E165: Backpack CEO: How I Survived Crypto's Biggest Collapse, Then Built a $420B Exchange

27:25Armani Ferrante:and so yeah by the time I got off that plan I just made the decision I wanted to be the type of person that would simply not give up irrespective of what happens

27:38Armani Ferrante:yeah it was definitely a very difficult moment for many different reasons at a personal level, at a professional level I was I knew a lot of people at FDX a lot of there's a lot of really terrible things that happened there but there's also a lot of really incredible people right you have to keep in mind it was the fastest growing startup of the previous cycle one of the fastest growing startups in the world it very genuinely had some of the most incredible talent in the world a lot of great people that had done great things before and were, you know, building a very kind of, you know, real business at FTX and putting all the fraud and terrible things aside.

28:33Armani Ferrante:And although it's obviously a big thing to put aside and say, I mean, you hear that type of thing go down and it's, it's definitely like a life altering event for everybody involved, right. For the people that were working there, the people that had their money on there, anybody that was remotely associated with it. It's like everybody from the employees to Tom Brady were just getting absolutely destroyed. Solana got absolutely dragged through the mud. And anybody that was associated with FTX in any meaningful way, no matter how innocent, how good of a person they were, no matter how accomplished they were, those people just went through the ringer.

29:23Armani Ferrante:Because obviously a lot of bad things happened and there was very real and very good criticism over kind of the events that kind of played out. But it also was a pretty incredible experience in the sense that it really taught me how disconnected reality could, or perceived reality was from actual reality. where you would see a lot of kind of commentary, whether it was mainstream media, whether it was on crypto Twitter, whether it's random one-on-one conversations with people where people would just make things up that just simply were not true because either it was great clickbait engagements or it was some pent-up resentment or it was just misinformation that they unfortunately believed, there was like a very clear disconnect.

30:30Armani Ferrante:And you can see this when the price of Solana goes down to$8 and everybody's declaring it an FTX chain. And every single company in Solana is unable to raise money because they all think that SBF was running the blockchain or whatever. And I was in a pretty, I think, interesting position where I was like very much in the middle of both of these two worlds. And so I can like, I had like a very accurate view of like what the ground truth was, which is like obviously Solana has nothing to do with FTX. That's like one of the more interesting kind of examples of how potent these decentralized networks are is that you can legitimately, like I was literally like one of the main people behind the Solana effort inside of that FTX group.

31:25Armani Ferrante:It had absolutely nothing to do with Solana other than they just had a big bag of the coins and they wanted or incentivized to make it valuable. And the way you make it valuable is by building incredible things. And it was kind of just as simple as that. And then you see all these conspiracy theories and all this crazy stuff that just made absolutely no sense. And it's like, okay, you literally just have a bunch of engineers is like working on open source code. Like all of it's literally open source. You can see it all and read it all yourself. And so, yeah, it was definitely a, taught me a lot about how, you know, reality can disconnect from truth or perceived reality can disconnect from truth, which I think is, it was very like interesting kind of, you know, experience uh uh and um yeah there's i can talk about ridiculous things that happens in the in the aftermath uh but uh that's perhaps one of the the biggest uh i guess uh lasting uh impressions from that experience and that thing actually happens a lot all the time is disconnect even today, a couple of years later Solana is price is 10x higher than a couple of years ago right, you were there when Solana hit$8 2022 and you were building fast forward a few years later, we're in a bear market again but Solana price is 10x higher and some people for some reason kind of think, oh it's dead the space is dead Solana is dead I told you so what's your take on the Solana ecosystem today in 2026?

33:19Armani Ferrante:I mean I think there's Solana and then there's the crypto industry as a whole. I mean I think Solana is in one of the most exciting kind of places it's ever been. Right? I saw this, there was this graph that was tweeted where it was transactions, I think it was like transactions per seconds actually being executed on mainnet relative to every other network and solano was just like an order of magnitude uh larger than everybody else which means that there's way more demand it means there's demand but also it's just a wonder of modern computing like everything that you know the the folks at onza have been working on for the past you know however many years at this point it's an incredible feat of of engineering that is creating you know novel market structure for the future of of the world's economy um and i think execution risk was always like one of the biggest ones it's like you know are the hard engineering problems actually going to be solved so that this thing can actually be real right because there's always a tension between like hype and marketing the storytelling that people do and then the actual underlying reality.

34:39Armani Ferrante:And I think if you combine that with the incredible startup ecosystem that has grown on Solana, it's really reached a level that only Ethereum and Bitcoin have gotten to. It's a pretty incredible, I think, achievement in spite of all of the, you know, just death defying moments and there's been just an enormous amount of them right just everything from ftx collapses solana's dead the solana chain goes down solana's dead you know meme coin mania uh solana's dead nfts are gone solana's dead it's always like one thing after another and solana just keeps going relentlessly um and i think that is perhaps the most like important

35:39Armani Ferrante:like, just feature of a decentralized network, right? Nothing can kill it. And it's this anti-fragile system where the more chaos and the more adversity that it goes through, just the stronger it becomes. And, you know, it's really kind of been, you know, another category relative to, I think, the rest of the crypto space. And so, yeah, I think Solana right now is in a really strong position. Now, I think an equally as interesting question is, well, what's actually happening in the whole crypto space right now and how is the crypto market doing? Well, we'll get there very soon. Just have a last point on the Solana ecosystem around Madlads, actually.

36:36I had Anatoly Yakovenko from co-founder of Solana on this podcast last year and I asked him what's the moment after all this catastrophic 2022 FTX collapse Solana is dead what's the moment that gave you hope again or that made you think oh shit we're back right and I was expecting our first big meme coin launch etc And he basically said, the Mad Lads launch. That's the moment where he realized, oh shit, what we're doing is kind of working. And it's giving us this kind of kick that really helped us get back from this horrible moment. Give us the TLDR of the Mad Lads story. So NFTs, they're different things to different people.

37:34Armani Ferrante:fundamentally to me nfts are about people it's about bringing together all these people from all around the world to identify behind a single like image a single concept of of identity and it manifests itself in this social media profile pic form factor where you have a Twitter or you have a picture on Twitter that shows that you've opted into this tribe. And whether it's Mad Lads or CryptoPunks or BordeauxBiall Club, any of the big NFT projects, you can go to any city around the world, whether it's Hong Kong, Taipei, Los Angeles, New York, you name it. You can post in a Discord channel and say, anybody here, let's go get a coffee.

38:27Armani Ferrante:Let's go grab a beer. Let's hang out. And the very real thing about NFTs is that social fabric is this overlay for, you know, this very genuine subculture that has emerged outside of, you know, cryptocurrencies and blockchain technology where you have all these kind of weirdos and nerds that have spent the better part of the last decade. on the internet, building stuff, making friends, building very real professional and personal connections with people all around the world. And I think Mad Lads was really a direct consequence of all of that, where it's not just about the underlying technology, although that's a very important foundation for them to be built on, right?

39:29Armani Ferrante:And a big part of Solana's social layer is built on the belief, the deserved belief, that Solana is an incredible feat of engineering. But then on top of that, you have this incredible, you know, structure that's been built, where then you have incredible startups that have been created. And then you have incredible products from those startups and then incredible user bases that use those products. And then people that identify with those products and those users and those tokens and this broader, you know, cultural and technological movement, whether it's Solana or Ethereum or whatever it might be.

40:16Armani Ferrante:And I think Mad Lads was really kind of like the tip of that iceberg where it was really an expression of all of the incredible work that it wasn't just our team that the entire I think Solana community um a very genuine community it's like people love to say about community but the genuine Solana community was was very much um alive and well and not giving up And so I think, you know, the Mad Lads moment was really surfacing, you know, that to the world where, you know, you had the whole Solana network kind of excited about this. you know on the surface it's a silly thing right you're you're you're you're you're minting uh jpegs to use as your picture for for twitter but under it is this very rich um you know subculture um uh with with just years and years of of of work behind it at every level of the stack.

41:31Armani Ferrante:And I think that's, you know, to have gotten the privilege to kind of express that through our artwork was, I think, something we were very lucky to be able to kind of contribute. But it was really this, I think, very dynamic,

41:55Armani Ferrante:complex network that really is responsible for that success. How important was the Mad Lad story for Backpack, for the Backpack story? Yeah, I mean, I think every... I mean, with a startup, you're constantly iterating, making new products, getting feedback from users, you know, going into new markets. It was definitely very important, you know, in the beginning, very important today to have a really strong sense of, you know, identity in terms of like who are users and who are we building for? I mean, there's a bunch of distracting stuff with NFTs without a doubt. a lot of stuff that doesn't really kind of get you to product market fit.

42:54Armani Ferrante:And it's a trade-off, right? Yeah, without a doubt, you know, the genesis of the MadLabs collection was, you know, important as a showcase for our original product, which, you know, we haven't gotten into. But it was like a very important demonstration of what we were trying to build with Backpack. At the beginning, you know, we've since kind of pivoted away from that initial concept. But I think having that cultural foundation was always very important to me. Because kind of the view is it's not just about kind of building a great product. It's also about people. And so from that point of view, I think it was as important as anything else.

43:40You said before, it's great and important to have a look at what Solana is today. where we should look at crypto as a whole. What's your deepest and most fundamental belief about what crypto represents and what it should be?

43:58Armani Ferrante:I mean, there's the, I guess, philosophical answer and then there's the practical, like, what are we all building here? And, you know, who is the, what's the market that we're going after? I mean, I think if you build it from the ground up, what is crypto? crypto is fundamentally database technology where you can store data in a specific file format or many different file formats and we can all collectively agree that this database is secure and you know the I guess original use case was peer-to-peer electronic cash with Bitcoin We all kind of have this canonical ledger where Kevin owns one Bitcoin, Armani owns 0.75 Bitcoin, and you have this machine that everybody owns collectively but nobody controls individually.

45:00And so it's all about alignment on a view of any given piece of data. And there's been various different products, use cases, markets, verticals that people have tried to go after,

45:24Armani Ferrante:whether it's gaming or art and NFTs, whether it's decentralized social media.

45:33Armani Ferrante:A lot of those have been very early experiments. Most of them have failed. And the one experiment that has gotten the most momentum and feels the most ready for maturity is just modern finance. and I think there's different people that kind of fall into different kind of sides of this I mean I think

46:04Armani Ferrante:you know there's

46:09Armani Ferrante:different I guess fundamental views of like what you're trying to build and you can you can build up several different

46:25Armani Ferrante:products that kind of all hit very different market segments, right? Like Bitcoin and Zcash and truly decentralized assets that really represent some of the most unique and best things that the industry have to offer are kind of in one category of things. But then you have the world of finance, which is I would say it's a completely different category, especially when you start talking about things beyond cryptocurrencies, like fiat, dollars, yen, euros, foreign exchange, stocks, securities, bonds, fixed income, commodities. Those are kind of two different paths, right, where you can use the same underlying technology to achieve different things.

47:21Armani Ferrante:And I think on the one hand, you have a specific asset class, crypto. And then on the other hand, you have technology that some people might call it crypto, some people might call it blockchain or whatever, as a new foundation for market structure and economies to be built on. And then there's like a bunch of stuff in between where you have people trying to like go back and forth between these two worlds. And then you also have like completely orthogonal dimensions as well where people are working on decentralized games and decentralized Uber and decentralized social media and all this stuff. my mind is very firmly kind of in the first two worlds because that's just what i'm working on not because i think it's like better or worse than just what the chosen problem set um and i think what's happening right now is you know you look at the crypto markets and you talk to any kind of crypto native person and there's maximum depression right now right The markets are down.

48:34And that sentiment is very indirect. It's like the exact opposite sentiment if you talk to anybody on Wall Street that's actually in the mainstream finance world where there's maximum bullishness and maximum conviction that this indeed is actually

48:55Armani Ferrante:going to be a huge step function improvement over the status quo for modern finance. And you see folks like, you know, Larry Fink kind of going out and saying that, like, yeah, everybody's talking about AI, but nobody's talking about how quickly the whole world is going to tokenize every piece of value all around the world. And it's going to be running on blockchains. and I think you know we are kind of especially right now with the markets kind of you know in the gutter or kind of who knows if we're in another bear market who knows what the next six or 12 months is going to be like I do feel like we are very much at an inflection point where the industry is starting to mature specifically the finance part of the industry.

49:45Armani Ferrante:I think every other part of the crypto industry is still very nascent and there will be interesting experiments that are run there. There will be new asset classes that will be built. There will be new kind of use cases that will be run on top of crypto rails. But the dimension that has the most amount of momentum right now and the most amount of, I would say, real world value is the finance dimension. And I think that is a big part of the story for the next several years, where I think, you know, as the industry kind of matures from this very experimental mode of operation, where you had people trying crazy ideas, you have a lot of speculation, You have a lot of gambling.

50:41Armani Ferrante:You have a lot of toys that are being created. In the pursuit of all of this, there's very real technological foundations that then can be hardened, ossified, and applied to, you know, real world use cases. And so crossing that bridge, I think, is really what we're starting to see happen all across the industry. And it's going to lead towards a very different mode of operation and a very real kind of question of identity for, I think, many kind of market participants where are you in the finance world? Are you in the Bitcoin, Zcash, self-sovereignty money world? Are you in this weird middle ground?

51:39Armani Ferrante:Are you kind of in this other kind of independent dimension where I'm, you know, trying different crazy things, you know? And I think, you know, I think that's going to be a big part of the story, I think, going forward. Quick one. I want to thank our partners who help us make this show possible. Thank you, Trezor. My favorite cold wallet to store my crypto and make sure I sleep well at night. If you want to order a treasure wallet and sleep well at night too, you can use my promo code WSH10 to get a 10 % discount. Big thank you to Bitwise Asset Management for backing today's conversation. Bitwise is a crypto specialist asset manager with more than$15 billion in client assets across 30 plus crypto solutions, including ETFs, index funds, alpha strategies, staking, and more.

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52:55You're the co-founder of Backpack. Explain Backpack to your Uber driver. and explain what role Backpack is playing in what you just talked about, which is this bridge between crypto and the finance world.

53:18Armani Ferrante:Yeah, so there's the Uber driver explanation and then there's the kind of longer philosophical explanation. I think the Uber driver explanation can be articulated as follows.

53:37Armani Ferrante:Today, you have the largest financial institutions in the world that have access to this incredible financial system that's been built in the US and other parts of the world. that has given rise to modern banking, the stock market, insurance. You're an Uber driver. You're driving a car. Did you get a loan to that car and you have an interest payment and you pay off the car frequently? This is all a direct consequence of financial markets, whether you buy a house and you have a mortgage. You have your retirement account, your IRA, your brokerage account. What's happening right now in crypto is all of this is being rebuilt from the ground up to, in many genuine ways, to democratize access to capital markets, to money.

54:59Armani Ferrante:and in the exact same way that right now you'll have really gated access to things like lending, things like credit markets, things like if I wanted to borrow dollars against my retirement account to go buy a car to then start an Uber business. Well, you can't do those types of things unless you have an account with Goldman Sachs or whatever. And so what's happening in crypto and what's happening with Backpack is a lot of this is being flipped upside down and rebuilt for kind of, you know, a global economy.

56:02Armani Ferrante:And, you know, whether you're trying to get a new loan, whether you're trying to buy a stock, whether you're trying to pay your, you know, family member, maybe your mother that's, you know, living, you know, somewhere around the world, right? what ultimately is happening here is access to these things are becoming much more widespread so that you know the entire financial system as we know it becomes you know accessible to all and there's various different kind of ways you can slice that, right, whether you want to think about payments, whether you want to think about what your savings account's going to look like in the future, whether you want to ask the question, you know, how do I actually save for kind of retirement?

57:04Armani Ferrante:These are all kind of deep rabbit holes, but all of this is kind of

57:12Armani Ferrante:changing in real time

57:17Armani Ferrante:where what was previously accessible only to the most wealthy and most well-resourced people in the world is now being

57:30Armani Ferrante:accessible to the entire world And then there's like, okay, this conversation around, you know, what actually is, you know, the industry doing right now. And I think as it currently stands, most of crypto is a test bed where we're testing things like, oh, what did decentralized exchanges look like? What do stablecoins and borderless payments look like? What does disintermediation for something like stocks actually look like? And from a retail perspective, it's maybe not a very interesting problem. But when you actually break down the plumbing of these systems, you start to see very clear issues.

58:33Armani Ferrante:And I think the best example of this, just to make it very concrete, is this very surprising story of Dole Foods. so there's this company called Dole Foods where it was in like 2013 or something their CEO basically wanted to take the company private buy all the shares and do whatever he wanted to do with the company so he puts out an offer to buy all the shares at like$13 or whatever and for good reason the shareholders saw that and thought, well, you're just undercutting us. We think the company's worth more than$13. And so they said, no, no, no, you should pay me higher. You should pay me like$15 or$16.

59:26Armani Ferrante:So they file a class action lawsuit. And so they go through the courts. They win the class action lawsuit. And in the process, you know, they, you know, after winning the lawsuit, they say, okay, this is the amount of shareholders. I forgot what the number is. You have 1 ,000 shareholders or whatever, just as an example. And so 1 ,000 people each need to get paid that delta. Give an extra$2 to each one of those 1 ,000 shareholders. And so everybody's happy and they're like, okay, great. I'm going to get my fair share of these proceeds. And what happens is all the shareholders show up. And the shareholders ended up being not a thousand, it ended up being like 5 ,000 or whatever the actual number was.

1:00:19Armani Ferrante:So there was more shareholders with who thought they had shares than the actual company had on its books. And obviously that's a problem, right? Because all these people are expecting to get paid. They fairly bought the stock, but they don't actually have the shares in the transfer agent of the company. And so it's like the question is, well, what do you do, right? And this is maybe the perfect example of the types of problems that show up in the traditional financial system and why the plumbing is so broken, right? When you buy shares from a broker dealer, they're literally legally able to sell you shares that they don't have.

1:01:09Armani Ferrante:Because when you buy a share on like Robinhood or whatever, there's all of these levels of intermediaries that you go through. You click buy on Robinhood. Then you go to an – they're the introducing broker or whatever. Then you go to an executing broker. Then a clearing broker. Then eventually you hit some type of exchange, NASDAQ, NYSE or whatever. You get filled. That order executes. Then you update a separate ledger, maybe, which is like, you know, DTCC, which, you know, is the canonical, you know, book for or the canonical database for who owns like all the stocks basically in the world. And then underneath all of that is the transfer agent, which is the actual genuine truth of who owns the stocks for a company.

1:01:58Armani Ferrante:and DTCZ is actually this virtual layer on top of it that gives you access to all the margin accounts with all the brokers all around the world. And at each level across the stack, you're paying not only fees, you're experiencing not only latency, but you're experiencing settlement risk and settlement time, where when you actually buy the SOC, you actually don't have it until T plus one or T plus two, whatever time delay that happens. And so what blockchains give you and why Wall Street and finance is so excited about crypto, it's not necessarily for all of the cypherpunk decentralization properties.

1:02:42Armani Ferrante:But it's because you can collapse this entire stack into a single atomic global state machine that everybody can collectively look at because nobody collectively controls, nobody individually controls it. And everybody can trust that this is actually the states and the view of the world. These are actually the shareholders. And so it's maybe a really illustrative example of like all of this back-end plumbing that exists in finance that has been abstracted away really by taking – they're like hacks really. It's like when you send money from one person to another person, you might have the UI might hack it.

1:03:34Armani Ferrante:They might kind of give you this false impression that you actually have the money. But in the back end, there's all this settlement time. It's like ACH in the US. ACH, there's like the week or whatever of clawback risk in the event there's fraud. But that's not actually an atomic operation. So the money's not actually sent. And in that time delay, all of this stuff can go wrong. And that's what creates risk. That's what creates, you know, a million issues for all the different intermediaries and for the end user. And so it's maybe a salient example for why kind of the world is so excited about this.

1:04:15if I look at let's look at meta shareholders or Apple shareholders Tesla shareholders

1:04:26what percentage of people think they have a share but actually don't have a share today

1:04:33does the example that you gave us apply to every single company at different scale

1:04:40Armani Ferrante:so yes it does so like I mean And, you know, an example of this is like anytime, you know, a company does a stock split or, you know, wants to take a company private or something of that nature. The markets actually freeze and then they halt and they stop and there's this delay for all of the brokers to actually finish their intercompany settlement process so that the world can settle into the final state of who owns the stock. and so there are you know it's always you always have these optimistic confirmations of actions that are happening but it doesn't actually settle as like the kind of ordained

1:05:29Armani Ferrante:book so I mean to answer your question I don't know what the percentage I don't I'm not saying it's a huge risk today I mean the system kind of gets along fine with all of these hacks you know occasionally there's a, you know, a, you know, a glitch in the matrix or whatever, where something goes wrong. But these are the types of, of, of inefficiencies where like, if you think about what a blockchain is, it's just a database that minimizes errors, right? It minimizes risk. And it, it's that it's the efficiency and the lack of singular control that facilitates all of the downstream net beneficial consequences that directly follow from that technical foundation.

1:06:22Armani Ferrante:Whether it's collapsing settlement time from like T plus one to T plus zero, whether it's being able to move collateral around, whether it's the ability to have higher leverage in real-time risk systems, it's all a direct consequence of you know atomic state transitions explain us your core product the concept of unified margin account

1:06:53and what it concretely solves why should my uncle care about that when he has his Charles Schwab account

1:07:03Armani Ferrante:So the unified margin account is useful for a couple different reasons. And depending on the market segment and the type of person you are, the type of user you are, you care about different things. From a retail perspective, there's two really key value propositions of a unified margin account. This first one is just a unified user experience. So if I want to buy Apple stock and then, you know, use that Apple stock to go pay for, you know, a beer with my friends, right? Maybe I don't have cash on hand with me or whatever, and I don't want to sell the Apple stock, right? I can like pull out my phone, tap it at, you know, the, you know, at the, you know, the bar, pay for a beer and it opens up a bar against my Apple stock.

1:08:02Armani Ferrante:And then I can, you know, pay without ever selling my stock. Right. So I have the ability to get dollars from collateral. This is something that it's perhaps the most like commonly used, like it's not even a secret. It's just like an open mechanism that everybody kind of is aware of that really kind of mostly like only the wealthy have access to. This is the core reason why wealthy high net worth individuals don't pay high taxes because people that don't have assets have income and they pay the income tax rate. People that have assets don't even sell their assets. They just borrow against the assets and then use the borrow to, you know, go, you know, buy a house or whatever.

1:08:55And the price of their stock keeps going up and then that pays for the borrow interest rate and the principal that they that they owe back.

1:09:03Armani Ferrante:And so the first thing is just the ability to to borrow. Right. You have your brokerage account. You have your retirement portfolio. you never actually have to incur the taxable event if you just borrow against your retirement account. Now there's obviously irresponsible ways of using that, and there's responsible ways of using that. Leverage obviously is its own kind of can of worms, but I think access to money markets is the first very clear thing that I think is openly accessible in crypto-native products and is very tightly gated to only high-net-worth individuals in traditional markets. But it's this tax question that I think is perhaps the most, or one of the more interesting ones to, I think, maybe the average person.

1:10:00Armani Ferrante:Now, when you're talking about more sophisticated user bases, folks that are professional traders, for example, then the unified margin account starts becoming a lot more interesting. where the game is all about capital efficiency, where I have a basket of assets that I own and I want to be able to quote markets, do some type of interest rate arbitrage, do something as simple as a basis trade where I long the spot and short the perp. When you're this more sophisticated market participant, then the game is all about capital efficiency and how much money can I make with any given dollar? And so it's like I have$1 and I can make$2.

1:10:48Armani Ferrante:Is that better than if I have$1 and I can make$3? Obviously you want everything else being equal. From a risk point of view, you prefer to make$3. And so unified margin from a professional trading standpoint is a really important feature to be able to just provide liquid capital markets. And this is something that I think is very common in traditional finance, but you're still stuck with all of the constraints of traditional financial market inefficiencies, right? You have the long settlement times, which have direct consequences on how risk management is done. and so in like traditional finance for example the way like you know a clearing house would work if you're like trading futures or you're trading you know spot margin or something like that is you know you'll go you know leverage long or short on some given asset and you have an account with the broker they know who you are legally and they'll if the position turns against you right they will margin call you and the margin call is not instant.

1:12:02Armani Ferrante:It's not a real time liquidation. You have like a day or so to come in and to top up your account and to repay it. And in the event you don't do that in time, well, then they'll go after you personally. They'll go after your house. They'll go after your car. They'll go after your bank account. And that's a materially different risk system than the way most crypto markets are set up. Where crypto markets are all real-time settlement, 24-7 markets, and fully collateralized. Where the margin call doesn't happen asynchronously, right, it happens instantly. The moment you bring your margin account goes below a liquidation level, you get liquidated.

1:12:54And there's good things about this

1:12:56Armani Ferrante:and there's bad things about this. One of the good things about it is it's a much more efficient system where you can have higher leverage for the same level of risk, which means more capital efficiency and real-time collateral that can be used for any type of capital market. And up until today, really, it's been used predominantly for crypto assets, Bitcoin, Sol, ETH, USDC margined or USDT margined, and all the crypto native assets. And the big change that is really going to define, I think, a big part of the story for crypto and for traditional markets over the next decade is the evolution to these real-time risk engines that apply not just to crypto assets, but to every kind of piece of tokenized value all around the world.

1:13:51Armani Ferrante:So you can imagine doing this for not just crypto, but you can imagine doing it for every fiat currency. You can imagine doing it for not just every fiat currency, but you can imagine doing it for the entire U.S. equity markets, right? Tesla, Apple, you know, the S &P 500 index funds, ETFs. You know, you can imagine doing it for real estate. You can imagine doing it for bonds and fixed income and any type of, you know, piece of value that you can tokenize, you then bring into these modern risk engines that are kind of a very novel kind of market structure evolution from the status quo, where you can have, you know, a unified margin account that allows you to, you know, trade your stocks, trade your bonds, trade your crypto assets, and, you know, be able to bring that all together for kind of, you know, a new type of capital market.

1:14:48Armani Ferrante:And so this concept of like portfolio margining is very well known in traditional finance and it's very well known in crypto markets, but it's really when the two worlds converge and you start getting access to new forms of collateral that I think the, you know, I think there's going to be a bunch of kind of, you know, exciting changes to kind of, you know, global capital markets as a direct consequence of all these things. You live in Tokyo? I do. Japan. You moved three years ago from sunny California. Why? So it wasn't because I like the sushi in Japan. I love Tokyo. Japan is a beautiful country.

1:15:39Armani Ferrante:it's definitely a place that I would recommend anybody to go visit even if it's just for a vacation. Tokyo is probably one of my favorite cities in the world. I mean the core motivation for us moving there is because we just felt that Japan was a sleeping giant in the crypto space. There's a very rich history of crypto in Japan that I think a lot of folks at least in kind of the more recent cycles may have forgotten. Binance was famously started in Tokyo. Going back to 2017, over 50 % of global Bitcoin trading volume was coming out of Japan. Then the hacks started happening. Mt. Cox got hacked.

1:16:23Armani Ferrante:Various exchanges got hacked. Then for good reason, regulation came in and pushed crypto offshore. The bet that we made in 2023 was that this would reverse course. that crypto would explode in Japan and it would be one of the most kind of vibrant crypto markets to build a great business in. And so, you know, fast forwarding today, what are we seeing? We are seeing both the previous prime minister and the current prime minister really emphasizing kind of the importance of crypto in the region. You see not a single American exchange in Japan. Coinbase doesn't exist in Japan. Kraken doesn't exist in Japan.

1:17:12Armani Ferrante:Robinhood doesn't exist in Japan. Gemini doesn't exist in Japan. There's none. Why? I mean, I can't speak for those companies. I think both Coinbase and Kraken were previously in Japan. And then I think when FTX collapsed, they both pulled out. I think that was probably just a business decision for them. They've been very focused on other markets. I can't speak for why. I mean, there's been a bunch of nuanced details that have made it difficult to build kind of crypto companies in Japan. I think a good example of this is the stablecoin margin requirements. So they used to have this 200 % requirement where you would have to have not only the cash in circle, if you were to have like USDC on the exchange, but also the same amount of cash in the exchange.

1:18:03Armani Ferrante:And so you can imagine that's like an infeasible proposition if you have a lot of dollars sitting in there. And so there's a bunch of unique stuff like this, like taxes are 55 % right now, although in 2026, we expect it to be codified. And in 2027, for it to come into effect where taxes are going to come from 55 % down to 20 % in Japan. And it's just a very different market as well. It's a very challenging market to break into if you're not very kind of localized. So yeah, I can't speak for those two companies, but there's a bunch of idiosyncrasies about the region that I think make it pretty unique.

1:18:42You're based there, but you have and or are working on licenses in many other places in the world. You actually told me that FTX had to spend about$800 million to acquire the licenses that Backpack has today. that you guys acquired at a fraction of the cost. How did you do that?

1:19:06Armani Ferrante:Yeah, I think, I mean, there's no shortcut to licensing and regulation. You have to dot every I, cross every T, across every level of the stack, right? You have to build your systems in a specific way, whether it's cybersecurity, the architecture of a risk engine, the way you do custody, and so on and so forth. there's obviously all of the operational controls and parts of a company um there's like the legal kind of you know uh and compliance side which ensures that those controls are in place and are constantly being monitored it's it's like a whole kind of rabbit hole that you know requires you to do 10x more work than if you're just building uh uh you know just a product um I mean, the reason why we were able to do it so quickly and so under such capital constraints is simply just because I think, I mean, it's going to sound silly, but just because we have a great team or we have folks that have done this before.

1:20:11Armani Ferrante:Folks that are not, we're not guessing at, you know, any, you know, point along the way how to do any of this. I think we are very fortunate in the sense that we've been able to assemble a team that has worked across every kind of aspect of crypto and finance. Folks on the engineering side that are very comfortable with blockchains, folks on the banking and finance and accounting side that have worked at large financial institutions before, folks on the legal and compliance side of things that have already had very good and pre-existing relationships to be able to work closely with folks all around the world.

1:20:54Armani Ferrante:and so it's a very difficult thing to do and I think one of the benefits of building something from scratch is that you don't have all of the debt that I think most companies are encumbered with when they start going from an unregulated product to a regulated product where you have to do a lot of stuff when you're building a regulated product that most people don't even think about And so it's this kind of classic kind of last mover advantage where you can do a lot of these things. I don't want to say quickly, but more quickly than you otherwise would if you do it right from the beginning. And so I think there is this kind of counterintuitive element of being the last mover as well that gives you a bit of an advantage to be able to do it more quickly and with less money than you otherwise would.

1:21:52thank you so much Armani for doing this thank you for all these refreshing views on this space and for being there thick and thin to the bad times, the good times true inspiration for me and for I think all the viewers and And thank you for giving some hope. In the more difficult moments, I think people will appreciate a lot to feel the bullishness and the passion and stay the course with all of us because the future is bright. And so, as you said, 2026 is the best time to be building and probably also investing in crypto. Thank you so much for doing this. Great.

1:22:54Armani Ferrante:Well, thank you for having me. As you probably know by now, I host some of the biggest names in Bitcoin and crypto on my podcast, but a lot of the best stuff never makes it on air. The Shift newsletter is where I share that raw behind the scene alpha, the insights, stories, and lessons straight from my guests that you won't hear anywhere else. If you want the real insight take on Bitcoin and crypto, Also join my newsletter, The Shift, in the description down below.