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How FTX Went From $32 Billion To Bankrupt In 1 Week (#385)

Episode 385: Shaan Puri and Sam Parr react to the failure of the cryptocurrency trading firm FTX and the taking down of its CEO, Sam Bankman-Fried.

Sam ParrhostShaan Purihost

Nov 15, 202244mWatch on YouTube

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Transcript

50 min read · 9,724 words

0:00 – 1:50
Intro
1. SPSam Parr
  He predicts that Sam Bankman-Fried is going to get life in prison, and I thought that that was an incredibly interesting prediction. Uh, you know, Bernie Madoff got, you know, hundreds of years. Um, there's this other, uh, uh, Ponzi scheme guy that I was reading about based out of Texas who also got, like, 150 years. And so it's not crazy that that could happen. You know, people who commit these hundreds of millions and billions of dollars Po- Ponzi schemes, they get life in prison. [upbeat music] All right, we are live. Shaan.
2. SPShaan Puri
  I'm in my, uh, my official crypto hoodie.
3. SPSam Parr
  What is that? This is fine. Oh, yeah, that's wonderful. Perfect hoodie for today. This is all I've been wanting to talk about. I purposely haven't texted you about this, because this is all I want to talk about. But, like, maybe just give, like, a three to five-minute background on what's going on. I think you're the guy that should be doing that, and then I want to tell you some of the more interesting points that I think maybe haven't been covered or are less covered that I think are either hilarious or interesting.
4. SPShaan Puri
  [laughs] Okay, great. [laughs] And by the way, should we check if my, uh ... I have a $25,000 withdrawal that's, uh, that we will see, or we will see if FTX has any money left. I'm gonna check right now [laughs] and see if it's come through. What do you think? Yes or no? Did I get my 25 grand out?
5. SPSam Parr
  I think you, I think you probably got it.
6. SPShaan Puri
  I did it on November 9th. It's now November 14th. It said it would happen by today, and it is not in the bank account. All right, there we go.
7. SPSam Parr
  Oof.
8. SPShaan Puri
  Just another disappointment. Okay, so why don't I have my deposit? Uh, actually it's not even a deposit. They, they advertise with us, and so they paid me inside FTX, and I was just lazy and never withdrew it.
9. SPSam Parr
  Ah.
10. SPShaan Puri
  Um, okay. So w- basically what has happened,
1:50 – 6:05
What happened
1. SPShaan Puri
  uh, here's the what happened for those who aren't following it that closely. FTX, which is a big crypto exchange, it's a place you go to buy, sell different cryptocurrencies. It was, I think, the number two or three largest exchange in the world, used mostly, uh, internationally, um, because it was kind of like, uh, you know, people all around the world want to buy. I think 90-plus percent of people buying crypto are international. Um, and so FTX was huge.
2. SPSam Parr
  Basically Coinbase, but bigger than Coinbase.
3. SPShaan Puri
  Bigger than Coinbase. Binance is number one. I think there's technically something number two, but really it's, like, Binance number one, FTX two, and sort of, like, Coinbase and the others, you know, come after that. Okay, so FTX, which was this blue chip thing, and it was seen as this, like, you know, mega success story. You would see top investors, um, in the world that were investing in this. So Sequoia, uh, which is like, you know, a pre-eminent VC firm, plus, like, you know, 50 others, um, were investing in this. He's on the cover of Fortune magazine, and it says, you know, the next JP Morgan, um, because he's, you know, this, this, this young guy who becomes one of the wealthiest men in crypto. They say FTX at its peak was worth about $32 Billion, and this company's only like four years old, right? So it was, had this, like, crazy explosive growth in valuation. Sam was st- said to be worth $16 billion himself. He's this genius trader and, um, now entrepreneur. He's this crazy eccentric guy. The guy looks goofy as hell. He's a, uh, he's a vegan who doesn't wear shoes and gives away all of his money if they're effective altruism, whatever. You know, he's got this sort of character that everybody wants to talk about. Um, yeah.
4. SPSam Parr
  Of which, uh, I bought into.
5. SPShaan Puri
  Me too.
6. SPSam Parr
  Very easy to buy, buy into. You know, this, like, you crazy person who sleeps on the floor of his desk and doesn't-
7. SPShaan Puri
  Yeah, sleeping on the beanbag
8. SPSam Parr
  ... like, believe in normal stuff, and he's at 29 or 30 worth, oh, north of $10 billion, and he previously made a billion plus by doing arbitrage with, like, Korean crypto. So just some crazy shit.
9. SPShaan Puri
  Right.
10. SPSam Parr
  I bought into it.
11. SPShaan Puri
  So that's the background. We all go on this, this, uh, uh, most people are on that train of like, "Okay, I guess that's what it is." And then suddenly last week, there's a series of events we can go into however much detail we want, but there's a series of events that basically causes a bank run on FTX. So users lose confidence that FTX is solvent, which means they say, "I got to get my money off FTX," just as I did. Uh, you go, you hit the withdraw button just in case there's any weird stuff going on. We've seen many things crash th- in 2022 in crypto. Uh, Luna was one, uh, Voyager, Celsius. There was a, a handful of these things that crashed. So people said, "Better safe than sorry. Let's start withdrawing our money." That creates a, uh, solvent, a liquidity crisis for FTX. They don't have the money to give, and everyone's like, "Where the hell's the money? Why don't you have the money? Uh, that's my deposit. That's my funds." You know, you go to the bank, you expect them to have your money. And so FTX does not have their money. He comes out, he says, "Everything is fine. All the assets are fine, guys. This is just, you know, a hoax from a competitor. There's a competitor trying to F with us," blah, blah, blah. Binance is that competitor that he's talking about. Um, so he basically saying, "Oh, the big, the big, the number one guy's coming after us, but we're fine, guys. Don't, don't panic." People still panic, and in fact he was lying. Turns out there's basically this guy was a giant fraud. Uh, you know, uh, if you believe all the things that have been coming out, so allegedly, we'll say the word allegedly, uh, this guy was lying, deceiving everybody, um, misusing customer funds, et cetera, et cetera. FTX goes under. It goes from a 20 to $30 billion company to a company that is now declaring bankruptcy. Billions of dollars. There's like a 10 billions, there's like $10 billion worth of customer funds that are gone, vaporized, unaccounted for. This guy's fleeing the country and, you know, all kinds of crazy stuff. So that, I'll just set that as the background, then w- now we can go into whatever parts you want to go into.
12. SPSam Parr
  All right. So there's been a lot of interesting things that have happened, and I want to name a few. Uh, you know, there's, this story's a week old now, so a lot of the, the stuff has been covered on the facts. We can talk about the facts if we want, but I want to talk about, like, some things that I think haven't been covered. First-
6:05 – 7:56
Twitter reax
1. SPSam Parr
  The things happening on Twitter are amazing. This is all unraveling in real time on Twitter. One of the more interesting and funny ones, there's a Twitter [laughs] handle called Autism Capital, the most based citil- citizen journalism in crypto. We are currently following the FTX, uh, saga, but please be patient, we have autism.
2. SPShaan Puri
  [laughs]
3. SPSam Parr
  That's their [laughs] ... That's their, uh-
4. SPShaan Puri
  That's our source of truth, by the way. That's, that is who we are [laughs] relying on in times of trouble right now.
5. SPSam Parr
  But listen, it's hilarious, and I think it, a lot of it's right. It's sort of like TMZ. TMZ is, like, considered trash because they sit- They're fast-paced and they say a lot of stuff that eventually every once in a while they have to recant and say, "Oh, no, you know, we got this wrong." But you know what? They fucking nail it. They called Prince being dead or b- about to die. They call all this other stuff, and that is exactly what's happening. There's, so there's all these interesting things that [laughs] Autism Capital is tweeting like, "SBF," that's this guy, Sam, uh, the founder. "SBF did a master class," you know, the company master class, "on trading, and it was set to release in December, and it's already been filmed." That's, like, an interesting thing-
6. SPShaan Puri
  [laughs]
7. SPSam Parr
  ... they tweeted. Another interesting thing they tweeted is basically SBF's right-hand woman was this woman named Caroline, who, uh, rumors are that they also were, like, sleeping together. She ran the hedge fund, so, that SBF owns, so all this weird collusion. She has a Tumblr [laughs] that Autism Capital found, and, uh, it, it says she had a post called World Optimization where her kink is men who control most major world governments.
8. SPShaan Puri
  Yeah.
9. SPSam Parr
  Like, that's, that's another-
10. SPShaan Puri
  No, what did it say exactly? It's like, people say, always say, "Oh, I want this," but what I want is, like, a man who's, like, controls societies, governments, things like that. It's like, what the hell are you talking about? Um, yeah, dude, uh, so I've, I've followed them. Like, we, I mean, if you're in crypto, you follow these people, you, you, you know, these
7:56 – 17:29
Background on FTX
1. SPShaan Puri
  are con- Uh, Sam was considered one of the, like, you know, more blue chip. Of course, there's always some people that are like, "This guy's full of shit," or, "I don't trust this guy," or whatever, but they're like the v- the small, small, small minority. The majority of people believed that FTX was this fast-growing company and that Sam was this, like, really interesting, really smart founder. And then you knew the, the one part that was always shady, so for example, when they advertised with us, they asked us to write a story on FTX, and we were like, "Okay, great. We'll write the story about how you guys grew so fast, what tactics you used, why, you know, why, why you grew so fast." And we write the story, and then, uh, me and Ben were talking, we were like, "You know, story's all, like, you know, perfectly rosy, and that makes sense. This is, like, a sponsor, like, you know, deep dive basically. Um, but like, you know, we should put in what are some of the concerns, even if nothing else, just to, like, balance out the story so that it's, like, not literally just a fluff piece." So, uh, we were like, "Well, what are some of the criticisms?" And one was, like, their... Well, before he started FTX, he started this company called Alameda Research, and Alameda Research is not a research company. It was a trading company. They just called it research, so it sounded a little more serious. But basically it was-
2. SPSam Parr
  And, and, and the rumors are, like, and Autism Capital I think also shared this, they're like, "Well, Sam said he wanted to call it Alameda Research because that just had an, an official-sounding name."
3. SPShaan Puri
  Right.
4. SPSam Parr
  "And he d- also didn't want people to know that they were trading."
5. SPShaan Puri
  Yeah, and in the entrepreneurial circles it was like, "Oh, g- great little growth hack," right? You know, it's like when you said, uh, when we wanted to get advertisers for The Hustle, I would first just write a fake ad for some other company, then I'd go to their competitor and be like, "Hey, you're, do you want this spot?" And like, you know, uh, there's a fake it till you make it, that's acceptable, and then there's a fake it till you're a fraud, which is [laughs] where this guy, like, went, went totally wrong. So, so he had this trading company. He had the legend is basically that, um, at the time, Bitcoin was trading at, let's say, 10 grand in America, but in other countries where it was harder to access Bitcoin, there was a slight premium. People were willing to pay more for a Bitcoin because it was so hard to access 'cause the government was, you know, maybe not allowing exchanges to run there properly or whatever. So in Japan and Korea, f- everybody saw this. Bitcoin would be 10,000 here, it'd be 11,000 or 12,000 there. And so, um, the, the legend of the origin story for FTX is that Sam saw this. He was one of the people that exploited this arbitrage opportunity. He, you know, he basically hustled, went to Korea, and, um, set up this, like, logistics chain where they could buy a million dollars of Bitcoin here, sell it for a slight premium there, wire the money back, and do it again the next day and just keep recycling the money, and that they made tons of money. And nobody really understood h- exactly how, like, there was some plot holes in this, but it was like, "Uh, I don't know, I guess these guys are just smarter than us," but, like, it's like, wait, you made a billion dollars doing this? No, that sounds a little unreasonable. So you might've made, what, hundreds of millions? But where did you get the seed capital for this? Like, you weren't rich, so, like, how much initial money went into this? And there was never, like, some clarity there. So that was a little bit strange, but nobody really-
6. SPSam Parr
  What, what, what, what-
7. SPShaan Puri
  ... talked to about it
8. SPSam Parr
  ... what's the answer to that? What's the answer to that?
9. SPShaan Puri
  The, well, now it appears the answer might have been that that just never even happened. That might've been a complete fabrication, or they might've done it at a much smaller scale. Um, [laughs] nobody know, nobody still knows the answer 'cause this guy's, like, you know, on the run or, you know, hiding, you know, uh, right now. So, so nobody knows the answer to that. But the, the bigger part, the thir- part that we wrote about was, like, well, Alameda Research, um, when FTX launched as an exchange, every exchange needs liquidity. When buyers and sellers come to the, the site, they need to be able to quickly get their order filled. So you usually have a market maker or a liquidity provider basically who sits there and says, "I'll, I'll be the one who buys and sells things, and I'll take a small, um, a small fee for providing that liquidity to the exchange so it runs better." So Alameda was the liquidity provider. It was the market maker for FTX. And, um, so everybody knew that and it was like, okay, cool, but it's like, wait, but Sam owns both? He owns the exchange and he owns the market maker? Isn't there some conflict of interest? So, you know, like, couldn't, you know, if this is a hedge fund basically that can go buy things but then FTX can list those coins, they'll know what they're gonna list, right? So there's a little bit of a-
10. SPSam Parr
  Yeah, it's weird
11. SPShaan Puri
  ... there's a, it's a conflict of interest. It's a little bit of, you know, cousins kissing there. And so we had wrote about that. We go, you know, they have this cussin- uh, kissing cousins thing that people don't really like or nobody knows the true extent to this relationship between the two. And they were like, "Hey, we need you to take that out." And we were like, "Well, we don't really think we should take it out. We think we're gonna keep it in." And they were like, "Okay, cool," like, "but just pause this whole story. The crypto market prices are going down. We don't wanna be bragging about how well we're doing right now." So we were like, "Okay, you paid us. You don't want us to run the story, we'll never run the story." So we never ran it. Um, but I remember at that time a little, it was a small red flag of, like- I'm surprised that instead of clarifying the relationship, they're like, "Don't talk about that."
12. SPSam Parr
  Oof.
13. SPShaan Puri
  [laughs] So that was a little bit of a red flag, but you know, like most things, when you have, when you're reading nine out of 10 things are, are just saying how this is the wonder kid and this is the best, mm, best company, and then you just have this one little red flag, you sort of brush it aside, or at least that's what I did, which was a mistake.
14. SPSam Parr
  Did-
15. SPShaan Puri
  That's what I-
16. SPSam Parr
  By the way, the, the, the person that you worked with there, are they still there?
17. SPShaan Puri
  Nobody's there, dude. The company's done.
18. SPSam Parr
  Yeah, but the person that you worked with, what do they list on their LinkedIn now?
19. SPShaan Puri
  Uh, I, I wasn't working directly with them. I ca- I don't know the guy's name. Um, I, it's all, you know, Ben kinda was running the Milk Road, really. So I, I was just kinda like, I would do the writing, and then he would talk to the guy or whatever. So I don't know the guy's name. But, um, anyways, that was just like one small thing. And so what ended up happening, well, the, the, the sort of cause of this was essentially that FTX was illegally and, um, was lying to customers and was illegally taking customer money, giving it to Alameda through either a loan or just like straight up funneling the money there. Um, and then Alameda was going and trading using the customer money, trying to turn a profit, and was actually just like kind of bad at trading and was losing money. And so then they didn't have the money to return when all the customers wanted their money out. And, um, when they, you know, quote-unquote, "lent" them the money, the collateral that they put up to take the loan, right, right, like let's say users put in a more s- like solid currency, let's say like Bitcoin, um, Alameda borrows that Bitcoin to go trade, and they put up in return as collateral FTT token, which is FTX's own internal token that doesn't have like real, that much real value. So when they lost all the Bitcoin for, uh, just for e- like to make things simple here, when they lost all the Bitcoin, all FTX had was this shitty FTT token that wasn't worth, that was worthless. So now there's no, there's a huge hole. They lent basically $10 billion out and then couldn't return it, and so they went, they went under. And basically now every day there's more leaks about how crazy this situation was, how these guys were liars, how they were doing this intentionally, how they were doing drugs, how they were, you know, 15 people sleeping together in this like mega-mansion while he pretended to be this like big philanthropist. And, um, maybe he's an actor for the Chinese state. Who kn- there's like crazy theories all around. And, um, you know, nobody knows the truth. And this guy's coming out, and yesterday he tweets for the first time, and everyone's like, "Oh my God, here he comes." And he tweets out like a thread. And you know, like you start a thread with one, and then you st- say the first point, then you're gonna say two, and then the second point. He tweets out one, and all he says is, "What?"
20. SPSam Parr
  [laughs]
21. SPShaan Puri
  And then he says, and then he does nothing. And then he tweets out two, and then the letter H.
22. SPSam Parr
  What does that mean?
23. SPShaan Puri
  And then just now, a- an hour ago, he tweeted out A, and then 11 minutes ago, P. And it's like a-
24. SPSam Parr
  Dude, may- maybe-
25. SPShaan Puri
  He's spelling H-
26. SPSam Parr
  Maybe he's like-
27. SPShaan Puri
  Wh- what happened? I don't know what he's trying to do. I don't know what's going on. He's just tweeting.
28. SPSam Parr
  I don't know. Maybe he's having a break or something. Uh, like I mean, I, I knew a guy-
29. SPShaan Puri
  He might be having a breakdown. He might have been hacked.
30. SPSam Parr
  Dude, I knew a guy who like was having a breakdown, uh, and he, you know, he, he had to be institutionalized and it, he was tweeting crazy shit, you know. Like, and this is how it started. Uh, maybe the guy's going through something like that. There's this, there's another interesting thing that happened with, uh, Chamath on the All-In Pod. He j- and this is another thing that I saw, uh, I think also Autism Capital. They like clipped this clip. And on the All-In Pod, Chamath, who has a whole bunch of other questionable things happening, but he said something interesting where he was, uh, looking at investing into FTX, and he was like, "You know, it's kinda weird how you guys are kinda self-dealing. I think you need a board, and I think you need rules around what you can and can not do with this." And he said the person working at, at FTX called him back and literally said, "Hey, go fuck yourself," and just hung up.
17:29 – 23:35
Elon and SBF
1. SPSam Parr
  basically another Twitter thing. These guys have been doing these like marathon Twitter Spaces. Uh, one of the guys' name is Mario, uh, and he hosted this Twitter Space where Elon popp- popped in, and someone was like, "Hey, Elon, what did you think when you first met this guy, SBF?" He goes, "Well, people were telling me when I was buying Twitter that he had lots of monies, uh, lots of money, but my bullshit meter was redlining. And even all these major investment banks were like, 'Yeah, this guy's walking on water. He's the best. He's got, he has money.' And I just didn't think that he had the money." And I actually believe this story to be true. And it just like was interesting because from an outside, you think, "Well, these billionaires all, all know each other. They know what's up," and you know, like, uh, they, they, they know if someone does or doesn't have money. They know s- does, they do or do not know if someone's legit. And Elon's like, "I had no idea if he was legit, but he didn't seem legit to me, but everyone else said he was." And I thought that was like really interesting. I was like, "Oh, I thought this was like a club where you had to like show financials to get in, inside of." And turns out that's not true. And also, the balls of SBF to be buying stadiums, uh, to be hiring Tom Brady and all these other, like, you know, Larry David, these huge celebrities- This guy took, this guy took a scam to the next level, you know? So much hubris to be tweeting or DM'ing Elon and being like, "Hey, I- I'm- I'm down to put up three billion for buying Twitter." It's crazy.
2. SPShaan Puri
  So, so did you see the text messages that leaked of that?
3. SPSam Parr
  Yeah, and, uh, what did Elon say? He goes, "Is this guy really out of his mind?"
4. SPShaan Puri
  So, so one, they weren't talking directly. So basically, the, the text message that leaked, it's on, uh, this awesome Twitter handle called Internal Tech Emails, so you can go check it out there. Um, it's Michael Grimes, who I think is, like, the head of-
5. SPSam Parr
  He's, like, a banker, I think
6. SPShaan Puri
  ... of banks. Yeah.
7. SPSam Parr
  Yeah.
8. SPShaan Puri
  Yeah, I think he's, like, one of the top guys at Morgan Stanley, so, [clicks tongue] uh, what's his, what's his actual... He's the managing director, uh, at Morgan Stanley. So he texts Elon and he goes, "Hey, do you have five minutes for a meeting that I think you'll wanna take?" Elon's like, "I'll call you in half an hour." Michael Grimes, "Perfect." He goes, "Sam Bankman-Fried is why I'm calling." He links to a, a, a link of Sam Bankman-Fried, which is basically a link to a story that, like, Sam Bankman-Fried is, um, he was an effective altruist, meaning his goal was to make as much money as possible so that he could give it away. That was the best way that he could help and cause, like, positive change for society, was by maximizing how much money you can make and then giving it away. Which is, like, why there's all the memes of, like, "You did it. You, you took all our money and you gave it away," [laughs] you know? Like, wow. Um, and so then Elon just replies two question marks, like, "What?" And he goes, "I'm backlogged with a mountain of critical work matters. Is this urgent?" He goes, "He wants one to five billion, serious about partnering with you, same security you own. Not urgent unless you wanted f- him to fly out tomorrow." Um, he goes, "He could do five billion if everything is Vision lock. Uh, he would do engineering for the social media blockchain integration, founded, he founded FTX, he believes in your mission. Major Democratic-"
9. SPSam Parr
  Uh-
10. SPShaan Puri
  "... donor." He was the number two Dem- largest Democratic donor, 40, 50 million, something like that. Um, he goes, "So I thought it was worth a- an hour tomorrow. He said he could shake hands on five," five billion, "if you like him, and I think you will. Um, can you talk with..." You know, whatever, but it, you know, it could get us five billion in equity in an hour. He's, like, trying to sell him, like, "Take this meeting." Elon replies, "Blockchain Twitter isn't possible, as the bandwidth and latency requirements," blah, blah, blah. You know, uh, basically a blockchain Twitter won't work, so this doesn't make any sense. And then [laughs] then it says, "Elon: Disliked. Could do five billion if ev- if, if, uh, [laughs] if Vision lock would do s- so engineering for social media blockchain integration." And then the banker goes, "Got it. I'll forward the equity interest to this other guy instead. But even if there's not the blockchain piece, he's interested in investing i-, uh, in Twitter and your mission, but we can, we can put him on the sideline for now." And Elon goes, "As long as I don't have to have a laborious blockchain debate." [laughs]
11. SPSam Parr
  Dude.
12. SPShaan Puri
  Which is honestly one of the cooler things that Elon has done or said in this entire thing, which is like, "All right, I'll meet the crypto bro. Just don't make me fucking... I don't wanna get into an hour-long talk about blockchain, please." And, um, that I thought was hilarious.
13. SPSam Parr
  You tweeted s-
14. SPShaan Puri
  So then, then he goes-
15. SPSam Parr
  Go ahead
16. SPShaan Puri
  ... "Does Sam actually have three billion liquid?" And then the guy goes like, "Yes, I think Sam has it. He actually said up to 10 at one point, but in writing he said up to five. He's into you." And, uh, he said, "The blockchain's only if you're interested, not gonna push it," blah, blah, blah. And this other super rich guy, uh, Orlando, referred him, and then he's like, uh, "We can push him to next week, but I believe you'll like him. Ultra genius and doer builder like your formula. Built FTX from scratch after MIT physics. Second to Bloomberg in donations to Biden campaign." And so that was-
17. SPSam Parr
  Dude
18. SPShaan Puri
  ... you know, the, the, the message.
19. SPSam Parr
  Grimes. What's this guy's name? Mark Grimes?
20. SPShaan Puri
  Dude, he's on the grimes right now.
21. SPSam Parr
  You're, you're, you're fired, bro.
22. SPShaan Puri
  Fucking Grimes. [laughs]
23. SPSam Parr
  You are fired.
24. SPShaan Puri
  Actually, we're ca-
25. SPSam Parr
  [laughs]
26. SPShaan Puri
  ... we're calling him Mark Grimes instead of Michael Grimes [laughs] for whatever reason. The, um, we did this in the Milk Road. We were like, you know, it's just, it's hard to report bad news every day, but it's like, "Hey, bad news. FTX, the biggest exchange, insolvent. Bad news, wasn't even just a miscalculation, you know, in good faith, it was actually fraud and deception, we think, and that's what it looks like. Oh, bad news, the money that they would've otherwise had to pay out the remaining customer deposits, oh, uh, somebody just hacked it last night and took six, took the last 600 million. There's actually zero in the bank accounts now, so there is nothing left for anybody, uh, because a guy literally just did this. And oh, by the way, there's a plane going, flying, his private jet is flying to Argentina tonight. Uh, we're tracking it here." And it's like, dude, this is horrible, and we're like, "What are we gonna do?" We're like, "We're no longer calling this guy SBF. Nicknames are for winners. This guy is now Samuel. We're calling him his government name," and like, uh-
27. SPSam Parr
  No, M- Mr. Bankman.
28. SPShaan Puri
  No, not even. No, not e- he's Samuel, uh, from now on. [upbeat music]
29. SPSpeaker
  Our software is the worst. Have you heard of HubSpot? See, most CRMs are a cobbled-together mess, but HubSpot is easy to adopt and actually looks gorgeous. I think I love our new CRM. Our software is the best. HubSpot, grow better.
30. SPSam Parr
  We, uh, I wanna ask you about Milk Road's engagement, but first, um, you tweeted something and I agree with, basically you're talking about,
23:35 – 41:03
Distrust
1. SPSam Parr
  like, it just, like, "I lose trust in so many things." I'm losing... So SBF, or not SB- uh, FTX owned, I think, 10% of Robinhood, which I have money in. Uh, not a huge sum, but money-
2. SPShaan Puri
  Not FTX. I think, I think he personally, uh, him and Alameda owned the, the 90%-
3. SPSam Parr
  Dude
4. SPShaan Puri
  ... or something of it, Robinhood.
5. SPSam Parr
  I'm gonna sell, I'm gonna, I'm getting all my money out of Robinhood. It, this-
6. SPShaan Puri
  Yeah, I did that the other day
7. SPSam Parr
  ... I don't, I, I don't trust anything. I don't tru- any new startup that is in banking, I, by default, don't believe you.
8. SPShaan Puri
  [laughs]
9. SPSam Parr
  Whereas before, I would be like, "Oh, this is kinda cool, I guess. Like, you have Mastercard's logo on there, I guess you're okay." Uh-
10. SPShaan Puri
  Yeah, I'm not Team Innovation anymore.
11. SPSam Parr
  Yeah, no, fuck that. I'm going to E*TRADE's, I'm getting my money off of, uh, uh, Robinhood. I, to all the people who I said, "Oh, you don't, you know, you just don't get the disruptors," I'm sorry. You are right.
12. SPShaan Puri
  Yeah, you were right.
13. SPSam Parr
  I was wrong. [laughs]
14. SPShaan Puri
  [laughs]
15. SPSam Parr
  I'm sorry, Daddy. Uh, you are, you are absolutely right. I do not... I, I think I trust Coinbase for some reason because, uh, the guy Brian seems a little bit legitimate, and they are publicly traded so they do report quarterly, but, uh, I guess we're gonna-
16. SPShaan Puri
  Well, you gotta trust somebody, right? Like, you gotta trust something. So for example, I was like, "Dude, I'm getting all my crypto off Robinhood at the minimum," 'cause I had, way back I had bought crypto on Robinhood.
17. SPSam Parr
  Me too.
18. SPShaan Puri
  And then I was like, "Wait, I can't just send it to another wallet?" It's like, no, because Robinhood actually wasn't buying crypto, you were buying a crypto derivative. I was like, "What the fuck? Why did they say buy Bitcoin? Like, this is not Bitcoin, this is a Bitcoin tracking derivative. It's not even, you don't even own the coins." Then it was like, okay, now you can, after years, it was like you could transfer it off, so I was like, "Oh, okay, I'll get to that when I get to it." And, um, I bought a bunch of Eth on there, and I was like, uh, I was like, "You know what?"
19. SPSam Parr
  Me too.
20. SPShaan Puri
  "I'm getting it all out of there." I go hit send it to Eth wallet. It's like, oh, you've exceeded your $5,000 maximum. I was like, "$5,000 max? Every day you can only do 5,000? First of all, why? Um, second of all, that's bullshit. This will take forever to get all my money off this thing." It's just like yet another, you know, yet another strike against, you know, innovation. I'm the old guy on the lawn now shaking my fist saying, you know, uh, all, all you rascals, you know, stop playing with my money. It's like... And it's not like... It's not crypto. It's not like Bitcoin did anything. It's like the people building the companies around this that are literally, like, committing fraud or taking so much reckless risk that their i- that their, their whole exchange goes insolvent overnight or gets hacked, that's insane. So I was like, you know what? I'm gonna self-custody or, you know, take this portion, move it over here, do this over here. You know, I have this kind of strategy. I was like, I'm gonna move more into self-custody. And, um, our buddy Greg was like, um... I was like, "What do you think, man? Should I, should I do this?" And he's like, "Well..." I was like, "What do I trust more, myself or one of these exchanges?" [laughs] And he's like, he's like, "Uh, you know..." And I was like, "No." I said, "What would feel worse? If I just lose my crypto or if these guys lose my crypto?" [laughs] And he's like, "Well, let me ask you a different question. How many AirPods do you own?" And he's like, "How many AirPods have you lost?" He's like, "If you can't keep your AirPods, you really think for 10 years you're gonna, [laughs] like, not lose your crypto?" And I was like, "Fair point." [laughs] And so I'm like, you know, okay, cycling through options of how to hold this stuff so that, A, I don't lose it, but B, you know, I'm not trusting anybody. Luckily, I wasn't really that affected by FTX, but, like, you know, a lot of people were, and that's extremely, you know, sad and disappointing. And, like, y- those people are, you know... They're traumatized, right? That's like they got daddy issues now. They got trust issues. They, they're, they are not coming back to the game and just being like, "Yeah, I understand." Even if you intellectually understand that, okay, this guy was literally a criminal, right? Or, like, you know, somebody who was, uh, you know, doing something that was, that was, uh, wrong, misappropriating user funds. Even if you acknowledge that that was one bad actor, it's like, dude, there's a lot of bad actors in crypto. And, um, how the hell am I supposed to know? It's not like you get to go sit and audit the books of these companies. It's not like you get... Th- they say, they say one thing, they do another. Like, 24 hours before it went insolvent, the CEO comes out and says, "All assets are fine. We do not lend out customer deposits." 24 hours later, gone, and turns out this guy was lying.
21. SPSam Parr
  Well, dude, an interesting thing about San Francisco and Silicon Valley, where we both kinda started our careers, is it's all based on trust. So there's, like, a lot of times where you, uh, give people money, you just wire them money without contracts. You, you pump people up and make intros even though you don't entirely know-
22. SPShaan Puri
  You, you look at a slide deck and you say, "Okay, this is what they're saying the numbers are." You don't say, "Okay, I need your, you know, I need to go into your database and I need to go check to see this. Oh, I need to check, like, I need to check that this database number is also not fudged by, you know, bots or, you know, fake downloads-
23. SPSam Parr
  Sure
24. SPShaan Puri
  ... or whatever. Oh, I also need to check that your pixel's not firing in twice or you're not, like, hiding costs over here with your shell companies." You don't know all that stuff, and it would take-
25. SPSam Parr
  And it all, well, this-
26. SPShaan Puri
  ... a tremendous amount of time to do that.
27. SPSam Parr
  This whole thing, or our little world, is based on this type of trust, and you and I have both kind of m- got started right when, uh, a great economy was, was kicking off. And, uh, I basically didn't ever think people were lying, and that was incredibly naive. And now I feel, even though I haven't really been burnt by this, but I do feel, I'm like, oh, I don't, I don't really trust anyone anymore, and I think that everyone might be lying just a little bit. And, uh, it has changed my perspective on that 100%. And so I used to see Robinhood as like, oh, you're the underdog. Like, you're, you know, you're on my side. It's like, oh, no, you're... You, you definitely can lose my money. Uh, I, I don't-
28. SPShaan Puri
  [laughs]
29. SPSam Parr
  ... I don't, I don't believe you. Um, what about Milk Road? So for the new listeners, Milk- Shaan, uh, started this thing called Milk Road. It's a daily email for crypto with hundreds of thousands of people. Is your engagement skyrocketing, or are people just telling you to fuck off 'cause they, they hate the whole industry?
30. SPShaan Puri
  [laughs] Um, no, it's tr-... I mean, this engagement's very high because during a crisis a lot of people wanna read. I think what we will see, though, is over the coming months, that's not gonna bode well for us, right? Like, even if engagement's high right now during, you know, the play-by-play craziness of what's going on, right? We're getting, you know, record open rates and shit like that. You know, what happens three months from now as people are just sort of disillusioned, the news is over, the crisis is over? It's like, you know, dude, nobody's talking about Ukraine right now, like, in my world. Like, day to day, people aren't talking about Ukraine every day. I remember when that shit broke out, it was like my mom, my sister, everybody I knew was, like, glued to their phone, watching these videos, fucking getting Zelenskyy tattoos and being like, "Oh my God, I can't believe this. My heart goes out. Thoughts and prayers," blah, blah, blah. And then you're in day 98 and you're like, your thoughts and prayers go back to, like, you know, I, I, I wish this whatever, you know, just whatever your daily life was. You just sort of revert. You stop caring as much. In the same way, like, I think what's gonna happen for us with The Milk Road is that engagement spikes during this time, but actually it's not good for anybody in the industry. When somebody breaks, like, custom- and customer trust gets shaken this badly, that sets it back, like, potentially years. Um-
41:03 – 44:12
Shaan and Sam's predictions about the future of crypto
1. SPShaan Puri
  rises again? What is your prediction?
2. SPSam Parr
  I think, uh, keep in mind my perspective here is only emotional, so, and, and basically I learned from crypto just from talking about you. So everything that I've learned about crypto, it's been live on this podcast. So I would say I'm not incredibly educated. I think that it's gonna peter out for the next five to 10 years. I think that NFTs are gonna go to zero. I think that all the altcoins, basically Ethereum and Bitcoin are the only ones that are gonna ever have the chance of being interesting. Virtually all of them go out of business. I think that, um, Coinbase stays in business and actually might grow because people are like, "Okay, fine, you're the only place that I can trust." Uh, I think that, uh, like Luna and all this other stuff, I, that one's already dead, but, like, all these other, like, other 100% go to zero and never work. And I think that this guy gets sentenced to 25 to 50 years in prison.
3. SPShaan Puri
  All right. There's the prediction.
4. SPSam Parr
  What do you think?
5. SPShaan Puri
  Um, I predict, uh, bad news bears for the next, um, couple years is my guess. Uh, I don't know the timescale there, but I'm just gonna guess couple years crypto winter. I mean, I, I think that's probably true for the entire economy right now, but I think particularly worse for crypto. Um, but I do think that in the end crypto is real and is gonna work. Um, and you know, I know that's kinda sort, but maybe now unpopular. Maybe it was always unpopular. I'm not sure. I don't really pay too much attention to that. But, um, yeah, I do think Bitcoin, Ethereum, and then replacements to some of the other use cases that, that were built are going to rise, and I, I think some of the things that are totally true, I think this guy goes down. I think Coinbase does well. I think that most of the current coins that are completely overvalued go to zero, but I do think that Bitcoin and Ethereum are here to stay, and I think that they won't be the only two forever. I think there will be new ones that come and, and do well, um, in the future. But I think it's, uh-
6. SPSam Parr
  I, I also think-
7. SPShaan Puri
  ... it's another down cycle
8. SPSam Parr
  ... any- anyone who raised money and they had the word Web3 in their deck, I think virtually 100% of them are gonna fail and not work, uh, not necessarily because they are bad entrepreneurs or because their products are stupid, although I do think that is the case in the vast majority of them. Uh, I think that they're just gonna be laughed out of, like, existence and just be like, "Dude, we're never working with you."
9. SPShaan Puri
  [laughs]
10. SPSam Parr
  Like, this is, like con- like consumers-
11. SPShaan Puri
  You're like, not because they're ugly, which they are.
12. SPSam Parr
  [laughs]
13. SPShaan Puri
  Not because they're dumb, certainly so.
14. SPSam Parr
  [laughs]
15. SPShaan Puri
  Um, but because they're gonna get laughed out the room by investors.
16. SPSam Parr
  Yeah, yeah, yeah. It's, it's not 'cause they're ugly, it's not 'cause they're dumb. It's just 'cause they're pathetic.
17. SPShaan Puri
  [laughs]
18. SPSam Parr
  I think that's gonna happen. Not all, but, but close to all.
19. SPShaan Puri
  Yeah. [laughs] Well, that's true I think for most startups. All right, uh, I gotta go. Somebody's at my door. They keep knocking.
20. SPSam Parr
  All right. That's the pod. [upbeat music]