maybe Bankless listener, you can identify with this. Like, I don't often bring up crypto around normies because I just like, don't want to get into it. It's kind of like bringing up politics at Thanksgiving. Like, there's all of these preconceived notions, different information sources, like ideas. You just want to have a good time and talk about the weather, talk about your kids, something like that. You don't want

• 9:21Ryan Sean Adams?

  to bring crypto into it because it often gets messy. And then what I, I always feel like I'm put in the position of, I don't know, being a crypto evangelist. Well, it's not actually this, it's this. And it's just awkward. Anyway, when you think about kind of the, the normies, the middle-class Americans that you interact with, what do you think their impression of crypto is when you have these conversations, at least right now, the average person on the street?

• 9:45Speaker 01

  So I'd say I think there's two different sort of main threads that you run into for crypto with the average person. One is, if we're being totally honest, the most notable person in this entire space to the mind of the average American is still SBF.

• 10:00Ryan Sean Adams?

  God. So they think it's a scam. I hope you wouldn't say that, really?

• 10:03Speaker 01

  Right? No, but let's be honest, right? Like, here, let me ask you a slightly different question. What is the worst bank that you can think of right off the top of your head?

• 10:13Ryan Sean Adams?

  The worst bank I can think of off the top of my head? I mean, there's a lot on that list, honestly, Austin, for me.

• 10:20Speaker 01

  Okay, but most, most people I ask will answer Lehman, right?

• 10:23Ryan Sean Adams?

  Right, sure.

• 10:23Speaker 01

  And that was 2008.

• 10:24Ryan Sean Adams?

  That was one of them that popped in my mind, yes.

• 10:26Speaker 01

  Exactly. And so my point is these impressions are sticky and they're hard to get rid of. Right? Now, that's not a critique of crypto anymore that Lehman is a critique of banking or Bernie Madoff is like a critique of asset management. But it is a statement that those are going to stick in people's heads.

• 10:40Ryan Sean Adams?

  And Austin, by the way, this is why I avoid these conversations because you know, like, they're like, oh, you know, oh, SBF. And I'm like, oh, yeah, he's been on the bankless podcast. And then they think I'm a scammer. It doesn't go well from there.

• 10:52Speaker 01

  I'll teach you guys a few tricks that I've been using to deal with people in the regulatory and sort of like call it real world space. Because I think there are some ways around that, but it involves a deep understanding of what these concerns are. So one is that it's a bunch of scammers. The other one is, cool, you're a bunch of weirdo tech people, but why do I need to use this? Which is not like negative so much as in the sense of like the guy building the drone that does like 3D mapping that he's like flying around in a canyon. And again, back to the average American, they're like, how does this impact my life? It's more just this like, what is this? Why should I care? Why should I even spend time on this is the other main thread that I get.

• 11:32Ryan Sean Adams?

  And which group do you think is larger? The group that thinks we're scammers or the groups that's kind of undecided, but thinks it's too nerdy to care about?

• 11:38Speaker 01

  I think the second group is actually significantly larger. And I think what you will find with the first group is a lot of them loosely hold the opinion that a lot of crypto is scammers. Because again, it comes from the news, but most of them don't have personal experience themselves. So they can be pushed off that prior more easily than people who are, again, back to, I don't use this. Why do I care?

• 11:58Ryan Sean Adams?

  Yeah, even in that second group, one thing that I've observed is they're always though, a little bit curious in that second group. Right? They're kind of like, yeah, but like, is the number going to go up from here? Like, you kind of get the sense when you talk to people like they sort of secretly want to have purchased Bitcoin at a much lower price and be part of the thing, but it's just passed them by and they're not, you know, they're risk averse and they've got their money in 401ks. And so they're secretly curious always about price.

• 12:26Speaker 01

  I will remind every biddy here, it's very likely you can get your Bitcoin into a 401k. But that aside, one, I agree, they're often curious about price, but two, that Leads me to one of the points that I use talking to a lot of people, which is if I'm talking to what I will call a normie audience as we've been describing it here. I won't talk about crypto prices at all, right? Like, I'm just completely uninterested in talking price of crypto with those people. Where if you start with prices, they think you care about making money. If you start with, how does the system work? Why does anybody build this? How do you do these things? They're forced to engage on a totally different.

• 13:03David Hoffman?

  Okay, so even if they ask you a question about price, you try to redirect them to something more wholesome?

• 13:07Speaker 01

  Yeah, I I immediately lead off with, I'm not here to prognosticate about prices, right? Like, I can fall back on the being a business school professor and being like, look, all prices are a product of supply meeting demand. And that's the end of the story. Next question.

• 13:21David Hoffman?

  It's interesting also that you brought up Lehman, because I think everyone has some sort of notion of 2008 as an emotional response to them. I was a kid in 2008, but like, yeah, and I didn't understand money or finance at the time, but nonetheless, like, it left its scars on me. All millennials, I think, has the 2008 scar and everyone older than us as well. And I think we all know crypto Bitcoin was a reaction to 2008. But I think understanding Bitcoin as a reaction to 2008 is not something you can carry back to your average coffee purchaser at like the Fourth of July, like cookout, like that explaining why those things connect is like, you have to go down like the rabbit hole and become a Bitcoiner. And then you're kind of the crazy person who's a who's a crypto person.

• 14:07David Hoffman?

  But today's in today's day and age, we actually have something a little bit closer to that, that I think is going to be the subject of today's episode. Something that's like a reaction to the 2008 financial crisis, the stickiness that you have identified as in people's brains. But is less of the, you know, the the crazy guy who's like in the basement, talking about Bitcoin from like 2008. Yeah, you you start your your tweet thread talking about this, this question, you introduce this question. Do you believe that you have to lend money to a real estate billionaire at below market rates to buy a coffee? What is this question doing? What's the function of this question? What's its role here?

• 14:47Speaker 01

  So two parts. One, a good way to get people's attention and get them to listen as opposed to coming with preconceived notions is ask them an unexpected question. Right? Because they start trying to answer it for themselves or start trying to figure out, you know, exactly as you're doing now, like, why did you ask that question? So the rhetorical technique of start with an unexpected question that's thought provoking is one that you will find a lot of educators use in general. Right? Like, my class on stable coins, at one point, I started with, why do you guys have a bank account? Like, don't answer me right away. Take 30 seconds. Think about it. Write it down. Why do you have a bank account? Right? And just asking people these kinds of questions, I think, creates a different mental space

• 15:29Speaker 01

  than if you begin, you know, with a statement or an assault on, like, certain beliefs. Two, inherent to that particular question is a sense of fairness. Right? Like, if you understand the mechanics of what is really going on with the modern banking plus payment system, which we've stapled together, there are some inherent issues of fairness there that are accessible to the average person, where they don't need all of the background of crypto to understand that, wait, why do I have to lend money to a real estate billionaire to buy a coffee? Right? Like, that seems weird. Right? There's just something fundamentally unnatural about that arrangement. And before you even get to crypto, if you have somebody agreeing with you that, wait

• 16:12Speaker 01

  a minute, okay, this does feel kind of funny, then you can start discussing why certain things might be solutions to those sorts of problems.

• 16:20David Hoffman?

  I think maybe some people listening to this are like, wait, so when I'm buying my coffee, how am I also lending money to a real estate agent? Can you connect those two things?

• 16:28Speaker 01

  Yeah, absolutely. Um, specifically, a real estate builder more than the agents. So let's think about what I'm going to call the conception of a bank that people have in their head, and then what banks actually do in reality. So in your head, the simple model that most people have of a bank is you go to the bank, you give them money, like, let's literally do the caricature of, like, you show up in person and you hand them dollar bills. And people People somehow have in their head that the thing the bank does is like takes those dollar bills, goes into the back and like throws them in a vault. And I am here to tell you that if you think the banking system works that way, boy, are you wrong? And two, right? So the next step out from that is, well, obviously they do something with the money.

• 17:11Speaker 01

  But like the thing they do nowadays is mostly making loans. And if you look at bank balance sheets, it is not like, call it home lending to the average person that remains on a bank's balance sheet. Those things are called agency mortgages. They get packaged up into securitizations and sold into the market. Banks do a little bit of risk retention, but if you look at major bank balance sheets, it's not like super majority agency mortgages. They're going to have riskier stuff on there. You're going to see like credit card loans, small business loans, private student loans, like commercial real estate, large scale residential real estate, like jumbo loans, et cetera. And even more exotic stuff like trade finance, you know, all of those sorts of things.

• 17:55Speaker 01

  And I want to be clear, many of those things do have legitimate economic purposes to them. I am not here to criticize lending or banking. I think that's a mistake. What I am here to criticize is that the way we've created our current system, it becomes mandatory for you to participate in those activities just to use the system for payments. Because we've kind of given banks a monopoly on the payment system in the United States, right? So there are many places in the world and many times throughout history where banking and payments were not synonymous. But here, because of how we regulate the banks, like when you pay for something with a debit card or with a credit card, ultimately that's going back to your bank balances. And what's that bank doing with your bank balances?

• 18:38Speaker 01

  Lending money to a like real estate billionaire to build stuff. So there's essentially, unless you want to be all cash, right? Like physical cash, no way out of this problem in the United States using electronic payments.

• 18:51David Hoffman?

  Okay, and I think the punchline that I think we really want to land here is that the expectations of your average Joe buying a coffee, or you know, mom going, dropping the kids off at school, stopping at Starbucks, is that their money in the bank is safe, it's ready for them whenever they want it, there's no risk to them, you know, going and retrieving their money. And what you're alluding to is that for banking to work at all, there's actually some social contract of depositors that there's risk behind on the other side of the trade. But there's a gap there. The users of banks, the customers of banks, assume on a, just a systemic level, that there's no risk. But systemically, there

• 19:33David Hoffman?

  has to be risk, because that's how the banks operate. And that's kind of like the gap that I think has led to things like perhaps the 2008 crisis. But also, I think also, you're kind of, when you ask this question, do you believe that you should have to lend money at a real estate billionaire at below market rate to buy coffee? You're kind of exposing that gap. That's really the gap that you're kind of like allowing to come to the surface.

• 19:55Speaker 01

  Well, I think there's two levels to that gap. One is exactly what you just said. I think that's a pretty fair summarization. And the other one, right, as I would put it here, is an incentive problem of the way we've designed the system where banks essentially, because they have this sort of monopoly, can pay depositors zero on their checking accounts, are also taking essentially a large amount of money that could in theory be allocated to people using the system for payments, and instead giving it to the borrowers. Right? Like, put differently, the systemic, like, design of our system gives a large subsidy to people using the system for borrowing versus people using the system for payments.

• 20:37Speaker 01

  Because if I step back and say, I don't want to lend money to anybody other than the US government, I totally want to use this only for payments, I should be able to basically be like, I want to get paid the risk-free rate minus a fee on my deposits, spend them as I see fit, and like, that's the entirety of my activity. Okay, bye. And by the way, guys, the risk-free rate as of the time of like, you know, recording this podcast is about 5%. Go look at what you're getting paid on your checking account, I guarantee you it is much lower than that.

• 21:07Ryan Sean Adams?

  That piece to me starts to resonate with the normie. One issue I wonder if you have at this point in the conversation, Austin, is like, a lot of people aren't finance minded. And so we need to start talking about things like risk-free rate. And you start talking about like, basically how the banking system works. And you find yourself like, harkening back to mental models like, oh, fractional reserve. And then now you have to explain that. And like, the normie, again, they don't think this way. They're not a finance brat. They're not a finance professor at Columbia, hundreds of hours of the Bankless Podcast. So they start to tune out. And they're a little bit like, Austin, I don't need to know how it all works. I don't care how the sausage is made. I use my computer.

• 21:49Ryan Sean Adams?

  I don't need to know what a motherboard is, or how the internet works in order to use my computer. I just use my computer. And when I show up at the bank, and I go and I try to withdraw $1,000, they let me have it. So it kind of seems like it's there. And yeah, I understand that there's some risks. And I understand that the bankers kind of take a cut on the system. And it's sort of lopsided and unfair. And billionaires are sort of managing the strings. They have some notion of that. But like, I don't need to know all the details of how it works. Because when I show up at the bank, I get my money. And even when there's crisis scenarios. And by the way, this goes back to generations. I don't know anyone in living memory. My parents have always been able to go to the bank and get their money out. And their grandparents mostly have too.

• 22:32Ryan Sean Adams?

  And like, there's some ancient stuff from like, you know, movies like It's a Wonderful Life, where there's runs on the bank. But that doesn't happen anymore, right? We've got that figured out. So like, why does this matter to me? You're saying there's risk, but like, I don't feel or experience any of the risk. And so I could just ignore it. I ignore a lot of things, like complexity in life. And why not ignore banking complexity too?

• 22:51Speaker 01

  Yeah, no, exactly what you have just summarized is why Jamie Dimon is a billionaire and you're not. Right. So what you're talking about fundamentally is two different things. One is opportunity cost is not something that people are good at measuring in their head. So the way I tend to summarize that question talking with normies is, okay, cool. So why do you think it's okay for a bank to pay you zero and then just go hand the money to the Federal Reserve and get paid 5% with no risk? Like, is 5% per year a fair price to manage all your money? Right. Question number one, right? Let's just have that discussion. Question number two that I ask people is, so have you seen the movie Office Space?

• 23:34Speaker 01

  Right? To which most people thankfully have seen that movie. The trick of the banking system is essentially what the guys at Office Space were doing, which is they're shaving pennies off of every transaction that you're doing and it feels small, but adds up to a giant number over time. So what you've got to understand is the system is going to charge you over a 10-year period, like $100,000 to use it. But they're never just going to charge you $100,000 because you'd lose your mind. They're going to charge you $1,000,000 times. And that's why it's invisible and essentially you're being screwed. And the fact that you don't know it is exactly what they're relying on.

• 24:15Ryan Sean Adams?

  What about this risk piece? So being screwed, okay, I accept that part of the argument. What about this risk piece? So I put my money in the bank. It's safe, right? I have FDIC insurance. They got the logo there. I've seen this.

• 24:26Speaker 01

  Yeah. And so my answer to that with people is realistically, if you have under $250,000 at a US bank, you are actually probably safe, ignoring the issue of timing, so long as the US financial system continues to function. Like, the FDIC is not infinite. It can totally get wiped out at some point. We will have much bigger problems if that happens, see like the fears in 2008. But the bigger problem is, and this is one of the great sins of finance in general, is starting with your personal situation and assuming that applies to the system. So I tell this story to people who have doubts about that. I have a personal friend. I'm not going to say which of the

• 25:07Speaker 01

  Banks that failed that he banked with, but he banked with one of the banks that failed and that whole spate of bank failures, you know, of all the S named banks failing. And he ran a grocery store. Okay. And so here's the problem that he has. His net profit margin. So that is if I sell a hundred dollars of stuff, he makes about a buck fifty. Right. So 1.5% is a net profit margin for a grocery store. Almost every day of the week, he has more than $250,000 in his bank account just because turnover and volume, because people are buying like tomatoes and butter and bread and milk, like things that we all kind of take for granted.

• 25:47Speaker 01

  And a business at any scale very quickly breaches your $250,000 FDIC limit. And this whole argument of, well, why do you keep more than $250,000 in the bag? Works very well at the individual level and works terribly even at the small corporate level. Because what you're really asking this guy is, yo, why are you selling people groceries? Right. Which I think all of us believe that selling groceries is probably a social good. I would prefer people have food than not. But once you understand that the problem is not on your end, it's probably on the small businesses end and actually know they might not get all their money back. Like to think the banking system is safe for them is crazy. Because issue number one is, once you're over that limit, are you going to get your uninsured deposits back? But issue number two is just, are you even going to get them in a timely fashion?

• 26:31Speaker 01

  Like that guy's got to pay his employees, he's got to pay his vendors, he's got to pay his rent, he's got to pay his electricity bill. And so if the money is like frozen for three to six months in some bank resolution, that can bankrupt him just as easily as not having it at all. And so I would tell you, the area in which our system is the most unfair, and the fact that it's this is part of why it's persisted this way, is probably small to medium corporates and individuals of call it medium high net worth. Right. Because they don't have an easy way out. Like you're not yet to, I have $25 million in my own private bank or UBS levels of rich. But you're also not, I could easily stay below $250,000 at a single bank.

• 27:14Speaker 01

  And so it simplifies Ryan to, okay, so you're cool as long as you keep your money, but you don't care if the grocery store goes bankrupt.

• 27:22David Hoffman?

  So the structure really that comes out of this system is that you have, you know, millions, tens of millions of, you know, bank users with, you know, they're, they're savings. They're below $250,000 savings in a bank. And banks is taking the aggregate amount of user deposits and making like investments. They're making risky, maybe not that risky, but risk is present investments in choices that they are making. And the, the scale of the financial system is like built on this structure, which really begs the question, who is doing their risk management? Because a small number of people are making very large choices for the rest of us and for the structure that is built on top of this banking system. So who is doing their risk management and how, how does that work?

• 28:06Speaker 01

  Yeah, so one, the answer to who is doing the risk management is when you look at banks, it's this complicated chain of what are called first line people, which are going to be all the people like making loans or like, for instance, I was one of those people at JP Morgan and Citi, like I was a trader in global rates in both places, making decisions day in and day out about where to allocate the bank's money, doing things that ranged from, in my opinion, pretty non-risky to sometimes hilariously risky, if we're being honest with each other about how like markets works. Though hopefully if it's hilariously risky, not in large size, because one way you keep yourself alive doing that is small positions. And so they're making the first decisions. The second set of decisions come from all of the people who are supposed to be controlling

• 28:51Speaker 01

  them. So your risk officers, like market risk, credit risk, like treasury management, all of those people who are supposed to be keeping the lights on and making good decisions there. You have a third line behind that risk, which is audit, and then behind them, you have the regulators. But the problem with this system, even with all of those multiple layers, is all of it relies fundamentally on these people making good decisions. And number one, transparently, they often do not make good decisions. Otherwise, banks would not fail, but we have seen plenty of bank failures. And number two, it's not really possible to police that from the outside. Right? Because, you know, back to the FDIC discussion, the other thing you often hear from people is, well, just make sure that your bank is safe.

• 29:35Speaker 01

  And like, how? Like, somebody explain to me how to do that with your hands if you are not like a psychopathic fixed income trader, trading like a bank capital book at a bank. Like, I did that professionally for a decade at JP Morgan, and I'll tell you right now, you know, and I said this in my tweet thread, I don't think I had a 100% handle on the capital position of all of the banks that I was trading with, right? And I'm like, a professional doing this 80 to 100 hours a week and thinking about this constantly. The idea that my friend running the grocery store should, oh, by the way, go get an MBA and become a bank capital expert just to have a bank account, to me is like ludicrous on the face.

• 30:14Ryan Sean Adams?

  There's one part of this story I feel like we need to flesh out because I think there's still a question in the normies mind, given the case you like presented so far, which is basically, you said, look, banks are extorting you if you're a depositor, right? And like, I can show you how, and maybe we'll get back to that. And then secondly, you said, your dollars in the bank are actually at risk, you know, even the FDIC 250K, but certainly above the 250K, they're at risk. And I want to like, push back on that or ask a question, right? So I think that there could be some social contract that depositor bailouts are a thing now, whether they are acknowledged or unacknowledged. You mentioned the banks, the S-banks that had

• 30:56Ryan Sean Adams?

  some trouble back in 2023. We saw Signature, we saw Silicon Valley, we saw Silvergate, right? All of these S-banks that like went like above the FDIC amounts. And what ended up happening? Well, the Fed cannot have these banks go bankrupt, and so they have to bail them out. So it's basically like, unless the Fed or the US government somehow bails out depositors, the entire banking system will collapse. We've seen the government intervene to not have the banking system collapse, therefore I'm safe, right? So like, you were talking about the concern of isolated risk, and yeah, there's no way somebody knows whether Wells Fargo Bank

• 31:39Ryan Sean Adams?

  of America is like safer for their depositor, but they don't really have to because everyone's kind of in the same boat. And so as a depositor, you know, you're talking about the individual versus the systemic problem, right? From an individual perspective, if I have $50,000 in a bank account, it goes to zero, that feels real bad. But- But if I have 50K and I suffer 20% inflation in the real value of that 50K and everybody else around me, all my other normie friends also get that 20% inflation cut because something went wrong that I don't fully understand, well, that's not an ideal outcome and I might protest the bankers and occupy Wall Street for a bit,

• 32:19Ryan Sean Adams?

  but like, it's not that bad, I suppose. Anyway, do you think that basically FDIC insurance is too infinity for depositors and they will bail it out no matter what? And so kind of the risk of you having your funds in a bank and picking the right bank is just like not there?

• 32:35Speaker 01

  So I think the answer to that is it depends on the scale of the problem. For small to medium problems, the answer in the United States has historically been we're trying to bail these banks out now, especially from 2008 onwards and forwards. And that also has some interesting systemic implications because rather than an implicit guarantee, you're probably better off having an explicit guarantee with a lot of strings attached to it. Because the really unfair situation there is the bank fails, but the executives made tens to hundreds of millions of dollars and walk away with most of it. But we all experience inflation. And by the way, there are like functional banking systems in the world, like say Japan, where essentially all of the deposits are insured and this

• 33:15Speaker 01

  understanding is more explicit. So one critique I would have is if you believe that, you're probably either in favor of bankers extorting everybody, or you don't realize this, but you're in favor of a lot more restrictions on bank activity. Something like for those who are familiar with US financial history, going back to Glass-Steagall or something like that. I would also say, you know, going back to how I started this for a large enough crisis, no. The FDIC is finite. The number of banks that can rescue things are finite. Like as somebody who had to help unwind parts of Bear Stearns and WAMU, right? Like, let me tell you, it gets very complicated, very ugly, and there are, call it degrees of damage within the system that we are not going to be able to gracefully recover from

• 34:00Speaker 01

  without people directly losing money or Congress stepping in and literally like bailing these people out, which should, and I would hope. You know, does come with strings attached if that's ever necessary.

• 34:12Ryan Sean Adams?

  I think a lot of people do fall in that first camp, which is they, um, well, like the first camp, you said, um, you know, people that are okay with the bankers kind of extort extorting them. I don't think anyone is actually okay with that, but they kind of throw up their hands and they're like, I hate the system, but what's the alternative? And so there's no alternatives. And so they just settle with the crappy system that we've just described.

• 34:36Speaker 01

  So therein to me is, you know, what you hit on, if you talk to people who are not super familiar with this long enough, which is the core problem comes back to a failure of imagination. Ryan, and I think you've highlighted that extremely well, which is, oh, there's no alternative. There are plenty of alternatives. We're just not executing on any of them. And I think that should be causing people to ask a combination of political and social questions as to why, like, why is the system arranged this way? Why are people tolerating this, you know, and essentially what ways out of it are there? And how do we put pressure on the system to force it to change in a positive way? Because, you know, one of the things I love about America and being an American is we've never really had a history

• 35:20Speaker 01

  of a country of being like, ah, fuck it. That's good enough. Right? Like the beauty of America is we are a bunch of complete lunatics. So for anybody listening who is not an American and has not lived in America, as somebody who's traveled a lot internationally and done a lot of business, it's impossible for you to understand how incredibly crazy Americans are until you come live here for a while. Like for my friends in Asia, the idea that I could shit talk the chairman of our financial regulator on Twitter and not only not experience consequences for it, but like actually become more notable and more powerful is like mind blowing, right?

• 36:02Speaker 01

  And so, you know, it, it really is this unique thing about America that we've never been willing to just tolerate. Like, oh, that's good enough. Like it's not, right? And we really should be trying to fix it. And I think, Ryan, that's the point you want to get to in conversations with normal people is the point where they throw their hands up. Cause if you say, well, okay, so are you just going to give up? Like most people in America are like, actually, no, no, I'm not. That's like a good point. That's not who I am.

• 36:29David Hoffman?

  I think a decent amount of that attitude is kind of what makes a crypto person, a crypto person. Like we're all, we've all been unplugged from the matrix and we're trying to also like convince as many other people as possible to also unplug from the matrix because we see this structure. And it's like to some of us, we see like, hey, there's this unstable financial system. It toppled over in 2008. It's not fundamentally any different from how we built it back then. It's actually kind of the same, except now we actually have this new tool called, called crypto. Austin, you, you asked a set of questions that actually are the set of questions that I want to ask you. This current financial structure that we've just illustrated, how, how did we end up here? Like, why does this structure exist?

• 37:11David Hoffman?

  Do it, do they really have such a strong like monopoly over this system that we can't change it? Are there no real alternatives? Like, why don't we have any alternatives? And can competition enter and disrupt this market? Just like the state of the equilibrium that we found ourselves in, how do we, how do we get here?

• 37:28Speaker 01

  So I think we got here through a series of what I will say are probably individually well-intentioned decisions that led us to a point that is pretty negative. Right? Like if you've studied game theory and you understand what Nash equilibrium are, we've gotten into a Nash equilibrium in the financial system where banks have a monopoly on payments and kind of control everything. And there's no good reason to be here, other than the decisions we've made have kind of pushed us here. And I, I'm not, I want to be clear, like, I'm pretty sympathetic to regulators having made a series of individually sane decisions. And then through some of their efforts and some of the efforts of Congress having ended up in a bad place. Because what we've done is post, you know, a series of crises.

• 38:11Speaker 01

  So we had 2008, which was very much a banking and credit crisis. Prior to that, we had the whole tech bubble and then the accounting scandals with like Enron and WorldCom, which caused us to pass Sarbanes-Oxley, which actually has done some very weird things to like financial market structure in terms of companies going public and finding capital and who can be successful. And we had in the nineties, like the whole issue of global foreign banks coming into the US and wanting to repeal Glass-Steagall so we could compete. Right? And again, I can justify like Dodd-Frag, Sarbanes, like Glass-Steagall repeal, all of them individually very well. But it's put us in a place where essentially the banking system is operating. Sort of as an unchecked oligopoly on financial markets. And the answer is there are some,

• 38:56Speaker 01

  at least in my opinion, obviously better constructs we could have like. So let's pause before we get into crypto, right? This is again, something I think it's important to do. And I'm just going to shill a product for a company I have no affiliation with that people should know about. Okay. So if you have a fidelity account, like fidelity.

• 39:14Ryan Sean Adams?

  I have one of those.

• 39:15Speaker 01

  Okay, cool. If you have a fidelity brokerage account, you could own a government money market fund that pays you the risk free rate, which is again about 5% and you have a debit card that you can use to pay for things that come out of your money market.

• 39:31Ryan Sean Adams?

  I didn't know that part. So I could get a debit card attached to that money market account. Is this the trad way of being bankless? No, that's

• 39:37Speaker 01

  This is the trad.

• 39:38Ryan Sean Adams?

  It's kind of bank, but at least you, at least you're not cut out of that like 5% risk free rate yield that the bankers are just sucking on.

• 39:46Speaker 01

  Correct. I would, I would suggest a better way to phrase that is it's the trad way of being bank minimized. You do still have a debit card. There's like a connection to rails in there somewhere. But you are like sort of fixing the incentive problem. It's your money. It like, by the way, don't turn on securities lending. Don't get a margin account. Do this with a cash account. Right? So it's a cash account. It's your money. It's titled in your name. It's a money market fund and you can pay for things with it.

• 40:12Ryan Sean Adams?

  Yeah. So it's basically like a checking account. You tie to a debit card. So you could pay for it in the real world. I guess fidelity might, might, might issue this, this debit card. And then you're getting the 5% uh yield on that. So I mean, yeah, that, that feels nice. I, I, it's not FDIC insured though, is it Austin?

• 40:31Speaker 01

  No, it is not. But like if your T bills need to be FDIC insured, you've got a bigger problem, right? That's the key of, that's the key of having a government. Like I remind people, the FDIC. Is a government agents.

• 40:44Ryan Sean Adams?

  Yeah.

• 40:44Speaker 01

  Excuse me, like a government agency. They are more risky than T bills, which is why I say use a government money market for this. Cause that example is meant to construct this thing is basically strictly less risky. And yet more profitable for you if you're using the system for payments than actually just having a bank account.

• 41:01Ryan Sean Adams?

  That's a cool tradfi hack. I didn't think about that.

• 41:03Speaker 01

  There you go.

• 41:04Ryan Sean Adams?

  Strictly fidelity is not lending out the T bills. That's just getting the yield straight from the government. And so there's no risk, there's no FDIC.

• 41:12Speaker 01

  Yeah, I mean, there, look, there, there's always risk, right? The US government could fail fidelity as an institution could fail. And while you're probably not going to lose your money, there will be a resolution to get it all sorted out. Nothing is ever riskless and anybody who tells you it is immediately hang up on them and never speak to them again. But you know, like it's significantly less risky than just leaving your money in a checking account and yet pays you more. So my point is there are definitely better ways to do things, but yet what you find is the system still tries to force everybody into bank accounts. Like the IRS like wants you to pay your taxes out of a bank account, right? They're going to get pissy if you try to pay it like stablecoins or Bitcoin or something like that.

• 41:53Speaker 01

  And so, you know, there are solutions that work better before we even get to crypto. Because I, I sense some important things that will lead to why I think crypto is.

• 42:03Ryan Sean Adams?

  It's funny, by the way, awesome, you can't pay, you can't pay your IRS tax bills in treasuries, can you? No.

• 42:10Speaker 01

  Weird, right?

• 42:10Ryan Sean Adams?

  Yeah.

• 42:11Speaker 01

  Yeah.

• 42:11Ryan Sean Adams?

  Interesting. They, they, it gotta be the dollar.

• 42:13Speaker 01

  One would think, one would think they would want to retire their own debt in return for your tax obligations, but no. Some of this, by the way, is also just the technological incompetence of the US government. Like what, one other thing I would tell non-Americans is understand that American bureaucrats are by and large old, not technologically savvy and not particularly well paid. Right? Like the mental model people have in their head is like these geniuses in an ivory tower. The mental model you should actually have is like Wendy's, right? For a lot of government bureaucrats. And that's not an insult. Wendy's sounds good food, but my point is they're not tech developers.

• 42:49Ryan Sean Adams?

  And you don't think of them as evil either. Like Wendy's employee is not an evil person. They're just trying to get through their day.

• 42:55Speaker 01

  And that is precisely why I picked that, right? Like all of these conspiracy theories and like, look, I'm somebody, I've personally met multiple Fed governors. I know senior people at banking regulators, securities regulators, the commodities and futures commission. I have met probably on one hand, the number I would think are evil in that sense. And given how many I know, no, that's a pretty good ratio. Cause like if you know thousands of people, the idea that all of them are good people is crazy. But you know, I would say most of them exactly as you said, are just trying to make things work and get through the day. And you know, I wrote a long time ago, this piece titled downside only, trying to explain regulators to people.

• 43:33Speaker 01

  And you've got to understand, these are people who get zero credit if things go right and get screamed at constantly if things go wrong. So their entire incentive mechanism becomes avoiding downside. They just don't want mistakes. So change to them is often a bad thing because it upsets the apple cart. And they know if it goes wrong, they're going to get blamed. But if it goes right, people like Elon Musk are going to get all the credit and nobody's going to talk about that.

• 43:59David Hoffman?

  Does that explain Gary Gensler, Austin? Or is he one of the?

• 44:01Speaker 01

  No, I don't think that explains Gary.

• 44:03David Hoffman?

  So there are outliers.

• 44:05Speaker 01

  Yeah, Gary's an outlier. He's also a political appointee, which is an important distinction. But I do think that explains a lot of the lying people at the SEC, the OCC, the FDIC, like the Federal Reserve. In terms of if you look at what they care about, they're like, could, could, could everybody just stop breaking shit? Right? Like that's the vibe you get from these people.

• 44:29David Hoffman?

  Let's talk about just the, the, going back to the banking structure that, that we talked about in the first bit of this podcast. What do regulators think about that structure? What like, what do they say about it? What, do they enjoy it? Do they want it to perpetuate? How does it relate to like antitrust efforts? Like, what's the regulatory conversation as it relates to this whole like banking structure that's been established?

• 44:51Speaker 01

  Yeah. So question number one, which regulator? Let me start with the banking regulators. I think if you were to shoot most of them up with truth serum, they would tell you they are quite annoyed to extremely annoyed. Somewhere between those two endpoints with most of the small to medium banks in the United States.

• 45:08David Hoffman?

  Really?

• 45:09Speaker 01

  Right? Yes. And I, I think that's largely been caused by their own doing. But the reason is you've got these entities that are like, you know, I don't know, 20 person banks in Arkansas, where the most sophisticated tech person there is probably the person who actually understands how email works. And these people are trying to run an end to end like financial product. And the reality is often they do not have the expertise or talent to do a good job of this. And it shows. And so I get the critique of the regulators with regard to those things. Thus, I think where they end up inadvertently, or sometimes deliberately, is having a significant preference for the large banks. This is why we haven't seen a lot of like bank formation, why it's all small to medium banks who keep catching the consent orders.

• 45:52Speaker 01

  Because like when you're at JP Morgan and you have the best technology, the best risk people, the best front office people, the best systems like, and you are the thing that they interact with the most, they use you as a benchmark to go measure everybody else. And let me tell you, everybody else does not measure up as well. Like I was at JP Morgan, running a trading desk that will remain nameless for the purposes of this one, where the OCC once told us, you guys, having rebuilt this after the crisis, are the gold standard to which we hold all of the other banks on the street.

• 46:24Ryan Sean Adams?

  That's just unfair.

• 46:25Speaker 01

  Well, I don't know if it's fair or unfair, it's just a thing. But I think this has come about because the second part of what regulators have done is kind of forced all of these banks to develop their things individually internally to the bank. Like everyone itself needs to be its own complete ecosystem, right? Like you gotta have your own market risk, your own credit risk, your own liquidity management, like your own KYC solution. So everybody's kind of rebuilding the wheel at every single bank. And so then you get judged versus the best wheel. There are other industries that don't do this, right? Where you take a lot of those functions and take them out of that entity and put them with some sort of central thing that's good at them. Like theoretically, all of the small to regional banks should probably not be doing their

• 47:09Speaker 01

  own treasury management, given how much they screw it up. And instead having somebody external just manage like an aggregate diversified average portfolio for all of them. And telling those guys what you're good at is credit creation in your local communities because you know everybody. So you all go do that. And like you, like most financially savvy dude out of 20, stop trying to do asset liability matching for hundreds of millions of dollars of deposits you don't understand. Right? So I really do think it's a scale and complexity problem, but it's been created by the shape of regulation. And I think most of the bank regulators, if you got them to be honest, would admit they don't love the current system, but they probably lack both the imagination and the power to get to something better.

• 47:52David Hoffman?

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• 48:36David Hoffman?

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• 49:20David Hoffman?

  Is there a conversation around just regulatory capture here? Like, we talked about the bankers who are just, you know, shaving mayonnaise off of a bajillion transactions, and that's where they get a lot of the wealth from. And we've ended up at this equilibrium, this Nash equilibrium, like you said, that I'm assuming is hard to get out of. What role do the regulators play in the difficulty of getting out of that equilibrium? Or do they have like a fault here?

• 49:44Speaker 01

  Certainly, and also legislators do as well, right? It kind of takes two to tango on the regulatory capture front. And so what I would say is we've created this system where banks lobby, and a lot of the banks have at least some degree of credibility, having managed elements of risk well, especially like the ones at the very upper end, who are constantly saying like, Don't make it hard for us to compete. We do the best job. Give us favorable rules like do XYZ because they're trying to make more money, but I think largely trying to not blow themselves up while making more money. Right? And it leads to this sort of toxic situation where the regulators, as I said, basically optimized for safety, which means pushing power to the bigger banks

• 50:26Speaker 01

  who have been better managed and legislators get lobbied the most by the bigger banks because they're the ones with the money to do the lobbying. And it sort of creates this situation that we end up in where the bigger banks are over time systematically favored. You know, maybe barring a few cases, people are doing it deliberately so much as exactly as you would expect. This is the confluence, a lot of incentives, all kind of pushing people to this one specific point. And I don't think the people who are going to get us out of it will come from inside that system. I think you need to come from outside it to disrupt that.

• 50:56Ryan Sean Adams?

  Austin, just to add a bit of nefariousness here, we did have a gentleman by the name recently of Mel Madison come on the podcast and describe sort of why, in his view, banks suck. And this is maybe less for an average person on the street, but he basically thinks everything you just said is sort of a nation state plus banker cabal, right? They've created this, he called it an unholy alliance, right? Where the sort of the nation state has the ability to kind of like print money via fiat and sort of tax the its citizens in a backdoor way. And it uses the arm of the banking system to effectively do that. And exchange, the bankers get this kind of monopoly on money and depositors and like the ability to kind of skim off the top

• 51:40Ryan Sean Adams?

  as we've like discussed so far. I don't know if any one individual actor is to kind of blame. You can't point to somebody, you know, Wizard of Oz and sort of, you know, controlling all the levers here. But, but the idea that some of this is nefarious, the idea that maybe the bankers just like don't want competition, that they would actively like push out in like somebody from the outside, like crypto is trying to disrupt the good gig, the monopoly that they have going on. What's, what's your take on that? Do you think that there is actually some anti competitive, you know, like bad monopoly type behavior going on here?

• 52:15Speaker 01

  So two parts. One, there's always anti-competitive and bad monopoly type behavior in every industry. Right? Like, that's not unique to banking. That's definitely true because that's how businesses think. They want to make the most money possible for themselves. Right? Like, Apple is not a charity. Facebook is not a charity. JP Morgan is not a charity. FTX was not a charity, right? Like, we've had people in crypto trying to do exactly this in the past at some of the centralized exchanges. So, one, are individual businesses trying to build regulatory barriers so that they have control and have a moat? 100% yes, like always, all industries. But, two, acting like it's a grand conspiracy? You know, I wish that were true because that would imply people are a lot smarter than they actually are.

• 53:00Speaker 01

  You know, I think the reality is, most of the way you get here is just through ignorance and laziness. Because like, none of this is possible if people don't keep voting for the politicians who are doing this stuff. And yet, if you look at electoral preferences consistently over time, right, in democracies, it's spend money on benefits greater than the amount we actually have money to pay for, and then get out of the problem through inflation, because that's kind of the default state. Nobody has to take the blame. And that problem, by the way, not unique to the United States. And so, you know, I think it's just a facet of like, how human collective action works. Like, I don't think there's a grand conspiracy, because the idea that there is a global grand conspiracy where all democracies behave in the exact same way about money,

• 53:45Speaker 01

  due to like, an insider cabal, just like, strains credulity. Like, I know these people. They're not smart enough to pull that off, probably.

• 53:54David Hoffman?

  Awesome. You said that the solution's gonna have to come from the outside. This brings us about halfway through your Twitter thread, which has been the inspiration for this podcast. You say, "Stablecoins fix this." What if I told you that you could have a product where you custody your own money? Or if you don't, you can have a security-style custodian who is not allowed to lend your money, and it belongs to you? Where the only loans in the reserve behind this money are T-bills, then risky loans to billionaires? And where transaction costs are less than a penny? And rather than the percentage points currently charged to merchants and retail customers for their purchases? So, in contrast to the financial structure that we've talked about for the first 45 minutes of this podcast, what might a stablecoin financial system look like?

• 54:37David Hoffman?

  What solutions does this fill?

• 54:40Speaker 01

  Yeah, so what? That is essentially doing is breaking apart the function of using the system for payments versus using the system for borrowing. Right, so let's, Ryan, we took you earlier where you said, hey, this fidelity thing is pretty cool. This is your way to use that sort of system in crypto without having to specifically rely on fidelity to hold your money either. Right, and we'll come back to why that point is so important. And honestly, it's probably more important for people outside of the West than people in the West. So put a pin in that. But what it will allow you to do is if I just want to do payments and collect the risk-free rate and then walk away and sleep at night, it's very easy to do it in that system. You don't have to worry about banks, you're not lending money to anybody other than the

• 55:23Speaker 01

  government, you just move on with your life. And there's no reason on top of that system that you couldn't build the entire current banking system that we have. It would just adjust the rates within that system where depositors would pay more and borrowers would pay higher rates to borrow, which I would argue, given the proliferation of debt within our system, is probably a good thing. Like, once you understand there's this massive subsidy to borrowers, it also partially answers the question of why are Americans so indebted? And the answer is because we give a massive subsidy to borrowers, guys. Right, like all the payments people are subsidizing them. I think if you rebalance that, you'd have a healthier, long-term sort of equilibrium within the economy and a lot more safety for people who don't want to take, you know,

• 56:08Speaker 01

  sort of exotic risks through bank wrappers.

• 56:10David Hoffman?

  I want to double down on something you just said, Austin. The massive subsidy to borrowers. The subsidy is coming from the fact that, systemically, everyone that has and keeps and uses and stores their money in a bank account is making rates easier for borrowers. And they didn't really like care about that side of the equation. They just need a place to store their money so they can spend it. Yet, as a byproduct of that, they are creating this like much more lucrative borrowing market so that borrowers can borrow money at cheaper rates. On a surface, that kind of sounds okay, like maybe I'm like incentivizing growth and investment. I'm also incentivizing risk, I guess. Why wouldn't we like that, though? Like, why wouldn't we like, you talked about the debt, but is that just the main reason?

• 56:55David Hoffman?

  Like, why wouldn't we want to incentivize borrowing?

• 56:58Speaker 01

  I would suggest there's a big difference between incentivizing some forms of borrowing, which we could still do, and making it mandatory, right? Like, a system that requires that versus a system that allows that are two very different types of system. And two, I would also tell you, one of the interesting things that you observe with many forms of borrowing is it doesn't really change the shape of the activity, it just raises prices. So maybe the best place you can observe this is like college tuition, right? The fact that the government sort of gives an unlimited guarantee to people on their student loans probably has a hell of a lot to do with why tuition costs have gone one direction over about the past 50 years, right?

• 57:38Speaker 01

  So I would suggest the way you should measure borrowing is on a return on investment basis, which is to say, given the money that's being allocated here, are people generating a significant return on investment adjusted for risk in this space? And I would say transparently, there are many forms of borrowing in the United States where the answer is probably no, because of how much we subsidize it. And that's why I'm saying, to me, it's getting to an equilibrium. I'm not saying don't subsidize any form of borrowing, maybe there are types you do want to subsidize. I'm saying don't make it mandatory ubiquitous for basically all forms of borrowing.

• 58:11Ryan Sean Adams?

  Austin, so let's kind of, by way of recap, get to what you're talking about, which is staple coins here. So we established in the first part of the conversation, our conversation with the average middle-class normie that you might see on the street, right? And just your sidewalk in your community, the person you hang out with, or you don't want to have these crypto conversations. And they have accepted the fact that the banking system is ripping them off, and actually, their money in the bank is maybe riskier than at first it seemed. We've already made that case. And now you're introducing what you just said, which is like, crypto can fix this? By route of stable coins? And we can build the entire financial system on top of stable coins?

• 58:55Ryan Sean Adams?

  So, notice, Austin did not talk about Bitcoin, did not talk about Ethereum, nothing like this. Your argument comes at it from a different route, which is like, stable coins. But let's get back on that thread. Why are stable coins... Better for me as an individual than my dollars in a bank account. I know we'll come back to like you can transport it. There's crypto rails. You can use it and defile all of these things. That's a crypto native conversation that they're not ready for yet. They don't understand. Just, just tell me the basics. Is it because I'm getting that 5% yield? And like, if I, if I get USDC today as a crypto user, I'm not getting that yield, right?

• 59:33Ryan Sean Adams?

  Anyway, just, could you outline how that works? Why, why it eliminates the risk and why it eliminates the, the banker cut that has been so toxic? And, you know, the first case you were making?

• 59:42Speaker 01

  Yeah. So, one, there are ways to get that yield for things like USDC. Like if you leave your USDC on Coinbase, they do pay you, but let, let's leave USDC aside because if I'm going to be honest with you, I like the guys at Circle. I think they've done a good job being, call it a forerunner in that space, but I think it's unlikely that USDC is the final form of like a stablecoin. So let me, let me give a more interesting example here, which is PayPal's US dollar, and I'll explain why it's interesting.

• 1:00:09Ryan Sean Adams?

  Which just, I just hit the billion mark, by the way.

• 1:00:12Speaker 01

  Yes, it did. Yes, it did. Yeah. So I built a lot of the backend for PYUSD when I was at Paxos. So I'm not asking uninformed questions here, but I'm going to start with this. So if you have $2,000 in your PayPal account, let's leave crypto out of this, just in your PayPal account, and PayPal goes bankrupt, what happens to your $2,000?

• 1:00:32Ryan Sean Adams?

  Does that become a claim on PayPal's assets?

• 1:00:35Speaker 01

  Correct. Yeah. You're just a general creditor in the bankruptcy of PayPal. It's actually identical to being an uninsured depositor in a bank.

• 1:00:41Ryan Sean Adams?

  And that doesn't feel good. I did the whole Celsius thing and the BlockFi thing. That doesn't feel good.

• 1:00:47Speaker 01

  It sucks, right? Like, speaking technically, it fucking sucks. Um, now, here's a question for you. If you have PYUSD in your private wallet and PayPal goes bankrupt, what happens?

• 1:01:01Ryan Sean Adams?

  Okay. I feel like we know this by route of Nick Carter, but go ahead, David.

• 1:01:05David Hoffman?

  I think you just get dollars on a one-to-one basis, like later. You wait some time.

• 1:01:11Speaker 01

  You might not even have to wait that long, given that Paxos is involved if they're not bankrupt. But the answer is PayPal's reserves for PYUSD are in a segregated trust account in New York State titled for the benefit of the stablecoin holders, meaning that Ryan, if you own $100 of PYUSD, that is your property, not PayPal's.

• 1:01:31Ryan Sean Adams?

  Wow. Oh, interesting. Oh, cool.

• 1:01:32Ryan Sean Adams?

  That's way better.

• 1:01:34Speaker 01

  Exactly.

• 1:01:35Ryan Sean Adams?

  So it's almost bearer asset like.

• 1:01:37Speaker 01

  It is bearer asset like. It is the same thing as the cash asset in your fidelity brokerage account that is titled in your name.

• 1:01:44Ryan Sean Adams?

  But that PayPal, the PayPal stablecoin, what's that backed by? Is that all kind of like treasuries in the back?

• 1:01:52Speaker 01

  So if you look at what Paxos holds, full transparency, when I was there, we started publishing reports down to the penny for what is in there. So you can go look at Paxos's website and answer that question to the penny of the stuff. But the general guidelines that it is allowed to be in are bank deposits, which should be minimized. And in the case of Paxos, when there are uninsured deposits, they largely also try to buy private market insurance on that to sort of, you know, double tap on that problem of credit risk. And then it will be super majority T bills and something called overnight reverse repo, which I won't bore people with the details of, other than to say that stuff is also secured by US treasuries in Paxos's case.

• 1:02:34Ryan Sean Adams?

  How does this compare to the earlier TradFi example where we were talking about like me hooking up my money market account and fidelity to a debit card? What kind of?

• 1:02:44Speaker 01

  Same stuff.

• 1:02:44Ryan Sean Adams?

  Same.

• 1:02:45Speaker 01

  Same stuff. Like Paxos's reserve management strategy, which I built, so I can talk about this, is basically the same as what the large US asset managers use to run their government money market funds. This is the same stuff, right? So your Vanguard government money market fund, your Franklin Templeton government money market fund, your Fidelity government money market fund, your BlackRock government money market fund, all look substantially similar. It's T bills and overnight reverse repo, same thing Paxos is doing. And that, by the way, is not an accident. Because if you go back and look at 2008, when you hit a credit crisis of what instruments are going to make it through that in one piece, you have just discovered the list of instruments. And that's why that's what's in there.

• 1:03:27Ryan Sean Adams?

  Okay, now what about the yield part, Austin? So I don't currently get that with most stablecoins that I've tried.

• 1:03:33Speaker 01

  Correct. And that problem, if we're being totally blunt, is almost entirely regulatory. If we want to go back to Gary Gensler, right? If you try to pay that yield through in the United States right now, there are some distinct ways you can maybe do it, but mostly people try to sue you for being a security. There are definitely, I will tell you with 100% certainty issuers who want to pay you that yield and right now are afraid of doing it.

• 1:03:57Ryan Sean Adams?

  So that's why we can't do that now. But let's say, I mean, like this is an act of Congress. It's literally the definition of an act of Congress. This could be changed overnight. So let's say that was no longer the case. This, you know, a bill goes through, it's a stablecoin bill that allows issuers of the stablecoins to pass yield to their customers. Then it would create a competitive market, right? And so I'm not going to settle for 2% if, you know, I'm going to go to, you know, some other system that gives me something closer to 5%. Competitive market would take over and so the issuer gets a cut, but it's a lot smaller than the cut that they're currently receiving. And the yield gets passed on to the end consumer. Am I right in thinking this is how it could work out?

• 1:04:39Speaker 01

  You've basically just described the business model of USDM or Agora. Yes. Right? And if you look at run rate fees and asset management for what I'm going to call like semi-vanilla alternative investments, because I would say the stablecoin part is definitely alternative. The money market fund is not. You're probably looking at prices around 50 basis points to run this thing, which is, you know, way lower than all of the 5%, which is what both banks and, you know, some of the current stablecoin issuers who deal with the US are taking. So Ryan, you're totally correct. You're going to get to a market equilibrium over time and the holders will get most of that yield.

• 1:05:14Ryan Sean Adams?

  So better settlement assurances than like money in my checking account, right? Because it's kind of like the best settlement assurances that TradFi markets can offer to ultra-high net worth individuals. That's, that's basically the backing that I have for this. I also get the yield, which I don't get in my Wells Fargo checking accounts, like 0.025% if that, and if I'm lucky, right? So I get that yield in this world. What else do I get? Is that the primary benefit? Or should we, like, is it also the ability to move it beyond like my Fidelity app into other locations?

• 1:05:50Speaker 01

  Yeah. So. I feel like your question is bridging us into why are blockchains important if we want to start going down that.

• 1:05:58Ryan Sean Adams?

  Are we ready to do that? Or is there more on that?

• 1:06:00David Hoffman?

  No, I've actually got a few, a few more questions in this statement. So I'd actually like to kind of back up. There's a little bit more I'd like to kind of finish up.

• 1:06:07Ryan Sean Adams?

  Okay. Why don't you just kill my question then? And you could just back it up?

• 1:06:10David Hoffman?

  Awesome. Let's say this stablecoin paradigm permeates and let's zoom forward a few years into the future to really let like business models change, adoption to happen. How does this American financial system look now with this new structure? Do their credit card fees come down? How do grocery stores and mom and pop like retail businesses benefit? Are we like two more 2008 resistant? What does this kind of paradigm look like when it hits maturity?

• 1:06:36Speaker 01

  Yeah. So a mature paradigm in this form will have probably lower transaction fees for the majority of people using the system. If you're using blockchains, better transparency and ability to fight financial crime than the current system currently offers to people. You will have better individual control of people's money and a fairer allocation of, call it the rewards of being a depositor in that system. And you will probably have an increased cost of borrowing, which will lead to less borrowing. But again, not zero. It's just a reallocation of the cost of capital. So we probably have a less leverage focused system with lower transaction costs for the average person. And given the transaction costs are a pretty regressive tax, like this would be a progressive measure that probably

• 1:07:20Speaker 01

  benefits like lower class, middle class people in harms, you know, the upper class on sort of the allocation of the benefits.

• 1:07:27David Hoffman?

  It sounds like a pretty strict improvement when you ask me. There's one party that I think really doesn't benefit here. And I think that's the banks. And I'm getting this notion that actually with stablecoins, there's still this paradigm, this structure of like lending that's happening. We're just not lending to the banks. We're lending to the government directly. And that's where the consumer retail security comes from, because you have that direct relationship with the United States government. It's a similar structure. We just cut out this middleman layer, which is the banking layer. So what does happen to the banks in this paradigm? Like, does this whole industry just contract meaningfully?

• 1:08:05Speaker 01

  I think it contracts, but I don't think it vanishes, right? Because if you look at the core value of banks, they're doing a couple of things for the world. So one, and I want to be clear, I think these are valuable like services to provide. The discussion we're having is really at what cost should they be provided? So one is credit intermediation. I do think people should be able to like borrow money to start businesses and buy homes, right? Like call it the Bitcoin maximalist view of all credit is bad is an argument in favor of like European feudalism where only a landed aristocracy has money. I don't think that's a great system. We've seen that historically. The question is just what's the rate for those things, but keep in mind, higher rates also bring prices down.

• 1:08:45Speaker 01

  There's a leveling effect there. Another thing that banks are very good at sort of systematically over time has been securities issuance and market making in that space. Right? As you get to the investment banks, like away from just community banks, that is a real service. You know, as much as people want to hate on Goldman Sachs or JP Morgan or Citi or, you know, even Lehman back in the day. I think the fact that American companies can form, raise capital and exist at scale has a lot to do with the investment banking system that we've built up in the United States. And I do think it's important that we still have that. Again, the question is just what is the cost for services there? The last part, which is the part I think banks will stop doing is payments, right?

• 1:09:26Speaker 01

  Like banks right now basically run the payment system. And in that context, I kind of ask the question of why? And that is a very like American way of doing it. If you look at Europe, they have like e-money issuers. If you look at China, they have like the everything apps and those people are the ones largely running payments. Like the idea that the banks should have a monopoly on the payment system, I don't think is a given, and I think that's where they'll lose.

• 1:09:50Ryan Sean Adams?

  Is this, by the way, awesome? Why payments suck so bad in the US like ACH payments? Like I still have to use a checkbook for a lot of things, which is like ridiculous.

• 1:10:00Speaker 01

  Payments. So listen, if you've lived in the United States and you've never lived anywhere else, um, let me tell you that you are essentially living in the 1970s when it comes to payments. I don't think people realize that, but like, so trivia question for you guys. Um, if I asked you to give me a guess on how many years ago real time payments went live in Japan, what would your answer be?

• 1:10:23Ryan Sean Adams?

  And what's real time payments really quick?

• 1:10:25Speaker 01

  Like instant, instant, 24 seven instant.

• 1:10:28Ryan Sean Adams?

  Like a Venmo type of experience?

• 1:10:30Speaker 01

  Yes.

• 1:10:30Ryan Sean Adams?

  But really like. I'm going to go with the nineties. I, I think it's post internet. Yeah, I would say early 2000s.

• 1:10:37Speaker 01

  Yeah, those are both good guesses. And here's the point that leaves us in. We're like, what, 25 years out of date as a result of that in the US system? Right? So like, again, Asia has had RTP since basically late 90s, early 2000s, as you run around there, right? Like the, this whole like, oh, we don't know how RTP will work. It'll be dangerous. It's like, have you heard of the existence of South Korea? And, you know, I just find this infuriating as somebody who looks at international finance that we can't get there. So yes, it's largely like a combination of bank monopoly and legislative and regulatory inaction because there's no reason we can't. We just haven't.

• 1:11:14David Hoffman?

  And stablecoins immediately gets us there. If the, if the entire US system was, was substituted out, you're like suddenly overnight for stablecoins. Basically, we're already there, real time payments by a stablecoin.

• 1:11:25Speaker 01

  And doing it with stablecoins has an important benefit that a lot of the current Asian RTP systems don't have, which is those are still closed systems. Right? So there may be a 24/7 system, but getting access to it, being a member and like integrating into that is hard. When you're using a stablecoin on a blockchain and it's an open access system, that is a totally different experience when you have Money Legos. Cause now I could get my money from my brokerage account to my checking account, or I could go like buy a car with it. Or I could go like put it in compound, like whatever the hell you want to do on a uniform platform, which is not always the case, even in the RTP countries, right?

• 1:12:05Speaker 01

  That may be solely within like the banks. And I think the Money Lego component of, of this is something the TradFi people really have had a hard time wrapping their brains around. Because the system they live in is so antithetical to that, right? It's like, you know, Plato's allegory of the cave, yeah, type thing. Like you've got to come out of the cave and see it, or you don't really understand what the shadows on the wall mean.

• 1:12:31David Hoffman?

  There's a punchline that you leave, I think, at the end of this section in your, your tweet thread saying, TLDR. If you're not strongly in favor of the public massively subsidizing bank executive compensation and rich billionaires borrowing money, you're pro-stablecoin. You just don't realize it. And I do want to remind listeners that this is all kind of like. A pragmatic reaction to 2008, at least that's what I see. Like Bitcoin created after the 2008 financial crisis. But Bitcoin has its fantastic merits. 21 million hard cap, can't inflate the supply. It's digital gold, that's fantastic. For stable, I think stable coins are actually the far more pragmatic answer to the 2008

• 1:13:13David Hoffman?

  financial crisis than I think we frequently discuss in the crypto world. Because it is the same unit of account. It's working its way into the financial system more deeply than Bitcoin. And it does take the payment side of the equation out of any material amount of risk. Is that what you see, Austin? Where you just see like a more pragmatic 2008 solution here?

• 1:13:36Speaker 01

  Yeah, so my friend Omid, who's a professor up at Columbia, once referred to me in a debate slash argument we were having as a "disgusting crypto moderate." So I think you having hit me with like the pragmatic comment is the like, you know, less funny version of that. But yeah, I'm very much a functionalist. I just want stuff to work. I want to get the better systems for people. By the way, I can make arguments both in favor of fiat currency and Bitcoin. And I think in a future system, both will coexist. It's not going to be one or the other. So I'm very pragmatic in the form of like, there are many solutions here, all of which can make things better. And you know, really, we should be trying all of them.

• 1:14:15David Hoffman?

  And we've been talking about in this podcast so far, why this is good for America. But there's also a section in your podcast and your Twitter thread about why this is good for the rest of the world. Maybe you could just illustrate what you see when we, as an America, build this like crypto-stablecoin-based payment system inside of our banking system internally. What might that do for the rest of the world? How do we export some of the power here?

• 1:14:39Speaker 01

  I will say, I actually think from a long-term perspective, this is the significant part of what we're doing, like the most important part. And by the way, if you're a Democrat in America who's been skeptical about crypto, you need to think really, really hard about this if you want to continue to be skeptical. And what I mean is this, stable coins exist on a blockchain where, one, to get a hold of them, only two conditions need to be true. You need to have the internet and you need to have something of value to exchange for them. And what this means is extractive, evil, corrupt regimes have a very hard time preventing people in their countries from buying stable coins. Right? If I am in Nigeria, where the financial management of the country has been pretty poor.

• 1:15:24Speaker 01

  If I am in Venezuela, where they've just straight up expropriated people in bank accounts. If I am in Russia or China, where if you're a political dissident, they'll just seize your entire bank account and be like, it's ours now, goodbye. This gives people a way to opt out of that, both in terms of where they keep the money. So it's on a blockchain, it's not in the local system. Your local people can't just steal it from you. And two, to put it in dollars, because the other way corrupt central banks steal from their people is through inflation. Right? And this gets people out of both. And if you live in a Western society where whatever complaints we have about the US financial system, and trust me, we've had plenty, they pale in comparison to complaints about like the Zimbabwe financial system. Right?

• 1:16:09Speaker 01

  It's not even orders of magnitude the same. Creating the opportunity for anybody in the world to opt into the US dollar system with self custody is maybe the single largest human rights upgrade we can make. And by the way, will systematically over time grind every single exploitative regime into dust from a monetary perspective by giving people that option.

• 1:16:31Ryan Sean Adams?

  So there's a human rights case here. And it's just basically anyone who is under threat of being de-banked, disenfranchised, and then also democratizing access to the financial system that the rich and wealthy billionaires use, that becomes all possible. All you need is the internet connection and something of value to exchange. I feel like that part hasn't hit normies yet, because you can say it, Austin, but, and like we say it, and we often say something similar on Bankless, but we don't, we haven't yet had the mainstream crypto wallet that, you know, it doesn't have a 24-word seed phrase or something like that, that somebody could just like spin up.

• 1:17:12Ryan Sean Adams?

  I mean, David's recording this from Argentina, where like crypto usage is just like much more embedded in. In the culture and everyday usage and it had the the person on the street, at least in middle class, America, hasn't yet experienced that. Do you think that they will in the future? And is that ultimately going to be the, hey, just, you know, open up the App Store, download this wallet and look what I can do. Is that going to be the thing that kind of tips them over for this use case to make sense and for this argument to make sense?

• 1:17:40Speaker 01

  I think in the United States, honestly, we're a large way off from that. I think it's coming much faster than the rest of the world, right? Like, you know, as much as we might have complaints with them, if you look at things like Telegram Wallet and Tether being integrated into there, that's a big deal for people in third world countries with exploitative governments. You know, products like that will probably be built for users in places like that and by people in places like that before it gets to the United States. What I would say to people in the United States and sort of the riddle that I hit people with is like, why do you think women should be completely controlled by the Taliban? Right? And again, when you ask that question in an unexpected way, people will be like, well, I obviously don't believe that. Oh, that's interesting

• 1:18:21Speaker 01

  because, right? And so you start revealing sort of through your own lack of knowledge about this, you're actually massively discriminating against people, especially disfavored minorities. Right? And so you've got to unpack it in that way. Somebody who's done a really good job of that, by the way, and I would say, you know, is somebody people should pay attention to on this front is Richie Torres in Congress, right? He talks a lot about the human rights case for crypto. Like, look at Richie and you understand why. This is a dude who is in Congress, one of the most eloquent speakers there, also does not have a college degree and grew up poor as hell in the Bronx. Like, he has seen people without access to banking services. He has seen people

• 1:19:04Speaker 01

  victimized by predatory regimes. He has seen people who don't have control of their own money, like firsthand. That is his lived experience. And so it's not surprising to me that Richie was one of the first Democrats to be like, oh, this is super interesting. Right? Like, the use case is staring him right in the face. But the way I express it to other people is, look, you may not use crypto. That's fine. Nobody's telling you to. You don't have to. But being opposed to an existing means you are against these people having solutions. Like, why are you against that?

• 1:19:34Ryan Sean Adams?

  Yeah, it strikes me that a lot of the arguments that you've made are going to be appealing to anyone who is sort of supportive of the 2008 Occupy Wall Street, you know, disrupt the banks sort of like function here. And a lot of people on the left, I mean, you just look at like $6 billion annually in overdraft fees that banks charge Americans, overdraft fees. They charge you money if you don't have money in your account, right? Like, what is that?

• 1:20:01Speaker 01

  Hold on, let's talk about check cashing fees. Like, what happens if you don't even have an account, right?

• 1:20:06Ryan Sean Adams?

  Right. So there's a lot of wins on the equality side of things that I think a lot of folks on the left care about and the humanitarian side of things. So I think we've illustrated that that case. One other piece of your tweet thread that I think is important is to ground someone in the conversation. Again, this, this, you know, normie on the street of right now, the current regime in power in the US is actually crypto hostile. So I think you made the point, if someone is listening to the entire argument that you made, and they're still like, I don't know, Austin, could go either way. They have to recognize that their default and the default posture right now of the US is actually to kill it,

• 1:20:52Ryan Sean Adams?

  to not let this experiment play out, to just like eliminate the free market competition of this opportunity to actually disrupt some of the commercial banks. That is the default posture. Can you articulate that side of the argument a little bit better than I just have?

• 1:21:07Speaker 01

  Yeah. So what you're talking about is what Nick Carter named Operation Choke Point 2.0. And, you know, like Nick and I are friends. We've talked about this before. So, you know, I've been down this rabbit hole a number of times, but I would suggest to people, one of the great ironies of the current Democratic administration is that beyond being anti crypto riot, I would say specifically, they are very anti-stablecoin, right? You have the banking regulators running around saying, stablecoins are a systemic threat to the US financial system. This is not true. If anything, the financial system is probably more of a threat to stablecoins than the other way around. See like Silicon Valley Bank failing and almost blowing up Circle?

• 1:21:49Speaker 01

  But two, they're mainly just a threat to bank executives and bankers making money off of these zero deposit rates. Like, if you think a pile of T-bills is a systemic threat to the US banking system, then you don't believe the US banking system works. Like, this is a crazy statement.

• 1:22:06Ryan Sean Adams?

  This is very curious, because someone like Elizabeth Warren, who's part of the anti-crypto army, she actually rose in my political consciousness, maybe in other people's at a different time, but on the back of the, you know, 2008, the bankers are all corrupt, I'm gonna go reform the banking system. I thought that she would be someone who is very anti-bank, and yet you're saying the anti-crypto bent and anti-stablecoin is actually a pro-bank posture?

• 1:22:30Speaker 01

  What is that old statement, like, you either die a hero or live long enough to become a villain? Like, that's Elizabeth Warren in a nutshell, right there. Like, I would suggest to people, nobody in the entire United States is better for bank executive compensation than Elizabeth Warren.

• 1:22:45Ryan Sean Adams?

  Wow.

• 1:22:45Speaker 01

  Shots fired.

• 1:22:46David Hoffman?

  I'm gonna clip that and send it to my family.

• 1:22:48Speaker 01

  I meant what I said. I don't think Liz is doing it on purpose, but I think her actions are leading exactly to that point. Like, she is restraining the competition that would take apart the too-big-to-fail banks by doing this. Number two, you know, Ryan, you brought this up earlier, you've got Gary Gensler in the SEC, which is to say, when your playbook is, we're not gonna write the rules down, but also, we're gonna run around and sue people, often on inconsistent legal theories in different courts. And by the way, also, just as an aside, we're gonna commit perjury to try to bankrupt people and hope we get away with it. This actually happened, by the way. Look up the debt box case, if you don't believe me, where the SEC was sanctioned for that exact behavior

• 1:23:31Speaker 01

  and had to close down their Salt Lake City office. This is not the action of people behaving in good faith. Right? And so, the US regulators, by taking this hysterically negative stance towards these things, are actually fundamentally very anti-human rights, and also, I don't think they understand this incredibly pro-financial crime. And so, I look at this, and I'm just like, okay. This is evidence of a broken system and rather than trying to persuade the people doing this that you really, really, really need to change, I think at this point it's easier to get rid of them. Now, one thing I would caution people is that is not a statement about all Democrats. Again, I've met many Democratic staffers, some of the representatives, some of the senators.

• 1:24:13Speaker 01

  I would not describe all of them as anti-crypto and in fact, some of them are the most pro-crypto people in Congress like Richie Torres or Wiley Nickel, right? The difference, as you look at it, is almost always like a relatively decent correlation to age. Like, the older you are, the more crypto skeptical you are as a Democrat and the younger you are, the more crypto positive you are. So to me, this is really an issue of like the 70-plus old guard who probably still thinks somewhere in the back of their head that PayPal is a scam, much less crypto, versus the younger Democrats who I think actually get the punchline here and support it.

• 1:24:48David Hoffman?

  There's a section I want to read again from your tweets where you say, "My personal guess is that the dollar-stable coins are going to slowly erode the monopoly moat of the banking system until it collapses and is forced to restructure itself in a way where it's just not straight up stealing cents at a time, day after day, adding up to trillions, but it's unnoticed due to it happening one penny at a time." Is that where you think this motivation behind Operation Choke Point 2.0 is really coming from? Because there's been this kind of like confusion as to like, why does this thing exist? Like, who is footing the bill for this effort? Like, why is this happening? Or like, all of a sudden, like, it's this invisible hand behind the scenes that we can't really engage with?

• 1:25:31David Hoffman?

  What do we know about the motivations and actors behind Choke Point 2.0?

• 1:25:34Speaker 01

  Yeah, so I think it's the collision of a couple of different elements. There are definitely people who are on the side of the big banks who want to preserve their oligopoly over the system, even from the regulatory side, because quite frankly, it just makes it easier for them to regulate them when it's eight of their friends and they know who to call about what and they're familiar with it. Number two is the general US regulator antipathy towards technology. Like, this extends beyond crypto. Look at AI. Look at the fact that people still freak out about like, automating KYC. In any form like Sultan Meiji, who was the former head of innovation at the FDIC, quit in disgust and wrote like a famous op ed about it, you know, calling out the technophobia of US banking regulators writ large. This issue is not specific to crypto.

• 1:26:19Speaker 01

  And then I think there's a third part, which goes back to what I said, which is regulators only on the downside here, man. Change is always scary to them, right? And it's really, if it were any one of those elements, it's easy to fight. It's all of them together that produce a pretty steady table with like multiple legs to stand on.

• 1:26:37Ryan Sean Adams?

  What's so fascinating here, Austin, is just like we've been doing this podcast for like four years now, David, David and myself. I feel like I've, we've heard every single crypto pitch imaginable. Interestingly enough, we haven't yet heard this one because not once in your, in your pitch to kind of the average middle class person in America, did, did you really dwell on Bitcoin or like sound money? Or Ethereum and like as a property rights system.

• 1:27:01Speaker 01

  Yeah.

• 1:27:01Ryan Sean Adams?

  Or smart contracts or programmable money. Instead, you sort of based it on the premise that banks are ripping you off. And here is a way to bypass commercial banks and the infrastructure is kind of like ready. And all you need is an internet connection. So you have this like access and like a quality pitch. I, I think that's great. And I think that could open the door to a lot of people who are skeptical about it. I, I do want to read this because this ties into, ties a bow on the whole operation choke point thing. So if someone, the average like middle class American listens to Austin's case up to this point in time, it's incumbent on them to also then justify the anti crypto posture that the US is taking or to push for a change.

• 1:27:45Ryan Sean Adams?

  And in order to justify this, you say this, if you aren't convinced crypto has any value, I would also bring you back to one point, are you so convinced that we should destroy it? Versus letting it compete and just lose in an open market? I mean, that is the key question, isn't it? Like, are you so convinced that you actively want to destroy it? And I want to throw that question like to you back in the form of the election that's ongoing. So we've seen a very crypto favorable, at least in words. Uh, Donald Trump and GOP, they've even written some like, you know, crypto-friendly verbiage in the political platform. On the other side, we haven't seen this movement from Kamala Harris and the Democrats at this point. So there's an opportunity to do this.

• 1:28:27Ryan Sean Adams?

  Both David and I were hoping, fingers crossed DNC, that some sort of crypto language would get inside of the official Democratic platform, Democrat platform, and that didn't happen. What's your take on why? Like, because it seems like it's getting to the point where they're actively trying to quell the project by not saying anything to continue the Biden policies, which have been anti-crypto. What do you think's going on? And do you have any, like, just reflections on this?

• 1:28:57Speaker 01

  Okay, so let me start with the Republican side of things because I think that's a little easier to explain. If you want to know how pro-crypto the Republicans in the House are, I'm a New York Democrat who teaches at Columbia University called by the Republicans in House Financial Services to testify about stable coins.

• 1:29:13Ryan Sean Adams?

  You spoke to them in front of Congress?

• 1:29:15Speaker 01

  Yes, yeah, I testified in, what, April of last year or something like that.

• 1:29:20Ryan Sean Adams?

  Are you saying you were like last on their list because of your position?

• 1:29:23Speaker 01

  No, I'm saying the fact that they will bring a Democrat as a Republican witness tells you how much they care about this space, right? It's for them bipartisan and they want to get it done. I think Trump, you know, look, the reality is Trump changes his position on things a lot. I don't read much into his comments other than that he's not anti-crypto. And that's significantly better than the Biden administration, who is staunchly anti-crypto, right? So just again, speaking as a pragmatist, it is obvious that Trump will be an upgrade. The question is just how much of an upgrade. Where I've been very disappointed on the Harris side and what I think is going on there

• 1:30:02Speaker 01

  is the Elizabeth Warren, like, control economics wing doesn't like private market solutions writ large. They don't like banks, they don't like crypto. Like Elizabeth Warren is the person who wanted the post office to be the bank, right? If you remember that whole thing. And, you know, I think that's what's driving the administration and Harris in particular being silent on this is by Making an anti crypto stance, she'd pick a fight with all the crypto people. By making a pro crypto stance, she'd pick a fight with the economic left wing of her own party. And so the only safe things to do is just shut up. But the problem is, I would tell you, if you're a crypto person, you have to interpret that about the administration as a statement that they are likely to continue the current policies, especially as some of the people involved in those policies seem to be involved in

• 1:30:47Speaker 01

  the Harris administration. Like, I'm gonna be blunt, I don't have a lot of positive things to say about the Harris administration or their efforts on crypto. Again, that does not apply to all Democrats. Torres, Nickel, Gillibrand, right? Like, a bunch of folks in the House I can't name, I think are pretty pro crypto. But the administration seems poised, you know, they brought in people like Brian Nelson, who were part of Operation Choke Point. That's not what you're gonna do if you're gonna change.

• 1:31:12Ryan Sean Adams?

  Wow. I mean, there's still this outstanding question of why are they letting what appears to be sort of a minority left wing of kind of elite economists run this policy? It doesn't appear like that is a, going to win them any votes, it's certainly not going to win them any, any, any favor donations from like, kind of the crypto side of things. So why are they doing it? That, that part still feels unexplained to me.

• 1:31:35Speaker 01

  If you had a belief that all of this is just a scam that is going to go away and isn't really important and people don't really vote on it, you would behave this way. Right? Like, I think if you shot these people up with truth serum and interrogated them, that's what they genuinely believe. Now, they're wrong, in my opinion, but I do think that belief is genuinely held and it explains their actions. The only way to disabuse them of that notion is to go show them the reverse by both voting them out and building things.

• 1:32:06Ryan Sean Adams?

  Austin, this has been a phenomenal conversation. I've, I've really enjoyed this. I missed the last Bankless podcast you were on. It was just such a pleasure for, for me to be on this. And David, David recommended it. And he was like, you gotta talk to Austin. And this has been, it just like, I've really enjoyed this. I guess maybe last question to kind of close it out. So we've been talking about this conversation that we're having with the hypothetical person. Have you actually had this type of a conversation in real life with another individual? And has it worked? One and a half hours.

• 1:32:32Speaker 01

  I'm, I'm gonna go further than that. I have had a longer conversation than this, and it has definitely worked, and not just with random people, but also with banking regulators. Right? Like, once you start really peeling the onion for people, and as you've seen, it does take some work, they start to realize like, oh, this is extremely important and I need to think a lot more about it. I'm going to give two pieces of advice to the crypto community if you want to live in the long run here and survive. Number one, start treating your opposition with respect. I know it's fun on crypto Twitter to act like a flaming bag to anybody who says something negative, but the reality is if you engage with people by asking questions, trying to empathize with their point of view and like thinking

• 1:33:15Speaker 01

  through why they're saying what they're saying and then engage with them, they feel heard, they feel listened to, and they feel like you know where they're coming from, and then they're much more open to hearing from you. So the question is, do you want to like persuade people and actually change things, or do you just want to look like a badass on Twitter? Because those are two different like things you need to do. Number two, understand that many of the concerns of financial regulators are completely legitimate. They have correctly identified some of the negative elements of the space, right? Like, we do have problems with like misrepresentation and hyperinflated claims and like people not disclosing risk and, you know, all sorts of things that they've seen a million of from financial scammers before you were even born. Because like, go watch Wolf of Wall Street, they've been

• 1:33:59Speaker 01

  dealing with that guy for 30 years. And so, you know, I would say try to understand some of their points are probably legitimate. That doesn't justify the status quo. But if you can get to those two places, you're going to be way more persuasive talking with them and coming across as somebody very principled, rather than just, you know, one more random lunatic screaming on Twitter.

• 1:34:20Ryan Sean Adams?

  Well, now my just thought goes to if you've been successful in having these conversations, like, how can we get you in front of more people to have these conversations? Because we got to accelerate our progress in the US. And I do hope that this podcast is one piece of that puzzle. I will say for Bankless listeners, if you are amongst that crowd and of the, you know, like of that ilk, then send this to somebody. Send this podcast to someone who, you know, needs to hear what Austin has to say.

• 1:34:48David Hoffman?

  Was rallied up about 2008.

• 1:34:50Ryan Sean Adams?

  Yes.

• 1:34:51Speaker 01

  I was gonna say, you really want to move the needle here, like, very practical tactical advice. If you're a US citizen, find out what house district you're in and mail the link of this podcast to whoever your congressional person's staffer is.

• 1:35:04Ryan Sean Adams?

  Imagine that. Bankless Nation, you got some marching orders. How about for anyone who's outside of the US? What is there, is there anything for them? Austin, we were talking about the, the average middle-class American.

• 1:35:14Speaker 01

  So the answer to that is we don't have another hour and a half. That'll depend what country you're in and what you're doing. Like, let me actually say some positive things too. So just the other day, I spoke at a financial forum and I was invited to speak there by the J F S A, which is Japan's financial services regulator. They've done a really good job in crypto. I would remind people that the only F T X entity where customers did not lose money was F T X Japan. And it is because they had seen Mt. Gox and written rules to keep customer funds safe. What I would tell you if you're outside the US is look at your local regulators and really think deeply. Some of them are doing a terrible job, but some of them, J F S A, M A S, maybe Abu Dhabi,

• 1:35:59Speaker 01

  are doing a very good job. And in the case where they are, support them. Speak out, say nice things. This is hard. These people are taking risks by embracing technology. You need to give them credit and support them.

• 1:36:11Ryan Sean Adams?

  Amazing. Bankless Nation, we'll have some links to the threads that we talked about today. Austin, it's been great having you back on Bankless. Thank you so much.

• 1:36:17Speaker 01

  Thank you very much.

• 1:36:18Ryan Sean Adams?

  Gotta end with this, of course, you know that crypto is risky, but man, so are the dollars in your bank account. Less risky though, perhaps. Perhaps less risky. Stablecoins are less risky than a lot of other things out there. We are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.