FTX Implodes: SBF's Demise & Fallout Explained | Westie, Matt Fiebach

Transcript

I think this could be the point in time we look back on in the future and think you know monolithic chains kind of died during the bear Market of 2022 and now you've got ethereum with its role of centric road map and then you got things like Celestia Fuel and these modular stacks and you know Cosmos can fit into that as well but I think it just really hinges on them creating a better community and improving the tokenomics and value capture all right everyone welcome back to another episode of Xerox research a show hosted by analysts for analysts we're going to ask the tough questions and if you're really into crypto then this is the show for you I'm your co-host Sam Martin and I'm Dan Smith you know this show is made possible by incredible sponsors

chain Alexis and Flipside uh today we got a little Roundup episode for you we're gonna hit all the Hot Topics you know obviously the X FTX news uh wildly disappointing and a wildly massive topic for our industry uh so we'll definitely touch on that I think we first we can kind of rip a little hot seat cool Throne session uh let's see Sam you wanna you wanna break us down start us off and uh who you got in the hot seat this week yeah the hot seat's pretty easy for me this week I've got pretty much all pfp nft projects you've got board ape Yacht Club down 40 just today on the floor and we're recording on Monday November 14th uh mutinate Yacht Club the derivative of board Apes had a floor north of 100K at one point during the bull run and now

aboard AV Yacht Club nft only costs 60k so definitely some downward price action on nfts you got art gobblers that you know moon to attendee four that we talked about last week and now they're down to two eth and a lot of these projects have really little runway in their treasuries so definitely bearish on the pfps what do you guys think I think they'll come back but you know it might be a long bear market for pfp nft projects I think they were probably just getting started on that front I think board Apes mu nibs and even the Blue Chip Doodles Etc they still probably have a while to go at least against each to the downside I definitely think nfts are well set to have a good a good next Bull Run but

whether or not that's gonna be like one of one music nfts or pfps I'm not so sure I think this brings up an interesting question is like should these pfp nfts have utility or rather should it just be like some sort of culture like I know we have the the crypto dick butts um and those like they have absolutely no utility it's literally just memes um is that what the pfps are going to look like in the future or are we is it going to be more like the board Apes where there's like other side metaverses and there's way more utility like I don't know this sort of puts a question on what is what is the future of nfts especially those pfp nfts when D equals 1B true stability

to keep the uh the nft hot seat going I actually have Joe pegs the Avalanche project on on my on my hot seat they reached just literally today uh Monday the 14th they announced uh that FTX Adventures was part of their most recent race uh that's just like so tone deaf to be announcing that right now I mean I get you probably have some mandate to put that information out but uh just a brutal brutal timing and on the announcement thread it like you know had to like put a second tweet out that's like obviously this announcement came at a bad time it's like okay thanks thanks really really appreciate the Insight in this the secondary apology there um but yeah I mean that is kind of a

just shows the far-reaching uh arm of what FTX really was and and how they kind of had their claws into all these different corners of the market but then again like Avalanche and on the day the FTX was melting down uh I was first like hitting everyone's timeline they announced that they were launching their merch or so just true true poor poor timing for back-to-back announcements for the Avalanche team at the same time though Joe pegs does manage to ship really well they uh they have concentrated liquidity amm they launched the NFTA Marketplace you know two three months ago with a couple nfts that were doing pretty well so like I do respect that team heavily it's a pretty hilarious though that they announced

that raise right in the middle of all this but I guess like you said they definitely had to Matt who you got on the hot seat this week my hot tea today is just all custodians I'm taking the easy route so obviously FTX is causing bad sediment among you know anyone who holds money on exchanges there's been huge net outflows of Bitcoin ethereum and all their assets from centralized exchanges weirdly there's also been net outflows from D5 I think that people are just really on top of like I don't want to be taking any risk with my funds right now I want you know my keys my crypto I want control of every aspect when the sediment's a little better when things have cleared up maybe I'll go put money somewhere where I can earn a little bit of yield but for now I just want it in my pocket

I think that we're going to see that same idea continue with centralized exchanges and custodians for a long time maybe I'm being a little bit optimistic here but I hope that this is like a complete drastic Catalyst for you know self-custody that people really start managing their own funds you know whether or not that's the case this isn't the first exchange we've seen hacked you know the same thing happened with Mount gox the same thing happens every cycle but I'm hoping this time there's enough eyes on the industry that it really does have a you know long lasting change for for how people view holding their assets yeah I can't agree with you more and what's been interesting is the past few days the the trust token uh for the trust wallet has been absolutely ripping which I think plays into that narrative that I think

people realize self-custody is going to be way more of a thing especially everyone getting burned by all these custodians so yeah I can't agree with you more I just think about like how do we make self-custody a better UI ux right mostly on the ux side right like I just think about the average person getting their private keys and knowing if they need to like secure this information like and if they lose it it's like a one-way Street there's no going back it's like I just don't know if that's the best way to onboard new people I love how crypto has the optionality so more sophisticated users can um self-custody and hold their own assets but I I do think like to True Mass adoption that self-custody in its

current form uh just doesn't really facilitate that that level of mass adoption right like I think you do need these centralized custodians uh to kind of reach critical mass of of users in Market penetration so I'd really like I really hope that the outcome of this whole FTX drama ends up being that all eyes do shift on these centralized entities and we somehow find a way to hold them to better standards whether it's like social consensus um you know I know in the early days uh when exchanges and custodians first started being a thing like bitcoiners would organize days where they'd all withdraw their assets at the same time just to test these exchanges so I don't

know if it's like trying to bring some sort of like coach social regulation into it or if like we do get you know over like uh a true regulation policy put in place for these centralized players decentralized custodians and and kind of you know it's a shame that like we couldn't do the policing ourselves but you know I think we have hit a point where if we want to continue growing and and we really do need these centralized entities to be playing uh the right game so it's kind of a shame that's come down to this but yeah I'd hope to see some regulation that kind of force these these larger players these larger institutions uh to be accountable yeah literally just everyone's scared right now like no one wants to hold

funds on a centralized exchange everyone is watching their wallets super closely we saw that with the drama with crypto.com and gate IO over the weekend you know shuffling some funds around by accident so I think people are just on edge and I think isn't like a net positive for the space in terms of people learning to self-custody but it's also a little bit optimistic to think that people won't forget about it in you know two three four months time but hopefully this time we uh we actually learn but uh Westy who you got on your hot seat this week yeah for me I got Solana on my hot seat which is definitely an obvious one given the week that they've had I mean the sole tokens down I think at least 60 in the past few weeks uh given just their ties to sdx

um but also like within the ecosystem they've been having a lot of trouble so FTX was that actually like the the holder um of collateral for the the solid um token so they had I think wrapped Bitcoin and wrapped eth which are trading at the Bitcoins at like 1500 right now and the wrapped eth is at 250 and SO trading at like ridiculous ridiculously low value uh versus par um but also I'm hearing Rumblings at FTX I have the keys to the serum as well which is literally the the backbone of Solana D5 and so I think jump is leading the charge to try and Fork serum to to

make sure it's more to get away from that the FTX private key as well as to make it more Community focused which I think could be a good thing in the long run but definitely hurting right now but I also think like the long-term effects of FTX being like a big investor in the ecosystem oftentimes like I made an FTX for one of the biggest investors in all these projects and so what happens if new Solana projects are trying to raise or maybe the the older Solana projects had their their treasuries without Mater on FTX like how difficult is it for them to to raise in the future and so you know this sort of makes you question where does Solana

D5 go from here it's pretty bleak yeah I've had Anatoly and Solana on my hot seat the last two weeks so Westie stole my thunder there but I guess just to take the contrary and take like I don't think I've ever seen an asset that everyone's just talking so poorly about like in the grand scheme of things and we did talk about this last week but I would rather hold a bag of Soul right now over avax and I would stand by that even despite all the drama like there's some good Builders over there there's some cool projects anatoly's like a really smart guy so yeah uh I definitely feel them on the hot seat but uh I'm trying to be a contrarian and and take a bet that no one else wants to take right now yeah I mean the sad part about it is is like

this just kind of highlights that every time we saw one of these Solana D5 protocols launching a token with this insanely predatory model of you know four percent of circulating Supply uh relative to fully diluted Supply circulating uh it's just like so brutal to think that you know this was really truly was Alameda behind all this just shipping money out of retail's hands you know like we we thought that at the time but actually having the context now it's painting a pretty Grim picture um and so I feel like Solana as an ecosystem is really going to have like you know two defining points of its existence right it was like the pre FTX and the post FTX era so it's going to be really interesting to see you know how

if they can really pull the community back in and say all right like let's build from this and you know we were under like the these Alameda FTX claw and the grasp of their their power but you know now it's time to kind of take this technology we've built and and create a true ecosystem and where that application Falls will be interesting right is is it going to be D5 or will it be some other uh some some other like micro economy like I know they're nft market and it still kind of has it was it's been that number two ecosystem for quite some time so I I'd like to see like what applications really start getting built over there yeah and I guess to take like the long-term bullish view although I have them in the hot seat like you can look at this as sort

of like their 80 eighth moment where you know we've seen a lot of distribution where Seoul was heavily held by um institutions VCS like we know Almeida now had 10 of the overall Soul Supply and they definitely have to sell that now um and so we've seen a lot more distribution of the Soul Supply in total um and we now learned that serum was controlled by FTX but if that sort of becomes more a community project and the CRM tokens are distributed in a better way than the predatory tokenomics they had before then maybe that sets a good precedent for other projects and all of a sudden you have sort of a Grassroots Community it's able to build it from the ground up in a way that's way better than it was before so there's definitely

a bullish case for Solana but right now you know things are looking Bleak and maybe maybe this is the time to buy because maybe it doesn't get worse in here yeah zero or very high for for Solana is kind of how I see it but uh [Music] yeah my my intense ta um so for the the cool Throne of the week for me it's a pretty easy one e stakers and all this madness they're getting incredible yield I think I checked a dune dashboard earlier today that said lightest Acres were earning between eight and ten percent it depends on the source that you look at but with all the increased demand for Block space in the midst of all the volatility you've got a lot of Mev and a lot of tips so those those validators are

having a field day um but yeah I mean if if these yields stay where they are and then on top of it each stays deflationary I don't really know another more bullish setup in crypto so Heath stakers definitely have my cool Throne of the week yeah the most satisfying chart to look at this week has been the ultra sound off money chart where it's just been a straight line down in terms of deflation like we're now deflationary since the merge and yeah it just yeah makes me happy as a neat bull yeah I feel like I said it a million times this week but I think okay I agree with you Westie that's the coolest chart to look at and the second coolest one is toggling proof of work simulation uh and just seeing how much uh minor block

rewards that we've removed from the market right and considering that minor rewards are commonly turned into cell pressure as miners sell off uh these rewards to subsidy subsidize the electricity costs of running their miners um it's it's pretty interesting to think about where we would be if there was another 800 850 million dollars of cell pressure coming um you know the economic hardening that's really uh that the merge brought to ethereum is just really impressive uh and it's it's really hard not to be bullish especially when you see how chaotic times are so beneficial to a base layer just echoing that it's pretty everyone could imagine in a bull market you know people are putting risk on they want to get Diversified into

different assets you'd expect gas prices go up and eat to burn but you know at least in my head it didn't immediately pop in as a thought that bear Market would you know deflate the supply of ethereum by so much who knew bear markets could be so bullish Westy who's your cool throw of the week yeah cool Throne has been D5 perps platforms so the past few days I mean since the collapse their governance tokens have been ripping so like dydx and GMX was the main culprits there but gns has been doing well even snx today just all like the D5 purpose platforms and I mean the obvious cases because all the Traders the perpetrators that were on FTX need somewhere to go and they're not going to trust some sort of

centralized venue so they go kind of go to some decentralized venue um but while this is like sort of like the short-term Trend I also think it's going to be the long-term Trend where people just choose to trade on venues that are D5 because you don't have that that risk of someone running off their funds but also I think these platforms are going to get way way more efficient in the next few years building out their products and so yeah I gotta give my cool thrown to the the D5 purpose platforms yeah it's super interesting too because like with nfts they were kind of born in a self-custodial environment so like everyone for the most part trades nfts through openc where they they keep custody with their own wallet and like

it's the other way around with with perps you know it kind of started on on Sexes and you see that people got used to that but it'll be interesting to see if over the longer term people can get more comfortable just interacting with apps but I tend to agree with you Westie I think that that's where the future is heading a slightly more unanimous cool thrown uh zero X and GMI D5 llama founder man this again doesn't stop shipping uh in light of the huge FTX drama he posted and created and posted a centralized exchange transparency dashboard and this dashboard kind of just like highlights everything you need to know about some of these exchanges and ultimately I think we all want to see like true proof of reserves that are

like verifiable on chain but I think it's just like a great step in like pushing in that direction uh and like it you know it includes like the the amount of deposits they have if they've been audited if so here's like a link to it with it you know it tells you what the date was um so you know definitely just to step in the right direction and such a quick response to uh the one you know the second largest exchange blowing up yeah that's a good one he's always shipping but I guess in terms of like actual proof of reserves it's like so many questions still remain it's like who are the Auditors like what is their credibility um and then at the same time what is their liabilities because just the reserves themselves really doesn't provide you all the the full picture that you actually need to make an

educated decision as to whether it's safe or not to keep your funds deposited on Exchange so yeah step in the right direction but I think we still got a very long way to go yeah I'm with you I think it's kind of funny how like these audits are just like taking a look at at Point like you know time at time wide do they have enough uh assets to cover their liabilities or their user deposits when you know the the speculation around the gate.io and crypto.com is just like they sent them to eth just so they could take the snapshot and look you know meet the requirements of the audit which that's just such a broken system and for an industry whose motto is Don't Trust verify it's it's pretty shameful that

we've just like yet to hit a point where you know we have on chain verified uh proof of reserves for the entity entities that are this like large and important to the to the success of our industry I mean we should have in theory like real time data looking at the chain in the state and understand proof of reserves like there shouldn't be you shouldn't need Auditors in the first place to take a snapshot like it should just be clear as day here are the numbers at this very moment or at least in the last block like it should be very clear um but yeah I mean about the law model you can put the Llama any week on the cool Throne like the man ships a product like every single week it's ridiculous so I gotta agree with you yeah

I like how you call it in the llama I've never heard anyone refer to him as that maybe I'm not gonna tries at his ad his way to like zero x ngmi no I'm gonna say the llama very very fair uh Dan you want to take it over to the flip side chart of the day yeah let's do it big on a dashboard here uh by a-lick110alik110 uh and he kind of broke down the FTX drum and where we are now uh it's just like wild to see you know these these wallet balances just collapse to zero um as they were either exploited or pulled off exchange by a back door you know we still don't even have the full

picture of what actually happened uh and it's just like wild to you know see the ledge at which those fell off once that bank run first started occurring and then uh the final funds were kind of pulled uh by either a combination of exploiters or again we don't even know if it was like an inside job type back door breakdown here so yeah just like actually getting the visualization from from flipside's data here it's it's honestly just painful um and you know I just want to give a special shout out to Flipside on this you know Flipside has the most uh comprehensive on-chain data in crypto to get the insights you need to work smarter and just having the ability to instantly query this data really

highlights the importance of uh you know what this industry is capable of in terms of on chain verifiable data right like we're gonna watch this in real time and many of us who are spending the day on crypto Twitter certainly did uh and you know using Flipside as the tool to get that done just makes life so easy and be sure to check out the show notes we have a 75 bounty in there paid in usdc so if anybody wants to compete in that Bounty uh you know flipside's been so gracious to sponsor that one for us as well and you know I guess my question really here is you know where do we go from here so you know like we're at we know what the FDX drama is we don't really know why it happened but the question is like who's going to come out

on top of this and you know I think West you mentioned D5 per protocols is a good one but like I guess that's when I get your take on like what does this mean for for our industry like what how do we move forward from this I think just in general the only people left here are the people who really believe like it like if you haven't sold and you're not gone off crypto Twitter by now then you're not leaving like this has been the most brutal week in in the industries you know Nation existence so I think we'll come out stronger on the other side but I also fear you know the regulatory Fallout you know like people like all the headlines are saying oh like crypto broke like it's like no crypto didn't break like D5 was fine it was a centralized entity that that

really you know did this and shout out to JP Morgan actually put out a note clarifying that you know I wouldn't have expected that from an entity like them and then you know they were also doing a D5 transactions like a week ago so I guess I got to start giving them a little bit more credit but uh yeah I'm just a little bit worried that the regulation that comes from this and between Tara Celsius block file media FTX like they've got a lot of ammunition in at their disposal so that's definitely concerning but in general I think that you know we've already talked about pushing towards proof of reserves I think we'll get more regulatory Clarity for Sexes um I think there's going to be good things that come from it I think there's going to be bad things that come from it but at the end of the day like it is

what it is and now we just gotta do our best to kind of right the ship I've been I've been happily surprised so far with the response by uh I guess you call it Trad five Personnel maybe even Regulators at least from you know the small sample size I've seen on Twitter and gotten text messages about and whatnot which is that it seems a lot of people are actually realizing the distinction between you know self-custody defy self-custody and D5 protocols where there's not like a middleman custodian holding your assets and you know custody in your assets with a centralized exchange or a lender like an FDX or Celsius because there is such a big and important distinction there and I think everyone listening knows that but you would imagine that some people outside of crypto would have a tough time with that and that brings you

know fear that Regulators would come in and kind of bucket it all into one thing that D5 would be regulated in the exact same manner as centralized exchanges and custodians which of course at least in my opinion is not the right move but it seems that that's actually not the case and I think that that's been pretty good as far as Dan's question I think that it's a long path to recovery I don't think that you know this is something that people are instantly going to get over I think that it's going to take a very long time to uh kind of have confidence and Faith come back into the space I would say you know on the probably longer side than six months to a year but also you know I can hope that the True Builders will stay here and that you know I think we will recover

I'm confident that we will recover yeah that makes me happy to hear that you've been hearing from other sources like within tradfi that they understand that distinction because you know it hasn't been my experience with talking to people but I hope that you have a better sample size than I have um but yeah we really need to push that narrative which I'm glad JP Morgan's on our side with that one basically saying that it wasn't d5's fault it really was C5 these centralized institutions and we need to push that as hard as possible so all the people that you know don't really know that distinction are in the know about crypto and what's going on here we need to make sure that they know very simply that D5 is not the same as C5 and understand where things went

wrong with C5 and how D5 can help like that that's really what we need to do going forward if you can't tell we love data here block reach research and chain analysis the leading blockchain analytics company shares this passion with us we use data to extract Alpha and find the next thing coming in defy but chain houses is doing the gritty work and building trust in blockchains to onboard the next trillion dollars of capital into the industry we need to grow safe consumer access to cryptocurrency and promote more Financial Freedom with less risk chain analysis has some of the most comprehensive and reliable data in the space and they use this data to power a full Suite of their solutions that can be utilized by industry professionals Best in Class training and certifications are also led by Chain analysis and some of the brightest Minds

in the space if you haven't heard of chain analysis you gotta check them out and we'll link to them in the show notes I think one bullish takeaway we kind of can get from this though is uh so and I know and obviously the recent we just had like an election cycle come through and there was like a GMI pack that supported 19 different candidates uh and they went nine feet uh they went 19 for 19 and every candidate they supported actually won uh so that's just like a great thing to know that uh crypto educated people are kind of working their way into regulatory positions and like in the lawmaker status I'm really happy to see that because ultimately I do think like to the average person the FTX story will be like one of those it happened no

matter how big of a deal is right like it happened and then something else happens two months later that's like the new Talk of the Town and it gets blown up blown over pretty quickly but to Regulators I don't think that will be the case you know like their job is to protect investors and protect consumers and Americans in in whatever country they you know reside in um and so I think that like those are the people that I'm most concerned about having to separate C5 from D5 with um and it's I think it was probably a good thing that SBF was so tied closely to this DC CPA that bill he was trying to push through because you know that was relatively uh not good right it was a bit predatory towards defy like regulating front ends is definitely a

Bad Thing uh limiting kind of the exposure that regular people can get to D5 is like a net negative and you're like the full libertarian other side of the spectrum view is that D5 should be as equal and open as as email is or as the internet itself is so you know I think I worry most about like how we how we bring this issue to Regulators um but and aside from like the Luna thing like I really wish and Terror never happened because otherwise it really would be just Central centralized entities that are kind of have like collapsed on themselves um but yeah no I think I think the concern in Focus needs to be how do we get Regulators on our side uh and and

limit the regulation to C5 and letting defy kind of continue to grow and develop like it blew up and but it worked as it was intended to work like nothing actually broke it just kind of got exploited and went to zero so if you want to call that getting broke or not I don't know but uh I do think there's a strong argument to make that you know a lot of these exploits that do occur it's it's because it was engineered incorrectly on like the coding side it's not it's not the protocol that broke itself so I think that's an important distinction um yeah I just think that's worth worth calling out uh yeah first glance of this like disaster I thought the regulation

front was going to be a lot worse than it is and Dan brought up some great points but also the Republicans winning the house is good to stop any of like these bad proposals getting through any cbdc's um and like you said there's a lot of great Representatives that are crypto aware um and know the distinction that can fight for us as well as new new teams within crypto forming so now Paradigm now as a policy team that they're sending a16z as a team as well along with the the great folks that have been fighting the fight already and so yeah I feel a lot more positive on the regulation front than I did probably five days ago which makes you super happy because that was like the number

one thing I was worried about mid to long term with crypto is you know because of this red herring because of FTX um as something to look at do we get really really bad regulation which sets us back many years from Innovation but I think I think we'll be good on that front think about how much worse it would have been too if they would have gotten a stable coin put together before all this actually imploded like that would have been 10 times worse because then you would have had UST Terra stable coin you would have ftx's stable coin and I think it was even even our first episode I was I was asking you guys do you think busd or ftx's stablecoin will be the most dominant and you know you actually kind of had to think about it so that could have gotten really bad

really fast and posed like a much bigger regulatory risk than than it even already does so I guess I'll count my stripes for that not happening yeah no kidding that's actually a great Point Sam [Music] and stable coins are and you know in my opinion one of the killer applications of crypto uh and how we'll we'll probably see mainstream penetration from stable coins so any harmful regulation would be such a problem for for our industry uh so that does feel like a bullet dodged without a doubt there and even on that dccpa bill that SPF was pushing forward you know he kind of grouped stable coins into two bucks buckets and it was you know Fiat backed like usdc or tether

um and then basically everything else in another bucket and that just like is clearly not a fair way to do it uh there's so much diversity within that second bucket right like you can have purely algorithmic stable coins like UST from Tara or you can have CDP style like uh you know die or some of the um you know even like or you have like the hybrid model of frax that's a little bit of both so it's like there's so much discrepancy into what a non-chain stable coin can be I mean how we have like jpeg which is backed by nfts uh there's there's so much diversity there that we need way more thoughtful insights into like what that actually looks like um so yeah that's a great point it feels like a complete bullet Dodge that FTX didn't really get the opportunity to

kind of build out that stable coin yeah knowing what they were doing with customer deposits I mean you already know what they were going to do with the the US dollars that were backing that stable coin it would have been definitely fractionally reserved a lot of that money would have been sent to Almeida to do God knows what so yeah they're saving a lot of things um both like Sam on the regulation front pushing that DC CPA Bill through as well as you know FTX getting bigger and bigger and bigger where this impact was even greater than it was today yeah I think that's the optimistic way to look at it which is it's awful terrible we have 10 billion dollars in

genuine you know retail institutions funds who lost money but this could have gotten way bigger if they'd managed to get a stable coin out um there's more than just one way that they could have perpetuated this what appears to have been you know a giant Ponzi scheme and I guess if you want to be optimistic you could say we're lucky to have caught it when we did we're lucky that people are going to learn to hopefully learn the lesson of self-custody and it definitely could have gotten way worse it's just so cringe to like SPF on Twitter right now saying what and then Going H in the next tweet a and the next T tweet p and then P like he's he's just toying and like almost making a mockery

of like what he did it's just absolutely pathetic and then you see videos of him with Tom Brady and you know you had Larry David as a you know an Advertiser on their commercials like everyone's friends and families new FTX it's just a bad look and it seems like he doesn't care at all yeah it's so horrible also given like all the people who had their live savings on FTX all the funds that are now insolvent that were you know great people doing great things like now they don't have their livelihood anymore and here he is like joke tweeting one letter at a time like it just I've already unfollowed him like it's it pisses me

off it really does truly a piece of truly what blows my mind is how we still like we don't know what the hell actually happened and that that part like I don't know I don't want to get like off The Conspiracy Theory deep end but just how like well connected SPF was you know is the like top five largest political donor it's like it's like there's a lot of lines that start getting drawn very quickly here and uh I don't know it just leaves me with more questions than answers and yeah I just find it so frustrating how like you know we can look at the on-chain evidence and we continue to like learn the lesson of where there's smoke there's fire and it's like well it looks like you operated a massive Fonzi

scheme and you've given me no reason to think you haven't uh you haven't come out and said anything uh it's just so strange to me the whole situation just feels so wrong um yeah it really is heartbreaking Rusty you had a pretty good Twitter thread the other day on like a kind of your conspiracy theory over what actually happened to FTX do you think you could go over that yeah so I was thinking through like how could Almeida lose such an incredible amount of money like we now know that they were probably worse Traders than they were marketed as but at the same time like eight to ten billion dollars is a huge hole so I figured it had to be something structurally wrong or

something that they were taking on constantly I was causing them to lose money and I came across the their liquidation engine so how FTX processes like liquidations and how it works is that essentially it's supposed to when your position gets pretty close to liquidation not quite there it starts to dial down your position but what it really does is there's these backstop liquidity providers which is just another term for Almeida but they technically allowed other people to come and be these providers but no one else did it was only Almeida and they essentially take over the position before it reaches liquidation that's supposed to you know help markets be more efficient um whatever uh jargon they used but

essentially um when you look at something like Luna or UST where prices were falling at such a ridiculous rate and it was such a one-sided trade that when Almeda took on these liquidations of lunalongs or us T Longs or even shorts when you had some sort of short squeeze like the prices are moving so much so fast that when Almeda took on these positions it would have been extremely extremely hard to hedge anywhere else and so they likely took on these really like losing positions where and you saw Luna's price fall from I think it was like sixty dollars to fractions of fractions of fractions of a penny in

three days and so I think something along these lines where you had really really fast price movements and I made it was forced to take on those new positions that's something like along those lines is where I made a could have got like a huge hole and so that's where sort of my Theory comes in yeah that that makes a lot of sense to me too like something structurally wrong with their process and then like being like oh like let's try and cover this hole now and then months and months pass and then they still couldn't figure it out so I yeah I think that theory makes a lot of sense I guess I just I'm still dumbfounded that they were publicly going yeah like we'll bail out block fi like we're the heroes like we'll bail

out this company and that company and like we're saving the market like they were totally lying uh just to the public and totally misleading people and then you know Sam doing the we're buying back and burning ftt every Monday it just seems like they really like even if they did have a structural problem with their liquidation engine or some other thing with some other processes like they knew that they were in a hole is at least what it feels like and I opted to still try and get people to deposit into the platform even though they knew that the people depositing were at risk so that's just really unfortunate to me and then I totally agree I think that it's probably the most uh the most logical Theory I've heard as to where

the hole came from but then you look at over the weekend and you know FTX had a ton of their funds I don't know exactly how many hundreds of millions but High hundreds of millions drained from the FDX wallet and FTX spokespeople said that they had no idea what was going on meaning that it wasn't the Liquidator or anyone who is legally supposed to be moving those funds how could we possibly assume that that wasn't SPF and friends like yeah it's speculation there's no evidence but how could we assume that it was anyone else besides a high up at FTX that had access to those keys and was just you know stealing the remnants of the funds that this wallet has it makes me tend to believe that even with uh you know maybe something that made them lose a lot of money in the first place that

was a poor design maybe an actual mistake in the long term they even if they didn't start as scammers they they sure as hell became scammers and there's I think there's a solid chance that they uh they had malicious intentions the entire time yeah the sequence of events there on that uh the final day with all the fun the remaining funds being drained uh but I looked like a couple different exploiters are completely suspect right if you just like think about what happened so FDX and ftx's U.S sites went down uh as all of these funds were just disappearing you know user user funds uh uh look this started appearing at zero on those websites um you know they pushed an app update

through it I thought I saw so like there's all these different things happening wow the you know the FTX wallets are transferring funds to different accounts and somebody would have had to have access to way too many like way too many different portions of the FTX platform uh for that to not be an Insider at the company so to me it seems like there's really only two logical options here one it was an Insider or two somehow a hacker got into the FTX systems but even that it's just like if they got into these systems today like was that just in spite of all the recent events or like what what motive would they have at this point uh to make FTX look worse than they already were so I don't know I I agree that the

the story that gets painted uh by the events that have come to light looks very very grim and then you have no comment from SPF saying like hey this wasn't malicious like they've made no effort to to try to clear their name by any means yeah I just don't even understand though like if you're an Insider at FTX you understand crypto well like you know if you're moving around hundreds of millions of dollars there's nothing you can do with it like you're not going to be able to cash it out like I don't understand the motive at all so that's the one thing that makes me think maybe it was an outsider job and someone really just looking to sabotage because you know everything's on chain everyone can see it you can't even interact with tornado cash not only not even is there like enough liquidity

in tornado cash to actually do anything useful so um yeah I don't know it just doesn't none of it's adding up and I just like I want answers and SPF tweeting h-a-p-p and you know kind of making this into like an album release I saw someone tweet like it's it's not helping like just issue a formal you know document explaining exactly what happened and do it as soon as possible that's that's really all we want is is answers yeah it seems like there's another exchange I think it was cracking that found the identity of the person that stole the funds I'm not sure how maybe one of the other addresses they used was tied to a different exchange account I really don't know but it seems like they may have found the person and that it was in

that FTX Insider but yeah the motives don't really make sense like if you were a lower level like FCX Insider that didn't know about the funds being stolen then you're fine from like a legal perspective most likely so why would you go ahead steal all the funds and now now you're responsible but if you're an Insider like like you said like what's the end game with the funds like you know everyone can see it's coming from FTX and it's in these wallets like you're going to get blacklisted from selling on exchanges I mean they did a good job in swapping to Ethan die and shows that they know what they're doing um and so yeah it makes you question like who is it why there's a lot of unanswered questions yeah

yeah I like the early speculation was you know this was that going down on Friday night uh and people were like oh well it could be the Liquidators it's like first of all no Liquidators are moving assets Friday at 8 p.m uh second of all like to your point they were smart enough to flip out of usdc and usdt which are commonly blacklisted uh so they were in you know uncensorable assets and it's just so it's clearly like a person who understands crypto which again kind of points back to The Insider um in The Insider the assistant yeah they're using like cow swapping one inch to get the best prices right and like avoid Mev attacks so it's it's clear someone who has some indication of what

they're doing but then again like they didn't even like route things through flashbots so I don't know so it was just like seemed so sporadic and random it's like and then you know we're talking about motives like maybe this is just your last Fu if you're like going down with the ship and it's like you know what screw it I'm just gonna we got a hundred million assets left or whatever the number was uh it was much more than that but you know I'm just gonna take the rest of this with me and just burn it all effectively yeah that's what I was thinking too yeah some Insider that knows that they're done at this point they have a couple too many drinks and they uh decide to steal all the funds and say I'm gonna go out swinging that's the only explanation I can think of I

have the exact same Theory but instead of a couple too many drinks it's that SBF is an Adderall withdrawals right now and that's why he's being all sporadic and crazy but you know um yeah might sound stupid but that's totally my theory the shortage it's hitting everyone foreign Dan I'm actually curious so we've kind of talked about FTX quite a bit and I feel like everyone's kind of getting tired of even hearing about it so I'm curious to change lanes here and ask you about what you think of via Cosmos 2.0 proposal prop 82 not passing you know what do you what do you think of that yeah so to me it's like more bad news compounding I like if you think about what Cosmos is you know they kind of like helped expand their entire

ecosystem funded a lot of public goods that created uh you know the tendermint stack and the IBC technology and you know the next step of the cosmosup's existence is really to facilitate the growth of the interchain and really help this ecosystem uh become bigger and and more successful uh and so prop 82 was like really it was a signaling proposal basically saying hey here's the direction we want to move in and it was an entire new white paper right it was a 26 page white paper so a ton of different information uh that covered like two New Primitives and interchange security and liquid staking and then the economic growth engine that was kind of like built on top of those two

Primitives and then also revamping uh the atom monetary policy so again it was like four really big and groundbreaking uh pieces that were like a lot of people had different problems with different things so uh the reason that it didn't pass was it had if one third of the community or one-third of the voters vote no with veto uh then it only takes one-third to kill the bill uh or the proposal and so I think the final count was like 36 percent uh with no with voted noeth veto and so because of that it was killed uh and you know it sounds like they're going to try to put push each piece through separately and kind

of see like where the contention really stems from uh you know some of the like the more die-hard cosmonauts were like all right well screw let's if you don't want to be a part of it let's just Fork it in our like make a new chain where this is what the direction we pursue but Zaki uh Ethan Buckman and Jack sampling were all on a space today and just like like calming everybody down you know like these are the guys that you know helped write write the white paper and like kind of built out this direction for the Hub to go in there you know obviously we're upset about it not passing but like all right everybody needs to calm down like forking the chain is not the answer here like we need to talk to the validators that voted no with veto uh and kind of like

see what what their contentions are let's put this thing through in a couple different pieces uh and instead of voting on everything at once you know you like break it down and see what where the contention are resolve those problems and kind of you know kind of move in this direction gradually um looks like I get it you know there was a like it was a huge proposal that had a lot packed into it but in my mind like it's time to build you know we're in the depths of a bear Market it's time to start moving and the cosmos Hub today like is it doesn't have too big of a purpose in my mind um and I would I liked the concept of an atom 2.0 I really did I think it made a lot of sense you know this using the scheduler and the allocator to create

this Revenue stream uh that kind of offset uh changing the new monetary policy which was cutting back inflation you know like having a stronger economic model for your chain is incredibly important you know we've seen that with eth post merge eth is such a fascinating asset now uh and it's such a healthy ecosystem so to me this was a great step in moving in in a more exciting Direction and again it wasn't even like implementing new technology it was a signaling proposal so basically just saying hey we need to build these things and so like the way I summarized atom 2.0 in like in my own head was this is just about Shifting the direction of the cosmos Hub uh not necessarily about implementing anything

today and so you know kind of like what's next for the Hub is uh interchange security is still supposed to go live in q1 of next year and oh to be honest a vast majority of atom 2.0 hinged on the success of interchange security so maybe it's not the worst thing in the world that this didn't pass because if there isn't a lot of trash around interchange security than the economic engine I I don't believe the economic engine would have ever taken off uh there wouldn't have been enough Revenue to really offset the atom decreased atom emissions so net net you know we do really need to wait and see if interchange security gains traction you know so again that comes out in q1 of 23 so that's really like the next

major thing for the cosmos Hub I'm personally shocked that they did the proposal like as one thing like isn't it sort of like the cosmos Vision to break things up into their like different parts I don't know why that they would propose like the entire thing and so by choosing one you had to choose some other section and I know me reading it I'm sure you guys would agree there's some parts that you agree with like they should definitely implement this there are some parts like for me the inflation for the first three years they're sort of questionable and so like you don't want to take all the the bad parts with the good you do want to separate those out um but I don't know Dan if you've been looking at the conversations are there

specific parts that people disagree with like is there a reason why they said no um would love to know more yeah like a lot of that stems around uh the monetary policy with Adam and like where the inflation flows to so it's like they want to fund a community pool as well as a treasury and the a lot of the community has a problem with the treasury because that's going to be run by uh sort of like a medic you have a meta governance structure so those can be councils that are part of a larger Cosmos assembly and that's going to all get ratified through the cosmos um uh the charter that's coming through and the chart the details on the charter aren't finalized yet and so a lot of

people are like hey well if you're going to pass this monster white paper and now this is the direction we're going to move in then let's actually hash everything out let's finalize the charter before we say this is the direction we're going uh which it's hard to it's hard to really disagree with that to be honest um you know the charter is really going to determine what the governance structure looks like and if you're moving to a more complex governance structure then I I do think you should probably it's it's hard to say that you shouldn't finalize what the structure itself is going to look like before that's the direction you commit to and you know with the bear Market you can make the argument that watching some of these other protocols go through different governance structures and see it and seeing how it plays out for them could

make more sense right like with this meta governance structure maybe you want to watch maker now for a couple months and see if that new system that they're implementing gets traction because they the two are are different but they you know they rhyme um DB saying dydx kind of move in this direction as well you know recently they talked about doing some of this meta governance as well so most of it's really just around like hey we don't even have the thing finalized and then you're going to push all these pieces through at the same time was there any contention around the the size of the inflation because that's where sort of I had some contention because like you said like we need to have Adam as the the pillar asset within all of Cosmos and if you have some

ridiculous inflation all of a sudden the value of an individual atom is going to decrease and so I'm not sure if that was any contention or it wasn't just governance structure yeah so my first reaction was very similar to yours and I was like whoa so the goal was to uh eventually lower inflation to one percent after about 36 months but that 36 month transition wouldn't start until interchange security was bringing in enough Revenue to start to offset the decreased long-term emissions um and you're right so the the day one was there was like this big inflationary print of Adam and that was flowing to the first chunk was flowing to the

community pool and then the second chunks were subsequent chunks after were flowing to the treasury and so they initially changed it so that they're like all right we're going to admit to the community pool which is controlled by Adam government Adam governance and that was really just to fund the public goods and creation of new chains uh it's kind of this the essence that I was getting that they wanted like basically public good funding and then the treasury they were going to do one four million out of mint and then they would have the optionality of voting on 10 subsequent 4 million prints and so like governance would again approve each of those um and that the treasury would really fund the creation of of like more Adam chains and just like maybe you're if

you're creating more chains then like you're increasing the scope of energy and security uh and then that creates more consumer chains and then with more consumer chains you ultimately grow and expand into having the ability to have um more revenue streams for the scheduler and the allocator um so it's basically like trying to just start up the flywheel of the cosmos ecosystem and ultimately lead to a bigger brighter ecosystem that would increase the funding for the cosmos of itself one thing that pops into my head is that this is you know overall the change is pretty bad for validators so like if I'm running a validator now I'm probably

charging a little fee to my stakers so you know I have 25 I don't know whatever a large amount of items staged with me I mean 18 APR on all that atom I'm taking a five percent cut of all that's delegated to me that's not you know my atom with the emissions going down so much you'd assume validators you know probably aren't very happy right now so maybe like doing the whole governance proposal is one big proposal kind of forces them to support it whereas if you can split up into little pieces they are able to pass things you know most of the proposal while that one caveat which is that the admission rate goes down so heavily they might be able to fight against and uh that might make for an easier fight than fighting against the

whole thing that's complete speculation and I just wonder you have any thoughts on that Dan because you're way more in the Weeds on Cosmos than I am yeah you're actually exactly right so this basically broke down to like the largest members of the core team voting yes and some of the larger validators actually voting no uh no with veto and there a lot of it is around like you know this is like you're affecting their revenue but one thing important to consider with the like decreased long-term inflation is uh revenue from the for interchange security model so when when consumer chains lease security from the cosmos Hub they're still paying for it in the form of potentially issuance or some like free agreement

where you're taking a percentage cut of transaction fees that occur on the consumer chain so the the idea is the revenue from interchange security is offsetting the the decreased inflation so you're still like generating the same level of Revenue but now it's in less inflationary atom tokens and More in true protocol Revenue yeah I'm just looking at it too I'm on mint scan right now looking at like the votes of prop 82 and coinbase the largest holder didn't even vote and then you've got binance the fifth largest node operator didn't even vote like it just seems we have a lot of problems with governance and that's like pretty inherent to the the future roadmap of Cosmos and I like the

bet that they're taking that you know there is going to be good governance structures in the future but they need a token that people can rally behind now like there is no chain there that you know people rally behind there's no marketing there's no community and I've been seeing a lot more people talking on Twitter how important Community is and like while we've known it for a while I do think it can't be understated and I think that they need to fix their tokenomics like as soon as possible and the fact that they can't even agree on the 2.0 white paper is just not the greatest look um but yeah there is cool stuff in there so I'm optimistic on the future of Cosmos I just like where ethereum's starting better right now with How Sound its monetary policy is it has a clear road map with You Know PBS and then its

role of centric future like I just feel like that's a lot cleaner and I think this could be the point in time we look back on in the future and think you know monolithic chains kind of died during the bear Market of 2022 and now you've got ethereum with its role of centric road map and then you got things like Celestia Fuel and these modular stacks and you know Cosmos can fit into that as well but I think it just really hinges on them creating a better community and improving their tokenomics and value capture yeah the cosmos ecosystem really needs a killer app and I don't think they found it yet um you know if you just like look like uni swap or curve or Ave or compound like the D5 ecosystem on ethereum does have these killer apps that get true

traction and we just haven't seen that really take off in in the cosmos ecosystem yet uh so that's why I was so excited for like something like atom 2.0 but even interchange Security in itself does create the possibility like the hardest barrier to entry of creating a cosmos based chain is creating a secure and reliable validator set and you know now that you can just inherit such a pretty strong high level of security from the cosmos Hub it does make onboarding new chains pretty easy so you know liquid staking will likely be the first consumer chains uh come again q123 so it'll be it'll be interesting once Lincoln's taking you know starts

becoming more popular you know we've seen how popular staked eth is from Lido they're also you know Lido is building in the cosmos ecosystem so maybe these liquid staking providers will end up kind of getting you know kickstarting D5 within the cosmos ecosystem Matt I'm curious you're a dydx um user and you really like uh kind of looking into dydx what do you think about the potential success of them moving to Cosmos app specific chain from Stark X wouldn't call myself a dydx user because you're not allowed to trade based in the US but I do think they'll see a lot of success moving to the cosmo South Pacific chain they have a couple big hurdles that they're going to face like Mev how are they going to deal with

Mev right now they don't have to so I think that's the biggest one which is validators are going to have the ability to reorder transactions which might degrade Traders user experience to idx's biggest strong suit it's most attractive thing is it's Stellar user experience if they lose that I don't necessarily think they'll be able to maintain their market leader status with GMX gns mycelium Etc so I think that they definitely you know there's some risks there but the benefit that is having a decentralized order book order matching and risk engine and therefore being able to return trading fee Revenue to token holders is just such a such a big benefit for them it

really moves their tokenomics from something that's not attractive not at all at least to me interesting to you know really probably the most attract besides like an L1 like ethereum that's you know burning Supply I would say the most attractive tokenomics of any project that I could really think of although there's no concrete numbers we can assume that in 2022 they probably have had at least nine figs in trading for your Revenue that's a massive amount of money being returned to token holders I don't think we really see anything like that anywhere including in ethereum so I think for token wise huge plus you can't think of anything bad for it for trading experience we'll have to see hopefully they can manage to deal with some of the risks that are involved but at least

from the from my experience listening to the team in spaces podcasts at conferences they are probably some of the top builders in D5 so I think if anyone can figure out it will be dydx that's a pretty good answer had to either man that was damn good one thing I've been thinking about on the cosmos thesis is one of the things with D5 is it's it's tough to have like on and off ramps like you kind of have to go through exchanges but with Cosmos having a um usdc chain as well as there's a project cattle that's building an on and off ramp for Cosmos I wonder if that becomes a value proposition where let's say you have a lending market like Mars you could immediately

go in like buy Adam like borrow against it and then withdraw that money into your bank and actually use it in the real world and so this Cosmos like sure they're having their struggles right now but maybe their defy ecosystem takes off because they have that ability to go from the Real Worlds into crypto and back and maybe that's the next step of D5 adoption in general is having that ease of on and off ramp that's an interesting Theory I hadn't thought of that at all but I mean at the same time you'd still be KY seed and like like it's essentially like circles your exchange at that point right you just they kind of abstract your account like away from you is kind of what you're saying

but it's also less steps better ux and yeah you're being KY seed but you would be on an exchange anyway um and so yeah I mean it's it's not the best maybe you can have an on and off ramp that's Anonymous I feel like Cotto they may have kyc as well but I'm not sure if they'd be doing any tracking at the level of usdc um in terms of like if Regulators come to them I'm not sure how much data they're capturing but yeah I mean there's definitely a lot of questions surrounding it but I think it's it's a cool narrative that could take off I've talked about this a little before and I think you guys kind of like faded me and whatever maybe disagreed with my thesis here but I think people often fade usdc's importance uh I think that

having a cosmos native usdc is probably the biggest and best thing that could happen for the cosmos ecosystem I especially think this because we live in a world where like we already live in a crypto world where you want to be able to transfer your money between chains easily and having usdc native on multiple chains makes this easy through the likes of Stargates and apps Etc so having you know an easy bridging experience a quick bridging experience and a safe bridging experience is just so beneficial being able to go from you know youth on just to go from you know base layer ethereum to dydx token as when it's you know presumably a cosmos token uh I think that that's a huge value proposition I also think that usdc

or sorry Circle chain might be able to have like a huge value proposition as a hub in the spoke system that is Cosmos as people like come in through Circle chain to go to dydx or to you know maybe even go to osmo to go to osmosis or wherever they might go I think that Circle chain is going to provide a lot of value to the cosmos ecosystem as well having a native usdc and that that's not something that should be slept on yeah I'm 10 out of 10 with you there Matt I think that makes a ton of sense the ability to onboard with stable coins specifically is so important you know if you look at historically the only way to get into the cosmos ecosystem uh was to buy Adam on a centralized exchange and then work your way in and you know like

then you're on then send it to your Kepler wallet ibca to osmosis and now I'm in osmosis I can you know swap to any interchain asset of my choosing you know now binance just listed the osmo token uh what was that maybe a month ago and usdc is launching Circle chain so now I have three different ways to come into the ecosystem if I want you know if I'm like okay with volatile assets I have Adam and osmo osmo now if I'm looking for stability and just want uh you know one-to-one stable coins cool I have the one of you know most people's favorites usdc uh it just makes a lot of sense that there's multiple ways to enter the ecosystem now and I think if they can just figure out to get a couple key defy elements in there uh you know

like they have the decks in osmosis it sounds like Mars is building their you know they're I really like their model with like The Outpost I think that's gonna be really fascinating so now they have lending uh they're starting to like kind of add to their Arsenal you know kava is getting more and more popular tvl looks pretty healthy um I'm pretty excited to see what they can do especially with interchange security lowering the barriers to injury to create more chains it'll be really fascinating to watch this ecosystem grow in the next Bull Run in my mind yeah stronger agree there I think that was a pretty good uh episode and I think we can end here but uh Westy Matt thanks for for joining us on this one uh we appreciate the last second fill in there and uh we'll see you guys next week my

pleasure gotta give a shout out to chain analysis on being the people to make sure that uh the FTX hackers don't get away with those funds so thanks for your analysis yeah that's right that's a good call out all right see you guys next week appreciate you all have a good one