- 10 hours ago
Category
🗞
NewsTranscript
00:00What will be your biggest agenda at Jeffries? I feel like you touch on many things from crypto to digital
00:04assets. But what's top of mind?
00:06You know, I've been through almost three phases of crypto since my time at the CFTC when really policy environment
00:11was indifferent to crypto.
00:13The divide was really generational. It wasn't political. And then gradually during the Biden years, one side became hostile and
00:21just the overall approach was a headwind to innovation.
00:24And during that time, I spent with Wilkie Farr and Gallagher, a law firm, mostly helping builders avoid some of
00:30the hostility coming out of Washington.
00:33Now the policy winds have changed. It's really a tailwind for builders.
00:37And so I've joined Jeffries really to be part of assisting firms in raising capital and building.
00:42You know, before I went into government, I built my own company, took it public onto the New York Stock
00:47Exchange GFI Group.
00:48We were the first to apply to electronic trading to inter-dealer brokerage.
00:52So it feels to be good back in a building stage again, helping builders and innovators.
00:57Where do prediction markets come into this, given your role at Polymarket and sort of how you're thinking about this
01:02space?
01:03Yeah, so I have no official role at Polymarket. I did serve as an advisor in the first few years
01:07of the company.
01:07I have none today, but I'm still very bullish on prediction markets.
01:11I think along with stable coins, prediction markets are some of the first innovation coming out of digital networks of
01:17value.
01:17I expect there will be more innovation to come, but these are some of the first two tangible, really global
01:23innovations.
01:24Do you think that this is an actual new asset class?
01:27We had this conversation with James Saifert over at Bloomberg Intelligence earlier.
01:31Vlad Tenev over at Robinhood calls prediction markets an asset class. Do you agree?
01:35Well, what I would say, it's a new form of derivatives.
01:37And we haven't yet seen its full flowering into corporate use, but that's really the opportunity.
01:45You know, one of the big challenges in corporate America is to get perfect hedges on your risk.
01:49And a lot of derivatives offer hedging opportunity, but not really a perfect hedge from an accounting point of view.
01:55Once corporates can actually get a perfect hedge using these markets, the use of them is going to be phenomenal.
02:00So I think they are really a tremendous new innovation, although I'd say they're a new derivative, not necessarily an
02:05entirely new asset class.
02:06But very early days still?
02:07Still very early days in this innovation.
02:10The builders in this innovation are young people in their 20s and 30s.
02:13We haven't really seen the industrialization of this asset class in the same way we've seen the industrialization of stable
02:19coins.
02:19But we will, and I don't think it's that far off.
02:21So why do you think prediction markets like Colossi and Polymarket should be treated as financial risk markets rather than
02:27sport books or casinos?
02:29Which they're always connected with.
02:30Great question.
02:31In a sports book, it's a casino operation.
02:34So the house sets the odds, and every participant can be a price taker, but they can't be a price
02:39maker.
02:40Okay?
02:41In a prediction market, it's truly a marketplace.
02:44All the house does is set the proposition, but it doesn't win when others lose.
02:50Participants are price makers and price takers.
02:52So it's very much a marketplace as opposed to a casino, which is effectively a retail establishment.
02:58Here are our prices.
03:00You can take these prices, but you can't make these prices.
03:02It's not a marketplace.
03:03Retail establishments are traditionally regulated at the state level.
03:07Marketplaces are traditionally regulated at the federal level.
03:10Imagine having one state or 26 different states trying to regulate global markets.
03:16That's not the way we've rolled in the United States.
03:18We've assigned marketplaces to the federal government.
03:20So then should DraftKings and FanDuel be regulated by the CFTC and not by states?
03:25No, because they are sports books.
03:27But they also offer prediction markets.
03:29Their core business is really in wagering, wagering against the house.
03:35That's their core business model.
03:36And that business – now, if they go into true markets, then we need a federal regulator.
03:41If it's wagering against the house, then it's a state regulator.
03:44So could they – I mean, could they thread this needle by splitting off a portion of that business?
03:49So we don't choose regulation by who the company is.
03:53We choose regulation by what's the activity.
03:55If it's truly a marketplace, two sides –
03:58OK, so sorry, just to push back a little bit on this, forgive me,
04:01because this is – the sports betting part of this is such a big part when it comes to prediction
04:04markets.
04:05I mean, Bloomberg Intelligence estimates it could be between 80% and 90% of what happens on some of
04:08these prediction markets.
04:09Jeffries also has some estimates of the size of this equation.
04:11So sports is so huge.
04:13So it's just hard, I think, for some people to hear, well, if I can do the – if I
04:16can bet on the outcome of the Knicks game on DraftKings or FanDuel
04:20and also bet on it on Polymarket or Kalshi, why is there a difference?
04:25So we haven't traditionally divided marketplaces by the activity.
04:30We divide – you know, it's sort of like trying to cut a seven-layer cake by the layer.
04:34Sports – the way we generally cut it is, is it a marketplace?
04:38A marketplace where the House just sets the proposition, doesn't make money on who wins or loses.
04:44That's regulated at the federal level.
04:45You know, it should be regulated at the international level, but we don't have an international state to do it,
04:49so we regulate at the national level because it's – by definition, crosses borders.
04:54But casino operations, where the House sets the odds, everybody can take the price, but that's all they can do,
04:59is generally regulated at the state level.
05:01What we're talking about here is pretty consistent with the way we've been doing this for a long time.
05:05Dividing it between sports and non-sports is really not the issue, the issue whether it's a true marketplace.
05:10Another concern that's always brought up with prediction markets is how do you prevent politically connected actors –
05:16bad actors or just actors – to stop profiteering from non-public information?
05:20I feel like that's one of the biggest sticking points right now.
05:23Absolutely.
05:23And there's already a law on the books.
05:27The CFTC already has its version of insider trading bans, and we're already seeing both the platforms themselves,
05:34in the case of Kelsey and others, prosecuting people for violating that ban, but also the CFTC doing that itself.
05:40So that ban is – now, do we need to maybe enhance that ban?
05:44Do we need to add some?
05:45That should be decided.
05:47The CFTC is in the process of rulemaking now.
05:50Whenever you have a new technology – and I faced this when I green-lighted Bitcoin futures 10 years ago
05:54–
05:54there's a lot of hue and cry.
05:56There's a lot of people saying, wow, this new technology allows all these things.
05:59That's why there's a rulemaking process.
06:01You know, I believe the right response to new technology is not to put our head in the sand and
06:05say, you know, let's pretend it goes away.
06:07The right response is to get the regulations right.
06:10And if we need to fine-tune regulations written a decade ago for this new innovation, we should do it.
06:15And I commend Chairman Selig for starting a rulemaking process and inviting public comment.
06:20Does the CFTC have the person power to do this right now?
06:23I mean, this is – you're in such an interesting position because of your experience in the private sector as
06:27a builder, as a founder,
06:28but also your experience as a regulator at the CFTC as well.
06:32Does the CFTC need more resources?
06:34It's always needed more resources.
06:36It needed more resources when I was there 10 years ago.
06:38It needs more resources today.
06:40How much more resources?
06:41And Congress has to give it those resources.
06:43It's giving the agency more responsibility.
06:46It needs to give it more resources.
06:47If you could wave a magic wand and tell Congress this is how much money we think it needs to
06:52be effective.
06:52I want to be here for you, Tim, because I'm not in the seat.
06:53When you're in that seat, you know, you have a sense – I don't really know what the person power
06:58is there right now,
06:59but I would estimate it needs anywhere between 10% to 20% more resources, and I'm guesstimating that.
07:04Okay, that's not as much as I thought you'd say.
07:05Okay.
07:06Maybe for one of –
07:07That seems doable.
07:07I'm not in Washington.
07:09That doesn't seem crazy.
07:11Compare that to – like, you know, one of the things we're talking about is do the states do this
07:13to the federal government?
07:14If the CFTC needs more resources, what do you think the states have to police global markets?
07:20When you look at crypto, what else do you think it needs to – what's the next catalyst?
07:25Because when you look at it, it's so institutionalized.
07:27I mean, you see Bitcoin ETFs.
07:29You see hedge funds trading it.
07:30It's everywhere in Wall Street.
07:32Isabella, we're really in an interesting phase right now.
07:34It's another reason I went to Jeffries, because what we're seeing right now is the industrialization of this.
07:39This was – buying and selling tokens for a while was in the promise that would come, in the same
07:44way that people bought Tesla 10 years ago in the hope that the future of transportation was electric, right?
07:49Now it's here, and everybody's building electric.
07:53The same thing is here.
07:55The promise of crypto was that the institutions of Wall Street would adopt it as its fundamental architecture.
08:01That's now happening.
08:02Look what DTC is doing, Depository Trust Clearing Corporation, putting their entire warehouse onto digital rails.
08:09Look what all the major banks are doing.
08:11Look what the Bank of New York is doing.
08:12The time has now come that industry is building this as the architecture.
08:17The architecture of finance in the future is going to be built on digital networks, and that's going to be
08:23transformative for people that use the financial system to build companies, to finance their college education, et cetera.
08:31Talk to us again why supporting crypto and CBDCs should coexist and why one isn't necessarily competing with the other.
08:37I feel like that's an argument a lot I see on X on Twitter.
08:41I'm so glad you asked that question.
08:42They're fundamentally different.
08:44A stablecoin is a corporate liability, no different than a bank deposit is a corporate liability.
08:50It's a liability of a bank or it's liability of a stablecoin company.
08:53It's not a sovereign liability.
08:55When things go bad in the banking system, what do people do?
09:00They go to the ATM machine.
09:01They go to the ATM machine to take possession of their money, yes, but to really convert the obligation from
09:07a bank obligation to Uncle Sam's obligation.
09:10They want to know their money is directly backed by Uncle Sam.
09:13That's why you take cash out.
09:15In a similar way, if there's a run on stablecoins, and I'm not predicting one, but there have been in
09:20the past, people will want to go to a sovereign obligation.
09:23And that's the fundamental idea of a central bank digital currency.
09:27It's a sovereign obligation.
09:29Now, we have seen central bank digital currencies put out by China that are meant to be control instruments to
09:35control society.
09:36That's absolutely not what we want in the United States.
09:38We're seeing Europe going forward with a digital euro that, while it's not a control instrument, it's a surveillance instrument.
09:45Again, that's not what we want in the United States.
09:47So, certainly, the idea of a central bank digital currency can be scary to some if it's designed wrong.
09:52But there's no reason why it couldn't be designed right, reflecting the values of a free society.
09:58I don't think we're ready for that right now.
10:00And I do think the United States experimenting with the private sector to modernize the dollar is the right way
10:06to go.
10:07Our private sector is so innovative.
10:09It's going to develop not only the stablecoins, but the apps and the different technologies built on top of it
10:15that are going to make it really powerful.
10:17Wait till your iPhone 20 comes with a digital wallet.
10:20And in it are all kinds of ways to manage your money with calculators and AI.
10:24That's just one or two versions away.
10:26That's coming.
10:27People are going to get really used to.
10:29Here's the analogy for digital money, whether it's stablecoins or CBDC, digital photography.
10:34In the world of film photography, those old film photos sat in a dusty photo album.
10:38You never look at them.
10:39But every photo you've taken with your iPhone lives forever.
10:43You do things with it.
10:44You post it online.
10:45Well, wait till your money is as facile as your digital photographs.
10:48That's the promise of stablecoins and digital money.
Comments