The crypto protocols and projects that will stand the test of time are those that can scale to allow for massive adoption should over a billion people use blockchain, said Sam Bankman-Fried, CEO and founder of FTX. FTX is one of the world's largest cryptocurrency exchanges and had recently acquired the rights to rename the American Airlines Arena in Miami, home to the NBA team Miami Heat, to FTX Arena.
We're here now with a legend in the crypto space. Billionaire Sam Beckman freed is the co-founder and CEO of FTX. One of the largest exchanges in the world. We'll be talking about his backstory, his outlook on the crypto exchanges and currencies. And of course the best projects and protocols to follow today.
Sam it's your first time on could go. Thanks for having me. We're going to be talking about FTX and of course your latest projects and your partnership with amongst other things. But first I want to get your outlook on the industry. I don't think anybody has a better pulse on the, on it than you. I'm hearing this from a lot of my friends, even my friends from work, my personal friends, they're all telling me the same thing.
They're saying, David, Hey, this is the last hurrah for Bitcoin or any cryptocurrencies come December. We're going to get the last bull run after that. Everything's going to create. That's just the sentiment I'm hearing. Is that true? I mean, look, I can't, I can't predict the future for sure. You know, not investment advice.
Um, you know, there are always be more crashes. There will always be more bull runs. Um, you know, my best guess is that over the next few years, we may see substantial institutional adoption of cryptocurrencies. I think we've seen a number of large institutions. Uh, soft commit to using them in one way or another, although they haven't actually started implementing that yet.
But I think that that potentially provides, um, a big set of inflows on the medium to long-term horizon over the next couple of years. So suppose we do have a crash because like you said, things come in cycles. The incoming wave. Suppose we do have a 2018 2018 style crash. What kinds of projects do you think would survive this.
And the next bear cycle. Yeah, I know. I think that generally the projects that you see surviving the best are the ones that have. Really loyal followings and the ones that have really important use cases. I think the ones that seemed more like hype driven often crashed the hardest. Um, but when you look at projects that have either a lot of real adoption or is it potential for a lot of real adults?
Those are projects that, you know, loyalists are going to be backing even during a bear market. And so I think that you're looking at, you know, blockchains that could see huge adoption. I think you're looking at, you know, uh, various exchanges and other infrastructure players that are going to be key to this space going forward.
Um, and you know, anything else that seems like it has an important feature that can't just be served replaced by a competitor. Yeah. Talk about that. What do you think are the best protocols right now for mass adoption? In other words, what is the next Bitcoin Ethereum? So on and so forth. Yeah. You know, I don't know for sure.
But what I will say is that if you look at what it would take to have, say a billion people use cryptocurrency to have a billion people use blockchain infrastructure, right? If each one of those is sort of using it in the same way that we use social media or finance today, that's going to be creating probably millions of transactions per second, for the blockchain.
Um, and I, you can see this, if you just look at the transaction throughput of current large, uh, you know, financial social media, um, or, or basically any large online application. And, you know, from that perspective, you know, one thing that I thought about a lot is what are the blockchains that could scale to that level that could scale to millions of transactions per second.
Any composable native way. Um, you know, I I've been on the record a lot saying that I think salon has a real shot at doing so, which I think is really exciting. I think, you know, if there are other tokens out there as well, that are aiming to scale quite a bit, you know, avalanche is one of them, um, I think that that is really the, uh, the thing that I look at the most, because you know, a lot of other parts of the crypto ecosystem are really important, but are also things that can in theory, um, you know, be improved, uh, for basically any blockchain.
I think the core technology. It's something which is much harder to completely overhaul. So Sam given that Solano does have many qualities that supersede Ethereum, do you think it's possible for Solanas market? To exceed Ethereum's market cap at some point. And if so, can we see that happen anytime soon?
You know, it could happen. It could never happen. And I think that, that, you know, one of the things we've seen is look, there's, there's the underlying blockchain protocols. There's also the tokens affiliated with them. And, you know, there is certainly an extent to which these tokens and follow the adoption of the protocols that they're tied to.
There's also an extent to which they can, um, gain, you know, mass adoption, even if their protocols don't. Right. And, you know, I think Bitcoin is probably the cleanest example of that, where it is by far the largest cryptocurrency and the most, um, you know, known cryptocurrency in the world. And that's not because people are using the Bitcoin blockchain for a lot of things, other than Bitcoin, the Bitcoin blockchain is for Bitcoin.
Um, and so, you know, which is the long way of saying. You could see mass institutional adoption of, uh, you know, if the token, whether or not you see mass institutional adoption of Ethereum to blockchain. Um, and so it's hard to make a concrete prediction about what the pricing action of that will be. Um, and on the flip side, right, you could see Savannah fail to gain mass adoption.
On the blockchain side, you know, I'm optimistic that there is real upside there, but that doesn't mean it necessarily will be realized, right? Maybe it has serious issues. Maybe another blockchain comes in and competes, um, or, or maybe new blockchains end up managing to get where we all think they have a shot at going.
Do you think Solata could be the base for more defy applications in the future? Yeah, I think you absolutely could be in. And I think that, that, you know, that is one of the most compelling parts about it is that it does have the potential to scale to the place where, where things are needing to scale to if blockchain gets huge and it has the potential to host defy applications for.
Uh, you know, hundreds of millions to billions of people on top of it with, you know, a giant composable ecosystem. Again, that's not saying necessarily will happen, but it could happen. I think that's really exciting. Wow. Generally, I mean, there are a lot of problems with Ethereum that salon has fixed. One of them being, you know, high gas fees, uh, the low transaction rate.
Do you think Ethereum, 2.0 is going to fix some of these. It's going to take a different approach to them. You know, what it's going to do is I always use sharded and their pros and cons. The pro is that it's, it's easy to parallelize it, right? It's easy to get up a number of threads at once each computing, different things.
And so that, that probably will bring down blockchain costs, bring down, you know, confirmation times quite a bit. Um, I, you know, the, the cost of this. Is that there won't be native composability between transactions on different charts. And so if you imagine taking a single order book and charting it, it doesn't really work, right.
Someone puts out an offer at, you know, 5,000 for one Eve and then two people on two different charts, both want to buy that either they can't do it. Right. Or at least, at least one of them can't do it. So they're not in the right charge to do so. And so that's surface the cost of. Okay. Interesting. I want to talk about just looking at protocols and large.
Uh, I've been getting this question from, uh, my friends who have a traditional finance background. They say, Hey look, David, you know, there's no cash flow. There's no DCF to analyze. How do I pick a protocol to invest in what are some of the other criteria that maybe they weren't taught in a business school to look at?
You know, it's tough an office. So like part of this is like memes, right? Like that's not something that people are usually taught in business schools. But if you look investing nowadays, not just in crypto, everywhere, memes are really fucking important. Right. Level. That's a great point. That's a great point, Sam, because like means are like w we were taught to stay away from hype.
We were taught to avoid the crowd, but that's exactly what the means. It is. And, and I think that one of the things that we've seen is because of social media for the first time, a hundred thousand individual unaffiliated investors together can be bigger than a pension fund and can move markets. In a way, which is lasting, not just a flash in the pan, in some cases now, in some cases it is a flashing pan, right?
And, and, and like meme stocks mean tokens tend to be very volatile. They tend to be risky and you should absolutely not put anything more than your absolutely willing to lose into them. Um, I, but you know, it's an important part of modern investing is understanding meme cycles. And so I think that sort of.
Yeah, one pretty important factor that I think doesn't get necessarily, you know, it's sort of time of day, um, in, in, in business school classes, you know, outside of that, I, I think a lot of faces looking at feature portfolio, uh, uh, teacher protocol, adoption, you know, looking at what projects might be building, how long.
Value might be transacting through a protocol. How much fees might people be willing to pay, to use that protocol in the future? If it gets to the point of adoption that it could get to. I mean, talking about meme coins. What advice do you have for somebody looking at meme coins and not sure whether or not this is legit, because what are some of the red flags or criteria you're looking for?
I mean, take recently, for example, I mean, there's lots of examples. Just off the top of my head, squid game coin. I watched Netflix series. I love the show and then the coin case. I missed it. I missed the whatever, like 70000% return in like a couple of days or whatever it was. And then it crashed as zero and got a rug pulled and some people lost all their money.
Um, one guy lost all his life savings. I mean, we hear these sad stories, but ultimately they bought into it. Nobody forced them to do it. What did they miss? What are the red flags they saw that made? Well, maybe they didn't see that they should have, well, one thing again to note is never, ever put more than you're willing to do.
Into something like that, right? Like, no matter what you're investing in, it could absolutely go down by 90%. Right. That, that is a risk. And that's a risk that you should be cognizant of. Um, I putting that aside for a second, I, you know, I mean, I think it, I actually don't know the details, but I think that this would green token was not actually affiliated, formally speaking with the Netflix series.
Right. It was just some guy who named token after it. Um, Uh, I'm not even sure that's exactly legal. Like there may be some IP things going on there. Um, I, which are not exactly kosher. Um, but you know, more generally I think early on in the cycle of a meme, token is quite difficult often to figure out whether or not it's going to be a rug pull freight light.
I mean, is this just like often, often. I don't know the creators to do it yet. I mean, in this particular case, I think the creators were non-US where chose to stay anonymous. Is that a restaurant and James and judge their background. So, one thing to look at here is what does the supply distribution of the token look like?
Right? Is there something like a creator or a founder who owns, you know, 60% that token supply? If so, and if you don't know who that person is and you have no trust in. Right. There's always going to be the risk that they weren't bold. Right. If they don't own any tokens and can't mint, any more tokens, there's a lot less that they could do potentially to, I, you know, gained value at the expense of, of the purchasers of the token.
So, so that is one flag that you can look for. Okay. Last question about the markets is we'll move on to FTA. I get asked this all the time. You probably can ask this all the time. Any projects you think we'll have a 110 X, a hundred X potential, you know, I mean, it's still afraid. And I think a lot of them have that potential, but that doesn't mean the odds are that high, that they'll realize it.
Um, and, uh, you know, I certainly want to stay away from making, you know, specific calls, but I think the thing that I would say is. Find a team that you think is really great early on. Um, that, that, that I think is like the most reliable predictor that there's a chance of. I think about crypto staking, we see a lot of these coins come out and you stake it.
It promises you this particular quote. I'm thinking of my friends in it. 8000% return. You can't withdraw your cash until the end of the staking period. Um, it's unclear how these returns are generated. Different protocols have different return generation methods. What's your sentiment on staking? So it's, it's a wide field and some of these pools can be fairly muted.
Um, some of them are not as lucrative as they seem. You have to look into the details. So what should you look into, first of all, what are the staking rewards paid it? Right. If the staking rewards are paid in an asset that has some adoption or stability, right. If they're paid in, I mean, a stable corner, even like Bitcoin or Ethereum, right.
You can sort of more trust that that sort of is real value that you're getting. If they're paid in the same token, you're staking. Um, then if that token crashes, so do the staking group. And, uh, and if they're being blocked up for a little while, right. Then there's a risk that it crashes before you could even theoretically sell them.
That doesn't mean it's necessarily bad to stay. Um, but it's not necessarily good either. It's not like a free interest rate that you're getting on that, right. Because the interest is being paid in the same volatile thing you're saying. And you may not have a way to hedge that or to even sell it for a little while.
So that's one thing, again, it's not saying necessarily bad, um, but it's not nearly as guaranteed as, as it might see, um, that, that it will be good. Um, and so that's one thing that, that you can look at there. Um, you know, obviously looking at the protocol, understanding if this is a safe protocol or if there's like potential for some unknown, uh, uh, Nutrition in it.
And then the last thing is, you know, when you talk about rug poles, right? If you're staking, illiquid token, even if the interest rate is in real dollars, um, you know, if they're paying 10% a day, but after three days, the token goes to zero, you still lost money. Yeah. And you know, the last thing is like, think about like, how do I feel having exposure to this token while I'm staying.
Okay. That's that's good advice. Um, you've told this story many times the story of your founding, uh, you've been, you've been on many other channels talking about it, but this is your first time on, on our channel. So I'd like to just went over your history. Now you started your career as a quant trader.
Then you moved into cryptocurrencies, uh, doing arbitrage. Uh, tell us that story. And, uh, we'll, we'll talk a little bit about arbitrage for, uh, for those investors who are curious to know what that means. Totally. So, you know, I, I got involved in crypto in late 2017 when it was served, going through its first giant public bull run.
And you know, at the time I, you know, to see that there were potentially arbitrage opportunities, it was actually pretty easy. You just go to coin market cap.com. You click on Bitcoin and just list all the, like all the exchanges. It was scraping Bitcoin data from. And it lists the price on each exchange and they're like those numbers, weren't not all the same.
You know, some of them were much bigger than others and that's a sign that potentially there's an arbitrage where you buy Bitcoin on the cheaper exchange, send it to the richer exchange and sell it there. Now some of those were not real, right? Sometimes the USD on one of these exchanges were not real dollars and it would cost 20% to get out as that that's there wasn't real arbitrage, but some of them were.
Um, and, and probably the biggest real one that we found early on was in Japan where a Japanese cryptocurrency exchanges were trading, you know, five to 15% higher than us cryptocurrency exchanges were because of massive, massive demand for crypto in Japan. Um, and you know, the Japanese yen, it's a free floating currency in.
One could do that arbitrage. And so we spent a bunch of time building up the infrastructure necessary to do that in terms of the international banking, the exchange connectivity and everything else. Do you think opportunities are smaller now that there's more liquidity in the markets have matured a bit since.
They're way smaller in percentage terms, right. They've gone from percents to basis points. Um, now there's more volume that trades today than there was before. So that's not to say there's no good traces. Like you can scale them to the extent you find them. Um, but, but they are much, much smaller because there's a lot more liquidity in the space and there used to be.
So when you built FTX, what was your primary goal? What did you, uh, and to achieve, to do and set out to do that? Maybe some other existing exchanges haven't done. There are a lot of different goals, but I think at the time, the biggest thing was the risk engine, right? We looked at how other exchanges manage risk on leverage positions.
And it was a total shit show. Um, you know, there were exchange that we're losing a million dollars a day of customer assets having dysfunctional risk engines. Um, on most exchanges you had to manage separately 500 different merchant wallets with new cross marching dual relationship to. Yeah, it liquidated on one with complete disregard for your assets on the other.
That's a complete disaster as, as you know, a customer experience. And so building one coherent risk engine that cross margins all of the products and had reasonable parameters to be able to close down positions before accounts would go beyond bankruptcy was one of the largest things that. Okay. Now, uh, let's talk about your recent activity and we'll talk about your future goals.
Wonder if I wonder if I recently got listed on FTX? Tell us about that part. Yeah. Yeah, really excited to be working with them, you know, excited to, to be listing it. I'm excited to find more ways to use the, uh, you know, stock token program that we have a, I often regulated, I offering and I, you know, it allows us potentially to bring equities onto the blockchain in a regulated fashion, which I think is, is really exciting.
Um, and, uh, you know, really excited to see. Uh, you know, there there's surfing a cool stacking going on here, right? Where you have wonder five is operating in the crypto ecosystem in defy, we have Stan gets listed on a traditional equities exchange, and then that gets ported back over to the crypto ecosystem.
Right, right. With the FDS listing. And so it brings that back to the ecosystem that the project itself is operating in, which I think is super cool. Okay. All right. And I mean, why, why wonderful. You know, it's something that we'd seen excitement for, you know, we've partnered with, uh, you know, with the team on various things.
Um, and we're excited to bring, you know, crypto ecosystem equities to FTX through the stock token program, um, in general. Um, and you know, we're excited to bridge in the same way that it's bridging access in defy. We're excited to bridge access to it between. Sure go international finance. I've spoken to Ben summer of actually the CEO.
Wonder if he's great. So I'm excited for you guys on this partnership. .