Genesis Balance Sheet Exposes DCG Empire | Roundup

Transcript

before we jump into the app quick reminder that nothing on bell curve is financial advice everything is just a meme hope you guys enjoy all right everyone this episode is brought to you by our friends at Avalanche they're the layer one blockchain that is fast stable and scalable you're going to be hearing all about them later in the show for now let's get into it all right everyone welcome back to another Roundup of bell curve you're here with Mike and Michael took us took us however many episodes finally solved that Vance Indiana Bellas welcome to the show what's up guys yeah so Michael you just you just really hit the name Mike huh no I don't really hate it it's not a great name it's not a great name than Michael

that's that's Factoria factually accurate yeah I think Michael has some Prestige to it I'm also not a fan of them I would send actually I don't wanna I might get back to my office I don't want to do it you say Michael everywhere like your email is Michael ad but you just get bodied and just let yourself be Mike don't hey what do you what are you trying to do here right you were trying to hit the Michaels against each other what is it what is this where are you Advanced and I are just sitting on the sidelines yeah why does it look like you're coming live from a sauna or something like that or like a 70s yeah where are you my location is uh currently at the

framework office in the Bahamas um we're uh we're shutting it down so uh I had to come here live and close it up yeah are you guys also audited by armanino it's like you FTX and finance that's that's the auditor I think we gave those statements to our LPS that'd be like these aren't real like what do you what are you guys doing oh literally one of the first questions that you get when you're fundraising is who is your administrator and who's your auditor and where do you guys and where do you guys be uh and if they don't know the names of any of the three of those places and they don't trust them Red Cloud not going to give you money yeah

if it's if it's not a big four I mean I was laughing at the I don't know if you saw the Enron I forget the I forget his name but the Enron guy who's been brought in to be the CEO of FTX now John Ray JJ or something yeah he's actually he's actually got a couple of zingers in his in some of the material that he's released and he basically said the auditor who's best known for being domiciled in the metaverse you know he's just I don't know if you taught that but you guys got a bit of a sense of humor yeah yeah it's pretty funny um he's like a old salty bankruptcy guy and imagine him coming in and being like this is real you idiots gave this group

of people that much money yeah I mean it's comical it must just be like tying together Loose Ends of spaghetti and trying to make a major puzzle piece out of it it's it feels like him and it feels like the the guy Terry from the CME and like the whole Chicago CME CBOE crew is having their little Victory lap right now I just want to make very clear Terry is not here to save us uh no full stop no like he he is the reason why a lot of these systems are so siled and are so backwards and inaccessible to people you know let's not throw like you know the baby out with the bath water and then declare Terry the new king of our space I don't really think that that's appropriate I also doubt that conversation happened that that

conversation sounds like a made-up conversation you know so and then I told him he was a scammer four to one I have more money in my pocket than you have never worth that's not how you talk to people at all at any level like and if you do you're not at that level um no but I do believe that Terry's been watching this go down just like pouring himself up you know a little bottle of uh McAllen following it just like yes yes yes you know what energy he was projecting in that in that interview was have you ever seen Alec Baldwin's character in Glengarry Glenn Ross Yes you know he kind of he comes in he says first prize is a Cadillac second prize set of knives third price you're fired you know

that's how he rolls yeah he's projecting yeah yeah no I was going to say uh just to clarify this is Terry who is the head of the CME who apparently had a conversation with SPF called him a fraud and a scammer to his face said some other crazy stuff uh unbelievable stuff true how big was the fish you know this big was it a shark like I just don't I you know yeah it doesn't seem like I'm not buying it um all right guys let's get into the stories of the week um I want to talk a little bit about some of the updates on dcg's attempted fundraising for Genesis we know that

they were seeking basically emergency relief of a billion dollars that amount has been lowered to 500 million I before we get into the specifics about Genesis I'd love to get your guys thoughts on just dcg in general it's been kind of surprising to me to understand that there's credible risk that dcg actually might be in trouble up to about a week ago it looked like this was just contained to to Genesis and maybe we can take this back to to this idea Barry silbert background 2016 kind of 2018 time of type of time frame talked about a lot about BCG as building the Berkshire Hathaway of crypto and I think you can you can gain a lot of of how he viewed the space and what he was

building with sort of this portfolio of five different companies that were all very infrastructure based all very picks and shovels sort of oriented and all aimed at producing cash flow which was going to go into funding the investment side of business I think there are a couple reasons why the analogy or why it hasn't worked out exactly as he might have hoped but I'd be curious to know how you guys think of dcg as a business and and what sort of the the trouble that they that they find themselves in now so dcg at least is the stalwart they're the OG they're the ones that created the first uh digital asset trust which now is greystio um Genesis is the largest lender uh in the industry period uh or at least was

um and I think they're one of the first if not the first uh registered derivatives exchange Genesis is uh in the US as well and and so they've kind of gotten this uh this monitor being the first the biggest uh in a lot of different ways they also own coindesk which um you know one of the I think it was tarun who officially pointed this out uh coindesk was the publication that pointed out the balance sheet which kicked the The Dominoes rolling that ultimately brought down fpx and Alameda which then ultimately brought down ostensibly Genesis as they're seeking emergency funding kind of funny that one subsidiary ends up taking out the other but ultimately I think uh so Barry put

out a letter I think it was yesterday all the days are starting to run together um where dcg is seeking emergency funding to be able to Stave off this illiquidity crisis at Genesis and I think that's really all that it is um but you know thinking back to who is Genesis who is dcg who's very I mean they've been historically some of the most capitalized people in the space um it's the largest uh digital asset trust they're both in uh gbtc as well as ethi um and they are one of the biggest operators uh in in kind of the The Lending space for crypto period um so to say that they're massive is is kind of like the best way to describe it they

also own Foundry which is now the largest Bitcoin miner in the world uh you know depends on how valuable you think that is but that's you know a big business and a bull run um grayscale is the largest cryptocurrency asset manager on the planet uh at this point they have about you know 10 billion 12 billion of AUM something like that um and you know Barry says that these companies are going to spit off about 800 million dollars of cash flow and at the beginning of the year there was a round that was done into dcg the valued it at 10 10 billion dollars I'm not sure if they actually issued more shares or if they just bought back secondary but no it's just secondary right so so like it was marked super high you know nine months ago this was one of the most

successful companies in the space now everyone's talking about bankruptcy I like I'm not as uh convinced that this is as big of a problem as people say like a lot of the new cycle entrants I see on Twitter really are like pushing this Narrative of like you know all the ogs are dying like you know this is like gonna go oh yeah like they're gonna redeem the trust like all the gpdc I bought is going to go up 2x because they're going to redeem it that just makes no sense at all um and and why does that make no sense if you look at the sum of their business grayscale is the most valuable part and it's spinning off even this year 200 300 million dollars of fees you know this year and that's quite substantial if anything they're going to protect that asset and you know try to fill the

hole with any other you know assets that they have they also have 200 funds and investments in their portfolio some which are very very strong so this company seems to be much more capitalized or better capitalized than people think I'm just not that worried about about them um it is kind of interesting to wind back the tape to um this summer with Genesis um and their role in a very interesting swap between uh the Luna Foundation guard three arrows and themselves and and what happened in that swap was uh doe took a mill a billion dollars of UST swapped it by three arrows in Genesis for a billion dollars of Bitcoin um and then Genesis was left with this

UST you know what would I do if I were Genesis and I had a billion of UST I would probably short it to to you know neutralize my exposure um and you know what happens when you short a billion dollars of UST you know the price could go down quite significantly and this swap happened you know a week two weeks before everything blew up so like if you look at everything that's happened interesting and you know Genesis is rolling it potentially you know that was one of The Crucible moments of this market and you know they're right in the middle of it so like it's better capitalized than I think people understand but I think the role that that desk is played in the ups and downs of the crypto Market is not fully understood and I think it's much larger than people understand as well

yeah I think there was a there's something else that happened with Genesis last year that I I've I haven't confirmed this so I want to say this is just something I've heard from from someone I trust but there was a change in compensation structure at Genesis and this was probably a story that many of you have been operating crypto for the last two years will know it was extremely difficult to maintain Talent at any one given period of time and there was the discussion internally about how can we incentivize our Traders and our sales people basically to give them more upside lower base higher variable upside they wanted to keep them so a larger percentage of the especially sales desk of Genesis

became commission and when it's like hey we want to go out and get commission some of the standards about what they would accept as collateral went down and then the risky compliance team was basically told hey guys go go play in your corner basically and that might have seemed like the right decision to make at the time but you can probably trace an enormous amount of the strain way when you're kind of looking at how why were they willing to accept ftt of all things as collateral kind of explains that story not not just ftt locked ftt unvested ftt yeah you know and gbtc and gbtc like that you literally cannot sell

yeah many such cases of this as well it's not just them like I'm sure you guys felt this as well the last peak of the bull market it's pretty hard to maintain Talent people wanted a lot more you know you were forced to negotiate with them you know this year it's way different everyone's suddenly very happy to have their job um but that's kind of how these things go I I think the other thing that you know we've been thinking about just like pulling back the timeline of everything that happened there's so many examples of just like bull market thinking versus you know what is rational and what makes sense and a sustainable ecosystem and this is just another example I think of like you know to your point Mike on

you know variable compensation versus fixed compensation leading to less desirable collateral being posted I think that's just like what happens when incentives run awry and like when bull markets start to take over and this like this model of we need to do everything we need to move it the fastest speed possible we need to keep charging ahead and you just kind of get over your skis and ultimately like the ones that got further over their skis and others are the first to fall we're still picking up the pieces of everyone who ultimately ended up like getting too far over their skis anybody who's left standing I think ultimately will have all the star tissue to tell for it and we're gonna pick things back up and build back better but

it is just like classic uh classic bull market thinking go back I think that always happens yeah I think that happens but this yeah this this bull market specifically it felt like there was a mentality that this was the last time to capture market share that like this was the time if you're a media company this is the last time that it was only crypto media companies all the other media companies are coming in you're in exchange like uh or if you're like a VC like okay it's no longer just crypto VCS like now like all the other like web 2 VCS are playing at the table like this was the and so but what happened is it caused people to get way out ahead of their skis in terms of Leverage specifically and you saw like dcg took out that 575 million

dollar loan one was to buy back shares uh the other was to um uh the other was to make investments right like that is a gross misallocation of maturities right um or misalignment of maturities you're you're taking out short-term debts to invest in long-term Equity that doesn't pay back for like five or ten years oftentimes I'm actually getting a push back on that one I I think that Barry had the cash flows over the over the duration of that uh 575 let's call it you know 575 over probably got done you know 18 months from the maturity if the maturity's in May of 2023 yeah

um so what we're talking about is 18 months of cash flows flowing to dcg at this point this year they're on Pace to do 800 million of cash flows this year I saw Revenue there probably relatively similar okay yeah fine you know relatively simple I like how much does the whole Pro have as cost right uh but I think he was referring to dcg as on Pace to do 800 million this year let's call that a 500 million you know 18 months you could pay back 575 no problem I actually think it was the 1.1 in liabilities that they took over from Genesis due to the Alameda or the uh three arrows um situation in May of this year June of this year that that really put them over

and I I think the 575 was actually totally fine they would have been able to pay that back with cash flows over the duration of that loan it's just the 1.1 that that was too much so so one one thing that's interesting about and Indiana you made a really good point of like you know this was the last cycle this was like everyone needed to get to the table immediately or else you're going to be left out one of the things about borrowing that's really interesting is that this was the first real cycle with you know like large amounts of borrowing outside of just perps and exchange traded instrument instruments like genesis is and I'm just looking at you know in in q1 2019 uh

or sorry Q4 2019 they issued 65 million dollars of loans in Q4 2021 that was like 51 billion and so like cash lending against collateral did not exist prior to this cycle and one lesson that I think we learned collectively is like which collateral is good collateral you know where do you set margin calls how do you sell liquid assets into a volatile Market if things really start to go down because like usually when you're getting margin called like things are not like great around you know the industry um and it was like this New Concept and then suddenly got normalized and everyone was doing it and they were doing it against Bad collateral and now it's now it's kind of over

you know voyagers out blockwise out Celsius is out Genesis is out the Bitcoin miners Bitcoin miners are about to get hammered yeah Miner's about to get done you know cryptograph comes out of lending uh blockchain.com's out of lending like does this come back how does it come back one of the only places that you can get credit now is for Maple like they are still actively lending but that's what it's going to look like all of these centralized lenders like they had their one cycle and they kind of blew themselves out now we kind of need to pick up the pieces and play some sort of new game to get credit back in the system but that was actually going to be one of the questions that I asked what do you think happens to Genesis now and and dcg for that matter I have heard again there's a lot of

rumors playing right so I just want to say I a lot of this stuff is just stuff I've heard from folks who've entered these sorts of agreements but it seems like there were two types of customers to Genesis there were sort of the eight big whales and I heard tarun say this on The Chopping Block which was many of them had non-liquidation Clauses that's very problematic in and of itself it seemed like if you weren't one of those eight to ten firms they're pretty good about collateralization ratios and I my my sense is that Genesis ends up getting bailed out in some way shape or form and once you cleave away the I don't know the the dead skin or whatever there's probably some a decently healthy book of loans there but I think ultimately I think it ends up

being okay I just I don't know how much maybe Barry doesn't own it I'm frankly not sure why you'd want to be in that business the prime brokerage business kind of sucks uh in general I mean look it's basically the same business as Falcon X and Falcon X is like an eight billion dollar company um like you can actually print cash if you're a good Prime there's not that many places don't mistake the value their valuation with Revenue though oh totally totally wait the the observation I was actually going to trust is kind of money I was I was gonna say that you print cash for a period of time and then there's almost always a gigantic loss that offsets that so so you guys want to guess there's a list I was getting passed around today the largest trading

losses it was actually it was actually you want to guess what the largest trading loss of all time was you guys you guys will know what this is uh um uh in the 2000s I think that was the largest wealth okay but I'm just saying night capital yeah that's a good guess it was actually at least according to his Wikipedia page Bill Wang and the nominal amount that was lost and that yeah you guys seen that Tick Tock meme and you can clearly see the more you [ __ ] around oh yeah yeah of course yeah

still playing ran that Playbook yes he did yeah and he was doing the same thing where he was posting [ __ ] well because in tradfi you don't actually have to roll up with tokens or shares you can just tell people that you own them he was pledging them to multiple different primes borrowing against them borrowing Cask against them buying more shares doing Total return swaps like trap fly still hasn't blown out this model I think we're lucky to be moving past it but yeah yeah all right so I has run this Playbook by the way this this is subprime mortgages it's just the the sub subprime sludge that we're talking about here is FDT and

SRM and gbtc for that matter yeah so there's something cool just to get back to like the what do we think happens with with Genesis and dcg and I think disclosures here are that dcg is an investor in framework like we haven't engaged with them in terms of trying to find out what exactly is going on um but you know like my guess is that if I'm a creditor you know just play it out if this gets put into bankruptcy that's not good for me I don't see my assets for another year maybe the crypto Market goes down maybe they have to sell maybe I'm getting like 50 cents 60 cents on the dollar versus like maybe what's marked to market right now it's like you

know 80 or 90 cents like if I'm if I'm a creditor I'm basically you know trying to tell Barry like hey um let's work something out like I know you don't have the cash right now sounds like it's just a timing issue um I'm not going to assume you try to put you in a bankruptcy but in return you know like I just want to be paid back from the cash flows of grayscale from you know dcg from you know things that are like not just Genesis because I think the dangerous part is if you're a creditor and this gets put into bankruptcy you only potentially have access to the Genesis assets which are likely not enough to make you entirely whole and you know you're not going to have that cash for you know a year if this works its way through the courts

maybe you end up with a new owner you know who you have to negotiate with who's like not a nice guy um I don't know I think all the instruments are not to go into bankruptcy so if your credit let me ask you if you're a creditor and someone put this deal on the table where you're where you're um where where you where you basically convert into like dcg senior preferred like dcg debt or something like that is that would you take that deal I I think the deal is more so like give us six months you know like we have the cash like we're not gonna like restructure the company make you a Shale holder blah blah just like it's an IOU maybe it is

like some sort of like senior structured note but I mean so Ryan salkis I think is the one that that uh put this out on Twitter I think yesterday I I think and it's exactly why I was thinking about it which is it's basically the Buffett uh Goldman situation in 2000 which is they had an illiquidity issue it wasn't an ill solvency issue and what they needed to do is raise debt immediately and and raising debt immediately basically says I mean there there is no time to wait six months for Predators because Genesis goes into chapter 11 in like days to weeks if there isn't any resolution on all of this so you have to raise the capital to be able to actually you know have withdrawals turn back on otherwise

you're going to get students Oblivion and creditors are going to be up your ass but the way to do that I think ultimately comes down to what do you give people for for putting other the senior secured note and it'll probably convertible and it'll probably include some warrant coverage of dcg itself you know Barry just bought back however much of that you know 575 million dollars there's plenty of cap table space to go around if you need to issue more shares I think the other thing too is that it's actually pretty disastrous and and you know we haven't seen the full ramifications of this I think we started to see the tea leaves it's actually pretty disastrous for dcg if Genesis goes under just from a brand reputation perspective like yeah that I think has second order effects that are

obviously hard to see from where we're standing right now but I don't think you really kind of come back from that and so I think there's more incentive on the very side to get a deal done which is probably why you haven't seen the deal done yet which is you know he he's I think other people understand this Dynamic the other thing to to remember is that Genesis is for accredited I mean something for accredited it's for qualified purchasers only um you know my guess of how many clients they have hundreds a few hundred yeah it's not a million creditor situation where like you're like trying to like okay like you know like they're suing me this class action blah blah it's more so like all right my people I'm sorry let me pay you back it's gonna take some time

um it's more manageable I would say uh than than you know the FTX blow out Michael going back to the Buffett Goldman thing um so okay so you you convert it you get this basically like senior secured no you got you got some warrants in the deal or something like that who's the if you're making the analogy to the Buffett Goldman thing who's who's the Buffett here who who ends up being the it's just gonna be Barry in dcg like they don't need to be rescued that was the entire tone of that letter he was like thank you we're not raising

money I'll let you know when we do you know these that's what I would say if I needed to raise money we'll open up a small round for some people which is like the most important thing I think that we should you know be reading into his position is I have the money not right now but like you know give me give me a few months I'll have the money I can pay you back trust me bro there's this loan that's due I'm gonna pay that back maybe that fills the whole like

that's his perspective totally but you can't just sit there and have like non-withdrawals on a lending platform and not expect for either there to be lawsuits or like a desire or necessity to move into chapter 11 restructuring if you work with creditors I don't think you actually need to that I think that's my plan to find them that's what I'm saying what does that mean Advanced to work with creditors though like to be like all right guys sorry this didn't work out you're gonna get seven stuff like 70 cents on the dollar option A is I put Genesis into bankruptcy right and you can fight it out in the course and you don't get access to dcg assets so yeah so like you want to go do that go have fun that's not gonna be that

much fun for you option b is work with me give me some time there's a cash flow producing business I can slowly fill this hole and pay you back and I can pay you back probably sooner than when it would come out of the courts but what that requires is us to have some sort of understanding where you're not forcing me to do anything where I put the company into bankruptcy like can he actually do that is is more of like a legal question but you know that that would be how I would present the situation but but there's also option C which I think is you know what's been floated around at least on Twitter more so which is go and raise at the parent company senior secured preferable convertible notes have that money flow back into Genesis and

basically everything turns back on and illiquidity is no no longer an issue because I I and the reason why I ask you toward that I think is and maybe maybe there's other factors obviously that that we don't know and we don't have any any information on this but generally I think if you have even 70 cents on the dollar or even 80 cents on the dollar how many of those like hundreds of customers are coming back or they're going to be trusting in Genesis or they're going to be trusting in dcg going forward like the reputational hazard here I think is actually a a really kind of major issue for dcg writ large because you know what do they have going forward if it's not Genesis and and maybe Genesis and the lone book and the lending Genesis Capital versus their

derivatives business and their Prime business but like nobody is using Genesis going forward if they even give 99 Cents back on the dollar so I I think you know there is irreparable damage that can be done with option A or B Genesis is a zero I I don't think it's coming back like I yeah I'm I'm actually a little I would question that Michael as well I'm I'm not why do you say that because it's kind of easy for me to close my eyes and envision a world where hey Genesis didn't really work out but I'm still you know I think the brands of grayscale and coindesk and found you are relatively separate I don't understand why those two well why those businesses couldn't just exist and keep blowing cash into dcg so so Genesis has three

different businesses obviously the lending portion of it is the largest portion and that's I think it's called Genesis Capital there's Genesis derivatives and then there's Prime Prem brokerage as we just discussed there is a potential for Prime and and derivatives you know they are registered in the in the uh us with the cftc they have a bit license like they have all the banking relationships there is actual value to that business it's just that the loan origination business has been their Prime business for the last X number of years I think I agree I think Genesis The Lending side is done and not coming back but if the entire business goes out then you lose a massive opportunity to once again build the war the the uh Berkshire halfway of of

crypto and and it's not coming back if you ever if you if you you know don't give customers back 100 um and so I'm saying if you want to have the prime and you want to have the derivatives business at least have a Fighting Chance at having any opportunity of becoming a scalable business the yeah you have to rethink the entire structure I know people who are still trading through Genesis derivatives well like I think the trades are clearing in a different manner but like that business is very much intact like you have to remember Genesis has the bid license um like the whole New York Squad the Trad fibros who unfortunately bought the absolute top of gbtc um like that's that's where they transact that's where most of our New

York friends MLPs you know that's where they do business um um and those are not the type of people that take gated withdrawals lightly um but I also think that the two businesses are very separate and if you're just trading through the prime you're probably not that impacted but you're a little spooked in terms of you know getting your coins back as soon as things settle and this is my point this is there there is a survivable business with Genesis going forward even if the lending side of the business goes away yep let's um undetermined we'll have to see how it all plays out fun fact about gbtc by the way is that two percent fee is based on the nav not where it's currently trading so if you if you bought gbtc you're

basically paying them five what a sham management fee let me tell you the most down bad people on the planet I love you the people who bought 64 000 Bitcoin at a 40 premium that's a 90 000 Bitcoin and now it's a fifteen thousand dollar Mark to Market Bitcoin with a fifty percent discount so that's seven and a half thousand dollars [Laughter] you're paying and they're paying five percent a year just to hold on to that oh yeah so like that is my uncle that is like a 95 loss right there yeah

yeah well my heart goes out too if that's your if that's your situation um that's that's a question and we don't even need to talk about the ethi people those people Shadow lens absolute Shadow Lights I think I think my uncle pulled that trade poor uncle your uncle's doing fine your uncle's gonna be a good Thanksgiving for you yeah I'm sorry guys I'm sorry about that we've got a big six and a half pound turkey this year we're gonna have to split it across the whole family yeah I'm gonna have to make it all last one other thing that I think might be interesting to

point out about Genesis and a lot of the C5 lenders in general is let's back up I think one of the differences in between this cycle and 2017-2018 and why this particular sell-off has felt so much more violent is in 2017 you basically saw the collapse of icos and that sucked but it was relatively contained and a lot of people you knew there was some good stuff in there but probably if you had your pragmatic hat on like this my pragmatic hat you knew that that stuff was going down it but I think the difference in between this cycle and that cycle is there was a lot of stuff that turned out to be vaporware or highly overvalued and

there was a more sophisticated Market structure that allowed you to take leverage out on that so now we're looking at more cascading leverage on this downdraft but I also think you you found a group of people SBF being one of them and Ms mainstream media has not tackled this side of what he was trying to do super effectively was this game of low float you know these very low float tokens and Matt Levine wrote something a little while ago when he was breaking down the mango hack and he was describing this idea that it's impossible the pump and dump should be technically impossible because if you have something that's low float you pump the price when you go to take profits and sell it because it's low float the price should go back down just as just as easily as it went up so instead what

you really should be hoping to do is you should make an asset low float you should pump the price way up and then you should take out a loan when it's at the top and that largely is the game that SBF was playing and I think I think there are some other players in the ecosystem that figure that out too and these lending desks Jason I love that analogy man you hit the nail on the head everyone felt like this is the end and there's never going to be another time to get market share I think that's they're sort of falling prey to these low float taking out lone games that people were playing in the ecosystem if you understood if you understand how a project like serum was run you would never ever take that as collateral and like what's kind of

interesting is Michael and I are not Finance people like we studied business and econometrics in school um but like we don't have you know 20 years of institutional Finance like you know like all the Genesis people did and all the other lending deaths did but these people made like very basic mistakes of like not doing the correct amount of work when you're underwriting financing like it's kind of on them I feel badly but Jesus Christ like what what like now I I it's not on them I mean it they they didn't make mistakes I think they were complicit and they knew exactly who they're doing the entire time I I think that this was premeditated and no I mean no yes maybe that maybe they're incentivized but like it's not

like crazy what do you mean it's pretty self-murder oh no no I don't mean the deaths I mean the people who created these ecosystems oh yeah those people definitely oh but the people who are underwriting that like come on you really didn't know that like you couldn't go to coinmarketcap and see that the float was one percent of the total market cap that made sense to you to take his collateral it was locked and it's still vesting come on unlocked ftt is I gotta be honest that one blows my mind I don't understand how that ever got well it did a similar thing on us don't worry we're hedging it we're hedging it yeah how what yeah what instrument did someone someone tweeted like this

was the beginning of the end and they showed Genesis doing like a billion dollar deal that was this that was the swap yeah and then Joe was like correct this was the beginning of the end or something like to be clear I told Dan CMS Holdings about that right before he tweeted it so I want I want my Alpha attributed to me um but yeah I mean it's like the Scorpion and the Frog you know it was just bound to happen yeah it yeah it seems a little disappointing I also I think it really just does come back to incentives because in my heart of hearts

you had the people that were making those decisions and what to accept as collateral I wonder how many of them were thinking about the long-term health of the business or if they were just looking at these create this crazy commission check that they were going to print and not necessarily carrying overly much all right everyone quick break from this episode to talk about our show sponsors Avalanche many of you know Avalanche as the fast reliable and scalable layer one uh the folks at Avalanche have a really great message for those of you who are in the crypto industry right now which is bear markets are for building so while a bunch of our friends over in CFI are kind of going through these struggles and travails the folks at Avalanche basically put their heads down and are shipping products that Builders want the latest solution

elastic subnets right and just to expand on that Avalanche is consistently upgrading all of their platforms right so on the platform side you've got elastic subnets you've got new VMS on the infrastructure side of things you've got core which Mike I just uh I know you used that the other day yeah exactly exactly uh so they're upgrading the infrastructure side with core and Enclave the chain has had like no downtime so super customizable for devs uh yeah if you're a builder avacs.network avax.network great place to be but do Yano and I as well so you definitely go check them out but click the link at the bottom of this episode click the link otherwise you're not going to get any credit come on yeah give us the credit exactly so yeah big thanks to Avalanche um yeah you I mean

you you just had a great experience with them the other day on the user side of things so go check them out guys thank us later let's get back to the show I heard I heard haasu say something in an in an episode a little while ago this is an episode of I pledge allegiance which I was plugged but it's great great podcast and there was this Larry soccer Nick that one of the founders at reverie pose this question and it's only in web 2 as well which is are you at the mercy of your stupidest competitor in many ways I think block fire was kind of at the mercy of their stupidest competitor in the form of Celsius and and I think it's very tempting to think that way and josu's response was no I understand why you think that way but one of the actual benefits of cryptos

you get these washouts in these in these cycles and when I first I first listened to this about 12 months ago and I thought now I'm totally on Larry's side here you are at the the whim of your stupidest competitor but now with everything that's happened I'm kind of on haasu's side here I think you could look at it as a huge benefit that you have these culling waves so everyone who's making bad decisions you might have to sit through two years of Agony and watch them get all this market share and all this stuff but I mean look at these Invincible companies that have been brought to their knees you know I'm pretty pissed that our stupidest competitors nuke the space like 90 I wouldn't say that we got off scot-free you know I don't think yeah definitely like the feature but like you

know the bug was these people blowing the industry up we're getting pretty close but I have a question I have a question to both of you guys as founders of a BC fund and you know as Jason is as Founders do you view it as sort of an advantage though that maybe there were these they're these These funds that were winning deals that are now no longer around or you guys are going to be able to say hey we were here during the bear market we've lasted multiple Cycles do you view this as good for your relative market share I don't know if I was taking money from someone what I was literally about to say is well there's two there's two things one I'll get to your question in a second um but it's now non-consensus to be bullish just like a year ago literally

this week it was absolutely non-consensus to be very and I think ultimately The non-consensus View over you know whatever period of time it takes for this whole thing to wash out ultimately that is the right perspective to have in crypto and I think you know 10 out of 10 you would be right over certain durations let's call them like six to nine months so right now I think this is one of the most bullish things to have this wash out it's just like getting rid of all of those Ico treasuries with Ethan and you know BTC getting you know locked up and docked and every single cycle before it and and before this one so I'm actually like I think this is one of the healthiest and you know obviously we have friends and we we have peers that lost a ton of money lost to some a ton

of capital in this process but uh you know in framework lost value in Investments that we've made but doesn't really phase us doesn't really change any perspective to your second question I mean we literally had a conversation yesterday with a portfolio or with a potential portfolio company who you know we've been talking about investing in and leading around you know the number one other firm that they were talking to was fds and obviously that conversation isn't going anywhere anymore but removing chips from the table leaves the last couple people standing and it just makes the whole place healthier and I'm like exceedingly bullish right now but you know it's going to be it's gonna be probably a couple months of downward

sideways whatever But ultimately I think we're going to find a new a new thing to latch onto and um the other thing too is I think regulatory wise we're actually going to have some push uh in a positive direction I don't know if you guys saw Tom emmer going on Fox Business yesterday um you know pushing The Narrative of this was not decentralization this was not the crypto industry this was one person in an unregulated centralized Finance operation this is why we need positive regulation I think that narrative is starting to pick up as well so like the pieces are starting to get put back together so I'm actually really excited right now framework is incredibly hard to kill as well

like we just managed to not you know go for the poison fruit every cycle um and I think that's one of the things about us which keeps us around I would have to agree I don't know I'll speak from but Jason I think you know if we were sitting around having discussions about taking money I think that would be a big part of it is you know how did you act during this last full cycle how long have you been around I feel like just the longer likely you've got a guest you want to get him on the mic um what's up Michael senior um yeah I just think the longer you've been around the more advantageous it is I want to switch a little bit and talk about Bitcoin miners this is something that we've discussed in the past a bit but it seems like the stress has has

continued there and I agree a lot with you Michael actually I wrote a whole we've got our newsletter writer out this week so I wrote a whole newsletter yesterday about how the time to be bearish basically a year ago and you know it's non-consensus but right now it's kind of the time you should be thinking about feeling bullish and it is just interesting to see where we've seen mining capitulation really pick up in the last just three weeks or so and that has historically been the bottom right right around the bottom is when the miners ultimately capitulate and I'd just be curious I don't know if there's if there's anything really new that you guys you know have that you want to talk about there are anything that we haven't covered in the past or I don't know I'm just making observations here main thing

is like the overlay of uh 2018 and and present day it's like one to one you know we had that that big nuke in January 2018 uh hanging around there around 6K for like you know six or nine months and then in November or December just the bottom fell out and this was a time when Bitcoin was literally everything um and you know with nuke to 3K and that was driven by minor capitulation and it looks like the same thing is happening right now eth has still not made a new low but Bitcoin is making fresh lows I think this week and last week as well um I think real estate I mean Bitcoin mining is is an interesting business because it kind of appeals to like the same types of people who flip airbnbs

and and do like kind of like these dumb real estate schemes like Bitcoin mining feels like real estate you know you have this thing you build it it's physical you can look at it you can see it uh you can you know build better technology marginally but like it's mostly the same asset it produces cash flows but at a certain level you go underwater and I think you know if the Bitcoin mining teams that we've seen relative to the other technology teams in the space just the level of talent is is far far lower um and so like you're seeing a lot of capitulation you're seeing a lot of consolidation as well like now Foundry the dcg minor is the biggest Bitcoin miner in the world that did not used to be the case um I think it's gonna be a really weird time for Bitcoin over the next few

years like I've made this public on Twitter but you know when you have the market leading asset the market beta asset the one that everyone builds out goes around and correlates around but it's also the heaviest asset in terms of you know it's 1.7 inflation per year you know at these prices that's about five or six billion like the Market's just gonna trade heavy and I don't think that's sustainable at all and assets with better structural demand and Supply Dynamics are going to take their place and so I don't know maybe we've seen the final cycle where Bitcoin actually leads and and kind of you know the happenings are important uh because it just doesn't it it just feels like Bitcoin is narrative-less at the moment you have Michael Saylor who's like this the only super cycle that's still around chilling stuff but other

than that I don't know what they can do it seems like the best thing that they could have is like another psychopath to start buying but unclear I I would I would take the other side on that actually I okay yeah I would take the other what the way that I've sort of I think one of the driving forces of Bitcoin overall Bitcoin has changed its narrative over the years we all sort of know that right it started as digital peer-to-peer cash right and then payments were a big thing and then it was an inflation hedge and that was the store of value kind of a digital gold and a lot of people point to that as a weakness of Bitcoin I I sort of just view it as this thing that's very hard to change it's like a real you know source of uh it's pristine collateral

whatever it is it's something that you'd want to ideally own I still do think the macro macro macro mic here but I think the macro forces they do support Bitcoin I do I do think if you if you zoom out of our our little industry or we're talking about all this Carnage that's going on in crypto the same level of Carnage is going on in tradfi in the real world as well and as much as it's felt like a crescendo here over the last four weeks I think we're about to see it play out on the bigger stage you know in in uh the American economy and Global's economy all over and the biggest problem there is just how much debt we have and how much money we've printed and I think there's a lot of value too the whole thing that everyone criticizes Bitcoin for which is these people are

frustrating right they get in your face they just say the same thing they just repeat the same lines but there's this very just hardcore group in community and if I had to make a prediction about what the next narrative is going to be in Bitcoin it's censorship resistance and I don't know I think it I think it has a good it's got this like political very simple easy to understand marketing that I think is going to continue to be relevant for a long period of time I I don't have an opinion really necessarily on how that plays out compared to eth I think East will win on other dimensions but I don't know I'd take the other side of it I I would I would take the side the the one sentence thesis for Bitcoin in my mind is uh Bitcoin success is inversely correlated

with Central bank's credibility and like it seems like the credibility of central banks is going down and like when you want to make that trade or when you when you want to take the other side of the Central Bank trade Central Banker trade it's like Bitcoin is the obvious investment in my mind is like maybe not the obvious investment is the is the simplest counter trade to life when would you say the highest over the past five years when would you say is the the highest level of distrust in central bankers well I think when is the highest level yeah over the last five years when was the last when was the highest peak right probably some inflation right now like like a month ago yeah like yeah yeah and then Bitcoin is low right now yeah I

I kind of I kind of see like uh you know like it's all kind of like one big trade in a way like it's not you know like Bitcoins you know properties are not going to make it like the fastest horse when when rates turn around or Peak it's it's going to be just kind of like everything that's super interest rate sensitive is going to move violently and you know obviously I'm not a macro person uh in terms of like my day job but one of the things that I've been looking for you know this cycle is you know when when is the 10-year gonna Peak when when did it peak in in 2018 the 10-year peaked in uh October mid-october maybe it was maybe it might have been November and that was right around when the Bitcoin minor capitulation happened so you had rates

reaching their highest you had you know interest rate uh sensitive assets going down the most you had the Bitcoin capitulation that happened and then the FED pivoted in I think January February and that was actually when marked the lows of the stock market and so like the things that you really need to watch for are winter rate speaking 10 years specifically um and then when is the Fed pausing or you know reconsidering um and in 2018 we didn't have as much visibility in terms of where rates were going to go as we do right now in present day so the peak in the 10-year happened it looks like it peaked at about 4.25 it's down to about 3.76 um I'm not like predicting the return of free money or anything like that I I'm predicting the return of cheap

money you know two to three and a half percent tenure and that's like one of the things where you look back and you say okay cool rates peaked that gives people more confidence in terms of interest rate sensitive assets that you're not just going to get wrecked by rates going up maybe you'll get wrecked by other things but you can kind of take that variable off the table and so you know you do have this constructive backdrop that's starting to form and a lot of people are saying that you know deflation is now coming we got the good October print maybe it happens in December again maybe Decemberists the last hike maybe January's the last hike like we don't know but like you're starting to build this framework around things are going to get better and I think that's the most important thing right now

yeah I was going to say The Narrative of Bitcoin over the last 11 years of its time you know and uh our friend uh Tom Lee at funstrat is the one who's purported this um is it's just a risk asset it is viewed upon as being a risk asset potentially an index on this entire industry for some people maybe for some people it was an inflation Hedge for a period of time but I think the direct correlation over the last 15 months of Bitcoin price with interest rate and an inverse relationship to that point to advance this point um is probably the driving narrative over this next cycle let's call over the next three maybe four years and as rates start to Peak asset value start to go up Bitcoin becomes one of those risk assets

that you know takes advantage of that that trajectory but I think going back to it you know Mike all the things that you said about Bitcoin could also be applied to eat can also be applied to other Assets in the ecosystem you know could also be applied to just like generally the crypto Market writ large if you have sufficient decentralization and these assets are viewed as you know the anti you know Central Bank or the inflation head or or just frankly the index on this industry um so I think it's not just you know Bitcoin but it's actually everything in the space the question is the relative weighting of the monetary premium that you get relative to the other assets in the space and that's where I think we're going to start to see you know a lot of

change my my base case is that you know the next cycle is probably going to see something and I don't know which asset but I have my best place uh you know there will probably be an asset that this place is number one um I wonder which one you're talking about well yeah last little last little macro you were fighting so you could accumulate your bags right and FTP um so like one thing I didn't know when I was like you know 2017 punting uh coins from Michael's basement um it's just like how macro works and how all the different asset classes work and you don't need to know it in depth you just need to know the basics bonds get bid first

you know institutional allocators are just not going to let yields rise to like 20 30 like you're seeing like coinbase uh bonds traded like 50 cents to the dollar which is like 15 yield like that's kind of as high as that's going to go like those get bid first then equities get bid you know you can see that you know the s p is up relative to where crypto is crypto is basically near the bottom there's just like more value there you know in terms of free cash flow that like people feel more comfortable about it you have institutional allocators that have to buy at certain levels then Matt gets bid and then crypto gets bid it's the furthest out on the risk uh curve you know it's the most speculative it's emotional line on retail um which is the most lever to the cycle and so like

you're starting to see it it's got bonds got bid the s p is over 4K today like I don't know I hear you it's it's interesting it could be I mean it could be start stop right usually when there's inflation it's very unlikely the two big periods of time that people look at in the United States where there wasn't placed in the 1940s and 1960s and 70s there was this stop start inflation where it was it was a little bit what you were describing Vince which is kind of hey look it looks like we've broken the back of inflation it's really turned around in many cases at least in the 70s it went all the way back down to three percent headline or something like that before it rocketed back up and you do need to squash this this impulse of

inflation this is the tricky part of the social work model there's there's expectations around inflation and I'm not you know in my heart of hearts I guess the way that I ask myself this and this is kind of the way I think about are we at the bottom in crypto is I ask myself what would people say if the market went up 50 tomorrow not tomorrow over the course of the next month would people say it's bull market it's back and if so we probably haven't reached the bottom yet because in 2020 you know we went from 4 000 Bitcoin when it puked in March of 2020 all the way up to like 16 before people started to say hey maybe the bull market you know might be back on and I think that just speaks to the that's how much hope you need to

extract from the market before you you sort of know that you've really deeply reached the bottom yeah yes but no so like to your to your last point you know like there's this like uh this like this moral responsibility for things not to go up allegedly um same thing happened with coven how is crypto going up there's a global pandemic this is so wrong like how could you guys be doing this number go up because risk assets are getting big because because interest rates are turning around in a different direction also the 70s that was 15 years of structural inflation like that that was like a different thing um you had gas prices that went up 10x not 2X like maybe we just had an inflation burp over the past year maybe team transitory

was right but got the timing wrong and if you really think that you know if your framework for we're not at the bottom yet is that inflation is bad and that we're going to have to Jack rates to like six percent you're just betting against all the deflation that you see in the market today and I know Jim Bianco gets out there kind of on a limb and is like you know the inflation is not over blah blah blah I love Jim and I love Jim and he's super smart I love that he supports great man but like you dig into his rationale and it all just seems emotional you know it just seems like he's pissed at all these people for making money in the assets that he doesn't agree with um and so like you know one of the things that we do is like you can watch

people on Twitter you can see when they're really hot like Jim Bianco was so hot for the first six months of this year and I absolutely hated it because I disagreed with him but then like you can kind of see when they when their tactical arguments start to fall apart and you can kind of fade them like I I think that's what's going on with a lot of like the people who became very famous macro newsletter people you know bearish people I don't know if I don't know if their time in the sun is Gonna Last that much longer and on on the on the reciprocal end of that I would say you you had a lot of people unfortunately like Tom Lee who looked terrible for the first six months of this year who are now starting to fade back in and a lot of the data

points that they've been tracking are now starting to come real uh you know one of the really interesting points just as like an example here um so month over month course API is the the metric to track right that's what everybody's looking for in terms of when the FED has hit the the numbers that they want and two percent is supposed to be the the rate at which you know everything is fine and dandy right well this last print and it yes it's one data point you know one's a data point Two's A Trend three is a pattern but what you have is 0.27 and you know it's really interesting but what happens when you have the month over month is that they only take the decimals play the the tenths one one decimal place and round up and then that multiply by 12 is the

annualized rate of what this one print represents well 0.27 rounds to 3.3 and then you multiply that by 12 and you're at 3.6 percent what happens if it was three basis points lower at 0.24 and then you round down to point two and you're at two point four percent we've hit our Target we did it mission accomplished right Mr accomplished speech I it's it's hard to know I mean it's it's really difficult to forecast this stuff in general I I want to return really briefly to what one of the points Michael actually Michael Events I can't remember which one we're making this point about just the monetary premium first of all I want to I I hope I've been consistent talking

about this on different podcasts it would be very easy I respect what's going on in Bitcoin I will say it's probably the more it moves into this very hardcore sort of libertarian bent that's not how I am as a person so I it's very much easier for me to kind of look at the eth community and that ethos and that just more aligns with who I am as a person so if you made me pick build on bitcoin or eth I wouldn't even have to think about it for a second but I do respect what's going on in in Bitcoin and I've always personally liked in the same way I never liked the defy on bitcoin argument why can't you just let it be this beautiful thing why can't you just let it be this store of value why does all this stuff have to be built

on top it doesn't necessarily make a lot of sense to me uh I that's how I sort of feel about this monetary aspect to eth I view eth as this great I don't know there's no perfect analog right oil data whatever it is it's block space that you're selling I don't understand I think the monetary premium thing for me complicates it whereas it should be optimized for selling block space to other protocols and just making the best of that basically I if it were up to me maybe this my smooth brain take here but I I like things to just be simple and Bitcoin is the money he sells the the block space and I think so they can be super successful so to your first question like why can't Bitcoin just be left alone

because it doesn't generate any fees if it doesn't generate any fees the security model is invalid if the security model is invalid it not only can it not be money it can really be anything it can it's just going to get hacked so like that's the first thing and I think there is some sort of path where it's used only as money by enough people and it generates enough fees where it can generate the security and the fees but it just is not playing out yet and you know it's one of the most owned Assets in America at this point you know 70 million people in the US own crypto like if it's not getting there at this point I don't think the path is that bullish ethereum and and like my framework for anything that becomes money is it has to be sustainable like money needs to be

sustainable it needs to have cash flows it needs to be you know net deflationary probably it needs to be yield bearing um and you know ethereum is an asset that is used to secure the network it's used to pay gas fees like that's the primary use case the fact that it's used in D5 is collateral that all nfts are priced in need that people are actually staking it in some sort of like internet bond to earn yield like that means that it has a better chance of being money and how I think about the monetary premium in the space is there is a set amount of monetary premium I don't know what it is maybe it's 500 billion uh and it's divided up amongst the assets that exist in the space uh you know from number one Bitcoin to the 100th page of coin market cap you know

the really bad coins but the mono monetary premium is distributed on a power law basis so Bitcoin probably gets 99 of that or you know 80 or 90 of it you know eth probably gets you know 20 of it uh the next asset probably gets you know five percent of it this is excluding stable coins by the way um but in our view the monetary premium is binary you know if the monetary premium is distributed on this power law if the second largest asset flips the biggest asset it immediately takes all of that monetary premium for itself and so you know why do why do we why do we like ethereum well number one you know it has the most applications it has the most usage it has the most users it's it's used the most is money but

it's use case as money expands its total addressable Market from probably you know 500 billion to you know 13 20 or 10 to 20 trillion like that's the thing that ethereum needs to do better as an asset and it's in its holders like all the Bitcoin people are aiming for 13 trillion they want to be the size of gold because they think they just have some you know right to it you know whatever but ethereum actually has a more credible path to going there and if you think ethereum has the chance to unseat gold as the canonical digital store of value for this generation it's it's a you know yeah it's it's an attractive uh interesting asset do you think it has a better chance of going there because because you're worried

about bitcoin's security model and you think the Bitcoin security model breaks down or so so the reason I think it gets there um is a couple things number one the flows for ethereum are if you look at all the OTC desk color we get ethereum is crossing the desk more than Bitcoin at this point it's as liquid as Bitcoin when you try to you know put in size or takeout size um you know like the positioning would suggest that ethereum actually you know is is actually favored at this point by institutional allocators so that's the first thing the second thing is ethereum you know is very light as an asset Bitcoin is extraordinarily heavy it has Miner selling it has all of these assets that were seized rosacons Bitcoin the Atlanta guys Bitcoin all the Bitcoin

from Celsius Voyager block five you know whatever like that's going to be a headwind and so if you think if like when I think about the space and ethereum's potential trajectory it's kind of conditional you know if it flips Bitcoin at a low price point that upsets the entire you know path paths that the space could take entirely you know if it flips Bitcoin at a low price point the next Bull cycle looks much different um and I think you know eventually multiple assets will flip Bitcoin so one of the other variables here which I think is really important to call out and it ties back to our first point of conversation is uh you know what is the utility of the asset itself and its ability to be used as a collateral asset

as you know and and one of the things that just you know as we're discussing blew up is Genesis Genesis was probably if not the largest but also one of the biggest and probably the only places in size to be able to get any sort of borrow against your collateral of Bitcoin and if that goes away you know where else can you use your BTC as a collateral asset to be used productively whereas at the same time D5 which has performed perfectly fine over this entire you know tumultuous period eth is the the number one collateral asset to be used in D5 so I actually think that there's another variable here which is like the utility of the assets themselves and and we can talk about it in the last you know a couple minutes

here but you know the ability to stake it the ability to use that staking to be able to be put into other rehypothecated networks uh like eigenlayer you know and restaking as as a new narrative that's building up it's just you're compounding the utility of these assets themselves to be used productively and removing the largest kind of utility function for for Bitcoin in the in the point of Genesis I think is actually like another reason why you know the potential for this monetary premium to shift yeah and and uses make things cultural like think of the culture of Bitcoin I'm holding I'm hodling you know it's in my wallet it's in Cold Storage whatever think of the cultural nuances of ethereum I'm staking I'm swapping I'm yield farming I'm you know like doing

all this stuff I'm restaking like when you tell your friends about the assets that you own if you're actually doing things with them it makes the it's just self-marketing at a certain point if you have enough utility into it yeah you might be right I feel like I'm sort of getting outclassed on this debate so I'm just going to shut it down and I'm just going to say I'm supporting the support of both these things uh I want to get to one you know you talked about sustainability here and I wanna I wanna bring up there's a really good thread that I don't know how you pronounce this this Twitter handle Paulina Paulina put out oh yeah yeah Paulina basically put out on sustainable investing I'm not sure if you guys had a chance to see this or or take a look but you know kind

of ask this this question of what does sustainability look like in in terms of investing in crypto and I really like the definition I said so in a crypto context what is economic sustainability look like demand drivers users paying to use the protocol users buying the asset is economic collateral medium exchanged or just as a cult or users buying the asset to earned dividends including fee Burns yields Etc then on the supply side it's the cost of operating the network and issuance yes it's Supply deal with it so economic sustainability is a demand equal Supply and B issuance is greater than the cost of operation play so I'd love to I'd love to get a sense of you know I think what what Paulina is trying to do is put a definition around

you know the very simple definition of business you got to make more money than you spent and then you're there's a great Logan Roy quote you make more money I got a fancy new business idea for you you make more money than you spend and everybody calls you King Khan that's that's the Logan the light quote and I think and I think for a while I think in crypto it looks a little bit different I do think you could Define especially something like ethereum as an economic system necessarily as opposed to just a business so I'd be quite I'd be curious like what do you guys think about that that definition that Paulina laid out how do you guys View sustainability within the context of these Networks I mean first of all I think this is great like it feels like there's like a

Renaissance of crypto investing coming back where like you know people last year would just try to bamboozle you with like it's a pair of chain it's an app chain it's a modular stack with a data availability layer it's like how does this make money how does this sustainable what is the path for this to generate 100 million dollars of ARR per year um and like that's kind of what the core of what Paulina is getting at here is like with these blockchains you have this sustainability question that is you know it's apparent in businesses but a little bit less so because you're literally printing your native token to cover the security of the network and if you print enough the asset goes to zero you know no one will want to hold it and so like refocusing around the Core Concepts of how much does this cost to

run how much money does this make how many users does it have what are they using it for like this is such a positive um new take on crypto investing and I hope it spreads a little bit further um but in terms of like how things can be sustainable I think ethereum like you can say yup check like this is sustainable um it's like you know not deflationary at this point very interesting okay check uh can middleware be sustainable hasn't really been proved yet um like they've just had to print so many tokens to cover the cost of running their networks like it's still TBD what level of fees flow through them um the apps feel like they can be sustainable um but it's less of like a like a protocol question maybe you have an app

chain or things like that but like are you generating enough fees through your you know consumer set to maintain a smaller and more sustainable you know self-contained system that feels possible and so like where we kind of net out on it is like it's like the reverse hamburger thesis where you only want to own the Buns like you want to own the canonical internet money layer at the very top you want to because that's sustainable maybe you want to own the apps at the very bottom because those are sustainable as well and we've seen that things you know albeit short-lived uh actually Infinity step in blah I wouldn't call this sustainable but like you had enough consumers where you could make the case everything in the middle still needs to be proven out and the one thing I add to that is that not to say that we don't think it's

possible for it to be proven out it's just that there hasn't been the use case for it yet and I actually think one of the best use cases for how you make the middleware useful and and therefore sustainable I think is if cross chain really becomes the advantage of having blockchains and differentiated blockchains so imagine you know you've got sustainable gains on each different individual Cosmos app chain for them to be able to communicate back and forth there has to be a cross-chain Communications protocol that could be a place where you you basically inject you know uh something that's really easy to use but it's like taking a small amount of fee to process that Network transaction in the same way that it takes you know a small amounts of gas every time you want to process an ethereum transaction so I think that like as we move more into the cross

chain or as we move into like not completely cross-chain but maybe like some app chain some main chain some layer twos like that's where you can start to see this middleware play out but to the answer to the point I think we haven't seen it yet but not to say that we don't think it's coming that there's there's also the question of scale like sustainable at scale is a lot different than sustainable at a smaller scale like sustainable at a trillion dollars of market cap that's like you know the eighth wonder of the world if you can do that yeah um yeah but you know apps are much smaller maybe your app chain only has market cap of a few hundred million and you're making enough fees to cover it it's just about right sizing it well at least a lot of it is the the other thing I'd add to this

which I actually so the the revenue and the usage I think demand drivers made total sense it's just sort of like going back to the basics of what is the business and and how do you value it the supply side is actually the really interesting one because it also ties back into what we're talking about with serum ftt and this sort of like lack of liquidity as being the the core driver of value I I this happens also by the way in every single tech company especially in like the fan companies where every single year you've got two to three percent of New Capital stock being printed which goes as payment for keeping everybody employed and keeping everybody incentivized and that I think is an interesting comp and an interesting model where like some inflation to the Token to keep everybody alive everybody incentivized could make

sense but it's how you do it it's how your capital structure is formed it's how your your cap table is situated because if you've got an overhang of somebody who owns 12 and a half percent of your tokens and they could sell at any moment like that's going to be a potentially dangerous situation so like the supply side of this I think is actually probably more interesting as we like pick up the pieces of the industry and think about how we restructure things going forward the demand side I think is you know it's it's that classic meme of always has been it's like Revenue profit usage always has been the supply side I think is where we have a lot of you know room for for new ideas a tradify comp to throw out there so coinbase has done 1.2 billion in stock based comp this year yeah and they're

probably going to add another 400 500 million onto that in Q4 market cap of that company is nine and a half billion today and some of the stock was issued you know at a higher price point some of it at this price point but like you're looking at like 10 inflation of you know if you're looking at this as a protocol of what you own in a woman um and you do have the fact that it's not immediately Market dumped by the people who get it it's not it's vesting you know at best over time but like they granted that this year in previous years they've granted a lot more like and that's hitting the market and so there is this question of inflation and sustainability with even the largest public companies to Michael's point I have a I have a thought on that and

I think not not that you were doing this fans but there's a temptation to be like wow 10 that's really high I think the the important question to ask is what are you getting for that 10 inflation because honestly if you get the labor if the the labor that you acquire for that 10 inflation is going to double your Market count this is where it's difficult to measure actually what your Roi is on whatever labor you're acquiring there but it just depends on it depends on the return for what you get or what you're saying totally but but they paid their CPO who you know by all that's depending coinbase here by the way um if you follow the chart negative no negative well I know I'm strong has been

uh it's been coin based recently I did see though that he's still being he is he is 100 he has been dumping stock here at 45 bucks and I actually was gonna buy the other day and I was like but damn Brian's selling here no no no hold on hold on yes wait wait let you know I was just gonna say he he went on Lex Friedman's podcast like two months ago or something and he's like he's like I'm telling the market this I am going I have an auto sell on I'm going to sell the same amount of stock every single month for the next couple of years and I'm doing it to fund it's like two percent of the allocation of my total stock and I'm doing it to fund I think his life sciences business or whatever he's doing on the biotech side or

something so he did signal to the market and he said he's like I'm going to sell the same amount every single month and when it's really when the price is low people are going to freak out when the price is higher we're gonna freak out but that's what I'm telling you one thing to know exactly that one thing to note is that any Insider or frankly anyone who has privy information at a publicly traded company like because I was a product manager and had access to the revenue figures at snap I had to be put on what's called a plan 10b51 which is basically you literally build a plan and issue it or you send it into the SEC and you say at this price point or at this date I want to sell this amount of stock either in terms of number of shares or

amounts of value and so this this plan has literally probably been filed with the SEC for the past 12 months anyone who is selling stock who's an Insider who has to like you can track on SEC you know Edgar um all those people are are predetermined so it's not up to them uh it's something that's literally been sitting there and it has a three month cooling period And every 12 months you can you can change it but you know this is everybody jumps over like oh insiders are selling insiders are dumping um man wouldn't it be nice if we had 10 B5 ones in crypto yeah it sounds like Brian's getting into some some light effective altruism hopefully not too deep

I've got limited you never you never want to go pull okay you never want to go no no I want to go full yeah yeah uh do we have five minutes from meme of the week I know where yeah I know we're running low but yeah there's only one there's only one candidate for meme of the week this week which is hold on a sec I'm gonna share my screen you guys see thank you yeah this video oh yeah this is so good I mean oh you can't hear us wait until they talk you can't hear it all right here we're gonna we're gonna we're gonna put a link in the show notes this is the

best okay put a link in the show notes yeah I think I think there's a non-zero chance like a 10 chance that Elon Musk and AFC see this they're like yeah we should be hooking up 100 I I put it above above 10 but that ends up happening I was like that'd be such a narrative violation people would not know what to do with that I would love yeah yeah you and I we are not so different [Laughter] um all right we'll link that in the show notes I thought we could play the sound yeah yeah you can use uh the next episode of

school us on the Egen layer oh yeah it's eigenlayer bro it's German yeah all right all right we'll skip the the German accent attempts here it fellas this was a really fun one um guys Happy Thanksgiving for everyone Thanksgiving um drown your songs and some gravy yeah and uh hey do you have anything have thoughts on how to talk this is going to be if this is your first um I'm writing this newsletter today our uh guys out sick Byron and last year I went back I wrote this thing like how to be the crypto expert or Thanksgiving if you've never been that crypto person at a Thanksgiving table during a bear Market

just get ready my man no one's asking you how to set up your coinbase this year it's it's a sea of smug faces and how's pound the wine I'll go to bed early no I I got I got time I got to my in-laws yesterday they basically were just looked at me and they're like do you want to talk about crypto or or no if you don't it's totally fine so that's how you know that's how you know it's really bad are you okay yeah so you show them the block Works monthly active users like you know at least you guys shout out to you guys last night I had a couple of my parents friends came over

for dinner and literally went the entire night until the last seven minutes as everybody was literally packing up and literally one of my parents friends he goes so do you think she knew I was like wait a second how deep are you into this and she had read every single article she was like following the Tweet threads uh you know and you know not into crypto whatsoever I think this story has like captivated audiences but Deanna's Point everybody's a little cautious to talk to us about it foreign audiences I you know on on the margin like a lot of the you know don't talk about a lot of cryptos talk about a lot of macro stuff and everyone all the macro people I mean there's some element of grave dancing I think that's going on there but

everyone wants to talk about Sam Baker it's the biggest story in finance I think for the last year I would say Mike let me ask you this all all the on the margin guests that are super bearish doing Victory laps let's play the clock forward six months things are looking better crypto's you know rallying like are these people gonna have as loud as a megaphone are you still going to want to like you know have them on your pod like how does it all work the thought leader economy I you know on the margin initially was I had this Theory going in that if you just talk to these people kind of in their language on their level about Bitcoin and crypto that you can kind of break down some barriers and it would be

interesting conversation and like two years later I've I don't think that's the case anymore I think they have a lot to contribute and I'm like interested in their perspective on the world and investing and in general but no I don't I think they're just gonna most of them are just gonna stay bearish forever keep in mind they're all incentivized to stay bearish yeah well let me ask you guys what do you think so we talked about Tom Lee there are these I used to look at this and wonder why this was there are permeables and there are Perma Bears they're always permeable to prepare and they don't seem to shift they're just always bullish and then they have their kind of day in the Sun and then it turns around and then it kind of comes back and why do you think that is optimism versus pessimism also like it's

it's very important like we know a lot of Perma Bears they're uh they're like the paranoid ones the ones who are like you know 10 full hat and for for lack of a better word and they have not had their day in the Sun for almost 20 years exactly and you know finally the guys who are predicting oil going to 300 like I don't know if you follow H Cup b or those guys like you know always going to 300 all these Saudi memes and you know congratulations you know you had your five minutes in the sun oil didn't go to 300. it's back below you know 85. um But like everyone really enjoyed meeting you uh and we'll see you in 10 years I think that's kind of the prognosis for them and it's unfortunate but

like technology doesn't stop it just keeps innovating things get better if you look at any measure of standard of living over the past 100 years it's only it's up only like the optimists are usually right so I I agree with that I would say from an investment standpoint or anyone who's in the investment business you basically have two ways of thinking which is what possibly could go right versus what are all the ways that this could go wrong and those are like two very fundamentally different views obviously a venture and growth perspective is what are the different ways that this could go right and you know thinking about it from a macro perspective being more of a

Trader mindset or or frankly just like private Equity or you know it's how are all the different ways of this go wrong and let's go off and defend all of those and so I think from a business perspective you can't be straddling both at the same time you really have to come at it from one angle versus the other and that just like tends in a more pessimistic versus optimistic perspective you know which which between the two of us where do we shake out there what do you think I mean yeah but that's my guy let's be clear anybody in this industry have to be an optimistic yeah first and foreign optimistic person put yourself compared

to me and you're like an eternal pessimist but uh you know it's all it's all relative here yeah I I will say I will credit you and say you were the person that convinced me that optimism is the better strategy I will say just watching have Jason yanowicz lives his life I was like this is a better strategy for sure you're also a lot happier yeah you are fine last thing I'll say is so two people who are incentivize and a tough year but it's a better life strategy two people who love to be bearish number one the Perma Bears number two people who have recently lost a lot of money if I've lost a lot of money I'm telling you that you're gonna lose a lot of money too because that makes me

feel better about losing money number three people in cash yeah people in cash yeah God bless them that was kind of the best way before Bitcoin Maxis or Bitcoin Maxes yeah they just hate everything yeah I think optimism is the better strategy I will say there is a little element of me that I do empathize with maybe that's why I like those those talks so much because I do I I will say there is some element events I I empathize a lot with what you said where you kind of ask yourself why they say they say they don't do this but you listen to the gold bugs the Bitcoin Max you know like you just wait I wait until

hyperinflation and and there's this desire right I think they've correctly been labeled as wanting to watch the world burn and I think the underlying urge of that is the desire for actions to have consequences that that's how I personally have ascribed that because I do think you could make the case where you look at you look at the system that tradify is based off which is basically just endless waves of money Printing and you know all these problems that we're facing in crypto have never really fully been solved in Trad five they've just been Consolidated you've just there have been various waves of bad debt and assets have collapsed and they've just Consolidated them onto bigger balance sheets and now we're at the end of that cycle because that's all moving up to the government and they've never even actually solved it they've just kicked

the can down the road for a long period of time and I think there are people that have looked at that and said this isn't necessarily sustainable and they want there to be the actions to have consequences that that's what I ascribe the underlying emotional Dynamic to that particular mindset and a part of me I see where they're coming from I don't want that to happen personally but I see where they're gone I actually don't disagree with those perspectives I think it's just a matter of time scale like they could be right it's just a question of when will they be right yeah here's what it comes down to optimism versus pessimism if the pessimist if the cynic and the pessimist is right what do they get they get to say I Told You So if The Optimist is right they get to then go build the thing

and it sounds a lot more fun to build the thing I hope people are watching on YouTube for my air traffic control here yeah [Laughter] on the other side [Music]