Mike Townsend: Thanks for tuning into Around The Coin Podcast. Today's guest is James West, the CEO of GlobeDerivative Exchange. Globe is a cryptocurrency exchange. That's raised over $18million that enables people to create cryptocurrencies throughout the world. Wetalked about how they manage their treasury, how they started off with theproject, how they raised money, why they raised money.

Mike Townsend: What the company lookslike today, how they avoided the downfalls of the Luna crash and why so manyother cryptocurrency exchanges did not. We talked about the wall street bets,some of the stock trading what you should actually take from that lesson, whichis different than what I thought he would say.

Mike Townsend: So there's somecounterintuitive lessons there. James discusses the macro economy. Why thingsare the way they are. We give some views on the centralized exchanges versusdecentralized centralized Fiat currency versus decentralized. What the worldreserve currency will look like. We packed a lot into this conversation, so Ihope you enjoy. Here is James West.

Mike Townsend: All right, James. I'mexcited to chat with you. Thanks for staying up late again. I appreciate it.Let's let's start with chatting about the beginning. So when you started thisproject, Globe, you had a background in quantitative trading, as I understandit, PhD. So this was kind of in your blood. What did you seek to do differentlywith Globe versus what else was out there at the time of starting it?

James West: Yeah, I mean, so, soin the earliest days I think most of the futures venue. I mean, there's reallyone future's venue at that time. You know, I, I see bay kind of faded away andpretty much all the liquidity kind of came from, from one internal desk thathad a lot of conflict of interest with the other players trying to getinvolved.

James West: And it was a realimpediment actually to you know, to a proper adoption. And I think our initialthesis was that, you know, instead of trying to compete with these players andbeing the primary liquidity provider, so that the kind of route. That FDX took,you know, started off as a market maker and then kind of pivoting into being inexchange.

James West: You know, we, we sortof like, okay, well, we're gonna enable, you know, the tower researchers andthe Jane streets and you know, the jump tradings as well to, to come marketmaker on a platform that was gonna perform in the way that they needed give 'emthe kind of access that they needed. I think that was the first, most tangiblething that we kind of recognized at the time. And, and secondly was just the,just the lack of, of innovation that was gonna happen on that platform. So Ithink, you know, we, we looked at the time and we said, you know, there's been,there's like a hundred year narrative of what we call like market Biz's dream.

James West: So like, if, if youread the, the earliest papers from modern portfolio theory, which ironically isneither modern and isn't particularly suitable theory. I guess there's aboutportfolios and you look at what people are gonna be trading, like, you know,those bits of progress throughout, you know, every decade there'd be some sortof major advance in terms of what the tradeable universe was.

James West: But we felt that therewas still like probably 20, 30 years left to go. And so someone had to go leadthat, that final charge. So I, I think those were kind of the two main driversin the early days. . Yeah.  

Mike Townsend: And, and let's also,if you could just describe what Globe does and how far along in this journey,you guys are either users, revenue, money raise, however you measure it.

James West: Everyone, everyonelikes whatever that best metric is. I think that's usually the, the way thatyeah. Give all I, so, so primarily features exchange. I think in this era,every crypto change is gonna be everything exchange in the light. You know,everyone's wanted to run equities for a long time. I think everyone loves thedream of offering, you know, an S and P 500 pub, which is gonna be tradeable byanyone, anywhere in the world.

James West: And I think in termsof metrics, you know, we, we were, I think the fastest growing by revenue weare the most performance. I think we probably had one of the, the most indemand, token sales. Although to be honest with you, we ran. At the top of thebull market just before the mega market collapse.

James West: So that, yeah, I mean,these things are usually more a reflection of, of the market conditions thanthey are too much else. We now have a pretty, I, I think we have maybe 130,140,000 customers that the, we serve three or 4 million signups for those aremostly bot like any exchange. So we don't really count maybe I think 60, 70,000of.

James West: Now funded and likedoing things on the platform, deriving value from it. What are the metrics thatwe care about? I think those are most of them. I think we're now number one in,in a few niches where, you know a lot of the competition just kind of blew upearlier this year. So like, like most exchanges, we, we have an assetmanagement business as well.

James West: And we, we serviceSilicon valley startups and help them to manage their treasuries or the idalcash. And you know, I think at the start of the year, there were like five, 10competitors there and we've probably been going the longest and most of themjust blew up in the Luna crisis. You know, like their, their idea, their ideaof risk management is planted all into Luna and then just pray every pegs.

James West: Yeah, I think that's,that's a question.  

Mike Townsend: So can I ask you aboutthat a little bit? So, yeah, so so you mentioned a few, so there's a few. A fewdifferent categories. When you think of a futures exchange, first of all, canyou define a futures exchange? And then I wanna ask you like what the key partsof the business operation are, treasury management trading, et cetera.

James West: Yeah. I mean, so, sofutures contracts, I mean, perhaps it's a MIS known in many ways, it's reallymore of a swap a swap contract, right? Which kind of derives, at least it'srecent origins from about the 1960s on very different instrument. But, but, buteffectively the point of instrument is to allow people to go long or short witha reasonable amount of leverage which in itself is just massively improved theliquidity of spot buckets, the spot bucket market makers, hedge on pers and hasbecome, you know, the, the training instrument choice.

James West: There's effectively abasis payment in between sorry. A it's late there's there's effectively paymentbetween long and shorts in between tries to pack the. You know the price of thefuture against the small price. But often that base the disparity between thoseprices does reflect some, some level of market.

Mike Townsend: And is the, is thegeneral playbook that has worked for companies in this space, providing futuresexchanges. Is it that they're initially providing liquidity? So is it thatyou'll go raise money from wealthy individuals, LPs investment funds, and thenyou'll accept the trades of the market, or what is the value of that moneybetween buyers and sellers?

James West: I haven't said thatthe history dates back until at least I think 20 12, 20 13, that the firstcrypto features exchanges. They go back a very long way and people don't reallyremember any of them anymore. The first, really big successful one was, was VIXwhich was the primary market maker, their own venue.

James West: They, they ended uphaving to be very transparent about that. I, I, I don't believe they want itto. I think they found that it was profitable, but it, the problem with that isthat it creates a huge conflict of interest. And so they had people on the teamthat had this very non, you know, very material non-public information usingthat to guide trades.

James West: And I, I mean, I thinka big part of it as well was just, they had no means to hedge and very, very fewremotely sophisticated market makers at the time. And so this, this model wascopied for, for quite a.  

Mike Townsend: And what's actuallyhappening there. So if I come to the site and I want to make a bet that theprice of Bitcoin is gonna go down in future, what is the, what is thatproprietary information that the company or the exchange would have and whatare the mechanics of a trade if it's being done with the exchange?

James West: So for none, , that'sa nice. You know, so if you go to a bank and you tell 'em, you want to, youknow, short the Euro, whatever exchange rate or something, they'll often tagyou as like a retail trader, right? And they'll say, actually these retailtraders are not even worth, you know, the, the prop desk for the bank orwhatever the banks pull market makers from hedging.

James West: And if you're a largeinstitutional trader, then you know, a Renaissance tech or whatever, They'llsee your trade and they'll hedge, or they'll, they'll even get out the way, ormaybe even last look at, I like avoid the trade and ask you to resubmit or justlet it slip a lot more. That's that's actually pretty on an ordinary finance,but you know, here, it just, it gets hit by a market maker.

James West: That's offering a realquote that market maker, I mean, maybe they're happy taking that inventory.Maybe they go risk. Maybe they go ahead somewhere else. And so I, off thelarge. If they think it's directional trade, you'll see like a lot of cross,low across venues where effectively market makers are going and replicatingthat, that trade elsewhere to, to hedge the rest that they're taken.

Mike Townsend: And in the first caseof the typical financial institutions, you said, if they're letting the retailinvestor trade slip or they're ignoring it why would they be doing that? , whywould they be doing it? There's no point it's too small.  

James West: It's not that it's toosmall. That's what I think the, the flow.

James West: So uninformed thatthey don't think it's worth ping at risk. Like they just, they basically see itas just randomly flippy points. They're quite happy just to accept thatrisk.  

Mike Townsend: Okay. Got it.  

James West: And in the case ofthis is not very well known at all. Yeah. So, so if you've got a Robinhood,right. And there, you know, you provide additional data to some of the world'slargest market makers about what retail traders are doing.

James West: and, you know, maybethey'll hedge that, but they probably won't need to do that too much.  

Mike Townsend: So would it be true tosay that Robinhood has a treasury, an account with money in it? And when yousay they want to hedge the bets of the retail investors, that means they wannamake trades that are counterbalancing, whatever. like, yeah. Rather retailinvestors  

James West: On other side of that,you know, without naked. Mm-hmm your choice is you ly take the other side oryou just replicate, sell manual trades. Mm-hmm and often it's just not feltlike it's worth it to replicate at all. And that's quite common in the, forexcess and banks.

James West: That's yeah. Gonna bequite common on Robinhood as well. Like action. You'll see. Will be times whenthe mock makers are he. In fact, the whole, the whole Robinhood meme stockthing is absurdly misunderstood in terms of who actually won there, it, it washedge funds. It wasn't retail sadly, or the ordinary street who make itout,  

Mike Townsend: Say more about that.

Mike Townsend: So I think the generalnarrative from the people on Twitter and the mainstream is like the hedge fundslost. They got pushed into shorting these stocks so much. So they had to sellyou know, this is kind of that squeeze. Like it looks at like Reddit. Memestocks one, what, what actually happened?

James West: Well, this was truefor like the first week, maybe two weeks of the stretch, and then thatcompletely flipped around and yeah. Okay. There were some hedge funds thatremained short but the rest of the hedge fund crowd in general flipped long atthe right kind of time and actually made a lot outta the retail.

James West: And then actually theretail got racked pretty hard overall. So I, I, I, I think that the publicnarrative there is, is the opposite really reality is, was true for like a verybrief period of time.  

Mike Townsend: So would it be true tosay that the, there were hedge funds who made bets saying that the price, thevalue, the stock value of game stop for instance, or AMC is going to decreasein the future.

Mike Townsend: It's gonna be lowertomorrow than it is today. A bunch of people on Reddit got together and boughtthat those stocks, they. And then the hedge funds in recognizing that theyflipped their bets, took their losses on the shorts and said, we're going tobet that tomorrow it's gonna be worth more.

James West: Is that that'd be moreretail guys buying up.

James West: And then the retailguys brought it up and then bought the Pico top. And then, you know, the hedgefunds kind of sold into that. So actually, but by, by the way, by the, yeah,but  

Mike Townsend: there must have beensome hedge funds that lost there.  

James West: Oh yeah. The, theywere like two pretty. I think got it. They got rack  

Mike Townsend: pocket.

Mike Townsend: Yeah. So then it'salmost like the other, the other hedge funds came in when they saw what wasgoing on. And they said, there's no way. This is, yeah, this is gonna, yeah.Continue. So they make a bet. Okay.  

James West: That makes sense. It'sgoing like a whole sub-industry within the hedge fund industry that was justspotting, more retail was doing because now those meaningful retailparticipation in equities markets, again, when there hadn't been for a longtime.  

Mike Townsend: Yeah. And do, what doyou make of that? Do you have a story other than just the ability for theretail market to gather together, consolidate their effort?  

James West: I, I think the realbackground behind it actually is just a decade of the us government decidingwhat stock prices are bizarre so that pushed up ordinary people's participationbecause they found they could win in that game.

James West: You just bet thenumber goes up. And that, that was bet that most people were able. Which wasreally beneficial and it could put more and more participation in, and thenfinally these participants will, they're like, hang on. We actually, we can dothings that hedge funds can't and we like, we actually, you know, we have morefreedom in some sense.

James West: They do like when,when a hedge fund puts a massive short on that's often disclosed, so, andretail don't do that on mass. So actually they actually had advantages at that.And then it just required a little bit of, I don't know, it kind of, it got tocritical mass over like 10 years. And then finally realizing that they had thatadvantage and seizing, it took, I don't know, like a few months.

James West: Really?  

Mike Townsend: Yeah. It almost feltlike a couple days. Yeah. I wanna ask you a little bit about something youmentioned earlier. Impact of Luna and its collapse on the exchanges in theworld was significant. Why were so many exchanges holding so much of thetreasuries in Luna at that time? Is it in hindsight a miscalculation or is itjust kind of consensus on what's most stable and that ended up being wrong?

James West: I think, I think yougotta rewind a little bit more so, so it started to be the, one of big customeracquisition plays was offering. Right. And the majority of, of exchanges werelike, you know, here's eight, 10, 12% on your stable points as a customeracquisition play. Like this was very, very, very common.

James West: And a lot of exchangesfound it very hard to, to, to acquire customers without that. And you know,that just meant they, you know, when, when things kind of got bad, startingaround may last year, You know, yields massively compressed. There was a brief,very brief like yield explosion again around November.

James West: But after that, it wasjust down only pretty much. And so they, they had to try to, well, they justkept chasing places to try and get enough yield to try and retain these, thesecustomers. And pretty quickly, I mean, it was, I think, I think the, the Lunafoundation and, and qua himself looked at this and, and, and knew.

James West: by offering thosekinds of yields, then we're gonna push a lot of exchanges. A lot of theindustry whales, a lot of projects to go hunt everything into Luna slashanchor. Just because they were the only ones offering what people viewed as anacceptable yield post November last year. So you look at, you look at theamount they're absolutely skyrocketed that time and they knew that it wasunsustainable.

James West: But they. They didn'treally have a plan B you know, this, these yields were supposed to lastforever. They based their whole businesses and economics on it. And what'shappened since then is just a very slow deleveraging. Like they punted so muchinto marketing that they kind of needed these yields to continue, so they couldafford to, to accumulate customers as well.

Mike Townsend: And so even at thatpoint, even the early days, it kind of internally. The folks internally andthose teams, they probably recognize that this was headed towards the wall inthe medium to long term.  

James West: Yeah. I mean, a lot ofit was just the way that the Luna team was kind of cashing out beforehand. Ijust made things were very unstable.

James West: You know, the, theproblem with this is it had just the death spiral built into it. The only wayto get rid of that death spiral was to have some kind of sustainable organicdemand backing, backing the token. Right. And. All most obvious mechanismstuff, some asset backing it, would've some demand for the chain and therewasn't really either and having Bitcoin back yet, but then using that to youknow, and then selling that Bitcoin instead, rather than just using that aslike, okay, you can redeem the Bitcoin which probably cause a bit sellingmassively exacerbated things.

Mike Townsend: And, and from yourperspective, were you just more diligent about this or how did you. Lucky  

James West: Lu like that wasthere. Yeah. I think we did not a hundred percent allocated to that, you know?I think we had, you know, more systemic, systematic risk checks with this kindof thing and just pulled, you know, the second, the three curve was inbalanced.

James West: We, we got outessentially and we didn't have everything bad on it. Yeah. Yeah. I think therewere 200 people getting out, so probably that. Maybe one of the wallets we usedaround the time. Yeah. Yeah. But fundamentally, these, these things need to bediversified cuz you, your broadly comes in three different flavors and that wasthe most dangerous and toxic flavor revealed.

Mike Townsend: Can you tell me thosethree flavors?  

James West: Yeah, I mean, so, sothe first one is kind of, it's a marketing spend. Like it's sort of sustainableuntil the project decides it doesn't wanna spend the marketing. And the secondone is that you're taking real risk, you know, so if you, if you punt yourcoins into Uniswap you know, I think at the peak of the bull market that wasannualizing, like like 20% annual returns.

James West: And my, my outlook nowis like six to eight, probably something like that. And then the third one isthis sort of like Ponzi coin thing, which you should avoid. right. You know,the marketing ones are short term. The risk taking ones are sustainable, butfluctuate wildly like very, very wildly. Like you can't base the business onwhat they're gonna be.

James West: And then the third onewill go to zero in four days if you're not careful. Yeah. Yeah. And becausethat was the easiest one to allocate into and there seem to be very littleunderstanding what these assets were. A lot of the industry ended up incategory three Voyager and LCS and the else.

Mike Townsend: It seems likeultimately the, the different categories are built on where does it come from?If it comes from investor dollars into the business that then gets spent onmarketing, if it comes from all the, if it comes from future investors who aregonna put more money into it. Yeah. Yeah.

James West: But it just ended upbeing all coming from investors by Luna, and then that got cycled through andpaid out in UST.

Mike Townsend: Interesting. And sowhen you think about growing Globe, what are the, what are the things thatcontinue to be in the forefront of your mind in the short to midterm?  

James West: So the very short termmobile is critical. Like 67% all trading right now happens on mobile. This wasmaterially, not the case when we started.

James West: So we yeah. Puttogether a mobile team. I think we have one of the most amazing. Out there thatwe're waiting for to accept. If they're paying attention, guys, please approve.We want to be an Android as well, pretty soon. So that, that, that's the firstreally big piece. The second is kind of shoring up how we manage risk on themarkets, you know, in the early stage of exchange, you're not reallysystemically important.

James West: Doesn't matter. Now, alot of the time we'll have like maybe the 10 15th biggest book in, in cryptofutures. And that can get scary if you're not properly managing that. I thinkwe were probably the first futures venue with with properly unified margining,which does require additional risk considerations.

James West: So we're sort ofremodeling how we deal with that. Security is another big one that we'reimproving. It's just lots of, really little things that are important. Youknow, just, there's been a big rise in, in kind of criminal activity. I thinkindustry-wide right now, like PVP mode as they call it, you've seen all theseDeFi hacks.

James West: I mean, CFI issuffering similar levels of criminal. Activity's just less noticeable, youknow? So tied option security is a big one. Yeah, I think that kind of coversthe next few months.  

Mike Townsend: On security. How doyou think of or is there a systemic reason why the number of security breachesor attacks are increasing or is it just more money in the space attracts more?

James West: I think, I mean,there's actually less money in the space. like there's about 75, 80% less moneyin the space. I, I think, I think if you look back historically, most crypto,like these attacks they're done by people are very technical, deeply understandwhat these things are, and usually have some kind of, you know, insiderindustry knowledge about, you know, how things work when the opportunity times.

James West: And so actually theytend to be people that have founded projects or very close to other projects.And so it's often people with Vanos that have been booted out. I think in thecase of was it the, the Dow hack with E was it actually the founder, theBitfinex, the former CPO? Maybe I misremembered something like that.

James West: . So I suspect there'sjust a lot of projects out there that like, you know, if they haven't managedthe risk on the treasury, they're just dump all in Bitcoin reef. You know,they're down 70, 80% and their dreams of like 10 year runway or 20 year runwayis now like six to 12 months. Right.

James West: And for revenue'sprobably down that much too. And so they're just getting aggressive and, youknow, doing questionable things. It wouldn't be the first time. Right.  

Mike Townsend: Do you feel like we'rein the, in the midst of that now in the midst of the questionable activity tomake it through with a low treasury, no pack,

James West: Like the no pack wasreally, yeah.

James West: Just disgusting. Thewarm hole stuff, you know, like billions of dollars just being stolen. Yeah. I,I think that's gonna be more for the next six, 12. I think there's just a lotof motivated people that are taking big losses and just doing, you know, likemorality goes out the window when, when people have taken losses.

Mike Townsend: Yeah, yeah, yeah. Wow.I would imagine the pathway forward is just build value and just move throughit, you know, pretty much. Is that your attitude down it? Yeah.  

James West: Yeah. Yeah. I mean, wewe've had, I think we've sustained like 50% monthly growth just for, for quitea long time now. Well, well over a year, I think we just keep listening to, tothe customers on the exchange.

James West: Don't always do everythingeveryone wants yeah. Sometimes have to change our mind about things, which werea good idea, complain, and then stop being a good idea. But yeah,fundamentally, if there's something that's clearly a good idea, we generally doit like a week or two weeks later, we keep listing and we, we kind of whatpeople need.

Mike Townsend: And why so many botsyou mentioned when you talked about user numbers earlier, you mentioned thatthere was just. Extraordinary number of bot, not just for you guys, but industrywideoh yeah. Is that, is that the bots trying to make trades or what's theobjective of the people creating these bots?

James West: I think some of it'sjust trying to get a drops and that's pretty common.

James West: I think we, you know,we had the token sales where people thought like, okay, if I make like a fakeaccount, then maybe I'll get some kind of reward for this, that kind of stuff.It, it, it varies a lot of it is like criminal lo activity. You know, maybelooking to self trade, that kind of thing. Yeah.

James West: Hmm.  

Mike Townsend: And have you seen anysignificant hacks on your system that worked, that you guys are now a bettercompany for?  

James West: There there've been nohacks on the system, but we, we have seen like pretty intense Dedos attackslately. So I, I think what did Google see Google see saw? I. Was it a hundred,was it 15 billion or 20 billion requests in a few minutes?

James West: And we saw even thismorning, like 3 billion API requests pumped at us in like two, three minutes.And yeah, this, this stuff seems to be coming from just botnets, but there justseems to be a different bot that every week and the mitigation is just, youknow, industry insiders and, and security platforms share information about whothe botnets are.

James West: You get banned. Ifyou're part of one. Every time, there's a new bot that until it's been sharedaround to it is like it'll work for a few minutes, at least. And so we, we'veseen a massive intensification and Justo attacks the last like few months.  

Mike Townsend: And, and is that, doyou anticipate that or expect that to be like a group of people or is that takea large number of people to create that kind of thing?

Mike Townsend: Or could that be oneguy or a couple guys in the living room somewhere?  

James West: It's a mixture. Someof the guys just. A couple guys in the living room. Mm-hmm and you always wannahave like an underage guy, because if it's only all sorry, underage, meaningunder 18, because you get poor doing, you go to jail, you know, most countriesin this world, like you, you smash on API with 3 billion requests from a partdate of bought of 50,000 servers.

James West: You know what you'redoing? You know, it's a crime you're gonna go to jail so that they're usuallyworking with someone else. That's that's gonna be. The Patsy as it were gonnaget away without doing the jail time. So there's a bit of that. It's, it'swidely speculated that there are, you know, nations like north Koreans doingthis kind of thing.

James West: I have seen noevidence of that. I've seen evidence of industry competitors do this kind ofstuff. And I suspect that there are quite a few. But gen generally what happensis that just, you know, there is a new collect, there's a new botnet. andsomeone opportunistic will just rent it temporarily and just try it on everyexchange as quickly as they can.

James West: Mm-hmm . And so you'llsee, like, you know, a few hours of downtime, maybe a few days of downtimeacross the industry. Depending on how quickly the exchange is either gonna paythem off or like share the data about where the bot is. Interesting. The storydowntime here should be clarified, like, you know, matching engine still.

James West: Many trades can stilltrade on the exchange and have no issues whatsoever. But like, if you make anew connection in like a few minutes or sometimes a few hours, or sometimeseven a few days, depending on the venue, like it's gonna take a while or itjust doesn't look right for a bit.  

Mike Townsend: The idea would be theyexploit that to make some beneficial trades, like the pricing is uh,  

James West: you do see that.

James West: Yeah. So, so you seepeople will like run the DDoS and at the same. Because I think maybe the marketmakers are gonna pull the liquidity, they'll try and like self trade and selfliquidate or they'll just, you know, try and just make massively midsizepositions. Or if like they manage the hack customer account.

James West: I can't batch this on.I have heard the story at least, you know, they'll try and make trades andthen, you know, transfer to winnings effectively from some bad trades from someaccount play seasons that were in. that that was definitely pretty common. Ithink 2018. Mm-hmm 2019. Mm-hmm on, on a number of venues.

James West: So you gets that, butI think the majority it's just, you know, they just want to get paid off. Yeah.And what part of this gets you?  

Mike Townsend: It makes sense. It'slike an arms race at some level.  

James West: Pretty much. Yeah. Imean, we, we hired, we hired the, the infrastructure guy from. Well from, frompoint base, I, we can probably say this publicly and they, you know exactly thesame thing.

James West: Just I dunno howquite, how friendly Coinbase got with these attackers, but yeah. It's yeah.People find a new bot net. They've asked you for a bit. They go away.Yeah.  

Mike Townsend: A bot net. So thebotnet, meaning that there's a ton of servers, someone spinning up and then allat once, they're making massive number API.

Mike Townsend: And the idea is itslows down the system.  

James West: One is like, it's aproxy. One is like, there's a collection of proxy to others. And then theyroute the request, route the request for proxy service and just massivelyamplify them. And the second is like, someone's downloaded something dodgy onbit Victor and then opened, you know, movie dot XE on their computer.

James West: And now they don'tknow that there's a virus running on it and they just wait until they get asignal from someone else's computer to go, you know, saturate at its network.Interesting.  

Mike Townsend: Yeah. Yeah. And doesthat still, that ladder still is pretty popular, is that, I mean, once I movedto a Mac, like 10 years ago, I felt like I really didn't have to deal withviruses anymore.

Mike Townsend: Is that, is that stillthe case?  

James West: I mean, I didn't knowhow that varies by operating system at all. I, I mean, it's still gonna be alot more prevalent by you know, on windows versus. I think just the securitiesnaturally better on, on Unix, like operating systems. Mm-hmm I think mm-hmm Ithink Mac took a lot of the stuff from was it open BSD?

James West: I believe like whenthey completely redid the core, I think it was

Mike Townsend: open BSD. Yeah. Yeah.I, but I know that it is distinctly different than Linux and it just  

James West: got completelyrejected, I think like 10. Oh my God. 10 years ago. I feel old. yeah, Iremember there was, there was a time where you could like look at the Mac.

James West: And it would say, youknow, just type in BA like Linux, you know, systems commands that wentimplement on Mac. Cause they hadn't even changed their documentation for thecode they took promote from VSD. But it it's just natively more secure. I thinkLinux in general is somewhat more secure and it's just easy.

James West: It's just easier totarget. Windows is kind what's happened.

Mike Townsend: Yeah. Well, Happilyautomatic. What part of this, what part of this gets you most excited? I knowyou I'm happy to bring up your background if you wanna go down that road or ifyou want to go forward and, and chat about the future of these, like, do you,do you get excited thinking about where crypto is going or where trading isgoing in particular?

Mike Townsend: Do you think about itin terms of like the broad arc of human, our human species and, and thetransition from centralized government Fiat money to decentralized. How, whenyou think of the industry you're in, I mean, many people that aren't in crypto,look at it as the most exciting space to be in. Do you still feel that way?

Mike Townsend: And if you do, what,what parts of it make you really excited?

James West: Yeah, I, I think oneof the big guiding things behind what, what we are doing, what most people aredoing is, is globalization, right? Just enabling access to all financialinstruments to everyone everywhere in the world on broadly, as much as it'sviable.

James West: The same terms whichis a pretty amazing advance I think, and compared to where things were at 10years ago and are really still at today. And so we, I, I think generally we'repretty energized about, about bringing that to fruition. You know, there'sconstantly like really amazing innovations industrywide you know, NFT is kindof creating this new concept of membership club, which for most of us.

James West: Right. But it'screated, you know, a sense of belonging and a sense of belonging amongst itsparticipants. I hadn't really seen before anywhere just with monkey, jpegs  

Mike Townsend: yeah. Yeah. Well, I'mnot sure. It seems like that has dwindled significantly. Right? I think a lotof people came in. Prices went down.

James West: Yeah. yeah.That's  

Mike Townsend: of that.  

James West: Yeah. But there stilldoes need to be some pretty amazing. Crypto Punks and maybe, maybe better, moredestructive example. Mm-hmm I, I think there are like amazing things to, tothink about in terms of what's happening with real world assets and how theyget bridged, but that's just hot regulation wise.

James West: You guys, somethingthat we're excited about, but we feel is a long way.  

Mike Townsend: Yeah. You guyslaunched a token. Other exchanges have launched a token. It doesn't seemobvious to me. Why in exchange would need a token, want a token? Can you talk abit more about that decision and why other exchanges have done that as well?

Mike Townsend: Possibly.  

James West: Yeah. I mean, I, Ithink that the most common argument for why an, an app as it were, I'm notgonna say that, but an app hasn't token is it's is the customer acquisitiontool, a marketing tool. Exchanges are very limited in terms of how they'reallowed to market themselves. and in the early days of the, the sort of, youknow, there used to be a dichotomy really between centralized between spot andrivers exchanges, which doesn't really exist anymore, but was very much thecase until at least kind of late 2020, just cuz of regulatory reasons really.

James West: It was one of the veryfew ways that you could in any way get people to know about and be interestedin your platform and then discover hopefully how good your product, how goodyour product was. So I think that's kind of the first part of it. Secondly, I,I think most exchanges do want to have their own layer one sooner or later.

James West: I think generally theywould like to move to decentralized custody at some point. And so having yourown layer, one gives you a lot of value capture over that decentralizedcustody. I don't know how long that takes. It may be never the, the, it isalways a little bit hard to predict quite what the consumer choice is gonnarest.

James West: You know it could bethat people prefer delegating all this control over and just whatever you guys,this is your problem. Mm-hmm, you buy stuff in cold storage, keep it insured,feel much better with that versus, you know, any level of self custody that isnot clear to me at this point, how that evolves.

James West: But it, it kind ofgives you a root to that, you know.

Mike Townsend: Do you guys haveambitions to go fully decentralized as an exchange?  

James West: I, I think you, youhave to always recognize that's, it's a way that things could go, like, itreally depends on regulators do, like, you've got a few choice. One, depending,you know, one is trying to just become fully regulated the bank kind ofservice, or at least to have a wing of what you do that looks like that.

James West: And you're seeing kindof bin more or less go that. You know, a lot of, a lot of existing exchanges,just go out there and just buy anything regulated. That's usually died or a malkid generally, because trying to play the regulated game, you were forced tolose. That was the case in the UK. It was, it was a joke policy.

James West: Like you were allowedto play, but you weren't allowed to win. How so? So you, you were allowed to bederegulated, right. And operate a little bit, this kind of service that peoplevery clearly wanted, but you were only allowed to have like a thousandcustomers or something for the first few years. Wow. Who, who in the right mindplays that game.

James West: If you have an amazingproduct and you build lots of customers, well, tough shit. Now a bank is gonnacopy what you're doing, or someone else will copy exactly what you're doing andcan have all of the customers out there. And it's crazy. Yeah. It was just oneof the most ridiculous things I've seen. We, we didn't play that game, butit's, it's, what's crippled to everything in, in the UK.

Mike Townsend: And where is it Today?Is have they responded to that change?  

James West: Yeah, no, they're justall dead. They just got completely crippled by this utterly ridiculous policyof you're not allowed to win, but that that's in general, the UK's attitudetowards, towards innovation. So what, what had happened was that essentiallybanked went allowed to do it themselves as they kind of created innovationfactories within the banks where the banks basically just, you know, owned andcontrolled you and let you maybe use a little bit of their, their regulatoryinfrastructure.

James West: and everyone else justsaid you don't run in this country because you're allowed to win.  

Mike Townsend: And what do the peoplethink of this in the UK? I mean, is, do you feel like the people are, theydon't know, it's just not in the mainstream,

James West: they, after no ideaabout what any of the regulations are, because you have to be an entrepreneurtrying to build things and trying to talk to regulators to, to find out.

Mike Townsend: Yeah. And themotivation would be regulated. right. Right. And I imagine the, the incentivehere is to, is the, the banks wanna stay in power. They influence theregulators.  

James West: I don't think I shouldsay that, but that they do want say power the second part of,  

Mike Townsend: yeah, sure, sure,sure. No, that's that's yeah, yeah. Yeah, you could say, well, we can't say we,we can't, you don't know, it's just speculation on, on why the regulator, butcertainly the people making the, the decisions on the regulations don't seem tobe motivated.

Mike Townsend: By letting innovationrip and you know, let's, it's not the priority. Yeah. It's not the priority.Yeah. Which is yeah. Well, what, that's why you see it happening everywhere.Interesting. And from a company standpoint, how is the regulation licensing?How have you guys navigated that? I know you mentioned your, I  

James West: like every year,there's from sort of new place to, to base.

James West: Fundamentally, it justends up being like a collection of entities, some of which have differinglevels of regulation and which entity exactly is acting for each customer, dependson where the customer's from or what infrastructure you have there. Mm-hmm andso broadly, everyone is just sort of sleep walking into having this infiniteregulatory, whatever skeleton in every country, you know, like you'll, you'llhave.

James West: Most, I think mostlychanges right now. We're moving to to Bahamas. Yeah. There was a phase whenthey moved to Panama, there was a phase where they're all in SA she the realityis where do they want to play? And if they're gonna go play there, they'll allowsome kind of entity there.  

Mike Townsend: And the implicationsof that would just be, you just have an office there and then you just, you candecide country by country where you're operational, but it doesn't reallymatter.

James West: Down and that entityis a post box. In most cases like the, there was a really weird, I think, youknow, press story recently about Binance being banned in the UK. And whatreally happened was the Binance border regulated in quotes, UK entity. And thenI don't think they like filed any paperwork for like two years.

James West: It just, it was a postbox. They didn't do anything. Whether or not a UK custom was being served bythis regulated entity or some other part of the Binance, whatever network ofentities was completely unclear at all times. And then this UK entity just gota slap on the rest of the regulator being, why haven't you file any paperworkfor two years?

James West: Like my dads wasn'tbanned a UK entity within the violence network was behind on its paperwork. Andso UK customers could still pretty much everything on binance. Yeah, like itwasn't protectable.  

Mike Townsend: Do you feel likethere's a general arc to the trajectory of innovation? You know, as, astypically would be like the west Western movement seems to be kind of at least,you know, in your case with the UK, but America's like teetering, we're notopenly innovative.

Mike Townsend: We're not openlyaccepting of crypto. There's a. Criticism that Coinbase CEO publicly gives onthe sec. Binance for instance, is there's a lot of companies exchanges includedthat aren't in operational, in the us due to some regulations. Other countriesin Europe seem to be more open arms with this. Do you have a overarchingperspective or narrative as to the trajectory or potential tension betweencountries and crypto?

Mike Townsend: Because it does, to meseem. Eventually the us dollar and other centralized Fiat currencies, justconflict with the proposition of a decentralized currency. And I, I don't knowhow, how you reconcile that if you're a government other than to ban it. Yeah.I mean,  

James West: so, so I think thereis a global overarching narrative, but like a saying kind of thing that playsout in every country more or less.

James West: And so the, so theglobal narrative is what is gonna be the world's reserve currency. And everycountry has like a different take on this right now. It's a. Right. The us isstill broadly. The world's super, although China's maybe just about overtaken it,it's, it's kind of unclear at this point. But the dollar is still the ones toreserve currency and you one's not.

James West: And so you have kind,you know, you have China and Russia that are really just want, try to take thatpower away from, from us. Right. They want to make the digital Yu, want theworld reserve currency, and then try to rush up a pack that, that, that kindof. . And so there there's that first thing. And then there's gradually everygovernment realizing that there are benefits towards transitioning to to acentralized bank digital currency, because it does give you a lot of additionalcontrol of a, of a monetary policy.

James West: And that, that arcusually takes like eight years at least to play. I, I think we will see mostcountries in this world have a CBDC sooner or later. I think you can kind of,you know, there's like an early phase when the, the, the regulators go out and theytalk to every like hedge fund, every investment bank, everyone that might havean intelligent opinion about it.

James West: And just get initialfeedback, like, should we do this? Why, how enough do we do this? Like, youknow, they can't even run a database, so how can they possibly have a digitalcurrency? And a government. And so they, they start gradually like, okay,understanding the benefits, you know, like they get much better control overlike currently gray sector taxation.

James West: They wonder theyactually want to tax the gray , you know, there's definitely like a, a personalconflict of interest given the way that most politicians structure their taxaffairs. And so then that slows things. And then depending, you know, quitewhere they're at, how they feel about, you know, trying to have their ownglobal reserve currency that there's like, there's usually a band phase, right.

James West: They're just trying toboot everything else out and push adoption of their own of their CBDC mm-hmm.And every country in the world is somewhere in this current evolution. Thereare a few that have either a CBDC or just like, whatever, just use the dollar.Don't even use our worthless mm-hmm worthless paper anymore.

James West: Mm-hmm there's a fewthat like, are very public about, okay, we're gonna have our notes soon.There's a few that are in the trial phase. I think India recently kind of wentthrough the band phase and came back out and is probably now starting to thinkabout going into the trial. The UK, you know, I, I, I was party to the UKgovernment going around and just saying like, well, should we do this?

James West: We don't understandwhat is why and how do we do it? So that's, that's kind of what guides a lot ofgovernment government action. Mm-hmm there are, there are definitely likeother, just regulatory clampdowns, which are more just kind of on, you know,customer, customer protections, sorry, consumer productions.

James West: Like in 2021, therewere a lot of things that just were straight Ponzi schemes in crypto. And thosegenerally pissed off regulators. Yeah. Yeah, everywhere around the world. Andin many ways they're still figuring out the ones from 2017 and 2018 . Yeah. Andso that, that pushes them to intervene in a lot of cases.

James West: And so just, yeah,pushing through consumer protections. Their own, you know, internal battle withCBDs. There's quite a few different drivers going on. Mm. Some somewhatasynchronously like the, the consumer protections have nothing to do reallywith the CBDC mm-hmm debate. There're everything to do with what dodgy stuff iscrypto just done in the previous cycle.

Mike Townsend: Do you think it's morelikely that there'll be a, a Bitcoin internationally recognized monetarystandard or SD C in the west or like digital w like yeah, just distributesthroughout the Western world.  

James West: I, I think Bitcoin haskind of evolved into being more of a digital goal. so I just don't really seehow that the currency role, like, you know, there's usually it's described asthose like three three use cases for, for a currency and it satisfies that, butit really doesn't satisfy like unit account and mm-hmm all transferabilitythings, right.

James West: Mm-hmm I feel likeBitcoin just kind of sleepwalk in visual gold mm-hmm it might be, they try tofind a means of having another thing, which works as a currency. Right now,that's not where we're going. Mm-hmm and it's gonna lead need a lot ofintervention to change that. And I think honestly, most Bitcoin holders don'twant them to change the direction.

James West: Mm-hmm I think they'rehappy with being one. It is right. It's staying the same. Yeah. Broadly. Ithink the Ethereum is more interesting in that regard, but just, again, it sortof feels too volatile, you know? I, the, the right thing is just measuredagainst commodities prices. Right? Don't don't look at it against the dollar orany Fiat look at it against commodities prices.

James West: It's probably stilltoo volatile against the price of Ang mm-hmm cause someone really to use thatneeds a payment. Yeah. The other ones it's, I mean, it's, it's, it's sort offeels like a tossup between the, between the, and between the, the Yuan. And itreally just reflects the, sort of the war for supremacy between the us andChina right now.

James West: And I, I think thelast, the last bull. Really saw the dollar gain, actually a lot of dominance inthe world, like in massive parts of Africa and Southeast Asia and all theseother countries dollars on tra because of low transaction fees are now thesource of payment. Like it's stable suddenly by local Fiat.

James West: It's pretty cheap totransact. Literally you can just be there on your phone. So next to some otherguy on their phone, tap your phones or whatever, and then those dollars. andthat's actually a really great solution to, to the problem that they have.  

Mike Townsend: Mm-hmm in some waysit's shocking to me because how much money was printed in inflation in the us.

Mike Townsend: But I suppose it's allrelative, right. It's compared to other, other optional currencies  

James West: And monetary supplydoubled. Right. And like a year with, with a C stuff it's ugly. It's gonna takea while to trickle down, I think is the right phrase. Yeah. Looks ugly. Yeah.But for what it's worth, I feel better on the us more than I bet on anything inEurope or.

James West: Anywhere else in thewild, maybe China. Yeah.  

Mike Townsend: Interesting man. Who,is there anyone in particular or any books that you've read that haveattributed to shaping your worldview or perspectives on things you wanted toshare?  

James West: Yeah, I, I think everyentrepreneur reads roughly the same books and should read as many books as theycan.

James West: Mm-hmm so it's so, sohard thing about hard. Was was quite formative for us. Just seeing the horrorsof navigating.com, the strategies they employed, that, that kind of thing. Thatwas very helpful. I think, in, in navigating, I mean, cryptos crazier than that,frankly, like a lot crazier. But it was still like the craziest thing thathappened in history until then call iconography was pretty ative zero to oneshoe dog.

James West: I, I, I still loveshoe dog until night. The, the hustle, the raw hustle. Yeah. Yeah. Like justpure, you know, self-driven determinism, the world is gonna look this way andI'm gonna do what it takes to, to get it there. I think those, those areprobably the top ones.  

Mike Townsend: Yeah. Yeah. Yeah. Ireally just  

James West: look like Facebook.

James West: There's a few, whichare just like case studies and survivorship bias. Like I think about. Screw itlet's let's do it. Richard, Richard Branson spoke mm-hmm and I just look at it.I'm like, well, okay, there's a thousand Richard Bransons, 999, and whateverdied in Paris, you crash mm-hmm and did not become a billionaire.

James West: Like it's just, nah,this, this, this is taking obscene risk and just being lucky enough not to dieand then writing a book as a consequence. Yeah. So I feel like there's almostlike an anti lesson in those kinds of books about managing risk. Yeah.  

Mike Townsend: Yeah. That's aninteresting perspective. Yeah. Yeah, no, I mean, you would not be writing aautobiography if you don't live to write it.

Mike Townsend: So that seems obvious,but  

James West: you gottasurvive.  

Mike Townsend: Yeah. James, thanksfor setting up late, man. I really appreciate it. And congrats on everythingyou guys have done so far and yeah. Hope you guys keep crushing  

James West: there's a little moreto come. Awesome.  

Mike Townsend: Thanks to be on theshow. Thanks man. Thanks James.  

Mike Townsend: Cheers.

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