How tokenization will transform traditional finance | Interview with FTX US president Brett Harrison

Hey everyone, it's Rachel Wolfson here. And today I'm with a very special guest. I'm with Brett Harrison, he is the president of FTX us. Hi, Brett, how's it going?

Hey, it's going well. How about you?

Going well. Thank you.

Thanks for coming to the Bahamas.

Oh, yeah, well, no problem. Thanks for having. Thanks for.

Right.

So can you talk a little bit about. We're seeing this transition. The traditional world of finance is now getting interested in crypto. We're seeing that really heavily this year. What are your thoughts on that?

So I think crypto is really at an inflection point right now where it has now reached a level of mass adoption, especially on the consumer side. There is however many, maybe 100 million customers now between different exchanges that are trading and buying and holding crypto. And in order for it to reach that next level where it is accepted in the regulatory sphere, it's accepted in the institutional sphere, we need that institutional money to come into this space and start bringing in the family offices, the hedge funds, eventually the banks. And that will help crypto receive even wider adoption and also help on the regulatory side as well.

Okay, now we're seeing a lot of these traditional financial institutions here. Do you think that these people actually understand the world of crypto?

Yeah, absolutely. I mean, for ftx, actually our largest clients are institutions. So globally on FTX we do around $15 billion a day of crypto derivatives and spot crypto. If you compare that to for example, Coinbase, that's. It's about three times the volume of Coinbase, but with around 1/20 of the number of users. And that's because so many of our users come from that institutional background, those high frequency trader, the props, trading shops, the big hedge funds. And they actually are the ones making a lot of these investments into the space as well. A lot of them have side VC arms as well alongside their trading businesses. So I think they are really building up institutional expertise at these shops.

Okay, got it. Tokenization also seems to be a big trend that we're seeing this year. Kind of like this tokenization of everything.

Sure.

What are your thoughts on that?

There's a lot of attractive properties about tokens when it comes to thinking about more traditional financial assets. So take a stock, for example. If you buy Tesla or Apple on a stock exchange in the US that trade doesn't actually settle until two business days later. And it used to be three business days. And the big innovation was moving it to 2. Well, crypto is instant settlement. And that gets rid of so many of the problems that you would see in the normal financial space. So for example, the biggest GameStop blow up around Robinhood was because there was going to be all this time to wait before settlement. They didn't have the money to settle. They needed to shut off trading as a result. And that caused major problems. That kind of thing wouldn't happen in a world of crypto. Also, the transparency that blockchain brings to the trading of assets, to know exactly where assets are being traded, between whom, who is short, who is long, that also would be very important for a lot of traditional assets. For example, being able to know the full short interest of a stock. So I think that's why people are talking now. Okay, we got crypto. We can tokenize things like pictures for NFTs and things like this. Well, can we tokenize more traditional assets like stocks and bonds and mortgages and things like that?

Is RTX US doing anything to innovate in that area to ensure that that actually happens?

Not yet. You know, I think right now our top priority is our application with the CFTC to enable margin in our derivatives clearinghouse. So our goal is to be able to be the first crypto native exchange to bring Bitcoin and ether futures trading to U.S. customers. And so that's what our entire focus is on the regulatory side. I think it's something we're certainly interested in. And maybe sometime in the future we'll start to talk with FCC and Finra about some more tokenization of things like securities. Although there are a couple of startups that are trying to do this already.

Right now in terms, I assume RTX US is working with regulators.

Absolutely.

To reach that goal that you just mentioned. So can you kind of discuss how those conversations are playing out?

Yeah, absolutely. So positive. Yeah, it actually surprisingly. So it's positive because we see that it's really an environment now compared to maybe three or four years ago where regulators and lawmakers alike just want to learn. Now this is a bipartisan issue. Constituents want to vote for people who are going to be supporting crypto because people are interested in it now. So they want to learn. And by being good ambassadors for crypto as a company showing up in D.C. helping educate people about crypto, it's been very welcoming and warmly received. And so we've been talking with a number of regulators about the idea of how do we create a comprehensive regulatory framework that allows for things like stablecoins to thrive in the US that doesn't push intellectual property away from the US to overseas, how can we create a listing standard for tokens in the U.S. how can we get either one of the CFTC or the SEC better oversight over spot crypto exchanges and these kinds of things.

So you mentioned an interesting point. So you said, how do we get stablecoins to thrive in the US Why is that important now?

Sure. So stablecoins are a really amazing invention of crypto where it's basically tokenizing the dollar. So you have a company like Circle and you give them $10 and they give you back $10 worth of USDC that you can now use to spend on the blockchain, but not have any of the volatility from, for example, Bitcoin or ether. Right. And they've grown their assets to now $50 billion by innovating on their USDC product. Well, that's so important for defi. It's also important for dollar dominance globally. And so US dollar is really the primary function for enacting encrypt, like doing transactions in crypto globally. People are not using the euro, they're not using the yen, they're using the dollar.

Right.

Well, if the US enacts policy that results in basically shadow banning stablecoins, well, what will probably end up happening is that stable instrument will move away from dollar to something else. Maybe it's the euro, maybe it's the Chinese yuan. Right. So it's very important for the US interest to be able to keep that dollar dominance to enable more than just, for example, banks to be able to issue stablecoins. It would be bad if there was some law that made it so the private companies that are not banks, like Circle Paxos, wouldn't be able to issue stablecoins. That's a very important area of regulation right now.

Got it. What are your thoughts on a central bank digital currency?

It was interesting. We've had a couple of of deep conversations with people in the treasury and the Fed about CBDCs, and there's interest in learning more about why it would be useful or why it wouldn't be. And it's possible that blockchain technology is not the answer for the problems that they want to solve most urgently. So here's, here's a problem. The fact that you can't send money using the Fed on weekends through banks usually. Okay, so if you want to wire transfer some money to someone into Saturday, you're out of luck, right? Well, a blockchain might be able to solve that, but you don't need a blockchain to solve that problem. Like there could be A better way to sort of digitize their system. And in fact there's a couple of proposals already in the Fed for doing this that wouldn't necessarily involve blockchain. Maybe the whole blockchain part of it's not really the important part. Maybe they do want to do a blockchain based currency, but how would that interact with private stable coins? Would it basically take over private stable coins? That would probably be a bad thing. Is it going to be an open system or a closed system? So there's a lot of good questions now people are asking and not just sort of jumping in and saying we definitely need this, we definitely don't. And that's at least somewhat promising.

Right. Okay, good to know. What can we expect next from FTX us?

Sure. So there's a couple big things for us. So primarily our application with the cftc. Again, we're looking forward to being able to offer crypto derivatives to U.S. customers and hopefully that will happen this year. Okay. Another exciting thing that's coming out pretty soon is, is we're going to be enabling FTX US users to buy stocks. So normal US stocks, not like tokenized or crypto based at all, but for all those users who they would like to invest in a variety of different things. And maybe on Monday they want to buy Bitcoin, but on Tuesday they want to buy Tesla. Well, they'll be able to from the same experience, which we think is really important. If you have some of your savings and you want to be able to invest, you don't have to split your savings up between two different apps to do two different kinds of trading. So we're looking forward to that as well.

Okay, wonderful. Well, thanks so much, Brett. It's been a real pleasure.

Yeah, thanks so much for coming on. Thank you.