Dialogue with SBF: How does encryption infrastructure reshape the global market structure?

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Compilation of the original text: Deep Tide TechFlow

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Jeremy: Welcome Sam, I have a lot of different things I want to talk to you about today, starting with the broader question of the impact of cryptocurrencies on the world, and the bigger question, like I like to say, why is it doing this? I remember one professor in college who was always asking, "Why are you doing this? Why are you doing what you're doing? What's really important, stuff like that."

When it comes to cryptocurrencies, I think people have a superficial understanding. You've talked a lot about effective altruism in the past, and the implications of this long-term game for the world from a value creation perspective, the question now is why are you doing what you do?

Sam：There are many ways this can be addressed, maybe I'll start with the market structure part of it, which I think is underrated and everyone should have equal access. In a stock market structure, you'd need 10 different intermediaries paying tens of millions of dollars a year, or you wouldn't even be able to see the order in which they traded.

While the direct and fair access environment of the crypto industry helps inform and guide other financial products, I am excited to be part of the changing market structure and hope to help bring what I believe to be a more appropriate market structure for consumers.

Of course, doing this is an accident in a sense, just like cryptocurrency, it is a new earth that makes people start thinking again. For example, when custodial stock and liquidation happen, the process can become very confusing, and I have no idea who is who? Do you have the right to arbitrate the shares? A lot of infrastructure had to be created to answer this question.

But you can really answer the question of who owns this Bitcoin and who owns this USDC, which means that you don't need to fully own this special clearing and custody company, which eliminates some of the confusion, and to a certain extent on the blockchain Helpful for this. And you don't need a lot of intermediaries to facilitate the transfer of assets from one venue to another, you can just do it yourself.

Jeremy: Yes. So going a little deeper, why is this important? Why is direct access to capital markets important? Why is there such a passion for addressing market structure issues, and what good does that do for the betterment of society and the world?

Sam：I want to answer this question in terms of prediction markets. What is a prediction market? If you want to know if something is going to happen in the world, you can create a market for it. If you want to figure out what the temperature will be in five years, you create a market for it where people can trade it, which is cool.

Based on market forces, conclusions can be drawn about what the market price of temperature will be five years from now. If you start from studying global warming and trying to understand its impact on your models, you work in a business that depends on temperature, like the energy field or agriculture, and come up with an answer.

If you want to buy oil, first of all, you have to have a lot of liquidity at your disposal, or if you're buying corn, you don't want to pay five times the average price, but who knows what the average price is? market. Also, any entity or business doing financial planning should consider how it will be priced and how that will affect our finances.

Looking at the company again, why is the stock market important to them? Investors must know how much to give to the company and how much to invest in the business to make sense, so as to help the business grow. It would be quite a waste of money for the world if a business is not less creative but gets a lot of money from investors.

Jeremy: So we want to avoid that from happening. Part of what you just mentioned is market and information, which are kind of two sides of the same coin. At the end of the day, if the market generates information, investors seek to get the best information, and that's because it has value.

My understanding of what you've said is that cryptocurrencies and blockchain have the potential to in some sense bring more valuable information and can incentivize seeking better advice as much as we can best information. Participants in the real world and the real economy will be able to use this information with greater assurance and more beneficial effects. This infrastructure can increase the speed of information and economy on Earth.

Sam：Exactly. We can discuss the other side of this coin, why is money useful? Because barter sucks.

Jeremy: Information systems. Money is a system of record, it's just an information organizing system, it has a social convention, which is great for the participants and the world we live in - because it minimizes trust, is global, and the cost of interacting with it is extremely Low.

Sam：When you start looking at currency as a record keeping system it starts to make sense, why distributed ledger... why is blockchain so useful for currency? ? A blockchain is a globally decentralized distributed ledger, which is exactly what you need when trying to keep records.

Jeremy: An interesting story, I’ve shared it a few times, I met the CIO of the Federal Reserve a while back and I pressed him, “What’s a real dollar?” He said, “What do you mean?” I was thinking Yes, "Is it a database? What kind of database," it turns out that the dollar is a cluster of oracle databases, running on clusters like Sun Microsystem, Sun microsystems, which is very interesting.

There is a view that “the cryptocurrency industry is a speculative asset or something like that.” Another view builds on what we just discussed: “This is the next generation of global economic infrastructure that provides the infrastructure for the organization of economic activity. New foundation.” This brings us to a new angle of thinking: “We are not just talking about whether we want to regulate whether people can trade bitcoin, stablecoins or other altcoins, but realize that a strategic infrastructure is developing , and the world is working together on it. Like, "What's this? What impact will it have? ” I would love to hear you talk about the industry as a whole, how does crypto infrastructure change the market structure?

Sam：Let's talk about money transfers or social media messaging. For example, you're trying to send money from someone in the U.S. to someone in Brazil, which brings you back to your question to the Fed, what is a dollar? You're trying to send $1 from one account to another, what exactly are you trying to send? What does 1 dollar mean, or is it Brazilian currency? It gets worse because they are not a system.

The current system is that if you want two different people to communicate with each other and transfer information or assets, you need to go through some private company that stores the ledger. "

Jeremy: Yes. Like PayPal etc.

Sam：Yes, it definitely makes sense, but we have also seen the problems that such practices cause the world. When we look at people's reactions to Facebook's attempts to make a decision about whether to censor election content, the gaps can be seen. Its services may not be what we see, the answers we trust are only the result of choices, the real question is who controls these two systems? How do the two systems communicate with each other? This kind of small instance makes a lot of sense, so we can make efficient services and innovate quickly.

Jeremy: Who has read/write access to the regulated database?

Sam：You can say it's the government, but actually you quickly get to the question, "Well, the government? Which government?" Again, it's a transfer between the Brazilians and the Americans, and which government controls this transfer. This is a question for which the correct answer is not obvious.

When you're talking about systems that give feedback to governments, sometimes it's negative. Today we see some countries operating in this way. I think it has some properties that many people don't like. And blockchain technology is basically a reasonable third option, which is neither a company nor a government, but transmits and records information.

Jeremy: In some ways, this is basically the next growth point of the Internet. It's like the next logical infrastructure layer, the next logical protocol layer of the Internet, to play a bigger role in society. Like in the early days of the Internet, if you wanted to make a voice call with someone, most of the places where most of the voice calls were actually routed through government-controlled infrastructure, essentially run by these government monopolies, the government had a back door to monitor anything. But you can freely connect with anyone through open source software and protocols on the Internet.

Sam：Basically it goes like this.

Jeremy ·: Going back to policy, if you are a government, suppose you represent the interests of the people of the country, such as Congress. You need to try to figure out, "If this is new economic infrastructure, what does this mean for the future of our economy? What kind of opportunities will this create for households and companies?"

Sam：Many questions have not yet been answered by the world, and we need to find answers from development.

When you're talking about open infrastructure, there's a crisis and a risk, it's not secure, it's giving people access and choice. People can choose which protocols they want to access. This means that choice matters. What we choose now may have long-term effects on the decisions people make in practice.

Stablecoins are probably the most obvious example right now. Stablecoins mean dollar stablecoins. There are basically no other stablecoins. This is not what the world needs. If I were the Fed, I would think, "I hope the answer is the dollar, not other currencies." When you think about what kind of stablecoin policy should be adopted, there will be options available to people. I think it's in a lot of people's interest to think about what they want those options to be. Ann I think you should ask yourself the tough question, is does this really mean you should try to move away from stablecoins, or does this mean which stablecoins you should consider becoming mainstream? .

Jeremy: Obviously, this is the overlapping of national competitiveness, the competitiveness of the dollar, this new global economic infrastructure that will achieve Internet scale in the next few years. These will have an important and huge impact. If you were the US government, what would you want the internet's currency to be?

Yes.

Sam：Yes.

Jeremy: The other part is the technical potential. Actually an underlying desire is to be able to do on-demand instant transport, coordination of work and delivery and all, anywhere through seamless handheld devices. When the iPhone came out in 2007, no one said "I want an on-demand driver that works seamlessly." The idea of ​​underlying technological capabilities is that when you have these converging technologies and you have the capabilities that can build it, no one can really predict what people are going to do with it. The same goes for cryptocurrencies, public blockchains, and smart contracts.

Programmable money has only been around for three years and there's hardly any programmable dollars or programmable other currencies on the internet, it's a whole new thing like the infrastructure that's being built and we don't yet know what people will do with it What. We need to be selective in order to use these protocols because all the potential is there. I'd love to hear your thoughts on people using programmable money, what are we going to invent with programmable mobile money? What problems can people solve?

Sam：It's very interesting, and I don't know some of the answers, but I think interoperability is one thing that keeps coming back to me. We have so many systems today that don't talk to each other, and people seem to forget that's the case. But this is a very important situation.

For example, I'm on Facebook, you're on Twitter, you can't talk to each other, it breaks communication. I think this is a real problem that people ignore. The second thing is I don't think people realize how hard it is to send money.

Jeremy: It's really just a massive database with a secure FTP server and CSV files.

Sam：Yes, but that's not how systems are built today, so the cryptocurrency industry can have a real impact on people. Especially with the unbanked or underbanked, I thought it would be really fun to do that, listening to their frustrations.

Jeremy: We see a lot of startups building applications in Africa and markets using USDC and just trying to make it faster and cheaper. I want to get back to the theme of what people can do with economic infrastructure that we didn't think about.

Obviously, DeFi itself is a good example of a programmable currency, and everyone is building protocols that allow people to interact with capital in different ways. And another fascinating one is the DAO, which is basically a form of company that exists on the chain. This is also one of the cases of programmable money and programmable governance. When we use this framework, it's like using a new infrastructure layer of the Internet economy, and people can build things that were not possible before, essentially new multinational corporations. There's a lot of experimentation in this space, and a lot of tools and things like that are being built, but when will it become a producer of goods and services? When will the entity representing the real new economic forum compete with the traditional economic forum?

Sam：Very good question. My guess is, to wait for the results of the regulation, suppose you have a DAO, a new economic unit, but no one really knows what law governs the DAO, contract law? So personally I think it's going to be hard for it to play a huge role in society until we start going through that process.

To give an example of DAO, Aetherium classic board. Its question is: "What happened there? What determines whether these transactions are reversed?" Would you go to court and ask them to reverse blockchain transactions? If yes, did you vote for one of the networks. What is a real network? If you don’t know what the right answer is, then I think there’s a lot of work to be done before people can put a trillion dollars in DAOs and know what they’re doing.

Jeremy: It just feels like we're going to see more DAOs trying out various experiments, and it's one of those spaces that has potential economic and technical potential, and nobody really knows what people are going to invent with it. Maybe there will be some innovative protocols in the future that will become the new building blocks for commerce or something like that on the Internet. I want to ask you a question about tokens and equity from a different angle. Just like stocks, you are considering trading stocks on FTX US. There are also some tokenized equity products. How do you think about the relationship between native tokens and tokenized equity? the difference between? For users, how to choose?

Sam：I don't know how this all ends up but I can tell you how I feel right now I think we're in the early stages of this where at least for a while tokenized staking is stablecoin to dollar staking . What is tokenized equity? It’s a tokenized wrapper around an underlying financial asset, with one of the same pros and cons that stablecoins have over the U.S. dollar. And I think tokenized shares can interact more easily and get a lot of advantages, but at least for a while it may not be actual equity, it's just a representation of equity, and sometimes you need to convert back and forth, so that in the tokenized version Toggle between the ecosystem and the ecosystem based on the underlying version.

But I think over time there will be more and more shifts to tokenized versions, or more systems moving there. Likewise, you can ask questions like who holds that asset and get answers in a clear, concise and unambiguous way. Anyone can question that, and I think there's a lot of power in that.

Jeremy: Another related question is the tokens that exist in the project, from a broader market perspective, how do you see the difference between native crypto tokens and stocks and so on?

Sam：This is yet to be determined. There are a lot of interesting things that will depend on how their protocol tokens evolve. The question this will revolve around is the protocol token style? Are they collectors on the chain, or in the core governance mechanism? Equity has traditionally been both.

In terms of differences, on the one hand, the original focus is on governance. Governance is clearer and easier to enforce on-chain than through current corporate governance mechanisms, especially for people other than the five on the board or otherwise. How to coordinate among 10,000 stakeholders when talking about random stakeholders? The answer is that blockchain provides a way to do this and, if you will, hand governance over to stakeholders on-chain. The flip side is that you can have multiple governance tokens for different purposes, technically you can have multiple equity classes, but not as diverse as a token.

Jeremy: It is very difficult to coordinate all parties in society in traditional industries. But here, I want to talk about identity. A long time ago, I felt that there were a few layers missing on the Internet. The naturally missing layer was money, and the other layer was identity. There are many reasons why interrelated assets and identities do not really exist on the Internet in any protocolized way. But cryptographic primitives actually start to make it possible to solve both problems. When you look at the use of cryptocurrencies, crypto finance, DeFi, DAOs and NFTs today, how do you think about identity, whether it is real identity expressed on the chain, or tokenized identity used with NFT form? What does identity need to do to unlock all the infrastructure?

Sam：What we are missing is on-chain identity. The reason is that when you think about identity, you're thinking about things that exist only in centralized pools. There is a centralized exchange identity on FTX that can collect KYC information, there is no identity elsewhere, users have blockchain addresses, and users can always create new blockchain addresses. I think when identities are on-chain, it unlocks a lot of things, and it's not that hard, like we collect people's FTX accounts, we can create a button, you click on that button, enter your blockchain address. We output some comments to the blockchain saying "We verify that this blockchain address is KYC associated for accounting on FTX." Then any on-chain protocol can read it.

The second thing is the other side of identity, like social proof. You can see it in people's Twitter feeds, in their Facebook profiles, you can see it in their game achievements in video games. They're all fragmented at the moment, with no coherent sense of someone's identity, having their LinkedIn, having their Facebook. Combine on-chain identities with NFTs and stuff, and you can suddenly have a blockchain address that starts accumulating various forms of identities from many different sources, and everyone can read all of them. All of a sudden, identity is like, "Who's Jim?" You send them an address, Jim pops up, and then you can learn a lot about Jim. "

Jeremy: We're going to need a lot of different encrypted addresses to help us deal with these privacy, preferences, etc. As you know, we're optimistic about this space, and there's a lot that's still untapped in this industry. Thank you for joining our conversation and look forward to seeing you again.

Sam：OK I am very happy and excited about the future of this industry.