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FTX president on the crypto run: 'Not all stablecoins are created equal'

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FTX US President Brett Harrison joins Yahoo Finance Live to discuss the crypto sell-off, the differences among stablecoins, and regulating cryptocurrencies.

Video Transcript

AKIKO FUJITA: Well, we are continuing to see big declines in crypto. Bitcoin dropped overnight, nearing the lowest value since 2020. And it is currently trading below that $30,000. Joining us to discuss is Brett Harrison, FTX US president. Brett, of course, you're going to be talking about some other issues with FTX as well. But I have to start there, because we're looking at price moves now that are more than half of where they were trading at the highs in November of last year. What do you think is happening?

BRETT HARRISON: There is certainly fear in the market right now, resulting from the depeg of several algorithmic stablecoins, especially on the Terra ecosystem. So the stablecoin word is used in a bunch of different circumstances to mean different things, unfortunately. There is very vanilla stablecoins like USDC, which are fully Reserve backed. $1 in, 1 USDC out. That's very plain and simple to understand and very-- it's not susceptible to runs in the same way that other products might be.

Then you have stablecoins that are backed by more diverse assets, for example, commercial paper, but are still relatively stable. These things called algorithmic stablecoins are much more like structured products. They take a fairly volatile asset like Bitcoin, or it could be a protocol token like Terra and automatically buy and sell to be able to keep that peg in line, which works until there is sort of a run on the underlying asset or high volatility underlying asset, and then causes that to depeg.

But there's a lot of DeFi applications built on top of those stablecoins, and that's why we're seeing a lot of things unraveling and decoupling in the market right now, causing these downward moves.

BRIAN CHEUNG: Well, hey, Brett. It's Brian Cheung here. It's great to chat with you. I mean, what was really spooky was that we saw Tether for a hot second blink. You know, it's supposed to have that dollar to dollar peg. And it went down to, I think, about $0.95 early this morning. Now it's since recovered, it appears. But it's a whole different type of stablecoin. It's more backed than, say, the Luna Terra, which we've explored at length on the program in the last few days. Are you worried that this is just the beginning of what could be destabilization across other types of crypto assets as well? You have some people online describing this as almost like a Lehman moment.

BRETT HARRISON: Again, not all stablecoins are created equal. And I think Tether is a good example of one that's sort of in the middle between the USDC and one on the Terra ecosystem, where it's backed not fully by just US dollar cash reserves, but it includes very highly liquid assets like commercial paper. And that's why even with a huge run, we saw there were some very large seller of Tether for US dollars in the market, where it blipped down for a little bit and recovered. And that shows the difference between an actual stablecoin that's actually backed, fully reserved by liquid assets, versus something that is a structured product that's really an algorithmic product that's not exactly the same.

AKIKO FUJITA: Brett, we have had you on, Sam on in the past, talking about what that regulation should look like. I know FTX has been in conversation with regulators. Given what's playing out right now specifically with stablecoins-- and I say-- I use that banner term with the understanding they're not all created equally, what do you think that says about the regulation that is needed? Do you think this kind of crystallizes it even more?

BRETT HARRISON: Absolutely. This is why it's so important to start to get clear federal oversight over assets, such as stablecoins, but the spot markets in general. With some very clear rules of the road, we can establish proper auditing regimes, disclosure requirements, rules for what can be actually named a stablecoin versus what might have to have some different name for a very different kind of product than, let's say, a USDC.

And I think once we get those, we'll be able to protect consumers much better, especially in the US markets, where US dollar dominance is buoyed by the use of these stablecoins. But we might lose that dominance if the United States doesn't get on the case of being able to regulate properly these kinds of products.

BRIAN CHEUNG: And Brett, on that point, actually, Sam is testifying before the House Agricultural Committee right now. Now for people that are wondering why is the head of an exchange testifying in front of the Agriculture Committee, what's FTX trying to walk Congress through? What exactly is the regulatory issue you're hoping to tackle there?

BRETT HARRISON: Absolutely. So what we're trying to work through is actually not really a regulatory issue. We have an amendment before the CFTC to amend a license in our clearinghouse of FTX derivatives. And the amendment is to allow for the margining of futures products on our clearinghouse for margins of Bitcoin and Ether futures.

And we have some novel aspects to the application, which combine a few different things in use together in a novel way, which include real-time margin, 24/7, and the ability to be able to go direct to the customer, instead of requiring an intermediating broker or a futures commission merchant in between. And so the hearing right now before the House Ag Committee is to discuss some of the implications in the novelties of this particular application.

AKIKO FUJITA: Finally, Brett, you know, I'm curious, going back to what we were talking about earlier with the latest moves, you know, I realized that you've gone through this choppiness before. And even before this latest dip that we saw, I know Sam has been out front, saying, there's a lot of institutional money that's still kind of on the sidelines trying to get in. Do you see some of that stepping away now as a result of the significant drops that we've seen? What are you hearing?

BRETT HARRISON: Sure, well, in the last 24, 48 hours, we've seen record volumes across exchanges, which is always typical for very volatile times. People are demanding liquidity through volatility events. But like with all cases when asset prices go down, especially where it's not just limited to crypto-- we're seeing a general risk-off across equity markets as well-- there's always followed by that a bit of a slowdown. And it would be normal to expect that to happen for a while.

But we strongly believe in the strength of the industry, the private and institutional money that's coming into the space that's looking to try to get exposure to digital assets and safe ways within the United States. And so we're long-term confident that this will recover in some way.