E77: Tech work culture, crypto regulation, stablecoins, $NFLX & more w/ Coinbase CEO Brian Armstrong

1. 0:00 – 4:37

   Bestie Intros + a new Bestie Guestie!

   1. JCJason Calacanis0:00

      Brian Armstrong, what's up, bro?

   2. BABrian Armstrong0:02

      (laughs) What's up?

   3. JCJason Calacanis0:03

      How are you?

   4. BABrian Armstrong0:03

      Good to see you.

   5. JCJason Calacanis0:04

      It's good to see you as well.

   6. BABrian Armstrong0:06

      Yeah, Jason just pinged me yesterday and he was like, "Why don't you just come on as a guest randomly?" And I was like, "Okay, great. Let's do it."

   7. CPChamath Palihapitiya0:11

      That's so good. I'm really excited to hear what J Cal's intro is for you.

   8. BABrian Armstrong0:15

      Oh, man. Yeah, you guys keep- you keep getting wild and wild around this. (upbeat music)

   9. DSDavid Sacks0:20

      Let your winners ride.

   10. JCJason Calacanis0:23

       Rain Man, David Sacks.

   11. DSDavid Sacks0:27

       I'm going all in. And I said- We open sourced it to the fans and they've just gone crazy with it.

   12. CPChamath Palihapitiya0:31

       Love you, man. Nice.

   13. DSDavid Sacks0:32

       Queen of Quinoa. I'm going all in.

   14. JCJason Calacanis0:35

       Hey, everybody. Welcome to Episode 77 of the All In podcast. Less than 30 days for the sold out All In summit and, uh, there's a wait list, but, uh, sadly, I don't think we're gonna get to anybody on the wait list. We've got a great, great episode for you. I thought I'd bring a bestie-guestie in, but not tell my bestie. So we'll see if they can figure out who's coming on the pod today. Uh, but let's get the intros over with. He's investing in SaaS at different stages, coming off a Miami bender for the ages, doing shots with Riboy and Vanilla Ice, the Rain Man is back, he's twice as nice, David Sacks, everybody. How are you, sir? How was your adventures, uh, with Vanilla Ice?

   15. DSDavid Sacks1:17

       Good. I'm still here.

   16. JCJason Calacanis1:18

       You're still here. And so Vanilla Ice, uh, that cost $1,600 to get him to show up?

   17. DFDavid Friedberg1:23

       (laughs)

   18. CPChamath Palihapitiya1:23

       (laughs)

   19. JCJason Calacanis1:23

       What does, uh, Vanilla Ice cost to show up for a party?

   20. DSDavid Sacks1:26

       (laughs)

   21. JCJason Calacanis1:27

       That's about 10K. I think it's about 10 to 20K.

   22. CPChamath Palihapitiya1:29

       Uh-

   23. DSDavid Sacks1:29

       No.

   24. JCJason Calacanis1:30

       A little bit more? Really?

   25. DSDavid Sacks1:32

       A little more.

   26. JCJason Calacanis1:32

       And did you go on stage and do Ice Ice Baby with him?

   27. DSDavid Sacks1:36

       I didn't, but, uh, there was some, like, Teenage Mutant Ninja Turtles type dancing around with him.

   28. JCJason Calacanis1:41

       Got it.

   29. DSDavid Sacks1:42

       Uh, whatever, it was interesting.

   30. JCJason Calacanis1:43

       It was interesting.
2. 4:37 – 26:25

   Coinbase CEO Brian Armstrong reflects on his "mission-focused company" blog post, work culture in tech/Silicon Valley, realigning culture at Coinbase

   1. JCJason Calacanis4:37

      for that. So I guess, you know, the, the topic we all have talked about a whole bunch is, um, work and keeping people focused at work. You took a very bold step, uh, which Tobi at Shopify I think followed, uh, and you said, "Listen, if you're coming to work, our mission is crypto. Uh, can we stop talking about every other thing in the world and, and just stay focused on that?" And I think that was, maybe, was that a year and a half ago, uh, that-

   2. BABrian Armstrong5:03

      Something like that.

   3. JCJason Calacanis5:04

      ... you, you did that. Everybody wants to know, uh, how that worked out for the company. So maybe you could tell us what it was like to go through that, 'cause, I mean, you were a target for, for, for a period of time. We all thought seems reasonable. And then how has that actually impacted day-to-day life for the people who decided to opt in to working at a single focused Coinbase?

   4. BABrian Armstrong5:27

      Yeah, so I would say, you know, short term, it was quite a painful transition. I think it created a lot of consternation. There was, you know, some folks in the media decided to go call a bunch of people who'd left the company and, you know, write hit pieces and all that kind of thing. And frankly, you know, about 5% of the company opted into the exit pack- package. So there was some teams that were shorthanded, a lot of people had to work extra time to fill in the gaps. But long term, I think it turned out to be an incredibly positive decision for the company. I do think there's a lot of companies in Silicon Valley right now, and probably elsewheres, that, you know, the CEOs and the, the management team almost feel like they're being held hostage by the employees. And I feel for some of these organizations. You know, Sundar probably has an incredibly difficult job right now. We saw that, that video from Microsoft, I think, last year with, with Satya and kind of was, with people talking about their hair color and stuff. And I...... i, they don't feel like that they can really lean in and move the company in the direction they want, and they're, they're fearful of kind of all these internal dynamics. So, you know, I think there's probably a better way to do it than what I did, which is if you're starting a company today, just make that clear up front. I didn't make it clear up front, and so the company culture started to diverge and drift, and I had to kind of realign it, which was, which was a painful process. If, if I was doing it over again, I'd probably just set that as the expectation up front, and then there wouldn't be this, you know, public awkward realignment. But yeah, I think I'm, I'm really glad that I did it. I think Coinbase has been very productive since then, and we've been able to attract a lot of the best and brightest people from some of these other companies that are like, "I don't want to be in those companies anymore. I want to work at a company where we just focus on the work and the mission, 'cause that's actually important." So I'd b- I'd say it's been positive.

   5. DFDavid Friedberg7:00

      Brian, I've always talked about this as being, like, the difference between a hard culture and a soft culture, where hard cultures are companies that really define what they do and what they don't do, and what they spend time on and what they don't spend time on. And sometimes what you don't spend time on can relate to product. Sometimes it can relate to things outside, or externalities to the business. Do you think that that's become kind of a trend, where, you know, soft culture in Silicon Valley is more about, like, appeasing a very fickle employee base, and as a result you kind of aren't as clear about what you're not going to talk about and are going to talk about, and suddenly the troops rule the day and things get kind of sidetracked and productivity goes down? I mean, can you talk a little bit about what you've seen, you know, with other cultures around the Valley and how that's kind of affecting work and then what employees are choosing to go to and not go to?

   6. BABrian Armstrong7:49

      Yeah. So I think, you know, Ben Horowitz always talked about, like, wartime CEO, peacetime CEO, and frankly, you know, I'm kind of a conflict avoidant person, right? I never thought of myself as, like, wartime CEO, or just like, "We're all going in this direction, let's go, go, go." You know, I never really thought of myself like that. But I think what I'm trying to do now is find the happy medium between these two. So you- the company should have a really ambitious mission, and then I think you as a CEO, you do have to say no to things which are off track from that. You do have to part ways with people who are not helping raise the, the talent bar in the company. And so in some ways you have to be, I guess, hard in that sense. But I don't think it's ... It's not like, you know, we're only here to make money and it's like, it's bonus time or you're out or whatever. It's like we actually have a much softer culture than that, I think, in Silicon Valley, which is most of the missions of these companies are trying to do great humanitarian efforts, and they're trying to improve the biggest problems in the world. And so people sign up for those 'cause they wanna have a real impact. And, you know, we take time to, like, go for exec ops sites, and we walk in nature and (laughs) you know, we have, like, coaching. We do all this touchy-feely stuff. So I think it's kind of a mix of both is the right balance. I don't think of myself as, like, you know, a Wall Street hedge fund or, like, the most touchy-feely culture (laughs) you can imagine.

   7. DFDavid Friedberg9:02

      Why do you think companies now have sort of veered into this place where they have to kind of appease these fringes on either side? How ... Do, do, did you spend time trying to figure out, like, how did we evolve there from just being mission focused to having to deal with all this other stuff?

   8. BABrian Armstrong9:16

      Yeah, I mean, one theory I have on this is that in Silicon Valley, especially pre-pandemic, we were all s- it was so competitive to get talent, right? You know, Google and Facebook, they were just kind of one-upping each other on, like, higher and higher salaries. And so I, I know as a CEO of a company that was rising at that time, I felt incredible scarcity. Like, I had people leave to get oth- who got better offers, and it was, like, a real issue. And so I was doing anything I could to retain people and keep them. And so if a c- if an employee said, "Hey, I want, you know, (laughs) another flavor of water in the kitchen or whatever," I was like, "Okay, maybe we should do it, right?" But I think, you know, during the pandemic, we removed, we moved to remote first as a culture. The, the talent, like, the talent we could get opened up by 100X, uh, people all over the world who were really hungry and, like, frankly thankful for these jobs. And that actually changed the scarcity mindset a little bit to say, "Hey, you know, if you don't want to be here, that's fine. We can ... We have other people we can go recruit and hire in who really are gonna value it." That's probably just one piece of it. It's, it's a much more complex issue than that. I think one other, one other thing is that, you know, like, Google and Facebook, I think, kind of made this a common trend in the Valley where companies would host these open mic Q&As on every Friday or every two weeks or whatever, and it was almost like a town hall. It felt like a democracy, right? And in a democracy, like, the leader, you know, v- works for the people. They're elected by the people. Um, but what got very awkward was at these open mic Q&As, it became, you know, this kind of, like, hostile thing of, like, how can we make the person squirm? And let's ask them these difficult societal issue questions that aren't actually related to the company and what we're all building. And you know, I think that was actually a mistake in Silicon Valley. Pe- we, we've since gotten rid of the, these open mic Q&As because it, it really encourages people ... I'd say one, we, we were like a 150, 200 people. Everyone was on the same page. Everyone was asking good questions. Once we got to like 500, 700 people, it started to feel like there was a little bit of an us versus them, and then, you know, the questions got very off track. And I, I realized at a certain point, this is not a democracy. Um, I want everyone's input. I'm not gonna rule, like, with an iron fist, but ultimately, you know, I'm the CEO, I need to, I need to help guide this company in one direction and force the hard decisions. Not everyone's gonna like them, so we're not gonna allow people to do grandstanding open mic stuff. There's just a little bit of a risk for that. You know, 99% of people don't do it, but if one person does it and it kind of creates this snowball effect. So we got rid of the open mics. People can still submit questions, but they're, they're ... Nobody else can see them. We read them ahead of the Q&A, and if there's a good theme in the questions, we address it. But we- you can't, like, grandstand with an open mic.

   9. DFDavid Friedberg11:41

      I saw this, um ... saw it was in Twitter, Nick, maybe you can find it, but it was, like, this general that had commanded all of these different battalions. And he was talking about what it was like in all the different theaters in which he's operated, and he basically said, "You know, 80% of the men and women that served for me were just absolutely incredible. You could always rely on them 100% of the time. They were 100% aligned." And then he said, "There was 15% that was wishy-washy, and what they were looking for was how you managed and dealt with the 5%."... and the five percent of folks were always trying to push the boundaries and try to figure out where the escape valve was, or where the exception was, or, you know, whether they would be grandstanding or whether they tried to bl- break a rule. And he said his entire energy was focused on keeping those folks extremely focused and on point, or out, because that was what solved for the 15%, because the 80% would be fine, but if you didn't deal with the five, the 15 would go crazy, and then the 80 would get dejected, and it just kind of... The whole thing would rot. And it was a really interesting reminder that there's these people that come into these companies almost with a desire to see these companies go sideways or just waste their time, which is completely counterintuitive because you'd think you'd join for the mission, but they don't, all the time.

   10. JCJason Calacanis13:00

       And to be fair, you, I think, told people, "Listen, you, you could, as a group of people, off-hours, create your own, you know, uh, dinner party and talk about whatever topics you want. This is just when I'm paying you to come to work. For those eight hours, you know, on the company servers, if you're using Slack or whatever, you know, communication platform you're using, l- let's just stay focused on getting the work done so this could be a viable enterprise." But you were fine with people if they wanted to self-organize and do that on their own time, correct? You weren't saying-

   11. DFDavid Friedberg13:32

       Of course, yeah.

   12. JCJason Calacanis13:32

       ... you can't have political beliefs, you can't care or not care about BLM or some right-wing thing or left-wing-

   13. DSDavid Sacks13:38

       That was one of the biggest, um, sort of misnomers or mis-, uh, you know, delib-

   14. JCJason Calacanis13:44

       Mischaracterizations.

   15. DSDavid Sacks13:44

       Y- yeah, exactly, deliberate mischaracterizations about the policy, is that it somehow silenced people or prevented them from, you know, taking positions on issues or donating to causes they cared about. The policy never said that. It just said that while we're in the office together, on Coinbase time, we're gonna engage in Coinbase's mission and avoid fractious debates that divide us.

   16. JCJason Calacanis14:04

       Yeah.

   17. BABrian Armstrong14:05

       That's right.

   18. JCJason Calacanis14:06

       A- and there's a time for those debates, and it just might not... I- I think a lot of this has to do with Slack, I'll be totally honest.

   19. BABrian Armstrong14:12

       Yeah.

   20. JCJason Calacanis14:13

       When people are in a Slack room... And they're frustrated, and people can have valid frustrations. Like, there are things in the world that are horrible and yeah, you want to talk about it, and yeah, you build friendships at work. It's c- completely understandable that people would want to blow off steam and... But just, people have to look at Slack as not an AOL chat room. It's not Reddit, it's not AOL Chat. I mean, maybe you could talk a little bit about electronic communications, and then I think David has a follow-up.

   21. BABrian Armstrong14:34

       Yes, I agree with you. Slack, I think, you know, is an amazing tool, but it does start to turn into social media once you get more than, I don't know, 500 people in a- in a room, or 1,000 people. A lot of CEOs I've been talking to, we're all trying to figure this out because we still think Slack is a net positive to productivity, but it has a huge negative in terms of des- both distracting people with lots of things popping up all the time, but also these kind of, uh, social media flame wars that e- that emerge, and mob-like behavior. So, some of the things, I mean, we've been trying is, for instance, if y- if we get any kind of a Slack room that has, say, more than 500 or 1,000 people, we'll often try to limit it so only... You know, you can on- You have to be a VP or... Level nine and above can only post in there and otherwa- otherwise it's read-only. So we're trying to... You know, Dunbar's number is 150 people, right? You're trying to think who, who can you remember everyone's name and have some sort of group affinity with them, and any too much above Dunbar's number, we try to, like, cap it so it's, it's a read-only chat room, but I think these tools need to keep evolving and I hope some... I know s- there's a couple startups, y'all might have funded some of them, um, that are working on this.

   22. JCJason Calacanis15:33

       Yeah, there's an actual neat feature you can do in Slack now where, like, that level nine person can post and everybody else can post in the thread. Like, you can reply to the thread, but the opening salvos in thread have to be started by somebody in that sort of group, so... But the... Slack definitely needs to double down on this. I also think they put that random room in there, and you put the random room, it's like basically waving the flag like, "It's random, put stuff in there." I think you got to delete that if you're running... I tell all startups, delete the random room and tell people, "Do not post memes and jokes." David, you had a follow-up?

   23. DSDavid Sacks16:03

       One thing I was gonna say is... So, Brian, I agree with everything you said. The, the one place maybe where I would, uh, nitpick in a way that gives you a little more credit is, you founded Coinbase back in 2012, right?

   24. BABrian Armstrong16:14

       Yeah.

   25. DSDavid Sacks16:14

       So, if you had created this policy on day one, I don't think you or anybody could have predicted th- that these issues would arise the way they have. I remember 2012 was the year I sold my company to Microsoft. We never had to deal with any of this stuff, and we were using... We didn't have Slack back then. We were using Yammer. Very open culture, people could communicate on anything. We never had sort of hyper activist employees. The word woke didn't even exist yet and, um, it just wasn't an issue, so it would have required you, I think, to see ahead so many years. And I think what's happened is, over the last several years, there's been this drift towards, you know, employee activism inside these companies. I don't think it's coming from both sides of the political spectrum, to be honest. I think it's coming from the sort of hyper woke employees and they engage in petitions and letter writing campaigns and threats of boycotts and they sort of hector and mao mao these CEOs to basically give into them and we've seen it at Apple, the way that the- Apple was pressured to fire Antonio Garcia Martinez and they gave in and now they have a letter writing campaign every month and you just saw it in Florida. I think Bob, um... What's his name? Bob Chapek at Disney.

   26. DFDavid Friedberg17:22

       Chapek, yeah.

   27. DSDavid Sacks17:23

       I don't think he's gonna survive the year after what just happened at Disney and it's because he gave into the employees, took sides against the, you know, governor in Florida and the legislature, and they just ripped away Disney's special privileges in Florida. You saw it at, at, uh, Netflix where Ted Sarandos was sort of mao maod by these employees who wanted to cancel Dave Chappelle. He ultimately stuck by Chappelle, but only after groveling to these employees and so I think we're seeing... These issues did not exist even five years ago, I would say, and I think the reason why the Coinbase story is so relevant to a broader au- audience and what you did with your policy is so relevant is... I just think every company's gonna have to make a decision sooner or later o- on where they stand. Do you give into these petitions and mobs and boycotts? Do you allow unlimited activism inside the four walls of your company?... or do you take some sort of more neutral stance where you say, "Listen, we're all gonna leave our politics at the door so we can effectively work together on the company's mission"? I think every company eventually is gonna have to either be Coinbase or be Apple. You're gonna have to be Coinbase or be Disney. You're either gonna have to give in to the mob and suffer the consequences, or you take the short-term pain of doing what Brian did and you basically realign everyone around the mission. And a year later, you're very happy with where you are.

   28. DFDavid Friedberg18:45

       The good thing with Netflix and Disney though is that they're gonna be very clear examples of the business impact of getting distracted. And I think that, you know, look, Brian took leadership but the business impact, at least from the outside looking in, was not really measurable. Obviously he felt it, the team felt it, whatever they did, and that business is working, but it wasn't done as a public company pre and post so the counterfactual's hard to measure. In the case of Disney and Netflix, it's really clear to measure, right? Meaning in all of this confusion, Netflix has completely botched their business model. In all of this fighting now internally inside of Disney, not only are they gonna lose essentially a fiefdom inside of Florida but it's gonna have repercussions with respect to taxes, with respect to debt, with respect to the quality of the service they can deploy. And that'll eventually flow through the business and that'll be measurable by investors. And I think David, uh, I think probably what I think, which is a slighter sort of more modified version of what you just said, is in the next few quarters I think CEOs will actually be better equipped to numerically point to why taking Brian's path is the value creating path for shareholders and for stakeholders. And the cost of getting distracted, quote unquote, can be really expensive if you, if you are a, a for-profit company.

   29. JCJason Calacanis20:04

       Well, and y- you also have the option to run your company and say, "You know what? We care about this issue a whole bunch. We really care about human rights here. We really care about communications and freedom of speech, and I'm gonna run Twitter as a freedom of speech company and everybody has to align behind that."

   30. DFDavid Friedberg20:20

       That's right.
3. 26:25 – 46:37

   Crypto regulation and adoption

   1. JCJason Calacanis26:25

      let's build on that. Brian, what is the stated mission today of Coinbase?

   2. BABrian Armstrong26:29

      Yeah, our mission is to increase economic freedom in the world. And if... for people who aren't familiar with that term, economic freedom is kind of a- an economics term like GDP, but it looks at the measures of different countries of the world, and it looks at factors like, are their property rights enforced? How stable is the currency? How easy is it to start a business? You know, is there corruption and bribery prevalent and things like that? And what's really cool about economic freedom is that it... basically countries with higher economic freedom, um, you know, like Singapore and, um, the United States and Ireland, like, they tend to correlate with all kinds of things we want in society, not just better economic growth, but even higher self-reported happiness of citizens, better treatment of the environment, better income for the, the lowest 10% in society.

   3. JCJason Calacanis27:10

      Gender equality.

   4. BABrian Armstrong27:11

      And then-

   5. DFDavid Friedberg27:11

      All that stuff.

   6. BABrian Armstrong27:12

      Yeah, gender equality. And then, yeah, countries with n- low economic freedom, you know, Cuba, North Korea, Sudan, these are some of the lowest, they tend to have, you know, even things we don't want, like higher corruption, higher war, higher infant mortality. So, it's... basically when I read the Bitcoin whitepaper back in 2010, I had this thought eventually that was like, maybe cryptocurrency is this unique moment in history, this us- unique technology that allows us to inject economic freedom into the countries all over the world, especially now that more and more people have a smartphone. And we can basically put good financial infrastructure, good property rights, you know, global trade, a stable currency into 200 countries all over the world as one small group, relatively small group of people. And hopefully it has all these positive downstream impacts. So that's the mission of Coinbase.

   7. JCJason Calacanis27:58

      When you look at the regulatory environment, uh, it has been far from clear, um, what's allowed here in the United States. Uh, in fact, you had a pretty, um, strongly worded, uh, tweet storm back in September of, uh, 2021. Some really sketchy behavior coming out of the SEC re- recently, story time. Maybe you could talk a little bit about the SEC's approach to cryptocurrency versus securities. Uh, XRP comes to mind. And knowing your customer, you've obviously taken a very conservative approach to what tokens you, uh, put on the platform, and then you have competitors who are offshore who it's kind of YOLO, anything goes. Um, what is the current administration doing right, wrong, and, and what needs to happen here in the US to... for us to be competitive in crypto while still protecting citizens from, you know, being bag holders?

   8. BABrian Armstrong28:53

      Yeah. It's a big question. So, you know, as a startup, you're always trying to thread the needle here. You don't want to wait too long for clarity because sometimes these things take five, 10 years, and so you'll just never launch a product. But if you, if you're too aggressive, you, you can blow the place up. And so what we always did in the early days of Coinbase is we said, "We wanna go do what we think is going to be required in the future, go get licenses, go do KYC, go, go, go do AML, anti-money laundering." And so we tried to basically do the right thing, go and talk to these regulators proactively. Now, the US has actually been pretty forward-thinking on this. I'd say every year, we get more and more clarity. So Coinbase is now a very regulated financial service business. You know, I, I can go through the whole list. We have a license from the CFTC, a federal leg- regulator. We acquired some broker-dealer licenses, which the SEC regulates. We have money transmission licenses. We're a BitLicense in New York, et cetera, going... and that's just in the United States. So we're, we're in many, many countries around the world. So, how do we get more clarity? Well, one thing I'll just say is, it's actually better for there to be lack of clarity than to be clarity that is, um, punitive or bad. (laughs) So, it's good that there's a little bit of lack of clarity as long as it's not, uh, curtailing the industry. But would be even better is to have clarity that does provide that right balance of good consumer protection, you know, make sure that there's a fair level tr- playing field for all the players, and then it allows innovation to flourish. And so what's good now is that in the US, um, you know, the Biden administration put out an executive order recently kind of asking all the different agencies and departments to come back with a clear plan. And they did recognize the potential innovation in crypto in that, in that executive order, which I was really-... pleasantly surprised to see. Um, so what's happening now is that there was a little bit of jockeying, I think, there, where the SEC said, "Hey, these all look like securities to us," and I don't think that's quite true. You know, the CFTC is- regulates commodities. Well, some cryptos are gonna be commodities. I think here's- here's what I'm realizing, is that crypto is gonna be many different things. It's not just gonna be one regulator, um, doing it. So, you know, think about cryptocurrencies like Bitcoin. That's pretty clearly a commodity. Or- or Ethereum, right? Like, many of these are Ether- uh, commodities that probably should be regulated by the commodities regulator, the C- the CFTC. Now, if people wanna raise money for their company, a security token, that should be regulated as a security by the SEC. That'd be great to have more clarity on that. Let's have... uh, we- we would love to keep working with the SEC to make that a well-trodden path, that any company can go raise money and that's how it would get listed on an exchange like ours, and we could register as a broker-dealer or whatever license is needed. Um, separately, there's also some cryptocurrencies that are gonna be currencies, like stablecoins, and, you know, maybe the Treasury should regulate those. And finally, there's gonna be cryptocurrencies that are none of the above. They're artwork or something that's probably shouldn't even be regulated. And so the US, with various financial, you know, international bodies like G20 and FATF and all these... IMF are probably gonna put some policy papers together. We're gonna eventually end up with some kind of a test that says, "Is this cryptocurrency a commodity, a security, a currency, or something art- else, like artwork?" And then maybe... and by the way, maybe five more things we haven't even thought of that'll end up being in the future, like-

   9. JCJason Calacanis31:57

      What would you make the test for this is a utility token versus specula- speculative, uh, security? Because that seems to be the one that's really hard for people to figure out. If 99% of people are buying a token on Coinbase because they wanna see it appreciate and they wanna see it gain value, and only 1% are using it for the actual utility of it, is it then a security? Is it by the percentage of people who use it? How- how would you, as the- the, you know, the leader in this industry, you know, uh, actually define it? What's your definition?

   10. BABrian Armstrong32:33

       Yeah, so I think... Look, I- I don't wanna be presumptuous here. I do- I think that we can pro- we can put some policy papers together, but I don't wanna be... You know, i- it's the policymaker's job to- to come up with the policy, so I don't wanna step on anyo- anyone's toes. But that being said, I think there's some existing case law out there, like, you know, the Howey test is something from a long time ago. We could probably build upon that. So the Howey test kind of says, you know, is this an investment in a common enterprise, uh, with an expectation of profit? And that would make it a- that would make it a security. So there's a lot of pieces to that. You know, is it an investment? Well, if you're just giving the tokens away, I guess people aren't investing, right? Is it a common enterprise? Well, maybe if it's decentralized and you don't actually control this entity, like, um, you own, you know, less than a majority share or something, maybe then that's not a security, right? Or if there's not an expectation of profit and people are using it for something. So every startup right now in the space has basically had to hire a bunch of expensive lawyers to go tease apart these old, old rules that some of them were created in, like, the 1930s, you know, before the internet (laughs) and every- everything, and try to understand where they're falling. And so I think building upon that Howey test, but it could be something that includes a- a commodities definition, something, a currency definition. Uh, you know, I think we should... uh, basically it's on us and the other crypto companies out there to go hire a really smart lawyer who has drafted legislation before, and a bill, and actually get a draft of it out there. And then we can start to circulate it with various policymakers and get their feedback, and maybe they take it and run with it, maybe they say, "Thanks, we have it- we've got it from here." But that's our next step.

   11. JCJason Calacanis33:58

       Friedberg, Sacks, Chamath, would you go with the Howey test? Um, or do you have thoughts on how to... how the government here in the US should say, "This is a security. This is a utility token"?

   12. DFDavid Friedberg34:10

       I think what the EO did was basically kind of give people enough regulatory safety in the sense that something reasonable will probably happen in the reasonable future so that people could keep building and iterating. My big takeaway in the last sort of, like, nine months is that this thing is now too big to fail, and the government basically has to just find a reasonable framework to enable something, because the ult- the- the real big issue, Jason, would be if they did something crazy and now, you know, retail would just get completely smoked, 'cause I think they are the overwhelming-

   13. JCJason Calacanis34:43

       What do you think is reasonable?

   14. DFDavid Friedberg34:44

       I think Congress has to basically pass a sensible set of legislations that clearly demarcate exactly what Brian said. This realm of stuff goes to the CFTC. This realm of stuff goes to the SEC. Now you guys go and implement. And if left to their own devices, those two will use these arcane laws and try to negotiate amongst each other who should be covering what, but they can't arbitrate that decision. And so as a result, nothing will... nothing reasonable will happen. Um, so I think that's what has to happen. Congress has to get together and write something reasonable to get it passed.

   15. JCJason Calacanis35:10

       Friedberg, you are building companies at the production board. Every year, you build a couple companies. Uh, you have to go through securities law. You have to w- you know, raise money from accredited investors. You do it in the traditional way. Um, but you must be looking at crypto saying, "Well, I could launch Kana, Unique, whatever project, and have a token associated with it and raise money and raise it globally, or start a DAO." What do you think is a reasonable way for people like yourself who are playing by the existing rules to be able to embrace this new technology and these new platforms and paradigms? Uh-

   16. DFDavid Friedberg35:45

       I think a little pr-

   17. JCJason Calacanis35:46

       How should the government handle it?

   18. DFDavid Friedberg35:47

       Well, some perspectives important, which is, you know, go back to kind of the 1920s in the United States, and there were pre-1920s, folks would go around and tell tall tales about interesting business ideas or business concepts or things that they were gonna do with... if they got a bunch of money from investors. And investors gave them money, and they didn't actually deliver on what they said they were gonna do, and they got swindled. And there was swindle story after swindle story that you can read about. And we saw this even with the ICO craze of a few years ago, right, where people tell a tall tale, you expect some value or some asset that you're kind of putting capital into that will pay off over time, and there's a swindle behind it. And that's really the origin of securities laws, i- in large part is to protect the individual from being swindled, to protect the storyteller that can take money away from people and figure out how to kind of rip them off.... um, and create a s- a set of laws that the government can then enforce through the risk of imprisonment against doing those things. The challenge becomes when there's this more thoughtful way of running capital markets on the other side, and how do we actually resolve to some medium ground here? I'm not sure that you're gonna have as quick of a resolution to say, "Well, let's go back to the old way where anyone can say anything to anyone they want and anyone can put money into any project that they want," because the role of the arbiter is to protect those from being taken advantage of. If 85% of those projects are great and 85% of the investors are intelligent and know what they're doing, it's the 15... It doesn't matter. It's the 15% that the government is here to protect, and that's the reason we have an institution called the government, is to create systems of protection for those who are otherwise unable to protect themselves. Now, a free market libertarian might say, "We should have at it," but the problem is, we all have a m- we all feel as a group at some point a moral obligation to protect those who are unprotected. And that's why these systems emerge over time and that's why these institutions exist. That's why the government exists and it's why these securities laws exist. And so it's difficult to assume that we can just go back to the kind of, you know, um, uh, prototypical days of, you know, "Let me raise money for anything, with any story, without any regulation," and assume that it's gonna work out well. 'Cause all it's gonna take is a few of these stories before you have folks standing up in, in Congress saying, "This is unbelievable. We can't let this happen anymore. Let's go shut down the miners. Let's go shut down the data centers. Let's go after every asset we can." And by the way, they will, 'cause look at what just happened with Russia. The way that governments can kind of coalesce around digital systems now and make significant change and block things from happening, I don't know if there is a world where we can assume that even with a free and open internet, that these systems can truly be decentralized given the reach that governments have. And it is gonna be, in my mind, I've said this in the past, kind of the great tension of the 21st century socially, is the decentralized systems that really wanna challenge what we believe to be a lot of overreach that's happening by governments against the government's believed role to be protecting those who are, who need the protection. And so, I don't know, that's a very long-winded (laughs) moral statement.

   19. JCJason Calacanis38:56

       Well, I mean, I think it's a, a very interesting one. Bryan, what do you, what do you think of this?

   20. BABrian Armstrong38:59

       I get it. Th- th- these are complicated issues, right? We wanna balance protecting people, but we also wanna not have the government be in a position where it's picking winners and losers. And so, you know, (laughs) y- y- just because something is legal doesn't make it s- make it a good investment. I guess, you know, you could've, you could've owned Netflix last week or something like that, and we'll, we'll... (laughs) you guys might talk about that in a minute. But look, I think we all wanna get rid of fraud, right? So if you commit fraud, meaning you lied to investors, then that's gonna be a crime, right? Like, we, I wanna, I wanna work with anybody in government to go put that, make that stuff not happen. The danger is if we ever get into a place where we say, "Well, only wealthy people can now invest, because somehow there's an accredited investor test," that's inherently exclusionary. I don't, I don't like the accredited investor laws. If we ever get into a place where the government is saying, you know, "Well, you have to, you have to have X, Y, Z criteria and a person with this many years of experience on their resume," and then now we get into, like, the government sort of design by committee to pick winners and losers. And that's, that's inherently flawed because, you know, a lot of true breakthrough innovation, they look like bad ideas at the beginning. They're the kind of things that a government body would never invest in or put money into, right? So that's the inherent tension we have to worry about. We're protecting people, but not putting the government in the role of picking winners and losers.

   21. JCJason Calacanis40:14

       Sax, do you have any, uh, input on this sort of framework? You are investing traditionally in stocks, but you have also, um, allocated some money to Multicoin Capital and other folks who are buying tokens, and then you have to distribute them and you have to deal with these downstream legal issues. How are you dealing with them? And then what do you think is a, is a proper framework here in the US for protecting consumers while allowing innovation?

   22. DSDavid Sacks40:36

       I think the big picture framework that we have is correct, which is, you kinda have this dichotomy between security tokens and utility tokens. So security tokens, basically it's a token that's issued that it's basically like a share of stock or sh- or a fractional ownership in some business. Doesn't really have a lot of functionality associated with it. That's kind of an end run around the securities laws. They should be treated like securities. On the other hand, though, there are a lot of tokens that are issued, um, as part of creating a new kind of technology network, and those tokens have real functionality. And if you were to subject them to securities laws and impose KYC and accreditation, you have to go through all these hoops just to add one to your wallet, it would destroy the potential functionality created by these systems. So where there's real utility like that, I think the government should foster innovation by having a lighter hand. Don't subject them to securities laws. And really what entrepreneurs need in the space are some safe harbors and really clear lines around what would trip them up and, and have them cross over from utility token and security token so they know to avoid those things, so they can continue innovating on their core project.

   23. JCJason Calacanis41:48

       I think that's well said. I, I have, uh, three ideas, Bryan, I wanna run by you. Number one, a sophisticated test for investors in crypto and in startups. So just like you get a gun test or, you know, you test for a driver's license, we come up with a way for people to become sophisticated. They take a simple test. Maybe it's a, you know, whatever number of questions. And then second, maybe some safe harbors around the scale of a project. So any crypto project under 10 million can be an experiment and, you know, it's kinda like n- no need to have rules. People just have to sign a disclaimer or waiver this is an experiment. Then things maybe between 10 and 100 million, you implement KYC and maybe throttle the number of-

   24. DSDavid Sacks42:28

       Jason, th- tho- those are some good ideas for when you're talking about the bucket of security tokens. If you wanna start imposing those kinds of rules on utility tokens, you can't have a functioning network with, like, all these sort of frictional-

   25. JCJason Calacanis42:40

       Well, hold on. But if, then if the project gets scale, then you just have to file a little more, have a little more KYC, and then finally...... the founders of these projects, they can just launch them and disappear. They have no director-like duty to the project. Do you think there needs to be something similar to directors and corporations? So just three ideas there that I, I've heard other people talk about or I've been thinking about, Brian.

   26. BABrian Armstrong43:07

       Those are pretty good. I, I like those actually. I mean, the nice thing about a driver's license test for financial literacy is that it doesn't measure how much money you have. So it would allow smart, you know, aspiring people who didn't start with a lot of money, um, like a lot of us, to, to also be able to participate early on in these, which would be really great. Um, yeah. I think, and s- you know, some kind of a safe harbor or sandbox provision I think is a s- is a really great idea as well. And lastly, yeah, I mean, if you were able to, um... I, I basically, I think your three ideas are great. (laughs) So th- those are good.

   27. DSDavid Sacks43:37

       I think that they're, they're good for securities but, I mean, should... If you just wanna buy gas on a blockchain to run your program, or you're a user of a, of a application that's being run on a blockchain and you just wanna buy a token for gas, do you really have to go through all these, like, KYC type hoops?

   28. BABrian Armstrong43:53

       Hopefully not. Especially if it's a, if it's a utility. I mean, self-custodial wallets and dapps, or decentralized apps, are this huge area of innovation that, you know, you wouldn't wanna, like... Imagine if the US government had said, "You need to come in and register to make a website," or something like that. That, that would have been a terrible thing for innovation globally. So, and you have to remember too that a lot of this is gonna flow to the country with the most permissive laws. So a lot of governments around the world... Not the most permissive, but the most well-structured that balances all the, all the pros and cons.

   29. JCJason Calacanis44:20

       Maybe clear?

   30. BABrian Armstrong44:21

       Yeah.
4. 46:37 – 51:14

   Brian's takes on different types of stablecoins

   1. BABrian Armstrong46:37

      things.

   2. JCJason Calacanis46:37

      Let me ask you a question, Brian. Uh, everybody seems to be very concerned about Tether. Um, you, I don't believe, participate in the Tether ecosystem at Coinbase. Is that correct?

   3. BABrian Armstrong46:48

      Uh, well, we're not participating directly, but we support-

   4. JCJason Calacanis46:51

      Yeah.

   5. BABrian Armstrong46:51

      ... as many assets as people wanna use and th- that is one of the ones that we've supported people to w- deposit and withdraw in Coinbase.

   6. JCJason Calacanis46:57

      They've been, um, banned in New York. They've had, uh, regulatory action in Canada. Uh, people are concerned about their attestations or lack of clarity on their commercial paper. Wh- what do you think of these stable coins getting very big, and maybe USDC seems to have it pretty tightly, um, covered, but there's all these concerns and regulatory actions against Tether. Is that a, a big nothing burger or does it concern you that there's a lack of, um, transparency into their holdings?

   7. BABrian Armstrong47:31

      Yeah, so I would say, you know, some of the early stable coin efforts definitely didn't have all their ducks in a row from a reputational point of view. You know, I'm not an, I'm not an expert on Tether. My understanding is that there have been some, um, investigations and enforcement actions which have co- required them to go in there and clean up some things. And, um, you know, our, our digital asset listing group kind of looked at a lot of this in depth and made that judgment call that where they, where they were and where they are now. But yeah, I do think that we're seeing the emergence of new groups like, you know, USD Coin is, is one of those that I think has some better controls around it, and there's actually a bunch of, um, s- stable coins now that are decentralized. You know, DAI and FRAX and, and-

   8. JCJason Calacanis48:12

      Explain what that is and why it's important.

   9. BABrian Armstrong48:15

      Well, so, okay, so it really comes down to trust. I mean, you know, you can trust... Uh, you can decide to trust something like USDC that has kind of audit requirements and, you know, a Big Four accounting firm come in and, and look at it and things like that. Or you can look at smart contract code and, uh, you know, thousands of people around the world can look at that, and there's an inherent bug bounty if you find an issue there. And if it hasn't been found, then you can start to think about trusting that. Now, I think stable coins like, like DAI and, and others...... they've been able to create these, um, relatively complex systems that have sort of, um, the one asset which is intended to be stable, but another one which is sort of the collateral. And you could imagine various black swan events where, you know, the peg would get broken and things like that. But it really hasn't happened yet in DAI, and it's shown a lot of resiliency, which I've been very impressed by. There, there's one, actually one other, um, type of coin which I think is even maybe more interesting than just wrapping a fiat, uh, like a dollar or a rupee or something like that, because frankly, you know, the dollar is seeing a lot of inflation. You guys have talked about it many times on this show. So do you really want them to have a stable, a, quote, "stable coin" that is inflating, you know-

   10. JCJason Calacanis49:20

       (laughs)

   11. BABrian Armstrong49:20

       ... 8%-

   12. JCJason Calacanis49:20

       Right.

   13. BABrian Armstrong49:20

       ... a year?

   14. JCJason Calacanis49:21

       Exactly.

   15. BABrian Armstrong49:21

       There's- there's some new coins coming out which I've been really excited to see, which are, I think... You know, Balaji calls them flat coins, but they're basically looking at the consumer price index and they're trying to lo- the- basically have flat purchasing power and assume that the dollar and- and various fiat currencies around the world are actually gonna go through more inflation. That's a pretty cool idea. And you can do that in a creative way on a blockchain by having various oracles, which are these sources of truth. And if enough of 'em, you know, 51% of 'em tell you, "The CPI we think is this this year," it- it can kind of keep pr- keep pace with CPI, which is a really cool innovation, I think.

   16. JCJason Calacanis49:54

       Thank you so much for Brian Armstrong for joining us for the first hour, and now we'll continue on with our Netflix discussion. Brian's fantastic. He was, uh, very honest. He answered a lot of questions very honestly, and he's a super fan of the show.

   17. DFDavid Friedberg50:05

       That business is a great business. That business would be a great business.

   18. JCJason Calacanis50:08

       He's thoughtful. Uh, we like somebody who's thoughtful.

   19. DSDavid Sacks50:10

       I really think that the challenge that Brian faced a year and a half ago and the policy decision he faced is now being faced by every CEO across America.

   20. DFDavid Friedberg50:18

       100%.

   21. DSDavid Sacks50:18

       And that's the broad relevance is, you know, what are they gonna do? Did you see this- this quote by the McDonald's CEO? The former McDonald's CEO, Ed Rensi, on Wednesday said, "Companies have no business being in politics," and has launched a new advocacy coalition to fight woke corporate politics. He said, "Corporations have no business being on the right or the left because they represent everybody there and their sole job is to build equity for their investors."

   22. JCJason Calacanis50:44

       Wait, the people who make Filet-O-Fish are not gonna chime in on Ukraine anymore?

   23. DSDavid Sacks50:48

       Yeah, but- but think about that because that actually-

   24. JCJason Calacanis50:51

       No, no, that is a line in the sand.

   25. DSDavid Sacks50:51

       ... is a pretty radical ...

   26. JCJason Calacanis50:53

       It is a line in the sand, yeah. It- he's standing on Brian's shoulders, let's be honest. I think, you know they-

   27. DSDavid Sacks50:58

       The CEO of McDonald's, I mean, that's like a big, uh, you know, traditional Fortune 500 type corporation, and they're saying like, "We're not doing this anymore."

   28. JCJason Calacanis51:05

       Well, you know what? They were more than willing to do it if it scored them points. What they realized was it's gonna be a never... Once you engage that, you're never gonna be able to disengage

5. 51:14 – 1:04:38

   Netflix's major headwinds

   1. JCJason Calacanis51:14

      from it. All right, let's pivot over to, uh, Netflix. They reported a drop in net subscribers for the first time in 10 years, uh, and the stock dropped 35%, market cap from 155 billion to about 98 billion. According to Bloomberg, as of Wednesday, Netflix was the worst performing S&P 500 so far in 2022. Stock down 63% year-to-date. Ackman, uh, dumped his entire stake and booked a $430 million loss, and a- a large part of this was because they didn't hit their 2.5 million or so, uh, target, uh, increase in subscribers and they, in fact, lost all 700,000 Russian subscribers as part of, uh, boycotting, um, uh, Russia because of the Ukraine war. What do we think is happening here? Is this a bellwether, Chamath, for something more important going on? Or is this just Netflix not executing well?

   2. DFDavid Friedberg52:18

      I think there- there's a macro thing and then there's a Netflix-specific thing. The macro thing is that we are learning the broad sweeping impact of Apple's privacy changes, in my opinion. You first saw it flow through into Facebook's earnings and basically them saying, "This is gonna be really tough." And you had Netflix, even if you add back the Russian subscribers, basically spend almost $600 million in the quarter on customer acquisition to effectively... They would have generated 500,000 subscribers net of churn, right, which was still about a million and a half under where they needed to be. So the point is that I think Netflix, in some ways, was a little bit of a canary in the coal mine for the- the shrinking, um, effectiveness of online advertising. And I think that's why you then saw two days later Facebook got taken to the woodshed in two days, was down, you know, now it's down, I don't know, 15%, 20%. Google, I think, has been down a lot today. It's just getting absolutely smoked relative to the market. So that's the macro issue, which is, I think, um, it's really hard for these ads to be as effective as they used to be. And it's only gonna get worse because Google has also said that they're gonna implement a lot of the same versions of what Apple did inside of Android. So customer acquisition is going up. So if you look at then all the companies that have to live and die on CAC, it's gonna be, uh, an expensive, um, road. That's the macro thing, I think, that not enough people are talking about. I think the micro thing inside of Netflix is that, you know, people churn out of a service when there isn't enough value. And I think that's the most basic explanation of why so many people are leaving Netflix, is that it's not that valuable, so when you're spending $20 billion a year on content but people more than ever are leaving the service, you have to inspect how much are you really spending in these areas and what is it actually creating in terms of, like, library value. You know, Disney+, I think, has gotten- has done an incredible job in a much shorter period of time. Apple, after only a few years, wins the first Oscar of any of the streamers, right, beating Netflix even though they've been in there and spent 100-

   3. JCJason Calacanis54:30

      For best picture, for best picture.

   4. DFDavid Friedberg54:31

      For best picture, but I'm saying-

   5. JCJason Calacanis54:32

      Yeah. Yeah.

   6. DFDavid Friedberg54:32

      So when you put all these things together, uh, I think Netflix probably has lost a little bit of the script, but they're also suffering from a really macro headwind which is the advertising business is broken.

   7. JCJason Calacanis54:42

      I would imagine that, like, total...

   8. DFDavid Friedberg54:44

      ... subscribers to streaming services, and if you were to add up total subscription service dollars, it's probably growing a lot.

   9. JCJason Calacanis54:51

      Oh, for sure.

   10. DFDavid Friedberg54:51

       N- Netflix's relative share is going down because the quality of the competitors is improving so much. Even companies that are not able to deliver, like CNN shut down CNN+ this week after investing $300 million in trying to build out the service. I mean, folks are putting serious dollars behind these projects, um, and so the competition is fierce and they've got deep content libraries behind them. I personally think HBO Max is the best streaming service now-

   11. JCJason Calacanis55:17

       Awesome.

   12. DFDavid Friedberg55:18

       ... F- followed by Disney+, followed by maybe a mix of Amazon, Netflix and, um, you know, uh, Prime. And so, like, Netflix's relative value is going down because there's so much other content. When I'm kind of thinking about what to watch, I'm looking at Disney+, I'm looking at HBO Max and I'm like, "Hey, you know, what should I watch tonight?" And then I look at Netflix, Netflix doesn't have a monopoly in content anymore, and so when I've got limited dollars, I'm, I- I- I personally, I looked at this after we were texting about it, I subscribe to seven streaming services right now, and if I didn't care as much about how much I was spending per month, I would probably cut three of them, and Netflix would probably be-

   13. JCJason Calacanis55:56

       Yeah, but it's under 100.

   14. DFDavid Friedberg55:58

       Yeah.

   15. You're- you're also then highlighting the second, I think, macro thing that is- is actually equally important, maybe even more important, which is, you know, the- the first rule of capitalism says that excess returns will always get competed away.

   16. Yeah.

   17. So, you know, Netflix had the run of the place where they were an effective monopoly-

   18. Totally.

   19. ... and now when everybody else woke up and got religion, they decided to invest and they've created some really compelling content, and so all of those returns will now get spread across seven or eight or nine competitors, which means that, just by definition, mathematically Netflix can't win the way that they used to.

   20. And the network advantage in the streaming model is content and consumers. So you have better content, you get more consumers, you sp- you get more money from consumers, you spend more on content, at some point you get diminishing returns in that network model, and now we're seeing those diminishing returns hit Netflix. They haven't built advantages in search and discovery or in other, or in social sharing or other features into the app or into the service that will give them more of a lock-in value, because all I'm doing is buying con- is- is watching content-

   21. JCJason Calacanis56:59

       They're also three times the price.

   22. DFDavid Friedberg57:00

       ... and I can go do that elsewhere.

   23. JCJason Calacanis57:01

       They're also three times the price of Disney+ and other services, so they're, i- in the competition space people are starting to look at it and go, "Is this worth, you know-"

   24. DFDavid Friedberg57:09

       Right.

   25. JCJason Calacanis57:09

       ... "a Disney and an NBC? Or is this worth a Hulu and an NBC, uh, streaming service?" Sax, you had something to add?

   26. DSDavid Sacks57:16

       Well, I mean, I agree with that. I would just add one factor to this, which is what Elan said, which is he said the woke mind virus is making Netflix unwatchable.

   27. JCJason Calacanis57:25

       (laughs)

   28. DSDavid Sacks57:25

       I mean, the quality of the programming has gone down. I mean, Netflix used to be really good. I can't think of, like, a show now that I watch on Netflix, and I do watch HBO Max right now and, uh, Disney+ 'cause they got some shows that I like. So I think somehow the programming people at Netflix have gotten out of touch.

   29. DFDavid Friedberg57:45

       Yeah. Are they pandering to that audience, Sax, do you think? And, you know, similar to kind of how Disney ended up pandering, and do you think that there's broadly this kind of media problem of trying to pander to the wrong audience?

   30. DSDavid Sacks57:56

       I mean, they almost threw Chappelle off, who's the number-

Episode duration: 1:04:39