Jason Calacanis: Hey everybody, welcome back. We have an amazing episode coming your way. First up, we're joined by our pals, we haven't seen them in weeks, Vinny and Sonny for another edition of the Crypto Roundtable. We chop it up about the government crackdown on the crypto sector. We also have a very in-depth discussion on which agencies should regulate crypto and how. Then, producer Rachel is joined by Prince Ghosh, the co-founder and CEO of Factored Quality,

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SPEAKER_04: months of pilot core. Okay, everybody, it's Wednesday. It's been far too long, Molly. So long. I barely

Jason Calacanis: recognize these guys. Let's get started, Molly. Let's do it. We are back with the crypto round table at long last. Maybe our last one because the industry is about to get smothered like a baby little flame in the woods, snow falling on it. No, um, there seems to be a crackdown. It seems like maybe the story of 2023 is going to be the crypto crackdown. And so we got our experts back to talk to us about it. Sonny Madra co founder of definitive intelligence and Vinny Lingham co founder of civic and weight room for one on one video conferencing because running two companies at the same time is just the thing to do. This is what you do. These days, I'm technically just chairman of civic at the

SPEAKER_10: moment. So I'm not running it operationally. Listen, it's been a long time since you've been here,

SPEAKER_13: I think with a little break because everybody's been busy the holidays, yada yada. But we woke up last week.

SPEAKER_16: And there was somebody who said like a week ago, and I think this was in one of our group chats. I don't know if it was in our poker group chat, Sandeep, uh, Mr. Madra, or if it was in our twist one

SPEAKER_13: or the crypto one, but somebody like a rando is like, I hear there's going to be a bunch of crypto

SPEAKER_22: sec actions. And then sure enough, next day, next couple of days, we saw some crackdowns. So I think we need to unpack that. Did you see this coming Sunday? Well, yeah, I mean, look, the one thing

SPEAKER_25: let's level set as we get into this conversation, right? Because, um, you know, you're dancing on the

SPEAKER_28: grave a bit early here to take out. I don't want to touch on the grave. I'll explain my position in a

SPEAKER_25: moment. But like, let's kind of frame it at least a framework that I use is like blockchain technologies, say web three applications, and then cryptocurrencies. Right. And what we're seeing now is a lot of regulation coming around cryptocurrencies, but blockchain technologies and web three applications are, you know, not getting looped into that. So like, I think we should just keep those things

SPEAKER_31: separate because I think a lot of it gets looped together. And then I think, you know, that doesn't help the folks that are really innovating in the industry right now. Well, let's also just like

SPEAKER_34: define like the, the roles of the government agencies, right? So the, the SEC is claiming

SPEAKER_37: jurisdiction over basically all of crypto at this point, um, cryptocurrencies, Vinny, cryptocurrencies.

SPEAKER_40: Yeah, cryptocurrencies, right? So the CFTC says that they have bitcoins under their jurisdiction,

SPEAKER_42: because it's a commodity. Um, you, you have, I mean, we have, first of all, a jurisdictional battle, and potentially there's, I think there should be a separate agency, but that's just, you know, I think there should be a digital assets agency that gets created, but that's a separate view. And I, I think that they're trying to get these agencies to, you know, they still have to go to court and fight this. And the SEC has lost a couple of battles in court already, uh, you know, in the cryptocurrency world. So it's not fair to complete that the SEC has, you know, uh, jurisdiction and that if people are breaking the law or breaking law, that, that the, the SEC has the right to enforce action against them so that they can be challenged. And, and Coinbase has made it very clear that they're going to go and fight in court. And I think others will do the same. Circle will do the same, etc. So, you know, when you say there's a regulatory crackdown, I agree. I think that it's debatable which agency leads the so-called crackdown, but I think we are going to see, you know, um, governments around the world crack down a lot more on crypto, uh, in general, the flip side is governments can never coordinate anything. So they, they, they can't really, you know, coordinate attacks between different governments and some jurisdictions will be friendly towards crypto. Others won't be. Um, so this is not going to play out over three months or six months. This is like five years, like the next two administrations at the US level and probably other parts of the world. And so in that time, I think crypto has a, a path to, you know, escape velocity where,

SPEAKER_46: you know, like Bitcoin, no government can actually shut down Bitcoin, even if they wanted to, they can shut down the gateways. So you can say, well, we won't allow money transfers from banking into Bitcoin. They can try and depress the price that way, but in a long enough, on a long enough time

SPEAKER_44: frame, um, the, the decentralized cryptocurrencies will be outside the purview of governments because

SPEAKER_50: you can't stop it. Okay. Just a level set here. I loved your definition, Sandeep. There's the web

SPEAKER_17: three application level. There are crypto currencies, and then there's the blockchain. I don't think we need to define those things. Everybody understands what you're talking about on this week. And

SPEAKER_16: startups. If you don't, you can look up cryptocurrencies, blockchain, and, uh, just a web free definition. I don't think that requires, uh, any, uh, definition, uh, on a show of this level of sophistication. However, Molly, uh, being the expert, you are on all things finance, uh, perhaps you could catch us up on the mandate of CFTC. Yep. And the difference between those two,

SPEAKER_13: to, to then catch us up on Vinny's position that, hey, which agency should be involved in this? Who

Jason Calacanis: do we call it? Which is a great, and that's an outstanding question, right? It's sort of how a

SPEAKER_54: lot of times you might see like volleyball, nobody calls the ball between the FCC and the FTC, right? And those mandates might overlap. And in this case, you have these two agencies, the CFTC, which is

Jason Calacanis: really all about, uh, the trading. It's this relatively new federal agency that deals with derivatives, markets, futures, contracts, options, and swaps. Then you have the SEC, which is all about protecting investors, maintaining efficient markets, facilitating capital formation. And both of them seem to sort of fundamentally be saying, and possibly rightly we have possibly, we have some reason to come in here. There are aspects of the cryptocurrency universe writ large that are a hundred percent about swapping and derivatives and futures and the kind of financialization that we've talked about in this show for a year now. And you have the SEC saying, these are pretty clearly investment vehicles. In some cases, we are going to classify them as securities because they seem to follow all those rules. So I guess what you're saying, Vinny, is maybe like both have jurisdiction or none, or this could get delayed, this sort of idea of enforcement as these two agencies like fight it out.

SPEAKER_16: Can we start back for a second and maybe just, I think we have in the notes, the mission statement of each one, or maybe in the Slack. Can you just read those so that we just level set with the audience? Because they hear SEC, they think they know what that is. They hear CFTC. And I, I couldn't read

SPEAKER_18: you off the top of my head, the mission statements, but I think it's important to take from their website

Jason Calacanis: exactly what they said. Yes. The Securities and Exchange Commission has a three-part mission, protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Got it. The mission of the FTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. Got it. Okay. It's pretty clear. Yep. And then their

SPEAKER_54: mandate is, according to Investopedia, they're the federal agency that regulates derivatives markets

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SPEAKER_16: seen on this podcast. AKA.ms slash this week in startups. Thanks again, Microsoft. All right. So that's what they say on their website. So Vinny, when you look at those two things,

SPEAKER_52: to Molly's question, like how do you interpret where specifically staking? Because that is the action we saw this week is the act of staking. Where would staking fit for you here and why?

SPEAKER_42: This is why, first of all, I don't believe that two agencies can have jurisdiction. Because then who takes enforcement action when there is action? So I do think that that's, that's a conflict. I think that staking should be defined into an entirely different,

SPEAKER_44: this is why I think we're missing an agency, we're missing a digital assets agency or something.

SPEAKER_42: Okay. And I think that if you think about what is staking, right? I own some Solana and I go put it into a smart contract and people who need to use that Solana pay me some sort of a return for using it. If you do native staking with the network, then I'm saying, I trust a certain validator, and I will get rewards back from the network as a purchase. I get a share of the rewards, which is very predictable. And it's not dollar denominated. I'm getting it in the actual currency that I'm staking. And then obviously, you get different types of staking. That's just a lot of different types of staking, which you get paid a reward a certain rate of return for it. The quest,

SPEAKER_46: I mean, like the SEC, I see the point, this is a way of making money, so to speak, but it's not money, it's not US dollars, no one's promising me a return dollars. It's fixed in the unit of cryptocurrency

SPEAKER_42: I'm getting. So it's like, you know, I go buy seeds at a plant store, I plant a tree, and it gives me apples, right? And then I take those seeds again, and I go replant them, give apples, like, like, you know, it's, I'm not getting dollars or growing off trees, I'm getting apples.

SPEAKER_16: So your argument there, and your definition of staking is you put something in, you get more of it back. Sometimes it's transformed, we do we do know that happens. Sometimes it throws off some new

SPEAKER_13: currency or token, but it's not currency, even though people paid currency to get it. Sonny,

SPEAKER_42: how do you define staking? And so let me just add to one second, like, I'll be even more like, but more finer point to it. If the returns are dollar denominated, or any fiat currency denominated,

SPEAKER_46: I think that's within the jurisdiction of the SEC. If the returns, if the returns are not denominated in the fiscal currency of a country or of a sovereign region, and it's denominated in the underlying asset rewards like Bitcoin, for example, as well as if you're a miner, you're earning Bitcoin. I don't

SPEAKER_42: think that's under the jurisdiction of any government. Because if I go and put in X amount of my asset

SPEAKER_40: to earn a bit more of that asset, it's like me having a sheep and the sheep has a baby, right? Like,

SPEAKER_16: Got it. Okay. It's a great analogy. I think we understand it. Sonny, maybe you could try defining

SPEAKER_52: staking for the audience. Explain staking what it is, and maybe why the SEC is taking these actions

SPEAKER_88: against stakers. Or maybe just define it. Just define staking.

SPEAKER_25: Yeah. I like Vinny's description of it, right? I think the core of staking comes back around to, these are, you know, meant to be decentralized networks. And these networks operate with their, you know, their currency, their own currency. And how that economy works is by, especially when you move away to less energy intensive blockchains, those things require like a trust system. And part of that trust system is, you know, for there to be staked currencies that are in it. It's just sort of, it's how these, sorry, it's kind of, I really like Vinny's explanation. I'm just trying to expand it. It's like, we want to have these decentralized networks that aren't owned by anyone, right? We've debated why they can be composable. Like they can run forever. There's no one person responsible for them. And so in order for that to work, you need kind of staking as part of the underlying system from blockchains to work. And so that's really where it comes from. And the return related to, you know, people are using their computers, right? And the resources that come from that. And so I think what's happened is though, people have taken that and expanded beyond it. And that's when it's gone, you know, similar to what we talked about before, what happened with the GBTC trade, right? People have gone in there and it starts to kind of become the core of other things. And so I think that's the danger in my opinion. Right. So this has been, and this was a pretty big action

Jason Calacanis: that we saw last week over the past few days ish, which was that Kraken was fined for this staking as a service product because you had staking, and then you had staking pools. And this is where not

SPEAKER_54: only is Gary Gensler and the SEC, you know, not only are they waiting in with fines, they're actually like trying to do some education around this. So we pulled up this video of Gary Gensler chiming in

SPEAKER_98: on Twitter about why the SEC is banning staking. Here's the rub. When a company or platform offers you these kinds of returns, whether they call their services lending, earn rewards, APY or staking, that relationship should come with the protections of the federal securities laws. That means you, the investor should receive important disclosures. For example, what do they actually do with your tokens? Are they really staking them? Are they lending, borrowing or trading with them? Are they co-mingling them with their other businesses? Where do the rewards come from? Are you getting your fair share? Are the underlying crypto protocols genuinely creating value on your investment? Or are they just new tokens that dilute the value of ones you already have? Remember, if you have a stake, that's S-T-E-A-K, if you have a stake meant for two and cut it into three pieces, it's still the same amount of stake. Unfortunately, because these staking as a service providers generally are not providing proper disclosures, there's currently no reliable way as an investor to know the answers to these important investment questions. Plus, when you sign on the dotted line or accept the terms of service, you are generally agreeing that placing your tokens with these providers may mean transferring your ownership to them. There's an expression in crypto, not your keys, not your crypto. You see, you're basically an investor in their platform. If it goes under, and we've seen plenty of that recently, you end up in line in the bankruptcy court. That's why it's so important that these companies and platforms comply with the securities law. After all, the securities laws, regardless of what you think of stake or staking, they're good for investors. All right. So give us here. So this

SPEAKER_01: enforcement action was also seen as putting Coinbase on notice side note. And then what do you think is in here? I'll start with Sonny that is fair or not fair or both? You know what? I hadn't seen that one

SPEAKER_25: before. I actually liked it. I think, you know, in talking about the core issue, look, the staking technology was fundamentally part of what, you know, makes blockchains work. Right. And it's been used, it's been turned into something else and people are using it. And you saw the description, whether it's earn APY and those, that wasn't what it was originally meant for people and package

SPEAKER_31: it up staking as a service. And then when you're doing that, I think you touched on, I really liked the video. I mean, I thought it was accurate. Yeah. Yeah. I haven't seen it either. And I actually

SPEAKER_113: agree with Sonny. I think it's accurate. I think the year is the issue, right? The issue is that the

SPEAKER_46: SEC can and should regulate Coinbase, Kraken, et cetera. And Kraken could have gone and fought the fine as well. They didn't have to accept it. They should, they should regulate it because these services are providing a layer on top of staking, right? They're creating pools, you know, they're taking custody of funds. That is all, that is all within the jurisdiction. I mean, these are regular entities. They should be under the jurisdiction. My argument is not that they shouldn't. My argument is that the rules should be set that if you are taking this money in, if you're enabling pools or you're enabling it, but you're not taking custody of the funds per se, you're enabling like a multisig contract, that's fine. The moment you take custody and you're paying out APY and you're taking, you know, some cut, there should be, you know, as a service provider, you know, within the framework of the law, there should be some rule sets. The corollary of that is, if I go directly to the Solana network and I go stake my coins with the validator, the SEC should have nothing to do with that. It's got nothing to do with them. If I'm going directly, and I think that's what Genzo is actually saying. He's actually,

SPEAKER_115: he's going after the providers of these staking services, not, not the notion of staking itself. That's my read.

Jason Calacanis: Yeah, I think, I mean, I think that's true. I think it's a pretty nuanced and good take. Jason, what are your thoughts?

SPEAKER_13: Finally, the SEC is proactively, uh, educating and discussing very complex issues with the American public. This is fantastic. So I am very pleased to see the two OG crypto, uh, peeps that we have here, Mr. Madra and Mr. Lingham, uh, saying they like this video. I think that this is what the SEC needs to do. This is targeted at consumers. So although it's a little goofy, cutting the steak into three pieces and using a stock image, you know, and making it like a Tik Tok video. Well, that's how people consume. And those are the people who are attracted to this.

SPEAKER_17: And the SEC is meeting consumers where they are. We said before, Hey, what is the mandate of the SEC? And you read Molly from their website, protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation. Now, the last one is about, you know, uh, what we do for a living, making venture firms and syndicates and something that let's put that aside, but a fair, orderly and efficient market means, Hey, people need to be educated and protecting investors. People need to be educated. They need to understand it. And it's delightful for me to hear

SPEAKER_52: our OGs here, our crypto OGs say, yeah, that's what we need to do. Now, does it need a new agency? I think it needs an agency to do new things. We don't need a new agency. We need an agency to do new

SPEAKER_122: things. And the new things this agency needs to do is sit down with crypto people and say,

SPEAKER_17: tell us everything. And how would you like to proceed? And then say, here is how we already do this. We can only make so many changes to this because there's this Congress and, you know, the public, and they get to vote on things and they get to have a say here. So we can make some changes. But generally speaking, you're going to have to play by this rule book. And this rule book changes

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SPEAKER_17: I've been sitting here and a lot of this comes to my own personal jealousy of crypto. And I will put that out there absolutely honestly. I am incredibly jealous that capital formation for crypto companies can be done with anonymity, with global scale, with absolutely no fees. It's extraordinary what crypto has built. And I would like to deploy that at the syndicate.com to invest in companies. I would love for everybody to send me a fraction of a Satoshi and eat some garbage NFT, whatever. I don't care how they get the money in. And I could have a million people put in a dollar each and then put a million into a store. That is my ultimate dream. The SEC is a blocker. I can't do that. I can't ask a thousand

SPEAKER_126: a million people for $1 without doing a, uh, you know, a crazy, a crazy SEC public filing. But the two

SPEAKER_17: crypto people we have on right now could have that up and running in under 30 days, probably in a week.

SPEAKER_122: Yeah. And so remember the potential. You're so great. Yeah. Constitution. The Constitution has

SPEAKER_17: done it. Yeah. And now it's really fall under SEC facilitated capital formation. But so that that is my, my, my, my personal bitterness is I've given this some thought I'm very bitter that I can't do this kind of stuff. And I am unable to break the rules at scale because I have people who work for me. I have a family. I can't just go out there and break these rules and stick it to the SEC. I, I, I want to continue to be free and not in jail, but I, I w I'm actually considering when I watch this, like maybe I should move to the Zug, Zug, wherever the hell that is. And I should just Yolo it and just not take Americans money and put this offshore. So the existing agencies, the old dogs need to learn new tricks. That's my position on it. I'm putting my cards out there. You can clip this, you can aggregate it. You can make a tick tock and dunk on me. I'm jealous. I want to see this vision occur. And I want the SEC to proactively engage this group. And I want

SPEAKER_140: this group to stop stealing from people. But I think so, so Jason, I think it's a, you have to be a little, little click, let's just be a little bit more intellectually honest. Yeah.

SPEAKER_145: Right. Let's do it. I'm here for it. So I'll ask you the questions. So, so why do you want to have a big fund and do capital formation with so many people? Why do I want to have a capital formation

SPEAKER_13: with so many people? Yeah. Oh, it's, it's actually, that's such a great question. Um, we could fund

SPEAKER_17: more companies that do take more risky bets. Okay, and do it with less cost, less time. And the people who make the bets would have less, um, problems, uh, they would have less damage if it doesn't

SPEAKER_13: work. And the majority of startups don't work. We would say 80% at the seed incubator stage don't work. So what if we made it 90% don't work? Well, if people are putting in 50k each, that hurts,

SPEAKER_122: it can sting. And there are credit investors, you get 20 of them for 50k, it would be much better to have 1000 for 1000 10,000 for 100 100,000 for 10 or a million for $1. But the problem is speed. When we do this, we have to have people sign documents, we have to have them wire money.

SPEAKER_17: The wiring costs are greater than he then the costs that they're investing. So we set a $4,000

SPEAKER_122: minimum for the syndicate just because doing the tax documents for 10 years is so arduous that 250 people versus 50 people in the tax documents makes a difference. And collecting 250 signatures versus 50 is obviously one fifth. So it's just the speed. And then also for the investors, more people could participate. And that would be more fair. So

SPEAKER_34: that I have that reason as well. Great question. So so so as you as you're going through this

SPEAKER_46: thinking, you know, your argument really is that you can spread the risk across a wider base,

SPEAKER_156: do you think you'd raise more money than what you can raise currently?

SPEAKER_13: You know, there is a gating factor, which is how much money the startup wants to take in. And so we wouldn't want to flood a startup with $10 million at $100 million valuation at that stage,

SPEAKER_46: let's say the company has no, no, no, no, I mean, saying the fund, the fund that you're running,

SPEAKER_158: right? Or are you more SPV? Are you saying more from an SPV perspective,

SPEAKER_16: from an SPV perspective, or even a fund formation perspective? Sure, we could have more people participate in funds. But just from it is to stick to the SPV concept, like one deal at a time, more people could participate, we wouldn't have to exclude 95% of the people in the United States, and we wouldn't have to exclude, you know, whatever percentage is on a global basis. And then that could make more people move up from poor to middle class, middle class to rich, rich to, you know, the rich don't have a problem, they have access already.

SPEAKER_113: I struggle, I struggle a bit with this, Jason, because I think one of the things I've learned

SPEAKER_46: as an angel investor is, like, you know, making lots of like, 10k 25k bands, you know, you've got, you get like hundreds of these companies in your portfolio that you spread out, the administrative

SPEAKER_42: costs falling out, I mean, you don't keep track anymore. At this point, like when you're in this sort of high net worth individual, you just actually forget about it, you write the check, if it comes back, fine. Otherwise, like, you don't track it, you don't monitor it. The ones that do come back, if you're lucky, it's a 10x, you know, and then it doesn't, it doesn't really move the dial. Or 3,000x.

SPEAKER_163: Well, so you get a couple of those, that's great.

SPEAKER_165: No, you get one in a lifetime, I think you get one in a lifetime if you're lucky.

SPEAKER_166: You know, you get a couple, but, but, um,

SPEAKER_168: 4,000x, yeah, who's counting?

SPEAKER_42: I guess, I guess, I guess the point is, you know, you need to take enough of those bets for that 3,000 to

SPEAKER_04: come along, okay? And sure, it's a risky bet, which means even more reason people should spend just 10 bucks or 100 bucks making it.

SPEAKER_01: Exactly. Like, let's say I made, I can make 10,000 of those at $2 each or $1 each throughout a year. And it's becomes incremental. We're like, he's, we're not talking about high net worth individuals.

SPEAKER_113: No, no, no, I get, I get, I'm a big fan of, of crowdsource capital. I'm a big fan of opening it up for people.

SPEAKER_160: Yeah, that's really the issue. It's just, if they choose to, they have access. Sonny, what do you think?

SPEAKER_172: But now they have to, they have to trust you as a picker.

SPEAKER_16: Yes. And that's the great thing. You then would pick the fund managers, their fund managers would have their track records. They, you know, you would get to choose. Hey, I trust Jason. I trust Molly. I don't trust this person. I don't trust that person. And they write a good deal memo and they keep me up to date on it. You are outsourcing the management of that investment. Um, just like when you're buying Netflix stock, you're saying, Hey, I trust this management team. But Sonny,

SPEAKER_13: what do you, what are your thoughts on this? And my confession of my jealousy and the overall

SPEAKER_179: reaction here to this action. I'm still processing. Well, look, look, um, we have systems in place to collect lots of small amounts of money from folks, lottery tickets, right? That infrastructure exists.

SPEAKER_25: It runs multiple times a week. Sometimes you can 700 million X your money coming in. Right.

SPEAKER_31: So, um, you know, the systems exist to do it. I think the structures that are, yeah, no one is,

SPEAKER_25: you know, protected from buying lottery tickets, right? Like you can buy one, you can buy a thousand dollars a day every time. Um, so I, I kind of feel like there's a philosophical conversation that is been kind of layered out within society that has this in this spot, because it's okay, you know, when the power ball goes to, you know, whatever, a hundred seven, a couple hundred million or billion, it's been a few times, right? No one stops people from buying, whether it's $1, $10 or a thousand dollars. Right. And the odds of return there are really bad, you know, right? Like, you know, what do you learn? Nothing. And so I think there's like some societal constructs here that are really, you know, holding people back and it's less about the technology or anything

SPEAKER_35: else because we, we enable it in other places. And so that's, that's so interesting that you say

Jason Calacanis: that because we are also in the midst of throwing open the barn doors on sports betting in the United States, which is a very similar, I mean, right. If it's all just gambling, Nick, now we're saying like, yeah, you can bet all you want. I mean, the truth is that finance has always gate kept finance and that is why Bitcoin was conceived, right. It was to like tear down these walls, like barbarians at the gate enough with this. And then to get back to the sec and kind of this enforcement question, the old demons of finance co-opted a lot of this. And I would argue the sec doesn't actually need to learn that many new tricks because what they're talking about now is protecting investors that CFTC is talking about derivative swapping. Like once the tools of finance were applied, then it seems to me that the old gatekeepers of finance 100% apply here. They 100% have jurisdiction. The question is what can survive and what should survive of the original vision? Like your point, Vinny, right? If you stake one Solana, one Sol, fine. Nobody cares. I don't even think Kensler cares. I think it was like pretty clear from his video that he's like, I don't care. It's when you financialize this thing that you may run afoul of traditional finance gatekeepers. And also we should probably acknowledge that I'm sure banks still don't want this to exist. So like is the mission of enforcement that could be 100% legit going to get wrapped up in this idea that like the gatekeepers ideally would love to strangle Bitcoin in the crib.

SPEAKER_85: This is why I got to get Brian Armstrong back on the, on here because this is a very calm discussion. This got a little heated. Yeah, exactly.

SPEAKER_199: No, I do. I like, I'm a fan of Brian's. I have a, I'm a fan. Oh, no, I'm saying does he want to come on because he seems mad at you now.

SPEAKER_201: I think so. I think so. I think he'd prefer to come on all in. Um, I don't think he wants to face me alone. Um, in all cases, he actually came on the podcast before they were public. And then after they were public, he asked to come on all in all in past. Um, you know, we don't really do guests all the time. I had, I said, Hey, come on this week. Sorry, but then he passed on that. So I was like, all right, you know what, you know, and then he decides he's gonna dunk on me. So I don't think he, I don't think Brian, and I'm just, I'll say this directly to him. I don't think he wants to have a hard discussion one-on-one with me. I think he wants to, you know, have it with the other three besties there. So he doesn't have to face my level of criticism. Um, and, you know, he, he, he then, uh, pull up the tweet just from Brian, not mine, please. Um, he decides when I say like, Hey, you know, crypto needs to play by the rules. He's like, disappointing to see you duped by this, Jason.

SPEAKER_16: There is no way for crypto firms to come in and register. It was fake. The sec's own commissioner, uh, Hester Pierce, who's been on this week in startups is great. Uh, she's very well-spoken

SPEAKER_201: essentially confirms this. So I'm like, come on, man, you don't need to dunk on me and tell me I'm getting duped. Did you guys see this thread with me and Brian, by the way?

SPEAKER_17: I don't know if you saw that go down. Okay. So I said to him, listen, here's the facts.

SPEAKER_13: Crypto firms made up a new securities framework and ignored the rules. I believe that's true. We had three startups and their VC swept mountains of cash off the table from uninformed civilians. I believe that's a fact. And the sec is here to protect civilians and many cryptos from around.

SPEAKER_18: So they, they forced their hand around, sorry, uh, find out. So we got, got a little heated,

SPEAKER_122: got a little heated. Is there about Brian's position, right? I guess is the question Molly.

SPEAKER_01: What, what do you think? I mean, does he have to take this position on some level? Because this

Jason Calacanis: question of enforcement of exchanges and pooled staking is more existential for Coinbase.

SPEAKER_23: It's 11% of their revenue. Somebody tweeted. I don't know if that's the exact number,

SPEAKER_16: but it's some double digit percentage of their revenue. So I understand that. And he's frustrated because he tried to go to the sec. Remember that a couple of years ago, he tried to meet with him. They refused to meet with him or they canceled the meeting.

SPEAKER_219: So what, what's fair about what, what do you think of the exchange overall,

SPEAKER_25: Sandeep? And then I'll go to you. I'm going to go back to the framework we started with. Right. I, I, you know, I think the challenge is, you know, if you look back the origins of Coinbase, it was to buy Bitcoin, which is, you know, turned into like a, a, a stable asset, right? Not, not in the right way of like stable coins, but like a, at scale all over the world. The challenge is, you know, every time I go in the Coinbase app, they're promoting all kinds of different financialization of, you know, whether it's a staking product and APY product, they're promoting, um, and going back to your point, Jason, they're promoting random tokens that, you know, are, we don't know the depth of like how, how much work the project has done, you know, what, what really exists. And so, um, from, from that perspective, I'm not a fan of that stance, right? Because, you know, they're sort of driving the casino of cryptocurrencies and, um, and they, you know, and that leads to kind of Gary's point in that video is that when people are doing that, and then, you know, they go under and you've either trusted them with giving your assets to them and they've staked it and done something with it, or they've promoted

SPEAKER_17: you buying. So you believe it should be regulated, you believe, and you believe that as well, Vinny,

SPEAKER_50: if you start, if you're doing this formally like this, it's not a distributed project

SPEAKER_215: where you're getting, you know, more baby pigs for the big pigs you put into the pool

David Friedberg: or baby sheep. Interesting. Can we, I don't know exactly how to, I put 10 rabbits in, I got a bunch

SPEAKER_34: of bunnies out, I made paella, rabbit paella. I think protocols, so, so there's a couple of things the regulations should cover, right? Okay. So the issuance of the tokens, the issuance

SPEAKER_46: regulations around it, you know, for example, if it's just a mine token and it's mine, right?

SPEAKER_234: So if you were to just connect commodity hardware, mine token, like a mine token, you did some

SPEAKER_46: compute like Bitcoin is mine. Yeah, yeah, yeah, exactly. So you mine it. So there's already a, there's already a framework for this right now. Like if you launch a cryptocurrency, you knew, even if it's a mine token, like a Solana or whatever else, um, or a state token, um, if you have a sale, you can do a SAFT to accredited investors. You can place those tokens with them. There probably should be more clarity on like what they can do with it and how they can do with it, how they, how they can, you know, sell it, et cetera, but that needs some more clarity, but that that's already fine. Um, I think the moment you get into the world of, uh, service providers on top of the protocol, that's where there's some regulations needed. But if I, as a consumer

SPEAKER_42: want to go and buy a token, because I think that, you know, um, I think that a certain token, whether it's render or Filecoin or Solana or whatever is, is, you know, I, I, I like it. I want, I get beyond the project and then I stake it and I earn more of those tokens. That's just, I mean, that's a long-term investment for me, right? So if I say I'm gonna go buy, um, a thousand Filecoin and I'm gonna stake it and in five years time or 10 years time, I'll have 1,300 Filecoin. Um, and I'm doing it with the

SPEAKER_46: network natively. That should be my decision because like, if I'm gonna hold it anyway, I might as well get some sort of yield or return on it. Now, the issue really is when you have these service providers in the middle, now they're taking a cut. Now, you know, now they're also promising you to juice up the returns. Potentially they, they're doing funny stuff like, um, leveraging your tokens. They're taking custody of it. Like Gary said, very clearly, not your keys, not your crypto. And I've always been a fan of that, that, of that saying. So it's really Jason, it's, it's, it's so nuanced. Okay. But, but I think we have to understand like the, it's the initial, the ICO, the initial issuance, it's the protocol itself. It's the service providers. I actually understand

SPEAKER_240: your very reasonable position. I think this is a reasonable position. I think we might all agree,

SPEAKER_17: even Gary. It's like, I mean, it's, so what, what is causing this riff here, Molly? What, if you were to look at this, why is this so contentious right now in your mind, you know, just sort of looking at

SPEAKER_16: the field, why do you think it's gotten to this point of contentiousness? I mean, I have my own

SPEAKER_246: theories. I'm sure the boys do too here, but I'm not going to lie. I'm not going to lie. As an outsider as well. And I really like your tweet about the arrogance.

Jason Calacanis: Okay. No, no, no doubt about it. Like it has become unfortunately a little too easy to dislike crypto bros present company excluded because of this kind of sense of superiority and like, you're all fools and you know, we're all getting rich without you. And I will confess to that kind of jealousy as well, especially after having lost my $300 worth of Bitcoin at $1 each. I'm not sitting,

SPEAKER_249: I'm not. You would have liked some regulation in your exchange to keep those Bitcoins. Yeah,

Jason Calacanis: I would have liked an FDIC to be behind my purchase. What consumer wouldn't? However, I think the reason this is so contentious is just because it looks like traditional making and it's all this and then it's going to be, and it's so hard. Like Vinny, the thing you're 100% right about in terms of regulators is that they have not historically been good at scalpel surgery. It's nuanced. Yeah. It is really, really nuanced because what we have here is sort of multiple entities within the host, and we have to carve out some and leave the others and not kill the host. And that is not a skill set. Like these guys are not good at whatever that old surgeon game is. That's not a skill set the regulators have. And I think there's probably a very reasonable fear that they're going to come in and just be like, radiation, just like nuke the whole thing. And that'll be the end of it. And I think Gary Gensler is presenting right now, the position that he wants a scalpel approach. But it sounds

SPEAKER_61: like there's just not a lot of trust. Hmm. All right, everybody. I'm here with the Seam Dahir. He is the CEO and founder of pilot. You guys know pilot. They help everybody with their accounting,

SPEAKER_257: CFO and tax services. Welcome to the program. Thanks for having me. A lot of talk about burn rate.

SPEAKER_61: How can a startup in this kind of climate reduce their burn and extend their run?

SPEAKER_260: Yeah, it's a great question. So burn ultimately, or increasing cash in your bank account is a

SPEAKER_262: consequence of four basic levers. The first is revenue. Can you sell more to your new customers or existing customers? Can you raise prices? Can you do things that actually increase the amount of revenue you take in? The second is gross margin. Can you reduce the cost of providing your service, so the same customers generate more cash for you? The third is payment terms. Can you get folks to prepay you annually? Maybe can you negotiate more flexibility with your own vendors? And the fourth, of course, is just decreasing costs. Are there expenses you can reduce or cancel? Are there investments you can defer until subsequent years?

SPEAKER_266: Yeah, great advice. And you got to look at all four of these things. And man,

SPEAKER_61: sometimes a customer can pay a little bit more and founders are scared of raising their prices. And sometimes they're lowering their prices when they should be in fact, raising them because they're providing more value. So really think that through, not just cutting costs, but also maybe look at how much you're charging. Maybe it's time to increase it a little bit. Great job. All right, listen, if you're a twist listener, you can get 20% off for the first six months of doing your accounting with pilot pilot.com slash twist. That's pilot.com slash twist for 20% off the first six months.

SPEAKER_113: So let's look at Celsius for a second, right? Like Celsius was the poster child. It is the poster child of like, effectively, I guess, in some ways, staking is a little Celsius token thing and, and how they were promising ridiculous APY rewards, etc. Like, yeah, and most of these rewards

SPEAKER_271: actually denominated in dollars. There's they were promising like dollar based returns. So this is goes

SPEAKER_48: on to the stable coin discussion, right? Stable coins should be read regulated returns.

SPEAKER_201: Why should stable coins? Okay, this isn't when I I'm sorry to interrupt you. This is what I really

SPEAKER_13: want to understand. I got your position on staking. If it's, uh, decentralized and I'm getting back, you know, puppies for having put these beautiful English bulldogs in. I get it. It's no cash. There's no API. There's no central control. You didn't take custody. Great. You didn't take my bulldogs. They just magically appeared on the blockchain. Stable coins are one for one. And the Howie test says, like, Hey, it's some group thing. And there's some expectation of gain with the stable coin.

SPEAKER_122: There's no expectation of gain. So explain why stable coins. I happen to agree that they should be regulated, but I'm curious your position on why should stable coins be regulated? Because people

SPEAKER_13: were also upset about that because I think the SEC came out and said, Hey, we're going to make sure

SPEAKER_31: stable coins are also the word stable, right? The notion that is being put out there is that,

SPEAKER_25: you know, there's a, it's a one for one. And in the case of, you know, USDC and circle, they publish sort of their holdings and they make it very clear. In the case of some of the other tokens, some which we saw go to zero, which we didn't share that the stable, wasn't really stable. It was like either algorithmically stable or the underlying assets haven't been disclosed. And I think that's, that goes back to the, you know, the financialization discussion, right? That's like the, the, what's being, and Gary said that in the video, what people are being told, does that line up to what is actually happening? And I think that's what you get with some of the regulation is the transparency. You know, if, if everyone along, you know, say the last few years knew that the APYs that were being offered were really just coming from an ARV that existed down in the GBTC thing that we spoke about a few times, maybe you wouldn't have put your money there. Right. And it was that clear in the documents. I haven't gone through them in detail

SPEAKER_278: to even know if that exists. Did you lose any money in that, Sonny? Did you lose any money in that?

SPEAKER_25: No, I, I've never not, not there, but like I had money at FTX. So technically yes, but like not a,

SPEAKER_226: not a huge amount or anything, but, um, but, and, and, uh, and invested in FTX or anything you did too.

SPEAKER_144: So, uh, quite a company I invested in. So I didn't technically make the decision to invest in them.

SPEAKER_277: But the reason I asked the question, Sonny is of you, is that you'll find a lot of the OGs myself,

SPEAKER_115: Sonny and other people. We, I didn't get hit by Luna. I didn't get hit by Celsius. I didn't get hit by any of this stuff. In fact, I didn't, I didn't get hit by FTX cause I never traded on them

SPEAKER_46: because I didn't trust him in the first place. So, uh, you know, like w we know when something looks and smells fishy cause we've been around for a long time. And most of my OG friends were affected. It was the newbies that got affected by all these like promises of these ridiculous gains.

SPEAKER_42: And, and so to answer your question, Jason, why I think stable coins need to be regulated. And let's just make sure that, you know, for the audience, there's two different types of stable coins, there's algorithmic ones, and then there's, uh, asset backed ones. Okay. And assets can be cash or bonds or whatever else in the, and I'll, I'll, I'll dismiss the algorithm one for a second

SPEAKER_46: quickly because Luna was an algorithmic one, but the Luna foundation were held custody of those funds. And so they were operating as effectively, uh, a bank managing the float for a coin. So you can argue it was algorithmic, but it wasn't really, it was, you know, it was, it was, they had their mechanism that didn't quite work. So, um, I think that if you find a true algorithmic stable coin, which, um, which is where we, you know, it's transparent in terms of what the reserves are, it's kind of like what DICE trying to do and, and UXD as well, you know, your protocols, like that stuff is probably fine and shouldn't be regulated because it's fully transparent and fully decentralized. And there's no middleman controlling funds. Now let's go to the other side of the equation, uh, asset backed stable coins. So you've got things like Tether, USDC, uh, which is circle. You've got, uh, Paxos has got one, et cetera, et cetera. These, these coins, as Sonny said, are supposed to be stable in value, but the stability comes from trust. So you have to trust the underlying counterparty holding those funds. So whether it's circle and, and what they're holding it in, are they holding in US dollars? Is it short-term treasuries? Is it long-term treasuries? Um, what happens to those bonds drop? Like how much liquidity can they provide? Now it's basically acting as a bank. They issued you a digital token saying, I've got a dollar in the bank account that's, that's worth as much, and we will manage that.

SPEAKER_115: And so in the real world, if a bank goes under, you've got FDIC insurance, you've got all bunch of regulations. In, in the stable coin world, you don't have that and people have to trust. So,

SPEAKER_46: so I always say that you need regulations when something is not trustless. When something is trustless, regulations should not apply. And, and, and that's for me, the key definition between when regulations should apply. Who am I trusting? And, and if there is someone to trust,

Jason Calacanis: then they should argue regulations behind it. You know, that gets back to Jason, your question just now about like, why is there so much emotion around this? And why is there so much heat? And it's because, you know, to your point, Vinny, like that's an outstanding point. And what happened was a bunch of people got scared, like a bunch of scammers came, right? And a bunch of people just got stone cold robbed. And the, the scalpel work of figuring out who was a scammer and who was not is going to be painstaking, but trust overall, writ large as a philosophical question is, is low right now. We should remember the internet started that way too, right? We did manage to scalpel our way

SPEAKER_113: into a functioning internet. You do have a geographic issue with like, you know,

SPEAKER_46: Luna being offshore and, and, and Tether being offshore. And so how do you like, how do you regulate these things, right? So, so I think the, the, the SEC's job and the US regular jobs to protect the US consumers. So these coins that are sitting offshore should not be, uh, you know, like traded in the US. Like, I don't think Tether should be, I don't think, um, you know, Luna should definitely have not have been. I think that if you want to be, have access to US citizens, it should be in a regulated, um, stable coin like USDC or similar. Um, because now we're trusting, like, I mean, I have no faith in Tether. I don't think I've ever held Tether in my life. Like, now I, I do think they probably have the money there, but I know for a fact at one point they did not have all the money. They were totally insolvent. They were underwater. They printed their way up. Bitcoin went on a run, whatever the case is, they're probably okay now. And people ask me, is Tether okay? Probably is the answer. Okay. Is Binance BUSD okay? Probably is the answer as well. So it doesn't mean it's always been the case. It doesn't mean it always will be the case. But my point is, I, I, there's no transparency and I can't see it on chain. I can't see what the liabilities are. So even this whole proof of reserves thing that Binance is doing in the

SPEAKER_17: exchange. Attestations. Attestations. It's a little bit of crap. That's anti-crypto. The whole point of crypto was just, you don't need to send me an accounting form. I look myself. So they're, they're non-crypto people. That's been the problem here is that these intermediaries are coming in and they're breaking the crypto rules, which are, it's programmatic. It's transparent.

SPEAKER_307: Yeah. People don't appreciate what I tweeted about this a while ago, but like

SPEAKER_115: proof of reserves without proof of liabilities is meaningless. I can show you a bank account with a hundred million dollars in and you'll be like, these are a hundred million dollars cash in his account. That's amazing. If I borrowed that, if I borrowed that from a bank and I don't

SPEAKER_309: just close my liabilities, I'm zero. Okay. I literally was going to J trade snap. And I

SPEAKER_17: looked at Snapchat, like, I don't know, six months ago, nine months ago. I was like, oh, they have 5 billion in cash. I was like, oh, this is great. And they're, and they're like only losing like a little bit. And then somebody's like, they got 5 billion in debt. I was like, wait, where's that? And I'm like, oh, the balance sheet. I'm like, oh, I gotta read the balance sheet. It's like, yeah, you gotta read the balance sheet dummy. Yeah. Molly, you were on air with me. And we're like,

SPEAKER_146: huh, let's let's break this down. And it was like so much debt. I'm like, I've never heard of a company that small having that much debt. Uh, Jason took off the J trade specs, put them down.

SPEAKER_242: He backed away from the phone. It was a no go, but I was like, this is where the sec helped,

SPEAKER_317: right? Cause they're forced to disclose that publicly, right? They're forced every quarter

SPEAKER_35: to put that out there, right? Their balance sheet, their financials. And so you could go and understand

SPEAKER_320: that. Yeah. And you know, what's really powerful about like using the definition,

SPEAKER_46: these definitions is that if the sec said, look, if something is trustless, we're not going to touch it. That would be amazing for the industry. That would actually spur more transparency. That would be like, it's, it's, I think it's actually just net positive. If we move to more trustless layers, uh, across defy across everything. Um, the one area where I think needs, um, a look is obviously, and you know, my background here is identity, KYC, AML, those regulations, you can still do it trustlessly. Like civics got this technology. We, we can drop a pass in your wallet. We can verify your identity. No one needs to know who you are, but we can verify things about you and you're a citizen, not an effect list, et cetera. Now you can use a wallet to transact. And this is effectively trustless. I mean, it's, it's, it's really a trustless type of solution. So distributed identity, uh, you know, decentralized identity, and, um, you know, just a hands-up approach, the more, the more, uh, trustless your system is will help crypto developers not take shortcuts. Cause right now it's really easy to do a shortcut. Let's just go partner with, uh, Coinbase for staking and let's go partner with this other company for staking. And let's like outsource all this stuff and let's spin up something very quickly, but you know, there's just too many counter parties and there's too many risks in the system. And so my view is that the ACC should be a lot more, um, aggressive with pushing people to trustlessness and transparency, as opposed to

Jason Calacanis: trying to force regulations into the space. Well, here's my question, Sonny, to, to give the SEC, the benefit of the doubt here. One of the things that we ironically have complained about

SPEAKER_54: we being consumers and retail consumers and me and Jason on this show is that the SEC has been slow to to act. They've been very hands-off in this industry, which I think we can say is true. Now the

SPEAKER_01: SEC is coming in and the CFTC is coming in and they're saying we are 100% cracking down on things that we classified as securities on staking pools on crappy financial tools that rip people off. There is, would you agree? No sign that the SEC or the CFTC are coming for the trustless aspects of this technology, the underlying the fundamentals. Yeah. I mean, it seems that way. Like again,

SPEAKER_25: just that video, I think makes it very clear, right? It's not, they're not fundamentally coming after a blockchain. They're not saying, Hey, you can't launch your own blockchain. And I think they are coming after the folks that have financialized it and you can just see that in their actions. It's only the companies that, um, kind of break Vinny's rule about being trustless that then require trust. Right. And so they're, um, you know, right now we haven't seen them come after say Aave, right? Vinny, right? Which is like a, like a, a trustless borrowing network. And so, um, you know, you don't see that in any of their listings or, or sushi swap or uniswap or any, any of those type of

SPEAKER_179: I have to say, this feels like about the right amount of time, exactly.

SPEAKER_201: It feels like the right amount of time. I, I know that our industry would like the,

SPEAKER_16: these agencies to work faster, but I I'm looking up online bit USD is claiming to be the first, uh,

SPEAKER_122: stable coin launched in 2014. These things became hit, you know, tether came after them,

SPEAKER_13: et cetera. And then like staking pools. What is that? Like that was, I mean, proof of stake has been around since the beginning, right? That's 10 years, Vinny. I don't know what the first lending

SPEAKER_123: product was, but that's gotta be five, six, seven years ago. Proof of stake. Yeah, probably, probably,

SPEAKER_271: I mean, Ethereum kind of pushed the envelope on that. So, but they only, what was the first lending?

SPEAKER_123: Do you remember the first time you heard of a lending? Like, hey, lend us your stuff. We'll give you some APY. We'll give you some extra tokens. What was the first one of those?

SPEAKER_337: 2017, 2017, I think, Sonny. Okay. So like these things,

SPEAKER_46: yeah, there was stuff like master coin and a few others fact, um, you know, a lot of the earlier blockchains play with instantiations of this, but they never really, they really took off. I think that defy really took off in 20, 2018, really like when we started like a post bubble.

SPEAKER_16: So looking at this, you know, my take on it is, uh, original crypto technology was just and sound distributed without a lot of grifting in the in between. You get a bunch of grifters in who try to centralize it and take advantage of it. They're getting smacked down. Some of them are good actors. I believe Coinbase is a good actor. I believe circle is a good actor. Other ones are not good actors. I believe tether is a bad actor. I believe Luna was obviously a bad actor. We could all have our differences here, uh, in terms of which ones you think are good actors,

SPEAKER_219: bad actors. And now the sec and other agencies have to sort through this mess. And Meshuggah is going to take them a little bit of time. Should they have moved faster? I guess. Should people have played by the rules a little bit better? Of course. And, uh, here we are. I think we're,

SPEAKER_122: we're close to having a framework. I don't think we need a new agency, Vinny. I think the new,

SPEAKER_343: the existing agencies have to learn the new tricks and we're close, but I do think people like circle, and Jeremy Lair and Brian Armstrong should be invited. They should be, um, I don't know, engaged

SPEAKER_122: civilly and seriously by the sec in these organizations, because I believe they are good actors and they're trying to do it right. Uh, but they should also not have their employees front running. And this is where I was like, Hey, Brian, you know, don't tell me I'm getting duped

SPEAKER_343: out when your own employees are being convicted of front running or employee. I don't know if it's multiple at this point, but you can pull up that tweet or you can pull up the actual story. You

SPEAKER_122: kind of, you know, these, these crypto companies have employees front running the market, knowing

SPEAKER_348: when things are going to get listed on coinbase. But just the defense here, Jake, oh, that's like, could be just a bad actor within the business. Of course it's a bad actor. It wasn't, yeah, it wasn't a design of coinbase. Could happen anywhere. Yeah, exactly.

SPEAKER_122: But I think like then going back to the arrogance we're talking about to go after people and tell them they're getting duped for Brian Armstrong to tell me I'm getting duped. It's just insulting.

SPEAKER_46: You know, I mean, look, this is a little bit more balanced here, right? There are bad actors and

SPEAKER_113: good actors in this industry and in all industries and there's probably more bad actors than good in crypto. Boiler roof is a great boiler roof. Jason, you're not wrong. You're not wrong when

SPEAKER_271: you say that most of crypto is a grift, like most of it is a grift, especially, especially that stuff. You feel that way. Yeah, I feel that way. You're disappointed in it and you're fought

SPEAKER_220: against it. But also even within traditional finance, Vinny, right? But to this, to this day

SPEAKER_146: right now, and I, I don't have it handy with me. I wouldn't say most though. I wouldn't say most

SPEAKER_189: in Metro capital. No, no, no, no, no. I'm not saying that we're talking about a, you know, hugely

SPEAKER_25: regulated, um, framework. There's this public company, which is like a sandwich shop out of New Jersey. Did you, have you guys seen this? Oh yes. I remember that. Yeah. This is a publicly listed company like on like the NASDAQ or New York stock exchange. We can maybe pull it up as we're doing it here. Yeah. It is insane. That thing made it all the way through and it's like a sandwich shop. And so this, this type of stuff is occurring everywhere. It's not just limited to crypto,

SPEAKER_363: right? You, um, this is unbelievable, this story. When there's a bunch of money to be made,

Jason Calacanis: grifters are going to come in and there was a lot of money to be made in crypto and a lot of grifters came in, but like, I'm going to take the really unpopular opinion here that I actually think Gary Gensler gets it. I think he a hundred percent gets it. And I think he waited until the grifting was, you know, too big to ignore until there was. Yeah. But until there was, until there was enough

SPEAKER_01: delineation, right? Like I do not believe he is coming in trying to nuke all of crypto. I think he is attempting a scalpel move here and it might be tough and you can debate the timing of it. But like, the fact is like, I see no sign that he, that he and the sec at this exact moment don't understand what they're doing here. What they seem to be saying is this financialization is BS. And now let's talk

SPEAKER_364: about sandwiches. Well, yeah, I just, I can't leave the audience hanging. Three men charged with

SPEAKER_85: fraud in a hundred million dollar New Jersey deli scheme. This is why I'm in the world's greatest moderator. Cause when I hear something that's just incredible, I have to stop the show. Just, just recap it folks. Three men were charged in various crimes, including the CNBC,

SPEAKER_17: including security fraud in your scheme involving a small town, New Jersey deli. Your hometown deli, that's the name of the deli, was operated under an umbrella company called hometown international. You put the international there. It makes it more formal. It became known as a hundred million dollar deli reflecting its owner's bizarrely huge market value. James Patton,

SPEAKER_219: Peter cook, senior and Peter cook, jr. Never trust people with a senior and junior there with the same name, uh, cooker. I'm sorry. Face stiff prison sentences and fines for allegedly manipulating markets and defrauding investors. The men were charged with fraud, uh, involving a company that was worth a hundred million in the stock markets, but only having a small town, New Jersey deli. It's incredible.

Jason Calacanis: This is where you, this is where you only ever trust Matt Levine on these topics because Matt Levine frequently, constantly in his newsletter is like everything is securities fraud. This is the

SPEAKER_219: important part. It comes down to whether you get busted or not. The deli lauded for its cheesesteaks and Italian subs had under 40,000 in annual revenue. Closed earlier this year. They were filing,

SPEAKER_372: they were filing 10 Q's and all the stuff. Right. And so people, they were doing it.

SPEAKER_375: All right. Yeah. So, uh, this is incredible. I mean, um, it's only, it's only fraud. It's

SPEAKER_379: only fraud because a bank didn't start it. Yeah. I mean, yeah. Good show guys. I think we ultimately agree. I think we've landed on, yeah, we agree. That's a great video. I gotta, I'll grab that.

SPEAKER_361: That's a good one to share. I think as well. When you put up, it really kind of just brought

SPEAKER_01: everyone together. Video by the way, has four and a half million views. Like it tells you how hungry people are for, for a real conversation, like a back and forth about this. You guys want to see the

SPEAKER_386: manager? People actually understand it. You guys want to see the manager of this deli? This is why

SPEAKER_16: Jason's the most ADHD moderator. Yeah. This is, uh, please pull it up. This is an incredible manager. Uh, bring him up, bring him up. Father, son, Dally charging it. There he is. Uh-huh.

SPEAKER_389: There's a fury up. There's your manager. There's a manager. He, he, he, he looks like a poor man,

SPEAKER_391: Steven Seagal. You got a B on your cap. Hey, I'm showing a picture of furio from the Sopranos.

SPEAKER_393: It's a deep pull. Furio was, I mean, just look it up, folks. If you haven't seen the Sprout,

SPEAKER_396: I have, uh, I, I have a prediction about, uh, tick tock. Okay. I'm floating in right now. And

SPEAKER_402: I'm like, where are we going? I think it's done and it's going to get sold this year. It's going to get liquidated. And I don't think it can be bought by one of the fangs. Uh, but I do think it could

SPEAKER_122: merge with another player that's smaller. That's under, you know, like under 50 million, 50 billion dollar company could potentially, uh, merge with it or whatever to get shareholder value, kind of back it into a, a company here, or they could acquire another company. But I think

SPEAKER_406: given the balloon situation again, I was just going to say, I'm like, you mean maybe one with like

SPEAKER_122: about $3.7 billion in debt. I think Google and Microsoft could have been the people to buy it reasonably. Obviously Facebook wouldn't be allowed, but those would be perfect buyers of it. I also think like, you know, if a Disney or somebody, an entertainment company wanted to get more video views from consumers, I think that could work too, but I think they're have a hard time managing it. But I think any company that is under 50 billion that already has a social media product up and running could merge with it. I have no inside information, but I think if you spun out tick tock and it was worth 250 billion and you had a company that was worth under 50 billion, you put it with it, you could have a pretty powerful public entity that would solve all of

SPEAKER_219: these China problems. And all the people would get the Chinese government, Chinese investors, the U S investors will all get their money out. What do you guys think about my conspiracy theory slash?

SPEAKER_08: Well, let's go Snapchat. Any social network under 50 billion. I mean, I, I see where you're going

SPEAKER_419: with this. Like just to be clear, just to be clear. I have no inside information. I just want to be clear. I'm picking up what you were, what you're laying down. And if in fact you were said network,

SPEAKER_01: and perhaps you had had a short video service that you, uh, inadvisedly killed not so long ago, anything is possible. I think this would be like an incredible move. And you already have a

SPEAKER_219: alliteration quit talk. I'm just saying, I think it would be like really interesting if like a Twitter or a, if a Twitter or a snap, I don't know if there's anybody else who's in consumer that has a public entity already that this could be boom right on the market. It would be worth 500 billion immediately. Can you imagine? 400 billion, 300 million. Let's go.

SPEAKER_34: Incredibly I like it. I'm gonna run soon guys. So we should probably wrap up.

SPEAKER_219: Anyway, I don't want to talk about crypto anyway. You guys have no reactions. All right, listen. Sundeep. Thank you. Vinnie. You know something that we don't Jake house. I don't, that literally gave three disclaimers there. Um, I think snap's the logical place. You got great founder, got a good, uh, CEO, get co-CEOs going. You got the two of them, you immediately have scale. Boom. Snap. You just get to work. All right, everybody.

SPEAKER_433: Molly. What a peaceful, what a peaceful show. Thanks guys. Thanks for joining us. Awesome. Vinnie Lingam, Sunny Madra. Thank you. As always, uh, we will be following 2023,

SPEAKER_438: the year of this careful, careful surgery. Yeah. Love it. We got it. See you next time.

Jason Calacanis: Bye. Bye. Bye everybody. You know, we're not going to leave you hanging in the okay. Boomer department and Rachel reporting is here. Who do you have? I love these. I love these. They're so

SPEAKER_443: interesting. I'm super excited because this week we have my friend Prince Ghosh on. He is the co-founder and CEO of factored quality. I've known Prince for a while. And that is because the company that I worked for before the speaking startups invested in them. But even then, um, I didn't know Prince too well. And when I moved to New York, I got coffee with them and I put two and two together and he made a rebrand change to his company's name. Um, and they pivoted from when I was working at the first company. So I totally didn't know until we got coffee and I got to learn about factored quality. And right away I was like, wait, this company's sick. I have to have you on okay. Boomer crazy that I've known him for this long. Um, and didn't have him on, but basically factored quality offers software and managed services to help book trained quality control inspectors globally to inspect goods. Okay. And the entire quality assurance field basically is insane. It's super fractured. It's, um, really, really hard to do globally, especially. And with, as we can see, um, CPG is getting a lot harder to do. So you kind of want things to be super organized, super great. Prince explains this a lot better than I do. Um, but he himself has a really interesting path to becoming a founder in general, especially kind of in a field that you wouldn't think a 20 something would be necessarily super interested in. Um, he found out about really the opportunities to innovate within quality assurance, um, because he used to work at NASA while he was in college and for a little bit afterwards. And then I know he's so smart. He's so cool. He explains the manufacturing industry really well. And yeah, super pumped to have our first okay. Boomer guests, um, within the manufacturing industry. I think it's a super important place to be, um, to be innovating in right now. And I wish him all the best. I hope you guys enjoy. That's so fascinating, right? Here it is.

SPEAKER_452: Thank you so much, Prince, for being on today's episode of this week in startups. Um, this is the okay. Boomer segment where I talk to young founders, investors and creators, and I've had the pleasure of meeting you in person before. Those are my favorite kinds of recordings to do is once I've already talked to the person before, um, face to face. So again, Prince from factored quality. Thank you. Thank you for having me. So Prince, you are the co-founder and CEO of factored quality, which is not a super sexy business. I talked to a lot of people. I feel like in consumer. Um, I actually, I, I know you very, I feel like through several ways, which I think is interesting. Like number one, I feel like I've met you just through like the New York tech ecosystem, but I've also met you because some of my favorite investors over at dynamo, which is where I did my fellowship for venture capital. They invested in you and they're super interested in supply chain and mobility companies. Um, so that was awesome. So I know you through two ways. Um, again, quality assurance, not a super sexy industry. Can you kind of explain what factor quality does and

SPEAKER_456: why quality assurance in general is like an industry you're looking at? Yeah, absolutely. Um, well,

SPEAKER_459: thank you for having me. Um, so glad that we could get to do this. So at a high level, Rachel, uh, factored quality helps consumer goods brands across the world run quality control, testing and compliance on their global supply chains. So the part that we really play into is

SPEAKER_461: kind of in this hidden backend ecosystem of how products get made. Uh, over the last couple of years, we've heard a lot about companies like flex board on the freight boarding bit and, you know, stored on the, uh, last mile fulfillment bit. Um, where we kind of play into is one step between before even both of those. So we are specifically really interested in the process of how get products get made, how factories are found to source these products and how do we ensure that

SPEAKER_462: brands can manufacture and procure high quality products that they send in customers like you and I all over the world. So the way it specifically works is factor quality is a software plus technology enabled services ecosystem. Um, we have a piece of software where brands go in and they basically tell

SPEAKER_461: us, Hey, uh, I'm manufacturing this product and I'm looking to import it into the U S and sell it at these retailers. And we help them create quality control, compliance, or testing checklist to make sure that they're abiding by quality control or compliance or testing standards. Um, and then we have an entire network of people who are trained and vetted quality control inspectors. So actual humans who go down to these factory floors all over the world in China and India and Europe and really anywhere that companies manufacture goods who actually are going down to these factory floors, running through these checklists, overseeing production and actually inspecting these goods. So our kind of Northstar

SPEAKER_462: vision is to, you know, kind of ask the question, how can we make it as easy for a brand to find a factory to partner with anywhere in the world and then start working with them and scale up their production without ever having to compromise on the quality of the product and without having to go out and fly out to these factories themselves. So that's kind of where we fit in. I do have a question. So you

SPEAKER_470: kind of talked up a little bit about, obviously you guys are a global company. Um, people are doing quality assurance everywhere. How are you training these people? Um, if it's global, is this something that like there's already like country by country there, there's like a test these people can be taking. Um, or is this something like a separate course you guys have to teach people to become, um, the people that are actually going in and doing those human quality assurance reviews? Yeah,

SPEAKER_462: great question. So in the past, most brands did kind of one of three things. If they were,

SPEAKER_461: if you were a brand in the U S um, say you were a skincare or a cosmetics brand and you were manufacturing in China, you would really do one of three options. You would either set up a team locally on the ground near your factory, or you would be flying out to your factory for most production runs to oversee the production runs and like actually look at the goods yourself. Or you would try and find a third party trained and vetted quality control inspector in that region. So this entire category of quality control inspectors is one that already exists. If, if you Google today, like quality control inspections, Shenzhen, you would come up with a list of 150 quality control inspection agencies and firms. And then there's a few multinational conglomerates or labs that also have these trained and vetted inspectors. Yeah. What we've basically done is gone out and built up long-term partnerships and relationships with all those different inspection agencies and firms. So where we specifically fit is right in between with the brands on one end and with these inspectors on the other. And we think of ourselves almost like a digital broker, like a digital platform that sits in between those two sides

SPEAKER_452: of the equation. Got you. And, um, you mentioned another company, you mentioned sword, which is

SPEAKER_470: actually also founded by a Gen Z founder around both of our ages, uh, Sean Henry, which is crazy to think about both of you kind of in this, in this realm of things and being around my age, because I never think about quality assurance necessarily. This wouldn't have been a business that I was exposed to and thinking I could innovate in. Um, what really inspired you to go down this path?

SPEAKER_479: Yeah, absolutely. And if, you know, for what it's worth, Sean and stored are inspirations to me and I mean, to us, yeah, just amazing people and amazing company, Atlanta, Atlanta based founder too, which is Atlanta based founder. And it's funny, we actually have a number of mutual customers and we're trying to figure out ways to also work together. Yeah.

SPEAKER_452: And stored is another dynamo portfolio company. I think that is true. Yeah. The connections are

SPEAKER_479: endless. Yeah. So I think Sean, if I'm not mistaken, and he got to start working in automotive parts manufacturing. So it's funny. I kind of also came from a similar direction. What I found is usually when there's folks on the younger end who are kind of a, you know, entrenched in some of these

SPEAKER_461: B2B or enterprise industries, we usually come from like the customer side of the equation and have had some experience there that made us think, Hey, there could be a better way. So for me personally, I went to school in Cleveland, Ohio, I went to Case Western, I studied mechanical and aerospace engineering there. And I thought I was going to be an aerospace engineer for the rest of my life. And I started out initially working for NASA has a research center in the Cleveland area and a number of, you know, suppliers and contract manufacturers in that region. So I was working in the kind of defense and aerospace ecosystem over there. And while you were in college or were you graduated at this point? This was like right towards the tail end of college, towards my senior year of college here at tail end, and then shortly thereafter. And so I was kind of working with NASA and I ended up getting pulled into a project where we were basically going through our supplier qualifications and basically saying, Hey, look, we are manufacturing parts that are going to fly into space. These are kind of as critical from a quality or compliance standpoint as they come. And we found ourselves unable to answer sometimes simple questions of like, can we actually work with these manufacturers that we're already working with? And do they have the right documentation and quality control standards and compliance standards in place? So I ended up working on a team on a couple of projects where we were trying to digitize a lot of these old enterprise ERP systems that we had and build in this intelligent layer. And I just remember thinking like, how crazy it was that, you know, these systems that we use to store and manage all of our information in these enterprises aren't actually intelligent and can't tell us the and can't answer these questions about our supply chain. So I left there and started a company called Workbench, which was building really a pure software layer to kind of do what we're doing now. We were almost like a modern ERP or a modern quality management system in certain ways. And through that process,

SPEAKER_479: took that company through Y Combinator, grew it a little bit. That was actually where I first met the Dynamo team.

SPEAKER_452: And I knew you, I feel like I've heard of you when you were at Workbench too. So this is cool.

SPEAKER_479: Exactly. And through Workbench, we had the fortune of meeting a really cool team right here in New

SPEAKER_461: York called Doris Dev. So Doris Dev is a product development and supply chain management agency. So they run supply chains for hundreds of consumer goods brands. So we were building supply chain management software, they were running supply chains for a bunch of these consumer goods brands. They've actually incubated one of their own brands, if you can kind of see in the back here, a DTC humidifier company called Canopy. Yeah, it was spun out of Doris Dev. So we started working closely with their team. And at some point, we realized, hey, we can actually bring what we've built from the software layer together with what they've built from this managed services standpoint, and kind of build something that was at the intersection of the two. So not just serve as a system of record or a pure piece of software, but also help these brands actually run supply chain oversight, factory sourcing, quality control, and production management. And that was kind of the genesis of what led to factory quality. So that's the story here.

SPEAKER_452: So Doris Dev too, let's touch on them. So I'm a huge fan of Doris Dev. If you listen to this,

SPEAKER_470: we can start up to probably already know of some companies they work with, because we have spoken to the people over at Magic Spoon, I believe twice on this podcast now. That's a customer. And my favorite customer of Doris Dev is and I believe they are still a customer is Mischief, which is like our collective that comes out with stuff. So Doris Dev, if anybody's listening, really interesting. And by the way, ERP systems are something in tech. If you're really interested in this supply chain world, definitely something to look into because it seems like everyone's trying to innovate. Basically ERP systems, Enterprise Resource Management, I think is what it stands for. Freaking no one's happy. Nobody's happy with an ERP system. So it's awesome that you were able to pivot over two-factor quality. I feel like that is such a great, great way to share your skills and really, really hone in on that. And is it difficult? And I want to go again, my first question was about, I believe, a global team. I have to ask you again about doing quality assurance globally, because I feel like that it would just be, especially now with Gen Z consumers, people are really critical on where their products are coming from, if they're being produced in like ethical factories, anything like that. Have you noticed any shifts generationally with quality assurance or is this really just on a buyer side? Yeah. Especially globally too. No, it's a great

SPEAKER_461: question. I think there's two parts to the answer. I think one part is what we're seeing from an end buyer sides, right? So people like you and I, and you know, kind of the preferences that we have for the brands that we buy from. And I think it was, you know, companies like Everlane that really first pioneered this model of like, hey, let's actually show the end consumer how their product is being made. Like, where is, you know, the money being added on? And who are the actual factories that are involved in this entire production process? And what we're seeing more and more is people truly do care about the fact that their products are being made in, you know, high quality factories that treat their employees well, that don't have child labor, that have ethical working conditions and have environmental compliance standards in place. So I think that's one half of the equation, Rachel. I think the other half, and one of the big kind of impetuses that, you know, led us to starting factory quality was, we sort of noticed this really big macroeconomic shift on the back of the last couple of years. And a lot of the challenges that have been happening at a geopolitical scale with shipping logistics, with tariffs, with the ability for companies to be able to source and manufacture products in certain regions of the world. And what we realized was the brand that yesterday was manufacturing products just in, say, China, today is probably sourcing from factories in Vietnam and Mexico and Canada and India and Pakistan, and all these other regions. And what we realized was, it didn't make sense for a world in the future for these brands to build up teams or fly out to all these different countries, every single production run, we really started factory quality to serve as these companies eyes and ears on the ground at their local supply chains on behalf of them, so that they didn't have to incur these costs themselves, but could still source and do business with whoever they wanted from all across the world. So those are kind of

SPEAKER_470: the two parts to my answer. And how many people are currently on your team? I'm not talking about people that are just the people actually doing the quality insurance. But as your team right now,

SPEAKER_459: how big are you guys? Yeah, our core team is about 15, 12 of us, and then a couple of folks are in contract. And we're spread out throughout the US, Europe, and we also have a team in Hong Kong.

SPEAKER_470: Got you. How difficult do you think it is to do a business like this? Those are time zones that are pretty crazy. And I feel like quality assurance is one of those things where if there's an issue, it's a pretty time sensitive issue. How do you deal with that? Well, being such a team that is so spread

SPEAKER_479: out? Yeah, it's not easy for sure. And there's definitely a degree of complexity to this business.

SPEAKER_461: But I mean, I think if you would speak to Sean at Stort, or if you would speak to the Flexport team or anyone else there, the kind of our, our, you know, pitch and kind of the line we draw on the sand is saying, look, these businesses are complex, but they're worth building, right? Because they truly solve a problem that people have and that the world needs. And yeah, there's times where like, it's hard for us to, you know, schedule even in all hands and get everyone together at the same place, same time. But it's the consequence of manufacturing truly being a global effort, right? Manufacturing doesn't just happen in one region. It's kind of the true origins of trade and, you know, how the modern economy was formed. And us having a global team and kind of being, you know, distributed first is just a function to fit into this ecosystem that we're playing into.

SPEAKER_470: Awesome. And if you were going to change something about manufacturing in America, or I guess, give me one prediction that we're going to be seeing within the next five years, what is one trend that you predict is really going to take off here? Yeah. In America, not globally.

SPEAKER_461: Yeah. Great question. I think what we are starting to see is at least in certain product industries, some degrees of final assembly and production being done in the US. So even if brands are necessarily like sourcing the raw materials or their individual components, right from suppliers internationally, we have seen some degree of a trend of people doing the final assembly, and then that last month fulfillment and storage, of course, at warehouses and distribution centers here in the US. And I think we'll see more of that. There's a couple of really cool companies that are building really cool advancements in also different manufacturing processes. So you and I, we both know Austin Bishop, who is one of the co-founders at Atomic. And Waston and I, we went to college in the same place and his co-founder at Atomic, Aaron still runs the company. And Atomic is doing something like incredibly interesting in the injection molding space and trying to make it easy for us to build up injection molding capacity here in the US. So lots of cool companies that are building a lot of this infrastructural advancement, but yeah, I think that's what we'll start to see more of. Fun fact, my dad said, if he

SPEAKER_470: wasn't doing his current job, and by the way, he still works in logistics, he would have started an injection, an injecting molding company and focusing on farm equipment. So there you go. Um, yeah, obviously this has been a, this is even an issue that, uh, people, um, that have been in the industry, I guess, logistics industry a very long time are seeing. So thank you so much, Brent for coming on. Um, what was the article on that came out? What was the title of it? Um, if people are interested in reading up about, uh, you and Austin, because I know you guys had a piece, um, that came out together and it was really interesting. Yeah, absolutely.

SPEAKER_459: Um, Austin and I, we recently coauthored a piece for Forbes, uh, about a month or so ago,

SPEAKER_461: um, talking about this kind of new wave of decentralization that we're seeing in manufacturing. I think a lot of the kind of two, uh, rhetorics that have been, you know, talked about a lot in regards to manufacturing is on one end of the spectrum, everything is coming back to the US. And then on the other end of the spectrum, everything is staying in China and staying, you know, uh, overseas and is not going to come back to the US. And the sort of let's call it like a prophecy or hypothesis of where the world is going in our

SPEAKER_459: opinion is it's really not as simple as that. And what we'll actually see is this kind of true decentralization of manufacturing. Um, and we'll see bits and pieces of some types of manufacturing going to Latin America or going to South America or going to Europe or India. And then we'll see other pieces of manufacturing that continue to stay in China. I think, um, the Ryan Peterson from

SPEAKER_461: Flexport, uh, he was on a, on a news source recently and said like from, for their data, the US has actually done more trade than ever with China across certain product categories. And we've seen the same on the manufacturing front. So it's a, it's a very intricate and nuanced world that we live in. Right. And it's not so simple as like all manufacturing comes back or all manufacturing stays overseas. Um, again, part of the reason that we built factor quality is to be able to give brands the ability to manufacture where they want to anywhere in the world they want to, but still feel like they have that degree of trust and visibility on what's actually happening on their production lines and on their supply chains without having to be in all those

SPEAKER_470: different regions. So that's, yeah. Well, awesome. Thank you so much, Prince, uh, for joining me today on okay. Boomer. This is a really interesting discussion. Definitely one. That's a lot different than, uh, what we typically have. And if people want to find you on the internet and ask you more

SPEAKER_459: questions, where can they find you? Yeah. Uh, you can find me on Twitter, find me on LinkedIn, or just go to factoredquality.com and send us a note there. Great. Thanks, Prince. Amazing. Thanks, Rachel.

Jason Calacanis: Take care. And that is a wrap on the week. Everybody. Thanks for listening. We'll be back next week with more news and another great episode of Angel. I hope you have an awesome weekend.

SPEAKER_325: See you Monday. Bye bye.