Welcome to Early Returns, hosted by John Barron, a partner of Holtzman Vogel. This podcast examines law and politics and seeks insights from political players in elections, lobbying, media, and the law. Now, let's join our host, John Barron.
Welcome back to Early Returns, a podcast about law and politics. I'm your host, John Barron. Our producer is Joey Meyer Piazza. If you're like me, you've heard about cryptocurrency. Most likely, you've heard about Bitcoin, which is the most commonly owned and traded digital coin. Until I started preparing for this episode, I didn't know that there are thousands of so-called digital assets and coins and that they have an estimated market capitalization of almost $4 trillion. Hundreds of billions of dollars of crypto are traded every day. I really don't understand crypto. I'm a long-time investor in stocks, bonds, and real estate, but I shy away from putting money into something I can't see or which doesn't produce goods or services. According to a recent Gallup poll, almost everyone has heard of crypto, but few understand it, fewer invest in it, and most people will not consider buying cryptocurrency. There is a lot going on about crypto in the financial world and in the world of law and politics. In July of this year, President Trump signed the first major legislation involving crypto. It's called the Genius Act. Not coincidentally, there is a growing number of super PACs funded by the crypto industry. They've been spending large amounts of money in select congressional campaigns. To help me unpack what is going on and to understand more about crypto, law, and politics, I'm pleased to have as my guest Faryar Shirzad. Faryar is chief policy officer at Coinbase, an online platform for buying, selling, transferring, and storing cryptocurrency. He leads the company's engagement with policy makers around the world. Before joining Coinbase, Faryar was global co-head of government affairs at Goldman Sachs. Previous to that, he served as deputy national security advisor for President George W. Bush. In that role, he was the president's personal representative to the G8 conference. Prior to the White House, Faryar was assistant secretary at the Department of Commerce. And before that, he was international trade counsel to the US Senate Finance Committee. Early in his career, he practiced law in Washington, D.C. He has a law degree from the University of Virginia, a master's degree from the Kennedy School at Harvard, and a bachelor's of science degree from the University of Maryland. Faryar, welcome to Early Returns, and thanks for being here.
Oh, thanks, Jan. I'm super happy to be here. The one part of my bio you left out was that I was editor of one of the journals at UVA, and you were the chair of our advisory council, and that's where you and I first met many years ago. So, I thought make sure we include that. It was a really important moment when I got to meet the legendary Jan Baron, and you were extremely helpful as we had all sorts of ambitions to make the journal particularly relevant in whatever the elections were that were going on in that year that I was the editor, and thrilled to kind of be back with you here.
Well, thank you. You have so much in your background that I suffered from omission, apparently, here. But, I will confirm that I met you at that time, and I'm very proud to see what had happened to one of the students I met at the University of Virginia, and how he turned out, even after leaving the actual practice of law. And perhaps there's many lessons to discuss there. But, I also left out any of your other personal information, and I think it would be helpful to maybe flush out your bio a little more in a personal way. I know you were born in London, but I don't know where you grew up and how you wound up at the University of Virginia. Where did you grow up?
Well, my family story is sort of the quintessential American story. My dad was an Iranian diplomat under the Shah, prior to the Iranian Revolution. And so, he was a diplomat in London, where I was born, and he had a variety of postings. We came to the US in 1973, I guess, and he was a press officer at the embassy. He then went on to become consul general in New York, and then in Houston, and then in New York, and it was in New York when the revolution happened. I think I was 13 years old, and we got the opportunity to stay and move back to Washington, where my father had bought a house when he was a press officer, and we opened a delicatessen and a food store in Bethesda to make ends meet, because we sort of went from diplomat life to having no money life. And, you know, I think I learned from my father about how exciting it is to be at the intersection of policy and international stuff. And so, eventually my career took me there in my own version of that. So, you know, I was naturalized as soon as we were eligible for that. So, I'm a naturalized American citizen, extremely grateful to this country for everything it did for me and my family. And then, more recently, I'm a father of two amazing boys in Washington, and very happy to find myself where I am now.
Oh, see, there's another thing we have in common. I also have an immigrant. My father wasn't a diplomat, he was simply a Polish engineer, but he got caught up with the Nazis and spent most of the war in concentration camps, but we were lucky enough to finally get visas to immigrate to the United States, and life went on from there as well. And so, there are millions of stories like our families, and it's just great to encounter them to see what opportunities were given to people by the United States, and what opportunities were capitalized on by us and by our children. Well, back to your professional life. I mentioned that you spent your time in government service, but then you left the White House apparently, and you wound up at Goldman Sachs. Is that accurate? And what did you do at Goldman Sachs, which is, of course, the largest investment bank in the world, I think, and man, it's all over the book. So, you had a big job there. What did you do?
In the White House, I was the Deputy National Security Advisor for International Economics, which was a job I didn't know existed, but I think maybe one of the coolest jobs in government you can have. You know, you have the privilege of sitting as a deputy in the NSC and the National Economic Council, and you help staff the president and help coordinate the agencies on international economic work. And so, when I was leaving, you know, my own background was in trade policy and trade law, even though my job was much broader in the White House, Goldman Sachs recruited me to come and join them. And at the time, they didn't really have a government affairs office of any scale, and I kind of came in without portfolio, but not long after I came to Goldman, the financial crisis happened, and like every financial institution across the planet, Goldman was faced with regulators, finance ministries, central banks, bank regulators, everyone sort of deciding that it was time to re-architect the entire framework of financial regulation globally all at once. So, I was asked to be the first global head of government affairs at Goldman Sachs. Our team went from a handful of people to 10 or more times that, and much of what I did at Goldman was organized around navigating the financial crisis and then the post crisis regulatory stuff that follows with the Dodd-Frank Act in the US and equivalents in Europe and Asia plus a big network of global standard setting bodies and that all actually became really relevant to crypto because crypto's going through a similar version of that. All the architecture of financial regulation came under reassessment and re-examination and redesign after the financial crisis. So it was a lot of like figure out what first principles are and a lot of financial regulation was formed over decades and so there's a lot of lost memory as to why our rules are the way they are for traditional financial institutions. And so when I had a chance to come to crypto it was sort of a parallel to a version of that in the sense it wasn't policy makers needing to redesign an existing system but figuring out a new system for a new technology. And so that was what was attractive about that. So there's been a lot of parallels between my Goldman experience and my crypto experience which I'm happy to talk about.
You did that shift from a somewhat traditional financial services or participant base into something that was brand new. I mean had you heard of Coinbase? I assume you were approached by Coinbase to come over or how did that happen and what I don't know how I would react if I got contacted by something I didn't know about or understand. Was that your situation?
Yeah, I mean I hate to admit it because everyone's, most people's crypto origin story involves some kind of version of reading the Satoshi white paper and recognizing what the future's going to look like and being a kind of a historic pathfinder. Mine was not that story at all. I got a call from a recruiter and I actually didn't really know much about Coinbase. I Googled it quickly while he was talking to me and I was like, well I don't know. And he said, no no you really need to talk to them. And I don't know if it was love at first sight or what but it was very apparent that I needed to jump on the Coinbase rocket ship and I'm so grateful that I did.
Yeah, well, I explain Coinbase is I guess it's not really an exchange. It's called a platform, right? It's a platform for trading and buying and selling and bartering and maybe having custody of people's Bitcoins and holding it for them and things of that sort. Is there a more ample explanation to somebody who doesn't know anything but crypto or Coinbase, you know, what is it that they do, you know, and why is it you've got 100 million customers apparently that use whatever it is you do?
Well, if you think about the traditional financial system, in a way it's actually useful to think of the traditional financial system as it existed 60, 70 years ago where every stock, every bond, every derivatives contract, every loan, every everything was sort of recorded in paper form. And much of the financial system involved different intermediaries whose job it was to maintain large file cabinets storing whatever the relevant certificate was, whether it was a deposit certificate or a stock certificate or whatever. It's just like those retirement forms for government workers that apparently are stored in a salt cave somewhere in Pennsylvania, right? And actually if you think of it in paper form, it actually is more illustrative of how the traditional financial system works. Now, a lot of it has been digitally recorded and a lot of the movements are digitally, but fundamentally much of the financial system is built on the predicate that you need a whole bunch of intermediaries to store and record your interest in a thing. So, whether the thing is a stock certificate, or cash or whatever happens to be. And so, what crypto does, I'm kind of jumping around, but I'm going to answer your question. What crypto does, crypto is an information technology breakthrough. So when the internet came about, it did a really cool and important thing which was allowed you and me to send peer-to-peer without an intermediary information. So I can send you a note, you and I can do this video call, people can listen to the podcast. They can post and transfer information seamlessly peer-to-peer. That was the breakthrough and the data moves across a decentralized protocol governed by a loose network of developers, engineers, and foundations. That's how the internet worked. What the internet did not do is to figure out how you move a thing of value. So if I want to send you a dollar in an email, I can send you a picture of a dollar, I can send you a picture of a hundred dollars, but you're not going to have the dollar. You'll just have a picture of a dollar. I can send you a picture of a stock certificate, and the only way you get it is by me asking an intermediary to send that, have my bank, my exchange, my brokerage send the stock certificate to your bank, brokerage, or whoever. That's how the system works. So the internet was a giant breakthrough of moving data that represents information, but it couldn't allow for the movement of value. Crypto is a technology breakthrough, an information technology breakthrough that figured that conundrum out. And what crypto allows you to do is to create unique digital tokens, and those tokens can be anything. They can be a dollar, they can be a stock certificate. And so what it does is essentially takes the magic of the internet and applies it to value transfers. And so the first token that was created was Bitcoin, and people now invest in Bitcoin, and the market cap is enormous. It's the best performing asset in the last 10 years. The value went from zero to $110,000 per Bitcoin. But, in a way, that's kind of distracting as to what crypto is. Crypto is the information technology breakthrough. The most visible manifestation of it is this token called Bitcoin, but there are billions and billions of dollars being spent right now to figure out how to create tokens that represent other things of value. Your driver's license, your mortgage, your deed to your house, your title to your car, your stocks, your bonds, your derivatives transactions. And once you tokenize all those, they can move seamlessly peer-to-peer. And what Coinbase does is build the infrastructure for tokenization and transfer of tokenized things on a peer-to-peer basis between individuals.
So, how would you distinguish what Coinbase does from the traditional intermediary? I mean, if I wanted to send a dollar, I go to my bank to transfer a dollar to somebody else. The payment of bills, things of that sort. If I can tokenize everything, if I can tokenize a dollar, why would I need Coinbase to send a token of $1 to somebody else?
Yeah, what Coinbase does is it basically helps people wherever they are on their crypto journey. It's sort of as me. So, most of our customers come to Coinbase because they want to trade crypto, but they want us to intermediate it. So, they'll download our app, they'll hold their balances in a way that we manage for them. And so, if they lose their password or whatever, we can help them. And we have an order matching engine that helps connect buyers and sellers. So, much of what Coinbase is is actually much like a traditional bank brokerage in the sense that we allow people to buy and sell and we manage and intermediate that. So, that's a big part of what we do. But, we also similarly custody. So, we're the world's largest crypto custodian. So, if you have crypto and you're nervous about losing your keys or what have you, you can give it to us and we're the largest custodian in the world of crypto because it's a very complicated information security exercise to do that. But, at the same time we're also building the tools for people to not use and not need an intermediary like Coinbase. And so, we essentially are the whole complex of how people want to interact with crypto whether they want to use an intermediary or whether they don't, we build the tools for them.
So, if somebody wanted to trade in cryptocurrencies or purchase a cryptocurrency, they could do that. They would have to presumably get into the blockchain to do this. They'd have to do it all on their own. Or they could go to Coinbase. That would help them execute all of that. Is that an accurate description?
Exactly. So, you can come to Coinbase and there are a number of other exchanges that provide similar services and you just download the app and you do what you would do when you sign on to any other financial app and we're regulated similarly to a lot of the financial apps. We are subject to the bank secrecy and AML controls. We do checks on our customers to make sure they're not subject to some sanctioned block or whatever. So, much of our business is very traditional in that regard. But, lots and lots of our customers come to us because they want to have what we call crypto first solutions. So, they don't want to have us intermediate. And so, we have a wallet which is basically a piece of software that you can download from us. You can get similar wallets from other people, but it's essentially we call it the TBA wallet and you can basically go on there and immediately access decentralized exchanges allow you trade crypto peer-to-peer, but not go through Coinbase and do that. And so it's a bit of a mind-bender because as soon as people think they understand what we do or what crypto does, you hear a different version of it. But it's like trying to explain the internet early on. Like is the internet like is it an email or is it a text or is it a website? Is it a video call or what is it? It's a technology and crypto's a technology, too.
Well, I mentioned in my introduction that there are presumably hundreds if not thousands of crypto coins out there, which suggests that anybody can start one of these coins. Of course I should have added that it's dominated by Bitcoin and a handful of other currencies, Ether, Solana, and so on. Even though there might be many many versions of these cryptocurrencies, all the current well seems to be gravitating towards one end. How does somebody start a new currency? Why would they do that? And I'm asking this in the context of the recent news that the Trump company, that's run by the president's sons, have already started a couple of currencies, one of which allegedly has enhanced their personal wealth $5 billion overnight, apparently. And of course even before the president was inaugurated, there was some sort of a token that was issued called dollar sign Trump. I don't know how they pronounce it, but it's a dollar sign with the word Trump after it and there you have a cryptocurrency. I mean, how do they do that? How does anyone do it? Why do they do it? And are they just expecting people to send them money? I mean, it's certainly mystifying. This is all part of why I am baffled by what's going on. I just don't understand it as apparently 70 or 80, 90% of the American public. They hear about it, they see it, they don't understand what's going on. Do you have an insight into what's going on when somebody wants to create a cryptocurrency?
Yeah, so that's a really good question. So it's confusing because like I said, crypto's a technology and it can manifest in a million different ways. So just at the moment people think they've figured it out then another manifestation of the technology comes up and it gets confusing. I would think of crypto tokens like websites. Anybody can set up a website and your website may be extremely well curated and provide enormous value and be worth visiting and investing my time in, but my website might be frivolous and dumb. But the technology of allowing people of having people build websites is a very democratic one and so your website maybe was born and we all thought it was dumb, but you iterated on it and developed it and it became better. And so people's affinity to a token or whatever is just whatever the market bears and so I would say that's kind of one frame of reference to think about it. But fundamentally, each time somebody issues a token, they're generally building a crypto network that then they issue a token that provides governance rights with regard to that network. So if you have Ethereum, if you have an Ethereum, you have governance rights with regard to the Ethereum network. And so for the 95% of the market cap of crypto is all concentrated in maybe eight or nine tokens. So yes, there are tens of thousands or more crypto tokens out there, but the overwhelming 90-something percent of crypto activity is really concentrated in eight or nine tokens. And those tokens represent two different types of networks. One is Bitcoin, and Bitcoin has become adopted globally as a store of value that competes with gold. So, people that just now adopted Bitcoin and feel like it's a safe place to put your money because it operates under a protocol that governs how much Bitcoin can be created, limits the supply, and the adoption is now so comprehensive and global that people feel like if you live in a hyperinflationary economy, or you have another reason why you want to store your money somewhere where you feel like it's safer than your domestic investment options or currency options, you would invest in, and that's Bitcoin. And Bitcoin is 50, 60, 70% of the market of crypto. The rest of the big crypto tokens, Ethereum, Solana, and others, are what they call programmable networks. So, much of the applications that are being built in crypto to facilitate take payments, to facilitate social media, to facilitate whatever, are being built on those eight or nine other networks that have huge adoption. And so, there's a race going on to build networks that can match the processing speed of traditional payment networks. So, right now, the largest payment processors in the world are, in terms of volume of numbers of transactions are Visa's number one, I think, and maybe MasterCard's close second or something like that. And they can process millions of transactions per minute or tens of millions. I don't know what the exact number is offhand. And so, what crypto networks allowed you to do is allowed you and I to transfer an Ethereum token seamlessly, but they couldn't get scaled. You couldn't build an application on Ethereum that match the processing speed of the computers that underlie the Visa network. And so, what people have done, including Coinbase, is building networks on top of things like Ethereum, which is what we did, that allow you to have the peer-to-peer transaction capabilities crypto, but at speeds that begin and pricing that it begins to approximate the big payment processors. And then one of the big important things that happened in crypto about a year ago was that Visa announced that they were actually integrating crypto technology into their processing systems. And they've issued a really thoughtful paper on this and they basically said, 'We think' I'm paraphrasing, obviously, and they said this in a much more nuanced, sophisticated way, but we think we've reached pre-peak processing in terms of our ability to scale our processing networks and we think stablecoin or crypto-based settlement can be a unlock for us to build resiliency, speed, and scale that can augment our capabilities.' And to have somebody with the sophistication of Visa say that, I think is really important. So it's really it's easy to kind of look at a coin that people wonder like why are people buying the Trump coin or whatever they're buying, happy to have a discussion about that, but I think there's a lot of huge news that's being broken every week, including by companies like Visa who recognize that the technology is the future and are integrating it into their traditional systems.
Well, this probably would be a relevant transition to the GENIUS Act, right? Which I mentioned in my intro, that this is the first big, correct me if I'm wrong, but I understand it's the first big piece of legislation passed by Congress regarding cryptocurrencies in some fashion. And part of the reason is that Congress and the government officials aren't really sure what to do about cryptocurrency, right? You have this new technology, you have this new phenomenon, it's growing exponentially. There are complaints about it, there are misunderstandings. Government feels like we ought to do something, we should regulate it. If it's new and it moves or it has money involved, we ought to regulate it, but they're not sure how to regulate, but now they've come up with a piece of legislation called the GENIUS Act. What's the significance of that legislation? What does it do? And it seems to be relevant to your explanation about how cryptocurrency has methods more significant long-term than just whether it has a store of value for its own sake, the way Bitcoin does.
Exactly. I think that was said perfectly. So, the GENIUS Act is a piece of legislation that Congress just passed a couple months ago that creates a federal regulatory framework on the issuance of US dollar stablecoins.
Yeah. So, remember I said that crypto allows you to create a token and then trade it peer-to-peer without an intermediary. Maybe the most important token you can create is the dollar, US dollar. So, right now we have dollars in paper form and we also have the dollar manifested in digital form, but what you don't have is a version of the dollar that could be transferred between two people without the need for an intermediary. And so, the GENIUS Act was essentially a sort of a bet that just like we moved huge parts of the economy to the internet that we're going to move huge parts of our economy into tokenized activity and the dollar being available in tokenized form allows people to transact peer-to-peer using crypto technology. At the moment, there's about 180 billion US dollar stablecoins in global circulation. They annually turnover on the order of three to four trillion dollars in terms of the turnover over the course of the year. A lot of analysts, Citi Bank, Citi and others expect the market cap of stable coins to go from the 140 billion or 180 billion right now to something on the order of one to two to three trillion dollars. And what a stable coin is is a token that represents a dollar. So, if I'm an issuer under the genius act, I'll be regulated by the Office of the Comptroller of the Currency, which is the national bank regulator in the US regulatory system. Subject to a licensing and regulation by the OCC, an issuer can get customers like you and me to come, we give them a dollar and they give us a dollar token. And then once you and I have our dollar token, if I take you to lunch or if we go to lunch and I cover you, you can send me $20 peer-to-peer in an email or whatever without requiring the bank to intermediate that.
Will I be able to do that by email or do I have to use Coinbase to execute this transaction?
You can use what is known as your crypto wallet. So, you can, so I have a wallet, you'll have a wallet, and I'll just send it from my wallet to your wallet seamlessly.
So, eventually anybody with a computer, once this goes into operation, can set up their own personal account in which they will have their tokens and simply execute it directly between themselves and whoever they want to receive the token without having to use a bank or Coinbase. Is that correct?
That's right. And so, like right now, if you go to like I get my haircut at a barber shop that I pay by Venmo. And so, when I get my haircut at the end, I scan a QR code and I pay with Venmo and it feels seamless and instantaneous. But payments are actually an extraordinarily anachronistic and antiquated system in the United States. So, even though it feels like the barbershop got my $35 instantaneously, but what Venmo is actually doing is extending credit on my behalf and putting money into the barbershop's bank account for me, and then I pay a fee for them to cover me as the banks chug along and move my dollar from my bank account over the course of three, four days, five days to Venmo's bank account. And to cover them for having extended credit and paid the barbershop on my behalf.
