Saks, the United States is maybe not going to send weapons to Ukraine indefinitely. And they're asking them to sit down and negotiate something that people on the left started to do and got a got smashed for something you've been pushing for. So I guess mini victory lap for you, Saks.

What's the end game here? Well, yeah, I mean, I've been talking common sense about this for months to saying that we need to be open to diplomacy, because total defeat for Russia also means a maximum risk of nuclear war. I mean, these things go hand in hand. That's the paradox of this war is that if Russia faces the prospect of a total defeat, that's when they're most likely to escalate this conflict into something much, much worse.

So therefore, we need to be open to diplomacy. But it was good to hear administration officials over the past week say things that I've been saying for months, and that I've been accused of being like a Putin sympathizer for. So apparently, there's a bunch of Putin sympathizers in the administration.

And just to read you some of these remarks, actually, I want to play like a fun game with you guys instead of just Oh, really? Yeah. So I'm just mentioning these quotes. I want to get a game called Millie or sacks. So I want you guys to guess, okay, whether it was General Millie who said the quote, or whether I said the quote, okay, does that sound like a fair, fair game?

Yes. Fair game. Let's put some game show music here. Milly or sacks. I'm going to read you like four or five quotes. And you guys are gonna say whether it was Millie or sacks who said it first quote, who said it General Millie, or sacks. One of the lessons that should have been learned from World War One is that European powers refusal to negotiate compounded the human suffering and led to millions more dead.

Milly or sacks, sacks. I'm going sacks. I'm going sacks. It's a very historic Millie said, Oh, next one. Next one. Go, go, go. Okay. A regional war turned into the First World War because all parties made maximalist demands and assumed others were bluffing. It can happen again. Sack Millie or sack going sack because you said bluffing that bluffing is a word that you would use.

All right, that was sacks. That was sacks. maximalist. Yes. Okay. I would never say maximalist. Yes, he would never say bluffing. Yeah, go ahead. Well, there's an opportunity to negotiate when peace can be achieved. Seize it. Milly, Milly or sacks. Milly, Milly. It's very pithy. It's pithy like Millie.

All right. That was Millie. Yes. I'm up to and one to and one me and you. I'm two for one. It's deeply irresponsible not to try for diplomacy when the stakes are so high. sacks. sacks. That's an emotional statement. I go mills. It was sacks. Damn it. Two and two, three.

There has to be a mutual recognition that military victory is probably in the true sense of the word may not be achievable through military means and therefore you need to turn to other means. That's Millie. It's a word salad. I go Millie word salad. Hold on. Hold on. It's a Millie word salad.

It's too too convoluted for sacks. sacks. I go Millie. I go Millie. I think it's Millie. That's Millie. Yeah. Word salad Millie. That's it. I caught up now I'm three and two tied with Chema. Last one. Last one. Okay. It must be our objective now to help achieve a ceasefire and negotiate a peace rather than protract the conflict.

Hmm. Wow. It's so formal. Millie. So formal. It feels like somebody said that on the steps of like a building outside. It's very formal. It's well spoken. It's crisp. Can we hear it one more time? May we hear it one more time? It must be our objective now to help achieve a ceasefire and negotiate a peace rather than protract the conflict.

Millie. It's a little too formal for a podcast. But in a tweet, it wouldn't be so it could be a sex tweet, but I'm thinking so pocket. I gotta go Millie. I gotta go Millie. sacks. You can't tell Millie from sacks is what we've learned. What a great game.

Right now we're gonna play the next game. This is called Bernie Madoff or SP Bernie Madoff or SP Alright, everybody, welcome to the all in pod with us again, the dictator in a beautiful purple sweater sweater, Karen, man, it's the fall season. So the triggering will be inside the inside of this is suede.

Oh, very nice. Very nice. So multiple animals killed. I mean, your pleasure. Yeah. All right. What animal do they kill to make suede? Like a type of leather or what is that? I hope it's an endangered one. Actually, that version of sway that he's wearing is from a white rhino.

So they just take the hide and they throw everything else away. Oh my god. So can we take this out of the show? These are ivory buttons. I think it's baby seal fur around the how many baby seals were killed to make your outfit? Right? Also with us is the Sultan of Science, David freeberg racing from the airport.

How was a jet blue mint? I heard you upgraded to mint. No comment. What you don't want to talk about the $1200 upgrade you did to your jet blue ticket. You don't want to talk about jet blue mint. Why? Are you embarrassed to fly commercial? What did you eat?

Are you embarrassed to fly J cow? Yeah. I'm the president. I'm like, hold on mint coming through. Then I start spreading out. I think Jake out classes like the seat by the bathroom. In the back. Hey, did you save 150 bucks each way? What is jet blue mint the name of like jet blue mint is their first class?

Coast to coast. It is so delightful. They just have figured out a way to make like sleeper seats, you know, that are very nice. And that's great. upgraded service where they they put like a little wall between you and everybody else. It's kind of like having a private plane if you didn't and sax is here.

The whole cruise here basically. We'll have a surprise bestie guestie jumping in in the middle of this. I'm not gonna tell you who will because nothing's going on this way. Nothing is going on this week. I mean, there's so much to talk about. Let's just start with the elections.

And then we have to start with my mayor culpa. Usually this is like throwing red meat to sacks. But I mean, at this point, alright, so DeSantis won by double digits in Florida, he got a huge amount of the vote, but all the Trump high profile Trump back candidates seem to have lost Dr.

Oz, Dan Cox, just, it was a shellacking, I guess, or the red wave became like a puddle, or like an eyedropper or something. But some of the Trump back candidates did win some of the Peter Thiel collection, JD Vance one. So I guess that's a big win for Trump candidate, though, because if you remember when Trump went to stump for JD Vance, he forgot his name.

So when you're on your side, you don't need friends. Anybody that Trump actually cared about, turned out to be just a complete dud and lost. And everybody that kind of, you know, had to keep him somewhat around just so that he didn't throw bombs actually did decently. But I mean, Trump is a just a weight on the neck of the Republican Party.

And it's time to just get rid of them. Saks, what happened? Your red wave? Yeah, listen, I got this wrong. I think there's a few reasons for it. So I think when you get an election wrong, you have to admit it and figure out what you've what you what your mistake was.

Otherwise, you're not going to improve. I mean, number one, I was looking at, you know, the RCP polling this real clear politics where they take an average of all the different polls, they were adding a factor to it, they were showing, by the way, plus three or plus four in the Senate for Republicans.

But they were adding a factor to it based on the underweighting that the pollsters did in the last election cycle. And it turns out that the pollsters I think did a pretty decent job correcting their polls. And so the RCP overweight turned out to be just basically completely wrong.

The other thing that I got wrong was I was looking at the fundamentals. I mean, three quarters of Americans think we're on the wrong track. And we're in a recession. So based on that, you would think that this would be a great year for Republicans. And in fact, the out of power party usually wins in a midterm and Biden's popularity is at historic lows at like 41 42%.

So everything was teed up for the Republicans. So what went wrong, I think a couple of things. Number one, two days before the election, Trump basically comes out and pre announces that he's running. Oh, yeah. You know, this basically plays into the narrative that has already created that this is a, this is not a referendum on Biden.

It's a referendum on democracy. And basically, Trump made it into a choice election, who do you like better Biden or Trump. And the fact of the matter is, if you look at the exit polling, as unpopular as Biden is, Trump is even more unpopular. So that did absolutely nothing to help the Republicans.

And I think it really hurt them at the margins. The other thing that turned out I think the other big thing that helped Democrats was Dobbs. And I never thought that it wouldn't be a factor. But if you looked at the polling before the election, 15% of likely voters said that it was their number one issue.

If you looked at exit polling, after the election, it was 28%. So Dobbs turned out to be twice as significant as what the early polling was showing. And if you remember, Jason, go back to the episode we did on abortion. I said the shrewd play for Republicans here was the Roberts compromise.

What did Roberts want to do, he basically was going to allow the 15 week restriction on abortion, but not have the headline of Roe v. Wade overturned. And that basically is what to Santa's implemented in Florida, he basically restricted abortion after 15 weeks. It's the purple state compromise. It's where I think the purple states and where most of the country's going to end up.

And the sooner Republicans get their heads wrapped around that fact, the better they're going to be long term. Yes, you one question there, sex. Who stacked the Supreme Court deliberately to turn over Roe v. Wade? Listen, I mean, there, this was a long term priority of Republicans. That's not a question.

Well, no, we do have to recognize that Trump said he would do that he did it. So this is doubly Trump's fault. Every party nominates justices that align with their values have been in cycles. And he's going Trump said he would specifically do it in order to know what the president doesn't choose who dies in the Supreme Court and when?

Yeah, right. Yeah, it's also more complicated than that. Because what this Dobbs decision did is throw the issue back to the states. And the fact of the matter is that now it's up to each of these states to determine where they're going to come out on this issue. So if you look at there were ballot initiatives in red states like Kansas, and like Kentucky, Kentucky, that's right.

That's what I'm saying is there are pro life ballot initiatives in red states that lost and so you can see all over the country that the Republicans tried to go too far, or they do try to go too far when they try to impose a total ban. Yeah, it seems to be popular.

Is this what I'm saying is the purple state compromise. It's what DeSantis did in Florida. It seems like most of the country we talked about this on that episode. Yeah, most of the countries in the messy middle, they want abortion to be safe, legal, rare and early. They're willing to support it in say the first 15 weeks.

But then after that, there needs to be some restrictions that I'm saying most of the country supports that. Now, it's also the case that Democrats though, are staking out a pretty extreme position too, because most of the Democrats were taking the position that abortion should be legal up into the ninth month, which is not even that's more radical than even row, row said that you can restrict it after 23 weeks.

So you know, what we said on that podcast, Jason was the party that gets the middle first on this issue is the one that's going to do well just this issue. Yeah. And I think yes, I think it's true on this. And I think it's true on other things.

So look, I think the Republicans can correct here pretty easily. If they listen to folks like DeSantis and young Ken and camp, people who understand that they have there's a compromise here. And the ones who basically insist on pushing a total ban are going to go down in flames.

There's a couple of things I think that are worth looking at now that we have all the exit polling and the results. The Democrats strategy of helping to promote these extremist MAGA candidates in the primaries turned out to be a huge winning strategy because every single one that they helped put up against the Democrat, the Democrats won.

But number two, so what that shows is the extreme right cannot field a winning candidate. But on the other side, all of these extreme left leaning Democrats also did not do very well either. And so you're back to David, what you said, which is we have been saying for a while, the winning strategy is that messy middle.

It's the moderate person that kind of like tax to the center. And this is what you see everywhere around the country, all of the battle ballot initiatives, every time you had an extremist ballot initiative, whether it was a complete ban on abortion in a red state, or whether it was a tax, the rich policy in a blue state, they failed.

And so I think the message that you have to take away is the extreme left doesn't work. The extreme right doesn't work. Right. If you look at, for example, like Kathy Hockel almost lost in New in New York State, because of who because of like AOC and all of that extremist progressive rank and file of that party.

So people need to really understand and look at the data on the ground. If you want to win in 24, you got to be in the middle and you got to clean up all this extremist rhetoric, Freiburg, any thoughts? I think the Georgia Senate runoff race that we had in the 2020 election, cost the US $10 trillion.

And I think it because if you'll remember, that was the race that when the Democrats won, tip the power in Senate to the Democrats, and all this legislation for the last two years was passed, including a lot of the fiscal stimulus and spending that very likely may have faced significantly more opposition than could have been faced, where the Democrats have the White House, and the Senate in the house.

And so that single seat and the loss of that seat in the runoff to the Democrat Party, I think ended up allowing a lot of loose behavior over the last two years, that's going to cost this country for a very long time. And in part, perhaps we could argue a lot of the inflationary pressure.

And now the debt load, the US debt load increasing by $10 trillion in the last two years since that election, by the way. And so I think one of the most important things that perhaps people don't cognizantly recognize, but feel in some way, is that having a balance of power is really important in this country.

And so to some degree, while there may be issues that folks can argue about disagree about, there may be candidates that are vile to us, I think ultimately, folks are recognizing the benefit and the value and having a good legislative debate and a good check and balance in this country.

And so I think there's a lot of what Saks is saying that ties into that kind of emotional conditioning that's probably underway. Okay, Saks, Trump said he was going to announce he went after to Santa's called him to sanctimonious. Obviously, the Trump endorsements here didn't help. Roe v. Wade didn't help the situation.

What is going to happen here? Is the Republican Party finally going to cut ties? Because they want to start winning? Or is Trump going to just announce next week and cause massive chaos? What's going to happen in the Republican Party in the coming weeks? Because we're 14 months away from Iowa, right?

I mean, this is so now the next issue, the question comes down to do Republicans want to start winning elections? Yes or no. And freeberg brought up the right point in the last election cycle. He's right that the reason why we got 10 trillion dollars of unnecessary spending is because of that Georgia runoff seat, we're about to have another one where Purdue won that seat on election night.

And then we're not wanting in the runoff. Why did things go against Purdue? Because Trump had a six week hissy fit. After the election, the Georgia runoff happened on January 5. And then all culminated in the ride on January 6. So the fact of the matter is Trump has been having this extended hissy fit and living in denial since the loss in 2020.

And as a result of that, we lost the Georgia runoff, I think we did worse than we had to in this midterm, I think we're going to lose the Georgia runoff again, if Trump continues with these antics. And so it really comes down to Republicans, do you want to win?

And look, I know that there's call it 40% of the country passionately loves Trump. But here's the problem. He's capped at 40%. Independents and moderates, centrists will not give the guy another look. And so you cannot win a major national election in this country with 40% of the vote, no matter how passionate that 40% is, you know what 40% is 40% is Charlie quest, the guy who distances beat who wiped out in Florida, that was a 6040 election.

That is what a 40% of the electorate looks like landslide. It's a landslide. Exactly. So the bottom line is that who your messenger is in politics is incredibly important. And Trump just gives his enemies way too much to work with. Now, if he weren't a Republican, it might be different.

Take Federman, for example, okay, this guy Federman, okay, he's being portrayed as this man of the people. He's got the goatee and the, the tattoos and the hoodie or whatever. Who is he really? He's a trust fund kid who never had a job until his mid 40s. But the press completely gives him a pass on that they would never do that for Republican and Federman were Republican, the press would expose him in two seconds.

Now, that's a complaint. But the fact of the matter is Republicans just have to accept it. These are the rules of the game. If you're a Republican candidate for office, you have to be perfect. You have to be focused, you have to be disciplined, you have to be to Santa's, you cannot give your opponents something unnecessary to work with every fight to Santa's picks has been a smart fight that he's won.

And same thing with Glenn young kid as well. He doesn't give his opponents things to work with. And unless Republicans realize that these are the kinds of candidates we need to nominate in this media environment, we're going to keep losing elections. Yeah. Tomas, any final thoughts here? As we wrap up election, I'm going to DC next week doing the rounds.

High five and slapping. Yeah, just to finish the thought. One other quote from New Hampshire Governor Kristin Nunez, who's kind of a, he's a Republican who's been in spats with Trump. He said, Listen, the message of this election is first fix crazy, then fix policy. If you're coming across like you're crazy, their voters will reject you.

Now, that doesn't mean you can't stand for principle. Rhonda Santa says that Florida is where woke goes to die. He says we will fight woke in the boardrooms will fight in the classrooms. This is certainly not a liberal position. These are pretty conservative positions he's taking, but he does it in a calculated disciplined way.

I'll say this right now. He is a winning candidate. And the scale of Reagan, if the Democrats also don't figure out how to clean up their act, because the other message that's so interesting, that I took away is the legislative agenda that works is actually what Biden has always believed.

The problem is that Biden seems to get distracted or confused or hijacked by the left wing of his party. And they introduced all these unbelievably crazy iterations of progressive policy that just are not popular, even in blue states, just look at the number of bills that failed. So he also has to fix what he's doing, by the way, it's he doesn't think that could fail the US judge in Texas.

I'm not sure you can tell me if this is legit or, or not. No, they stayed that we should talk about that in the context of the economy, actually. That was predictable. That was predictable that the college loans thrown out is completely unconstitutional for a president to spend half a trillion dollars without Congress's approval.

capital on Jamal's point here to Santa's one Miami Dade County, which went for Hillary by 30 points, okay, he showed that a competent executive a an energetic, youthful operator who actually runs the state well, okay, can win over moderate house and independents and Democrats. Now he's a winner. These are the types of candidates Republicans are.

Yeah, he's a winner. He's a winner. We got a call breaking in here. We have a special bestie guest. He knows it's been a big newsweek. It's not just the elections, FTX, crypto exchange went belly up. And we thought, well, let's bring somebody in who's super credible in crypto.

And that's friend of the pod. He's credible because he's wearing a tie. Yeah. Hey, Brian Armstrong. How are you doing? Brian Armstrong? You look fantastic. What are you testifying today? I'm doing great. It's not it's not Mon Claire. And it's not Laura Piana. But normally, I just I just wear the black t shirt and the hoodie.

But you know, when times like this, I got to go talk to media policymakers, regulators, and it's a it's a good time to, you know, spruce up the image. This is a week to break out the tie. Yeah. Hey, listen, men's warehouse. It never looked better. You look great.

Thank you. I see a red tie. And I think fiscally responsible. I guess Brian just to kick it off. FTX in spectacular fashion blew up this week. And it's pretty gnarly. You run an exchange as well. What's your take on what happened with FTX? And then what is your position in terms of making sure your customers understand that Coinbase is not going to have a similar fate to all the other exchanges that seem to be blowing up every couple of months?

Yeah. Well, first of all, I mean, I think we were all shocked that somebody like Sam, who seemingly is so smart and and capable, ended up in this really the situation where he appears to have done something quite unethical and illegal. So you know, my job right now this week has been to go out there and just help people understand that Coinbase is not like that we've been pursuing a different strategy for the last 10 years.

We're a public company, we're we're regulated, our financial statements are audited, they can show that, you know, customer funds are segregated, they're backed one to one, we're not investing customer assets without their explicit direction. And so that's been the first step is just to make sure people understand that.

But then after that, we need to kind of think about how we go forward as an industry here and both take a long term perspective, make sure the good companies in the space aren't allowing one or two bad actors to kind of mess it up for everybody else. And it feeds into the whole regulatory story too, because companies like Coinbase are already regulated, but we're regulated like a traditional financial service business.

But we don't have clarity about the crypto specific regulations, like what's a commodity, what's the security. And that lack of regulatory clarity, I believe has pushed a lot of this business offshore to these less regulated exchanges. That's part of what caused the blow up today. They were based in the Bahamas, you know, and they just there's not sophisticated financial regulators overseeing what they were doing.

Brian, there's a lot to unpack. But maybe we can just take a step back and for the uninitiated, or for the person who's only been just following this very superficially, can you just in a nutshell, explain what happened? Yeah, so my understanding is, and again, this is from people I've talked to, and I spoke with Sam and CVC briefly during this, but I didn't get details from them.

I got it from other people. You spoke to them this week. Yeah, I mean, this was all going down. I mean, I spoke to Sam about, you know, he was trying to raise emergency financing and things like that. And I spoke to CZ about why he was considering buying the asset.

I thought it was a bad idea. But my understanding what happened at this point, again, I don't have all the facts. This is just my understanding is that, you know, FTX was in a position where they had this market maker Alameda that was investing in risky things. And that's fine, like market makers, hedge funds, they're designed to take more risk.

It appears at this point that back during the last shakeup in the crypto industry, where you know, Terra Luna and Voyager and Celsius and three arrows went under, it appears that Alameda took a big loss at that time as well. They may have even been underwater. And instead of just saying, Hey, you know, this hedge funds gonna blow up to which would have been unfortunate people would have, you know, Sam would have lost money.

It's embarrassing, but it's not illegal for a hedge fund to blow up. It happens with some regularity. Instead of just letting it blow up. It seems like at this point, he took customer funds, but you have to explain he also he owns both. That's for the people that may not understand that.

Right. So it's a related related parts. He owns his own exchange called FT x and he owns his own hedge fund called Alameda, which operates inside of FT x as well as in other places, right. But again, Alameda seems to have blown up. Sorry, Brian, back to you. Yeah, so it seems that they had this solvency issue.

And instead of just letting it blow up, Sam basically said, Hey, we have a bunch of customer assets over here at FT x, or he somehow basically made a loan from FT x into Alameda to try to prop it up. I don't know why he did that. I mean, that that's the moment in my mind where he crossed the line into probably committing fraud.

And I think he probably lied to users lied to investors. And he went around and tried to bail out these different companies like like Voyager and BlockFi and to sort of prop up this thing and maybe he thought he could trade his way out of it or something. I'm not sure.

But that seems to be where the mistake was made. Brian, can I ask one question, which I which I think will help frame the contagion risk set of questions that everyone's having. When people have an asset, we all talk about customer deposits and customer assets held at these exchanges.

But those assets and those deposits are very often some form of coin, I have some amount of Bitcoin, some amount of ether, some amount of something else. Is it the case that there is an assumption of total asset value that's held in a in a portfolio of coins that doesn't necessarily match the individual users accounts.

And then when one coin goes down in value nominally to dollars, that the whole value of the portfolio goes down, and now you can't actually make the customers whole. So in the statements that have been made by these guys and other exchanges, that we have enough liquidity to cover customers accounts, that the assumption might be we have enough liquidity, if you assume the current market price for a whole bunch of different coins.

But then if one coin tanks, the total liquidity tanks, and they don't actually have it matched up correctly, because now the customer account value didn't go down as much as the exchange of the total asset value. Does that make sense? And is that part of the contagion risk that's going on here is that they're not matched truly between customer accounts, and the exchanges, you know, holding of coins.

So not exactly. Okay, so if you're a regulated financial service business, that's but you're not a bank, you know, we're regulated as a trust company, a money transmitter, etc. You're required to hold customer assets one for one, information omitted in the the asset. So in other words, if you say you the customer has one Bitcoin, you have to hold one Bitcoin, if they say they have $100, you have to hold $100.

And so that's the case with Coinbase. You don't have to take our word for it. By the way, you can look at our audited public financial statements as a public company with an independent, you know, big four accounting firm who went to go verify all of that. And that's what various custodians and exchanges, that's what they all should be doing.

If by the way, if you're regulated as a bank, you can actually go invest some of those, but there's very strict regulation around that and capital requirements and whatnot. And we're not a bank. So we hold one to one. Now, if you're an investment fund, or a hedge fund, or or something like that, then you can try to take positions in different coins and different assets, and they could go up and they could go down, you know, you may you may lose your investors money, but there's no such thing as the customer assets being involved in that there needs to be clear segregation of those customer funds.

And from from what an investment fund would be or corporate funds. And that's where they got in trouble. They basically co mingled customer funds with their hedge fund. Classic. Can you explain the contagion, by the way, just so we can, because everyone's been talking about the contagion and understanding what's next.

So that's what I just want to Yeah, because I think people are gonna be asking that a lot this weekend. Yeah, so I do think there's there is some contagion risk here. I think there's other firms that had, first of all, there's firms that had money just sitting in FTX.

And that's now going through bankruptcy court. So that's been bad. I mean, multi coin came out publicly and said that they had 10% of their portfolio sorted on FTX. There's other firms that Alameda may have had loans with. And those firms are probably struggling. I, you know, I don't want to say who, but we have received a couple of inbound calls from other people trying to get emergency financing.

There's people who may have just totally different from FTX and Alameda, they may have just had their own portfolio that they took margin or leverage on to buy crypto. And now as the prices have come down a little bit, they're getting stopped out. So that's all been very challenging.

And I again, just for the sake of clarity, I should say that Coinbase did not have any material exposure to Alameda, FTX or FTT token. Can we just talk about this issue of customer deposits, because this is really the crux of the issue from a legal standpoint, right? I mean, I remember when I was doing PayPal like 22 years ago, and the company was like six months away from running out of money.

I remember the lawyers told us really clearly, you cannot use customer deposits to fund the operating expenses of your business. In other words, if this business ends up going bankrupt, you'll still have all the customer money there and they'll be able to get it back. And you know, it was really clear, like, hey, if you use customer funds to pay for the burn of the business to operate the business, that is a do not pass go go directly to jail type offense.

And so like, that's really the heart of this. Now, I read in some articles covering this, that the way it worked, is that Alameda had a bunch of these FTT or these FTX FTF called FTT. And they basically use that as like a marker as collateral. So they basically borrowed, what is it like 6 billion of customer funds from FTX, and then they use their own token to then as collateral.

So I'd stop it. Yeah, exactly. And then what happened is apparently like CZ got wind of this, and he owned a whole bunch of these tokens. And he signaled that he was going to dump it and the price basically went down. And so now all of a sudden, the collateral for the customer loans was insufficient.

And then there was a run on the bank. And by the way, this has happened. This happens in the public markets a lot as well. So like when you see heavily shorted names, or when you know that certain hedge funds are on the brink, other hedge funds will go in and essentially force a margin call and a stop out because then it's what causes all of these runs.

And if you look actually inside a GameStop, the reason why you got all this gamification in the GameStock equity and a bunch of these other names was in part because of this dynamic folks that are highly levered folks that don't have the right matching of risk. And what happens is they're solvent, but a liquid.

And then if you run the instrument into the ground, they both become insolvent and illiquid all at the same time. So Brian, the question is, now that we know what happened, which is all of these crazy inner party related transactions, and, you know, all of this stuff seems very illegal.

There was a bankruptcy filing today. And up until today, it seemed like this issue was really about FTX International and Alameda and it didn't touch FTX us, which for a lot, a long time tried to position itself as, you know, well run and regulated as coinbase to be, you know, they tried to say that.

But now if you look inside the Wall Street Journal, all the articles say that this is actually FTX group. So the whole thing seems to be imperiled. Can you just help us explain that because there now that's a lot of us people that were following the rules thinking that this thing was matched one to one that may be also affected?

Yeah. So, look, I don't know who inside FTX is and its orbit of companies actually knew that the fraud had been taking place. I, it would not surprise me. I have no idea, to be honest, but it would not surprise me if FTX us people and employees had no idea that this was happening.

I'm imagining if Sam was doing when he when he started doing this, he probably wanted to keep it to a very small group. Otherwise, this is the kind of thing that leaks and the whole thing blows up. Now, that being said, I don't necessarily think FTX us is worth anything as a business right now because of the brand being so tainted.

And there probably was not great separation of these entities in the sense of, you know, like, did they have truly separate boards and beneficial owners and governance and it Sam seems to have, you know, it appears that they didn't FTX didn't really have a CFO or maybe even like a real board or anything like that.

And so it's hard to match. We found on red, there was an article that appeared that said that the head of compliance at FTX was also the head of compliance at a poker site called ultimate bet, which in the 2010s, did this exact thing, apparently some version of this where they went in and they looked at whole cards of poker players.

And then a few employees inside the business would basically play against these folks knowing what the whole cards were, ran this cheat stole millions of dollars. Somehow that person found a way to be head of compliance at FTX Yeah, 10 years later, which is incredible. But back to this question.

So So now what happens now is you have the international business, and the US business and Alameda research all rolled up into this one frozen entity, right? With now regulators having to so do you know what happens in a process like this? Like, is it that the DOJ and the SEC get priority?

Or is there some international monetary like who, who's who unwinds all of this? How do people get their money back if at all? Yeah, so I'm not an expert at this. But my high level understanding is that the bankruptcy courts will essentially, and I believe they filed bankruptcy in the US, which is an interesting thing.

I didn't know why they did that versus Bahamas. But anyway, the bankruptcy court will basically go through and try to find any assets of value. So I mean, they must they still have some tokens and value, they have a venture portfolio, they you know, I think Sam owns 9% of Robin Hood, there's various things that they may own.

And then they'll kind of auction those off to various bidders on distressed assets, and then try to distribute those funds to the customers. I don't know the exact process beyond that, though. I mean, if you remember the Madoff, wind down took many years. And for years, he was trying to find assets, and then he found a market sold them.

There's this the trustee, I think he's still active. And then, you know, it's tried to redistribute the funds, obviously, so many more customers here than there was with Madoff. But it can be a very long and winding process to identify all the assets, then run the market sale process on them, then figure out who gets what first, and then distribute.

There was an interesting thing that Larry Summers did, I think for Bloomberg, where he was asked whether this was Lehman or Enron. And he said, it seems more like an Enron than it is a Lehman. And Brian, I'm just curious how you think about it. Like, is this sort of a fraud perpetuated by a group of executives to essentially take advantage of a situation?

Or do you think that this is more like a Lehman situation, which is a well run business, I guess that just, you know, got caught in a liquidity trap? I think it's my guess is it's a little more like Enron in the sense that I mean, yes, they were over levered and that kind of thing.

But the minute that they moved customer funds in some way, shape or form to backstop the hedge fund that that was, in my mind, fraud. And you know, that's more like Enron. Do you think now that we have to open the gates on regulation, like the whole point of crypto in some ways was, you know, trust nobody.

And, you know, decentralization is the key. But here, what we see is a lot of people were tricked into trusting FTX and having their deposits there. And it was a centralized exchange, which caused all these problems. So it's like, it almost violates the principles of what the whole product market fit was supposed to be.

So what what should sort of the observer expect? And what do you expect as a business in terms of how governments now react to all of this? Yeah, I think it's really important to distinguish between the centralized players in crypto, which are custodians, exchanges, etc. Coinbase has a big business there.

And the decentralized players, which are, you know, self custodial wallets, defy protocols, web three, that whole world. So the centralized players should be regulated. And today, they're regulated already, like, like kind of traditional financial service businesses. But they don't have the regulation clear when it comes to the crypto aspects.

So for instance, in the US, we actually don't still have clarity about what is a commodity, what's the security? Should which one should CFTC regulator versus SEC, that kind of thing. And that lack of regulatory clarity, and frankly, the the climate of regulation by enforcement, the negative rhetoric from you know, chair guns, Lord in particular, has created this sort of chilling effect in the US that has pushed a lot of that centralized actors activity offshore.

In fact, 95% of the trading volume in crypto is now outside the United States. And it's come down a lot since the beginning of this year, even now, the decentralized players, self custodial wallets, defy web three. This is where crypto really has an opportunity to make a more fair and free and transparent system because you can go look at any smart contract to see exactly what it's doing.

Anybody can audit the code. If you have a self custodial wallet, you can just trust yourself, you don't have to trust any other into intermediary out there. And that's where you get true decentralization. And I think that's actually now those areas still have a couple of their own challenges.

You know, sometimes people will lose their password or their phone, and they'll lose their own money. So if you're if you're trusting yourself, you still have the you have to trust you know, that you're going to do that piece correctly. But there's a lot of good things we can do there around making social recovery mechanisms and NPC wallets and things like that.

We remember just a couple of months ago, Gary Gensler started saying, Hey, these things are all securities. And you went and visit the SEC a couple years ago, or you try to they wouldn't meet with you. You were very public, you did a tweet storm. We talked about this on my other pod, that hey, like we want to meet, we want to talk about that.

Now we're still in a position where the SEC is position is these are all securities, which means the anything that's trading, it would have to be limited to accredited investors, etc. What should the United States do here? And how close are we to getting clarity? Because I know you're trying to talk to the SEC directly about can we just get some clarity here?

Can people buy these tokens or not? What is the status of Are they tokens? Are they securities? Or are they not here in the United States? Yeah. So luckily, since then, we have had a lot of productive dialogue with both the SEC and the CFTC and Treasury and all kinds of people in Congress.

And I do think the US is making some steps in the right direction. There was actually there was a bill going through Congress recently called the DC CPA or the stab now Bozeman bill. Although it's having some challenges now, frankly, due to this FTX blow up because SBF was one of the people sort of pushing that bill forward.

But regardless of that, the sort of system that we should have is there should be a clear designation between what is a crypto commodity, and that can be regulated by the CFTC. And what is a crypto security? Now this is one of those legal, by the way, what is also a stable coin and artwork and other things that are not any of those things.

The challenge lies in that there's kind of a fuzzy line between what is a commodity and what is a security and a lot of this law is based around the Howie test, which says a security is an investment in a common enterprise with an expectation of profit. And so it's basically a point based system.

And in the absence of really getting a clear list between the CFTC and the SEC or in this turf battle, I would love it if you know, they could basically put out a list, get their heads together and put out a list, hey, CFTC is going to do these SEC is going to do these a bunch maybe are in the middle, let's let the courts figure that out or whatever.

But that just hasn't happened. And it's a it's a missed opportunity in the US. So if the Howie test is not perfect, given the dynamic nature of cryptocurrencies and all the innovation, if Brian Armstrong was going to say, hey, this is in the best interest of Americans, balancing, you know, some amount of security and safety for people making bets on this currency, and allowing innovation, what would you say is the best definition, the best way for us to regulate crypto coins, putting NF T's aside putting down site just specifically, hold on, let me just tweak your question.

Sure, build on it, because we because we should switch to SPF as well. And just talk about the person. But to me, it seems the whole issue if you come back, like, what is the first string that you pulled that unraveled the sweater was the fact that these tokens were created out of thin air, they had no meaningful value, somebody prescribed a value.

And all of a sudden, everybody else in the economy all of a sudden said, Yeah, I'll take that as collateral. Look, you cannot do that in the regular world. I can't call JP Morgan and say, I've invented this thing. It's called a share in XYZ. And I'd like you to margin loan, you know, give me a loan against it.

So Brian, explain like, there's a ton of these tokens that have been engineered, right? And there's been a ton of these tokens that have been sold. So what should people do that own these things thinking that there was going to be some safety or value or, you know, like, how do you think about all of these tokens that are that that could be as basically as as fragile and shitty and worthless as FTT?

Hmm. Yeah, well, there, there is this concept of like an exchange token, and there's a couple other firms out there that have them. And that's something we haven't done. And I do, I think, I think you're right, like, the actual utility of those things is a little questionable. And so if someone's going to sort of mark those up on a low supply, and then a low float, and then somehow leverage that, that that's going to get yourself into trouble.

But look, I don't want to throw out the entire concept of people creating tokens, I think there's actually a lot of good stuff there. And it comes down to this idea of if you're trying to raise money for your company, and a token through a token, that's fine, that should be a security.

And there should be a regulated way to do that in the US, like go register it with the SEC, you know, let it trade on broker dealers. That's, that's what we've been wanting to do for a long time. And the SEC is taking their time getting there. They don't, you know, get into her to be honest, he doesn't seem that excited about the idea of this whole industry existing.

And so anyway, but it should it should exist, and it should be happening in a regulated way. So if people want to issue a token that's raising money for a company, let's regulate it as a security. If they want to issue a token that's truly on a decentralized protocol, or has some other purpose, like voting in a Dow or rewards or something like that, then that's probably not a security.

And let's be honest about that and allow those things to trade in a different environment, a different regulator under the CFTC, we're probably running out of time with you, because you said you had a hard stop. So let's ask the million dollar question, tell us about SPF. Like, what's who is this character?

When did you first suspect? Yeah, what's your read on the psychology that this wasn't legit? Do you think that it was his altruistic intent, that allowed himself to convince himself to do this? Or do you think this was like malicious the whole way? Or what's your sense of the guy?

So again, I'm speculating here. I mean, I've spent time with I've met him a bunch of times. And I have to say, I did not see this coming. Like he, he appeared to me to be a very bright, credible, competent person, perhaps a bit young, perhaps, you know, a bit reckless at times, but not unethical and not not committing fraud.

I definitely did not see that. You know, if I look back to see, were there any warning signs that I should have thought twice about it? You know, one of the things I noticed was that in 2021, you know, Coinbase had a good year, we did 7 billion in revenue for a billion of positive EBITDA, we went, we became public as a company.

At that time, FTX did about 1 billion in revenue. And I knew how much money we had for our venture budget, and just like, different investments we wanted to make. And I knew their revenue. And I had to scratch my head a bunch of times. And I was like, where is this guy getting all this liquidity?

Because he was like buying 9% of Robin Hood, he was putting like a billion dollars into this, he was donating to all these politicians. And I was like, I, it did not make sense to me where he was getting all this cash, people just kept telling me, oh, his market maker Alameda is just printing cash.

I guess like, okay, I guess, you know, it seems like a conflict of interest to own an exchange to market maker. That's why we haven't done it. But more power to him, I guess. And so I was surprised I didn't speak up. I cannot I can't explain the psychology of it at this point, whether he's a pathological liar, or if he's started off good, and somehow under the pressure of this whole thing went bad.

But the minute you can, you can go watch the interviews, he's, he's, he's lying to people about why he's, he's, you know, bailing out Voyager and BlockFi. And he's saying, and he knew at that time that most likely he knew that at that time that they were not solvent Alameda was not solvent.

And so that's where he crossed a major line in my book. And we see it time and time again, Elizabeth Holmes, Bernie Madoff, I mean, once the lie gets too big, you can't get out of it anymore. If that's the case, really incredible. And the most important thing at this point, Brian, is that the United States makes a decision on do we want to be in crypto?

Do we want to have a say in this and create a regulatory framework that entrepreneurs like yourself can deal with? That is the most important thing to happen in the next year. But you're saying the SEC is not motivated? I guess? Why are they not motivated? They're just cya?

Well, they're motivated. Now. This is a political issue now. So they but let's hear Brian's answer here. What do you find out? Who did SPF give all this money to because he was touted as one of the future biggest donors, the Democratic Party, Democratic Party wants signals. So if you want signals, I would say there was a pretty big signals here.

Number one, he says going to donate a billion dollars Democratic Party. And he kept touting this like effective altruism, whatever the saving the world stuff. Now, why do you need to do that? Unless your reputation laundering and trying to buy political protection? Come on, okay. You don't think that was a little bit of a signal?

Right here? I'll tell you, I'll tell you an even more explicit signal. We he pitched us in that $17 billion round. And I did a zoom with him. And after the zoom, I'm like, this doesn't make much sense. But I'll have my team do some work. We did some work.

And we sent him a two page deck. And we said, here are our recommendations for taking the next step. One was the formation of a board. The second was the creation of dual class doc. The third was some reps and warranties around affiliated transactions and related party transactions. And the person that worked there, called us back and literally, I'm not I'm not kidding, you said, go fuck yourself, was quote, unquote, the response to us.

We're like, okay, so that was the easy decision. But message receives message received. But I still thought, okay, I'll just put that in the bucket of these guys are unbelievably arrogant and smug. But Brian, I thought what you thought, which is, maybe it's because they've printed, they've created some money making machine in the Bahamas.

And so they have that level of confidence. You know, I, it but then to see this thing to the extent of which is now we're only scratching the surface, guys, you know that we're gonna find that stuff every day. The postmortem is gonna be crazy. But Brian, to the question I asked before about the SEC, and what should happen, you said, I want to pick up on what you said, which is the SEC doesn't seem motivated.

Why is the SEC in your mind not motivated? Well, I think you're right that I hope that they use this as a moment to come together and help, you know, local companies in the US being built here to end up in a better place. And I do believe you know, David, I think said it's right, it is a political issue.

At this point, there's going to be a major impetus to get the clarity here in the US and hopefully to help build the companies here in the US that are going to serve the rest of the world, and in every major financial hub. So we're committed to building that together with all the regulators around the world.

And crypto is here to stay. This is a temporary setback. But I'm here to keep building and make this thing happen. All right, we really appreciate you taking the time. I mean, story after story here about, you know, SPF was going to create this billion dollar philanthropy to, you know, save the world improve humanities, long term prospects, number two donor to the entire Democratic Party, and on and on and on.

And like, quite frankly, what this shows is you want to know what effective altruism means. It means that you steal other people's money, while bragging about saving the world, while taking a big chunk for yourself. That's what it means. There was a research paper in 2011. And this research team looked at drug addicts and drug abusers 4000 people.

And they found that the biggest addicts had the highest intelligence, that you were twice as likely to become an abuser and addict. If you were any kind of intelligent, quintile, quintile, but they were measuring. And I someone explained this to me at the time, that the smarter you are, the more you can convince yourself that when you're doing bad things, you're actually doing good things.

Even if you're doing bad things to yourself or bad things to other people that you really may actually care about, you can convince yourself that there's some reason to keep doing it. He seems like a brilliant guy. I think that to some extent, he may actually, I don't know the guy, but he may actually believe that the, you know, the the ends did justify the means, and he thought that he was doing good for the world.

And this was something that had to be done in some way. And oh, it just got a little bit away from me. But it's, it's still I think the problem is bigger than FT x. And I'll say the uncomfortable part out loud, and nobody needs to necessarily comment if you don't want to.

But there were an enormous number of venture firms that talk their their way into just completely doing zero work here. I mean, and the the tip of the spear is this thing. Who's the guy that works at founders fund? bulgar bull jars? zebul jar zebul. Delia. Delia. Thank you.

Yeah, that tweet that he had where he basically took the snapshot of the Sequoia transcript was one of the funniest things that I've ever seen. I mean, this was a $215 million decision, and Sequoia documented it and put it on their own website. And I think that's an example of something that was happening, which is people just look the other way and didn't even want to do the layer of work.

Chamat, let me just string together a couple of things we've talked about over the past few episodes. And I think you'll agree with this point. But generally speaking, there seems to be a very heavy lack of governance in investing given the amount of capital and the velocity of capital in Silicon Valley, particularly in private markets of late.

And a lot of the stuff that's been talked about, where last week, we talked about super voting shares, and the founder does whatever they want. And there's no governance, and there's no board, and there's no oversight. And particularly with this FTX situation, where clearly there wasn't a board that was, you know, getting the necessary information that had the necessary influence that had the necessary controls, the meta conversation, but all of these threads tie together the concept that maybe there's not a lot of governance and not a lot of diligence going on.

And the amount of money that's flowed into Silicon Valley has allowed a lot of this Lucy, I'll say either. I agree with you. Let's thank Brian Armstrong for joining us. And it was very busy day. And what a great, candid, insightful. Thank you. And it and insightful finish with us.

I just want to say the second uncomfortable thing out loud, which is there was a lot of venture firms in Silicon Valley in this period of both not doing any work or diligence who also took the extra step and actually created classes and would teach teams how to create these tokens.

Okay, and those artifacts, those video links and artifacts are sometimes on their website, they're still on YouTube, they're inside of Twitter. And what these folks would do, and we talked about this, the game that they played, was they would get a team, they would create a token, they would also buy equity at some crazy valuation, the equity was locked up, but the tokens were not.

And then they would put them on an exchange and sell them to unsuspecting people, and they would be able to dump these tokens. And if you look inside of that trend, what you're going to see, and Brian just mentioned this, those were the sale of securities, except it was done in a completely unregulated way.

So if the SEC is really and the DOJ is really going to take this FTT token issue seriously, and what happened to FT x, they're going to start to look at a bunch of other tokens, and token sales, and you're going to end up looking at some very well known venture firms inside of Silicon Valley.

This is going to be super gnarly. And we talked about it before on this pod, there are people who knew better. So you get a bunch of kids who are living in the Bahamas in a house and they're, you know, winging this thing, that's one level of responsibility, and they'll go to jail.

But when we talk about venture capitals, capital allocators have been at it for decades, to Schmott's point, and they're teaching people how to do this, and they're hiring attorneys and creating offshore patent Panama, you know, BVI, whatever places to put these coins, and then teaching people how to do it and then flipping them potentially, this is we're just peeling back the onion on this, I have a feeling that this is going to be the turning point.

And all that token, guys, let's be honest, is not the only token that has been engineered by Silicon Valley venture firms. And it is also not the only token that's gone to zero that was engineered by Silicon Valley venture firms. Well, I mean, who knows engineered by but yeah, Jason to at the very least, Jason, Jason, there's videos today on some of the most well known venture firm sites on how to do this.

Oh, wow, I'm gonna have to see those. Yeah. So they're basically your point, Chamath is they're instructing people on how to do this. And that is a lot of the deal. It's what it's what it's what they did. Can I ask you guys a point of view on just one big macro philosophical question?

I'm obviously not big in the crypto world and haven't been but so much of the positioning has been that these networks get decentralized through the cryptographic verification systems that obviously enable, you know, them to operate effectively and truthfully and correctly and without centralized control or manipulation. But ultimately, while these networks themselves may be decentralized, the user's point of access often ends up being centralized as a point on the network.

And it is that point on the network that accrues the same level of influence, power, control and value as what we saw in the prior centralized network model. You know, we had biology on last year. And you know, I tried to get to this point within we had to cut the thing cut the conversation short, but I've still not heard from anyone.

And I've spoken with Brian separately about this point. And the concept I use is like, look, media, if you put all the YouTube videos on a decentralized network, and anyone can access them, and they're distributed everywhere, you still need to have a really good application. And whoever makes the best application is going to get all the usage.

And then all the users will use that application. And that becomes effectively the point of control and influence and value once again. And so it seems to me like in this case, the exchange was being used as a centralized wallet, certainly you can do that, you know, exchange through the exchange.

But But mechanistically, these guys were storing their coins, their cryptocurrency inside of FT x's wallets, and had control over their assets. And so the network centralized. And so does the decentralized model? It's a question I'd love to just ask you guys in your point of view on does this decentralized model actually ever manifest where everyone has their own wallet?

And I know there's all these new protocols and these distributed wallets and defy things, but I don't know enough. Yeah, I don't know. Better, but this points out to me just you basically recreate an exchange without a regulator. And of course, someone ripped you off and blew up like I mean, how's it any different than what we had in version 1.0?

And is there really a model where decentralized works are ultimately because of the network effects and the and the economy? Answer? Yeah, we got the question. No, I mean, I haven't I have I don't know the answer to free bird question because I don't I don't know this space well enough.

I mean, you know, I, my, my biggest purchase ever was Bitcoin in 2011. You know, I've bought a bunch of these tokens that have massively depreciated in value. I think lots of investors have, you know, I kind of fell into it as well. Like I thought, wow, this is incredible.

I get to buy these tokens, they do all of this cool stuff, they represent all this value. And my experience has been the opposite of that I've lost a lot of money in these things. And so you know, I really hope that regulators not just obviously, I hope that regulators do their do the best they can to get investors money back in FTX.

But I really also hope they figure out all these other tokens as well, because you can just rank them in terms of market cap, start at the top and work your way down. And you will see that these were unregulated securities, Jason that were manufactured and sold by our brethren.

People who understand the law around accredited investors and this stuff very well. Yeah, they understand it implicitly. Yeah. Do you guys think crypto investing is dead? Or what do you think? How do you think people think about that risk profile now inside of I think that investing in the tokens is going to end investing in the corporation is going to begin and any of the tokens are going to be super regulated building on what you said Chamath about the ultimate bet.

Is it possible that Alameda the trading hedge fund was looking at the FTX data which they had insights into? And essentially, that's the same as seeing the whole cards and the ultimate bet. And so they're making their trades based on what they see the consumers are making their trades, front running their trades or otherwise, that's not illegal.

You know, Citadel does this in the regulated market. That's what payment for order flow is. It's right. It's the ability to front run retail volume. And so you know, in dark pools, that is legal by the law in the United States. And that's what allows Citadel and, you know, I think Jane Street and Susquehanna, you know, all these folks basically run these dark pool exchanges for regulated securities, like options and bonds and, and stocks.

And they get this order flow and they front run it by a millisecond and they just take small big, but they can't print the FTT tokens and otherwise manipulate the market to the level that I think SPL could I just think that there's there's there's these really strict walls and segregation.

As you heard Brian talk about when you have those businesses in these regulated markets. The problem here is that this is totally wild west unregulated, wild, wild west. So who knows what's going on really? And we're pushing the business sacks off of the shores of the United States, as he said, 95% of this is happening offshore.

What do you think should happen regulatory wise sacks in terms of America and competitiveness? Or do we not to be need to be competitive in this? No, I think we should be I mean, what if what if crypto is and defy is the future of finance? I mean, it's an important technology that I think we should enable through some sort of constructive regulatory framework.

I think the I think the regulators should listen to Brian and help come with a appropriate framework. But to be clear, look, what Sam did is way worse than people going on an exchange and speculating. I mean, look, I think that people who speculated in the buying and selling these tokens, there, they were using it like a casino, okay, like, that's different than a customer putting their money on FTX and having their money gets stolen.

That's a big difference. So I think there's levels here. Now, Jamal, to your point about who's minting these tokens, you're right, maybe that's like another category. But I do think that the reason why this is on a different level is because it wasn't Sam's money to give away. There is such an easy solution to a whole lot of data.

I'm just traded. I agree with you on that point. But I think don't under play when there's an organized process to create an illegal security with special rules for them. That allows the liquidity for one class of asset and not liquidity for you're right. So that's a separate bucket.

I don't think it's the same as what Sam did. And I don't think I agree. I agree. No, I'm saying that's something that needs to be looked at. And we need a constructive regulatory framework for that. There is such a simple silver bullet for all of this, which is these things need to be there needs to be proper governance, people have to have skin in the game insurance, people signing off on the taxes boards, not onshore here in the United States.

And then we need to have and I'll keep saying this, a way for Americans to become sophisticated investors, only 6% of this country fall into the qualified purchaser and accredited if you want to trade in these things, or you want to trade in NF T's or private companies, we should have a driver's license like test a firearm test and I are on the same sophisticated test and the problem into it with an education.

The problem is when you have guys like this, it sets that desire back by a decade, if not more. Okay, because it sucks. I agree. Because every single frustrating every single person inside of Washington right now, who's anywhere near this from a regulatory perspective or a policy perspective is meeting on Monday morning.

Yeah, the meeting topic is how do we defend the mom and pop folks that lost money here? Yes, the only thing. So we took this out of you know, because I remember I remember I texted into the group chat. Hey, guys, what what what do we think the legal ramifications are that drive prosecution, and one of our friends said legal ramifications.

These are political ramifications. Yeah, which means that this is going to go to the utmost level and it's going to have the most scrutiny. And they're going to act really quickly. It is going to drop a hammer instead of having a path to accreditation. I agree with you, they're going to drop the hammer, because their constituents, some grandma and grandpa or some people put their college education to some lost everything.

We just need a test. Let people prove they're sophisticated and let them participate. Well, first and only if they get a license, haven't you been a proponent for letting people invest in startups that are just moms and pops and democratizing access? I'm only allowed to do that with accredited investors.

I would like there to be a test and I actually teach a course Angel University six times a year for charity. I do it for charity. It's a four hour course where you learn about diversification you learn about the asset class you learn about 70 80% go to zero we teach you about the power law.

I try to teach people about this stuff so that they can participate intelligently it would it would be the equivalent freeberg and thank you for asking the question. The it would be equivalent if we had a poker test and to play in the World Series of poker, you had to go to a five hour seminar, and you had to take a practical test and you had to say, you know, a flush beats a straight and you had to just prove that you had some level of knowledge of how to play the game.

It's such an obvious path to removing these problems while staying competitive as a country. And instead we're letting people do this offshore like CZ with no rules, or whatever rules he chooses. It's just infuriating. It's so stupid. Our politicians in Washington are so dumb. Can I just say something?

I think the challenge is there's always a spectrum of understanding. And you'll always end up seeing the people on the wrong end of the spectrum getting taken advantage of there's this notion of adverse selection. distributions are not equal. People will end up, you know, kind of opting in to spend money on things or making investments that they think are good investments, but they're actually getting taken advantage of, because they're not savvy enough, or they miss an important angle or important perspective about the person or the thing that they're giving their money to.

And there will always be some number of those. And the way that regulation has worked historically, is not by first saying, Hey, let's figure out the right way to create a framework for operating. It's that some sort of people got advantaged. That story then becomes the regulatory framework. And that story has repeated itself for 500 years across capital markets.

We're talking about a multi layered thing here. We want to see crypto have a framework, we want it to blossom here in the United States. And then there's multiple level of people who are causing chaos in this ecosystem in this very promising technology with their goddamn grifts, whether it's VCs, grifting, or SPF, or incompetence, we just need to clean this framework up if people sometimes people I understand in DC listen to this podcast, if they're listening, it's essential that America be competitive here, it's essential that everybody participate in risk capital and get educated.

Let's clean it up and make a framework that allows all Americans to participate and educates them and then stops these grifters from doing stupid things. If people were educated. That's the first step. And it's the best about the economy. Sure, you want to talk about Facebook with 11,000. You want to talk about the market popping at the beginning of October?

Yeah, I think what we basically said, kind of generally speaking is markets up, right markets went from nibbling to being constructively positive and basically being positioned long. Here's this really interesting setup. We have a bunch of very positive news that I think we all have to process. First positive news was that inflation ticked down.

Now here's what I'll tell you, there's a caveat here, I talked to a bunch of pretty smart sharps on Wall Street. And, oh, two things. Number one is they all gave credit to David Sachs and they said Sachs is totally right, double dip recession is coming. But then they said tell Sachs that we think that these are the sharps, we think that there's a double hump in inflation coming, which means it's coming down to come back up.

And there's a bunch of reporting vagaries that may cause that so keep that in the back of your mind but positive news. Number one is inflation ticking down. Number two, Jason we talked about this, a federal judge basically stayed Biden's attempt at giving student loan relief. Now, that would have been a $500 billion transfer payment from the government into the hands of individuals.

It is deflationary to not put give that money to people it's effectively taking stimulus away from folks. Number three, it looks like we're headed towards a split government, which means that we are not probably going to see any more stimulus over the next two years. Number four, Ukraine wins and occurs on.

I hope I'm pronouncing that right. Number five, the United States announced yesterday through the Wall Street Journal, that they had essentially said no to Ukraine's request for advanced drones. And they said to Ukraine essentially, you need to go and negotiate an endgame here. And number six, China has started to relax his COVID policies and G is pivoting to economy first.

So if you took all the weight take seven, don't forget seven, Facebook, which would not take the medicine, they refuse Brad Gerson's letter, cut 11,000 people 48 hours ago, I don't think Facebook matters that much, to be honest. Well, but it matters that big tech is and they're taking matters.

But it doesn't matter to the economy to be complete. I think it does, if people are gonna start cutting jobs, but okay, keep going. My point is, these seven things are macro level things that affect everybody. Yep. And I think if you take them together, what it says is that, wow, there's there's the potential for a lot of great positive developments over the next six or nine months.

And I don't think that that was adequately priced in the market. But here's the problem. And this is what why we've been rallying. The problem is that most of this rallying has been because of a bunch of short covering by folks that who were pretty pessimistic and negative after the last few inflation prints.

So this is not really net new buying that we saw over the last couple days. So you take it all together. I'm like, it's still going to probably trend up a little bit. But then again, you know, we talked about this, Jason, when the VIX gets into the low 20s, or the high teens, that's probably the short term top and then it turns around.

And unfortunately, we're here. The low 20s, high teens. So that's kind of my thought on things right now. Okay, freeberg, any thoughts on the inflation print? Yeah, so I think there's two things, one of which I'll give credit to a guy named Carl. Chu. I hope I pronounced Carl's name right.

He's from William Blair, he puts out these excellent research reports. And we used one of his graphics a few weeks ago. So I put it up here. And basically, he showed that with the the NASDAQ move that we saw this week. So you can see this here, he basically tracked the move in the 10 year Treasury against the one day move in the NASDAQ.

And he said that it really indicates a unique sentiment shift, whereas in other times, you've seen big moves in the NASDAQ that weren't really seeing significant moves in the Treasury rate at the same on the same trading day. And that this is such an outlier what happened this week.

The only other time that we've seen anything like it was when the Bank of England issue happened back at the end of September, in the last, you know, 20 times that we've seen this big of a move in the NASDAQ in a single day. And so we saw 31 basis point move in 10 year Treasuries in a single day at the same time that we saw what a seven point move in the NASDAQ.

So he said, because you don't normally see the bond market and the equity market trade in this way together, it really speaks to a big shift in sentiment. Now, at the same time, what is that shift in sentiment, that there is going to be less of a driver for the Fed to raise interest rates at this point, because it seems like the inflation print indicates that inflation is coming under control faster than what folks had otherwise anticipated.

And so there may not be as many rate hikes as quickly as folks were anticipating, which will, you know, benefit, benefit equities and the bond market traded that that with that perspective as well. Now, the counter narrative, which I just put a tweet by a guy who I've never heard of before.

But someone shared this with me, his name is Gordon Johnson. And he said, the CPI surprise may actually be due to a technical print that within the CPI, one of the biggest indicators is health insurance cost. And, you know, it, the health insurance cost plunged by 4% October to September, but healthcare costs didn't actually magically collapse, there was just an accounting difference in how they're shifting how they're accounting for healthcare costs that took place during the month.

And if you did not, if you assume that that was flat, month over month, you would end up actually with a 6.7% year over year print, which was higher than expected. So there is a counter narrative going on in the market. I don't know how significant this guy is, or how much of a voice he has.

But I don't know if we're out of the woods yet by some folks are saying that the market is saying, we're feeling a lot better. But there are still analysts that are indicating that maybe there is still risk to be had ahead of us. I think the sharps tend to be on that second, second perspective.

And by the way, I'll say this week, I heard five and a half points, even after that print. So is where we're gonna get to I think consensus we have here is is that we're in the endgame now maybe what two quarters, three quarters, four quarters of choppiness. Chamath, what would your gut tell you if you I've been telling all of our startups that you need to plan to have money through the first quarter of 2025?

You must Yeah, okay, absolutely must. And the way that I have cash, okay, the way that I framed that out to them is nine. Yeah, eight or nine quarters of cash. Ideally nine. And the reason is that we have all of this positive news in the offing. But But the but the problem is, again, there is still a lot of risk to the downside, we haven't seen David second, you know, dip in the recession, right.

So that double dip is going to be expensive. And again, the sharps think that inflation will come back at some point in the next six months, that will keep the feds foot on the gas. Maybe it's two or three more 50 basis point hikes. The point is, Jason, you could be at five and a half.

Again, we said this last week, we're going to get to a point that's probably higher than what people expect. That's probably around five and a half. And we'll stay there longer than people want. That's probably through the middle part of 24. And if you don't prepare for that worst case scenario, you're doing yourself a disservice.

I think the market can start to rebound in the second half of 24. But if you're a company, you need to balance and plan for the first quarter of 25. Because, you know, again, most venture investors are going to want to see six months of data on the ground that things are better before their sentiment changes.

Yeah. And we're just starting to see the drawdowns. We're just starting to see the impacts in people's portfolios that will drive behavior change. I mean, this SPF thing is the tip of the iceberg in terms of the money at risk. You know, I went in, by the way, I did it in analysis.

I shared it in the group chat. Hopefully, we can show this up. Brad has a little chart. Nick, maybe you can throw up the the the historic drawdowns. So, for people that care about early stage technology, since 2018 through 2021, and including an estimate for 2022, we have injected 1 trillion dollars into venture capital.

And if you look at historically how money has been lost in periods like this, and you layer that into 2018 to now, what it basically tells you is about 500 billion dollars of that trillion from 18, 19, 20, 21, and 22 is going to be destroyed. We haven't even started to see that yet, right?

And then if you factor in another 100 billion or so from older vintages, we're talking about a 600 or 700 billion dollar destruction of paid in capital. So there's still for all the good news, there's still a bunch of these unfortunate pieces of bad news that have to work its way through the system.

Yeah. And for people who are looking at the chart right now, and you can see the charts on Spotify, or if you search for all in on YouTube, we have a video version there. You just take a look at 1997, the peak TVPI was, you know, seven and a half x seven and a half times, you know, cash on cash money.

And what actually got realized was five x, right? So what paper said and what got distributed were two different things. Anecdotally, what I'm seeing in the startup world, Chamath is people are taking the medicine and a lot of people are shutting their companies down. They're giving up on raising money, and then asking me which portfolio company can I get a job at because I on my personal balance sheet have been you know, taking a 5k draw a month and I have two kids I need a job, can you get me a job at Amazon or another portfolio company.

And a lot of acquirers have started to happen. And so what's happening is the consolidation of talent, people who would be a great number three or four person, but maybe they weren't suited to be the number one person are now consolidating into startups. With these layoffs at meta and other corporations, we're starting to see very talented people who had peak comp of 300 700 k a year are going to go to startups or smaller companies.

And that is also positive, more consolidation of talent, stronger companies. Did you guys hear the story yesterday that Nick, if you could just be about the name told about his friend, his friend basically makes $140,000 working for a tech startup, and then also makes $280,000 working for meta. And so and he's been working at both of those companies virtually for the last two years, the guy makes 400 $450,000 a year and nobody knows and he says he works about 2022 hours a week on both combined.

So the 80 hours and remember when we started in startups in the night late 90s and into the turn of the century. The number of hours that was expected at a startup was what sacks when you were at 60 hours a week, I would say 6060 day I was expecting baseline.

Yeah, 60 baseline. Yeah. baseline 10 hours a day plus coming on the weekend for a couple hours. Yes. Yeah, for sure. Easily. He probably more early days of Facebook, our executive management meetings wouldn't start till 9pm. Yeah, it's this is I think, Elon's gonna be a trailblazer in a lot of ways on this Twitter thing.

You know, first he did the big headcount reduction, but then he also just this past week, everyone needs to come to the office. And if you don't come to the office, you don't have to come to the office, you have a good excuse. If you're an exceptional performer, and you've got a good reason, they don't have to but the baseline is everyone comes to the office.

By the way, just to put this point into focus, Nick, can you just throw up this chart for these guys to see because I think it's just ridiculous. So this is basically what we're dealing with, which is like if you look at and these are just a couple of examples, but this is meta Amazon snowflake data dog versus Gilead, Raytheon and Exxon.

What is the point of this? The point of this is just to show you that we have had a massive rotation away from our industry is the point, right? Where normally, the things that we would work on were just so well received by so many different kinds of investors that unfortunately just isn't the case anymore.

And I think it just goes to show you that the reason why this is happening is because people are hedging their bets about how long the economic pain lasts. That's why you know, they'd rather be long healthcare stocks, you know, industrial defense companies and oil companies, because at the end of the day, they're banking on oil and war and sickness, you know, versus social media and e commerce and software.

And if we look at this chart, just no matter how good by the way, so this is not an indictment on these companies go watch the prediction episode from last year. I think that was a prediction episode. Yeah, we you and I nailed it on crypto. We both said crypto is going to crater these four horsemen here data dog meta Amazon snowflake down 23 to 27%.

And then the Gilead Raytheon Exxon cohort 8 to 28% up. I think Chamath what this says also is, we don't think your management style and how you're running these businesses is appropriate for this moment in time, please consider some austerity measures and some thoughtfulness in how you treat shareholders.

Well, I mean, it's just watching the number, you know how people are running companies. I think we took it too far in Silicon Valley, we took it too far, whether it's a cow, I know that I know it's sort of a pet issue of ours, because we have to deal with some incredible hubris and arrogance sometimes on the boards of these companies, because folks don't want to listen to reasonable advice, and we come off as wet blankets.

But that chart, to be honest, is is because of what we explained last week, which is the when rates go up, the value of a dollar that you earned today is just meaningly meaningfully more worthwhile than a dollar that you may earn even two or three years in the future.

That's why that chart looks the way that it does. And if you believe that David's forecast of a double dip recession is accurate, which again, most of the sharps do. And then you also layer in this idea that inflation could come back, you have to be really defensively positioned, you know, you can't take a lot of risk, which is why startups have to expect that if that's the dynamic, and $600 billion is going to get destroyed in venture capital portfolios, how open our VC is going to be for business, they're probably not going to be that open.

And so you have to plan, I think, for the middle for the early part of 25. If Amazon, and how do you get incremental dollars in these tech companies, Amazon does a riff, some austerity measures, they raise prices a little bit, if they can, you know, maybe you see more incremental dollars coming today.

And maybe that incentivizes people look what happened. We were at $89 for Facebook shares last week, tomorrow, when he made the riff 107, he went up like 15 $20. What does that tell you? I mean, I think it tells you that a lot of people were short going into that, and they were probably cut off side a little bit by the magnitude of it.

I think that that's good. The, the issue that a lot of these companies have, even in the face of riffs is that you have to reset expectations now on earnings. And if you do that, the problem is that when you flow that through to what people think the SMP will look like in a year, there's some real issues.

So this is not free, you know, it's really hard treading. And I just I would I would just encourage people, it feels wonderful to have a few days of like, it's like a respite in the middle of a huge storm, right? It feels like we've been getting whipsawed back and forth, and it's nice.

I came out, and the wind came out. I would just really encourage people in this moment to reset your energy, which I think is good. But you got to go back into that office, and you got to find the money and the wherewithal, I think to last through 24.

If possible, it's grind time, Facebook, by the way, 27 months, 27, at least two years, two years. 24 months is the new Yeah, now quarters is the new six quarters. And by the way, you know, the thing that employees need to do now in this moment is to hold the management teams of your companies accountable, because in those q&a is, hopefully, you're not just glad handing talking about bullshit, you actually go and ask the question, how much money do we have?

What decisions are you going to make to get this company to be, you know, in a position to survive? That is really what's at stake here for the venture capital industry is just survival of as many of these companies as possible through these next two years, the conversation has to shift from like culture and features to like the bottom line, and grinding it out and just proving it to Wall Street and to the investment community that your business is worthy of investment.

As you're saying the dollars today matter. All right. It's been a crazy week. Thank you to David Friedberg for showing up. Unfortunately, no time for science corner apologies to the Friedberg stands who are many and we'll see you in the YouTube comments for the dictator himself to my poly hop at a with just a wonderful sweater going into the strong November strong showing for November with that purple sweater.

I don't know if it's mauve or purple, whatever you got going there looks wonderful. Thank you for team Moncler. sassel himself. David Sachs people don't understand what you're saying when you say that Jason. Oh, they know you're an asshole. They they're no, that's what they think you're saying. They don't know.

They don't know that we're adding the sass to it. Yes. So David also is a great executive in software as a service in addition to being an asshole. So you put the two together and you get sassel. No, I'm just joking. David's a wonderful person. People are really excited that you and I are friends again.

It's an amazing moment. That was your chance to make a joke. So actually missed it. Throw it up there for you. I threw up the softball for you and say you're not we're not friends. Alright, we'll see you all next time. Bye bye. We'll let your winners ride. Rain Man David Sachs.

And it said we open source it to the fans and they've just gone crazy with it. Love you. Queen of Kinwan. What your winners ride. Besties are gone. That's my dog taking a notice in your driveway. Oh man. My avatar will meet me at. We should all just get a room and just have one big huge orgy because they're all just useless.

It's like this like sexual tension that they just need to release somehow. What your beat. We need to get merch. (upbeat music) ♪ I'm going all in ♪ (fading out)