How the Dimon vs. Armstrong Clash Reveals Crypto at Peak Political Power: Bits + Bips

Transcript

Hey everyone, welcome to Bits and Bibs, where we explore how crypto and macro collide one basis point at a time. We're here today to discuss the latest stories in the worlds of crypto and macro. But before we begin, a quick commercial break. >> If you've been loving Bits and Bibs, don't forget that the show is transitioning to its own feats on X, YouTube, and your favorite podcast player. If you're not already subscribed to Bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly live streams and macro meets crypto breakdowns. Bits and Biss will only be on the Unchained feed for a few more weeks, so subscribe today to be ready for launch. You can get all the links at Unchainedcrypto.com/bitsandbbits.

All right, welcome back. And as always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group. Here with my co-hosts, Rahm Alawalia, Maester of Wealth, the leader of Luma, and Chris Perkins, the golden hand of Coin Fund. Before we begin today, a quick note for everybody. We're going to be transitioning to new dedicated Bits and Bips channels. We've begun releasing shorter segments from the episodes there. But next week, we're officially moving the full Bits and Bips interviews to their new home on the dedicated channels. So, if you're not subscribed on X, on YouTube, on Spotify, on Apple Podcasts, or wherever you get your podcasts, please go there and sign up for now so you can keep up with us. Now,

let's talk about something that's relatively big news here, which is Anthropic has filed for an IPO. So, I would say this is the first real test of AI valuations hitting public markets. Um, the news is that Anthropic has confidentially submitted a draft S1 registration statement to the SEC. They have said this gives us the option to pursue an initial public offering. Uh, the Wall Street Journal reported the same, saying it's setting it on a path to go public as early as this fall. This sets up a race with Open AI, which is reported to be preparing its own confidential filing in the coming weeks, also targeting fall according to both Fortune and Bloomberg. And it's part of

a white hot IPO season because we also have SpaceX coming, targeting a two trillion valuation for their fund raise. So, there are a lot of numbers flying around about this. Some of them somehow are already outdated. uh 0x reflection made the point that the 20 billion revenue number is outdated. So the real last valuation that we've heard is 965 billion post money from the series H. Uh that is from Anthropic and Techrunch and that real revenue is allegedly 47 billion annualized as of early May uh from Simon Willis. But of course we

haven't seen all of the details on those things. The S1 is confidential. So take that with a grain of salt in all different directions. Um, OpenAI for comparison is allegedly 852 billion with a 24 to 25 billion run rate. So let's quickly lay out bull and bear and then Rahm I want your view on this. But the bull case is anthropic revenue appears to be real and growing. It's nearly 10x year-over-year. It's nearing an operating profit. Both Pimco and Black Rockck were saying the capex cycle there is still accelerating. On the bare side, you have Apollo's Torston Sllock. You have BFA's Michael Hartnett. You have Michael Bur with varying critiques. Bur

specifically that this feels like the last months of the 99 and 2000 bubble questioning some of the circular accounting at places like Nvidia that are warehousing revenue here. Apollo and B of A are pointing out that there's a huge amount of concentration in the S&P 500 and Torson Slack in particular saying they're more overvalued than they were in the 90s. But Rahm, this is clearly a mega IPO. I know this isn't Sam Alman. Um, what is our feeling on where we're going here? Like how do we feel about valuations?

And Chris, open to your opinions as well. Rum, I was just saying with the anthropic IPO coming, they've had both 10x revenue growth, but also a valuation already nearing a trillion dollars. Like, how would you even think about this as an IPO investor right now? >> It's an amazing it's amazing. You know, in January of this past year, Anthropic added to its revenue, all the revenue it had generated in the prior year cumulatively. It's extraordinary, extraordinary numbers. Uh just un amazing. You know, on private exchanges, this is trading at even a higher valuation than 965 billion. I've seen numbers like 1.3 trillion, 1.8 trillion.

By the way, that's a really bad idea. You should not buy that at those numbers. Uh so uh yeah I think uh anthropic changed the news cycle on AI. They had a dramatic impact on public markets in February and March when they caused the SAS apocalypse. All of which is now rebounding very sharply now. Uh and they took poll position from OpenAI. They've got the zeitgeist. So it's it's been impressive to watch. You know, it's it's an exciting time uh for AI because, you know, we're still early in the adoption of this technology in so many different areas. It hasn't really touched medical diagnostics, for

example. We're still early on uh biotechnology and pharmaceuticals. We're still mostly focused on coding use cases and there's still much more work to be done there. Uh so, it's a it's extraordinary. Looking forward to the numbers. You know, the big question will be what does this mean when you have so much issuance hitting the market at the same time? The last time we saw uh a spate of IPOs was summer of last year and then you had a cool off for several months with all the debts hitting the market. Now you've got anthropic and you've got a $2 trillion IPO coming also in SpaceX at something like a 90 times price to sales ratio. So, it's going to

have an impact on the market for sure. Like that's that's going to happen. The SpaceX IPO is June 10th, I believe. So, we'll keep our eyes out for that. >> Yeah. Chairman Atkins said he's going to make public markets great again. Uh it seems like things are starting to work. Uh of course, you you'd hope that in the future companies go public sooner. Uh that would be helpful. Uh because again, you want people in. The thing that I'm looking at is again the magnitude and size. If you look at the size of the IPO markets back in uh 25, I think there's about 44 billion that was raised. Um then you have spaxs that raised another like 30 or so. And then direct listings have been very tiny. Um but the one

thing that I'm starting to see is this this really sharp move to 247 markets. Y just list just uh launched 247 markets today. They announced that only for crypto. But then you have like trade XYZ, the hyperlquid guys pumping away at these preIPO derivatives markets. And so now for the first time you have this potential for real price discovery. Um that I think I think people are still sussing it out right now and figuring out, wait a second, is this a good thing? Is it a bad thing? Um but I think it's going to be a very important tool.

Uh because IPOs tend to be mispriced. uh in many cases you're kind of walking blindly into the syndicate and now with some of these tools that we're seeing if they nail it then issuers can better time their launch they can better price their IPO whether it's through direct or even an IPO listing uh and they'll leave less money on the table so I think this could be really interesting as you bring together crypto and in this case IPO because those are the issuers um you can get to a much more efficient and frankly uh inclusive capital markets because retail has been boxed out of IPOs. Now I think the good news here is that um for some of these coming IPOs coming up

there's a lot more allocation uh to retail uh which is I think you know when ROM comes back you know maybe a departure uh from from former syndicates but what I like is that it sounds like as of course this is banned in the US don't know we'll have to get through that but the fact that we're getting like preipo price discovery uh is pretty amazing so hats off to the trade XYZ guys the hyperlquid guys really really interesting capabilities that they're now bringing to the overall it feels like like the missing link in a way uh for inclusivity for retail and also for maybe more efficient IPO markets >> price discovery though Chris I mean I think anything trading on a secondary for hard to access asset with a tightly

controlled cap table and the assets in high demand it'll always trade at a premium and have inevitably compressed down once the uh issue starts trading so I don't I don't see it as price discovery. I think it's like a bad idea if you try to buy on these secondary markets at an inflated valuation. >> I think we're talking about two different things, right? So secondary markets, I get it. But if you have really really deep liquid derivatives markets, um I think that could be much more interesting and we're starting to see that for the first time. We just haven't had deep liquid preo markets in the past. And like I'm kind of watching uh space uh the SpaceX IPO. I mean let's see if if the trade XYZ guys nail it. Um

and and you know last IPO is I forget the name Sirus or something seems like it did all right. Uh but but that's what I'm watching. I think part of this comes back to a comment that you were making earlier, which is we're in this regime now where IPOs happen much later in company cycles in the United States of America, right? Like imagine traveling back in time to the 90s and talking about a series H. People would have been incredibly confused. And all of these to me are pointing to greater demand in public markets for companies to be going public earlier. I think in some way one of the things that we need to start

considering in capital markets and maybe some unsolicited advice to the people in Silicon Valley based on what I hear from my students is if people don't feel like they're participants in these stocks and they instead feel like big company IPOs at extreme valuations are just dumping on retail and the price will just fall fall, you're going to have a pretty negative reaction to capital markets because like if you look back at the last batch batch of call it mega IPOs. The price performance is pretty ugly across those blocks and notably like they're changing index inclusion rules for SpaceX to get it in there. So, one of the questions this is raising for me is on one hand we have preipo price

discovery. Interesting information is good for markets. I'm a big proponent of that. But on the other hand, we have much later IPO valuations, right? Like put simply, I have a hard time seeing how somebody is getting a 10bagger out of Anthropic or SpaceX if they're IPOing at a trillion dollar valuation right out of the gate. I mean, Chris, do you disagree with me on that? What do what do you think? Basically, >> I guess over what time frame? >> Yeah. Okay. >> This is this is the law of big numbers. Let me start the money going >> in re in real terms. Let's ignore inflation as well.

>> No, fair enough. like you're talking about the the law of big numbers and you know if you if if you IPO in in the trillions a 10 bagger is a lot of trillions um numbers don't add up right so I think you're right like IPOs shouldn't necessarily be exit liquidity for for the rich private equity investors only right like how do you make a more inclusive market uh look I I think chairman Atkins is very focused on this and um I've said it over and over again 80% of companies in this country with over a hund00 million of revenue are private. That doesn't seem right.

How do you fix it? Uh well, you need to make it more accessible. You need to lower the cost for issuers. Like it it seems to be better off if you stay private uh to date. Hopefully that's going to change. Uh but it's really Sarbain Oxley. It it really crushed issuers, the overhead, the compliance. By the way, this is true with any market. When you introduce regulation, you increase fixed costs and then you need to drive scale to be able to be successful. And those fixed costs are generally the same for everyone. So the big get bigger. Um, you know, you're going to see that even with the Clarity Act and Genius Act. You know, people are like, "Oh, Genius Act is going to be amazing. All these companies are going to start building." Well, they may

start, but they're going to only be left with a handful. Uh, because that fixed cost is going to force consolidation. We see that over and over and over again. So, how do we lower the regulatory uh cost burden? And you know, people say, "Oh, you know, you're going to get rid of quarterly reporting. That's going to be terrible for investor protections." >> I don't know. Is it? Um, you know, investors have amazing tools. >> You're right on the mark. I mean, the reason they created Sarbain Oxley was in the wake of Enron and WorldCom. They had the fraudulent reporting and then uh Arthur Anderson, you know, went away as a result. uh and see a brutal bare market, back-to-back bare market with a dotcom crash. You can solve a lot of that with technology and transparency that you couldn't have saw before. Um

you know, but I agree with all the points. You know, when Amazon, Microsoft, and went public, they were sub. These things went public in the billion dollar market caps, not two trillion dollar market caps. And people are extrapolating in the way they should not. You make your money on the buy. So these entry valuations are are way way too high. >> I mean one other thing though that I'm keeping an eye on Chris on the side of regulatory reform is I agree Sarbain Oxley has significantly raised like the fixed costs. But the other thing that's been a creeping problem that people have paid less attention to I think is

shareholder lawsuits. like the amount of nuisance lawsuits and claims and annoyance and just people extracting value out of public companies from the legal community has gotten surprisingly high. So if you're a small tomedium company and you're constantly going to be harassed about this, you know, somebody will be like, "I bought 12 shares and you did this thing wrong, so now pay my lawyers $50 million and I'll collect $12 of that." Right? It it just somehow doesn't compute. So, an interesting sort of fix there is what Texas has done, right? I don't know if anybody has paid attention to this, but they essentially took the Delaware sort of structure, copied and pasted it, and then put in some structural reforms. One

of which is you need a minimum percentage of the shares in order to sue as a shareholder. So, no more like Chris, I buy eight shares of your company and then I go sue you over something because I'm just mad and my lawyers want a nuisance payout or like maybe a medium-sized payout. It becomes you need to be a percentage point shareholder of this company to actually sue. And I believe, and correct me if I'm wrong on this, we just saw a lawsuit dismissed against Tesla in Texas for this exact reason where you can't just sue on a nuisance basis. It's got to be the actual real deal in Texas.

>> What a great idea. >> Sounds amazing. >> Yeah. And so I think there are like many areas where being a public company is annoying. And what I would say is as we look at this from both a state and federal law standpoint, this is one of those where your opinion doesn't matter. The facts are what the facts are. If public companies are choosing not to be public until they are gigantic, something is blocking them earlier in the funnel. And if you want the American people to feel like they get to participate in the economy and reap those gains, we need to find a way to unblock that.

>> All right. >> Well, one other quick quick point on this. There's another reason they're staying private for longer. The management fees are higher in private markets. You're charging 2% management fee in private markets on a big pool of capital. That's one. Second thing you can do in private markets is you can engineer your exit and control your exit price. How many VCs have unloaded Stripe shares in a very controlled manner at much higher prices than I can assure you of the multiples of payments companies and trading public markets. So that helps them too. And then they get incentive fees on all of that. So the VCs are in on it too. You know, they're they're smart. They know what they're doing. uh they can keep growing and

plowing capital on these names for longer and also capturing more fees. >> But that also becomes a question ultimately of like who's buying it from the VCs, right? And and here >> suckers. Suckers. >> Yeah, >> I was going to say here ultimately it becomes like retirement funds and pensions and things like that. So we we do need a better market structure there. All right. So speaking of things that might need a better market structure, let's talk about micro strategy. Um, people have been describing this jokingly as sailor's threebody problem.

And what's going on is that for the first time since 2022, and yes, that is correct. For all of you who said Strategy sold Bitcoin for the first time ever, you were wrong. They did this before. But for the first time since 2022, Strategy started selling some Bitcoin. They sold 32 BTC largely is what looks like mostly a test transaction because that's $2.5 million per their 8K to fund distributions on preferred stock. Now that is less than 0.01% of their holdings, but they chose to sell some BTC rather than drawing the cash reserve and they sold as Bitcoin fell under 72K on the news. Why is this happening? So

their capital stack, I will remind everybody, has equity. It then has preferred, which are the STRC's of the world. That right now, round numbers, seems like they need about $1.5 billion a year in dividends. They have $900 million of cash and the MNAV is basically at parody. So that's not really a good vehicle for issuing more to make the gains work. Um, Sailor is saying that our goal is to make STRC the best credit instrument in the world. He called the sale, quote, Rom, a big nothing burger.

>> Ah, >> however, >> listen to the show. Michael, you should come on join us. >> There you go. Now, let's talk about the bears on the other side of this though who are saying maybe it is a problem. So, Jeff Dorman was saying 15 billion in preps have a 1.5 billion a year dividend. He raised two billion via stock, then used a bunch of it to buy back 2029 maturity bonds. Someone is going to lose badly here, and it will happen in the next four months. Uh Rich Galvin said that Sailor faces a threebody problem. He can't indefinitely support all of equity, Bitcoin, and the preferred debt stack. Eventually, they fly too close to the sun. So, I'm curious. Let's start with the capital

stack component of this. Do you agree with Dorman's point that now we're in a world where Bitcoin prices are not shooting upward? We have differential interests between equity holders, Bitcoin holders, and the preferred holders. Like, is that conflict real? >> I I'll launch in there. I say you have a threebody problem. I think he's right. Unless Bitcoin is coded to go up in perpetuity, which a lot of investors in that believe and so they dismiss this issue. If however that does not happen, then you have issues like this. And you know, one of the challenges is that a

lot of investors are in Bitcoin because of the velocity. It is an attention asset. I coined that term a few years ago. Seen more of that being used. But here's the issue. There are a lot of assets competing for attention now. Many many assets are competing for attention. You know, AI is an example of that. Um, a lot of things are going up and to the right now, too. Biotech is going up and to the right. So, um, that makes it harder. That makes it harder for digital assets when when you're in a momentum market. This is a momentum market. We're two standard deviations into a momentum market. and you have an asset that's supposed to have momentum and velocity and it's not running fast, then it cuts against you. That's what

we're seeing now. So, uh I this is not good. When you sell on even if it's a small number, it doesn't matter. Perception is reality. It's an attention asset. It's not about the 0.1%. >> Yeah. It's a social consensus asset. and one of the largest um evangelists of that of that thesis um just sold his assets for the first time. Now, a couple things. Uh first off, he's a DAT and he's acting like a DAT because a DAT has to act in the interest of its shareholders. And you know, by selling you most stats will tell you that they don't like it. they'll grind their teeth, but the right thing for them to do is to sell their underlying tokens

when certain conditions are met. And I wouldn't say this was necessarily a sale. It was symbolic um to say, "Look, I'm a dad. I need to do certain things to optimize my capital stack. This is a source of funding when I need it." Um maybe it's a quest for him to lower his cost basis. uh because he's provided a degree of centralization into an asset that should be totally decentralized. And so by by impacting the narrative, by impacting, you know, the this this theme of consensus, you would expect for the price to go lower. Um so maybe he's, you know, maybe that's fine. maybe he has some ideas about when he's going to go long again and and um you know obviously

he would never be manipulating markets but but maybe this is going to be an opportunity for him to lower his his cost basis in time. Um the other thing that's challenging with Bitcoin and and you know Ethereum is a little bit different other assets Salana and other assets are different a little different bitcoin is an inert asset it is not a yielding asset and so when you start offering to investors um a yield on an underlying asset that does not yield. It's hard. Um and and so that's another conundrum that people need to think about. Now, is selling that asset a way to generate that yield that you're promising? It's one of many. Can you hit the ATM if you have a positive MNAV?

Yeah, that's another way. So, it's it's but that under underlying conundrum um does result in some challenges when you have >> 100% >> right. That's a liability mismatch, right? >> Okay. Like a coupon coupon mismatch >> 100%. Well, whereas like for some of the yielding products, at least you have that that that organic yield where maybe it's easier to structure um cash flows or payments and and maybe you have that dollar uh crypto mismatch, but you're getting a three, you know, 2.8 8 2.7% yield on on ETH as an example like you know Salon Avalanche Hyperlid you name it. Um I'm I don't want to get anyone

mad at me if I forget to name their their ecosystem but it's it's just a a fundamental mismatch in Bitcoin that you don't have in other places. Now, those who can successfully drive sustainable yield on Bitcoin, that's very powerful. Like, and and how many strategies I've seen where people have been trying to to generate yield on gold, not easy to do. Um, it's very it's a very similar type of strategy, but but you know, the extent someone can deliver and this is what he's trying to do, deliver a scalable yielding Bitcoin exposure, I think there's going to be demand for something like that for a long time. I think the hard part is the mechanics of the yield though, right? Because if you look at STRC,

you have an asset that needs to be paying an 11.5% dividend by buying Bitcoin. So like the math on that is actually very simple. And to the point Rahm was making earlier, it's that if I raise $15 billion of it and I just hold the Bitcoin, if that doesn't go up by 11.5% per year, if I start selling it back, I'm just reducing the amount of Bitcoin that I have. Period. Full stop. And so fundamentally, what you're ultimately asking there is, is the price of Bitcoin going to go up more than 11.5% per year?

And part of what's interesting about this as well is as Bitcoin has gotten larger and larger over time as a market cap asset, just as one would expect, you're seeing a reduction in the rate of gains, right? Back to the law of large numbers problem. It's a lot easier to get a hundred bagger with a $10 million asset than with a $1 trillion asset. Mhm. >> And so I think a lot of the people who have been parameterizing this based on historical Bitcoin performance have not normalized that for the current size of Bitcoin. I just wonder like if we're not staring down the barrel of very significant inflation like what is the game plan to continue playing paying that dividend and not sort of stripping

Bitcoin off the balance sheet over time? >> Yeah, go ahead. >> Both are selling below par now. STRC and STRF and they sold off today. That's not good to see. Now, if you're selling Bitcoin to generate cash, the idea would be to create confidence for the providers of your debt financing. So, one would expect that these would close closer to par, but they did not. So, if those assets sold off, it means the cost of financing actually went higher.

that Kristen Austin knows what that means. That's not good. >> Yes. >> That's not good. So, you know, if you're at a bank, right? What's a good analogy here, Austin? You >> I would I would say a good analogy for a bank is that you have a bunch of loans on the balance sheet that are paying you 6%. And you've want short-term rates doing this inexerably while you're still getting paid six. There comes a point where if rates go up enough, you just die. Um, and if you don't believe me, the name of that bank was Silicon Valley Bank. like this has happened in the not too distant past. You have an asset liability mismatch.

>> Yeah. The other issue we have time and time again in our industry is this uh the arbitrage between equity and token where it's hard to buy a token. It's hard for people to buy a token. Uh and so they they go in through an asset class that that's that's easy. Um a trust uh an equity and that works sometimes when there's more demand. But when there's less demand um maybe it can be sold faster as well. So it works in both directions. Uh it's been uh it's it's that basis you know last cycle was one of the the core challenges with uh with the bare market that we entered with that that basis between equity and token. Uh a lot of people died on that hill. Um we can go through some of the

names but yeah interesting times interesting times. >> I it adds proyclicality to Bitcoin. Yeah. >> Two. Right. Like Micro Strategy was a bid for Bitcoin. Now they got to sell Bitcoin to fund the obligations on Bitcoin. >> So this is the first time we've seen in a really long time where people are saying, uhoh, Strategy is, you know, sold some Bitcoin and then you're seeing some like a some incredible momentum amongst a handful of names in the alt space.

>> Yeah. And so I don't think it's time for for me to say, "Hey guys, it's alt season again. Giddy up. Let's go." But it's what we've been talking about. It's those those alts are getting looked at now through new more sophisticated eyes, I think, where the alts with fundamentals are outperforming those that are not. It feels like a like a fundamental season, if you will, an alt fundamental season. But, you know, I'm we're starting to see like excitement. we're starting to see um you know maybe a little bit less focus on on this bit like Bitcoin has been very very dominant in our last cycle massively dominant it is the largest asset class of the to

largest of the tokens across the you can't ignore it but for the first time it feels like you know you're seeing some very very strong momentum uh within a handful of projects that are out eclipsing like like they're they're they'reclipsing u Bitcoin for the first time I've seen in a while it seems almost Hyperlid. Well, yeah, I was right. >> Let's talk about Hyperlid in particular there because there was a headline on that, right? The CEO of ICE, again, the exchange, not the ones deporting people, uh, said at Bernstein's May 27 conference, Hyperlid is bigger than NASDAQ by volume, and ICE has met its founders multiple times. From uh, Spreer, this Hyperlid, it's bigger than NASDAQ. Okay, it's 11 people. You look

at it and you're like, "Wow, that's pretty something. The team is extremely smart. I salute these guys for doing it. I don't think you can ignore it." And he said, "On institutions, they're all watching it whether they admit it or not. It is being part of the zeitgeist." And unsurprisingly, like hype has done pretty well price-wise following this. It's run to a fresh all-time high. I just checked it as we're recording this. It's in the 72 range right now becoming a top 10 crypto asset. Chris, exactly to your point. And if we look at this, it's a pers market that continues to add things like prediction markets, preipo, synthetics, etc., etc. But importantly

on connecting the platform to the token, 99% of the fees go to buybacks of the token. That's 800 million of annualized revenue. The team is tiny. Most of that is going back to the token holders like Jeff Dorman who was earlier talking about like Micro Strategy has said this is one of the few things that's like purchasable as a liquid token investor in crypto earlier this year. So there seems to be something interesting going on here and that's all of that in front of the main point that's getting into the zeitgeist which is 247 real markets trading. We've seen hype cited as the price for oil over the weekend during the Iran conflict. So like Chris, what

do you make of this whole thing? Is this validating for hyperlquid? Is this basically lobbying for pers to come here so people can compete against them? Like what's going on? >> Well, per here. Uh I don't know if you saw the cowi announcements. They're they're in effect right now. Um so congratulations to the team. I think another a number of other projects are launching as well. Um so so congrats to TK Andy Ross over there. they've really moved the move some mountains, but I think you're seeing pers now having a foothold uh in the United States and I think that's going to grow. So, um when you look at Jeffreer's statement, and I've known Jeff for for a long time, I know the team very well. You know, he was the head of he founded ICE. Um the difference between him and many of the

traditional uh CEOs that you'll see is that he's founder, right? He founded that company. And founder companies are wired differently. And if you're a founder and you've been a disruptor your entire career, you're also a lot more paranoid than other people because you know what a disruptor can do. Jeff is sitting on top of a 90 billion dollar company. Oh, and by the way, he bought Nazis. Like, who would have thought this startup coming out of nowhere on derivatives buys NY storied? Why? It's a tale as old as time. Derivatives are more important than spot. Sorry guys.

That's the reason why ICE bought a NY now. So, he's $90 billion market cut founder and he's like, "Uhoh. Uh, there's 11 guys over there. They're killing it. Um, they've done a couple things that I can't do because my regulators probably won't let me. Uh, he's doing a couple things that I wish I could do. Um, that they just move faster and they're really smart." And so, you know, how many times have we seen startups that have like, you know, pushed the edges of regulation and in this case, regulation that is it really like, you know, are we really hurting people by launching 247 PERS that are giving you price discovery for IPO markets that are showing you u what the price of oil is on a war? So, you can

kind of help think you can theoretically manage your book, you know, not maybe not because you can't access markets. So, you know, these companies, these um these protocols in crypto are delivering real utility, real utility. Um the real world assets, I still can't say RWA, guys. It just kills me as a banker. But these real world assets that are coming on chain, this convergence is providing real real utility. It's scaring traditional markets. CME, what do they do today? They're like, "Oh, shoot. I got to be 247, too." But they still have to catch up with the rest of their markets and the whole system that comes behind it. So that's the good news. The bad news is that how many institutions do you know that can access Hyperlid today? Like real institutions?

>> Probably none. Maybe there's some market makers whatever. >> Or or trade on it. When you say access, >> I see trade on it, right? People will will look at the data. They're all looking at the data. You go on any Wall Street firm, they're they got hyperlquid up to see what's happening. I think um I don't know. I haven't been on the floor for a while. It's just the multinational hedge funds who can trade it because you're going to need a non- US entity with access to the ability to trade crypto right? >> Yeah. Yeah. So, you got a couple issues right now. Number one, you've got a regulatory issue because uh it doesn't have all the licenses on shore and therefore it keeps a lot of institutional market out. But you solve that. How do you solve that? Uh you can buy the the licenses, you can build the

licenses, you can put people in DC. All that that's happening. Uh second issue you have is security, right? When you have these open-source um open protocols, the bad guys want a piece of them. And so like we've seen a lot of challenges. Um I don't you know so so that's the additional risk that's keeping institutions out that has to get solved. The way you solve that is twofold. You know obviously there's a number of different techniques coming on side. There's policy things we can do. I've been talking about I love my privateeers. got to get that in in this episode. Um I think AIS could actually help with that as well. But I also think that um you know we talk about the DeFi mullet, right? Where you have the

business in the front and then the protocol in the back. The extent you have that business in the front who is a throat to choke for those institutions and can deliver that backend liquidity and take the risk in certain cases and get insurance for that risk, that's one way to do it. Um so anyway, that's all coming together. The last thing that needs to be solved for like you know these per uh protocols like like hype like you described is risk management. Okay. So we cannot in traditional markets take counterparty risk on derivatives. Your hedge has to be there when the world blows up. Um we saw many of the crypto markets uh sexes indexes really like kill people with this thing we called ADL. We've had long

conversations on the show about it. Well guess what? That's something that you can fix if if you're if you're a hyperlquid or lighter or somebody else, you could definitely fix it. Uh and you can build decentralized pools. And frankly, based on what I'm seeing, they're doing it. And so now, if you're Jeff Sprecker, you're stepping back. You're like, "Wow, they can really they can probably create waterfalls as good as I can do." Like meet those principles. By the way, you want to it doesn't take a lot of capital to to outpace the traditional exchanges and the amount that they put in the waterfall. they put tiny amount in, they send it to everybody else. So like you can easily like go, "Hey, here's my waterfall. Here's your waterfall. I'm actually better." And I think they're thinking about that right now because

that that's a big issue. Licenses, you can buy them. Frontends can buy them. So if if you're in traditional markets, it's a massive wakeup call. You have a very you don't have a regulator who's trying to attack you. you have one who's trying to keep the game um level and and and uh letting innovators build. It's just sad for me like when I go to these websites and it's like, hey, you're American, you can't access it. It kills me because I'm like all I was there when we put these rules in place and it's like, oh, these are designed to protect the world, protect everybody. Um but I I don't know. I don't I want to I wonder who's being protected now. And and that that's my challenge with this. But hey, super super interesting stuff.

I would say I think if we're looking at hype in particular and trying to figure out what do they need to fix the most to get to the United States, I'm going to ignore call it the paperwork aspects of regulation for a moment and say the big one is figuring out something better than ADL. Right? We can see what that did to crypto trading activity post 1010. It's been ugly out there. But more to the point, if we have this like direct to retail model, going straight to ADL is never a thing that I think regulators are going to be comfortable with. And I don't just think the United States, Europe will have a negative reaction to that as well. Because if like let's say ROM, rather than running a firm, you're just one guy. That means

occasionally you need to oh, I don't know, sleep. And so if things go dramatically down overnight while you're out and you've got institutions managing 247, but you get liquidated and then ADL, nobody's going to find that situation to be fair. So as Chris said, we're going to need capital. We're going to need better methods of doing this. We may need to, I don't know, use less than 100% x leverage at all times in crypto. So >> I think there are some structural questions >> before you go on to claude or open AI and try to figure out what ADL is. It's auto deleveraging. So essentially, you have a position on >> That's not the American defamation leak.

That's correct. >> That's right. You have a position on you're hedging your book. You need that derivative to be a float. You're meeting your margin calls, whatever. When the exchange is just like, "Sorry, guy. Uh, I'm ripping it up. There's too much risk in the system, and you've lost your hedge." Um, that actually exists in traditional markets. Uh, we call it recovery and resolution, but it's it's at the very bottom. It's like right before the tanks are on the street and the world blows up and there's massive pools of capital in front of it. Risk-based pools of capital that that really insulate you uh from that. So it almost never happens. I when I was in trades I would see in certain cases you get into a couple of those tanches like there was an issue in NASDAQ many years back but you don't get you I've never

seen us get to that point particularly post financial crisis. you need to be able to to know that your hedge is going to be there for you to have those robust derivatives markets. I think it's coming together. I think it's coming together across DeFi. I think even in lending markets as you're seeing what you know went on right now um with with with a and those markets, you're going to start seeing like they didn't send to my knowledge uh risk back to you know the underlying holders. They're they're figuring it out. are creating those pools that will help provide more confidence across DeFi. So I think that's happening Austin.

>> Well, I think part of the reason we should believe this it's happening is that some of the people, shall we say, who are the most uh privileged in the current system are now starting to get angry about the rate of change. So let's talk about Jamie Diamond. So, he was on live TV uh Mornings with Maria on Fox Business talking about the Clarity Act and he said he's unhappy with the bill and he torched Coinbase's Brian Armstrong uh verbatim. He's spending hundreds of millions of dollars in Washington on this thing. He said he's representing the whole diamond. He's full of [ __ ] Um we'll fight it. If we lose, we lose and we'll live. No one's gonna bow down to this guy. Um,

Armstrong replied with a hilarious heated rivalry hockey meme, not an argument. And I will also personally note that one of the best funded lobbies in Washington DC for a long time has been the banking lobby. So, it's kind of interesting to see them throwing stones at crypto now that it's an equal fight. But fundamentally, I think this is about >> paying interest on deposits, competing against the banks. And you've seen research coming out from the bankers saying up to 6 trillion of deposits could shift. The ABA estimated 6.6.

Obviously, crypto says the exact opposite. Doesn't believe that's going to happen. I think quite frankly, they have the better argument on the crypto side for mechanical and financial reasons, but Rahm, Chris, I'm curious what you guys make of this fight spilling out into the public at this level. to where yours went first, which is that the banking lobby is extraordinarily powerful. It's a massive industry with thousands of banks, millions of employees. There's a whole ecosystem beyond the banks, infrastructure providers. Many people in Congress grew up in banks. They have contributions from banks and this still very small industry called digital assets that most

people don't really care about in the kitchen table. Okay? They don't have a daily interaction with it is toe-to-toe with the banking industry. This is a this is extraordinary. The only time the banking industry really had a a loss in their in their public policy efforts was immediately in the aftermath of the 2008 crisis when DoddFrank was passed. It was like the stars were aligning against the banking industry and and here we are. I mean it's a however the clarity act unfolds you this is a this is a win for digital assets to be able to compete at that level.

>> Yeah. So I was on the receiving side of that uh with Gary Gendler uh when I was at you know when I was at the bank after we tried to reform the drizz markets after the crisis I was at Lehman and then I was on the wrong side of him uh with with crypto for a couple years. So have plenty of experience there. Austin, like you're the stable coin guy and what makes me so mental about this, I I don't think the the banking lobby I think they kind of dismissed the crypto people in the early days and because of that they were asleep at the wheel when the Genius bill was passed and when when now with the Genius Act the they don't like stable coins because though issuers cannot issue rewards it says nothing

about third parties distribution blah blah blah blah blah. So, so in their minds there is this interest loophole, right? What's frustrating for me is that they're focusing where's their angst right now? Their angst is on the Clarity Act. The Clarity Act is about market structure. We already did stable coins, guys. You know, the war's over. We did it. But they're so angry because they missed it in genius. They're coming back and trying to suppress clarity, which in my mind is something that we we need because we need a taxonomy. Like, yes, do we need other things? And like, you know, now they're going and and and the Trump card is always national security.

Like, this is what makes me mental, too, as a as a national security guy. You know, I get I'm not getting my way. I'm not getting my way. Um there's only one way to really stop innovation, and that's by saying it's bad for national security. And so now they're starting to take that tact. If you notice, that's what makes me mental. The truth of the matter is that the Clarity Act is good for innovation because it's going to give us that clarity that we need. No pun intended. I think it's helpful for national security. Just look like we just seized we seized 300 million like like this asset is very good for our national security. Look what we're doing in Iran right now. So anyway, it's just frustrating to me that we're litigating stable coins in a totally different bill. Like I don't know, maybe we should

start going after stable coins in the farm bill or something. Like why not as a CFTC, right? I I don't know. It's it's just a defense. Like it makes me crazy. >> I think one of the things that I'm noticing here is the bank lobby has gotten incredibly old and out of touch because they don't understand the impact that they're having on the debate right now. Like one, if you're at a large bank or most community banks in the United States, I want to be very clear, young Americans hate you. And I say that because if you look at this, SoFi has opened more accounts over the last few years than all of the big four combined, right? They don't like you guys. They view you as a bunch of paternalistic [ __ ] who crashed the system in 2008. I am quoting one of my students

when I say that, right? Just to be clear. Two, you're in a position where you're arguing things that are factually wrong. And the people who are informed on finance understand this. Anybody saying that US dollar stable coins cause deposits to leave the banking system in aggregate does not understand how bank deposits work. It is not mechanically possible for that to happen. Bank deposits are destroyed when you take money out of an ATM, when you repay a loan, when a bank sells an asset off the balance sheet, or a couple of things the Treasury and the Fed can do. None of those involve a stable coin. Unless you think buying a sandwich destroys a bank deposit, you don't think buying a stable

coin or creating one destroys a bank deposit. And then finally, and Chris, you'll laugh at this in terms of the boomerang coming back around on banks. Over the last few weeks, I had a couple of Senate offices ask me very seriously, should we be going back and reooking at Graham Leech Blley? Like, if the banks are actually this week that they need this level of trade protection, did we screw up by deregulating them in the first place? And do we maybe need to go back to the way things worked before? I don't know that that's the answer. But I am going to warn the banks. You can't have your cake and eat it too. If you say you're too fragile to face market competition, but also don't regulate us

in any way. That's not going to work because you're going to get one of those. >> I think that's straw manning the bank point of view. So, a couple quick reactions like number one, this is peak political power for the digital asset ecosystem. It will not be this high again after the midterms and perhaps also after the next election. So they got to get focused and get stuff done now. That's one. Second thing is like the concerns of the banks um are around offering bank-like products.

That's what the concern is. Okay. Now can have a legitimate debate that's playing out out there. Third is most small businesses and consumers like loans, mortgages, borrowing, having a deposit that's safe and secure. They just don't like that customer experience. They like their relationship man. They like like the private banker. They like the service they get. So um you know the power of the banks are significant. We're just at this very unique window of time where crypto is punching way above its weight in terms of political impact and that time will pass.

>> I think that's right. I think in time it'll it'll you know there'll be stasis. Um and the banking market is lobby is much bigger I think right now if you know apples to apples. Um the problem there's there's a bunch of problems going on here. Number one um savings rates checking rates are too low. Like why should you get yield like zero on your checking account. Um that's a problem. And look at the bank earnings. Bank earnings are doing just fine. >> In fact they're killing it. And so as rates went up, >> they didn't raise they didn't raise rates that and that's what's angering your students like um they're keeping it all um or >> why are they low though? Why the reason

why they're low? If you go to a small community bank that's to compete >> with demand deposit interest rates, they offer higher rates. JP Morgan on the longer end of the deposit curve and say the CD market, they offer competitive rates with other banks. Okay. It's because large corporates that are well above the FDIC threshold and individuals that have deposits well above the $20,000 threshold because they're not protected by the US government, they're trusting Fortress balance sheets like JP Morgan and JP Morgan has a too big to fail GIP status and therefore the deposit rate is low. Part of that is because they have GIB status. That's the

issue. So the US is conferring um the status. They're in the window of protection as opposed to having a competitive private market insurance offering like where Bergkshire Hathaway say underwriting depository insurance at a higher level. So government's creating its own issue. Government is creating the reason why you're saying yeah >> is that you're getting those lower rates because you have a fortress balance sheet. because your money is safe because you're depending on that because your G sub you're depending but the fact of the matter is is it's a receipt >> on a fractionally reserved entity but you think there's a guarantee implicit or explicit you think there's a guarantee right

>> correct >> but then you look at it next to a stable coin or money market fund for that matter that's fully backed and paying a much higher rate >> here's your efficient frontier right and that's that's the disconnect and so uhoh >> you You know, I I hate when they also say apples to apples. Well, we have more regulation, we have more cost. Well, that's because you're completely different business, right? You're not fully backed if you're fully back like, you know, so >> yeah, >> it's um I found those arguments disingenuous. Um but the biggest challenge is dude, what if you kill clarity and you're so happy because because stable coin is not fixed, guess what? Genius is still the law of the land. It's gonna take an act of Congress

to unwind that loophole. So, >> and and >> is that the solution? >> Well, a second point on that front as we talk about these things is that the banks are kind of here by an accident of history, right? If we rewind 50 years, nobody was using their bank for the majority of per like purchases, right? You involve them when you were buying like a car or a house. You didn't buy a sandwich with a debit card attached to your bank account. So they've been given a monopoly on electronic payments that was never intended. And what's interesting to me is these comments come also in the wake of like the skinny master account discussion. I think a lot of the place where this problem will be solved and will force even the big banks

to start competing is if you can have a narrowly reserved fully backed company. So Chris, exactly what you just talked about and hell, let's say we're not even using a stable coin here to take the blockchain part out of it. You just have an entity that holds tea bills for all the cash and then >> a money market fund, >> right? And then can access the system and push a or wires. Why would you use a bank instead of that? Like I don't have a single student who says, you know, the reason that I've got a bank account is because I want to lend money to a real estate billionaire at zero. No, they just want to buy coffee and get their paycheck. So I think there is something to be said for this perception of fundamental unfairness on the part of

all the banks just pocketing the money. I mean equally like by the way free advice to all the crypto policy people here. You all should go argue that if you want to have FDIC insurance you should have to pay risk-free on your checking account. >> It's a great point. I like it. >> Right. Because if you can park that money at the Fed and earn that, you pass zero through and get a guarantee. >> And it stops the advantage that large money center banks have over other more innovative banks and smaller banks that are more decentralized, serving local needs in different communities.

>> But they won't be able to lend, guys. They just won't be able to. >> They can lend. They can lend. >> But that's what they're gonna say. >> You know what? Here's what I have to say to anybody who says credit is going to get way too expensive. Did you know you can lower interest rates? I'm just gonna leave that there. Trump get what he wants. All right. >> Speaking of things that mean the Clarity Act probably should happen. Um we also got some news that DTCC is going to be deploying on a public blockchain. Uh news hit that Stellar has been selected by DTCC and we will have tokenized versions of US equities on a public blockchain. So I know there's

been a lot of debate around this who they're going to use, what's going to happen. Well, now we have at least some of that news. It's allegedly coming in the first half of 2027. Um it's targeting Russell 1000 names, ETFs, and US treasuries. And Stellar traces all the way back to DTCC's currency acquisition. And I will remind everybody, so Chris, you don't have to say it, Franklin Templeton originally picked Stellar as their issuance chain when they were doing Benji. So there's a lot of work here that's been done with the SEC. But what I'm curious about, and Chris, I want to throw it to you on this front. We've literally got US equities moving onchain now. Does this not make

the case for clarity a lot stronger? Uh, I mean, clarity is a no-brainer. Um, the question, so by the way, uh, Dan Dhoni, CTO over at DTCC, you gota, yeah, tip your hat to him. Smart guy, Naval Academy graduate, I'll tell you. Um, look, I I don't think that's that Stellar is going to be the only chain they're going to be focusing on. I think you're going to see many of these guys to be multi-chain. Um, but congrats to the Stellar team. They they've been around forever. um they've really improved their smart uh contract capabilities and um they've always been very low cost. So, you know, you love to see victories for people that have been around in the space for a long time. So, so so hats off to them. I think you're going to see a number of other

integrations that are going to be equally exciting. Um so, it's great, but like what does this mean? This means that like guys, you know, I think City put out a uh a paper today. If you check it out, I think they said there's gonna be five trillion in in uh in tokenized equities by 2030 or something. I don't know. I think they're like way too light. I think that we've talked about this like this is a this is the next phase of markets beyond electronification. So, we went from voice, manual, paper to electronification.

Now, we're going to go to blockchain based finance 247, 247 price discovery, real-time settlement. This is the obvious next iteration. And as a fiduciary, which I am, if I'm going to trade a tokenized product or a non-tokenized product and there's sufficient liquidity, I got to trade the tokenized product. Guys, equity is $127 trillion market. Uh I think DTCC has trillions trillions uh you know that it that it safeguards and and and tracks. So, I think it's going to be like kind of like steady, steady, steady, then all at once everything's going to go tokenized because we won't have a choice. So, much much more to follow. We're like in the first chapter of this thing. Um, and uh

I can't wait to watch it happen. >> Rom, what do you make of the fact that US treasuries was in that announcement? Because as we think about backtracking to the global macro implications of this certainly I have been surprised I haven't heard news out of the US Treasury about tokenizing treasuries given the distribution possibility and stable coins but I saw DTCC talking about it here and I assure you they can talk to Treasury if they want to. I was curious what you made of that.

>> So yeah, Scott Boston rightly views stable coins as creating demand for uh treasuries. So if he can create more plumbing infrastructure that helps the US government finance its debt. So it's a it's a smart move and makes sense that that'll go on chain. >> Could I jump into this one? Because one of the challenges right now with stable coins is that they're I don't want to say it in a bad way, but in a way they're like they're like kind of a dead asset because they're not yielding. Um you know they're not money market funds.

you have to deploy them into DeFi to get a yield and in many cases they lack utility. Now the real unlock for stable coins is when you have utility when you can buy stuff with them and I don't know how many times you've been speaking to like your normie friends and like you know we'll meet you down at you know if you could pay in stable coins for that coffee then then you got something but we're not there yet we're missing it. Uh one thing I would love to see the treasury do is to allow purchases of US treasuries doesn't have to be tokenized with stable coins. That would be a really nice fundamental unlock um where the US government's show showing hey you know these things do have utility we will accept them for the payment of either traditional or tokenized treasuries uh amongst primary

dealers. I think that is the next foundational unlock that I'm looking for. What do you think Austin we get it? I think the US government is slow to do anything, but I think it's inevitable. Like, if we're going to continue spending at this level and running a deficit, you need financing and you're going to need to go where the money is. So, I do think it will eventually happen. The only other option is to dramatically cut the budget. And I just don't see much appetite for that. So, all right, on that note, uh since we are at time here, let me say thank you as always for joining us for this episode of Bits and Bips. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Don't forget what we told you at the start of this episode about

looking into our new channels and subscribing. So until then everyone, take care. Thank you for watching and hope you enjoyed this episode of Bits and Bips. Just remember, nothing we say here is investment advice. And please check unchainedcrypto.com/bitsandbbits for more disclosures. Hey,

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