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In Conversation With the Federal Reserve Chief Innovation Officer

·17 min read

Don't miss CoinDesk's Consensus 2022, the must-attend crypto & blockchain festival experience of the year in Austin, TX this June 9-12.

I had the pleasure of speaking with the Federal Reserve System’s Sunayna Tuteja at Consensus 2022 in Austin, Texas, last week about the U.S. central bank’s philosophical approach to innovation at large. You can watch and read the conversation below.

Some housekeeping: The next few issues of this newsletter will be selected interviews and snippets of interviews from various panel discussions at Consensus and conversations I’ve had, including a second edition of this newsletter sometime this week that’s just recapping all the stuff I missed while traveling. Normal issues will resume in July.

You’re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. Click here to sign up for future editions.

Fed Innovation

The narrative

Sunayna Tuteja is the Federal Reserve System’s chief innovation officer, where she works on issues tied to central bank digital currencies [CBDCs], digital assets and other technology concerns. Prior to that, she was the head of digital assets at TD Ameritrade. She moderated a panel with her colleagues at Consensus 2022, before speaking to me on the sidelines of the event.

Why it matters

The Federal Reserve is perhaps best known for its work on economic issues, but it has also done quite a bit of research on central bank digital currencies and similar issues over the past few months. (This interview has been edited for clarity.)

Breaking it down

Nikhilesh De: Hello and welcome to CoinDesk’s Consensus 2022. My name is Nik De, I'm a reporter with the team. I'm joined today by the Federal Reserve System’s Sunayna Tuteja, who's going to talk about being at the Fed and the Fed’s innovation team.

Sunayna Tuteja: Hey, Nik, thank you. I'm delighted to be here. And yes, an ex-bitcoiner and DeFi [decentralized finance] degen [degenerate] is now the chief innovation officer at the Federal Reserve System. And this is, in fact, our first time at Consensus. We've been here all week and did a session, “Demystifying the Federal Reserve,” which was really designed to explain there's FUD about crypto, there's also a lot of FUD about the Fed and, hopefully, we demystified some of that.

But I'll say one of my favorite parts of spending the week here is we did tons of bilaterals with builders in the industry, and hosted, I think, upwards of five meetups with builders, engineers and investors in the space and really taking the time to listen and learn from the ecosystem of what's exciting them, what they're working on and where and how the Fed can be a collaborator in advancing that innovation.

Can you just tell me about, you know, kind of what you do … how the Fed got to a point where it hired someone, a bitcoiner, to be an innovation officer.

So before I joined the Fed, I spent my entire career in the private sector and really the last decade as a builder, operator and investor in fintech [financial technology], and really in crypto. So I personally got into crypto in 2010, 2011 and professionally since 2015. And the reality is, when I first got the call about this role as the chief innovation officer at the Fed, I was convinced for the first 10 minutes [that] it was one of my bitcoin friends pulling some sort of prank on me.

And then when I realized, “Oh, this is a real job,” my question was, wait, central banking, innovation, isn't that an oxymoron? But the reality is, innovation really has been part and parcel of the Fed’s DNA, and in this role it's really about amplifying that innovation, scaling that innovation. And as I like to say, it’s really kick-starting the metabolism and speeding up that innovation within the Fed. So you know, I often like to joke that my job at the Fed is to try and red-pill my colleagues while they try to fed-pill me. And you know, we see where we land in the middle, and we have a portfolio of initiatives, which I'm happy to double-click into in terms of how we're scaling and speeding up that innovation.

Maybe let's expand on that. Can you talk about specifics, any projects or initiatives that you're looking at that really relate that you know, that you think the crypto industry, in particular, might be fascinated by?

Yeah, absolutely. The one thing maybe I'll share is, you know, when we, when I think about the anchoring heuristic for innovation, oftentimes innovation does get tethered to technology. But it doesn't have to be, right? So I take a very tech-agnostic view to innovation. And for me, the metrics of “are we advancing the right type of innovation that's generating meaningful outcomes” is really anchored on a threefold heuristic. So number one is, are we solving gnarly problems? And believe me, there's a lot of gnarly problems that need to be solved.

Number two is, are we solving those problems with an obsession on the end customer. I know, colleagues in the crypto and fintech industry are like, wait, the Fed has customers? I'm like, yes! You know, everything we do touches everyday Americans, but also institutions, both domestic and globally. So we have to be thinking about that end user experience. And then the third thing is through innovation, are we leveling up and future-proofing our value proposition? Like with any organization of any size, just because you've been relevant for the last 100 years, does not guarantee that you will be relevant in the next 100 years, so how do we keep leveling up and making sure that the value we're rendering is meaningful?

So with that heuristic in mind, the way we really are bringing innovation to life, I'll share one concrete example, which is the first time I'm talking about it publicly. [This] is something that we've built out within the Fed over the last nine months called the Innovation Launchpad. So if you're in the private industry, Big Tech or even startups and in the crypto space, oftentimes when you think about innovation, there's a level of speed to go from exploration, to experimentation to execution.

Now, when you're a 100-year-old institution, with a massive responsibility and scale, those cycle times can be very elongated. And a lot of times that innovation can get stopped in its tracks. Because you have to get all these approvals, you have to run around trying to justify your use case or you can’t get access to the right technology.

So one of the things we did is, learning actually from the crypto and fintech industry, creating this incubator model. So within the Federal Reserve, we now have the Innovation Launchpad that gives all 20,000 employees of the Fed – and by the way, the Fed is a solar system, because it's not – I often like to tell our bitcoin friends that there's nothing central about the central bank of the United States. It's actually these 13 planets that operate as a solar system, but making sure everybody has access to emerging technologies. They can learn and get a tactile experience. … But even if you're a policymaker, if you have touched and worked and understood [artificial intelligence] and machine learning now, as you're writing policies on that subject matter, you actually have a learned experience, a lived experience, which makes a difference, and then to execution.

So how do we go from finding those problem statements, applying emerging technologies and executing it at scale, within days and weeks versus months and years? So our next iteration of the launchpad, we want to create a forked version of the launchpad, where we want to bring in collaboration and co-creation with academia and with industry, so we can work together with them in this experimentation zone to solve the problems, the bold problems and do it with a bias for action.

I don't want to get into the philosophical question of whether or not the Fed should issue a central bank digital currency. We've heard, you know, various discussions that Congress will eventually make a decision. But I'm really curious more on the philosophical questions about just what are the questions that need to be answered on the technical side? … You know, what do you need to look at? What do your colleagues need to look at? And how are you thinking about this?

I appreciate you framing it that way. Because there's a lot about this topic that is not in our zone of control. And I am always like, okay, let's focus on the things we can control and because you can drive yourself crazy trying to control things you can't control.

So with the CBDC, whether I was in the private sector, and now within the context of the Fed, I tried to again apply that product owner mindset. So let's create this through line, right? In a way money is the ultimate consumer facing product, all several – 7 billion people around the world have some sort of relationship with money, be it analog, digital, DeFi or who knows, right? I would submit that the U.S. dollar today has a pretty enviable product market fit, you know, the TAM [total addressable market], the enviable TAM. But if I'm the product owner of something that has a pretty awesome TAM, I do not get to rest on my laurels, I actually need to be operating with a healthy sense of paranoia, and take on the responsibility of disrupting my own product and leveling it up and making it better and better before somebody else tries to disrupt it.

So if you apply that product owner mindset, of course, it behooves us to be leaning in, to be experimenting, and researching, and thinking about the design principles, and how to throttle those design principles agnostic of whether it manifests or not, or whether there's a need for it or not, we always need to be flexing that muscle and developing those muscles, right. And, you know, at the end of January, as you know, the Fed for the first time dropped its public perspectives on digital asset ecosystems, and this specifically around CBDC. And I know the word “humility” doesn't often get associated with the Fed. But I hope that you will see the tone in that paper was genuinely humble, because we recognize that this is a nascent technology that is shape shifting, and we're really coming at it from a learner's mindset.

And along with our perspective, there were over 25 questions that we're still interrogating. And a lot of those questions are exactly as you reference, you know, what do the features and functionalities of a CBDC look like? You know, we talk a lot about interoperability and programmability and privacy. Great, but those are very broad themes. How do we double, triple, quadruple, you know, click into these aspects, and really frame out through research and technical experimentation? What are those right throttle points so whatever manifests is adding that ultimate meaning and value for the consumers and the personas.

We take a very first principles approach, which is, what is the problem we're trying to solve? Why does this problem need to be solved? Who are the end users and personas for whom we are solving this problem? And, most importantly, why is the Fed uniquely qualified to solve these problems? Right? And how do we engage and complement and collaborate with the innovation that's happening in the private sector, and we would love to continue to hear from this industry as we have been over the last week, and really continue that learning journey.

Also, to that last point, say someone who's watching this video wants to get in touch with a member of your team or someone at your local Fed office. What’s the best way for them to do it?

Yeah, I'm so glad you asked that. One of the things that we've been doing over the last few months is intentionally reaching out to the crypto community, the DeFi, the Web 3 community, the builders in this community, because when the Fed says, “Hey, we want to hear from the industry,” the incumbents know how to talk to the Fed, how to reach the Fed and how to have conversations with the Fed.

The reality is, this industry doesn't even know that the Fed wants to hear from them, let alone how to talk to the Fed. The simplest way I would implore your audience [to do] is, number one, our virtual door’s open. If you have a contact or you know how to engage with your local Federal Reserve Bank, great. If not, honestly, hit me up. I'm on Telegram. I'm on Twitter, I'm on LinkedIn, and I'll be more than happy to understand what you're trying to accomplish. And then, whether it's my team and I or whether it's connecting you to my colleagues at the Fed, the virtual door’s open. As I joke, I'm happy to be the Bumble app of innovation and connect the communities of the Fed, and my communities from crypto and DeFi and Web 3 to have this dialogue. And the other thing, if I might put a plug in, Nik, is something we're starting called Fed Corps. Think of it like the Peace Corps, but for the Federal Reserve.

People don't realize that there's 5,000 technologists that work at the Fed, everything from cybersecurity professionals, to engineers, to UX designers, to agile coaches. And as we take on more of these gnarly and bold problems, and we strive to solve them with this bias for action, we need talent. This ecosystem has some of the most talented builders, and if you are energized by solving big problems and making a dent, and in a way serving your country, we'd be also interested in having conversations. I think right now we have over 500 technology jobs open at the Fed. So, we'd love to have a conversation about that as well.

Awesome. So just one last question. And this is gonna be a curveball. What are you personally looking at any projects, any types of technologies, anything out there that is really, you know, catching your eye.

So two things. One, I have gone from doomscrolling on Twitter to doomscrolling on Discord, because I cannot get enough DAOs [decentralized autonomous organizations]. And I think I'm just obsessed about, I'm really intrigued about, the self-governing mechanisms that sound really possible and aspirational and abstract. But as you try to apply them, like with any new technology, there's all these different gradations of how they manifest and what works, what doesn't.

And as you know, there's a lot of DAO projects happening, and we're learning a lot through each one of them. So I'm spending a lot of time on Discord, like just learning through these DAO communities.

I think the other thing is, we're paying a lot of attention to quantum computing. In addition to the [Biden presidential] executive order through the White House or on digital assets, there was one around quantum computing. When I was a bitcoiner and people would be like, ‘Oh, quantum is gonna break bitcoin,” I did the eyeroll thing, but I tried to learn about it.

I think we just hosted a half-day [meeting to] level up our quantum computing understanding session at the Fed, and all of our senior leaders and all of our staff got to attend. And we brought in some of the leading experts from academia, but also builders who are experimenting with this technology. And we had a very pragmatic conversation about what is this technology: Where is it really going, where is it in the S curve cycle at the moment? But then also, how should the Fed be thinking about it?

And it's in the context of the research work that we do, but also supervision and regulation? So if the banks that we supervise and regulate are adopting this technology, what does that mean in terms of how we should be thinking about it? Also, we have a huge cyber functio/ How should we be interrogating quantum computing, both in playing defense but also playing offense?

So that's something I've been going down the rabbit hole on and just trying to learn about it and think about how that applies in the context of the Fed. I like to think about it in the approach of the what: the so what and the now what. I don't have any clear answers yet. But as I tell people who are crypto skeptics, it's okay to be skeptical but you have to keep learning and understanding because apathy is not kosher. And I'm trying to apply that same advice to quantum for myself, which is I don't know where all this is going. But it'd behoove me to be learning and understanding and see if there's something we should be doing.

Biden’s rule

Changing of the guard

Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)
Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)

We actually have not seen much in the way of movement with the heads of any agencies. However, Fed Vice Chair for Supervision nominee Michael Barr and SEC commissioner nominees Jaime Lizárraga and Mark Uyeda have all advanced out of the Senate Banking Committee.

The Senate also confirmed National Credit Union Administration Chairman Todd Harper to a full term, which will end in April 2027.

Elsewhere:

  • Consensus 2022 Was the Crypto Bull Market's Goodbye Party: A few hours after Consensus 2022 ended, crypto lender Celsius announced it was suspending withdrawals. Cheyenne Ligon has a great write-up about the almost odd dissonance between what all happened at the conference and what happened after.

  • How Much ETH Does Joe Lubin Hold?: Former CoinDesker-turned-industry research analyst Christine Kim asked ConsenSys’ Joe Lubin some great questions about the role of early ETH holders in the current and future ecosystem, with a write-up from Daniel Kuhn.

  • US Stablecoin Law Could Actually Pass This Year, Lawmakers Say: This is a bold prediction from U.S. Sen. Pat Toomey (R-Pa.), who said stablecoin legislation may be passed before the end of 2022 during a lawmaker town hall moderated by Jesse Hamilton. Toomey previously introduced a discussion draft of legislation aimed at defining asset-backed stablecoins and how they could be issued in the U.S.

  • Unhosted Crypto Wallet Rules Will Allow Innovation, US Treasury Official Vows: Deputy Treasury Secretary Adewale Adeyemo said his department is looking at unhosted wallets and how people may store crypto outside of unregulated venues. "I understand and respect the need for and the desire for privacy, but we need to make sure that we're also in a place where we're not creating avenues where those who want to move funds illicitly are able to use digital assets more than traditional assets,” he said.

  • Grayscale, Bitwise Confident a Spot Bitcoin ETF Will Be Approved Soon: Hey, ya’ll know my suspicion. I remain unconvinced that a spot bitcoin exchange-traded fund will be approved in the near future. But I’ve been wrong before, and we’ll find out soon enough.

Outside CoinDesk:

  • (The New York Times) The Times reports that Kraken CEO Jesse Powell “challenged the use of preferred pronouns, debated who can use racial slurs and called American women ‘brainwashed.’”

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

You can also join the group conversation on Telegram.

See ya’ll next week!