Brad Garlinghouse, Chief Executive Officer, Ripple Interviewer: Andrew Nusca, Fortune
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00:00Hey, everybody.
00:01Hey, Brad.
00:02How are you?
00:03I'm good.
00:04How are you doing?
00:05It's good to be in Utah.
00:06Thank you for coming.
00:08Very quickly, if you could, for the audience, quickly explain the lawsuit that you've been
00:12involved in with the SEC for the last bunch of years.
00:15So in December 2020, the United States Securing Exchange Commission argued that Ripple's sales
00:22of XRP, a digital asset and a technology we use in our technology stack, that our sales
00:28of XRP represented the sale of an unregistered security.
00:33We of course argued, and frankly, I had never considered the possibility that XRP was security.
00:38I always kind of looked at it as it's a currency, and we engaged in a three-and-a-half-year
00:43legal battle that consummated last summer.
00:47We won on the kind of core issue that XRP is not in and of itself a security.
00:52That's a quote from the judge's ruling, which was great to win, but it was $150 million
00:57of legal bills along the way, which we can talk more about the implications of that.
01:04And it carries on today, yes, in appeals?
01:06It does carry on.
01:07I mean, the core matter has been resolved.
01:10There are a couple things that I'll call hangers-ons that the judge should rule on imminently,
01:16you know, a month, maybe less, or maybe two months.
01:18I can't know that, but I'm looking forward to closure and full resolution.
01:22Yeah.
01:23So we're talking a lot about regulation.
01:24Thank you for that.
01:25We're talking a lot about regulation here at this event, and it has clearly dictated
01:29many of the last years of your life.
01:32Tell me a little bit about you believe that regulation is needed for your business, but
01:37what kind, how we go about that, that's the nuance.
01:40So tell me where you need regulation and where you don't in this fast-growing still category.
01:44Well, I'll tell you, one interesting thing is I prepared I like to, you know, take interviews
01:48like this seriously.
01:49So as I prepared, I went and watched.
01:50Appreciate that.
01:52Absolutely.
01:53The first time I was on the stage for Fortune Brainstorm was five years ago in Montauk.
01:58And not surprisingly, this exact same topic around regulatory dynamics came up.
02:03And one of the things I talked about was how important regulatory clarity was.
02:08And the frustrating thing, as I sit here five years later, is in some ways the world has
02:13changed a lot, and in some ways it has really not changed at all.
02:16And I think it's incumbent upon the United States government, which truly has fallen
02:21behind, right?
02:22Europe, you have more than two dozen countries that have come together and created a framework
02:27for digital asset regulation called MICA or MECA, I don't know how to pronounce it.
02:32And you know, the fact that they have, they're way ahead of where the U.S. is.
02:35And you have in this United States Securities and Exchange Commission a dynamic of putting
02:40really politics and power ahead of sound policy.
02:45And you know, five years ago I was saying we needed clarity, yet we still have the CFTC
02:51and the SEC and other parts of the U.S. government arguing about how this should work.
02:56And you know, when Gensler, the current chair of the SEC, came in, he went and hired more
03:01litigators.
03:02And instead of hiring people to actually codify and write policy, he went and hired more litigators.
03:09He goes in front of Congress and says the rules are clear, we don't need new rules.
03:13But then we have federal judges ruling the opposite about the same, you know, he's asked
03:16directly is ETH a security?
03:19He won't answer the question.
03:21So a lack of clarity is, you know, kind of the sweeping topic for this whole category
03:26and certainly for your business.
03:27And what I find fascinating about that is, you know, you yourself are, you're a private
03:32startup, highly funded, you know, everybody wants to know when your exit is.
03:36Is there an IPO?
03:37Are there share buybacks?
03:39Your investors want to know where it ends.
03:42And you have no idea because of all this.
03:44Is that right?
03:45That's definitely right.
03:46I mean, we have publicly said that we don't have any imminent plans to try and go public.
03:50I mean, why would you?
03:51You have in the current SEC, I'm not very popular inside the Los Angeles SEC.
03:58You know, look, there is clarity about XRP.
04:01The federal judge ruled that XRP is not a security.
04:04That is the law of the land.
04:06Only sadly, Bitcoin and XRP have that clarity in the United States.
04:10And that's a travesty.
04:11I'm not saying that as a, you know, in an excited way, I'm just saying that's a tragedy
04:16that it exists that way.
04:17Now, in terms of liquidity and those things, I mean, look, I've always viewed an IPO as
04:21a step in the journey, not the end of a journey.
04:24What we have done instead of, and this is actually new news that we haven't shared publicly,
04:28we have done a series of tender offers where we've been buying shares back from investors
04:33and employees.
04:34And we now, we're in the middle of another tender offer.
04:37And after we finish this, we will repurchase $1.4 billion of stock from our shareholders.
04:42Wow.
04:43That's a huge amount.
04:44I want to switch topics just a little bit.
04:49Yesterday, we had Robin Hood, CEO, Vlad, and he was talking a great deal about real world
04:55asset tokenization.
04:56That seems like a very large growth prospect for both your companies and especially yours.
05:02Tell me a little bit about that, because it's a very abstract concept for those of us who
05:05are, you know, the normals.
05:07Well, look, I think when we think about trading assets today, and you talk about securities,
05:12you talk about real estate, you talk about all these different things, there's friction
05:15associated with the movement and even the custody of those assets.
05:20And the idea of if you can tokenize an asset and make it move the way a token moves on
05:25a blockchain, you can dramatically make those markets more efficient.
05:30And that's true in real estate.
05:31I mean, one of the things that Vlad said yesterday, I was in the audience yesterday, I thought
05:34it was very powerful.
05:36He made the comment about how much his infrastructure costs to enable trading decrease between security
05:44settlement and crypto settlement.
05:46And he actually said it was an order of magnitude cheaper because they can leverage public blockchains
05:50for the settlement.
05:52And I think that, you know, people understandably get excited about crypto markets, and there's
05:56a lot of speculative dynamics.
05:58And I think we don't spend enough time talking about exactly what Vlad talked about.
06:03Integration of these technologies can dramatically reduce costs, improve efficiency, improve
06:08speed in the settlement of lots of different assets.
06:11Ripple started by focusing on the settlement of cross-border financial transactions, payments.
06:16But you know, as you talk about the tokenization of different asset classes, I mean, now you
06:21have the CEO of BlackRock, Larry Fink, they have $10 trillion of assets under management.
06:26He's one of the biggest advocates out there for crypto at large.
06:31He's made some really powerful comments that, you know, I think really speak to, and he
06:35used to be a naysayer and very dubious, and I think as he learned, he was like, oh, wait,
06:41these technologies really can be used for, you know, real utility.
06:44So no one knows what the state of the crypto market is like better than you.
06:49I would love your just kind of like 30,000-foot view, because it's so volatile, right?
06:55Every year, you know, you got your boom, you got your bust.
06:57They're getting, you know, the swings have changed since the early days.
07:01Where are we at right now?
07:02Yeah.
07:03Well, look, I think this has been a profound year with the adoption of an approval.
07:09The U.S. SEC fought tooth and nail to not approve a Bitcoin ETF.
07:13They were forced by the court to do so in January.
07:15That went live, and again, billions of dollars of people who wanted exposure to this asset
07:20class moved in.
07:21You know, look, I think the long-term trends for crypto, whether it's because of inflationary
07:27dynamics, whether it's because of positive regulatory dynamics, the long-term trends
07:31for crypto, I think, are very positive.
07:34In some ways, it's taken longer to play out than I would have forecasted 10 years ago
07:38when I got in the industry, and in some ways, it's actually more, it's larger than I might
07:43have forecasted, right?
07:44You're talking about somewhere around $2.5 trillion is the total market.
07:48Extraordinary.
07:49And, look, I have said publicly before to much criticism, you know, there's something
07:54like 15,000 tokens.
07:56I don't know that the world needs 15,000 tokens, but, you know, there is a segment, a category
08:01of there will be multiple winners here, that different chains are more efficient for different
08:05use cases, and that's normal and to be expected.
08:10I think that the U.S. as the largest economy in the world eventually will get this right.
08:15Eventually we will have a different chair of the SEC who is not fighting, you know,
08:20the very laws that he is championing, I mean, look, one of the things that he and I were
08:24talking about backstage I'll just share with you, the United States SEC literally puts
08:28people in jail for not providing accurate transparency, yet we have in this SEC a reluctance
08:35to provide transparency.
08:37They won't respond to Freedom of Information Act requests.
08:41They have been sanctioned by a judge here in Utah about a case where their prosecutors
08:46lied to the court.
08:48You know, this is, it's really depressing when you peel the onion back to see how this
08:52SEC, they're supposed to be working for us, the people, and it's so frustrating.
08:57But back to your core question.
08:59This will be a speed bump.
09:01Five years from now we'll look back and Gary Gensler will be in the rearview mirror and
09:06the markets will continue to grow, there will be more successful use cases and technologies,
09:11and look, who could have predicted some of the use cases of the IP networks as we sit
09:16here today and you and I have been involved in this industry a long, the Internet industry
09:19a long time.
09:20You could not have predicted some of the use cases.
09:23The same thing will happen with blockchain.
09:25You cannot predict.
09:26If you move the marginal cost of a payment to zero, it will surprise you how payments
09:33will be unlocked.
09:34I'll give you one little tiny example that people talk about.
09:38Why do we get paid every two weeks in the United States?
09:41It's because of the friction of running payroll from 50 years ago.
09:44People don't run a check run every day.
09:47Why don't we pay people every day?
09:49What would happen if we paid people every day?
09:51You could pay your credit card or mortgage every day.
09:53That would change the dynamics and cost of mortgages.
09:55How would that change how often you pay your mortgage instead of once a month?
10:00You can't imagine how some of these dynamics will unlock ten years from now.
10:05If you and I are on the stage in ten years, we'll be talking about things we can't predict.
10:09That's why I'm so bullish about the future of crypto.
10:12You're welcome back.
10:13I don't know if I look forward to paying my mortgage every day, but it's a compelling
10:18vision.
10:19We're going to come to the audience for questions in just a moment, but I have one more for
10:21you.
10:22So you have announced, Ripple has announced a stablecoin.
10:24Tell us how that fits into the landscape that you've just painted.
10:27Well, I'll tell you, one of the criticisms people have of crypto is their product market
10:32fit.
10:33Like, what problem is it solving?
10:34And one of the fits clearly has been stablecoins.
10:37The largest stablecoin today is Tether.
10:39It has about a $120 billion market cap.
10:43The second largest is USDC, which is Circle's stablecoin.
10:48Many people predict this market is going to grow exponentially from here.
10:52I think analysts think it will be somewhere around $2 to $3 trillion in a handful of years.
10:57I think there's going to be multiple players in that space also.
11:01Ripple is entering this space.
11:03We already use stablecoins in our payment flows for some customers, depending upon the
11:06currency pair, the corridors where we're enabling payments for our customers.
11:11So we're already using USDT in some cases, USDC in other cases, and we think it only
11:16makes sense for Ripple to be in this market also as a trusted, very compliance-centric,
11:22compliance-first modality.
11:25And so we've announced our entry into the market.
11:27We haven't gone live yet.
11:28We hope to in the Q3 or thereabouts.
11:30Yeah, right on.
11:31All right, let's go for questions.
11:32Questions?
11:33Anyone for Brad?
11:34Oh, the caffeine hasn't kicked in yet, has it?
11:38No.
11:39All right.
11:40Well, I've got another one for you, sir.
11:42We're going to go back to the regulation thing a little bit.
11:45I mean, we're talking a lot about the U.S. election right now, right?
11:48The RNC is on.
11:49J.D. Vance was just, you know, a named VP pick last night.
11:55We had a great U.S.-China policy session yesterday.
12:01What is the outlook for you, depending on who's in the Oval Office?
12:05Well, I mean, that's, you know, kind of a loaded question, so I'm going to start by
12:09saying...
12:10Yes.
12:12I'm going to start by saying it's shocking to me as a kid who grew up in Kansas that
12:15somehow a technology like this has become a partisan issue.
12:21Why would we have a Republican versus Democrat dynamic around innovation?
12:26We should want technology that reduces cost, improves efficiency.
12:31The fact that this became partisan, I think really the patient zero on that is Elizabeth
12:36Warren, who uses as a campaign talking point that all crypto is used for bad acts and et
12:40cetera, et cetera, which is absolutely, provably not the case.
12:44But now you have, you know, a somewhat crazy way, a dynamic where the Republicans are pro-crypto
12:49and a bunch of Democrats are anti-crypto.
12:51You know, I'll give credit to a Fortune reporter who's one of the first people I saw tweet
12:57out...
12:58This is J.J.R., Jeff John Roberts, tweeted out that, you know, Biden will gain zero votes
13:02for being anti-crypto, and Trump will gain tens of thousands...
13:07I don't know what he said exactly, but many votes for being pro-crypto.
13:10I agree with that tweet, and it makes no sense to me.
13:15And there are leading Democrats who I think are trying to solve this and leading in.
13:19I was at a crypto roundtable in Washington, D.C., led by a California rep named Ro Khanna.
13:25Mark Cuban, it was about 25 people.
13:27Anita Dunn, in a personal capacity who works directly for Joe Biden, was in the group,
13:32as was Mark Cuban, a senator from New York, Gillibrand.
13:38So look, I think there's some leading Democrats recognizing they maybe got this wrong.
13:41I was sitting next to a different representative, I'll leave unnamed, who said that he was there
13:46largely to do a mea culpa.
13:47He's like, I got this wrong, and I had looked at this the wrong way, and I do think it's
13:52because people believe the bullshit.
13:54They have people espousing things that just are plainly not true, and they believe it.
13:58They have to learn for themselves how crypto is really being used, how there's a lot of
14:02very good actors in this space that are trying to follow the rules of the road, and we've
14:07been asking for five years, give us clear rules of the road.
14:11And so I'm hopeful that eventually this will become a nonpartisan issue, but right now
14:14it is partisan, and I think the Republicans are playing chess where the Democrats are
14:19playing checkers.
14:20Right.
14:21We talk about where the, you know, rules of the road.
14:25You can't wait for, I mean, clearly, you're still waiting years later for these rules
14:29to be established, so where does the road go in the meantime, for the category, not
14:34just for your company, you know, what does the adoption curve look like for the business
14:38that you're in?
14:39What are the growth prospects?
14:40I know you're doing lots of international work.
14:42Just how are you looking at that, given the lack of clarity everywhere else?
14:45Yeah.
14:46I'm glad you asked this question.
14:47You know, when the United States government sues you, it's a scary time, and, you know,
14:51we're a U.S. company based largely in San Francisco at the time, and I was very nervous
14:58about what the future of Ripple would hold and, you know, what the growth prospects,
15:03and I will tell you, one of the things, you know, also, maybe we didn't talk about publicly
15:05at the time, but we had really high turnover of employees that first few months, because
15:10I think a lot of employees were like, whoa, I, like, freaked out, yeah, I'm out.
15:16It ended up being that the year, the two years after we got sued were record years for Ripple
15:21because we just went outside the United States.
15:23The products we're selling, the solutions we're enabling are very global, and if you
15:28look at our business now, 95% of our customers are non-U.S.
15:32From a payment volume, it's largely non-U.S., and that's sad.
15:36You know, actually, even, you kind of alluded to this, we made a strategic and conscious
15:40decision that, you know, about 75% of our hiring over the last two years has been non-U.S.
15:45Yeah.
15:46You know, why do you want to hire people here when your market is not here?
15:50It's, you want to be closer to your customer.
15:52You've heard a lot about customer centricity in the panels and discussions over the last
15:56day and a half, or day, and, like, you know, that's sad to me that we're offering high
16:01paying jobs and, you know, we're doing a lot less hiring in the United States.
16:04We've still grown in the U.S., but again, you know, 75% of your hiring is non-U.S.,
16:08that's a sad reality.
16:09So, what you do when that happens, when you don't have clarity, is you go to where there
16:12is clarity.
16:13Right.
16:14And you have markets like Japan, you have markets like the Middle East, UAE, Dubai,
16:18Singapore.
16:19You know, I highlighted, you know, the European Union earlier, certainly the U.K.
16:24These are not random small countries and markets.
16:26I mean, the U.S. has just been way behind on this, and I do think the United States
16:32Securities and Exchange Commission could be a leader in solving this, and instead they're
16:36going to, I think the history books will look at this SEC administration as being Luddites.
16:41Yeah, yeah.
16:42One more question for you.
16:44We talked about international and everything else.
16:46So, my understanding of your business is that you're really competing with the Swift Network
16:50overseas.
16:51And there's a lot of companies working with the Swift Network, like Airwallex and things
16:56like that.
16:57So, what does that playing field look like for you?
17:00Are you, in fact, in direct competition in these places?
17:03You know, is it not quite that way?
17:05Just how are you looking at that?
17:07Yeah.
17:08So, the Swift Network, I mean, I imagine everyone here at some point in their lives has done
17:11a Swift-enabled transaction.
17:13You call it a wire transfer.
17:15One little side note, the expression wire transfer, the etymology of that is a telegram
17:20wire.
17:22This is not technology that has moved with the Internet and advancement of these technologies.
17:27I don't really, I mean, do we compete with Swift?
17:30Yes.
17:31There are a lot of payment networks out there.
17:33And what I think about at the core, what Ripple's trying to do, we're trying to let value move
17:38the way information moves today.
17:40What does that mean?
17:41You and I have been around for a while, these technologies.
17:43I was around, I had a Prodigy account, I had an AOL account.
17:47There's also CompuServe.
17:48You couldn't email between CompuServe and AOL.
17:51That was not possible.
17:52Right.
17:53And then you had technologies, in this case, SMTP come along to enable interoperability
17:57between networks that didn't speak to each other.
18:00Today we have payment networks that are the same as CompuServe, Prodigy, and AOL.
18:06You can't readily send a visa payment to your mother-in-law in India on Mother's Day.
18:13You can't send that payment directly.
18:15That is ripe with friction, and the cost to do that would be outrageous, and the likelihood
18:20of errors is crazy.
18:23But yet it's all ones and zeros.
18:25Why can't we enable interoperability between payment networks?
18:28And so when I think about Swift, when I think about ACH network, when I think about CEPA,
18:33which is a European local payment network, you have SPAY in Mexico, Ripple views a world
18:39where all of this is interoperable.
18:41People say, well, PayPal and Venmo, they don't talk to each other.
18:46They're owned by the same company, and they don't speak to each other.
18:49I think eventually we will get there, but because these are payment networks, we need
18:53to move slowly and make sure it is regulatorily compliant.
18:56But I think these unlocks will really unlock a lot of value for society.
19:00This has been fascinating.
19:01Thank you so much for joining us.
19:02Thank you very much.
19:03All right.