The DeFi Credit Boom | Season One Pilot

Transcript

[Music] all right new season new show episode zero baby what's up everyone we are here it is bell curve the show where mike and i explore the most important themes in crypto for folks that just like mike and me are confined to the middle of the bell curve this is a two-part show it's broken down into seasons each season we are going to explore a different thesis so here's what's gonna happen we're gonna lay out the thesis for you at the beginning of the season explore that thesis over the next seven episodes and then regroup at the end of the season to say what went right and then what went wrong so that's one episode percy per week the other episode per week is uh a

roundup with the folks over framework ventures vance and michael they are some of a the smartest people in the space but be some of our favorite people in the space this is like the ultimate roundup for the d gens out there we're going to cover market conditions breakdown governance proposals obviously cover the biggest stories of the week a few more fun things you'll have to tune in for uh mike maybe i can kick it over to you can you just tell us about the the what is the thesis of season one well at first let me just say thank you for turning it over to me i didn't know if i was going to get a word in edgewise i was thinking i was considering just taking it the whole way through i mean you wrote up these nice notes for me you put it on a silver platter i did i mean

you like the sound of your own voice i mean who among us doesn't i thought this was an excuse i thought this was just an excuse for 12 more minutes watch him go guys watch him go i know i know this could be bad now i'm just going to not shut up for the rest of this episode but i'll i'll i'll do my best out elevator pitch like lay out the thesis of the season so we're talking about the d5 credit boom that's the thesis of season one and that thesis comes in three parts so part number one we just watched the implosion of c5 that's going to push marginal activity out of c5 and into d5 part two um part what we're looking for in d5 that marginal opportunity is going to attract a bunch of investor interest renewed products and what we're going to

see is an unlock in the form of variable to fixed lending that fixed lending is going to unlock a whole bunch of new structured products that weren't possible before and it's going to usher in a part of it a boom that's going to catalyze or help catalyze the next bull cycle so that's that's our thesis damn i think you did talk less than me there i think i did another 60 seconds yeah i i mean i would have gone at least for at least five minutes but i had to show you up so that's good good way of getting me to slow down that's fair so that i mean this is really an exercise in curiosity for mike and me what what what happens basically over the last four years since launching block works is like michael called me at 10 pm on a tuesday night

saying i think this big thing is gonna happen in like six months right so like back in 2018 it was uh prime brokerage i remember getting a call being like pb is going to be a big thing in the next six to 12 months and sure enough in 2019 prime brokerage uh takes the space by storm and then 2019 calls you know a bunch of calls like d5 i think this d5 thing might actually be real sure enough six months later defy summer happens right and and i think we've seen this play out uh a lot uh just our conversations end up actually happening and sometimes they really don't happen sometimes we're wildly wrong but this is this show is just an exercise in curiosity yeah let me let me um let me break it down a little bit more just so we can because the point of this episode

is right for i think you and i are both kind of sick of as well like listening to people they just kind of spout these predictions on twitter they might or may might not get revisited and there's not really much accountability i think it's more fun to learn in public so we're kind of going down on a little bit of a limb on this one here but i think we've got conviction in it and if not you know we'll figure out what we got wrong but basically i think you and i think that there's going to be a big unlock when it comes to fixed lending in crypto right so like you know the first part of this thesis we just watched an epic implosion when it comes to c5 so some of that was just irresponsibility or not really good risk management on the part of c5

lenders some of it was much worse stuff right it's something that looks like it was bordering on fraud in the case of celsius or honestly babel finance this didn't get a whole lot of play but 280 million dollars worth of customer deposits that got vaporized because they were prop trading customer funds you do not get activity like that and don't get an enormous amount of regulation after that right so we saw it forbes august 4th reported every single u.s based exchanges under investigation by the sec so that's about to get regulated c5 is about to start looking like banks that's going to push that'll be good for some you might actually see more institutions come in if they get regulated more heavily but it's going to push some marginal activity out into d5 there's going to be renewed interest more funding and the one thing that we

haven't really seen in d5 thus far is a robust market for different credit products and i think one of the reasons one of the reasons for that is basically the only thing that exists in crypto is the ability to borrow at a variable rate of interest that sucks for you and me right if we're block works we're trying to raise money tap you know these debt markets we can't borrow at two percent today and have it spike to 20 tomorrow so there are folks and you'll you'll hear from them this season they're already working on how to solve this right transforming that variable interest rate into something that looks fixed on top of the fixed rate you build these structured products right like a 30-year mortgage which is the most popular financial product in the united states that's built on the ability to borrow at a fixed rate so you're going

to see all of that kind of happen uh during this next cycle and that's what's going to boom kick everything off that's what we that's what we think at least thank you [Laughter] so let me let me recap uh the the idea is that the the idea of season one is that the birth of fixed rate bar and london crypto is eventually uh maybe relatively soon gonna kick off a credit boom and this credit boom is gonna catalyze the next bull cycle the thesis is kind of broken down into three parts right so the first part is that the recent implosion of c5 celsius is and and uh and babel and and block five will push more financial activity into d5 that's part number one part number two the next wave of d5 products will be unlocked by fixed rate lending right

everything in crypto right now in d5 is variable uh we think that where the space goes is is uh fixed rate lending and then the third is that you need structured products that utilize fixed rate lending uh and that those structured products uh based on fixed lending will be a key part of the next boom do you wanna break that third part down a little more yeah so basically if you take a look at something like a 30-year mortgage that is a beast that you don't quote like find in the wild right really what that is is there are variable rates of interest and there's a deep and liquid options market that's used to lock in fixed rates that then get sold to to customers um so slow down over there buddy slow down getting a little excited almighty all right we're editing this part out um i'm

just so excited by the creation of these markets um so you know what you really need that's that's based on this like it's what we talked about in d5 all the time right there are building blocks right so ability number one the ability to borrow and lend at a fixed rate and then you need a specific product that leverages that ability um so i i think the one of the big things that we need to explore and frankly it's gonna be tough to get answers on is we don't really know what those products look like in defy like you know we don't know what our equivalent is going to be of a 30-year fixed mortgage but what we do know is that we're going to need businesses maybe in the form of dows we're going to need consumers something like that to be on the demand side the demand side for

for those financial services and then we're also going to need on the back end we're going to need a deep liquid market for options perps whatever it is that's kind of like you can think of that almost as as the clay right the molding clay for these new products because when you have a 30-year fixed mortgage right you need someone you know a market full of people that want to basically take leveraged bets on interest rates to support the creation of those new products to just lay it out that's our thesis and i'm sure like you said in the beginning the point of this outlining this is one to just say hey this is what we thought at the beginning of all these interviews and two uh you know i'm i'm hopeful i'd i would bet that by the end of season one we're going to think very

differently about uh some stuff that we just hadn't thought about before so we want to put our ideas out there be wrong in public um and who knows maybe we'll even rewrite about some stuff yeah potentially it's rare that we're right but uh but we'll see yeah i mean i think i think it'll be interesting right if you look at all of the uh basically bubbles and cycles in crypto they've been led by equity financing right you had like uh icos you had ieos then you had defy summer and yield farming then you had nfts these are all like variations in iterations of equity financing but if you look at most bubbles throughout financial history from like cdos in 2008 to milken's junk bond sales in the late late 80s those were all caused by debt those were debt bubbles so i think our

thesis is that when we finally see a form of debt financing that's unlocked by fixed lending we could see this boom in credit products that catalyzes the next cycle so i mean we'll see we'll see if you and me are right i think the goal here like you said is just to lay out the thesis it's not to be right or wrong it's to lay out the thesis it's to learn in public i'd be really surprised if we nailed 100 of it um but hopefully we get one or two things right here so yeah well i feel like the parts that i think will probably be right and then what you think will probably end up being wrong but you know history can decide i'd flip that and you're probably right yeah yeah i'd flip your flip and it's the inverse of what you just said so i think i think

we're both in agreement here i take a derivative on that flip of the flip and then we'll call it a day so if you guys want to listen one too many if you're gonna film too many here a bitcoin show an eath show a solana show an avalanche whatever ideology you like this is not the show for you this is a show for exploring theses uh and big ideas we'll revisit them every single season uh we are releasing uh the first couple of episodes over the next couple of weeks the first episode this is episode zero episode one is also live today with uh with vance and michael it is c5 is dead long-lived defy next couple episodes that come out every week the makings of a defy credit boom the fixed-rate lending unlock on-chain derivatives and options uncollateralized

lending who are the borrowers uh who borrow off this fixed rate uh loans and then d5 in the next bull cycle really really interesting seven episodes lined up for you all if you're excited hit that subscribe button uh mike anything else to add here nope i think that's about it i think i definitely talked less than you saw just cap it here see you on the other side folks peace