🎙 92 - The Fight for the Future of Money | CryptoDad Chris Giancarlo

welcome to bank list where we explore the frontier internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david what an episode christian carlo former cftc chair but also crypto dad and if that wasn't an episode like like spending an episode with your dad uh krypto's dad i mean i don't know what was it could not have been better what

were some of your thoughts and takeaways coming out of this yeah it was a combination of one of the most heartwarming wholesome episodes that i've ever listened to with very concrete very there's high wisdom actionable insights right it's the most dad episode possible like very like here's how you live a life here's how you like print principles here's some actions here's some really really good advice also i just feel like i got this virtual like pat on the head at the end of the show i was like all right like

millennial generation younger generations you guys got this you guys can take it from here uh so like chris just really spanning the gamut of just like being a good regulator regulating an entire nation he's no longer a regulator but once once was and then also just words of encouragement and it's just extremely refreshing it's already been one of my favorite episodes yeah you know what it's it's kind of like a good dad looks out for his kids right i mean i don't want to overuse this analogy but it really felt like the whole vibe of the episode and um his statement in congress that earned

him the moniker crypto dad we owe it to this generation to take krypto seriously think about that we owe it to this generation how refreshing is that to hear in the halls of congress like that there is some accountability for future generations and like that we should go investigate this asset class and understand it more because they see something in it so let's try to understand that before we dismiss it before we kill it before we

try to crush it let's try to understand that first and that is something that i think everyone feels is missing from the halls of power today right this like you're not hearing what we're saying right you're not you're not listening to us you're not understanding why this asset class has gone from 0 to three trillion dollars in the past 11 to 12 years right like so why don't you listen for a bit and

and that that was his message that he took four years ago in 2017 and then he's been an advocate for for crypto since so he just had some fantastic insights we talked about cftc versus the sec we talked about um this new money system and how important it is to imbue and embed our values inside of it we talked about the nature of money and chris has a an excellent fundamentals foundational understanding of like what money is as a societal construct

so many things to unpack here oh we also talked about like you got in this discussion with him about futures right so like that was just an educational course right there on understanding kind of commodities futures and how it impacts the um the reserve currency status of the dollar and the price of the underlying all of these topics so just an incredible episode chris is absolutely somebody who does not miss the force for the trees and i think that is the big discrepancy

between regulators and and people leaders like chris and one of our biggest frustrations about the world of regular regulatory agencies where regulatory agencies are oroboric they are a snail a snake biting its own tail they are doing regulation for regulation's sake just because that's what they do uh when everything when you're a hammer everything is a nail and chris is not a hammer chris understands not just crypto and it is i find it fascinating that he came into the world of crypto

not interested in crypto but realized that there was a something here and he needed to fight for it so again chris understands what this industry means and how it impacts the world and does not come in with his preconceived notions about how financial markets should look like and how they should be regulated yeah we didn't use this term during the podcast but uh like after the podcast reflecting it's like what's a first principles regulator look like right so let's talk about the the laws that went into place in the 1930s and 1940s there were principles behind these laws and

some of those principles are valid and some of them are good but they don't necessarily manifest in the same way in you know the 2020s as they did the 1930s and 1940s so he's boiling it down to what are the what's the purpose of these regulations in the first place and there seem to be few in government who think like that but um that's really why i think the the cftc has has kind of um shined and and uh had a great role to play for crypto and this anyway so so

many things we unpack here as always guys if you are a bankless premium subscriber you get to hear david and i's recordings after this podcast where we do a debrief on the entire episode and drop some of our thoughts and extra insights and some fun stories after the podcast so um make sure you become a premium listener and you can get access to that on the bankless premium feed david anything else nothing from me let's go ahead and get right into the episode with chris giancarlo crypto dad right after we talk about

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industry he's a senior counsel at a law firm you probably know him as crypto dad though that's that's the way i know chris giancarlo he's written a book with the same name it's called crypto dad the fight for the future of money i've read some of this it is absolutely fantastic chris it's a pleasure to have you on bank list how are you doing today sir doing great sean thank you so much for that warm introduction it's great to be with you i love your show and for me it's a treat to finally be on it uh well you are very welcome it's a pleasure to have you i i want to maybe

start by setting the stage here you titled the book crypto dad and i think that's the way many in the bankless nation and the crypto audience uh know you but let's start with that story because this was a moniker that you obviously didn't bestow upon yourself like you didn't say i am crypto dad hello everyone my name is chris this is something that the industry gave you similar to hester purse i think people call her crypto crypto mom in the industry um and i think it's because you were the person who stood up against a tremendous amount of ridicule uh when

the cfdc was talking about uh making bitcoin futures happen four years ago right this is not a popular idea at the time you also stood up in front of congress and you used this line which i think the crypto industry absolutely loves we owe it to this generation owe it to the younger generation to respect their interest in the asset class guys imagine that imagine congress owing something to future generations okay this is why you have earned the title of crypto dad i

think in crypto circles but can we talk about this line because um i read that chapter uh we it the chapter in your book or there's a title in your book called we owe it to this generation can you talk a little bit about that what do you think congress and those in the halls of power owes this generation owes the future generation so let me tell you actually the back story and then we'll talk a little bit about what i really think congress does over this generation in in 2017 we were pro i was chairman of the cftc and we were pr and by the way

just quickly i didn't go to the cftc to do crypto i went there to help clean up the reforms of the swap market which i'd worked in for a decade and a half beforehand but you know in life you go to do something and and life happens other things happen and you can either say i'm not going to focus on it or you can adjust and in my case it was let's adjust let's learn everything we can about this new asset class let's understand it we set up lab cftc in the spring of 2017 and i said master

crypto i appointed dan gorfind to run it and i said start teaching us as a commission this new asset class to the point where in the summer of 2017 the the five-member commission were actually doing mock bitcoin mining uh exercises in our boardroom to understand what mining was all about anyway in the fall we were approached by two of our biggest exchange operators chicago mercantile exchange and the chicago board options exchange about listing

bitcoin futures and as we started processing those applications we were getting huge resistance um there was a full page ad in the wall street journal taken out addressed to me saying please don't go forward with bitcoin futures if you do it will destroy the economy wait who took out this ad thomas the ceo of of interactive brokers what's his skin in the game there why does he care so much well so he wanted to see um the the

margins uh fund the collateral fund basically segregated for bitcoin futures against all other asset classes his worry was that it was there was a default in bitcoin futures the call on that collateral could unwind all of the other instruments that are traded in the same clearing house now the fact the matter is the whole idea of clearing is that you co-mingle all assets so if one asset classes up another one is down you've got a portfolio margining effect his idea those it should be segregated otherwise

it would cause harm to the financial system a couple of things i explained this in the book we actually did an analysis of that we came to a different economic conclusion as to its viability but moreover we actually don't have the power as a commission to tell clearing houses you need to segregate this you can co-mingle that so anyway those are things that i explained the book but that's just one example of the resistance the futures industry association the trade association for the entire futures industry wrote to us and said don't go forward with this at least on the current timetable and then

we had your regulators both here in the us and in europe and in asia calling saying if you do this you will legitimize bitcoin and that was one eureka moment for me because i said to myself wait a minute i'm an unelected bureaucrat it's not for me to to legitimize a legal asset class or not legitimize it that you know if congress wants to do it fine that's not my job and in fact it started troubling me because i thought the only thing that's going to legitimize an asset class is the marketplace itself right

right if you got a marketplace where people can both go long and go short that's the best either legitimacy or illegitimacy thousands of new products are launched every year or hundreds at least many of them never make it because the market doesn't legitimize them not because bureaucrats don't legitimize them and so it was my thought that you know what the best test of this is let the market proceed and so we did not block bitcoin futures we announced we were going forward on december 1st 2017 the products launched

the markets resolved the price itself but not long after that and this is how the bitcoin crypto debt came about i got a summons from the senate banking committee to appear in front of the committee and clearly it was to be called on the carpet to to basically justify everything we had done and so in preparing for that hearing we prepared as you do as a chairman of an agency a lengthy briefing document it must have been like 65 pages detailing every step we had made in in going

forward with bitcoin futures we submitted that a week before and then the night before the hearing as i'm preparing for it i'm thinking about if you've ever watched one of these hearings the the witnesses have these little clocks little game clocks on your yes in front of you and they go from red to yellow to green and when they go green they start counting down from five minutes to zero and if you you know if you're still talking when it goes zero boom the red light goes on the gavel comes down so i'm trying to condense 65

pages of text into a five minute 500 word testimony and i said forget it i'm never going to do this so i'm going to just approach this entirely differently so that morning when the light went green on my desk i basically pushed my papers away and said senators i know i'm here as the chairman of the cftc but if you'll allow me i just want to talk to you as a dad wow and i explained to them that during our annual family ski trip that i do every year with my brothers and all our kids every night after skiing all my kids in

their 20s all my nieces and nephews wanted to talk about was bitcoin they had heard that we had green light at bitcoin futures they wanted to understand it now these are the same kids that we had tried to interest in the stock market for years you know with basically no interest but suddenly the interest and it dawned on me that there's a real generational thing going on here and so i said to these senators just what you said i think we owe it to them to get this right not to dismiss it as some sort of you know childish fantasy as as i think

perhaps there's a tendency to do and some people in my generation but to actually open our eyes to it and say what's going on here really understand it and get the regs right so it thrives as opposed to being strangled in in its in its in its infancy anyway so having said that i want to talk to you as a dad suddenly my twitter handle exploded and they were calling me crypto dad and some people said i want to be adopted by you it was so much fun and it was actually a few months later that hester purse was confirmed

and then when in one of her first statements she referenced my testimony and then she became crypto mom yeah she is also amazing too i've got some memes that that i'm showing on the screen this is uh this is you as like the uh the last um fudd bender i believe uh memes from the courtesy of crypto twitter coming out and uh this is another one if you go into twitterverse you you'll hear a term huddle did you actually say that i did you said hoddle yeah and i said my niece is a toddler

that's hilarious chris you know it's funny because i mean i was there and john kennedy was a senator who's a really fun guy he said what is all you're talking about i still write with a quill pen well the fact of the matter is he's somebody actually starts is starting to get it um but you know it was an opportunity to talk to congress in a very fresh direct way without uh just a lot of bureaucracy chris i remember listening to that talk and i remember posting on my facebook

because this is where all of my my parents and my my the older side of my social connections that's where they were going to listen to this and i remember posting for the first for the first time a millennial i actually feel heard and represented by our leaders and that is what started to actually have some faith that maybe we actually could get this this whole thing right uh so thank you for for representing us in a time where you know this is after the up on the heels of the 2017 mania which is not it didn't wasn't

crypto's best pr move but people like you understood the fundamentals but you also talked about all this resistance that came and the fact that you were even summoned to the uh housing banking urban affairs committee in the first place to like answer for your accepting of bitcoin uh in the cftc and also all the other responses from the private sector is concerning why do you think you got so much resistance from almost everyone who's in a position of power about accepting bitcoin and what did you learn from that

well look we have a massive financial market infrastructure a massive financial industry infrastructure that is very close with its regulators as well it's a legacy system that was born in the 20th century you know it it's not only massive it it you know it touches our lives in so many ways it's fundamental the economy and uh it was once state-of-the-art uh in the last century

it's showing its age now you know i i actually liken our financial system to a lot of our physical infrastructure our bridges and our tunnels and our airports and our railroads that were once state-of-the-art you know are no longer so and they're decaying in front of verizon we need to upgrade them a lot of that is similarly true about our financial system and i really believe digital token technology and digital asset technology has the promise to actually help us modernize the system and upgrade it for for generations to

come if we let it but you know there's an old adage you know challengers to the status quo the first thing the status quo does is ignore them then the second thing it does is attack them and the third thing it does is it adopts them i think we're in the late attack stage right now when i went in front of that hearing we were just coming out of the ignore stage and my testimony was to basically say sit up and listen everybody there's something going on here i think you know i described it the other day somebody said where are we i said i think we're in the empire strikes

back segment of the trilogy uh the best movie by the way yeah it is and the death star right now is is you know is is quite active and um uh you know so we are we you know this this new innovation is being attacked by a legacy structure a legacy regulatory framework a legacy industry uh but the smarter ones are event are getting it you know it's amazing how with the launch of bitcoin futures that we did at the cftc you know that allowed

for the first time solid traditional institutions to enter into this on a regulated u.s regulated marketplace and you know with the like i cite in my book the likes of you know bank of new york going back to 1778 and and and mass mutual and fidelity with these kind of names coming into the space the adopt we're moving we're still in some of the empire strikes back but eventually we're moving into the adoption phase so i think we're in you know phase two and a half right

now i think i think i tell people all the time i think the medium to long-term uh future is very bright i think the immediate situation right now is precarious but ultimately the system will modernize because that ultimately that's what we do in the united states and because generationally that's where this is headed my generation will eventually pass the baton to a new generation that gets in digital assets they get it in their bones because they've been video gaming since they were 16 years old and they

understand digital tokens they understand avatars they understand uh you know a virtual world the metaverse and so it's changing but you know we're still the empire is still striking back right now yeah you're speaking our language so i guess we're at the part where luke luke skywalker just gets his hand cut off right and that's why we're feeling some pain right now and so this was so striking because uh you said you had regulators calling you and their specific was concern was like don't make bitcoin legitimate your

actions could make bitcoin legitimate and you talked about this general fear of change and this general departure of the status quo and we've talked so much on bankless about how we feel like some of the regulatory regime anyway um is is sort of an incumbent protection sort of force and it can feel like a racket at some time but can we get into some of the specific concerns like the fears okay so when someone it's when someone's saying to you i'm afraid that you're going to legitimize bitcoin what

exactly are they afraid of is this we're afraid of um the volatility we want to protect retail like this volatility could destroy the economy are they afraid of loss of of dollar supremacy uh supremacy hey this is this is you know the the dollars world and the us has a strategic interest in in making its dollars supreme are they afraid of kind of the criminal and and terrorist type of angle what are their specific concerns with crypto being a legitimate asset class yeah so all of the above it

almost you know where you stand depends on where you sit uh so if you're a central banker of a major continental economy with a reserve currency to protect the euro the pound uh the dollar then a a big concern about bitcoin is its potential to unseat those reserve currencies if you're a central banker uh with with a monopoly over wholesale payment systems

you're worried about stable coins uh um taking that monopoly if if you were in charge of a uh of of of aml kyc procedures at say a treasury excuse me then then you're concerned about payment rails that are outside of of that control and and tokenization is very scary to those who are the uh overseers of account based money systems you know if you're in a court

court i mean correspondent banking is right in the crosshairs of digital assets right um it's a huge rent collecting that soaks up one or two percent of glo global gdp just to move money around the world you know think about how kodak must have felt when digital photography came about well in the same way if you're running a correspondent banking you've got to be really afraid of stable coins so there's a lot of fears to legacy systems what i tell fellow regulators is

don't confuse the state of the art of a of a of a method of achieving policy with the policy itself aml kyc as we currently know it is based upon identity as the first step in every transaction why is that because our account based money system requires identity it's a first step in every transaction somebody's got to identify who you are where you bank and how much money is in your bank before you can use a check or or a credit card or zel or

venmo right as we move to a token system we don't need to establish identity in every case although we can unmask identity in a pseudo anonymous system later on if pattern recognition shows us there's something that needs to be unraveled but for many people that oversee aml kyc they can't envision a world where they don't establish identity in every transaction and so they're confusing the state of the art of a method with its ultimate policy goal which is catching money launderers and illicit commerce and so

you know regulators get comfortable with methods of regulation the reason why defy just blows the heads off regulators is because regulators regulate in a common way what how do the regulators regulate they look at an ecosystem and they say where are the intermediaries where where are the choke points great we'll register them we'll license them we'll give them certain jobs to do collect information et cetera et cetera and in return we'll give them certain monopolies and barriers to entry that's how regulators

in an analog world traditionally regulate but once you get rid of the intermediaries regulators you know kind of have a connection because they can't figure out how to and what they've got to do is relax and recognize we can go from an entity-based regulatory structure to an activities-based regulatory structure using big data analysis blockchains and let's use pattern recognition to find bad activities and once we establish the activities we can then go find out who are the actors engaged in those

activities but it's going to require a sea change and one of my biggest concerns is regulation made for the convenience of regulators my biggest disappointment in the recent uh pwg report was it was all about you know first do not disturb the regulators do not ask the regulators to change any of their methodology you know it's it's innovate to for regulatory convenience rather than innovate to solve societal and and economic and and market structure

problems we can do better i definitely think we can do better chris and i could put part of my worry is like do people in in government in these places of powers actually understand this asset class they understand that like what peer-to-peer defy can bring are they they're starting to use it and i think that will come soon but let me ask you a question because we we do want to talk a lot more about regulations some other themes in your book but um just to kind of round out this discussion about kind of the the birth of crypto dad and and futures

and all of these things do you feel somewhat vindicated at this point okay so the sec has just approved a uh an etf based on what bitcoin futures okay the futures that you started four years ago people were taking full page ads out against you and uh grilling you in front of congress and now there seems to be an acceptance cross regulatory body acceptance and general governmental acceptance that this asset class is here to stay and thank god we

had futures four years ago to prepare for this day now retail can get more involved in asset class of course we'd like to see spot we'd like to see other things but this is at least a step in in the direction do you feel vindicated by that like being on the right side of history yeah so so i tell you what back then we knew we were doing the right thing i don't i don't want to sound arrogant but but you know in our heart we knew we were doing the right thing because in every mature market of any commodity ultimately a a derivative futures market

develops and ultimately the price is actually no longer set in the spot market it becomes set in the futures market and the reason for that and that's true in oil that's true in wheat that's true in cotton that's true in iron ore that's true in interest rates the reason for that is because the spot markets are too dispersed to bring all the major buyers and sellers together which happens in the futures market where they can all meet and set the price and so it's sort of it's market economics 101 that we knew when we launched a bitcoin futures

market eventually it would become a major component of a matured uh uh sophisticated deep and liquid market ecostructure but i i do feel vindication for the pool for the pundits um they were you know there were press people in the mainstream press that were lampooning what we were doing they were they were you know old kind of central bankers they couldn't envision a world beyond the 20th century world they knew that that were giving us a hard time so i do feel vindicated

in that regard um and but more importantly i'm delighted to see this emerge into a tr three trillion dollar marketplace it it shows the the what happens when you get when you get really strong emerging technology breakthrough technology combined with the right regulatory response that's not suppressive that is saying how do we channel this for good when you combine the private sector and the public sector in in in in smart in a smart construct

really good things happen and we've done it before in the united states i'm actually working on an op-ed right now with dante desparte you know in the 1970s a new technology came around and that was called financial futures up until the 1970s the only way to control economic risk was actually through agriculture futures there was no idea about doing futures on interest rates on foreign exchange and once those products came around it actually allowed the united states to go off the gold standard and it allowed the dollar to become the world's reserve currency with