🎙 "Wall Street Bets Taught Me to Have Faith in the Collective Intelligence:" WSB Founder Jaime Rogozinski
In this week’s episode, I interview Jaime Rogozinski, founder of Wall Street Bets, the famous Reddit trading group which earlier this year organized to push up the price of heavily shorted stocks like Gamestop and AMC to create a short squeeze, which had the double benefit of amplifying the group’s gains and screwing over big hedge funds. Jaime goes over what led him to create the subreddit back in 2012 and how it grew into several thousands and then millions of members.
He also talked about the rift that happened between him and other moderators, which ultimately forced Jaime to leave the group last year, before the whole Gamestop frenzy happened. It was surreal for him to watch how the group he created and helped grow was suddenly all over the news and moving markets. Out of all the mixed emotions he felt, pride was the strongest, he said.
He started Wall Street Bets to make money, but also because he believed the financial system was broken and so-called retail traders should have a chance against the big guys. A lot of those sentiments mirror ideals that fuel the cryptocurrency community and so it’s only natural that after his exit from Wall Street Bets, he has found his way into crypto.
Jaime has again started a group, but this time it’s a token-based DAO. This new group, called Wall Street Bets Dapp, also revolves around trading, but it will trade tokenized stocks and funds. Still, he says, he learned from the original Wall Street Bets that the community will know what’s best, so he plans to get out of the way and let it happen.
The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Owen Fernau.
🎙Listen to the interview in this week’s podcast episode here:
You’re a paid subscriber, which means you get the full transcript below. Subscribers also get exclusive access to The Defiant’s Discord chat for the community, here’s a new link to join.
Jaime Rogozinski: So I started Wall Street Bets in 2012. At the time I was really looking for a place to put my disposable income. So I was looking for higher risk, higher return type investments or trades or gambles or whatever we want to call it. And I did have my traditional Roth IRA retirement plan, but I also wanted to see if I could accelerate that at all. And so then I started looking online, looking for places to talk about these higher risks and I couldn't find them. So I just created Wall Street Bets.
“...so then I started looking online, looking for places to talk about these higher risks and I couldn't find them. So I just created Wall Street Bets.”
Camila Russo: And were you a full-time investor or was your full-time job something completely different?
JR: No, no, I was a complete novice. Like I knew what stocks were and I understood the concept behind them, and I'd already dabbled in them a little bit, back in the day when I first bought stocks in the early 2000s, it was super expensive. I had to go through my bank and pay like $30 to buy and then $30 to sell. And it was a real laborious effort. But I am a really hands-on learner, so I figured, well, I see a lot of people talking about the stock market. You know, the stocks had just finished their crash from 2008, 2009. And I couldn't help myself but thinking, well, that would have been a really good time to buy, they're going back up, and why not get involved with this and figure it out.
So I was really looking to learn, and I was hoping to find other people that were willing to be in my shoes and learn with me and people that were willing to come and teach. I had been in finance at the time. I was working at the Inter-American Development Bank, working in risk management of all things. So I had experience in finance, but I came to learn that the things that you learn about finance in school, or at a bank or whatever doesn't really have anything to do with the stock market. It can, right? If you want to go in and do a fundamental valuation of a company, if you want to do all these math things you can.
“...I had experience in finance, but I came to learn that the things that you learn about finance in school, or at a bank or whatever doesn't really have anything to do with the stock market.”
But you're also able to just look at a chart or find a stock that you like and just buy it, you know, it's as much, or as little as you want to put into it. You have these crazy fluctuations that happen in the stock market sometimes for no reason, sometimes for an irrelevant reason, sometimes for a relevant, but indirect reason and it has nothing to do with this company's discounted cash flow analysis, right. It has to do with a tweet from Donald Trump. That's when you start realizing that formal experience in finance doesn't have to be relevant to the stock market.
Frontrunning Economists
CR: And isn't it also a bit about just having fun and gambling? Some of it is just that, right? Because if you want to be a hundred percent rational, I think the recommended route is to put your money in an ETF with an exposure to the S&P or a few other index funds and just buy and hold. There's so much evidence that points to stock pickers rarely beating the overall market. But I think all of the millions of people trading on Robinhood and joining these subreddits, they're looking to just have fun and, and be a part of a community, right? There's something else besides just purely investing.
JR: I mean I've learned that it's kind of in the eye of the beholder. It's do what you want with it. And you have people that do want to gamble with it. Don't mind losing it all, doing it all on a YOLO. We now have people that don't even care to make money with this. Right? You have a number of people that were like activists with GameStop or and some of these other ones where they say I'm not effing selling. I don't care if I lose money. So it's the entire spectrum, starting from the, I don't want to make money to, I want to be crazy gambling to, I want to be a traditional investor. That entire spectrum applies to this. And it can be gambling. All the tools are there to do it. Markets are open five days a week, or in some cases, six days a week, you have all your leverage derivatives that you can use to try and make it more exciting.
So you could take a few hundred dollars and turn it into tens of thousands of dollars. That happens frequently on Wall Street Bets. More often than not people that try that end up losing it all, but it's part of the game. Or they can be a little bit more traditional. But the cool thing about it is, let's say that you buy a stock, like share of Apple, because whatever of those reasons, either you're gambling or you're investing in it, because you believe in it and you have all the phones or whatever, but you don't know about the stocks, right? Those people that now own a share have an incentive to go in and read about, hey, why did the stocks go down? A couple of days ago, the stocks all went down and if I bought my Apple shares, like why did it go down?
“...people that now own a share have an incentive to go in and read about, hey, why did the stocks go down?”
Apple didn't announce any bad news? Oh, the entire stock market went down. Why is that? Oh, this bond thing, what is a bond? The yields went up. What's a yield, right? Oh, monetary policy, oh, the US dollar. Oh, okay. All of a sudden they understand what the Federal Reserve is doing with the interest rates and that's what's affecting the stock market. That's cool. Right. Whether you were gambling or whether you were investing, now you have the incentive to go learn. And I see that happen a lot. It happens really frequently. You can start off with a meme and end up reading about monetary policy.
CR: That's so interesting. It is a vehicle and an incentive to have people make their way into understanding finance and macroeconomics at a deeper level than they ever had the interest to get into before.
JR: And in many cases they can supersede or get ahead of the actual macro tendencies. Economists have this issue where, and I'm one, by the way, I studied economics. So I am self-criticizing here. Economists are very reactive. Right? It's like something happened. Why did it happen? They do analysis. And like, oh, it happened because of that. Well, that never happened before, but let's add that to our math formulas for the future. Then something new happens and they're like, well, that's never happened. So they just react to these things, these meme investors get ahead of it. Right. They'll go out and joke about how oh stocks only go up. Right. And they'll make memes about it and jokes and academics will get all mad. No, they don't always go up.
“Economists are very reactive. Right? It's like something happened. Why did it happen? They do analysis. And like, oh, it happened because of that. Well, that never happened before, but let's add that to our math formulas for the future.”
You should see what happened in the dot com crash or the Great Depression or 1987. Yeah, but it went back up. They went down for a little bit, but they went back up and they've been going up since they were created. So, you know, this concept of simplifying some of these macro concepts... They could say, well it's because the printing fed and the thing. Yeah, but the stocks are going up. Nobody can debate that. And they've reduced the complexity into a meme. And sometimes that's all that you need in order to work that out.
Like right now the Fed is scratching their head. Because they're saying, why do we have a labor shortage as well as a high number of unemployed people? They don't know what to do with those two things. Because when you go to school, you either have a labor shortage, meaning we're pretty close to full employment, or you have unemployment in which case you don't have it. Right now it's like the coronavirus changed the name of the game. So now economists are writing the new rules and saying, well, if coronavirus happens, then you can have both people that are unemployed as well as a labor shortage.
“So now economists are writing the new rules and saying, well, if coronavirus happens, then you can have both people that are unemployed as well as a labor shortage.”
CR: So right now, like Fed economists know pretty much the same as someone in the Wall Street Bets subreddit.
JR: They're guessing. They're figuring it out. I mean, they've got these levers they can pull. They could print. Right? And then they can talk. And that always seems to do stuff. I don't know all the tools they have available to them, but they're guessing. So they might as well make a meme and then hope that fixes the economy.
Organic Growth
CR: I love it. Okay so you started this subreddit in 2012. How many people joined initially? How did it progress from there?
JR: You could see the stats somewhere. There's a bunch of websites that track them. I don't remember off the top of my head, but I registered the forum in January, but I didn't announce it. I spent a few months thinking about it and designing it, changing the colors and making the logo and doing whatever. And then six months later, I finally announced it for the first time. I don't remember. I'm sure I went to all the relevant, investing, finance type subs. So I guarantee you, I must've gone to investing and financing, trading and options. I don't know. I can't remember. Algo trading. Forex.
CR: A bunch of those Reddit investment groups.
JR: So I go there and I say, guys like, I just started this one. This celebrates risk. You guys can come over here. Girls can come here and hang out. And so we had, I don't know, a few hundred within the first couple of days or weeks, and then probably a couple thousand by the end of that year. And then started doubling in size every year, at least as the years progressed, the next thing you know, we're at like 200 thousand, 500,000 thousand, 1 million, 2 million. When you start doubling things they really accelerate pretty quickly.
CR: So what were the initial conversations about? Was it always about betting on different stocks and talking about what those stocks were doing?
JR: The conversations were what you have with a group of people that were like-minded like me. We're not risk averse. We want to take chances. We want to try and make money. And then you have people that know what they're doing. So a lot of industry insiders or professionals that do day trading. Like it's a boring job. Even if you're a successful day trader you sit in front of your computer and you look at the charts all day and wait for your whatever, your pattern or trigger, whatever your rules are. And so they would come in and they would hang out. They're like, these guys are crazy. They just bet so much on earnings with a really poorly selected stock option. It's most likely going to go to zero, even if they're right. And so the conversations were, let's talk about this particular stock, let's talk about these particular options or these options strategies.
“We're not risk averse. We want to take chances. We want to try and make money. And then you have people that know what they're doing.”
Like they'd say, oh, this particular pharmaceutical company is going to release the next phase in who knows what clinical trials and the best way, because it's going to go up, instead of buying the shares or whatever, is to sell, puts, naked puts. And why, oh, because if this happens, then that happens and then we'd all go in there and, you know, sometimes make money and sometimes lose money. And that continued, and as the subreddit started growing, you start having some really creative people that know what they're doing, and they find inefficiencies, inefficiencies that they could exploit. Right. And even if they were short-term, and that's what we, everyone calls edge. This edge, unlike being this big hedge fund that has a lot of money, and that's my edge, or I have a co-located HFT farm or whatever. It's hey, I just realized my broker is letting me do something that they probably didn't mean to let me do, and they'd share it. And then a lot of people would do that. And then the broker would close that particular bug or whatever oversight, and then people were constantly on the lookout for the next one.
“It's hey, I just realized my broker is letting me do something that they probably didn't mean to let me do, and they'd share it. And then a lot of people would do that.”
CR: How coordinated were these investments? Because we'll obviously get to GameStop, but in the early days and the first couple of years, were there other instances where the group coordinated to invest or short or do something?
JR: No, I don't even think GameStop started as a let's coordinate thing. It turned into that, and now it's a thing, right? What we saw prior to GameStop, and even up until GameStop, were people saying, I have this idea. I think that Netflix is going to do something because of the thing and the Viacom rule with the new legislation and whatever. And they spill out this concept or sometimes it was less sophisticated, put it out there. If these ideas were convincing, they would have a lot of people that would probably join those trades as well. Or if you'd have a particular trader that had a high profile winning streak, and then this trader continued to post their trades. They would get a lot of coattailers that would also try and follow suit. The language around it wasn't hey, let's do a short squeeze, let's coordinate around this thing.
Because up until GameStop, the numbers weren't there. Even if they all coordinated the strategy of let's push up the stock price, it would have been an ineffective one. So it would have been more let's coordinate because I like your idea. You just convinced me and now I want to do that too. So that's probably everything that you saw right up until, well, now you saw GameStop, that was more technical than just a sheer numbers thing, right? Like had they picked a different stock for that short squeeze maneuver, they would not have pulled it off. So it was more technical than just lots of buyers, but now the subreddit has grown to 10 million people. But now there's multiple subreddits that are also extremely big. There's also multiple outlets on social media, like Telegram and Discord and Instagram and TikTok and whatever. So now you have this mentality of Wall Street Bets, that's omnipresent. That's kind of everywhere. And now the numbers are genuinely big right now. Now we're talking about lots of people. And having that quantity of people now allows that questions of coordinating trades now becomes more relevant than it had been in the past.
“But now there's multiple subreddits that are also extremely big. There's also multiple outlets on social media, like Telegram and Discord and Instagram and TikTok and whatever. So now you have this mentality of Wall Street Bets, that's omnipresent.”
Leaving Wall Street Bets
CR: So you left, or you stopped being involved directly with the subreddit mid or the beginning of last year? Why did that happen? From what I've read, I understand there was a problem with the moderators of the subreddit. So what happened there?
JR: There was a problem between me and some of the other moderators on that subreddit. And then that resulted in them accusing me of having profited from the subreddit for a book that I released in early 2020, and I was in the midst of creating this trading competition. It's kind of an e-sports style event in Las Vegas and all these things eventually the coronavirus stopped me from it. But that rift between us then led them to push me out for selling my book and for trying to create this trading competition. Ever since then, they have continued the subreddit the way that it was always run and in the interim, I've continued to do what I do outside of the subreddit.
“...that rift between us then led them to push me out for selling my book and for trying to create this trading competition.”
CR: Why were they opposed to you doing this trading competition?
JR: It doesn't make sense right? It doesn't make sense because there's more to the story that I'm not allowed to tell you. I ended up selling the rights to that story to a movie studio. And so once they release the documentary movie, once that's out, then I'm allowed to talk about the inside rift. But the accusation that they used because of this inside rift, they go to Reddit and they say, Reddit, this guy broke the rules because he's trying to make a trading competition and he's going to make money from it. And then so Reddit goes, okay, well, that's against the rules. And they removed me from the subreddit. So making this trading competition or even writing the book, doesn't really make sense, considering that those moderators also profit from the subreddit currently by selling t-shirts. If you go to the subreddit, there's a merchandise store. So it is what it is.
CR: But the Reddit rules are that you can't profit from a subreddit, and they determined that you writing your book and doing this trading competition broke those rules.
JR: I don't actually know. So Reddit never told me anything. They just said you've been removed for violating their terms of services. I then go in, I read the terms of services and the rules specifically says you are not allowed to be paid to moderate. So that's the closest clause that I could find in the terms. And if that's the case, then that's what they considered. They never responded. I tried emailing him and talking to various people that knew people and just no communication. So I actually don't know what their reasoning was. And I don't think I ever will. It's unclear because there's subreddits like Coca-Cola or Under Armour, like brands that go out there and promote it. And clearly they're used to make money. I see tons of cryptocurrency projects or NFT projects that go and they run to Reddit and they create the subreddit with the intention of creating the community and profiting from it. And so it's really unclear. It's murky how those rules are set up. But to be frank, I'm pretty much over it and no longer dwelling on it.
CR: Okay. How did you and the moderators initially meet? Did you know them or did they become moderators organically because of how they participated in the group?
JR: I didn't know any of the moderators in real life. I, by myself, I started this subreddit and then early joiners, we ended up chatting in this chat room. And so we got to know each other better, were like, oh, you guys should all be moderators and do what you want with it. And then they turned around and they got more moderators. And I was pretty laid back with letting the community decide how to move things forward. And so I got to know some of them better than other ones, but they were all people that I met or in some cases, you know, physically met in person and other cases just virtually on the subreddit.
“...I was pretty laid back with letting the community decide how to move things forward.”
CR: Okay. And then one last question on the mods and then I'll move on. I promise. But I read something about hate speech and that was part of why there was a rift there.
JR: That's correct. That was a strong reason why the rift began.
CR: Okay. You were pushing against hate speech on the subreddit.
JR: Now I'm getting into what I'm limited to talk about. I mean the information that you publicly found is accurate, right? There was an issue with hate speech and sometimes in the words, sometimes in different forms. And I had an issue with that. Wall Street Bets is a very crude, unapologetic, unfiltered, offensive, rugged place. And it's really tricky to define where the differences between free speech and hate speech are. And so we had throughout the years, a lot of words that were credibly offensive. They were offensive to all sorts of people. And you can go back and it was always uncomfortable for me to have these offensive words on there, but I noticed that these words migrated through time, you know?
“Wall Street Bets is a very crude, unapologetic, unfiltered, offensive, rugged place. And it's really tricky to define where the differences between free speech and hate speech are.”
And so there would be like, okay now we're gonna pick on short people. Now we're going to pick on people with certain whatever. They would end up picking something that would be offensive. They would move on. And so that's when I noticed, okay, it's not really personal, it's endearment, but it was never hateful. Right. But when it comes to hate speech, right. I'm talking about white supremacy, that kind of stuff, that's really easy to draw the line and say, no this is not in good faith. You're not trying to just joke around. Hey pal, this is something that we shouldn't have here.
CR: That's definitely a shame to hear. Okay so there was this rift and you got banned from your own subreedit that you created and saw grow into... Were there already millions of the members of the subreddit, when you left? So you saw to grow into millions and then you were kicked out.
JR: Correct. I mean, it hurt. That's for sure. Especially once you get to hear the actual backstory, like I suppose if I had done something purposely bad or I say, like, I think I'm going to actually try to do a scam. Like I'm going to try and sell lottery tickets that I'm not going to pay out a lottery prize to, and I'm going to make millions of dollars doing this, and it's going to be risky. I might get kicked out of Reddit. I might go to jail, but, but I know that I'm doing this. And then, then I get caught, then I'd be like, well, that sucks. But I knew it, right. In this particular case, it was like, I was trying to do the right thing and there's these accusations that made no sense.
“In this particular case, it was like, I was trying to do the right thing and there's these accusations that made no sense.”
So then they went above and beyond to say, oh, they started making things up about me. And I'm like, ah this is frustrating. You know, why can't I have a say in this, why can't I hear back from Reddit to hear the other side, or to let them know? And, you know, after a couple of weeks of mourning, I'm like, all right, well, it's done. And there's nothing I can do about it. So I'm going to continue to innovate and I'm going to continue to do. I created this thing once I can continue to create again. I consider myself an innovator and a thought leader. That's why I did write a book. I did do these things. The moderators that took it over. Their claim to fame is they took something over that somebody else made. And you're unlikely to ever see their faces also because of the things that I know. So they can't even go out on interviews or whatever. Their hands are tied. So they're pretty much stuck there forever. And they have pretty much got their fingers crossed that Reddit never goes the route of some of these MySpaces that move on because they'll be left with nothing. Whereas I'm like, all right, I'm over it. I'm going to continue to do great things. And that's what I'm focused on now.
CR: Cool. When does the documentary come out?
JR: Documentary should be out next year. It will be out next year. They're continuing to fil, them right now, but they've already also started the post production for it.
CR: Where will it be streamed?
JR: I don't know. I'm not super hands-on with this. I'm aware of what they're doing. Obviously I'm aware every time that they're filming things, I ended up traveling all the time for that to happen. But I have enough things to worry about that I just kind of check in with them. It's like, hey, so any news, when's it coming out? But it's a huge movie studio that bought this thing out. They have a huge team that knows what they're doing and whatever strategies they deploy for releasing this thing is up to them.
Watching GameStop Saga Unfold
CR: Nice. I can't wait to see that. Okay. And then on GameStop. I'd love to just hear how that was like for you seeing that, with all the backstory that had happened. By that point, you had left the subreddit for a few months. And then suddenly Wall Street Bets is everywhere. Bloomberg, CNBC, everyone is talking about it. And they are moving markets and they did this huge short squeeze on GameStop and AMC. And like I said in the intro, it really messed with the biggest hedge funds. That was incredible to see from the crypto community side. It was so much of the ethos of crypto. You know, individuals coordinating and taking control. And this counterculture, rebellious movement of the little guy versus the institutions. It felt very crypto. So we covered it in The Defiant and it was just exciting to see. How did you live it?
JR: I'll start by saying that there are real similarities between crypto and Wall Street Bets. There always has been. Dating back to the language around when Bitcoin was first started. Like, it was this whole hey, let's empower the individuals. Sometimes it's a little more activist on the crypto side, like, oh, the fiat and the Man and central banks. But there's definitely a shared philosophy, which is why right now I'm trying to merge those two. But it was interesting to watch. It was fun. It was definitely fun to watch. I didn't suddenly feel bad that I wasn't moderating anymore because I wouldn't have done anything if I was a moderator. These things happen outside of the moderators' control.
“...there are real similarities between crypto and Wall Street Bets. There always has been.”
Like roaring kitty or deep f-ing value he wasn't a moderator either, and it wouldn't have mattered because the community's always been what creates these things. And so I'm super happy with the community. I have nothing against the community. I was super proud when this thing was happening. I was like, wow, here they go again. But they'd already done these things in the past. We were on the cover of Businessweek magazine in February or March of 2020. So almost a year before that. And that was very specifically because they're saying Reddit, the subreddit, Wall Street Bets is moving the stock markets. And it was more technical. And it was very geared towards the finance readers. This was a Bloomberg publication. We had people on CNBC talking about these things before and MarketWatch and Wall Street Journal.
“...the community's always been what creates these things. And so I'm super happy with the community. I have nothing against the community. I was super proud when this thing was happening.”
But seldom did you see this thing spill out into TMZ as this did. So thankfully I had some preparation cause obviously I got a lot of media requests when that was happening. Uh, but it was really cool to watch because, because it outperformed my expectations, I would have guessed that it was that this short squeeze was going to go on for a little bit. The stock was going to double or triple and then they move on to something else. The way they'd had done that many times before. I could not believe how this thing just kept growing and growing and growing and more attention just made this big thing even bigger. So it was pretty surreal. And I think the most moment was when I saw that the White House press, the morning briefing thing, some journalists were saying, hey Ms press secretary, what do you think about what these kids are doing with the stock market? They didn't say Wall Street Bets, but she stopped one word short of saying that. She might've mentioned GameStop. I don't remember. But that was like, wow. The White House was just asked about Wall Street Bets. I did not see that one coming.
“...that was like, wow. The White House was just asked about Wall Street Bets. I did not see that one coming.”
CR: Okay. So you felt proud. Was that the main feeling?
JR: Yeah. Because there's this philosophy, this ethos of empowering the individual. When I started Wall Street Bets, I was looking to make money, but the reason why I called this thing Wall Street Bets, and the reason that I created the culture around it that I did, was because I realized that there was a lot of problems with Wall Street that went unsolved in 2008. And I wasn't thinking that this was going to be an Occupy Wall Street thing at all, by any stretch of the imagination. I never did. It kind of turned into that with GameStop, but it was more why does Wall Street allow me, Jamie, a guy who doesn't know anything about a stock, to buy leveraged synthetic ETFs, right? These things are complicated derivatives with a lot of implications.
And I would read about them and the more I read about them, the more angry I would get as to why these things exist. And why they serve no productive value for society. And so it was with that negative energy towards the system that clearly has gotten away from its original purpose that I said, oh, you know what, no, one's going to read this thing that I just wrote, this angry blog post. Instead, I'm going to channel that into Wall Street Bets and say, well, they let us use these 3x leverage ETFs. Let's see how much we can use to break them. Fast forward a few years and here you have this guy, irony man, doing this crazy box spread maneuver on like stock options on top of a leveraged, VIX ETF. It was really complicated, really crazy stuff.
“...so it was with that negative energy towards the system that clearly has gotten away from its original purpose that I said, oh, you know what, no, one's going to read this thing that I just wrote, this angry blog post. Instead, I'm going to channel that into Wall Street Bets...”
But he took that initial idea of this share of an ETF is a bad thing because of these leveraged derivatives that all these counterparties, all these things associated with it, here's this other guy goes, wow, I can just push this button over and over and over, and then take $5,000 and repeat this trade an infinite number of times that I wouldn't be able to explain to somebody that's not in finance, because it is so crazy on top of these leveraged ETFs on the VIX of all things. That was fascinating. It's because you can do it. Let's do it now. I want someone to be outraged on TV and say, why is this guy doing this crazy maneuver on these crazy derivatives that I can't even explain? And at one point I think Jim Cramer did go on TV and say, these kids on Reddit are playing with the VIX. They want to buy a yacht. They don't understand. So anytime that I would see that I would be happy that this community was challenging the system, but not by complaining about it, but by kind of breaking it right.
CR: And using it and profiting from it.
JR: Correct, can't beat 'em join em.
WSB and Crypto Ethos
CR: I think that was super empowering to see. Okay so what are you doing now? How did that interest in stocks and investing and your involvement with Wall Street Bets, how did that lead to crypto?
JR: So I'd been following Bitcoin since its inception. I'm pretty sure I created a wallet and I farmed and whatever, and I lost interest in it super early. It was just too cumbersome to use. But I followed it and I liked the concept behind it. And I said, okay, well this cryptocurrency thing, I hope they can make it because it's really well thought out from the economic standpoint, as well as the technology standpoint. Too bad you can't buy it on your broker. At the time it was very far away from being able to do that. So I just kind of watched it on the sidelines. I went back to my stock options that I really like. And then I never went back to revisit. After that it was a coin that would go up, a thing that some people had and some people wanted.
And then when those two groups came together, they decided on a price and that price would go up or down based off which group was bigger. And that was just less interesting. Right. And the spreads were really big at the time and the execution was whatever. But as a concept I lost interest. And I made a mistake by not reevaluating that understanding of crypto until this year. I just thought now there's more coins. There's this coin and that coin and Bitcoins and little coins and crappy coins, whatever Dogecoins. I realized that there is this whole ecosystem that, I don't believe the word DeFi does not really do it justice, but it's close enough. There is a tremendous amount of power that I did not understand. And I want to emphasize that I'm not talking about a cryptocurrency.
“I realized that there is this whole ecosystem that, I don't believe the word DeFi does not really do it justice, but it's close enough. There is a tremendous amount of power that I did not understand.”
I'm not talking about a coin. Those are cool, too. Right. Don't get me wrong. I'm fine with that. Just like, I am fine with shares or equities. I no longer think there's a difference between the two. Both of them are equals. But I talk about the blockchain technology, the way that they've already today, not in theory, but in practice applied to DeFi. And so I came across this and this project came across my radar and I said, well, there's the crypto world. And there is TradFi or Wall Street world. Why not combine these things? They're clearly going in the same direction. You're seeing spillovers where tokenized stocks and Bitcoin futures trading on the CBOE and the ETFs that keep trying to apply for Bitcoin that they'll eventually get.
The lines are blurring already. Let's get ahead of this. And let's try and create an ecosystem that actually combines the best of both worlds, because some of the tools available in DeFi are mindblowing. Like rewinding back to this very symbolic leveraged ETF moment I had nearly 10 years ago. One of the issues that I had with these things was a concept called volatility decay. This is a nasty side effect that makes these things go to zero with close to 100% certainty over time. So I understood this, I understood the math behind it. I understood the whole reason for it. I understood the risks. And then eventually I used them and not use them. But it was kind of a crappy side effect of these things that they all go to zero.
I bumped into some a couple of weeks ago on Binance, where they say we have leveraged Bitcoin ETFs, but they're special. I'm like why? Because they're variable leveraged ETF. And without getting into the specifics to bore you, they pretty much fix that side effect. It doesn't go to zero anymore. If it does, it'll take like hundreds or thousands of years, you know, somebody who's smart was like, why don't we make this thing? And we change it so that when conditions are making this thing lose value, we use a smart contract. And then when the conditions are prime for this thing making money, let's change the settings again. So now you optimize this thing. I was like, why doesn't that exist on the NASDAQ? And so 24-hour day trading is so important for, not the gambler that's up at three in the morning, but for the system.
“24-hour day trading is so important for, not the gambler that's up at three in the morning, but for the system.”
It's Sunday and Evergrande says we're going to default. And there's nothing open, no futures, no anything. And we wake up Monday morning and all of your stops have been blown out. They've gapped over your stops. So your risk profile for your responsible hedge fund is completely out of whack because you were supposed to lose a maximum of 2%. And this thing gapped on you 10% and now you have to sell other things. And the whole thing collapses. 24-hour day trading is the most fundamentally easy thing to do. It's like a setting on NASDAQ. They can just get the computer programmer guy. It says like office hours equals this time to this time, 24-7, and they're done with it. And so that's the reason why I think that DeFi needs to start coexisting with TradFi and they can learn from each other because DeFi also has some shortcomings that it could still improve. So why not marry the two things and that's what I'm doing.
“It's Sunday and Evergrande says we're going to default. And there's nothing open, no futures, no anything. And we wake up Monday morning and all of your stops have been blown out.”
Crypto and Wall Street Both with Their Shortcomings
CR: I mean just to expand on that point about how broken traditional finance is and just marrying it with Wall Street, Bets and GameStop. Because that also underlined how badly this system works. When Robinhood couldn't process all the orders that were coming in GameSpot and AMC, which, you know, has never happened in DeFi with all its problems, with gas on Ethereum being congested and all the different smart contract bugs and failures, but at least you can trust the smart contract to execute. It will never lock you out of the market when you need to buy and sell if you're dealing with DeFi and not with centralized exchanges, which do collapse in the same way that Robinhood did. I just thought that was such an interesting point to come out of the whole GameStop, Wall Street Bets, saga.
JR: I agree wholeheartedly, right? Like we got to expose more cracks in the system and I'll go out of the way by saying, the issue with Robinhood in that case was a regulatory issue. It was not a broker issue. All brokers had to stop trading. Robinhood got the bad reputation because they were the biggest broker GameStop. But it was a government regulation issue that deals with counterparty risk and clearing houses and settlement processes. It's complicated and it's too long to put in a tweet. So people just assumed it was Robinhood. But you're right. The problem was exposed. And that particular problem does not exist in DeFi. But that's why there are best practices that can be, that can be taken from a lot of places.
Like somebody the other day said to me, well, the cool thing about NFTs is your house can burn down and then you're not going to lose your Picasso. And I'm like yeah, that's correct. But you can lose your keys right? Or you wrote them down and somebody steals them or puts a gun to your head. But your house at least doesn't burn down. I'm like, correct. So you're taking one type of known risk, such as fires and swapping it for a different type of known risk, such as forgetting where I put my password or being sloppy with it. That said, once you're able to identify these risks, like DeFi has different challenges that it has built into them, but they're constantly improving it. And the number of people that are behind this project is an understatement, this ecosystem, is tremendous.
“...somebody the other day said to me, well, the cool thing about NFTs is your house can burn down and then you're not going to lose your Picasso. And I'm like yeah, that's correct. But you can lose your keys right? Or you wrote them down and somebody steals them or puts a gun to your head.”
And so there's this constant improvement and the open source nature of this makes it so that the contributions from everybody, this crowdsourced, open source, whatever approach, that is obviously that has led us to things like Wikipedia and just endless number projects like Github and whatever. A million open source and crowdsourced projects that are great. There's good things. Now. There's good things about centralized exchanges too, right? Like you're using DeFi you get a different market making structure. And so maybe you're not going to risk your exchange going down, but you're trading that for a specific trading strategy such as using limit orders, right. You give that up in exchange for the stability behind it. So it's never black and white. It's a nuanced topic, but what is black and white is things have a lot of room to improve.
And I think that DeFi has a lot of things better than TradFi, like Wall Street. There's a lot of things that have been improved. There are now more benefits. I see more benefits on the blockchain than I do on the NASDAQ. And I don't think that we want to replace NASDAQ or New York Stock Exchange or whatever. I don't think we ever will, much like Bitcoin will never replace the Fed, but they can coexist and they can learn from each other and they can mutually make themselves better. So that people can have choices and do what they want and do it best as possible.
“I don't think that we want to replace NASDAQ or New York Stock Exchange or whatever. I don't think we ever will, much like Bitcoin will never replace the Fed, but they can coexist and they can learn from each other and they can mutually make themselves better.”
TradFi, DeFi, and Community
CR: So how does your project combine the two? Is that what it's trying to do? Take the best of TradFi and take the best of DeFi and make something with that?
JR: And adding a touch of community into it. Right. It's one of the things about Wall Street Bets, even before GameStop, it was known academically that the stock picks on Wall Street Bets, even before they were pushing prices and short squeezing the collective intelligence that were able to select and filter out the winning stocks, were better than the indices. In other words, Wall street Bets was already beating the market before they were pushing prices up. That's a component that this has too. And so what it is that we're doing is we have this dapp, right, this decentralized organization, or decentralized application, people can purchase part of this organization. They can decide to create ETPs which are like ETFs. And they say but let's combine stocks. Let's put Apple and Bitcoin and gold, whatever asset classes you can imagine, decide on the weight, put it up on blockchain and just let people buy it anywhere.
“Wall street Bets was already beating the market before they were pushing prices up.”
That's one strong approach, this collaborative approach. You have a single assets, so people can go on the blockchain right now. We've already been offering synthetics, we're calling them stonks, right? Because they're not actual stocks they're synthetic assets that track the prices, which have the benefits of 24-hour a day, plus no borders, no KYC, whatever. So anyone at any time can go in there and buy shares of Tesla or fractions of a share through the blockchain. And then this thing is going to behave the same way that the Tesla does. We're pretty close to rolling out tokenized stocks. This is the type where you buy the same thing, 24-7, 20 hours a day, seven days a week. But now this thing is going to actually have the underlying shares associated along with the dividends and the voting rights and all these things.
“But now this thing is going to actually have the underlying shares associated along with the dividends and the voting rights and all these things.”
So once again, all on the blockchain. We released, I don't know if we've announced it yet, but this macro ETP, which is the opposite of Yolo, right? It's this stablecoin concept, but this currency that's more stable than any one particular type of other currency. And it's got a lot of great things built in. A lot of this is coming from the community, right? Like, this is what do you guys want to do? And then people that own this thing can then help shape it. Money from all these things I mentioned and whatever else people come up with, is going to have fees associated that get rolled up into the treasury for this organization. And then the community says, oh, look, we have a hundred thousand dollars. What should we do? Buy a billboard, Superbowl ad, give ourselves a special dividend, burn coins, whatever, buying a CryptoPunk. And so people come up with it and this thing is just by the community and it's for the community and now it's expanded outside of just the US right. This thing has gone international.
CR: Okay. So it's a community of people who are able to select different assets that they want to form a fund? Would you tokenize and then put on decentralized exchanges?
JR: Or centralized exchanges.
CR: Okay. So what do you use to make those funds?
JR: So we have partners based off of different technologies instead of reinventing the wheel. There have been a lot of organizations that have dedicated a lot of time and effort and specialized in doing these things. And so for the ETPs specifically, we're working with Balancer and that's the announcement that's going to be made next week. I hesitate to tell you the day, but they're the ones with the technology that powers those ETPs and for the tokenized stocks or the stonks, we're using Terra slash Mirror.
CR: Oh yeah, I was going to ask you about that. Okay. So how are they different from the synthetic assets on Mirror itself?
JR: So the ones that we're currently offering were very similar to the ones that are on Mirror, a difference being is we're trying to give additional variation for purchasing flexibility right? As far as which currencies we're able to use the trade with and the fees associated with trades on this platform go to the dapp itself. So at the end of the day, the user experience might be similar, the benefit to the organization is higher. If they utilized this platform. That's with Mirror. But once we announce this next one, whenever we're ready to announce it, that's with a different organization, that one is going to be different in that, and I don't know of another company, maybe they do do it, I know that Binance tried to do this in Germany, whatever, but this thing is actually going to purchase the stocks. So you will have collateral.
CR: Okay. On the stonks piece, is your Wall Street Bets dapps a front-end to offer Mirror synthetics?
JR: You could say that, yeah.
CR: Okay. Got it. And then the difference is that fees paid to that front-end, then go to a DAO that Wall Street Bets token holders control.
JR: That's a hundred percent.
Tokenized Stocks Backed by Stocks
CR: Okay, cool. And then the third piece is these other tokenized stonks that are actually backed by the stocks itself. And where are those stocks custodied?
JR: So all those details will be released when we're ready to release. If I start giving you specifics, then people are going to try and guess who we're working with. And then it just makes things complicated. But the details, as with everything we've done, has been full transparency. And with full information to give people the confidence that these things are done correctly, once we're able to announce. I am comfortable with saying that this will allow people to purchase an asset, a blockchain based asset, which is collateralized by an actual share that was purchased somewhere. And if a lot of people buy it, this particular stock, on the blockchain, it will potentially, depending on the profile of this thing, have an impact on the price, unlike the synthetic ones, which is just almost like a prediction market, this thing is actually going to have an effect on the underlying, which to me was one of the most important prerequisites of joining this project.
“...this will allow people to purchase an asset, a blockchain-based asset, which is collateralized by an actual share that was purchased somewhere.”
CR: Very cool. Because if people buy this tokenized stock, you'll have to go and buy the actual stock to match the number of people who are buying the token. And why have both? Why have the collateral, the crypto synthetic asset?
JR: Once we have this one, like we rolled out the first, cause we wanted it to offer it. We said we were going to and we did. And I was glad that we did that one, but I was still unsatisfied because for me it's not even about short squeezing or whatever. For me it's about the efficiency of the market. Like I want to fix it. I want to make it better. I want to make it more efficient and I want to empower individuals. And that simple mechanic of purchasing the underlying shares is black and white difference. For the individual that has the two choices. Like, I don't know if they both go up and down by the same amount, I don't care. That's fine. But to me, having more participants that actually have touched points with the stock market, that means that the liquidity for that particular asset is going to increase, which is going to make these price discovery process a lot more efficient.
“...for me it's not even about short squeezing or whatever. For me it's about the efficiency of the market. Like I want to fix it. I want to make it better. I want to make it more efficient and I want to empower individuals.”
Which in turn then becomes an economically productive activity for the financial markets, which is one of the reason why insider trading is against the laws because it doesn't contribute anything, right? Like neither do synthetic stocks, although it does have this productive purpose and I won't get into the technicals, but this other one is important to me. So once we release that, it's unclear if we're going to keep the other one or not. The benefits that the other one has is it does trade slightly more hours, right? That's four hours more per day. And those four hours can be used for arbitrage purposes. So during those four hours, the CEO of whatever dies and you can short this thing, or, you know, they announced whatever, you can buy it. And then there's a short term profit opportunity that can pop up. I like arbitrage opportunities. Those are another insanely productive activity for any given market. So it'd be cool to keep that efficiency up there. It's also borderless, without KYC. We're obviously going to have to comply with regulatory agencies for this collateralized version. And so that's going to imply there is a KYC component to it, which the stonks don't have. So there's slightly less friction.
“...the reason why insider trading is against the laws because it doesn't contribute anything, right? Like neither do synthetic stocks…”
Wall Street Bets’ Dapp and DAO
CR: That's a big difference. Okay. Makes sense. Are the Mirror stocks and the funds are, are these pieces already live? Can you go on the Wall Street Bets dapp and already start?
JR: You can see the stonks. Those are there already, right? The synthetic ones are already there. The ETP, I don't know when you're airing this, if you're airing it today, then I can say, they're live. We just haven't given people the link to it. If you're releasing this next week then we'll be pretty close to being live. It's up there and next week is when you'll see news about it. And so that's already going to be there as well. We've already done several rounds of voting for different things for the governance to be able to use their voice through their tokens. And so that's there as well.
CR: Where is the community organizing?
JR: On the internet.
CR: But like Discord, Telegram?
JR: There's multiple touch points. Like I said, Telegram's a big group. There's over a hundred thousand people in there. We just opened the Discord a couple of weeks ago and we're still growing. So it's got a few thousand people in there. It's interesting how people are so loyal to whatever platform they like to use. And so basically trying to attract the people that don't like Telegram, but do like Discord. So we have multiple social media channels that YouTubes, the Twitters, I have my Twitter handle and Instagram accounts. And it's all over the place. That's why I said the internet jokingly, but there's a couple of hubs. The two big hubs at this point are Telegram as well as the Discord.
“It's interesting how people are so loyal to whatever platform they like to use.”
CR: And where's voting happening? Is it on-chain?
JR: It's all on-chain. And it's through, if you go to wsbdapp.com or easier, wallstreetbets.net, takes you to the same place there. You're able to do that. There's also a place to organize there too, by the way, there's a forum where people can post and vote and comment and it's a typical forum. But the voting takes place on, through our website, on-chain.
CR: Okay. And so the Wall Street Bets token has already been distributed to your community?
JR: We distributed this token, forget it was like April or May, but the coin wasn't anything. It was like, you have all these projects that go out there and say, we're going to conquer the world just buy this thing, quickly. FOMO, FOMO. Right? Like we launched with a similar kind of concept because we didn't have anything. And so people were able to buy them and do liquidity farming and, you know, PancakeSwap and do all these things, which I didn't really know about and understand back then. Now I do, but there was still no utility behind it. We're just now starting to roll out all the functionality. So we're just now starting to pack this coin with the intrinsic value. Keep in mind all of these products that we release, all of them, have deflationary measures built into them.
“So we're just now starting to pack this coin with the intrinsic value. Keep in mind all of these products that we release, all of them, have deflationary measures built into them.”
So in part it's yes. Put money in the treasury, which gives these token holders intrinsic value to whatever they're holding. But there's also a component that buys and burns tokens. I forget all these different components of it. So now all of a sudden we're able to go out there and do the same kind of approach because now we were functioning, right. We do what we said we were going to do. It's no longer just empty promises. Now they're ready to go. And so, as far as I am concerned, we're just now launching. As far as the crypto communities mentality, which is not the same as mine, this thing launched back in April.
CR: Now is the time that the token actually has real utility.
JR: Yeah. So at first the speculation or farming or whatever, and some participation. Now we're unleashing all sorts of functionality, right? And to kind of celebrate this progress that we're making, we just announced an NFT, that is going to enhance, well first attract the NFT audience that likes NFTs, right? That's a whole kind of separate topic and sub-market, but to tie it into what we're doing, this is going to be an NFT with all the artwork and attributes and properties. But also it's going to have utility on the WSB dapp experience. Such as higher farming yields, such as exclusive access to certain virtual events or in-person events and access to a free Unstoppable domain. Like all the dot cryptos and dot coin.
CR: Dot ETH?
JR: Dot ETH is not on there I think. It's all the other ones. Dot NFT. That's a good one. So we just announced this as well. People can find that at wsbcollectibles.io. And now all of a sudden we're excited. At least I am super excited. You have this marriage between crypto and TradFi, which is where my background is from. And then TradFi, it's like, all right, well, it's not just this FOMO, let's get everyone excited and get a few thousand people to pump the price up and then just walk away to go to the next one and try to get rich quickly. For me, it's like, no, it's actually create this cool intrinsic valuable, meaningful experience for people that is actually going to have substance behind it. And so they launched this coin and I would go out and talk about it, but it was so hard. Cause I'd be like we're going to do great things. I hope. Now it's so much easier because it's like, yeah sorry guys, we haven't been focusing on doing the typical, let's do a Telegram giveaway, whatever, you know, these spammy messages that you see. And instead we've been focusing on building up these really incredible partnerships and technologies and to do any of these things. So now all of a sudden you asked me, I'm like, hell yeah, we're going to conquer the world because we're already well into the process.
“...now all of a sudden you asked me, I'm like, hell yeah, we're going to conquer the world because we're already well into the process.”
CR: Nice. Do you want this new community to evolve into something similar to how Wall Street Bets did?
JR: I learned very early on into Wall Street Bets that I don't know what's best for the community. I sometimes think I do. And sometimes I'm right, but other times I'm wrong. For example, I thought Robinhood was a bad idea because it wasn't compatible with my personal trading strategy, but I was very wrong and I'm glad that I didn't apply my philosophy, and just forced their hand. The people want Robhinhood? Let them have Robinhood. It turns out I was wrong because there's a whole different strategy, which is based off of memes where they don't care about the execution or whatever. They just literally want confetti. And that is empowering them to do whatever they do. So I've been humbled enough times to say, we'll see where this thing goes.
“I learned very early on into Wall Street Bets that I don't know what's best for the community. I sometimes think I do. And sometimes I'm right, but other times I'm wrong.”
If people want to try and mimic what's happening on Wall Street Bets subreddit, then that's great. If people want to try and carve out a new niche where now we're bridging DeFi with TradFi, because there is a lot of power in TradFi and there's a lot of power in DeFi and we don't know what's going to happen when they're combined. So I don't pretend to know what's best. But I do pretend to have a lot of faith in the communities and the collective intelligence and the power of groups is orders of magnitude better than any one individual, including me.
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