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Crypto regulation: SEC, FTC 'joined regime could make a lot of sense,' FTX CEO says

FTX Co-Founder and CEO Sam Bankman-Fried joins Yahoo Finance Live to discuss FTX's partnership with social media platform Stocktwits, crypto security and regulation, and the outlook for the crypto market.

Video transcript

BRIAN SOZZI: Most Bitcoin bulls are staying true to their outlooks for the crypto, even as it has had trouble reclaiming the $40,000 level, and regulations are likely looming. Let's talk more about this with FTX co-founder and CEO, Sam Bankman-Fried. Yahoo Finance's David Hollerith is here as well. Sam, good to see you again. You're hot off another capital raise, $400 million, valuing your company at $32 billion. Help us understand how you've been able to raise this amount of money, just given the price declines we have seen across the crypto market.

SAM BANKMAN-FRIED: Yeah, I mean, I think one piece of it is that we continue to have strong growth in our market share over the last year. We've been really excited to see that-- excited to see that continue. I think we've also been building out our regulatory suite quite a bit and are excited about what's coming there in the next year.

And I think the last piece of this, which is pretty relevant, is when you look at sort of the difference between public and private markets right now, there's definitely been some real selling off in public markets. But in the venture side, I think markets have remained fairly strong. And we've seen VC funds continuing to raise substantial profits over the last month.

DAVID HOLLERITH: Yeah, and Sam, getting back to sort of the crypto side, so obviously, you started an exchange originally because you were, at least personally, somewhat dissatisfied with the products that were currently being offered. And sort of compared to something like the stock market, crypto market structure's still fairly new. So I was sort of curious. You know, with all these announcements, you're sort of going in a lot of different directions, a lot of different possibilities. I was just curious about some opportunities for improving the crypto market structure that you're interested in, particularly with FTX.

SAM BANKMAN-FRIED: Yeah, absolutely. And I think we're really excited about what we can do there. I think that one piece of it that we've seen is our ability to build out a robust risk management suite and margin engine, which can sustain stable markets even through 20% market moves, 50% market moves that we've seen. And I think that's something that we're, you know, really excited to have built out. It's a 24/7/365 risk engine.

I think another piece of this is starting to look at the model that we have seen in cryptocurrencies and what this could mean for the financial sector more generally, where everyone has direct and equitable access to the platform. And we think this is really important that we don't charge for market data, we don't gate our market, and we don't gate market access to people willing to pay tens of millions of dollars a year for access licensing, co-location, and data fees.

DAVID HOLLERITH: Yeah, and Sam, I know you're not necessarily a security expert. I don't want to hold you to that, but I'm curious about your opinion on this Wormhole, the token bridge, so sort of, it's like a software that allows people to take cryptocurrency on one blockchain and move it over to another. It was exploited yesterday, and it looks like it's still developing. But it's something like a $321 million exploit.

So I was sort of curious. The whole idea of a token bridge is that people would be able to move assets across blockchains. So I was-- I kind of wanted to know your thoughts on what this means in terms of the development of token bridges, whether or not people would do that, or maybe this is just growing pains.

SAM BANKMAN-FRIED: Yeah, I think to some extent, it's growing pains. And I think the other thing I want to say is bridges are hard. You know, we spent years building out the wallet software that we use for FTX. And I-- you know, it's hard even just to build in the functionality, let alone the security side of it. I think that being able to offer a service which is both fast and efficient for users but also secure, it's not a trivial problem.

I think it's something a lot of bridges have struggled with. I think they're making progress. I think the Wormhole team, I think it's a strong team. And I think the funds have been talked up by new customers who will end up losing funds from it. But yeah, I think it's real growing pains, and I think it's something that we may see from a lot of bridging providers.

JULIE HYMAN: And Sam, it's Julie here. I wanted to follow up on that a little bit because of course, that's just the latest hack that we have seen or security vulnerability that we have seen. So why do you think this keeps happening? And what do you think platforms need to do differently when it comes to their security approach?

SAM BANKMAN-FRIED: So-- and I-- with a lot of caveats here, including that I don't know the details of what everyone is doing right now because much of it is not public. You generally don't want to make every piece of your security suite public. But my general sense, for what it's worth, is that the things that people are most likely to miss is having various identity checks all over the place. You can try and build a perfect system, but the truth is, no system is ever perfect.

And another thing that we spent a lot of time doing at FTX is making sure that in addition to the standard set of checks that we have and the standard protocols and procedures, we have a number of serious sticks to try and alert for unusual behavior, to try and flag things for review, and generally to try to have redundant checks in place for, like, our-- you know, all our-- each of our wallet balance is exactly what we think they should be.

And if not, then, like, something weird happened. And that's probably something to investigate. And so I think that's sort of my biggest piece of advice, that in addition to the standard protocols, think about a lot of [INAUDIBLE] checking that you can integrate to your wallet or purging software.

BRIAN SOZZI: Sam, I think the crypto industry generally agrees that regulation is coming. And in some ways, it is good. Do you think the SEC should be the one that regulates the crypto industry?

SAM BANKMAN-FRIED: So I think it's mostly inevitable that both the SEC and the CFTC are going to play a role in regulating the crypto industry. They are the two primary markets regulators in the United States. And crypto is a markets-based system right now. I think that you certainly are going to see digital security tokens having at least some SEC purview, and you're going to see digital commodity futures having at least some CFTC purview.

I think that there's a lot left to be resolved about what happens with spot commodity transactions, about what happens with stablecoins, and what happens with tokens that fall somewhere in between categories. I think that a joint regime could make a lot of sense between the SEC and CFTC. I think that you could see, especially on the clearing, custody, and sort of margining side, the CFTC playing a large role. It's what they have a ton of expertise in. I think the asset issue inside the SEC is almost certainly going to end up playing a significant role here. And that's my best guess for I think what we're going to see going forward.

DAVID HOLLERITH: And Sam, you actually got into the crypto sector as a trader originally. So I have to ask, you clearly are spending a lot of time on philanthropy and your company. But, you know, are there any sort of opportunities or segments of the market that you're watching with interest right now?

SAM BANKMAN-FRIED: You know, there's always a lot of interesting things going on, and, you know, I can't help but watch markets. I don't trade anymore, although I certainly enjoyed it years ago when I was actively. I think that things that I'm looking at the most right now are, first of all, which things are resilient through down market moves. I think that tells you a little bit about what the real kind of firm backing is behind some of these tokens and what the core community is. I think that as always, looking at layer 1s, layer 2s, and see how they're performing.

And then I think the last thing that I think is really interesting, especially for volatile markets, is to look at funding rates, look at interest rates on borrow markets in crypto, and see if you can line those up with market demand and supply because there's often really interesting relationships between, you know, whether futures are trading at a premium or a discount, and what that says about which direction flow is going in. And then you can try and line it up with what's the Bitcoin borrow rate, what's the US dollar borrow rate in crypto.

BRIAN SOZZI: FTX co-founder and CEO Sam Bankman-Fried, good to see you again. Thanks for hopping on. Yahoo Finance's David Hollerith, good to see you as well.