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Crypto regulation: There’s ‘no reason that you need totally different principles,’ FTX CEO says

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FTX CEO Sam Bankman-Fried and IEX CEO Brad Katsuyama join Yahoo Finance Live to discuss the partnership between the exchanges, SEC Chair Gensler's remarks about crypto regulation, and philanthropy.

Video transcript

- One of the world's largest crypto exchanges is announcing a big partnership today. FDX a strategic investment in Securities Exchange IEX. The size of that investment has not been disclosed. But we've got Sam Bankman-Fried, FTX founder and CEO, joining us alongside Brad Katsuyama. He's IEX co-founder and CEO. Sam and Brad, it is great to have both of you on today. A big partnership.

And Sam, we saw the release go out framed as this partnership helping to shape market structure for digital assets. Talk to me about how this partnership came about and how you see it moving forward.

SAM BANKMAN-FRIED: Yeah, absolutely. So I think that the core thesis of it is first of all, we are experts in digital asset market structure and IEX are experts in securities market structure. And so together, we're excited to try to tackle digital asset securities market structure. And the other side of this is they are the most innovative of these securities exchanges, and so we're really excited to try and break new ground with them.

- I mean, who doesn't love a little bit of market structure here? Let me bring in Brad on this conversation. Why the partnership on your end? We know that you have made a name of IEX off of the need for investor protection using speed bumps to level the playing field. Do you feel those types of things are needed in the crypto digital asset space?

BRAD KATSUYAMA: I don't think a speed bump in particular is needed. It was purpose built for equities. I think here, what we have is the opportunity where market structure and regulation are being shaped. From our perspective, we think that we have a bunch of institutional investors who are interested in getting involved in this space.

We wanted to get involved ourselves, and we needed a partner to really do that and FTX out. Sam, from the beginning, has talked about regulation and the importance of scaling the industry, helping it reach its potential. And from our perspective, very excited about the partnership and really looking to help build that bridge between the industry and the regulator, as much the same way we've done in equities, where we've innovated inside of a very regulated industry. And that creates a partnership with the regulators that we hope to bring to this asset as well.

- Sam, let me turn back to you. I mean, it's a very interesting time for the exchanges. SEC Chair Gary Gensler speaking yesterday, talking about the idea of wanting to segregate some crypto trading platforms from market making. How does FTX view that stands from the SEC and how do you view that within the evolution of what you want FTX to be five, 10 years from now?

SAM BANKMAN-FRIED: Yeah, so I mean, I think that when you talk about separating market making from the exchange functionality, I think that's a pretty [AUDIO OUT] between something like a single dealer platform and something like an agnostic equitable order book. And I don't think I'm a radical on this or a purist. In general, I think that there are a lot of things to be said for having truly agnostic markets technology that isn't directly related to dealers.

- I mean, on that front, Sam, yesterday we did hear from Gary Gensler those same comments where he said, there's no reason to treat the crypto market differently just because they're using different technology. Is it as really as simple is that, applying the regulation that's set aside for the equity space in crypto. Are they inherently different?

SAM BANKMAN-FRIED: So I think the same principles apply. When you look at the principles of customer protection, the principles of transparency, disclosures, anti-fraud, anti market manipulation, anti financial crimes, all of those pored over very directly to the digital asset ecosystem. And there's no reason that you need totally different principles for this.

That being said, obviously some of the details are a little bit different. When you talk about, for instance, registration of assets instead of talking about who's the board of directors of this blockchain because usually the answer is there is none. You might talk about what is on-chain governance mechanism of this blockchain. And so again, it's the same principles, but I think that you have to go through some details which are different in terms of implementation.

- Brad, you've also weighed in on the regulatory front, saying it's really important to get the regulation right so you have a well-defined crypto market structure. And you've talked about, at least in the securities, the equity side before, about the need for fairness. When you look at how crypto's traded today, how the exchanges operate, do you think the playing field is leveled?

BRAD KATSUYAMA: Yeah. I mean, I think the exchanges, I think, FTX in particular, I'm a client and user of FTX, have done a great job from an investor perspective. And I think as Sam said, there are parts of the equities market, let's say, as a regulated market, that we think port over to digital assets and I think there are certain parts of the equity market structure you don't want to replicate.

And from that perspective, I think there's a lot of value that could be added in our firms working together and we're excited. We're at the start of this journey. There's a lot to be discussed on the regulatory front, and I think that we're excited to engage in these conversations and have this ongoing conversation with the industry and with regulators as well.

- Sam, I want to ask you a broad question here. And let me know if I get a little bit lost in the sauce. But market consolidation seems to be one issue that not just Gary Gensler, but everyone in the crypto community is flagging. You have some people wanting to plant the flag and say, we want to be the largest holder in x currency or y currency. In some cases, some people want to be the biggest holder in Bitcoin, for example.

When you think about your role as a crypto trading platform, how do you delineate what's the difference between decentralization and then too much market concentration?

SAM BANKMAN-FRIED: So I think there are a lot of tricky questions here. But at its core, the way I think about this is from the perspective of consumer choice, is from the perspective of want to have a competitive environment where there are multiple options available to users and they can choose the one that they want.

And I view it as the goal isn't to particularly enforce or to particularly attempt to stop some amount of market concentration. I think that the goal is let the market figure [AUDIO OUT]

- Yeah, I ask that question just because, again, I mean, it's hard to tell exactly. I mean, you can't put a hard number on exactly what the market cap is today because it's not going to be relevant tomorrow, but it just seems to be interesting because if there is going to be one or two people holding the large majority of a given cryptocurrency, the price action and the liquidity is very much different.

And I imagine that as a trading platform, you want to have your ear to the ground on those types of things. So I just don't know if there was anything that was kind of interesting in terms of trends there.

SAM BANKMAN-FRIED: Totally. And I think that that's actually pretty similar, I think, to what happens when you look at startups. When a startup lists, sometimes the core team owns 5% of the equity of the company, and sometimes they own 75% of the equity of the company. And I think that, frankly, does have a pretty large impact on what the market is like for that stock. I think that you see really different dynamics happening.

I think that in the end, people tend to think that markets are healthier when there's more diversification of who the holders are of it. But I think an important counterpoint to that, that really does matter is you want the people who have a stake in something to be the ones who are impacting it, to have alignment between the people who are pushing something forward and the people who have exposure to it in order to incentivize great products.

- Sam, moving away from FTX specifically. A more personal question for you. There was a really interesting profile I found on Bloomberg about you specifically that ran just a few days ago, talking about this notion of effective altruism, essentially saying that you were in on crypto to make money so you could give it away.

When you think about that specifically, I'm just curious what the end game is for you. If it is about giving that wealth away, at what point have you made enough?

SAM BANKMAN-FRIED: It's a really good question, and I think this is really fundamentally important for how I think about what I do in my life. When you think about yourself personally, about spending money on yourself, how much can you spend usefully on yourself? You can buy nice food. You're talking about hundreds of thousands a year. You can get to millions a year with like fancy things.

But after the 10th car, it's not clear what you're doing. It's hard to spend more than millions a year in an effective way on yourself, even if you really wanted to. And I think that's why we see super yachts, because a lot of people literally can't figure out anything else to do with their money.

When you take a step back and think about it from altruistic perspective, from a donation perspective, it would take billions a year just to eradicate a single neglected tropical disease. And there's a lot of them. And that's only talking about global health in terms of existing diseases that are spreading. You can look at like what's a scale of the US government budget each year. The answer is trillions.

And so when you're talking about having impact on the world, I think that a point at which there's nothing more to do with resources to help make the world better, I think you're talking about pretty big numbers. I think at least tens of billions, if not hundreds of billions and maybe trillions.

- I mean, there's no secret, Sam. I mean, the crypto space growing so quickly, that's one reason why you have amassed such a large business yourself. I guess I'm wondering, do you feel that there is a stigma issue in the crypto community? Because there's the stereotype, perhaps perpetuated by memes, that these crypto people are just get rich quick types of schemes. I just want to buy as many Lamborghinis and yachts as I possibly can off of the money I made off of X digital asset. How do you feel like you're trying to address that?

SAM BANKMAN-FRIED: There's absolutely some of that. And I think it's not super healthy for the space. But I think it's worth putting it in context. In every industry that you look at, a lot of people are there to maximize the amount of money that they make. That's what they're doing. And the same is true in crypto.

Now, the fact that there has been so much wealth generation over the last couple of years in crypto means that really gets highlighted in the ecosystem. But I don't think that the people of the ecosystem are fundamentally different from other ecosystems. And I think that as the volatility of the assets calmed down a little bit, I think that we're going to see a healthier relationship between money and people in the crypto ecosystem.

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