Impact Of The FTX Fallout | Arthur_0x

Transcript

I think this is likely gonna be the most complex liquidation or bankruptcy ever in the history due to the large number of creditors that was spread across different jurisdictions I think FTS have more than one million creditor and I believe they operate or have customers for more than 50 countries so this is going to be very complex this episode is brought to you by Circle the issuer of usdc which hopefully as you all know is the preferred stable coin of digital Natives and crypto natives with over 1.5 million holders globally you'll hear more about usdc later in the show

[Music] all right everyone we're back with another episode of Empire we've got Arthur from Defiance Capital we got Santi joining coming off a uh a long flight it's pumping full of espresso right now 24 hours we are happy to have his uh Santi back with us we're pumped to have Arthur so Arthur welcome to Empire my friend pleasure to be here yeah man tough tough year huh tough year uh you obviously uh got impacted by some of the stuff going on back in in like uh May of this year with three arrows and and that whole debacle and and then this again I know you're on the ground in Singapore so I just want to ask man how you doing like has this has this been the toughest six months of your of your professional career yes uh definitely the toughest six months not just professional career

I think when it comes to adult life why is definitely the toughest sixth month I have ever experienced yeah and I think I was I would say the event happened in June um prepare us very well uh in terms of Crisis and risk management so we were relatively unaffected by the whole FTX event but that cannot be said for a lot of my friends not just in Singapore but all over the crypto industry as well a lot of them are badly hit and lost a huge chunk of their savings and portfolio and it is just very sad to see although it seems like what I've seen a lot of

people in Singapore used FTX as an on and off ramp and perhaps the people that I've heard and the companies that I've talked to a lot of them it feels like Singapore is one of the hardest hit areas or at least the region is can you talk a little bit about like how FTX came to be so dominant there and people like is there no other solution is just like I'm curious to hear your perspective yep dang thanks uh that's a good question so I think first of all a big there's a big push factor coming from the fact that binance stops serving Singapore users since last year largely due to the fact that they withdraw their

application for a crypto license in Singapore and the Singapore Authority Ms monetary authority of Singapore also put binance on a list called investor alert list which which means that they are not regulated so that serves as a push factor to for a lot of the users to start using FTX and for unknown reason FTX is not listed there although they are also based offshore and offered almost The Identical services to binance I think yeah and FTX have a very good I would say for most prosumers have a very good user

interface very good liquidity and you can also trade Perpetual Futures Contract there there are also local crypto exchanges available but they are restricted to offering spot trading Services only so if you cannot assess binance FTX become the natural second choice um I think this also highlights um a very classic 101 concept the unintended consequences when The Authority put binance on investor alert list but did not put FTX on it that might seem as kind of like implicit endorsement to FTX and I think this is

also worsened by the fact that the one of the Sovereign wealth fund of Singapore tamase were actually the lead investor for one of the last three rounds of FTX so I believe according to Forbes temasek is one of the largest investor in FTX because they invested across all three rounds let's say I don't think um tamasi making a wrong investment at that point time because it was a highly contested deals uh where a lot of the top VC are fighting to get into and I'm sure they have done their due diligence um is yeah it's just unfortunate that happened yeah it's a Confluence of factors that lead to this did you ever look at the deal at any point in time to invest in FTX

I think I only look at the ftt deal when they were pitching to a lot of the crypto native at 2019 um we passed because you know I wasn't convinced a new exchange is able to compete with the established one uh but yeah after that we never saw the equity deal I think they were focusing on the big institutional investors because I think they went very quickly to the 8 billion valuation round and I don't I think that is already Beyond most crypto native organizations appetite yeah what's your appreciation there's obviously a lot of criticism now like no one no one's doing due diligence you look at the Sequoia memo it sounds like you know

now you laugh at it at the time you know as you said people work heavily like vying to have a lead position get allocations in these rounds obviously now people are very critical no one's doing diligence um can you talk a little bit about that I'm curious if you believe that to be true how do you manage your process like you talk about risk management earlier we can get to that in a second but just pure due diligence for early stage Investments which I know you do we're just generally how do you approach it like how do you how do you not see these things these like yellow flags red flags I think we try our best to do the most due diligence but I would say we definitely were affected by how fast the market

were moving um adding from the Q4 of 2021 onward until Q2 2022 we were doing five to seven deals a month which were definitely um above the intended number but they are simply so many different ecosystem worth investing in and so many different vertical to look at you and obviously that time everyone was brimming with optimism you know web3 is the future you know there's so much potentials you just can't afford to miss out on the next Open Sea the next X Infinity the next uni song So if you are not restricting yourself to just one

sector or one ecosystem it simply become natural that you need to invest a bit more actively than let's say non-crypto VC and I think that definitely lead to a slight in some cases pretty significant drop in the time and resources you devoted to due diligence biting this affected different investment firm to a different degree for us I think we still do a very sort of DD but we definitely were not given sufficient time in some cases and everything we I think that the pendulum swing from one one extreme to another extreme in a bad Market because people become extremely skeptical even from some

teams that kind of proven themselves to a certain extent people still say you know these are all temporarily phenomenal it might not be sustainable but in a Bama in a bull market even though there's nothing been proven it's just pure concept people think you know there's so much potential here the team is great you know so I think I think that's what happened but yes most generally speaking less due diligence are being done uh in the blue Market Arthur one um I want to go back to why people used FTX because my understanding is that they just had the tightest spreads like for that kind of prosumer institutional audience there's a really good exchange especially in Asia um was there ever a concern that folks was it just kind of a known understanding that Alameda was kind of

picking off trades but like that was okay because because the spreads were so tight not really I think there was understanding that Alameda is one of the biggest Market maker on FTX but I think they were public statement that after the first year of FTX Inception Alameda is apparently no longer the biggest Market maker anymore um I think I found it from some of the public interview or podcasts SBF have given so I think the liquidity is great but people never really think that it's only Alameda they're probably a lot of other Market maker and when you see on the volume leaderboard you see winter meal you see Fort Wayne so yeah I think one of the biggest Innovation

that FTX have done is the cross margin collateral and you can interchangeably use different stable coins as a collateral and all the other random assets that will assign different collateral factors I think that make it a lot more easier to manage your position especially when you're running like a spread position where you're a long Bitcoin you're short Eve essentially FTS is usually the best way to manage this car for the different position at the same account how are you guys using um FTX I mean thankfully it sounds like you guys were not largely unaffected um but I'm curious if you could give us a little bit more insight into what kind of products you were using um and and and maybe how others uh other

funds um used it as well I think we were mainly on the central exchange side we were mainly using binance and FTX um but uh recent months we have not been trading actively because we don't see there's much opportunity in the market so we just took all of our money out from Central exchange and put it into Cold Storage actually because we don't want to be over trading it and because the market condition simply wasn't conducive we also trade with some of the other OTC desks like Galaxy or others so yeah I think I think that's how we manage it I think yeah how do you um you know I still remember there are very specific moments in time

where you you know you feel like this you're going to survive survivability mode like at all costs and and you assess counterparty risk you know March 2020 right everyone was calling around desks to make sure that they're like solvent uh now of course everyone's looking around and asking who else who's next right you got you know Voyager block five mostly retail but then you also know what you know FDX I think was just huge you know I'm curious from a risk management standpoint like what do you see in the market like how we had a earlier episode where the guys from framework were on at the time it wasn't clear FTX was gonna you know resume withdrawals and we didn't kind of know

the extent of the mess of the show actually um but we were I think Jason you and I have the opinion that it was going to be way larger of a contagion of an impact than perhaps Voyager or blockify sounds to me like it still is but I'm curious to get your perspective of how you think about contagion effects on how you think about like some of these like risks that the market may not be seeing or assessing yeah I think the two major category of uh Market participants that are going to be impacted are quite well known by now one is the remaining major lenders I think we all know who they are and another category are trading firms and market makers I think that this will

lead to a significant deterioration in liquidity and a lot of the I think probably this is less discussed a lot of the startups that have tokens they have lent to market makers they are in risk of not getting this token back um because if some of the market making firms are also going down they are holding this token on their balance sheet this become a liability to all the startups that have loaned them the token to Market me I know for a fact that Alameda were providing Market making services to a big number of crypto startups projects and they are not paying back all these tokens they were borrowing to do Market making and that is a pretty big issue that would not discussed sufficiently in

the market right now all right Arthur can you just can we dig deeper into that can you explain like the actual mechanics so like let's say I'm a let's I'm a Founder I raise around Alameda leads it I have a token like can you just like almost walk through the whole life cycle of that yeah so usually when a project race assuming there's a token and when the token is going to get listed most of the time they will want to get a market maker to provide some sort of liquidity so you don't end up with a crazy environment where the token is listed but there's so little the query and volume on the token and Alameda were obviously one of the largest market maker and well-known one and they also approached a lot of the project to Provider Services especially for the project they have invested in I

don't think they force it but it definitely helps that they are investing in so many projects and help to build the relationship even for some projects that they did not invest in um they still uh these projects still engage Alameda as a market maker so what happened is this project will sign an agreement a market making agreement for the market for Alameda to provide certain amount of liquidity and this project will usually loan this Market maker a certain percentage of the token to Market make and sometimes it entails cash as well and yeah so this become like a loan from the project to the market making firm so I have so if I have 10 million tokens outstanding I'm

gonna give twenty percent no no not so much it depends uh depends on the float it's usually relative to the float so if the flow is only five percent uh the the project are probably gonna give two percent to the market making firm and I'm and I'm also going to pay uh some sort of fee an annual fee or something or 200. that's a few different models yep yep um there's some usually there's a monthly retainer fee model there is also some Market making firm that doesn't take a fixed fee but they want the team to sell them a cheap core option on a token so let's say the token is trading at two dollar right now they want the team to sell them a call option that struck at three dollar with

like a two year expiry so the the market making firm will benefit from the upside and actually I think this becomes one of the biggest profit Center for some Market making firm and um okay so so now walk me through to what happened so now walk me through the alameda's impact on some of these companies so they okay so you give your tokens to Alameda now basically those tokens are sitting with Alameda but I'll but they're not gonna get those tokens back right yeah so that just decreases the total float of the that just decreases the token Supply right temporarily until the chapter 11 process find a way to liquidate those tokens but this token technically belongs to the project right so it might lead to some

project losing a big part of their treasury native token because this become an asset of Alameda and I don't think they will recognize the liability with an offsetting method so yeah yeah and yeah it's too bad I I just started to get investor updates from folks saying that they had you know 40 of their treasury held with FTX 70 of their Treasury I mean what of your portfolio I mean how many how many portfolio companies do you think end up getting killed by by this by by FTX and Alameda by their treasury getting cut in half right a lot of companies just can't handle a treasure getting cut in half overnight they're not set up for that yep uh from the

update we have received there is less than five that were hit by FTX collapse I think two of them have a sizable balance on it the rest are fine so I would say for from our portfolio less than five but there could be some other they have not updated us yet we also check with most of them I would say more than half of them should be fine we have checked with more than half of our portfolio company the rest they haven't replied us yet and is that the same with funds too would you say that it's a pretty small percentage of funds because I know the you know they're they're the multi coins of the world the folks who are very close with FTX got hit pretty hard would you obviously you know heart goes out to Travis Kling too at ikigai he got hit uh ikigai got hit pretty hard

and Travis is an amazing dude um would you say it's a small percentage of funds or would you say the percentage of funds that got really hit hard from this is is actually higher I think the percentage is not high if you include Venture Fund in the whole landscape because Venture fund by Nature do not need to keep a lot of money on FTX so and given most of the new fundraised over the past 12 to 14 12 to 24 months are Venture funds I don't think those Venture funds are that badly hit by FTX but the liquid fund are definitely hit especially for those that run an active Arbitrage and delta neutral strategy these category of funds are the one that

are most likely to be hit by FTX collapse because they're keeping all of their capital on Exchange they by the virtue of that strategy they need to yeah yeah it's a real shame Instagram there's there's talk about now I think there's um what is it Ken Griffin from Citadel um coming out and saying hey guys like look at traditional Finance all this could have been avoided you know you don't have the exchange acting as a custodian like those functions are always separate in large separated in large part because of you know learnings from the past you know Bernie Madoff kind of situations and so now there are rules and regulations around that

um do you find it we talk a lot about regulation obviously now I do want to get into this topic of how you feel that you know what are the things what is the regulatory kind of implications of all of this but from your perspective on the risk management side of things like did you ever find that alarming um did you ever conceive that someone like FTX could like go under or commingle funds like you know there weren't ever proof of reserves um all of this is like now obvious right for everyone it's like well holy like yeah maybe we all should have been a little bit more demanding of all these things but we

weren't like and then everything now comes to light right there's now reports of all the partying all the you know all the stuff going down in Bermuda but like I'm just curious like there were multiple conferences in Bermuda there were multiple people that like took like like that traditional fund manager Anthony's was a scar mooch like Sky Bridge who like took money from like Sam was throwing out money to like most Venture funds like why why is it that like all this stuff came to light did you like ever suspect that like there was shady going down on FDX I'll give you my side of the story but like I'm curious if like if at any point in time you thought like hmm maybe it's too good to be true or these guys were

just up to no good I'm curious I definitely don't see the scale of these uh fraud because I think what I have always been a bit more wary is how FTX or Sam like to create new Solana ecosystem coin with a very high fdv but low float I think serum fully diluted valuation at one point is 100 billion which is ridiculous and they have a very long vesting um so all this thing is very predatory but you can say this is like a Bad Business practice it's not fraught so I think yeah I don't think I would have expected them to commingle user funds because without

doing that they are supposedly very profitable so we were probably thinking of like a bad business practice but not to a level of fraud so you said you said you have some stories maybe I have one story yeah like I was in Singapore uh well on my way to Singapore the first binance conference in January of 2019 and this is like pretty this is a bear Market this is actually marked the bottom of like certain coins like us and X which Arthur you're intimately familiar with but on the way there I stopped in Hong Kong and I and I went into the small office of Alameda and Sam was there in his little bean bag and it was like a very small operation he was getting like a couple of chairs

and he was like Staffing he was like and and in that conversation we talked about two things one what Alameda was because for me it was a surprise I had no idea what Alameda research was I'm like and then there were like Rumblings that it was like handling the largest like like volume of like Bitcoin or this kimchi trade and but it was like it was came up to a surprise to me and then he talked about the opportunity to potentially invest in Alameda and the terms of that and I found to me that was like I didn't end up investing in Alameda because the terms I thought were like ridiculous um like worse than rentech and like everyone wants to get into rent Tech and I was like how is this possible like it makes no sense what were the terms if I

remember correctly it was like guaranteeing like a 15 return oh is this was this a high return the 15 yes yeah this was there have been other chats circulating of what seems to be a deleted user which allegedly is Sue Sue of a telegram group um crypto fundamentals anyways and and there was like chat about that um I think it he probably saw or people saw the same deck but I I found it to be I don't know my Spidey kind of sentence went off and most importantly for me was like the level of the operation was like concerning there was just like they were moving very fast six months later he the second thing

that he talked about in that in that meeting was like last an hour was that he wanted to build an exchange and that's that's the end of what I heard six months later someone sends me a link is like go to FDX I'm like holy these guys move really fast but in that meeting I I thought like I don't know I come from traditional Finance background like when we build parify like there's certain processes that you need to have there's something like walls that you need to have like and I've always felt that like even though if crypto is like not as regulated or whatever you just need to assume that there's a level to your point Arthur of like operating in business practices especially if you're in as a fund or just operating in like finance that you need to abide by because it's just the right thing to do

um and I felt that that was not uh I think they ended up firing this particular person that to me was just like it was like pretty shady and I was like yeah no I don't know I'd rather not that was my story let me let me ask both of you guys this because this is something I'm still trying to think there is at what point like basically did Sam build so obviously Sam I think built Alameda with good intentions to build a huge trading firm like I think he was not like a scammer that I'm basically trying to wonder what at what point in the story does Sam become um a malicious actor basically so I think one some some people think that everything was going fine until Alameda got on the wrong side of a bunch of big trades during the whole like Terra Luna

three Arrow Celsius blow up all that stuff and then he used customer funds from FTX to plug the hole maybe it was that maybe it wasn't even his fault in that it was Sam Trabuco wanted to like got on the wrong side of the trades and Sam was like oh let's move the funds over um but but but then when the back door thing came out the like back door system to get to avoid the compliance uh inside of FTX that made me think that oh this is a whole this has been going on for years so Arthur I'm just curious like like when did Sam start becoming a bet was this all set up with malicious intent do you think I think the problem is Sam likely used his effective altruism Principle as an excuse to justify

whatever action he is doing after a certain time period when you look at it like the whole low float High fdv stuff was not good but he was very aggressive in pursuing this that was in 2020 or 2021 early 2021 um he clearly did not feel there's anything wrong with this and by having essentially no firewall between Alameda and FTX he clearly did not think there's an issue so and I think at one point where he was just idolized at this extent um you just don't think you can do anything wrong um like whatever you do you think you can cover it up and you you can self-justify it and

there's also like a rumors that he was tracking he was taking on some drugs as well like he was a golden boy he was very well received in the political Circle Congress appearance on a hearing this is a treatment that not even some Bitcoin or crypto OG like Brian Armstrong were receiving and he was getting it in a such a short amount of time and rubbing shoulders with the leading athlete like Tom Brady Steph Curry I think that's just him to think that he can't do wrong and I think people can even lie to themselves at one point of time and I think this is also quite similar to other films that got very big

in a short amount of time like three arrows or even Celsius like why they were still lying until the last minute because they think that you know it's fine I I'm so successful you know whatever I do can be justified so I think that's essentially what happened and I think it's a it's a slippery slippery slope once you start doing something all of it's small your cows don't think anything matters anymore the only thing I'll add to that is I do agree with a lot of what you said Arthur the only thing that I'm now a little bit perplexed by is this facade of effective altruism because you know as we know he's trying to sell 38.5 million dollar penthouse which belongs to I guess all of us

um but I am very oh you know you know I mean that it sounds to me like there's a big facade of of of of effective of of his reasons to doing stuff so it's like I I think it's all I think it's I think it's been going on for years I think the story that everyone talks about with the the the Arbitrage trade in 2017 whenever someone who works in media whenever you hear a story over and over and over again that is on purpose that's not by accident why did you hear that story why have we heard that story so much it's because Sam wanted us to all think that they were a market making firm a market neutral neutral firm not a directional fund we all he wanted all of us to think that

Alameda was this like Market making firm they didn't take directional bets whereas really when that Ian Allison uh coinda story came out I mean their portfolio was like was like my friends d-gen retail portfolio like it wasn't a good portfolio I was shot let me ask you guys a question the one that I'm thinking about here is CZ because he I think has he was a big investor he had a huge bag of ftt and I think he he has access to you know perhaps anyone as connected as anyone in this industry and you know he laid the hammer at some point he had up to a valued of what 500 million of ftt tokens why did you wait until now because if this stuff had been going on for we'll know exactly when all this stuff could have started to happen

but as soon as you start getting into trouble I tend to think this is a whole this is the end of the the Luna kind of fiasco like everyone just got in a really bad mess plugging holes but this has been going on for when did Luna start like March April like you know six months ago why didn't you do it then and presumably if you knew about all this stuff and Alameda was like commingly stuff I gotta think that like it's kind of hard to like I think hide this if it had been going on for a long time like why why just wait until now why not do it a year ago two years ago I I don't think CZ actually know that FTX was commonly user fund and were

actually stealing from customers money to fund all these ridiculous purchases or crazy investment I think he just sensed that it doesn't seem right where ft alameda's balance sheet is so fragile and essentially what we understand is binance lab they rarely sell any investment which is why they write off the entire lunar investment because binance was just making so much money they don't really bother to exit most of the investment they might have done some but from what we heard and collaborated by multiple sources in the industry binance that is a fairly long-term investor generally speaking and CZ and binance is clearly not in need of money they probably didn't

bother and that kind of give them a little bit of Leverage against FTX and Sam if they sell it or then they lose that Leverage so but it yeah it just happened that their balance sheet is a lot more fragile than everyone have expected including CZ I don't think it's positive for CZ to kill a competitor I don't think he expected this level of fraud to happen as well and actually just to bring back to the previous point a little bit I think people might have forgotten but one of the fact that gave a lot of legitimacy to alamida was the fact that they have two accounts on the bitmax leaderboard p l leaderboard

so people can't think that they were actually good Traders and profitable Traders all right everyone time for a quick word from Circle and uscc as a crypto user you know the power of stable coins dollar digital currencies that transcend borders banking hours and Legacy Financial rails while circles usdc has quickly become one of the most trusted and widely used stable coins it's simple people use usdc because of its composability its stability and its Reserve transparency and uscc isn't just adopted by a few of us D5 djends and Dows and nft marketplaces crypto companies alike they all leverage usdc to diversify their treasury asset

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circles content on usdc it outlines everything from links to their weekly Reserve reports monthly attestations blog posts that are written by their exact team that highlight how and why usdc was built the way it is really recommend it just go to circle.com backslash transparency to access it now let's get back to the show well I would say that they were actually good Traders and profitable Traders actually for for a long time like I don't think you can argue against that it's just that there's only so large that you can build a success a market a market neutral firm and crypto can only get so big it can only scale as the size of crypto scales and they wanted to go bigger right so when you want to go bigger you have to leave behind the market neutral strategy and take these

long-only strategies which which actually Arthur leads me into the next thing I want to ask you about which is you've brought up these like low float High fdv uh strategies that they would deploy a lot and mention the Solana ecosystem a couple times can you just share kind of what they were doing with the Solana ecosystem and that'll lead into I want to get your take on just salon and where where things go but like you know that they had some pretty uh Shady practices going on with the Solana ecosystem and kind of bundling different protocol tokens selling them at discounts propping up things even Venture investing and then collab like basically killing protocols that they had even invested in can you just share some some of the things that they were doing in that ecosystem I think they well essentially the first big

organization they were building on Solana they build serum which is still the foundational liquidity platform of many D5 apps on Solana they were integrated with in fact which is why that right now that the community is trying to Fork serum right now because the admin key of serum apparently is helped by one FTX employee which we do not know who who is he or she and they also build bonfida oxygen and a couple of others obviously most of these are like have very low traction and usage but they were definitely the first group of Builders and they ship very quickly like and that time it's very

hard to build on Solana because a lot of the documentation is not clear it's not very developer friendly but they were able to overcome this and ships serum very quickly and I think that's kind of the major influence they had there and how they marketed these projects to the investor are are the nefarious one like the basically if you're getting earlier you get a lower price they just keep increasing the price every price every day and there was always like a very formal card Effect to get people to contribute money as quick as possible and obviously I think there was some leak on the telegram um actually I know the person directly he was working for Sam back then and a lot of the practice was questionable

what do you think the the longer term impact is here on the Solana ecosystem I think Solana is going through a very challenging period that in a way similar to The Challenge ethereum Community faced from 2018 to 2019 where the Ico bubble bursts and turned out that isn't much useful stuff that have been built except for fundraising tools and speculation and a lot of the failed projects same is going to happen to the Solana ecosystem and the community and the ecosystem will need a long time to recover from this but that doesn't mean that what they were building their technical

architectural direction is wrong but the community and balance sheet the participants the trust will take some time or probably a long time to be repaired yeah you so you think Solana is a strong strong enough ecosystem at this point to weather the storm I think it's tough to say but uh if you want to ask me I think yes they should be able to survive this storm but will they be able to exit their previous all-time high in terms of user activity and market cap I can't say for sure what do you think about that Salon

ecosystem next couple years I agree with Arthur um I know a lot of the guys we've had them on the episode um I genuinely think that there are a lot of good builders in Solana and I think I I do I sympathize in part with the team because they've taken it to the chin over and over and over and I think uh it's just circumstances and um I think they're going through a tough time but they've built they seem to be very resilient and one of the things that I like about Salon is they're not afraid to me a lot of the other kind of competing

L ones I don't think Solana wants to be or is doing things to suggest that they just purely want to like be an eth killer and I think the biggest Testament of that is like the vision of like launching the phone so I think like I like that kind of thinking it's a bit more bold it's a bit more out there but yeah they've had a very difficult year um and and so you know they've I think come out and like have tried to document as much as possible they have a tweet an ongoing like like Port like website where they're trying to document and piece everything together um so we'll keep monitoring the situation but I do think it bounces back over time um and and they'll come out of it

stronger probably it will take time to rebuild trust but to be fair like uh I guess the just to talk about the elephant in the room to me it feels like one of the more criticize things about all this stuff is um they're like the fact that they sold like what is it six to eight percent of all the tokens to to Sam to FTX or whatever you know it was a tough I don't like particularly I don't know all the details around that but I'm curious to get your guys's thoughts on that like that that to me is like they they've done other transactions protocols have done these type of OTC deals I'm not like as con like I'm not overly critical about that

it's it's a huge percentage of the token Supply but I'm not like I don't think that will kill them if you know what I mean yeah uh I think that will create a lot of selling pressure over the next 12 months because we do not know what will the bankruptcy estate do with the Solana token on alamida's balance sheet they might sell it via options or just sell it via OTC desk I think that's the near-term challenges I think in hindsight you probably should not sell such a high percentage to one entity but you cannot ignore the fact that FTX and Alameda were one of the biggest supporter of Solana back then and they

are the they are the first exchange to integrate Solana chain to list all the SPL token and were essentially building on top of um Solana so I would say a lot of the early stage success of Solana can be attributed to how much resources FTX devoted to supporting them so yeah by the way Santi I think that Anatolia we have Anatolian Ben coming on on the show in two weeks so we will we'll dig more into it then uh Arthur I wanted to Pivot and talk a little bit about uh liquid the liquidation process if you're comfortable talking about that um can you can you I know you probably either don't want to or can't talk about Sue and Kyle too much here but can you just for folks who don't

know your background can you give a little bit of the background and how you got impacted a couple months ago by things and just to kind of set up the conversation for the liquidation process again I don't know how much you're able to talk about things but yeah we I mean in our public statement we did mention that we were materially impacted and it is an ongoing process to sort out the situation and yeah I can't comment much on the detail because it's uh it's a league there's a legal perceiving ongoing um but we were we are still communicating actively with the with the Liquidator to sort out the situation so it was unfortunate that we did not set up our Fund in the best way at the beginning

definitely one of the most expensive lesson ever and I hope I do not need to pay for the same lesson again right now we are moving forward trying to resolve these situations um but yeah can you share that can you share the learning there so that other people don't make the same expensive mistake or what what was the mistake there I think this is not like a very new learning it's just like when things goes well nobody really refer to what is written in the legal contract and a lot of people think they don't need to consult lawyers on many important advice I mean look at what Sam tweeted right that was clearly would not be advised by lawyers

um but turned out that when he when hits the fence um people will go back to refer to contract on a word by word basis so yeah it's just very important to get legal advice on important manner that have big ramifications yeah and Trust um don't I would say people say don't trust but verify but I would say you trust but you verify so I guess that's kind of the challenge here and people do change over time and sometimes for the worse and yeah it's just something that you know you need you need to be mindful of you know people might not be the same person that if you have known them in the beginning

how do you think that these liquidation uh processes play out here with with FTX and and what are you kind of when you look at what's happening like what are you looking at like you're looking at what Liquidator or um yeah I think this is likely going to be the most complex liquidation or bankruptcy ever in the history due to the large number of creditors that was spread across different jurisdictions I think FTS have more than one million creditor and I believe they operate or have customers for more than 50 countries so this is going to be very complex and right now it's not in liquidation yet it's actually in chapter 11. there is a

slim chance that the business can restructure pay off struck a deal with the Creditor and continue to operate although if I will not Bank on it and I show you I think the brand is so tarnished that it's not possible anymore but yeah it's gonna be so complex like just to give you an example just for three arrows um the counter parties are probably in the hundreds um low hundreds and they gotten recognition in being on U.S court and Singapore Court but imagine when it comes to FTX how much chord recognition they need to get around the world because how how wide the user base is and it's also I'm not a lawyer but it's

also questionable that why is FTX following for chapter 11 including the international because when you read the terms and conditions FTX trading which is the one we interact with is the Antigua entity and FTX digital Market is headquartered in Bahamas so by administering this in U.S yours basically skipping the jurisdiction of Bahamas and Antigua I know they are small countries but BVI and Cayman is a small countries as well they still administer some liquidation case as well so yeah this is going to be so complex they will need to get I would say at least five to ten major countries or jurisdictions called to acknowledge this

liquidation before they can enforce a lot of the things they want or subpoena a lot of the counter parties they are not based inside U.S even this alone I think will take 6 to 12 months yeah and yeah it's just going to be so complicated yeah I wanna pivot to uh Arthur can you talk about the what you're working on next or can I don't know if you can talk about no I I can talk about it yes okay okay so you're so you're raising a fund no yeah yes um I'm curious I've got a couple questions just on like your crypto thesis moving forward one is um what is the impact that this does on token deals right because token deals

kind of died after the last bowl after the 2017 bull market or like okay icos are dead no more token deals we don't need tokens and then this recent Market tokens were were back and it was like oh tokens make sense if they're the structure the right way and you know if if they're attached to a D5 protocol that does really well um but again now we're in the in a year into the bear market and people are like tokens don't make sense uh you need to invest in the equity of the company so I'm just curious how you think about doing token deals moving forward I think right now it almost become a universal standard to bundle a token deal together with Equity I think there's a few reasons behind it is mainly due to U.S regulation uh staff contract went out of fashion so most of

the Venture deals are done in a way that you invest in the equity and you get a token warrant so if the project decided to launch a token in future you will also get a token on a Paratha basis and I think this also gives the investor more protection when it comes to governance because when you own Equity you can actually you actually have a voting right and you can also be elected to sit on the board um yeah obviously it's very interesting that FTX doesn't have a board of directors but okay let's move forward yeah I mean hopefully the impact of this is that people end up doing more due diligence on companies and put in place boards yeah yeah so I think it's not for the I think that yes pure token deal will go out of fashion unless the

project and team are built up since the beginning in a very decentralized manner yeah I believe majority of the deals going forward will continue to be a equity plus token warrant deal yeah do you so I know Santi plays very heavily in the private markets but at this point the public markets are just getting so attractive I would say in crypto what percentage of the fund will be public first private and on Sunday I'd throw the same question to you like how are you thinking about public where's private Arthur I'll throw two first but like how are you thinking about just doing uh investing in the private markets versus the public markets in crypto um our new fund will be 100 focused on the liquid side of the market we call it a liquid Venture fund doesn't mean that

we are going to be trading it on a very frequent basis but I think that there's just so much opportunity in the space in the liquid side that is worth to devote 100 focus and attention on the liquid side and I think from a risk management point of view a liquid fund can better manage the market risk uh better than the Venture fund look at okay again sorry to keep using FTX as an example but invest at 200 million whole thing unraveled in one week there's just no way you can manage the risk I think people are fine because you sign up for adventure due but I think that if you are given a similar risk return profile and you can actually also manage the risk I would think this offer a superior

risk adjusted return like I also get a venture return profile like probably like a 5x or 10x in three five years but if the fundamentals do change or the macro condition change I can I'm able to change my mind and also I do not need to compete in a very crowded primary Market because the fact is for some very high profile and highly contested deal most investors unless you are the top like the top five funds you will not be able to get your desired allocation but when we in the liquid Market we can determine on the exact amount of position we want subject to liquidity constraint yeah well it's interesting I was looking at ftt it's trading at like

600 million fully diluted valuations still so markets are definitely not rational um but what that is telling you is it's sort of trading at you know roughly two percent 1.8 1.88 of the last round 32 billion right um Arthur I guess your point is had you held ftt versus FTX equity like this discussion like intellect like this exercise has all come up again and again like would you rather own and I've done it a number of times in the past like would I have rather owned ftt or FTX equity well I guess what you're saying which I agree with is in this case it would have been better

to have ftt because you would have pocketed some sense on the dollar and could have managed risk much better if you're actively trading now most VCS are not active Traders right but still as a crypto Venture investor I've learned the hard way and over time that you need to have a strategy and become Smarter on risk management and managing a position when it's liquid because you have a number and it grows I remember investing in D5 early on you need to manage risk that you can't you you can't be a crypto manager and say I'm not going to look at this stuff it's like no wait a minute if a position grows beyond 20 of your book you have a re almost I was gonna I'm gonna you have kind of a

responsibility to manage risk uh and and so um yeah I don't know like I don't have any interest in in raising a fund um but I'm doing other stuff but that um two things if I were thinking about raising a fund right now I would probably raise like uh what cz's doing like a a distress fund picking up Pennies on the dollar a lot of people are gonna have to force sell we haven't talked about contagion let's talk about if the bankruptcy process lasts six years I mean look at mancox let's just assume six years and your typical duration of your capital is a year maybe three well

there's gonna be that mismatch allows for opportunities to buy folks out um so there's probably going to be a huge amount of opportunities to do this type of strategy I think distressed deals um but uh the other thing is I if I if I were not doing that I I'd tend to agree with Arthur I think the opportunity there's a lot of opportunities in doing the work and the public side of things um and it has been very easy like the last cycle I think it just started to feel over the top where there was just a huge amount of capital on the private side these deals are being chased up and propped up like you to your point Arthur it deals were going from 20 million like fully diluted valuation to 100 to a

billion you were like how is this happening meanwhile you have projects like trading out like below their seed round valuation with a lot of traction and visible on chain and so I find the public markets uh pretty compelling um now do I think that you're getting paid enough right now for the level of risk that you're taking probably not like I don't generally think that like D5 yields are very low at some point it would be really interesting to bid um but I don't know I don't yeah I don't feel that we're there yet I think or anything yeah are you a buyer at these at these prices you agree with Santi that we're not there yet or you're a

buyer at these prices I think it's very Project Specific depends on what sector and what project you are looking at um I don't like to generalize I think something for some asset I would be a buyer but for some uh I'm definitely not buying here yet like if I the majors seem to me like fairly like app ease is a very clean bet none of this is financial like you know just but like absent that like I don't know what I'm worried about is time and time again we felt that like we've resolved and figured out okay we kind of like are starting to get a feeling of contagion and and then another Big Blob happens and I just don't know how long and I

don't have good visibility into the second third order effects of all this stuff will be and so yeah but you know again if you're a long-term holder if you have a long-term Horizon I think you start seeing good opportunities and windows regardless right Arthur you said something which I think is very true um when you were talking about if you use FTX and and you said you moved a lot of stuff off chain because it's just it's a very difficult Market and I think it will continue to be really difficult uh even though you know we kind of saw a decent CPI print yeah Arthur I know it's late out in Singapore right now anything else that you that we've missed that we haven't talked about that you think is really important or just any any less words that you want to share here

yeah I I think this is probably one of the biggest takeaway um due to the nature of the industry we just keep giving more opportunity for the bad actor they are willing to take shortcut to rise to the top a lot quicker than the people they are trying to do it the right way and trying to do the right stuff I think the ratio of good to bad people I mean obviously there's simplistic simplistic way of looking at things are probably not that different compared to other like traditional Finance industry it's just that in our industry it's a lot

easier for the guys that are being to take shortcuts to rise to the top and I think collectively we probably need to figure out what are there any effective way we can mitigate this um to you know so that there are some effective check and balances in place so that the Bad actors do get stopped earlier on are or actually are not possible for them to commit such huge level of fraud um yeah like with FTS going down um binance is going to be the largest player in the market like I said in the past uh just now I think CZ um he's playing a long game he's not going to do anything stupid but that's not kind of reassurance we want

right like are there other effective chat imbalances and when you look at you know the two guys trying to make a comeback capitalizing on these opportunities and they're still getting a lot of tensions yeah apparently this space have a very short memories and I'm not sure what how beside a very strict regulation that will almost definitely kill a lot of the Innovation and how this space can operate in future I I don't have a good answer how we can solve this issue yet like how do we stop the bad actor from getting too big when you figure that out let me know because it's not just crypto by the way right Bernie Madoff

I like there this happens in traditional Capital markets too so yeah anyways Arthur this has been an amazing conversation I appreciate you coming on man I appreciate you recording this late at night out in Singapore in such a crazy week um means a lot that you took an hour out of your day to do this yep no problem it's my pleasure to be here [Music]