Is Crypto an Investable Asset Class? | Weekly Roundup

Transcript

this episode is brought to you by bitmex the og crypto exchange that is back and better than ever you'll hear more about bitmex later in the show all right everyone welcome back to another episode of empire today's weekly roundup we are joined by mr byron uh byron i still you've been here at blockworks since september i call you mr byron i don't actually know how to pronounce your last name gilliam gilliam uh he is the matt levine of crypto he is the idol of your inbox he is a crypto connoisseur mr byron welcome to the show thanks do you want to tell us how to uh pronounce the last name is it gilliam uh the family calls it goes by gillum but i generally say gilliam to anyone who might have to spell it so either way works gil isn't there an i at

the end of it though there's there's an eye there's two eyes in it silent eye though huh there's a silent eye i think it's a uh scottish pronunciation yeah by the way however your family pronounces your last name i think is the real pronunciation i don't think it should be anyone i don't think anyone else dictates how you pronounce your last name uh byron all right so there's a lot to talk about today i want to cover open c um just the doj charges against nate i want to talk about the optimism airdrop um curiously at your take on just vc private market arb that's happening right now um arthur hayes wrote an interesting piece i'm curious to get your take on i don't know if you read that yet maybe get some last final thoughts on tara luna um but before we do that you

joined block works september 1st september 5th 7th summer early september uh the market was riding high we had like two or three more months of the bull run everything was working and i just remember when you joined like you really threw yourself into crypto uh and now it's like nine months later and things haven't been going so well for the last six months and maybe some of these things in d5 that you were super excited about maybe you're just seeing that like uh you're maybe you're a little less optimistic about them so i would love to get your thoughts on how the last three or four or five months have been for you uh just in your journey into crypto yeah i mean first off i want to apologize to

everybody for causing the top uh you know if i thought leaving crypto would reverse it i would do it i would i would take the i would i would take the charge for everybody but i don't think it works that way so i'm not going to um but yeah it's it's been interesting i think uh i i i think that you're probably your long-term view is in many ways conditioned by your first like six months in the in the industry uh and i'm a major victim of you know recency bias and things like that so uh i am getting a little bit bearish but that's probably excellent news because i you know historically i'm always bearish at the bottom it's not going to be a

bottom unless i'm bearish so i think that's i think that's good news for everybody um but yeah it's been uh it's it's been really interesting i'm not even sure where to start like i came into it looking for lottery tickets like i was gonna find the next solana and i was gonna put a thousand dollars into it and it was gonna go up eight thousand times and i was gonna be rich i've given up doing that i don't think that there are a lot of lottery tickets around um i i thought that i was going to stumble on all kinds of amazing undiscovered investments that were going to be the next nike or microsoft or something but i don't i've kind of stopped doing that also i don't think that's what crypto is

about i entered it kind of thinking that cryptos were basically tech stocks you know they're they're software so i kind of thought cryptocurrencies were going to be like higher beta tech stocks um but i i don't think that that's what they are anymore i think my major takeaway at the moment is that i'm not totally convinced that crypto is an investable asset class it's definitely a tradable asset class but i'm increasingly looking at it more like a you know commodities and not equities you know like commodities kind of have i mean equities kind of have a a natural upward bias um because you know companies get more productive

over time they generate cash flow they buy back stock they pay dividends they benefit from inflation you know so even if they're not going up in real terms they're probably going up in nominal terms uh but that is not the case with cryptos right like uh cryptos are certainly at the moment they're you know as a whole they're not generating um they're not generating cash flow they're you know they're consuming cash flow they i'm not sure that they get more productive over time you know so all those all those biases that that kind of bail you out in equities i'm not sure that they exist in crypto so i'm more looking at them now like copper or something like that or the

swiss franc or so you know they're i'm looking at them more like commodities or currencies than equities that's really interesting i mean i think there would be maybe i would have two pushbacks on that one is uh the overused analogy of looking at the early.com days is none of those were investable companies except for maybe the five or ten that were um the amazons and googles that came out of that era and then you know several years later obviously facebook and snapchat and instagram and things like that so one question i would have for you and the second pushback might be that there are uh revenue producing protocols and projects uh specifically in d5 um something like a uh an ave or a maker like they do spit

off cash flows the cash flows obviously look a little different because they're well we can get get to that in a second but um when you think about whether or not that does does this change basically like are we just too early in crypto um and it just looks something like investing in in the internet in 1998 1999 2000 or does this feel like a byproduct of just how how these projects and how the how the industry is set up yeah at the moment i think it's the latter but you know i've reserved the right to change my opinion before this podcast is over even but i guess i have two structural concerns um one is that i uh you know the the mega winners in in equities are a function of two basic things i think

one is that they create a moat around a business and then they can just extract profits from inside their castle forever right and two is that they have uh oh they almost always have some singular leader in the beginning you know a founder or whomever who is taking giant risks and then the giant you know for some of them the giant risks pay off like you know bezos or phil knight or whatever and neither of those things are true in crypto you know crypto is is open source right um so it's i think it's very difficult to build a moat like i think uni swap has a little bit of a mode because everyone just goes there even like even though they could go to one inch or whatever but the the moats are going to be you know

shallow in crypto uh i think which is going to make it very difficult to extract rants which is great i mean that's you know that's what that is a massive feature and not a flaw of crypto but it's great for users and not necessarily investors um and then the other thing is that if um you know cryptos are really going to be dows then they are not going to have that singular founder leader making giant risky decisions all the time right like you're just not you know if if you have to take a uh a vote of the entire dow for every major or minor decision you were just not going to take the risks that jeff bezos took or phil knight took or or

whomever um so for those two reasons i'm i'm a little bit skeptical that crypto is going to to produce those giant winners for investors i still think that amazing things are going to be built i just don't think that you are going to get the returns out of them like you would do in equities tell me more about that founder one um why is so someone like hayden at uniswap or stani at ave why are they not going to take the risks but someone like bezos or phil knight would take the risks because they've already made a bunch of money because their equity is liquid earlier on is that the thesis no i guess i guess i'm thinking more of a uh of kind of an idealized dow where the decision making is is genuinely decentralized

um so yes early on um certainly when you know before a token is listed and one you know which is vc investments or whatever those those you know in those situations people can still take take the big risks i don't know enough about like the decision making at ave or something like that um uh but you know if we don't want cryptos to be securities then they're gonna have to be decentralized and if they are decentralized uh they are not going to be risk-taking i don't think so there are moats in crypto they're just not the traditional moats that you see i think the traditional the one of the strongest moats in um

in like web in i think there's two different kinds of modes like one moat in tradfi is just the shittiness of the product makes it very tough to switch over so like uh leaving my bank of america or wells fargo account is just like i just know the headache that it comes with it is gonna be a total pain in the ass so that's almost like their moat like bank of america uh checking versus like ally bank checking versus wells fargo versus jp morgan versus like goldman checking they're all the same it's the same product right so you could probably argue that like the brand is actually the moat there um because it's the exact same product so the brand is the moat that or the brand probably gets you in and like it's marketing and then like the shittiness of the product is almost the moat and

maybe in web too the the mode is just that you build and at least in social media the moat is that you actually build this massive audience that you don't own so like i have built a big audience on twitter but not on instagram uh and so i'm not gonna port over like there's no way to port over my twitter so you don't think that those moats do you think any sort of motions exist in crypto that's just like there's less of a moat uh i'm not sure um you know i just said at the top i've only been in here since september so i'm just very much trying to trying to figure things out and you know the you know as you know the newsletter i write is basically just me figuring things out from a from a trad five perspective so i'm i'm pretty

confident that the moats are you know lower in in crypto than than in trad fi and that is good that's definitely a feature yeah it's good for the user maybe bad for the company yeah i do think there are some notes like i said with like like uni swap and like open c seems to have a moat for some reason like they've you know they've seen off looks rare pretty well so far um but you know if it's open source software that can be copied and forked and vampired uh i just i don't think you are ever going to be able to take 80 margins like you're a sas company right like crypto is not ever going to let you take 80 margins i

don't think um which is great if you're a user but it's it's not great if you're an investor yeah i want to touch on one thing that you said before getting into any of like this week's news which is you are you're not looking for the these like 100x outlier winners like you're not trying to find the solana's anymore what's the second order thing of that you're not finding these so that you are instead you are placing your money with what the the the blue the quote unquote blue chips like instead of trying to throw 20 little small bets on like the next 100 xers you're just kind of putting your money into like unit swap of a these kind of like blue chip d5 projects you're putting it until back into like

the l ones um where what does that mean that you're not actually putting your money into these like next hundred xers uh that's a good question yeah i don't uh i mean at the moment i i don't have anything that i'm like high conviction on uh so i can't really say where i'm putting my money ma'am first of all i've lost most of my crypto money so there's not a lot of it to put anywhere um but i think uh like uh you know one thing that i i like generally i'm looking for more tactical things um you know what is you know what is you know what's going to do well over the next two or three months instead of lottery tickets where it's all or

nothing you know hold it for five years and either you're rich or a zero um but the problem with that i haven't done much of that tactical stuff now because it's like really time consuming like you have to you have to be like i don't know how people have time for it really um like i think there's loads of interesting things happening in happening in the curve wars and stuff like that and i think that if you you know spent the time truly understanding the tokenomics then you know you can have an opinion on uh fxs right now uh or you know uh vote blocked uh curve or whatever um but that's like it was a massive time commitment um and so you know at the moment i haven't

really been been trading very much yeah it feels like one of the um the best arbitrages in krypt over the last two years has been betting on early stage companies because there was a massive amount of exit liquidity uh from retail so a lot of the the the early stage venture space just got so overheated and so insane because it was real honestly really hard to lose money if you were doing any sort of angel investing or early stage investing uh in companies that eventually converted equity into a token and had a saft uh as soon as that staff went live as soon as the equity got converted to a token the token went live on some some exchanges uh you basically exited to a bunch of retail who would buy up your token uh it feels like that arbitrage is going away as um

and it feels like actually there's things have flipped a because there's like not that retail demand to soak up that exit liquidity but b um it just feels like the private markets have got so overheated like layer zero raising at a three billion dollar valuation um when there are some like pretty solid other bridging companies that are public and have tokens that are like so so undervalued um at least relative to the three billion so do you think that things are flipping um and do you think that like the public whereas the last two years everything was so focused on the private markets are we going to a world where maybe a lot of the opportunities exist now in the public markets uh that would be

great if that's the case um i uh i would say that you know the first thing that happened has to happen is that the private market valuations have to come lower you know i'm not sure that you know those are too high i'm not sure that that means that the public valuations are too low i so far have not found anything where i think like wow that is really cheap you know yeah and that's probably because i'm coming from a trad five perspective and i'm trying to figure it out on traditional metrics like you know earnings and earnings multiples and things um which is kind of confusing to me because it seems like on the one hand crypto has like a a very limited pool of buyers right they're just they're not that many

people who are in crypto and it seems like the you know the same money gets recycled around from from one thing to the other but on the other hand uh the valuations of listed tokens to the degree that valuation makes sense in crypto seems really high to me you know like i like i think maker on like a token terminal maker trades on like 15 times earnings which is the same as 15 times sales in crypto which is like i mean that doesn't seem like it's screamingly cheap right so i don't i you know i think it's good that if private valuations come lower but i i don't think that means that public

valuations are a super bargain at the moment at least not that i found i would i would love to find some that are yeah um let's go into some of the news from the week so we're doing sorry you want to start optimism or open c uh i don't know open c i think is is ridiculous right uh i i think i read that the the person whose name i've forgotten did he get sentenced to him yeah so i'll give you a little overview so basically a couple months ago um this guy uh this guy nate chastain was a product manager at openc was accused in uh actually when you joined block works i think it was in september of 2021 of secretly buying uh four i think it's 45 nfts based on confidential information

that he knew as a pm that they would soon be featured on openc's homepage so basically he was a pm he knew that these nfts would get listed on the homepage of openc which just like getting listed on coinbase pumps the price of something it's kind of like the nft version of like a new asset listing on coinbase um and then he would flip those for an easy profit um openc's ceo devin fincer came out and said i do i do think that there was a misframing of it as insider trading we don't view nfts as financial assets so that does not apply that's a very specific term for a very specific thing so that was devin fincer the ceo of open seas take back in september this past wednesday uh we're recording this thursday afternoon so yesterday nate was

arrested for wire fraud and money laundering related to insider trading um what do you what are your take what's your take on this yeah important to note this was i think the first insider trading case in crypto or maybe just the first insider trading case in nfts so yeah but i think i think insider trading is a subset of fraud so i think saying that it's not a financial product is not going to get you out of it um like you know i think it's just considered fraud like the buyer has defrauded the seller of their rightful profits uh which i think is ridiculous um you know like who is the victim here really like the

the person who wanted to sell their on-chain receipt for a jpeg they are they have been defrauded because they didn't get to sell it after it was listed on openc like that seems like a very tenuous thing uh you know and if you're talking about equities if somebody is somebody's insider trading a stock then and you know you can make the case that they are uh they are making markets less efficient and uh you know markets have a purpose which is to allocate uh uh capital to the economy and therefore in some way the economy has gotten slightly

less productive you know if you're talking about flipping nfts i don't know like i you know i i don't know i don't know what the dis benefit of that is um i also think that like surely the fbi has better things to do than police nft trading i can't believe that they pay any attention to this which makes me like a little bit concerned like maybe this is the thin and edge of the wedge to to crack down on all of crypto because like why why do they care you know to me it's more like like if they were policing like in-game i know the trading of in-game items in a video game or something like that uh that to me is more akin to nft that's more what nft trading is than

than trading equities um and i think i also read that the guy was sentenced to a year in prison is that correct i think it's longer i think it's much longer i mean if it's actually if it actually goes through i think it's much longer i mean that is unconscionable to me like that just seems totally insane like how is this uh which he is uh he is charged carries a maximum sentence of 20 years in prison has he has he been sentenced no i don't think so i mean that's just i can't understand that at all that's just that's just totally crazy um yeah um yeah this is actually i'm reading the justice.gov i'm reading the press release from the department of justice the southern district of new york

chastain 31 of new york new york is charged with one count of wire fraud and one count of money laundering each of which each of which carries a maximum sentence of 20 years in prison so up to 40 years in prison that's ridiculous there's no i mean there's no scenario in which flipping jpegs should get you you know removed from society it's just it is just not that important and i mean the guy the poor guy the guy is clearly i mean he's lost his job obviously he's he's you know been humiliated i would say that he's he's already served his time and uh i certainly think that openc should be policing this uh because it is you know repute reputational damage to them but i

do not see why the fbi needs to get involved and i certainly don't see why what anyone should have to be in prison yeah yeah i think there are a couple thoughts here one is companies are going to this is uh it sets the precedent for companies are going to have to do a much better job of actually policing this internally so any and basically any marketplace business is going to have to do a better job here uh obviously coinbase the coinbase pump right when an asset gets listed um on coinbase it's been i think they've actually taken pretty strong measures to uh to fix this over the last several months but um back in like 2017 2018 2019 it was pretty standard for like the price of an asset to really pump before the asset actually got announced that it was getting listed

on coinbase and it was really just coinbase employees who are pumping it my uh my impression from reading things and this is mostly twitter and everything on twitter is true so it's definitely correct um my impression is that most of that was a function of like people scouring coinbase's github page and looking at like plus nets and things like that which is not insider trading that's that's uh you know public information it's no different than you know um hedge funds buying data that like uh headphones buying data that shows like how many people were shopping at walmart last year like how like aerial footage if you're clever enough to figure it out like right or you look on google maps so

every three months when they take the screenshot of the walmart parking lot and you can see if it's full or not so uh okay so what uh first first implication i think exchanges uh like coinbase like openc are gonna have to take much stronger measures to make sure there isn't insider trading on their platform um i think that this is probably also the first domino um i think the regulators are just trying to make an example of nate here it's a completely case in my mind but this is them just making um putting their foot down and saying like look we're coming after we're coming after crypto and i think a lot of folks in the industry had always said crypto isn't a security therefore it can't be regulated uh therefore insider trading can't be regulated and this clearly

shows uh that that was one of the biggest misconceptions i think yeah that's not like you know it does not happen not have to be a security i think that is one of the biggest misconceptions in the industry is that insider trading does not just apply to securities um which is really important for folks to know yeah you got to feel for nate feel bad for the guy uh optimism here's what happened with optimism um we talked about optimism a couple weeks on uh weeks ago on the podcast with santiago basically optimism deployed uh five percent of their op token contract uh before they made so that optimism was releasing these tokens they did an air drop uh what they made they had a little hiccup this week though which is before

they made uh they deployed the token contract before they made the airdrop announcement uh some new some users noticed this before the announcement they started claiming their tokens optimism then tried to scramble to fix this they launched a claims ui and made an announcement um this kind of just like the the hoopla around this uh kind of overwhelmed optimisms rpc endpoint and a lot of users experience like failed claims for the next several hours [Music] what happened here here i'm going to pull this up basically the community um what happened after so they had about 250 000 eligible wallets um but there's this new proposal by a

community member member to ban anyone who sold their airdrop tokens from future air drops um i'm not sure did you see this did you see this proposal yeah i love that i think it's great yeah what do you think well i mean in uh you know coming from tradfi uh you know the thing that always happens is uh you know when there's a hot ipo every big account puts in for you know ten times the amount that they actually want uh and then you know whatever they get for their allocation they just immediately sell it right and everybody knows it happens but you can't prove it so you know every you know every account will say yeah yeah we love this stock we want as much we want as much of it as we can so we can so we can keep it forever and then they you know

they sell it on the opening price um so i think it's totally you know that's this is this speaks well to crypto that you can actually see exactly what's happening you know and you can and and you can hard code it you know you could you could hard code rules to to prevent it i don't i don't really think that you should but i think it's i think it's really cool that you can yeah can you explain that to us what does that look like when let's say goldman's taking a company public yeah there's a hot you know if there's a hot ipo which there hasn't been many lately so you know if whatever you know facebook at the time or whatever um you know a lot of times everybody knows it's going to be up 20 30 50 so the biggest accounts will put in for

you know many more times than what they actually want and they will get an allocation to the ipo in theory because uh you know they're going to be a good long-term shareholder but in reality they get the allocation because they are good customers of goldman sachs or whomever um so you know goldman sachs's best customers will get the biggest allocations to the goldman sachs ipos and some of them will genuinely want to be long-term holders but um on the hot ones typically they just sell on the first day and they just you know it's just free money for them um and this is you know this is the same exact thing except that you know you can see what everyone's doing and you can't see that in traffic you know traffic goldman uh you know issues the ipo to whatever

whatever if you know whatever big account and the big account sells it with morgan stanley so goldman sachs has no idea what they've done you know um but in crypto you get to see exactly what everybody's done which is amazing empire is brought to you by bitmex with the launch of their spot exchange bitmex is running an insane promo right now we wanted to give you the inside scoop here's the deal for the next two months users who trade 250 worth of crypto on bitmex's spot exchange will be entered into their million dollar giveaway prizes range from thousands of dollars all the way up to five hundred thousand dollars that's right trade 250 bucks on bit max for a chance to personally win

500 000 beyond the million dollar giveaway new users can also get up to 200 bmx bmex that's bit max's new token coming soon just by creating an account and going through kyc and trading so you can actually get bit max tokens just by creating an account and trading the more you trade the higher your chances of winning what are you waiting for go to bitmex.com today sign up for an account bitmex.com uh i thought this was the funniest proposal i think is such a silly proposal um i think what happened is their token fell like i don't know the updated price probably fell 50 or 60 it might be a little more than that i

haven't checked the price in a little while it felt like 50 or 60 uh which obviously caused some people in the community to say get all mad and riled up that uh so that people are selling their tokens um and what they were discussing is like barring anyone who dumped their tokens from future airdrops which um mike wrote about this actually in the memorial day newsletter i don't know if you read that his piece but it's like there's this thought in crypto that you should just be rewarded because you were early and it's kind of a silly thought right it's kind of a silly thought that like you didn't really do much work but because you're early um you should get rewarded and um that's just not really how it exists in

traditional in traditional financial markets and and for good reason right imagine i think the example that mike used is like imagine if series a investors when the company was raising a series b they were like give me more tokens give me excuse give me more equity give me more a larger allocation here we're not going to pay you any money but we deserve more equity because we were early uh and it's just this like because we were early that exists in crypto that doesn't really exist anywhere else um for a good reason because if you have to either put in work or put in capital to get equity and so this just feels like optimism's community or not all of them one or a couple of folks getting pretty mad that uh the price of their token went down and uh that these early people

were dumping well but i think there is a use case for bootstrapping usage by you know rewarding you know incentivizing usage with tokens i think that i think that makes sense um like with looks rare or something i think you know it has to be well designed um and it's not you know we've learned over the last year that it's not easy um but i think there's i think there's a i think there's a legitimate use case for for rewarding early users um and i also think that like i agree that this proposal is kind of silly and uh kobe's either responses are probable his own proposal was absolutely hilarious so it was so funny um

but i do think that there are uh this is there are these types of things in crypto that don't ex exist in tradify which i think would which would be in you know an advantage to crypto like you know you could uh you know and trad five everyone gets the same dividend but in crypto you can lock up your tokens for a year and the people who lock them up get a higher dividend like that's why not do that you know i think you know trad five ceos would love to be able to uh incentivize longer term um uh uh holders you know the the probably the most consistent number one complaint about american capitalism is short-termism um right and you know this would be you know if trad fi companies could do what

you can do in crypto that could totally address that you could you could incentivize longer term holders uh to the dis benefit of shorter term holders um so i wouldn't i wouldn't dismiss it i think there's something there it just has to be like really thoughtful and well designed i think so so i agree there is something there and you should benefit early users it's more i think it's more the mentality around airdrops that's kind of frustrating to me so i remember when that when the uniswap airdropped happened there was not a single user who complained when that happened like it was happiness all around everyone's making money everyone's all happy and that's just like set the standard for airdrops now what's happened with airdrops is um they feel very like gamed and it feels

like these like sophisticated users have a clear advantage and everyone's trying to play the airdrop game and um people are people get upset if like the price of the token goes down i guess kind of like when the when an ipo happens and and the price of it goes down people are people are upset but like i don't know we saw juno maybe a month or two ago they confiscated 35 million dollars in tokens from a whale who they thought game the airdrop now you have the optimism community uh discussing like punishing sellers um i don't know it just feels like take your tokens and be happy um and do things that reward yeah that that accrue value uh surprise airdrops or i think probably should not be a thing anymore and even

retrospective airdrops probably should not be a thing anymore but i think you could you know design a thoughtful airdrop where you just like lay out exactly the behavior that will get the next five percent of an airdrop or something right and you know kind of pinpoint the the usage that you're aiming for i think it seems like that would be uh doable and useful yeah have you have you read anything around like layer ones as public goods uh a little bit not not very much um you could make the argument that some of these like layer ones are public goods or that something like optimism is a public good and that they like didn't really have a monetization strategy at launch um and i think the comparison here could be something like twitter

like twitter is basically just a public good i didn't really have a monetization strategy and then they tried finding monetization early um or excuse me later it feels like that's maybe what some companies are doing right now like some layer twos by saying like it really is almost like a layer it really is almost like a public good and then they're trying to find monetization earl later by just launching a token yeah i don't i don't totally understand why layout twos should have tokens um and i crack like my my thought was that it's kind of like players two are kind of like a wework thing like they buy they buy block space on the layer one and then they resell it at

layer two and you know maybe the way to monetize that is by taking a little tiny spread between you know buying it on layer one and selling into layer two i don't think that's the case with optimism right because the because it's denominated in each i think the benefit goes back to ethereum i'm not really sure i don't know the details um so i could see i mean i could see where layer twos would be monetizable um but it does not seem like a great business to me again like this is not these are not going to be software companies with 80 margins right like the the layer 2 that's going to win i'm assuming if it has a profit margin it's going to be razor thin it's going to be like thin enough that nobody else can be bothered to fork it right yeah yeah i

think what the skeptic would say is that um the op token is basically just exit liquidity for insiders and vcs um and that like something like op and you could even argue like other layer one tokens like even eth like there's not really a clear value accrual system there um but i mean i think there is like for layer twos there is a first mover advantage right like if you if you collect a lot of liquidity on your layer too then other people are going to want to be on your layer too right so if you can that's a disconnect that's that's separate that's you're separating the network from the token there that's like well but if you're i'm just saying if you can use the token to incentivize usage then

that might have real long-term value um i'm not like that is not a token that i would want to buy but i could see where i could see why they would would do it and i could see why long term that might be the best thing for the protocol yeah by the way i'm a huge fan of optimism and i just i'm trying to play devil's advocate to a lot of this santiago and i did an episode kind of about the uh optimism token release when they announced that they're gonna do this a couple weeks ago so you guys should go listen to that which is a little more optimistic about optimism so um anything else on optimism you wanna touch touchdown here that is the full extent of what i know about optimism i do not know i do not even know enough of

it to be expressing an opinion really so good that's why we're bringing on here byron just talk about things that we have no no real clear uh guidance on um one thing i do want to get your take on is uh that touches maybe the traditional financial world a little more than optimism launching a token is partnerships between miners uh and oil companies so exxon conoco phillips marathon oil and some other oil companies are running pilots with btc miners to use what otherwise would have been wasted gas from oil wells uh to power bitcoin mining operations um do these new partnerships change the narrative

around like bitcoin as bad energy as a as a dirty form of energy do these does like does clean bitcoin play into this what are you actually just zooming out like what are your thoughts on a lot of these um the exxons and the exxon mobils of the world and the big oil companies oil and gas companies starting to get into bed with the bitcoin miners and starting to bitcoin mine yeah i mean for a crypto perspective i think that you know if we're hoping to benefit from a you know having a benefit from teaming up with the oil industry then i think we're kind of in a bad place you know like they're not you know the oil industry is not anybody's favorite either so

i that i'm not like super hopeful about that uh i'm also not hopeful that anyone is really going to understand the nuance of bitcoin being generated with uh you know waste natural gas or you know some some form of energy that was going to be wasted and is therefore you know zero cost i do think the reality of it is that it's super valuable and i think that you know it could in fact accelerate the transition to uh renewable energy because it's going to you know a renewable energy product that can mine bitcoin for free on the side is going to be

uh you know easier to start up and cheaper to finance than one that isn't so i think there's a real substantial argument to say that bitcoin could become a net positive for the environment uh but there's like one that is super hard to quantify i don't know how you quantify that and two that is like such a nuanced argument that and the and the case against bitcoin is so deeply entrenched that i'm i'm not super optimistic that that narrative is gonna take hold yeah i would have to agree with you i wanna get your take on a couple more things before we wrap this up you tweeted a week ago defy's killer use case front running tell me where that was that was a little clickbaity i'll admit it

yeah well you got some retweets you uh your twitter's kind of booming these days uh b g i l i am 1982. i love that not a cat not a catchy handle but i wasn't that bad i wasn't really thinking about having a following when i signed up but the benefit of that is that people think i was born in 1982 which that is not my birth year but people think it is so i'm not gonna i'm not what's that what's what's 1982 from uh i before i quit drinking i was a large fan of uh french red wines in 1982 is the all-time greatest year in french red wines interesting did you make the twitter when you were uh when you were drinking nice french red wines uh it's very possible it was a hot whatever you know

whatever whatever time it was there was a high probability that it was drinking a glass of which we're doing fair enough fair enough uh defy's killer use case front running uh i'm forgetting what that was in response to i think that was oh was that that was the wireless anon tweeted the real bold case for defy apps becoming their own interoperability app specific l ones is to capture the value created by protocol mev if you understand this right yeah yeah if i mean if the whole industry is going to be based on mev then i you know i think that's a sorry state of affairs because you know mav is essentially front running right is there is there a better way to look at muv yeah it's reordering transactions to to the validator or miners benefit which

to me is just front-running and that's totally fine if that's what you have to do to to secure the blockchain that's totally fine but that surely cannot be you know the the one thing that the entire industry is is is built on i hope is there a way to prevent this uh the way to prevent this is to to uh create better use cases um like uh and you know and i think those use cases exist uh like payments i think is an amazing use case you know banking the unbanked um bringing real world assets on chain like maker is trying to do is is an amazing use case i don't think you know i don't i don't think nev is required for any of those things you might need it to secure blockchains but i'm hopeful

that somebody will figure out how to secure blockchains without that i think like i think cosmos is doing that right like i don't think i don't think you have to have meth um i think there's if you're i just think you know i am not a blockchain engineer so i don't i don't understand the details of this stuff um but if the if mev is the only way to really monetize uh blockchains and i think crypto is in trouble yeah why is front running a bad thing that's a tricky question that's kind of like why is inflation bad like you know it's like never not something i've i've ever thought about it's just bad inflation's bad because it makes uh people who don't have assets uh it makes their prices of everything

higher so then they have less money and they getting the same same for same for crypto like if you know if i get front run every time that i trade a crypto then that that makes you know dealing in crypto more expensive than than it otherwise would be um so yeah i think it's just it's just uh you know inflating the expense of of using blockchains and defy apps and stuff and you know that's making it more expensive for users and more profitable for the you know miners and validators which is not what we need you know we need more users we need we need miners and validators too um but you know ultimately we need users yeah two more takes i want to get your

thoughts on um one was xerox homs which i really like this guy um i don't know who he is but he's had some really good takes on twitter he's anonymous you're not supposed to know who he is all right all right well maybe it's not a he maybe it's a she or neither um crypto needs uh they tweeted out crypto needs 102 billion dollars of retail inflows to keep stabilizing the market cap um can you explain this to me why like how he got here and and do you agree with it or disagree with it um yeah i mean i think the i'm sure that that 102 billion number is not correct because it's just you know a very rough approximation uh but i think it's

directionally correct uh you know the easiest way to think about it is just to think about bitcoin right like there is uh uh you know the miners all have dollar denominated costs right like they have to pay taxes and they have to buy gpus and whatever whatever and the way they pay for all that stuff is they sell the bitcoin that gets issued to them so there is a steady outflow of bitcoin right there's a there are structural sellers of of bitcoin and for the price of bitcoin to go up the there has to be new buyers coming in that are larger than the structural sellers right so you're as an owner of bitcoin you are

totally dependent on uh new buyers coming in that is not the case in equities right like equities as a whole generate cash they pay dividends um they buy back stock uh so whatever that is you know five or six percent a year whatever whatever you know what whatever whatever the number is depending on the state of the economy and stuff that is a tailwind for equities so all things being equal you know if the buyers and the new buyers and the new sellers uh balance out you would expect equities to go up five or six percent a year because equities generate cash it's the opposite in bitcoin you know if they're if the natural buyers and sellers even out you

would expect it go to go down to the degree that the the miners have to sell bitcoin right um and i think that is true for the whole of crypto like there are just not very many profitable um uh blockchains or protocols in in crypto uh i don't think there are any profitable l ones like maybe eth post merge but not eth right now and i think there are very few profitable uh um protocols uh one that i'm aware of is maker dao i think yearn always had been but i had even read an article at one point that they were

uh they were loss making in the first couple of the years uh first couple months of this year which is you know because they protocols have real expenses like they have to pay devs and they have to uh and they have to pay for the merch that they give away for free or permissionless and stuff like that um and you know the way that they pay for that is by is by using the their own tokens that they issued to themselves so it kind of looks like they don't have expenses because they're just paying for them with you know pre-issued tokens but those tokens get sold so that's like you know just the same way the miners are always selling um bitcoin to pay for their expenses protocols are always selling their own

tokens to pay for their expenses so that's you know that's a that's a headwind uh for crypto as a whole uh which is the opposite of equities you know equities has a tailwind from cash generation and and uh and crypto has a headwind from from the emissions whether it's 102 billion or not i have no idea but that's you know directionally i think it's correct does this go back into earlier earlier comment that crypto's not an investable asset class yet yeah yeah basically yeah um so you're you're very like you know if you just think about the price of bitcoin so if i think about the price of a stock i can think about its earnings and then i can think about what multiple those earnings should get and then i can decide like you know should it be higher or lower than here but if you're

thinking about bitcoin you're just thinking about the price like you know and when people make when people talk about like oh you know i don't think it's going lower than 20 000 that's because like the last time it peaked at 20 000 or whatever you know it's just some your your price prediction is some derivative of price which is circular right um so in that way and which is totally great for trading uh but i just it's not really for investing i don't think yeah but isn't all that you're saying here just that um these aren't cash flow generating things and that they need more cash coming in to keep the business alive which is just like what venture capital is um yes yeah yeah so yeah definitely it definitely could change it could be totally different it

doesn't seem like that bad of a thing it just seems like we're at the stage of the industry where this is a venture-backed venture-backed industry and not a cash flow generating industry like how a lot of tech was for the last 15 years yeah definitely and i think you could you could i but i it's just like for me it's just like how i try to conceptualize it um so for me it's kind of like if i'm thinking about buying a token it's i sort of think about like it's kind of like buying it at the series b raise with the intention of selling it at the series c raise you know um so yeah it's i think it's very much very much more venture capital than listed equities anything else you're looking at these days byron luna 2

i do i do have some i do have some weird things trapped on luna one that i need to figure out how to get out i don't have too much of an opinion on luna too anything else that you're uh paying attention to either in uh crypto or in just like broader global macro markets i guess stable coins are i always think stable coins are interesting um uh yesterday's note was about uh about tether uh which i went and i like started to look at tether a little bit more deeply uh expecting to come out with a very you know a very bearish take uh that this is you know a ponzi or whatever but i i actually had the opposite i actually think that um it's kind of good for

crypto because i think people are you know if you look at uh if you look at their end of march financials uh they had like they had like 160 million dollars of equity which is basically nothing um and they had six percent a six percent allocation to to crypto um and if you like haircut that by 30 or whatever bitcoins whatever bitcoin has done they're probably they're probably have negative equity of like 1.5 billion now which you know if a money market fund and tradify had negative equity of 1.5 billion it would be a race for the exits right and crypto it's not bothered you know it's not bothering anybody you know tether is still happily trading at one

dollar and the trad five take on that would be crypto people don't understand finance and they don't know what they're doing um and that was kind of the take i was expecting to have when i went to it but as i thought about it a little bit more i think like people probably know that and they're just not very bothered like i would assume that people think that tether is going to do the right thing and they're going to divert the earnings from the fund back into into the reserves until they get back to being fully collateralized um and you know crypto having just survived ust going to zero they probably don't care very much whether tether is worth exactly one dollar or 97 cents like 97 cents to a crypto person sounds like a dollar just rounded up to a dollar uh which is great i think that

makes crypto you know more anti-fragile and less panic prone than than tradify so i i i went into tether expecting to be to be you know come out uh skeptical and i actually was actually the opposite i actually think it was actually came out with a pretty positive take yeah um they the size of usd uh usdt redemptions over the last two weeks i think was 10 billion dollars it's a lot yeah i mean it uh that rivals the size of the largest banking withdrawals in history which is uh quite yeah quite a large amount um on the other hand they were uh tether was very very excited and very uh

they're you know they're really kind of pushing that they were able to handle withdrawals of like 12 percent of their deposits in a week which isn't that impressive of a thing uh banks see outflows of 12 percent of their deposits in a week all the time though i guess the counter argument to that is that that's generally matched by corresponding uh inflows yeah but i think they yeah you can look at it different ways like you know let's just say if uh you know tether was actually only worth 90 cents then uh they could just you know the first 90 percent of withdrawals would get 100 of their money and then the last 10 percent would get zero so the fact that they are uh processing uh redemptions is great and that means it's

not a total fraud but it doesn't necessarily you know mean that you're going to get all of your money back i think you will like i think if you know if if uh there's a funny line in the in tethers documents where like you know it lists all the risks and the last risk that they uh that they list is we could abscond with the reserve funds which i thought was very which i thought was very amusing uh but if they were going to do that they would have done it already like they weren't going to hang out they wouldn't they wouldn't have waited so i i personally trust tether to do the right thing but just being optimistic on tether right now okay um but just because they're processing a lot of uh redemptions does not necessarily mean that all is copacetic it's kind of that's kind of like the

take that uh um like luna was our lehman moment and we survived it which i think is a terrible take uh you know luna is not systemically relevant to the world the problem with uh with lehman was that it had 600 billion dollars of real world assets you know that luna did not have that it had 40 billion of mostly paper gains fake assets uh so i don't i don't think yeah i do think it was admirable that uh you know crypto just sailed through that without without anything really happening um but uh you know i think there was that one there was that one fellow that was tweeted about uh

uh luna not needing a government bailout like that's a pretty low bar like you were setting the bar for crypto really low that's like you know congratulating yourself for not having a gin and tonic before noon congratulations it's the line of the episode byron it's a good place to end it uh congratulating yourself that you didn't need a government bailout is like having congratulating yourself that you didn't have a gin and tonic before noon it's a good way to end it uh byron this was great as always if you guys aren't subscribed to the block works newsletter uh you should go read byron's pieces he's got some spicy takes uh and byron hope you enjoyed the uh the rest of the week my friend thanks this is fun [Music] you