Dismantling the Silk Road Drug Ring (w/ Kyle Bass and Kathryn Haun)

KYLE BASS: Well, this one’s going to be a
fun one, Katie, it’s a pleasure to sit down
with you in a more formal sense, since we’re
mostly informal.
KATHRYN HAUN: Likewise, Kyle.
Thanks for inviting.
KYLE BASS: So, for those of you that don’t
know Katie, she is one of the partners at
Andreessen Horowitz.
But more importantly, the former US attorney
here in San Francisco who prosecuted the Bitcoin
Silk Road case.
We’re going to talk about a lot of interesting
things today.
And for the Real Vision crowd, I think talking
a lot about crypto digital assets will come
more at the end.
But let’s go back to your law school days.
And talk about which Supreme Court Justice
you clerked for and why, and then how that
brought you into working in the US Attorney’s
KATHRYN HAUN: Well, it’s funny, Kyle.
I wasn’t actually planning to be a prosecutor,
some people think I’m going to go to law school
and go be a corporate M&A lawyer or go into
international business or go be a public defender.
I didn’t really know what I wanted to do.
But I knew I wanted to go to law school.
And that’s something that I had always wanted
to do even from the early days.
And so, I went to Stanford.
And there, I really was focused on going to
New York City.
And so, I signed up, I took the New York bar.
And I was planning to go work at Kravets,
which is a big Wall Street firm.
And one of the things I realized, though,
was that what was really interesting me in
law were the human stories and the human element,
whether you’re talking about things like employment
law, or especially criminal law.
And ironically, my best grades, were not from
the transactional classes, like the corporate
law, or the securities and capital markets
classes, but from the criminal law, or the
constitutional law side of things.
So, maybe that was an early sign.
KYLE BASS: It was and clearly it’s what drew
me to you as we developed our friends over
time is this you’re one of the coolest ladies
that I know.
You’re one of the few people in San Francisco
that can carry a gun.
You’ve prosecuted some of the worst MS13 cases
as well as, again, the Bitcoin Silk Road case,
which I’d love to get into a little bit next.
I know that there are movies being made about
this and things like that.
But if you would, I think this talk, what
people are going to find to be most interesting
about our conversation is, is how you came
from law enforcement on the criminal side
into the investment universe into being a
partner at one of the most prestigious venture
capital firms in the world.
KATHRYN HAUN: I was fortunate to clerk for
Justice Kennedy.
And I remember that he asked me in my interview-
I’ll never forget, he asked me, what do you
want to do when you leave here?
What’s your fiveyear or 10-year career plan?
And I told him, I want to go be a prosecutor.
And I knew by that point that I really felt
strongly that I wanted to be involved in the
criminal justice system in some way.
And that was quite a shift from the early
days of when I thought I was going to be a
corporate lawyer in New York City.
And I went to work for a big law firm in Washington,
And I told the partner very candidly, my goal
here, the partner who hired me, my goal is
to really go into the US Attorney’s Office.
And fortunately, that was a firm called Sidley
Austin, they appreciated the transparency
and said that it’s a tough nut to crack.
But if you can get into that office, good
for you.
And 10 months later, I found myself there.
And that was out in the Washington DC area,
it was in the Eastern District of Virginia
called the Rocket Docket.
Because the Rocket Docket, so named because
of the pace with which cases go through.
And we were doing cartel cases there, a lot
of the international work that the DEA was
So, that’s where I cut my teeth as a baby
prosecutor, was in this Rocket Docket.
And then I was out, also in headquarters working
on some national security cases, and also
working in the attorney general’s office.
But in 2008, so they call it back to the line
back, to the line being a prosecutor.
So, I had been in some senior roles in headquarters
working on national security, and things implicating
national policy, and went back to the line
of prosecuting cases, which is what I loved.
KYLE BASS: And that’s when they sent you to
San Francisco?
KATHRYN HAUN: I actually chose to move out
here, mostly for family reasons.
And I had been in DC by that point for eight
Which was a nice long time.
KYLE BASS: But you got involved in some really
interesting cases really quickly.
Somewhere gang-related and somewhere, again,
then the Bitcoin case came.
And that was a big one.
So, if you would take us right into the Bitcoin
Well, so it was around 2012, late 2012 I think
it was, and my boss came into the office.
I had been doing murder cases and organized
crime and Rico gang murders up until then.
Had done a few trials, I did a two-month biker
murder case and was felt like I had been there
and done that with a lot of violent crime
And my boss knew that I really was looking
for a change, but I still wanted to stay in
the office.
And they proposed, why don’t you work on this
new case that we have in the office?
And that’s a case against Bitcoin.
Here we were in 2012-2013.
And we quickly learned there’s no such thing
as prosecuting Bitcoin, that would be like
prosecuting cash, it’s not possible.
We also quickly discovered it’s not desirable.
There were some really good things about this
new technology also.
Instead, what we did was we focused on- we
said, let’s- just like we do with cash or
wires or any medium of exchange, let’s focus
on the bad uses of this.
And that same thing happened in the early
days of tech and in the early days of the
It wasn’t let’s prosecute technology, it was
like, let’s stand up a computer crimes unit
within the Justice Department and go after
the nefarious cases using this technology.
So, that’s how we were approaching Bitcoin
in those early days.
And there were a lot of bad, nefarious uses
involving crypto.
And in those days, when I say crypto now,
I mean crypto assets are there are more than
1500 of them.
Back in those days, we’re talking really just
about Bitcoin.
We’re talking about Bitcoin, this is pre-TOR.
KYLE BASS: And in your mind, what percentage
of the transactions that were going on in
let’s just say Bitcoin early on were done,
say, for dark reasons, as opposed to for reasons
of commerce?
KATHRYN HAUN: In those early days?
KATHRYN HAUN: Well, in the early days, the
number of the percentages were way higher.
Because the thing we know about criminals
is that they’re often the earliest adopters
of new technology.
And we saw this in the internet.
KYLE BASS: And they love the anonymity of
this one.
KATHRYN HAUN: They love the anonymity.
But it turns out, it’s not anonymous, which
I’ll get into.
It’s pseudo anonymous, and there’s an important
distinction there.
Because Bitcoin is far from anonymous, if
anything, it’s like digital breadcrumbs.
Speaking as a former investigator and prosecutor,
we actually loved cases that involve Bitcoin,
way more than cash.
And sometimes even more than wires because
turns out Bitcoin is highly traceable, which
I’ll get into, as I tell you a little bit
about this story.
So, what happened?
KATHRYN HAUN: So, we’re prosecuting some early
cases involving criminal uses of Bitcoin.
And my colleagues out in New York were prosecuting
a case known as the Silk Road.
And at that time, no one really knew who was
running the Silk Road.
The government was really trying to find out
who was running the Silk Road, where were
the people or person, he or she, it was unknown
at the time who it was, was running the Silk
Road, and where were they doing it from?
Little did they know they were doing it right
here from San Francisco.
At that time, the mastermind of the Silk Road
could have been anywhere in the world.
And so, the US government was really trying
to find out who was running this criminal
enterprise, or depending on your perspective,
libertarian paradise.
KYLE BASS: So, the Silk Road was essentially
a marketplace from the way I understand it.
And again, correct me.
I’m not an expert in these things.
And the marketplace had various nefarious
items on it.
So, what were some of the things that the
Silk Road was purveying?
KATHRYN HAUN: Sure, well, you’re exactly right,
It was a marketplace.
It was an online marketplace, like an eBay,
or an Amazon.
But more akin to an eBay.
So, there were vendors on this marketplace.
And Silk Road was an online platform, and
you could access it using TOR, which do you
know what TOR is?
KATHRYN HAUN: It stands for The Onion Router,
And it’s basically a way to anonymously browse
KYLE BASS: This is the dark web?
KATHRYN HAUN: Well, actually, you access parts
of the dark web with TOR.
TOR is the browser.
KYLE BASS: Got it.
KATHRYN HAUN: So, think of TOR as the Chrome
or Internet Explorer.
KYLE BASS: I see, for the dark web?
KATHRYN HAUN: For the dark web.
Not just for the dark web, like anything with
technology, people are also using the TOR
browser and places like Iran or China.
KYLE BASS: So, dark web?
KATHRYN HAUN: Well, there are there are good
uses for- all I’m saying is there are good
uses for the TOR Browser.
There are also a lot of bad uses for the TOR
So, like anything with technology, there are
good and bad uses.
But absolutely, people who are accessing the
dark web, which I grant you, are people that
are up to no good typically, are accessing
the dark websites using TOR browsers.
Or a TOR browser.
And so, Silk Road was one such online marketplace.
And like I say, I always say, was it a criminal
Being a former prosecutor, I sure think so.
Or was it a libertarian paradise?
Because I also know a lot of people, especially
here in San Francisco, who think it’s not
a criminal enterprise.
Everyone should be able to choose whatever
they want to buy.
One could go buy anything from heroin to fake
passports, and to a lot of things in between.
And by the way, Silk Road- KYLE BASS: And
they just mail them to your house?
Well, typically, for sophisticated actors
or users of Silk Road, they wouldn’t pick
their house.
But there were plenty of people who indeed
did select their house.
And the Silk Road was making millions of dollars
a month.
And they had them generating a lot of revenues.
And I believe it was I’m trying to remember
how exactly the case got opened in New York,
but I believe hearing that Senator Schumer
read a wired article and was wondering why
this was being allowed to proceed.
And so, the Southern District of New York,
which was another US Attorney’s office, I
was in the US Attorney’s Office out in San
SDNY opened the case and was trying to figure
out who was behind the Silk Road.
At the same time, you had a DC office just
in Baltimore, outside of DC, also trying to
figure out who was running the Silk Road.
And there were parallel investigations going
And the government had taskforces comprised
of an alphabet soup of agencies.
You’re talking about FBI, Secret Service,
DEA, ATF, Marshals, on and on.
And one task force, the one out of Washington,
DC, well, Baltimore in Washington DC, they
had an undercover agent.
And that undercover agent was able to befriend
the person running the Silk Road and all the
government knew at the time was that the person
running the Silk Road went by the nickname
DPR for Dread Pirate Roberts.
From the movie The Princess Bride.
So, they didn’t know who DPR was.
But the undercover agentKYLE BASS: Struck
up an online relationship with him?
He actually said I want to buy the Silk Road.
So, struck up an online conversation with
DPR, and proceeded for the next two years
to engage in messaging conversations with
The two actually became quite close confidantes.
KYLE BASS: Interesting.
KATHRYN HAUN: Yeah, over two years.
KYLE BASS: And then what went wrong?
KATHRYN HAUN: Well, a lot of things went wrong
on both sides.
From the Silk Road’s side, 2013 was a really
bad year for the Silk Road, because what you
had was you had a person, an online persona,
who went by the name Death From Above.
Death From Above started extorting DPR saying,
if you don’t pay me hundreds of thousands
of dollars in bitcoin, I’m going to reveal
your identity to law enforcement.
And then meanwhile, there was another online
persona, and this person went by the moniker
French Maid.
I can’t make these names out.
French Maid was selling DPR information into
the government’s investigation for Bitcoin.
And French Maid was telling DPR the feds are
closing in and the end is near.
And you’re about to be had.
KYLE BASS: So, French Maid, in theory had
to be someone either married to or was part
of the government’s investigations.
KATHRYN HAUN: Well, DPR didn’t know but DPR
paid for that information.
And the government didn’t know any of this
at the time of course, this all came out after
the fact.
But amidst this, something else really bad
happenedKYLE BASS: What else happened in 2013?
KATHRYN HAUN: About 21,000 bitcoins, which
is today, in excess of I always have to do
the calculation given how Bitcoin is moving,
but it’s an excess of 150 million dollars,
I think today, went missing overnight from
the Silk Road.
From Silk Road vendor accounts and also from
what you might consider the petty cash account,
although there’s nothing petty about 21,000
And so, that went missing overnight.
And DPR was of course infuriated the next
He thought he’d been hacked.
So, he launched his own internal investigation,
and he quickly discovered so he thought his
right hand man, the Silk Road administrator
was responsible for this theft.
KYLE BASS: And it was about 21,000 bitcoins?
KATHRYN HAUN: 21,000 bitcoins.
So, whatever the figure is today, it’s in
excess of 100 million dollars.
And so, the right hand man, the Silk Road
administrator, it turns out, was a grandfather
living in Utah, by the name of Curtis Green.
And Curtis Green, what DPR didn’t know was
that Curtis Green, his right hand man, was
already cooperating with the feds by this
point, with those task forces that I mentioned
to you earlier.
KYLE BASS: Yeah, the feds had found him.
KATHRYN HAUN: The feds had found Curtis Green
in what’s called a buy bust operation.
Where they delivered some keys of coke to
his house.
There’s a wired article story about the bust.
And Curtis Green said I’d like to cooperate
and spare myself a long sentence, and I can
help you with the Silk Road.
And so, that’s what he did.
He sat down with the federal task force, the
one I mentioned outside of Baltimore, and
he showed them how did the Silk Road work?
How do you log into it?
How do you reset vendor pins and passwords?
Of course, he had that access because he was
a key administrator.
So, he was showing this federal task force
that day, here’s how it works.
And he even gave them his laptop to keep because
it was evidence.
So, they had it.
And that becomes important to the story later
that they had the access.
They had the login credentials.
KYLE BASS: They actually became an administrator.
KATHRYN HAUN: They could have.
KYLE BASS: For the Silk Road.
KATHRYN HAUN: They certainly could have, they
had the tools to do that and the know-how.
And what ended up happening was in this 21,000
bitcoins goes missing overnight, DPR looks
into it and says, hey, it’s Curtis Green’s
pins and passwords that have allowed this
to all be drained.
And Curtis Green, therefore, must have committed
this theft.
And actually, I want to have a hit put out
on him.
KYLE BASS: So, kill Curtis Green.
KATHRYN HAUN: To kill Curtis Green.
So, he paid about $80,000 in two installments
of $40,000.
Interestingly, not in bitcoin, just in a pure
old-fashioned wire and guess who he turned
to, to do the hit?
KATHRYN HAUN: The undercover federal agent
who had befriended DPR.
He had a code name named Nob.
That was his cover.
KYLE BASS: And that’s who he turned to in
the murder for hire?
KATHRYN HAUN: DPR turned to Nob not knowing
Nob was actually an undercover federal agent.
DPR thought Nob was actually a drug lord with
connections to the criminal underworld.
All he knew is the two had only ever conversed
online for two years but he clearly trusted
Nob, that’s who he asked to help him torture
and murder Curtis Green.
And so, what happened next?
KATHRYN HAUN: So, of course, the feds, now,
they have Curtis Green cooperating, they confront
Curtis Green the next day and say, there’s
a hit put out on you.
And by the way, we know you stole 21,000 bitcoin,
you’re not going to make a very good cooperating
witness if you don’t come clean on that.
And Curtis Green was insistent he had not
stolen the money.
He pointed out he had turned over his laptop
just the day before to the task force.
And he didn’t have any way that he could have
committed this theft.
So, he was insistent.
But the feds had to go about staging Curtis
Green’s murder.
And so, they proceeded to take photos, proof
of death photos that depicted the torture
and murder of Curtis Green.
Yeah, they sent this to DPR saying the hit’s
been done.
And Curtis Green’s dead, your problem’s gone.
And we still didn’t know thoughKYLE BASS:
But did DPR ever think he could get the 21,000
bitcoin back?
KATHRYN HAUN: Well, I’m not sure what he thought.
In October 2013, DPR, it was discovered who
he was.
And he was none other than Ross Ulbricht,
he was operating the Silk Road.
KYLE BASS: What’s his name?
KATHRYN HAUN: Ross Ulbricht.
KYLE BASS: Ross Ulbricht, yeah.
He was the kid from Austin, Texas?
KATHRYN HAUN: Yeah, that’s right.
At that time, still a kid.
He think he was around 20 something at the
And my counterparts in New York arrested him
out here in San Francisco in the Glen Park
library, in the act of running the Silk Road.
KYLE BASS: From the library?
KATHRYN HAUN: From Glen Clark library.
That’s right.
On his laptop?
And they needed to catch him in the act, even
though they had identified who he was by then,
they needed to catch him in the act, because
he could have basically hit the equivalent
of a kill switch and destroyed a bunch of
So, the FBI staged a lover’s quarrel in the
Glen Park library with two undercover agents
posing as boyfriend and girlfriend having
a big fight.
And this distracted Ross Ulbricht who looked
away from his laptop while another FBI agent
swooped in and snatched it.
KYLE BASS: Amazing.
And so, bringing you in, you investigated
some good guys gone bad.
KATHRYN HAUN: Yeah, that’s right.
KYLE BASS: So, what happened?
And how did the good guys go bad?
And what did they do?
Well, so I was not actually involved in the
Ross Ulbricht prosecution or investigation,
as I mentioned, that was my colleagues in
New York.
But in 2014, I was sitting out here in my
office in San Francisco in the US Attorney’s
Office, and I was talking to a witness in
another case, and he pulled me aside and said,
I feel like I can trust you and I have a tip
for you.
And he said, I’m a former investigative reporter.
And I know a rat when I see one.
And you have a rogue agent on your payroll.
On the government payroll.
KYLE BASS: And so, what did you do?
KATHRYN HAUN: I thought we’re in San Francisco
and this place is really full of so many conspiracy
So, I took it with a grain of salt.
Honestly, Kyle, I thought, I hear all the
time being out here how the government is
conspiring against everyone.
I secretly, I think, rolled my eyes and thought,
It’s a shame this guy is smearing a federal
agent’s good name.
That would be my defense, too.
Well, look, I had been working with federal
agents by that point for a decade.
And they’re absolutely heroes.
99.999% of the time.
And so, coupled with the fact that I was always
hearing these conspiracy theories in San Francisco,
and there were a lot of them.
But this particular individual was really
And like I mentioned, he emphasized that he
had been an investigative reporter.
And he seemed very insistent.
So, I thought, well, we’ll look into it.
If for no other reason than to clear this
person’s name.
So, we took a high level dive, this is where
the blockchain comes in.
We took a high level dive- and by the way,
it’s not a popular thing in a prosecutor’s
office to openKYLE BASS: Right, to look at
one of your own.
And that was why the blockchain was particularly
useful to us.
KYLE BASS: Because you could follow things.
KATHRYN HAUN: You could follow some things.
So, we took a high level look into it.
And we saw that this agent who we got the
tip for- and by the way, the agent was the
undercover agent I mentioned who had been
investigating the Silk Road.
And what we found was that Nob was liquidating
hundreds of thousands or even millions of
dollars a month in cryptocurrency.
And so, I thought of this is probably another
undercover operation, poorly backstopped.
And there’s probably a legitimate explanation.
So, but let’s look into this a bit further,
because that does certainly seem odd.
So, we went to some of these exchanges where
Nob was liquidating the crypto.
And what we found was that he had actually
been emailing these exchanges, directing them
to destroy evidence, and destroy transaction
KYLE BASS: As an agent of the government.
And that’s how we knew something nefarious
was probably afoot.
Because as an agent, if you’re running an
undercover operation, you’re not asking for
evidence to be destroyed.
You need that as proof and as evidence later.
So, we then, I think, in our minds, thought
this is very odd, and in fact, does bear or
does merit further investigation.
And so, that’s what we did.
And so, we started looking into it.
And then we were comfortable issuing subpoenas,
doing some search warrants on some communications
And what we found was evidence of a pattern
of really bad behavior.
That’s to put it mildly, not just vis a vis
the Silk Road and DPR, and Ross Ulbricht.
Other sites.
KATHRYN HAUN: Other individuals, early users
of cryptocurrency, who probably wouldn’t have
been the ones to report- I’ve been the victim
of a crime, if you catch my drift.
And so, we started uncovering more and more
and we started looking at blockchain, the
blockchain and we traced back payments from
Nob’s accounts where he had liquidated this
hundreds of thousands and indeed millions
of cryptocurrencies.
It turns out Nob had been French Maid selling
Ross Ulbricht or DPR information into the
government’s case.
KYLE BASS: Oh, I see.
KATHRYN HAUN: But that’s not all.
It turned out also, that Nob had been Death
From Above extorting Ross Ulbricht and threatening
to reveal his identity to law enforcement
if he wasn’t paid hundreds of thousands of
KYLE BASS: Oh, my word.
So, he created various personas.
KATHRYN HAUN: He was a double agent.
He’s playing both sides the whole time.
Ross Ulbricht and DPR are one and the same,
and then also the government.
Because he’s supposed to be finding out who
is DPR for the government.
So, he was playing both sides the whole time.
And so, naturally, we thought, oh, he probably
also stole that $150 million or the 21,000
Because he had been handling Curtis Green.
And he had access, unique access to Curtis
Green’s laptop, admin credentials and passwords.
And so, he probably also, since he did these
other bad thingsKYLE BASS: But was it him?
KATHRYN HAUN: Well, so we looked, we found
initially, of course, it was him.
He had access.
He had motive, access, all of the above.
But we traced these payments and the movement
of funds of the 21,000 bitcoins and we traced
them to a Japanese cryptocurrency exchange
the named Mt. Gox that had by then gone belly
I don’t know if you’ve heard of Mt. Gox.
Mt. Gox was a huge- it was really the big
Bitcoin scandal where all of a sudden, so
many bitcoins went missing.
KATHRYN HAUN: That’s right.
It was Mt. Gox suffered a series of hacks
to the tune of almost $400 million.
It also suffered a US government seizure,
and eventually went belly up.
And so, we traced the 21,000 bitcoins to Mt.
Gox, but unfortunately, there were no corporate
records left because Mt. Gox had gone belly
So, what do we do then?
And this is where the blockchain comes in,
we’re able to still trace because the blockchain
is immutable and permanent.
And it’s tamper proof.
Series of records.
So, we still were able to go to that and trace
those funds.
And we traced it eventually, through the hard
work of some agents who I was working with
at the time, some of the agents who are investigating
some of these early cryptocurrency cases,
we traced it right back to this one of the
Silk Road task forces.
But not to Nob.
KYLE BASS: What do you mean?
Another agent?
KATHRYN HAUN: Another agent.
This time, a secret service agent who was
joint duty to the NSA, and he was the US government’s
literally expert in TOR and anonymizing technologies.
He had also been part of that task force.
And he had also been in that session with
Curtis Green, where Curtis Green showed him
how to log in.
And that agent, that night, went back to his
hotel room after the Curtis Green debrief
and pretended to be Curtis Green and drawing
the 21,000 bitcoins and put it into his own
Mt. Gox account.
And meanwhile, knowing the next day that there
had been a hit put out on Curtis Green.
And literally thought he was setting up Curtis
Green to be the fall guy.
KYLE BASS: Oh, my gosh.
And never to be caught.
KATHRYN HAUN: Never to be caught because he
was a real specialist at covering his tracks.
Both of these agents were.
These guys had been in federal law enforcement,
they knew how criminals got caught.
They knew how to cover their tracks.
And also, don’t forget, Kyle, at the time
of this investigation, they were federal agents
with guns and badges.
And they also had subpoena power.
And so, these guys did everything from burned
evidence and burned bags in official government
burn bags to go to different cryptocurrency
exchanges with their badges saying delete
this evidence, and to banks, by the way.
And they even, in the case of Nob, even issued
fictitious Justice Department subpoenas directing
certain activity be done to cover their tracks.
KYLE BASS: Let’s move from the Bitcoin Silk
Road case.
Let’s talk about how you decided to make that
transition from a prosecutor- an amazing prosecutor
to the investment world.
And what drove you there?
Well, I don’t know that it was really anything
that drove me there.
I made the decision after having been a federal
prosecutor for over a decade that it’s probably
time for me to move on to something else.
My earliest supervisor in the Eastern District
of Virginia, in that Rocket Docket, I remember
him telling me in the beginning, a good prosecutor
has a shelf life of seven to 10 years.
And I’ll never forget that.
And I think that’s true.
It’s like that sweet spot where you’ve learned
how to do things and make cases and bring
the right and the good cases really well.
But then also, it’s time to move on and give
someone else an opportunity to do these cases.
And so, I knew when I was giving away federal
murder trials to other prosecutors in the
office that my time had come to go do something
And moreover, there was this new space, crypto,
I found it very fascinating.
And look, we’re in this jurisdiction where
there’s so much happening in the technology
I’m out here in Silicon Valley.
And I felt like two things.
One, I felt like I had done everything I wanted
to do as a prosecutor, and two, there’s this
whole other world of technology and cyber
security and crypto.
And I found that so fascinating.
KYLE BASS: And you’re already living where
the digital Gold Rush was.
KATHRYN HAUN: Right, exactly.
And so, increasingly, and by the way, as part
of my job when I was an assistant US Attorney
in the San Francisco office, I became our
first digital assets coordinator.
And part of that job, it wasn’t just to go
prosecute the bad case, the bad uses of cryptocurrency,
it was also to create a task force to be a
liaison from legitimate players in the industry
and build bridges to policymakers, regulators,
and try and bring the two sides together.
KYLE BASS: Right, somebody had to.
KATHRYN HAUN: Right, to usher this forward.
And you still hold that seat today, you’re
bringing the regulatory supervisory world
into meet with the good guys on the investing
side and bring them closer together.
Because historically, there’s been this wall,
that virtual wall that really shouldn’t exist.
KATHRYN HAUN: Yeah, I find it’s not even just
with the regulators and policymakers.
It’s even with mainstream traditional players
in financial institutions or Wall Street.
And I think that the way the technologists
that I know, particularly in the crypto space,
but just across a variety of technologies,
think about this technology like crypto and
the way that policymakers or regulators or
even Wall Street and some traditional financial
institutions think about this technology are
very different.
And there’s a real need to bridge that gap.
And so, that’s what I’m trying to do now.
And I started that with vis a vis the policymakers
and regulators when I was still in the US
Attorney’s Office.
And so, through that work, I got to know more
and more of what I’ll just call them the legitimate
players in the industry.
And there are many, and that number is growing.
And those guys and gals, they don’t want nefarious
activity on their platforms.
Not only is it illegal, but it’s also bad
for business.
And so, they are very much incentivized to
follow the law and follow regulations, they
just would tell you, we don’t know what laws
and regulations apply to us, which I think
is a fair criticism.
There’s been a lot of regulatory uncertainty,
particularly in this space.
And so, it was time for me to go from the
And yet there’s this whole other world I wanted
to dive deeper into.
And so, I was very fortunate.
In May, two years ago, I joined the board
of directors of Coinbase, which is one of
the world’s leading digital asset platforms.
And so, I joined that board.
And there, I met my now partner, Chris Dixon.
And I also, through that work, met a variety
of other venture capital firms, but also met
Ben Horowitz and Marc Andreessen of Andreessen
And so, got to know them while I was serving
on the board of one of their portfolio companies,
I also joined the board of another of a cyber
security company called Hacker One, which
is a bug bounty white hat hacking platform.
And again, this is I think, Hacker One is
a great example of, you think of hackers sometimes
and you think of like black hat hackers, and
this image of people doing bad, but actually
white hat hackers are some of our best defenses
against the black hat hackers.
KYLE BASS: Absolutely.
So, you moved through the US Attorney’s Office,
in your core competencies and brought those
to the investing side, the corporate side
from the board perspective, and then the investing
side on how you think about these things going
And I think everyone watching is going to
be most interested now in understanding how
you’re thinking about where there are opportunities
to invest?
Where are you, more broadly speaking, where
do you think this opportunity is in the next
10 years, since you guys invest on a long
term time horizon here?
What types of things are you looking at?
KATHRYN HAUN: Yeah, so I think, let me break
it down in two big categories.
And we’ll talk about each separately.
One is what I would call a category of literally
internet money.
We’ve had this internet of information.
The internet has connected billions of people
around the world through information.
But the thing that we don’t have, and that
we’ve been missing is the internet of value.
Why is it that today, if you’re over in India,
I could send you an email with contents instantly?
I could send you a photograph from here to
there instantly, but I couldn’t send you value.
And so, I think that’s one big category, it’s
the internet of value, and internet money,
which we’ll talk about in a second.
The other way that we’re thinking about this
is it’s a new computing platform.
So, what you see in the history of technology
is about every 10 to 15 years, there’s some
new computing platforms that emerges like
we have PCs, and then we had the internet.
And then we had mobile.
And now, we think of crypto as a new computing
platform, like totally a part of the currency
side of things.
And this is a discussion I know you and I’ve
It’s not just currency.
KYLE BASS: This is where our debate’s going
to get more lively.
KATHRYN HAUN: Okay, so we think of this as
a new computing platform.
And what you will often see with new computing
platforms is you often see people thinking
at the new, wait a second, this isn’t even
better than the old, this is worse than the
Like in the case of mobile, when mobile phone
came out, people thought why would I want-
or some thought, why would I want a smaller
screen than my PC?
Why would I want a tiny little keyboard like
this when I have a regular keyboard?
But what you get with these new computing
platforms is new features.
And so, in the case of mobile, what you had
that the old platform didn’t have is you had
GPS built in, you had a camera built in.
And that enabled things to be built on top
that we couldn’t have even imagined at the
time, the new platform came out like Lyft,
or Uber, Instagram, and all of these new applications
that are built on the new computing platform.
And so, in much the same way, we think of
crypto as a new platform, a new decentralized
platform that decentralized apps- or they’re
called DApps.
And I think that’s a term you’re going to
be hearing and your viewers are going to be
hearing a lot in the coming decade.
DApps, decentralized applications.
And the thing about DApps is they can be built
at scale by anyone all around the world.
And there’s some interesting overlays with
crypto about incentivizing content creators
and creators of these applications, that they’re
able to monetize for what they’re creating,
building in ways that they previously weren’t
with just pure applications, not DApps, but
apps, where they’re paying huge profit margin
to some of the platforms that they’re on now.
KYLE BASS: Right, they’re giving away a third
their value if they have to sit on top of
the current platform.
KATHRYN HAUN: That’s right for and by the
way, it’s not just the value.
Can I also tell you, it’s also the platform
If one of these platforms decides they don’t
want to service that anymore, they just simply
turn you off.
So, we were seeing a lot of de-platforming
And it’s not just that, they write the rules.
A few big giants really write the rules for
everyone else.
And so, we think in this wave of decentralized
apps or DApps, thatKYLE BASS: You don’t have
to have a boss.
Now, we’re in the early days.
And I think this is a debate that we’ve had
before and that I have with many people all
the time.
And I think it’s really important not to judge
the current state of innovation with the end
state of innovation, because you could tell
me right now, Genki, it doesn’t work.
And I’ll agree with you.
We’re not there yet.
KYLE BASS: I’d actually like to rewind and
talk about- let’s talk about crypto assets.
And so, we separate crypto from blockchain,
crypto from digital assets to a certain extent
and we talked about this idea of does scarcity
equal value?
And can you transfer value like the example
you gave for India, from here to India or
here to a different location and around the
Should we be able to transfer value without
know your customer rules?
Without Federal Reserve wires or without Federal
Reserve oversight, should you and I be able
to transfer value somewhere unchecked?
And when we think about you mentioned- much
earlier in our conversation, libertarian paradise
when I speak with people in the crypto community
and people in the highest echelons of this
community that were early adopters, and are
extremely wealthy today, I hear a little bit
more than libertarian out of them when I talk
to them.
I get, after half an hour and maybe a glass
of whiskey or two, I get to this point where
I hear anarchy, I hear a little bit of we
don’t need any government.
We don’t need anyone looking over our shoulder.
And where do you fit in that argument?
Or let’s say where’s your own opinion?
Well, I’m certainly not an anarchist.
And I think that there’s a segment of that,
of course, in crypto, there’s a segment of
that in all kinds of new platforms that comes
So, I think that crypto is really no exception,
although it is pronounced, I would give you
that, in the crypto space.
But look, I worked for the feds for 12 years.
So, I’m not an anarchist.
I think there’s a rightful and a legitimate
place for government.
I think it can do a lot of good.
I think what you see in this space is people
and legitimate players, of which there are
many, and the number is growing literally
by the day, do not say we don’t want any regulation
at all, they just say we want to know number
one, who is the regulator.
Because right now, it’s a bit of a free for
And we want to know what regulations apply
to us.
And we will follow them.
What they can’t tolerate and what’s just impractical
as you build a business, in any business,
can you imagine, as you’re doing a startup
and you have some innovative product that
you are told, well, we have 50 different regulators,
we don’t know which one might or might not
regulate you.
And by the way, none of them really know which
of their regulations apply to you.
KYLE BASS: It’s like living in San Francisco.
KATHRYN HAUN: It’s actually worse than that.
And so, what they want is it’s not that they
want no regulation and no government, I think
what they want is they want some regulatory
And you look to places like Singapore and
you look to places like the UK, who has this
a single financial regulator with the FCA.
They have this new Sandbox for financial innovation.
And they’ve really made a push to be the FinTech
hub of the world.
And what we see, unfortunately, is we’re seeing
more and more projects moving overseas.
They’re like, well, I can go apply for a Sandbox,
I know I have a single regulator.
So, that’s not someone looking skirt our laws.
KYLE BASS: That’s always been one in the strength.
They’ve always been maybe a financial clearinghouse
for the world, much more than the US because,
yeah, truthfully, they have laws that aren’t
as stringent as ours.
KATHRYN HAUN: That’s right.
But on the other hand, the crypto entrepreneurs
know what the laws are.
Is that going to happen here?
KATHRYN HAUN: Well, so one of the things that
is increasingly happening is we’re seeing
agencies like the CFTC.
So, one of the big questions in the crypto
space is, I’ll give you a great example.
Is it SEC, is it the CFTC?
KYLE BASS: It’s a land grab from a regulator’s
They all like to be functionally relevant.
KATHRYN HAUN: That’s right.
But then what you have with crypto is you
have this new asset class that may be at one
time, something’s a security, but then it
changes over time to a commodity.
And at what point does that happen?
And who regulates it?
Where’s the handoff?
Is there a handoff?
So, I would push back on the assumption that
people in the crypto space don’t want to follow
laws and don’t want to follow regulations.
I think they just want to know which laws
are relevant.
And that’s something I’m trying to help with
And try and be part of these conversations.
Well, the bigger question for me, as I know,
you and I have discussed is what happens to
the global financial order if it becomes decentralized?
And I mean that in a way that- we know the
Swift system is designed, it’s based in Belgium
for a reason.
It’s where all financial wires go through.
And it’s how the US Treasury exercises its,
let’s call it its third arrow, and its quiver,
the big one, when we as a country or other
European block nations implement sanctions
on bad actors, our last move is just cancel,
take them off the Swift system, means they
can’t move money around the world outside
of shrink wrap pallets of hundred dollar bills.
KATHRYN HAUN: Sure, like with Treasury regulations.
KYLE BASS: Yeah, which we’re doing now on
various bad actors in Iran and other places.
So, when I think about decentralized or I
think about crypto, I wonder how in a rules
based order, it actually can coexist with
governments that are actually functioning
Well, so it’s great question.
And it’s something I spend a lot of time thinking
about, like, what does the world look like
where you have complete- and we don’t have
it yet.
We’re in the dial up days of all of this technology.
So, when I talk about complete decentralization,
I don’t mean to suggest that we’re there.
But I do think that’s coming.
And I’ll get to that.
To answer your question, Kyle, look, I think
you mentioned Swift, and that’s a great example.
The problem with Swift is the problem with
any centralized system, there’s a single point
of failure, which can be good for regulation,
what you’re talking about, if it’s appropriately
exercised, government authorities appropriately
exercised using discretion.
However, the problem with a centralized system
is it’s a single point of failure.
And Swift is a great example because Swift
was hacked.
And where we live in a world of daily cyber
breaches, centralized systems are huge targets
and huge honey pots.
So, I think that’s one problem with centralized
systems, which decentralization is indifferent,
is obviously an alternative to that.
But also, when you talk about Treasury sanctions,
whether you’re talking about FinCEN, 311 or
OFAC sanctions, it’s a great question, should
people just be able to move value around.
And look, I would say, our current system,
anti-money laundering laws are critically
I can tell you that as having been a money
laundering prosecutor for 10 years.
Of course, I care about that.
And you need the ability to follow funds in
certain cases.
But actually, our current system is just doing
a pretty terrible job of it I’d say.
Let me tell you what I mean, 99.9% of all
money laundering crimes go unprosecuted.
And you can go Google that statistic.
I testified before the US Senate about this.
And the person who cited that statistic other
than Senator Chuck Grassley, was the ex-Treasury
And I thought that can’t be right.
KYLE BASS: He was in charge.
KATHRYN HAUN: But I indeed, I researched into
it and it’s true.
Go look it up now.
99.9% of money laundering crimes go unprosecuted.
Yet, financial services industry is spending
$20 billion a year on AML and KYC.
So, I would ask you, is it even working?
I don’t think it’s working right now.
So, the moving to a decentralized system I
think is really, I think we’re kidding ourselves
if we think that’s going to change too much.
I do think there is need to follow large amounts
of money.
And crypto will make that hard as we move
to a peer to peer system.
Perhaps there could be some limits on when
the amount is over a certain amount of crypto
I don’t know what the right answer is.
But I know that the technology is here, and
the genie is out of the bottle.
So, say, oh, this is bad.
And peer to peer transmission is going to
subvert important terrorist financing rules,
I would ask you, first of all, are we sure
we’re really catching those things now?
The fact of the matter is terrorist attacks
that we’re seeing now are committed usually
with things like guns or trucks.
They’re not sophisticated operations that
cost a few thousand dollars.
Those folks are using cash, or they’re using
prepaid cards, or systems like that.
They’re not exactly doing it in a traceable
KYLE BASS: I don’t know.
Well, look, ISIS had $2 billion, they still
have three, $400 million.
And I think it’s a widely known secret that
it’s all in Turkey in the Turkish banks, and
it’s run by technically legitimate businessmen
who decide to launder money.
And it’s hard to decipher when you’re running
a business that actually is legitimate and
if you’re giving that to terrorists, it’s
really hard to catch.
But I would say that’s hard to catch now.
KYLE BASS: No, I agree.
I’m just saying that if the US is looking
to sanction bad actors, and let’s just say
bad sovereign actors, and people within those
sovereigns, we can actually stop it today.
Or let’s say- stop it, we can actually make
it really difficult for them to move substantial
amounts of capital anywhere or do business
with US banks.
Or Western banks.
KATHRYN HAUN: When they’re traced, and when
they’re caught, I agree that that is true.
But I would also say, at what cost you do
You have 2 billion people in the world today
who don’t have a bank account, who have zero
access to financial services.
They can’t pay for things easily.
And aside from paying for things or storing
value, they also are not able to do basic
things like get a loan.
And so, you’ve got 2 billionKYLE BASS: This
is the idea from mobile banking.
And you’ve got 2 billion people with no access
to it.
What mobile banking implies you have a bank
So, crypto really offers 2 billion people
the ability to accessKYLE BASS: They’re positive
Crypto in Argentina, crypto in Venezuela and
these countries that have the sovereigns really
blown, either politically, or financially
or both.
Hyperinflation economies.
KYLE BASS: Yeah, it’s been a way for people
to actually save the store of value of their
savings instead of let some rogue government
basically light it on fire.
And so by the way, maybe I haven’t even told
you this.
Now, I’m a shareholder of a crypto company.
KATHRYN HAUN: You did mention that.
KYLE BASS: I came in kicking and screaming
through an acquisition.
But now I’m rooting for it in its totality.
And I’ve just sat on the sidelines all along
because I have to see a logical, regulated,
positive use for this asset class for me to
jump in with my assets.
But those early pioneers, again, these are
the people that just went west for the gold
They made fortunes.
I wasn’t in that tip of the spear, I’m waiting
for it to settle down and figure out how to
properly operate it in an environment where
there is a regulator, where there is a CFTC,
or the SEC, or the Fed, or whoever the regulator
is going to be.
I actually believe that these assets will
be something, there’ll be some asset that
actually holds this store of value and medium
of exchange.
And so, you have those assets and things need
to be solved for that to happen too by the
I mean you talked about Venezuela, there’s
no denying that crypto prices have been all
They are volatile so far.
Once upon a time, gold also experienced quite
a bit of volatility as you know, particularly
in the ’70s, it lost 30% of its value in a
very short timeframe.
And so, right now, as a medium of exchange,
crypto hasn’t yet achieved its full promise
or even, frankly, even close to it because
of the volatility.
KYLE BASS: It won’t until volatility comes
KATHRYN HAUN: And that’s where things like
staple coins come into play.
You have USDC as a good example, where for
every dollar of USDC have an actual dollar
in a bank somewhere.
That’s one model of staple coins, fiat backed,
there are also algorithmic staple coins, which
is essentially, and this gets really blow
your mind complicated, but it’s essentially
a smart contract that adjusts what the collateral
is backing the staple coin.
And so, this is a whole other variety of staple
coins that we have.
And so, there are fiat backed but then there
are also crypto asset backed.
And so, there is some collateral backing it,
but it’s all controlled by this autonomous
self-executing smart contract.
KYLE BASS: Dear Lord.
KATHRYN HAUN: Very complicated.
KYLE BASS: So, you guys are on the forefront
of I think a new industry, a new asset class,
something that’s, I think, mathematically
and intellectually so fascinating.
And then practically, to interface with the
old world, there are going to be frictions
that continue.
And let’s hope that the bad actors get taken
out of this space and that I think this space
is going to grow like crazy with or without
additional deep regulation.
But I think knowing you and knowing what you
guys are doing is, it’s been fun, and I really
appreciate you taking the time to sit and
talk about these things.
I think people are going to find it to be


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