The Problems with DeFi & Crypto | Lyn Alden

Transcript

let's say a typical Equity right you know how it performs over five years will largely depend on its fundamentals but how it performs quarter by quarter will largely depend on liquidity and sentiment all right everyone welcome back to another episode of zero X research we are recording this episode on February 20th we have a great interview coming for you uh with Lynn Alden she kind of gives us a little bit of background on the macro environment which uh for a lot of us DJs we don't really pay too much attention to outside of the basics so it's great to get like a more Deep dive into that world should give us reviews on bitcoin versus other l1s focused on Smart contracts and as well as her broader views of defy and I unfortunately wasn't able to make this conversation but Sam had a great Deep

dive with her so uh you know this is this is a great one but as usual before we get into that we are joined by Ren and Westy from the blockworks research team uh to kind of have a little round table discuss everything that's going on in crypto so I'll throw it to you Westie first who do you have on the hot seat of the cool Throne yeah absolutely uh I have open C on the hot seat this week which makes sense given blurs at airdrop last week so to give a little bit of a recap blur which is a pretty popular uh aggregator for nft trading uh launched their airdrop last week in their token and I'd say like it was a fairly successful airdrop overall I think eighty percent of wallets claimed within the first three hours of the airdrop

being live and it caused the highest burn we've seen of eth since last June and so overall it was a very very active airdrop participation and volume as actually since doubled since the 14th when that airdrop happened which is pretty surprising given you basically expect the volume to to drop off after an airdrop like that but it's likely from people basically trying to clean the next airdrop in our wash trading but at the same time I think open C is really feeling the heat from blur basically taking their market share of volume and they changed a couple of their parameters around as a result so their fees are now zero percent for a limited time and they're actually moving

towards optional Creator earnings the for projects that don't have on chain for enforcement and so yeah I think blur is really coming in to shake things up here um I think Sam was the one who had the thesis that blur is going to take Open Seas Market chair and I think we're seeing that already uh this early into 2023 and I just don't see these nft wars slowing down anytime soon I think certainly not before we see some sort of open seat token as they try and sort of gain that market share back yeah I was definitely surprised to see uh volume actually double in lieu of the airdrop because like you said normally it like halves or even goes down 90 as we saw with pseudo swap so that was definitely an interesting development uh I I do

think blur is in a really strong position I know Jim I think it is is working on their V2 and it looks really really cool and really similar like geared towards Traders like blur is which is exciting to see and aggregators have had less stickiness when it comes to users so I think they're going to be a pretty big competitor going forward and if I'm not mistaken I can't remember if it was uniswap or openc that acquired them but I feel like they should bring that brand together under the same Hood so that way there's there's more user awareness and less user fragmentation so I'll be interested to see if they they Rebrand going forward I think the easy answer on why that uh airdrop or why we see why we see like these increased volumes is how effective that airdrop was right like everybody was sharing

their uh their claiming on Twitter and they weren't small numbers pretty much everybody got at least a couple thousand dollars out of this it seems like if you were actively trading nfts and utilizing blur so it's it's you know this was like the one of those generational airdrops we haven't had one in a while where people just like actually printed on it again it's actually it's like a cool uh revivalist moment for for some of defy and religious crypto as a whole yeah I think the largest person got roughly 2.7 million dollars for fair tokens which is a pretty sweet deal um there's definitely a lot of lost trading or sort of like incentivized volume so to say going on given birth season 2 is in progress uh there was a will yesterday that was basically sweeping up floors and then what they

did is basically they instantly raise it for price by say 10 to 30 percent and for burst season 2 there's two ways you can earn points right one one is bit points and one is listing points the closer your bid is what the four fights is probably the more points you get and so basically what a whale does is sweep the floor a bit of the price by 10 to 30 and then everyone else moves up their bids and then they sell into those business and basically wreck off them so it'll be interesting to see more of these strategies play out at season two two continues yeah you gotta think that they're gonna flag that activity and exclude that wallet now that it's been so widely circulated so I I doubt many people will keep trying this strategy but nonetheless I was pretty uh pretty

witty by that guy let's keep the ball rolling on the hot seat ran who you got this week yeah this week I got China coins so like most people I woke up this morning and half of my timeline literally turned into Chinese or Mandarin um so that's been the narrative that's been going on for I want to say one or two weeks ever since it got announced that Hong Kong would be starting that ETF and basically everyone thinks that that's going to open the door to Chinese Asia Hong Kong whatever like money do you think there is in the Asia region but I think so far it's been a lot of the western people thinking what coins Chinese people like and the Chinese people are thinking that these are the coins that the Western people like so there's like a bit of a stupid cycle

here and like crypto most of the time not a lot makes sense so a few coins that are being bit pretty heavily one is falcoin because most of the filecoin miners just in China the second one is conflux so the partnering with this app called it's like China Instagram it's like a cancer social app that like every gen Z is like Bluetooth on their phone but it has a lot of users um and so that's a big partnership that they have uh that they have they're also partnering with China Telecom one of the largest mobile carriers in the world and then there's also one more token called Phoenix chain they have a lot of Partners especially in the payment space such as Union page China Telecom and WeChat and if you're not familiar with WeChat WeChat is the super app in the

world they have 1.2 billion users and basically you can do everything in life life interact with the government pay for our utilities pay rent or the food or the taxi go to the cinema buy a ticket all in one app and another sort of say the separate Point into the Phoenix chain is that Phoenix has historically been a very sort of like overpowered creature in the Chinese culture and so maybe people will beat that up but actually even though the Western world is very bullish about all of these China coins I've been hanging out in a few WeChat groups and a lot of people in Asia don't think the impact is going to be that big but kind of like an overtime token the sort of the idea of Asia bidding I mean be a lot more impactful than it actually

happening and so as long as that narrative is there or at least that thought is there it'll continue happening yeah I saw a funny Takeaway on Twitter from this was like well you know if the US is coming for a stable coin regulations that on things that are pegged to the dollar like and now Hong Kong's kind of opening the gates to uh maybe allowing some of this crypto activity to occur within its borders then all right fine let's not Peg things to one dollar let's Peg things to seven Hong Kong dollars which is equivalent to the price of one dollar I was like okay I mean that probably won't happen uh it's pretty unlikely I think just given the the US Dollars uh place within the global economy but uh pretty exciting just to see a change of pace from a regulator saying all right let's like

open our doors uh maybe let some of this activity happen and so if we do see that ETF listing for either Bitcoin or ethereum within Hong Kong that's pretty exciting you know I'd like to see that kind of keep flowing throughout the world right like uh Canada I think has those ETFs listed or at least some sort of tradable fund and you know I like to kind of see that being perpetuated throughout the world and you know hopefully just keep moving in the right direction even if that's pushing the ball uphill I saw a cool take too on Twitter over the weekend I can't remember who it was but they basically said I think the the next Bull Run is going to be led by the Eastern markets and it's going to be a painful reminder that crypto really is the most Global asset and it doesn't really necessarily

matter what's going on in the US like it's just as relevant what's going on in China and I also you know this is actually timely considering uh Lynn is on in this episode and she talks a lot of macro so I'll put my macro hat on but I guess the pboc has been injecting quite a bit of liquidity into markets over there because they don't have as much of a battle with inflation as we do so that's definitely something to keep an eye on going forward if you ask me yeah I think it's funny seeing all these like what is the the left curve narrative for the month like it was AI then it was ZK and now it's China coins it's it's pretty funny to see it jump from one to the next but should definitely to send it to the sand to talk about us cool yeah one comment on

that it's like it's like the the left curve Narrative of the week now it's not even month like these things are moving really really quick and it is cracking me up how forced some of the narratives are so be careful aping into every single narrative you see on CT but but yeah my uh my cool throne for today is actually something I'm super excited about I'm sure these guys are almost tired of hearing me talk about it I blow up the slack Channel this morning uh our company slack Channel but uh Noster I I find it super super fascinating basically you go to the App Store there's different um apps that are available for the nose to like kind of backend Tech that you can download I think it's called damus damus I'm probably butchering that but on the the iOS store so I downloaded

that and basically you create an account you get a public key and a private key on the Bitcoin Network and you can send uh micro transactions over the lightning network using Bitcoin um so this is like super super cool but the first thing I noticed when you log in is the timeline is like completely unreadable so you basically you can connect to like multiple relays and there's different quality of relays depending upon who you connect to so some people are spinning up uh paid relays where you send like a thousand SATs and then you get to use this relay and then basically they store all of your you know comments all your posts uh all your reposts maybe you make a a bio change so it's just kind of like a

permissionless system where you can spin up a relay as a weekend hobbyist receive SATs up front as payment in order to you know actually store all these transactions and keep the network going uh the main problem I see with it is the the growth of the data that you're storing is going to grow way faster than the the addressable Market of people who are actually willing to send you a thousand SATs and I was kind of like oh this is really interesting like if I would do this right now spin up a relay and I have the state of all these profiles then they're going to want to keep using me because I have their whole history so there's kind of a way to generate a moat in my opinion but it's going to get really expensive really fast fast and for example if you charge

people a thousand SATs if you got a thousand people to send that to you which would probably be really hard that's only 250 dollars so like obviously this monetization method is is not going to work um so I'm interested to see how it pans out over the the longer term and some people are probably thinking well what about lens lens if you've ever used it you know there's a lot of actual transactions nostra's like super fully off chain the only thing that you really do with Bitcoin is identify your profile and then you can send you know SATs to and from different people using lightning so I'm interested to see how it pans out I think another thing that people could do to monetize the relays is connect your lightning Network channel to it so that way you're actually you know transferring these

different uh SATs values to get extra income and you know if you scale that to like a hundred thousand different people transacting micro transactions every day it could end up being substantial Revenue but not exactly sure so I'm not sure if you guys have any comments on Noster but I myself am pretty excited about it yeah so Nostra is its own like decentralized protocol it's not a blockchain and it's not like you said built on bitcoin it's sort of its own separate thing and you can sort of Link accounts if you wanted to the two biggest problems which you brought up like in my head are like you said State growth or just history like who is keeping track of the history who's financially incentivized um and then also just a general Financial incentivization for like the relays like who's going to actually

build these things that people want to be on and then at the same time if you have a relay that a lot of people want to post to well then you have a lot of history to hold on to and it becomes a problem there um so yeah I mean you you compared it to lens but my biggest question is why can't this exist on the current smart contract platform because one you solve sort of like the state problem there's a lot of nodes that already are holding uh the history and state of the chain and our financial incentive us to do so and then you also like like I said you have that Financial incentivization through a token where there's actually nodes running it and are doing so profitably and so yeah I don't know if you have an answer to that question but that's sort

of like what comes to my head yeah I guess I just rebuttal that with lenses on polygon there's like what 100 white listed validators so it's really not permissionless like I think the whole point of I guess like a decentralized social media should be that anyone can plug into any relay and anyone can spin up a relay because like if I'm running a really good Relay For example like I get to pick what your profile sees like what your timeline is so this would be a great way to get rid of like Bots that you see on Twitter for example like I really wish someone would just completely clone like people's Twitter feeds and only like let people reply and see the replies of people you're following for example um I think that would be super

interesting but yeah I just don't to your first point like on the incentivizing relays I have zero answer there and I don't know how it's not gonna lose its momentum like they've already got 600 000 profiles on there and every single action you do is something that these relays have to store I mean on top of that like who's going to run their own private relay like no one runs their own email server no one's going to run like a Nostra relay unless they're like really involved in the stuff and so in theory yes like anyone can sit of a relay but I just don't see that happening then another problem is sort of like a Spam issue because none of like the posts like you have to actually pay for it in any way and so I know they have a lot of

spam problems already and so that that's just like another issue that I think could be solved like through blockchain maybe this is a hot take but what if block changes aren't developed to the point that they can facilitate decentralized social media today right like if you think about l2s today I feel like we talk about this a decent amount on the show but um like they're not decentralized and they're not fully complete and fully baked out like these things are still have so much development to go as well as ethereum the base layer itself so like you know we're still building on this infant uh technology and maybe like the state like the state of the technology just isn't great enough to build such a demanding uh platform on top of it I don't I don't know if you

guys would agree or disagree there but I feel like like social media just has so much content and how can we like actually process this on an L2 today just kind of like I just don't think we're there yet I think an even more hot take is even if the state of the technology is built out and we can support that scalability and that transaction to put social networks won't exist on decentralized networks right the way I think about it is that even if we get like a decentralized social network with an equivalent user experience as to a social network built up by a big tech company right there's not a lot of reason for a vast majority of people to move over maybe like 0.1 percent of social media users get screwed out of

like Facebook or their Instagram accounts but for the vast 99.9 majority it works fine and I think the reasons why social networks take off Addies to try and ICD stays in consumer social networks is that they have like some really cool feature that kids like a lot you know like Tick Tock came out and a lot of like young people like the reals and then be real came out because you can take like a photo with like both sides of the camera at the same time and then there was that I've used everywhere in high schools that allowed people to like complement each other like unless you get like some like viralness or like some like feature or mechanism that's like really cool or like gimmicky and that seems entertaining to like social media users so mostly younger people I don't think it will ever take off yeah

that's definitely a fair take but my one rebuttal would be incentives like if you're a Creator and you're putting your heart and soul into this content and you can actually monetize it through nostril by getting Bitcoin lightning payments like of course I'm gonna use that and then same goes for lens if I can refer someone to create a profile and get a kickback then yes of course I'm going to use that because I'm financially incentivized to do so but I agree I think we're a ways away but noster's like the first thing I've seen that's like super super exciting that's come like without a token like it's just really like Grassroots cyberpunk like cyberpunk like just like very like uh cool and Ethos yeah definitely agree there we can flip over the uh the cool Thrones now though uh Blue Chip D5 is

sitting in my number one seat today uh we got curve Finance uh you know this team's definitely laughing already because I I do love curve I think it's great deck and it's got sits in a very interesting point in the market uh with the launch of curve USD it's stable protocol specific stablecoin it really feels days not months away um you know a vote just passed I think it was prop 283 that enacted uh a new uh proxy contract that enables external price oracles to control the price of the Assets in the pool and why that's important is because if you think about uh the curb USD model it is going to have the stable coin paired alongside with a collateral type so ethereum and

as the price of ethereum changes uh you'll will be like your balance between the stable coin and the collateral will shift and so obviously to make this work you need to have an external price source to say hey this is the price of ethereum so we just got that last piece of critical infrastructure passed and enacted into the protocol so we have no more proposals to go through the dial before curved USD can launch it can simply be deployed and then from that point the only changes the Dow would make is like things like parameter changes or incentive changes and so we are we're feeling very very close here and so this is super exciting because they really pioneered a new liquidation model that we haven't seen before and really that boils down to you know if you're going to get if you hit the point

of liquidation instead of of losing your collateral your balance between the stable coin and the collateral shifts so as the price of ethereum Rises you actually shift more heavily into that so like you're buying strong assets and selling weak assets essentially so it's a pretty exciting development that we just really haven't seen deployed before uh and so again this feels like we're really we're like pushing inching and inching closer to the release of this and on top of that obviously with a vote escrow model you are very very dependent on the amount of vote escrow locks that you get right because it's a very highly inflationary model and so the lock vote locking serves to offset the inflation we just saw you're in finance come pretty big with about 2.8 million CRV

tokens locked for four years and that likely tells you that they're spinning up more products related to curve um you know I think we're going to see more and more like staked types of products come through the next few months so my I'm personally like okay now if we see urine going for big curve locks what do they need these liquidity incentives for us likely a new project I think DJ and Spartan was really the first one to kind of kick off the narrative like hey the next Bull Run is going to be packed with repackaging the staked eat yield so definitely keeping my eyes out on urine for that one and even if we look at the volume on curve over the past seven or so days we really upticked to uh closer to UNI swap levels of course still miles away uh just given

the Titan that uni swap truly is in the market and so right now usually hovers around 15 or so of uni swap volume and it kind of uptick towards that 20 Mark and so the immediate question there is okay well what changed and recently launched a rocket pool East pool um and so it does about half the volume of bouncers our youth pool but only has about 12 percent of the tvl so seeing some of these uh pretty interesting developments happen on curve and again I think the the release of the stable coin will really shift the landscape it's completely revolutionary something D5 hasn't seen um and and really to just to kind of put a bow on this like curves one of those base protocols that you see countless mode protocol is building on top of and that is like a really strong sign of a

powerful ecosystem so really excited to kind of see how the volume of curve changes over this next bull market the one caveat with the increase in volume is probably related to The increased stablecoin fund seen last week so I would take that with a grain of salt but yes I agree curve USD is super exciting it's just such low hanging fruit from them it's you can lend out a an asset that's equal to a dollar to your users and that's all interest revenue for your protocol so I am very excited about this I'm excited about ave's go it's going to be an interesting experiment in protocol specific stable coins hey stable coin flood is bullish for the number one stable coin processing Market um and and to your point about the

interest that gets generated off curve USD it's pretty exciting right if I have an asset listing for collateral that creates like a new amm or a new liquidity pool so let's say there's only two pools and it was an eth curve USD pool and like a rapid Point curve USD pool so because taking out a loan I pay interest to the pool these pools are inherently like Revenue generating at all times and because of that if they become deep enough uh we have the curve has the ability to like lower the trading fees on these pools and basically create a feeless transaction uh between you know the two collateral types so Ethan wrap Bitcoin and that's like this cool new primitive that we have never been able to consider because to a traditional Dex the only way to generate revenue is through creating

swap volume so now this kind of like builds out the stack of what's possible and is really exciting to have like Fearless swaps between two major assets yeah I feel like we've been waiting for curfewsd and go for nine months now as it was many months ago that I wrote uh a specific uh report on protocol specific Stables talking about how it's a huge opportunity for protocols to increase their TBR on revenue and so to finally see that in action like I'm definitely pumped for it and at the same time another thing you failed Dimension with curve is that they're implementing more gas optimizations when it comes to their trading I remember there was a Delphi report a few months ago that looked at prices between uniswap and curve and which one was better and they said they

curve more often than not quoted better prices than uniswap but they had higher gas fees when associated with their trading so I think there's going to be a lot of optimizations when it comes to gas to actually have their gas lower than unit swap trading and so if you have better price paired with that lower gas like that obviously will bring a lot of volume as well excellent flag there Westy yeah that's actually so they're revamping the uh try crypto pool and basically enabling a factory with it as well so now any token can be paired along eth as well as a stablecoin and so one of the interesting things about like the try crypto pool today is it uses tether instead of usdc and if you go

back and look at the volume leader in decentralized exchanges uni swap they are like some something like 60 or so percent of their volume is actually just the eth usdc pair so interestingly this new tri-cryptopool will actually be eth and usdc and then can be paired with any asset so this actually creates an interesting dynamic because now going between eth or usdc and any other new asset that gets paired with it becomes more efficient and so not only are is the contract itself actually cheaper to interact with but the assets that you're coming to it with are more readily available so I'm like super bullish on what curve is doing I think they're really positioning themselves well in

the market for the upcoming bull market and yeah just super excited about all the development that I have going on also if you just think about the average trade size on uniswap versus curve like it's like a whale probably doesn't care about the gas and more about the price quote but then for retail users it's the other way around so this could drive a lot of volume in the curve I just don't know about that front end it's it's not the best one I've ever seen even though they did just launch a kind of a revamp version of it I'm still not a huge fan myself but I'm curious do you guys think the the protocol specific narrative will affect maker down anyway or do you think they're far enough far enough along in the kind of the real world asset push that it's really not

very relevant I mean I think they definitely have that interesting first mover advantage in being that first decentralized stable coin that hit the market um you know even like when we pulled back in this in this last bear Market over the past 12 or so months we still saw like I think they're uh Supply outstanding bottomed at like three or four billion so like that is still quite large on the whole and then even they're still like like they're not they're not just like rolling over and saying you know we're only going for rwas we're kind of giving up on everything else like they're now launching that spark protocol which is a fork of Ave V3 and still trying to like keep pushing this forward so I think there's a ton of active development going on you know anyone who spent five minutes in those

uh in those governance forms knows that there's an army of people willing to back this thing so you know I think it's a more contentious playing field now but I I definitely still think they're the the dominant market leader that is sitting in a great spot yeah I agree with that I think Dai has a lot of network effects in lindiness like it's been around a few years whereas these protocol specific Stables sort of have to prove themselves whereas dye has already been proven and yet Dan brought up the spark as well like they're expanding their offering yes rwas are a specific focus of maker but they're definitely keeping their eye on other protocols and making sure that they have the best offering they can um so yeah I'd say like they're still pretty solid even in this uh Market of

more protocol specific Stables yeah just adding on obviously like having your own protocol specific stable is good in terms of integration and additional revenue or fees whatever you want to call it but I think personally at some point the market realizes that maybe we don't really need like such a big decentralized stable coin and maybe we're just okay with usdc and UCT I know probably a lot of people will disagree out there just because like everything must have like a decentralized version but I think the ending goal at least for me is that at least UCC and UCT is composable with everything right even if that means sure like some of that may be censored by Circle or blacklisted by tether but as long as that Advantage I

mean just the fact that uscc and UCT exists today means that a lot of individuals living in South America or Africa can have access to the US dollar rather than some super high in fading like domestic currency and that's a good enough step for me to be honest I don't think I have to see a world where like the stable coins the exists on chain are all completely decentralized yeah I'm with you there and and I think another interesting point just around like you know what is a successful stable coin uh and it's like what's the spot demand for it like do people actually just want to hold the token for its ability to stay pegged to one dollar and a good way to look at this is not only like users wallets transactions which pretty much

most users I think we can all attest to will stable into usdc um but is what about like what are the Dows doing so I just pulled up deep down and there are 158 Dows that hold usdc and 117 that whole die and there's about three times the value at about 650 million dollars of usdc held versus 200 or so a million die but it is interesting like there's 117 out there that are willing to say yes I'll hold this asset because I believe it's going to remain to be worth one dollar so it's like cool to see that there is like this much spot demand but at the end of the day totally agree with you Wren like I'm I'm always going to stable into usdc it's very easy to use everywhere and it has these in my mind the strongest

guarantees to remain redeemable for one dollar yeah that's an interesting flag actually um considering like bit Dao I'm pretty sure they hold like 250 300 million of usdc so that's probably even inflating those numbers more like on a per protocol basis it's probably more likely that they're holding die which is kind of cool honestly for the the sake of decentralization but I think that's a good place to call it uh over to Lynn Alden that cannot recommend enough for you guys to all check out blockworksresearch.com if you go over to the research Tab and toggle free research you're going to get access to some of the best free reports in the industry and if you want to subscribe to blockworks research you can do so using Xerox research 10 at checkout in order

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Rev Evolution will not be quarterly reported so definitely check those out and let's kick it over the interview all right everyone we are joined today by Lynn Alden founder of Lynn Alden investment strategies you can find her content at www.lin Alden that's alden.com uh it's great to bring you on Lynn I've been a long time fan so excited to chat today about uh crypto and a little bit of macro happy to be here most of our listeners are pretty kryptonative and we don't talk much macros so I thought it'd be great by just kind of getting your kind of forecast over the next six to 12 months what you're seeing what you're paying attention to to get us up to speed on that front yeah I think that the long short of it is that obviously there was massive fiscal stimulus in 2020 2021 huge burst of broad money around the

world uh with a lag that sort of translate into higher prices on aggregate because there was not a uptick in production of of goods and services but there was an uptick in purchasing power of basically at least at least currency units and so you had a lot of people going out and buying things and not necessarily A Lot available when you add things like War geopolitical risks Rising tensions between China the United States basically some of this globalization you know maybe not going away but just kind of you know not not growing the way it was maybe even pulling back to a certain degree there's generally more inflationary pressures and so 2022 was the year of central banks uh trying to fight back trying to rein in credit uh creation trying to get the air out of excess

asset prices basically increasing the cost of capital so that most valuations compress a lot of value a lot of malinvestment gets kind of pushed out of the system and right now we're kind of at an inflection point here in 2023 because fiscal policy is still very accommodating there's still very large deficits kind of flowing into the economy but central banks are still being kind of aggressive and I think you know one of the risks of a policy mistake is that normally higher interest rates are a way to reduce uh money creation from Bank lending right so we think of the 1970s inflation that was because there was a demographics boom and Banks were lending they were creating more and more fractional Reserve money and so tighter monetary

conditions were a way to try to rein that in whereas when for example we look back at the 1940s inflation fewer people are familiar with that time frame you add inflation that was just as high as the 70s uh but that was not due to bank lending that was due to fiscal spending obviously on the war but then that that you know that war spending would go back into the economy and so you had a big up increase in the amount of money in the system and you got much higher overall inflation even though Banks weren't lending and basically we have kind of a 1940 style inflation uh so far this decade but central banks are kind of treating it as though it's like a 1970s inflation and I think this is bound to cause problems in the years ahead I think if I were to say it overall I

think right now we're in a disinflationary period uh within what is at risk of being a longer term inflationary decade on average I think we could get more ways of inflation before this decade is done okay great that's super helpful and now on my timeline at least because you know I follow a lot of crypto people people are typically more concerned with the near term and I see people kind of looking at a liquidity index where they take the Fed the balance sheet and subtract the the reverse repo and the TGA so there's also a conversation going on with with the debt ceiling and how you know the TGA drawing down that or the treasury drawing down the TGA account could increase liquidity in the near term do you pay much mind to that or do you think that's kind of like a an oversighted metric I think that's really

important for um quarter by quarter uh basis uh liquidity is not the only measure that affects asset prices but certainly in the near term you know let's say a typical Equity right you know how it performs over five years will largely depend on its fundamentals but how it performs quarter by quarter will largely depend on liquidity and sentiment um and you know the same is true for for macro assets gold Bitcoin certainly other cryptos as well and so these things are going to bounce around in large part based on liquidity and that that that like a combined domestic liquidity indicator is a pretty good one and there's there's three main components and so we can kind of you know outline what's going to happen with all three of them right so the fed

balance sheet is anticipated to keep going down for now that's basically the fed's intention to keep reducing their balance sheet which is negative for liquidity right so that's kind of the background Direction then you have the treasury general account that's basically the the treasury's cash account with the FED uh and this one is inverse where when it draws down that's actually good for liquidity that's pushing money out into the system whereas when it increases it's bad for liquidity because basically it's sucking money out of the system and then just holding it there in this void that's not actually flowing into anything and the treasury targets to have around 500 billion dollars just sitting in its cash account but one of the things that happens during um debt ceiling uh impasses if it goes

all the way to the end is that one of the things they do when they can't issue more debt is they can draw down their cash account to keep paying their bills until they're able to issue more debt and so Ironically in the lead up to a debt ceiling that could be positive for liquidity because that all that cash is kind of going out into the economy and stop being refilled and so actually since you know basically quarter four that has kind of been happening it's been offsetting some of the fed's quantitative tightening uh so that's been pretty neutral and then the third component is reverse repoactivity which is more esoteric but essentially that's another big liquidity void that that's been built over the past couple years and that's been showing signs of flattening and rolling over and if that

does start going down that's generally positive for liquidity as well so the way I would describe it is that until you know assuming the debt ceiling goes down to the last hour right so assuming it goes into the summer assuming that the treasure is not able to issue net new debt we're probably going to see a TGA drawdown uh and that's going to offset some of what we're seeing in the fed's quantitative tightening so we have kind of a neutral liquidity uh situation overall most likely I do have concerns around the second half of the year because at that point if the TGA is drawn down and the FEDS still doing quantitative tightening if there is some sort of debt ceiling resolution which you'd have to have at some point um and then the treasury starts refilling its cash account that's

sucking liquidity out of the system while the FED is also still doing quantitative tightening that could be a double negative whammy for liquidity and so I wouldn't be surprised to see pain ahead but in order to get to that point we first have to see how long this debt ceiling impasse goes and how far that TGA cash account does draw down that's kind of the the flexible framework I'm working with this year but it's subject to all sorts of change uh on a you know kind of a month by month basis okay great that's also super helpful so last macro related question how are you interpreting Pal's comments as of late and what are you kind of expecting from the FED uh over the course of the year and I know that's really hard to predict but just curious your uh your take on it

so the FED has been decelerating their rate hikes uh but they're still doing quantitative tightening at their prior Pace uh and you know we have seen disinflation in a number of inflation measures some of them rolled over earlier than others but now there's a broad enough rolling over that Powell has has been basically a little bit more confident in his assertions around inflation heading down while still reiterating that they want to remain uh tight for longer this I think ties into some of the prior issues I said before where they're kind of you know he's he's actually cited the 1970s and Volker a number of times which is kind of concerning because it's more like 1940s inflation and he's not really studying that period it kind of I think shows you know somewhat of a a maybe a recency bias in that regard basically

around you know kind of the sources of money creation the FED also when they were talking about inflation being transitory or not being too concerned about inflation prior to this all happening you know I also think they were showing a misunderstanding of money creation which is kind of concerning from the biggest Central Bank in the world it's not exactly what you want to see um so my overall view is that you know he's he's getting a little bit less hawkish but he's still reiterating that they're going to stay tighter for longer and I think they're essentially going to try to stay somewhat tight until they break something right until you have kind of like um illiquity in the treasury market or you have outright recession I think they're probably going to stay somewhat tight now that that is kind of complicated because if you look

out long enough that can actually be inflationary if you have high interest rates on hot very high public debt levels and you keep running deficits anyway um that actually pours more and more money into the economy basically the the federal deficit is a surplus for the private sector which sounds good unless it's you know it's money creation it's just it's it's inflationary over the long Arc of time but it does spell kind of risks I think uh you know kind of for the rest of this year I do think that um the market is I think I'm not betting on a soft Landing let's put it like that I think either you're going to get kind of inflationary breakout or you're going to get a recession that temporarily quells inflation and that that seems to be the

way that most economic indicators are pointing to by either the end of this year or early next year okay great thanks for that now you wrote a great article uh it must have been two months ago now I can be sure to post it in the show notes but it basically kind of goes over your critiques with D5 and how maybe it's not the way people advertise it but before we jump into that I'm just curious because I'm sure your timeline is like pretty much exactly opposite as mine as yours is very macro heavy of mine super crypto heavy um and I'm just kind of curious what are people thinking after the the past year I mean just this past week um you know we've seen binance get their U.S banking uh kind of access cut off we've seen Kraken get in trouble with their their staking as a service and

then you've also got the the meltdowns of block five cell CS3 AC Terra Etc so people in your corner of the world how are they thinking about crypto right now well so yeah my challenge is I'm in multiple Corners uh due to the intersections that I operate in uh if I look in the traditional macro area uh most of them aren't really talking about crypto a lot of them are kind of doing the thing we're like oh that's it's dead right kind of like how 2018 2019 it just kind of not on their radar anymore uh it's dead uh you know same including Bitcoin for that matter basically they're just like yep the whole Space Bubble it's gone they view it kind of like uh arc Arc style uh stocks based on profitable growth stocks um obviously uh when I look at Bitcoin

uh spaces or when I look at crypto spaces which are increasingly kind of two two separate um spaces with some degree of overlap um basically the the Bitcoin people are generally in pretty good spirits um I mean I was at Pacific Bitcoin for example while FTX was happening and so the Bitcoin price was nuking the whole industry was nuking uh and people were like celebrating and laughing about it and just kind of um you know just kind of rolling with it um you know obviously there's there's a lot of development happening in the space uh you know people often talk about lack of Bitcoin development but of course that's that's mostly base layer Focus there's actually quite a bit of ecosystem development basically making Bitcoin

easier more accessible faster uh more expressive things like that on on various parts of the ecosystem as for crypto I mean this week was big I mean the past couple weeks there have been a number of people uh warning about increasing levels of banking system cutting off uh uh various crypto entities and then we've kind of seen the hammer come down on uh custodial crypto staking from the SEC uh basically kind of looking at that as like an investment contract uh that is you know subject to uh regulations um I I think this has been rather telegraphed since the um FTX debacle that really kind of lit a fire under Regulators gave them a lot more um uh you know kind of just coverage to go after certain things we've also seen

a shift in the the head of the Commodities Futures Trading commission he used to kind of talk about ethereum being a commodity like Bitcoin uh he'd walk those back uh back in November those statements back and kind of would say Okay bitcoin's a commodity we'll see about everything else we'll leave that to the SEC which kind of you know we kind of know Gary gensler's view on that whole thing where you know Bitcoin maybe a couple other proof of work coins are kind of um you know Commodities in his view while everything else is is at risk of being a labeled a security um so I do think we're kind of seeing a shift um away from some of these um you know kind of centralized custodians and I think it's going to disperse globally I think some of it's going to be muted for a while because it it

affects how much big Capital can go into it um and so I you know I think that's a it's a troubled area but they're you know I think there's going to be future bubbles future growth Cycles um uh in this whole Space again yeah absolutely and so you start out the article kind of discussing you know the problems with C5 so like the Celsius is the block buys of the world and kind of how it's different from D5 and you discuss gbtc there now a lot of people talk about gbtc and they're like oh my gosh like 50 discounts an app like that's a buy are you still viewing gbtc as an attractive option to gain exposure to bitcoin well that's one of those things where that's going to have potential Arbitrage but it's unknown the timeline's unknowable

and I mean it could take years and years and years to get that unlock and you're dealing with counterparty risks along the way I think for the vast majority of people the best thing uh if they want to have exposure is you just buy and close towards some Bitcoin um that that's I think the cleanest way to do it gbtc is really uh and some of the others are kind of an option for people that want exposure within a brokerage account and don't really have another option uh and that's kind of been The Shame of the SEC is that you know ironically by not allowing a spot Bitcoin ETF they've they've made it harder for you know just retail and institutional ambassadors to access uh the space within you know certain of those pools of capital right Roth IRA registered investment advisors all these

kind of pools Capital want some exposure and they have to kind of go into worse products than they otherwise would if there's a spot ETF we see that you know for example there's a successful spot uh ETF in Canada there's also similar types of products in in Europe Latin America it's kind of you know United States has been a pretty slow jurisdiction uh in this regard uh and so you know overall I don't think gbdc is very attractive but it does have Arbitrage opportunities if someone is willing to go deep in the weeds uh and kind of you know watch that process unfold um and we are the good news is we are starting to see more brokerages offer direct uh you know exposure so for example like interactive brokers through

paxos will allow more direct exposure for Bitcoin and and cryptos for people that want them rather than people having to go through these uh you know various vehicles that can fluctuate around you know premium or discount to nav which I think cleans up the price exposure a little bit so I do I do think it's going in the right direction um even though a lot of people are still kind of constrained about being able to buy the assets they want uh when they're stuck in a brokerage type of environment but you then go on an article to kind of discuss some of your qualms with D5 in general so you kind of call it a circular economy on Smart contract platforms to basically just trade different coins and earn yield in different coins that kind of thing and that there's no real value creation uh

when it you know in relation to like the real world so can you kind of elaborate on on your points that you made there and uh if anything's changed since you wrote the article yeah that that kind of continues the theme I've been writing about for a while now is that a lot of the speculation in a circular economy fueled um rather than kind of solving utility problems um if we back up for a second if we kind of Steel Man you know the case for this industry right I think it's the idea of uh well there's a lot of ideas but one of the big ones is asset tokenization which is the idea and and you know you can kind of summarize like this U.S stocks right they they trade for 19 of the time right so you know only a

handful of hours each day five days a week no holidays right so when you add that all together U.S stocks on on traditional open Exchange hours are trading 19 of the time uh they take generally days to settle the settlement times come down over time but it's still it's still pretty long uh and if you're say like a middle class person in Nigeria you know good luck accessing uh you know equities from around the world in the way that that people a lot of other countries can right so you could you could phrase this as why can't we own traditional Securities uh and trade them 100 of the time uh buy them almost anywhere and settle them within you know minutes or an hour rather than days right so that's that's kind of a a

problem set that does exist um and that is you know worthwhile to go into the challenge of course is it's you're now in intertwining technology and regulation right so that's all that's inevitably going to be slow and clunky uh but that is like a problem set that is worth looking into and of course there are plenty of good cryptographic problems to look into uh basically how you know various ways to compress and move around data uh is is you know obviously very useful I think where the industry runs into problems is a handful of areas one you have an overstatement of decentralization right so a lot of things what they do is they you know they sacrifice some degree of decentralization uh they make it harder to run a node so now you're reliant on

you know asking third-party nodes to let you access the network rather than being able to run your own node um they're you know they basically have less fault recovery right so if if a blockchain like Solana goes down instead of this kind of like natural ability to rebuild itself like where you get with say proof of work you have you know leaders in the space have to meet in a Discord to restart the chain uh basically you'd lack unforgeable costliness um and so you you do a lot of these things that they kind of still Market as though they're decentralized when they're increasingly centralized I think that's that's one of the one of the early errors and then another one is is a misalignment in terms of VC incentives with actually making a long-term product

and so if you look at traditional venture your capital you know you go into the space you do seed rounds you do whatever rounds you know your your fun focuses on and now you're locked into a pretty long-term relationship with this company uh you know there's only a handful of ways to get extra liquidity and they generally involve going through accredited investors and there's actually all sorts of problems with the whole creditor investor uh definition but the point is when you do traditional VC you're only really going to get out by selling your assets to other people that have you know experienced in examining these types of projects so either either um your company is going to go public right so it's going to be big and successful enough to go public and you get excellent liquidity that way

another option is that another company will want to buy that company right so basically a bunch of people with mbas Will examine what what's been built here and decide they want to pay money for this incorporated into their company um or if it goes on long enough and is is not bought out or public you know you can trade some private shares uh in what is typically a pretty uh you know accredited investor type environment and I do think that there's an argument to open and democratize some of that but in practice what ends up happening is that a lot of VCS in the crypto space will you know lock up capital in a project have much shorter lock up periods and then dump on retail and then years later you're like well whatever happened to

that project and it's like some stagnant thing we're on to the next thing now the VCS got rich uh some of the early people got rich and the you know retail got dumped on and that project didn't really do something in such a way that acquired long-term users and solve like a long-term problem and so there's that that separation between you know you can get rich without actually solving a problem and so I I think those are some of the kind of the key aspects of the industry that I think are one harmful and two you know that more people should be aware of before they decide to what extent they want to get into the space which is again a separate discussion from saying there are some problems out there worth

exploring and that there are you know there are smart developers that are looking into those problems and trying to work on those and trying to find efficient ways to to improve them yeah I honestly agree with your qualm there like there are a lot of projects that aren't necessarily uh the most advantageous for retail investors to get into due to the high Insider allocations and centralizations of their of their models but are there any projects that you can think of that you actually kind of admire that you've kind of played around with well so one is I mean I I've been bullish on the idea of stable coins um the way the way I would describe this whole situation is that you know something like Bitcoin is close to its as decentralized you can make it because

there's no issuer and you know it's a bare asset when you talk about the idea of asset tokenization what we're essentially trying to do or the industry's trying to do is open up the the user side the client side and turn it into bear assets and so for example if I have a bank account right I can't really trade around access my bank account I can it's called a wire transfer you know I'm going through this kind of clunky closed system if I want to move money around uh it's not a bare asset um whereas a stable coin basically takes a bank account uh and similar types of collateral like like t-bills uh you know assuming the collateral is reasonably high quality which you know is not always the case historically but you know you have you're very you have Bank like or or quality uh collateral

and then you make the the the claim the liability side a bear asset right so it's like making a bank account into a bare asset so you can send exposure around and what that does is though even though it's centralized I mean you're you're you're you still have a central issuer they're riding on banking rails that could get potentially rug pulled if like say that you know the US government would after them or something you have a centralized issue where but the the client side is bare asset and so that opens up things like for example if you're in Argentina you know you have ongoing inflation uh in your region uh there's been a history of if you somehow get dollars you know you can hold on the cash dollars again you're not getting interest on them or you could put them in the local banks

but that's subject to confiscation and risk that's happened to the past where you know multiple these countries will say we have a dollar shortage so we're going to go ahead and take your your dollars and we're going to give you pesos in exchange for them uh sorry uh you know try again next time and you're you're rug pulled and you know you're out so a lot of argentinians who say well I'd rather trust an external provider of dollars on my smartphone then you know local Argentinian Banks or physical cash right so basically what stable coins do is they they give more access to Dollars to people around the world that want them and then you could Broad and that's almost anything you can you can make a you know there are gold backstable coins there's all sorts of things and you can

imagine a future where many types of Securities are tokenized and you can just access them more freely anywhere they settle quicker they can be traded off hours there's there's less kind of geographical boundaries for how they can trade um you know I think that's an interesting exploration um but I think a lot of projects are just overly focused on kind of um senior age and kind of VC enrichment or you know kind of making use of the money they have and I'm I'm just I have pretty low conviction around the long term survivability of any specific platform even though you know I do think there probably would be an interesting technologies that emerge here okay yeah I think that's definitely a fair take uh

on on the same topic of stable coins how do you feel about usdc like do you think that has a lot of staying power because from my perspective it makes a lot of sense to give Circle a Fed account or whatever Master fed account and then you know it winds up being this this force that actually cements the US Dollar's dominance and then also creates new demand for U.S treasuries so what what is your thesis there so I think they should um basically you know from from there's both pros and cons because from their perspective it can suck Capital out of the banking system uh and make it harder to rehypothecate which they don't like um they actually want you know kind of rehab application uh but other hand

um what we're seeing globally is somewhat de-dollarization on the high level but not the dollarization among the public right so the public wants dollars generally um you know like I have family and friends in Egypt and you know they'll literally go out into a black market and get physical dollars I mean that you know um whereas you'll see a lot of central banks um you know they're not really buying Treasures anymore uh basically the the amount of Treasury is held by Foreign central banks has not really changed in like a five-year period um you see some of these uh big Powers kind of doing uh you know trade agreements and other currencies like for obvious reasons now Russia's selling energy to China

um you know in Yuan rather than in dollars and that's kind of this you know thing like that you also see uh some kind of um Sovereign level blockchain projects to try to have different types of settlement rails you have like say the bis working with Dubai and and Hong Kong in the Bank of Thailand and they're kind of doing these like blockchain projects to see how they can maybe settle settle value outside of the dollar Swift swift system um and so you know I I think that so that's happening on one level but one of the ways that the US can you know still have demand for its debt is to really kind of solidify the regulatory Clarity around stable coins um and and kind of if anything expand

them broadly so that they're more available to people around the world and that would probably extend um you know U.S kind of deficit financing for a number of years um uh and kind of you know help the dollar dominate now I actually think in the long run that actually probably wouldn't be great for the United States either because that kind of keeps fueling our bubble that makes us very uncompetitive in terms of producing anything basically the stronger the dollar is the harder it is to produce anything in the United States it's kind of this it's like this artificial bubble that's happening uh but from pause making perspective I think that's something that they would like to pursue and I think there's probably just different groups in the government and you kind of get bureaucracy and it's kind of like Frozen and stand still so stable coins have been shifting around

in this kind of regulatory Gray Zone for a while and I would like to see one it is better transparency for collateral and two just more and more regulatory Clarity uh including just just bigger Banks being able to issue them um and just you know kind of like less uncertainty uh maybe publicly traded companies just more and more involved in the space to kind of solidify that technology yeah definitely agree with you there like I think ethereum could ultimately be just a layer that transfers around stable coins and it'd still be massively successful and like have a lot of utility and I know that you wrote a little bit about the the synthetic stablecoin backed by Bitcoin I believe which is an interesting design similar to LUSD but we won't go too deep

into that um how curious um I guess are you about real world assets on chain so I'm sure you've seen maker Dow they're kind of uh bridging some assets to back dies collateral and I know that creates certain areas of centralization and censorship proneness uh but are you bullish on the idea of integrating real world assets on chain well so that is is another area where I I think it threatens decentralization right so for example just by having defy silver line on you know collateralized stable coins including ironically so many stable coins that were originally not fit collateralized that are now partially via collateralized it basically means that any time uh you know if if Regulators wanted to go after these types of platforms they could go

they could do so through the stablecoin markets uh basically have them even kind of demand a hard fork or freeze uh you know certain types of assets uh basically control that that space to some degree but the broader topic of just improving the tech rail so that you know basically claims on traditional assets can can trade in a more digitally native way on smartphones and and with less border restrictions I mean I think that that's a reasonable Outlook to look for um and you know I think how we get there is I think a long and Winding Road we'll see how far we get and I don't really have conviction on any specific platform one of the challenges too is that that's that's going to be a very feast sensitive space right so right now if you can train a brokerage account for

free now you're really paying for it because you're you're paying basically to get um front run by like Citadel uh but that's you know we're talking at least in small amounts we're talking pennies um and so basically the the overtime trading costs have done have come down significantly you know one example is when when I bought my first stock uh you know it was like you know a couple decades ago and I had to pay like 15 a trade to do it and even then that was that was already the cost had come down from pre-internet days where you had to call up your broker to to buy a stock right so we went from like calling your broker paying a lot of money to these online portals that you're still paying a pretty significant amount

to then he got down to like say five dollar trades and then you got to like free trades if you're willing to throw a couple pennies at Citadel to front run you um and that's kind of the the direction of that industry and so if you have tokenized trading I think the fees are gonna you know push down very very low and assets will migrate to wherever the fees are cheap so for example tether started on a layer on top of Bitcoin uh when ethereum came around uh and and presented kind of a little bit more optimized type environment for that you had a lot of stable coins to flow over there and then when that became kind of expensive you saw a lot of stable coins flow over to Tron and you almost have a bifurcation because there's two very different use cases stable coins so far

one is somewhat less interesting to me which is like the the the trading leveraging defy type of of stablecoin usage which is you know still primarily on on ethereum um that's where people will pay higher fees because you're generally talking about whales you know people moving around pretty significant amounts of money so they're willing to pay fees for it whereas when you actually have what I talked about before kind of that Emerging Market uh use case so people that actually just want dollars um a lot of that's happening on Tron because that's that's cheaper um and I do think that overall things that host stable coins for practical kind of non-speculative purposes will probably gravitate towards whatever's cheap whether it's higher layers whether it's other layer ones

we'll see um or just kind of like you know rails that are similar to blockchains but not necessarily blockchains um but I do think that the general direction is towards digital tokenization of dollars and other types of assets so would your thesis be that you know Bitcoin the slow moving uh technically not smart contractless platform uh kind of sees this activity migrate over and it's developed slowly over time or do you think you know ethereum actually plays a role in this future are you just kind of bearish on ethereum and smart contract focused Platforms in general so I'm skeptical about having them embedded on a layer one and I think there'll be a lot of competition right so uh you know what does the space look

like 10 years from now I don't really have a strong view which is why I I generally only invest in areas where I have a strong View and I don't really have a strong view um I think a lot of them are going to be dealing with technical debt um they have regulatory issues um they have competitions over fees that kind of thing um we can also talk about kind of total adjustable market so you know really there's hundreds of trillions of dollars of assets in the world one of the issues is that money is so bad everywhere it's like you have 180 different Fiat currencies um they're all kind of like these local monopolies so they they the whole point of money is to kind of not not have to barter um but on the global sense it's really

barter uh basically if if you're a supplier or a consumer in different countries and you have kind of different currency systems you're now bartering and you're probably using a third-party currency like the United States uh or the Euro or something and so in addition because interest rates have come down so much they're below inflation when you have super weak money you monetize other things right so people monetize Apple stock for example they monetize the S P 500 they say I'm just going to shovel money in my 401k into the S P 500 for the next 40 years and use that as my savings instead of money right so you monetize that you monetize real estate you monetize art right yeah not even talking about digital art but that's that too but also even

traditional art people say well I'd rather hold uh Van Gogh you know if I'm rich than hold cash uh if I'm gonna just it's just a long-term and definite scarce asset and so you basically having super weak money you monetize everything else and so the the potentially the total adjustable Market of Bitcoin is to come in and say look I mean if you want a scarce money that can move around as fast as Commerce does that's it now and so that I mean the potentially the total adjustable market for that is trillions or tens of trillions um and then you talk about what is the total adjustable Market of tech rails that improve the way we do things right so if you look at a major exchange like the NASDAQ you're looking at like a 30

billion dollar market capitalization company if you look at the New York Stock Exchange their parent company something like you know 60 billion other major exchanges you know generally you're talking tens of billions smaller changes around the world you're talking about you know single digit billions um there's also Tech providers you know you're going after I think a a different Market a different scale at that point and I do think there will be Tech improvements to these types of trading and settlement systems uh that include a more digitally native way of doing things and you know if someone wants to go deep in the weeds and people do and they want to figure out what they think is going to you know be in place five ten years years from now and you know maybe be like a 100 billion dollar

trillion dollar opportunity um I I think that's you know that's on them to look into but it's just not really the market I I tend to focus on I tend to focus on the market for money which which which for me generally includes Bitcoin stable coins and kind of adjacent types of Technologies like that but I do pay attention to the broad space because I want to see directions where things go and also pay attention to what could what existing things can be disrupted by new types of Technology yeah that that makes a lot of sense and it's also one of the reasons why I I read all of your stuff because you're one of the very few macro analysts who actually like takes the time to to play around with some of this stuff like on chain and I think that's like just you

know paying attention to it is is a very wise decision because you never know when things evolve um but back back to bitcoin since that's primarily your focus what do you think about bitcoin's longevity in terms of subsidizing uh the the declining block reward with transaction fees I know you've written pretty extensively about this but it's something I still like can't see happening uh in the near future so basically it comes down entirely to the adopt the question of adoption right so if you look at how Bitcoin Works in terms of transaction numbers uh you know in terms of transactions it can do somewhere around you know 10 million a month um and you can also batch those payments

so you can you can get you know tens of millions a month uh you know kind of at most on the base layer um and that's in a world of 8 billion people right and that's that's a world where not that many people currently do on chain transactions of any sort uh you know the overall Bitcoin and crypto Market combined is still somewhat Niche when you're talking about global markets um especially at scale when you talk about not operating in custodial environments so you know you see how many people are in in crypto quote unquote it's like well are you in crypto if you're just trading on binance you know maybe not really it's like how many people are actually using on chain stuff whether it's Bitcoin whether it's other other blockchains and the answer is not

that many um and so if someone is bullish around the future of this adoption and this technology if they think 10 20 years from now uh there will be a lot more than you know 10 million people that want to use Bitcoin per month you know on a like one transaction per month then you're going to get significant fee pressure you know we've already seen I mean just in recent weeks this whole like ordinals thing people you know people got enthused about putting pictures on it that's kind of filling up block space to some degree and that works as long as fees are super low but basically right now there's just not uh 10 million people that that are willing to pay fees to do an on-chain Bitcoin transaction but I think in 10 years 15 years especially when you have

almost no new Bitcoin being created um but you know what I will expect to be significantly more demand for Bitcoin I think there's a lot more uh overall fee pressure going to happen now if that doesn't happen that's an adoption problem right that that just shows that for some reason the technology was not interesting enough to people it didn't solve enough problems basically that they you know their their demand for money was either met elsewhere or they're just not really interested in in kind of having different monies and maybe they're still monetizing other things maybe they're not interested in censorship resistant payments whatever the case may be if adoption doesn't take off then yes you could in a number of decades get kind of a a fee problem but that wouldn't really be my base case

interesting because to me it's like people love the fact that one dollar equals one dollar like even if like you go over to Europe you're sitting there like having a hell of a time trying to figure out what one dollar equals in Euros so I I think it's kind of far-fetched honestly to think that in 10 to 15 years people will be like I want to spend SATs you know what I mean like like for for that psychology to play through and actually work out it seems a little bit unreasonable and that people will always denominate their their net worths in their Fiat currencies at least in First World countries you could definitely argue differently in third worlds but um I think that yeah I think they will for a long time but there's the two things to consider one even if you're not spending Bitcoin if merely like say

more than 10 million people globally uh per month want to do an on-chain Bitcoin transaction in order just to take Bitcoin off in exchange and put it into their own Cold Storage wallet right that's already now adding to fee pressure if you get to that point where the number of people that want to do that exceed amount of block space which is actually a pretty small number of people if we ever reach that point now you're at kind of a you know a permanent fee threshold for you know how much how much on-chain storage Bitcoin can do in a given period of Time Versus how many people want to do it and then number two what we see is a lot of these types of wallets you can send Bitcoin and it just tells you on the screen how much that is in dollars right the same thing can

happen is like if I if I go you know I go to Egypt every year and I use my Visa card and basically you know I'm just paying this thing and it's kind of going through those portals it's converting from dollars it's getting exchanged it's it's winding up in that person's account in Egyptian pounds right and I think we're going to kind of see the same thing we already are seeing the same thing in terms of of just you know Bitcoin and even to even other cryptocurrencies as well basically various types of Integrations or or different ways of displaying the information so I think that that's how I would caveat that in terms of ordinals you mentioned it I had to get your opinion because I I think this is actually kind of funny because maybe it was a year or two ago you were uh you

wrote an article that had one of The Ether rocks on there and I think ironically someone posted that onto Bitcoin and it actually sold for a lot of Bitcoin so what is your opinion on you know nfts on chain on bitcoin do you think that's good bad it's a lot of controversy on Twitter about it well it's funny in my in my first um article where I specifically talked about bitcoin's fee Market it was like two years ago and I mentioned that you know in the past there were these these kind of faddish periods where you know you'd use operator and to do arbitrary things you you'd link other blockchains the Bitcoin whatever the case may be and that kind of briefly subsided and I was like in the future something like that could easily come back there's there could be other uses for Block space uh

that that are unforeseen now but they come in the future and you know just out of nowhere this year everyone's now sticking jpegs into the Bitcoin uh blockchain and that's an example where you know people can if there's block space and you have this like super immutable Ledger um and it's super cheap to put something in there and you can people will uh people it's come with like everyone's kind of working together like build this monument and while the cement's like still wet people are kind of like you know you know putting their hand print in it or like doing graffiti on it and this this clearly a mix of things I mean on one hand I think that you know we've seen kind of waves of nft adoption and it goes away right so this is like the new thing to play with it's kind of you

know causing a lot of ruckus I think there's a chance we look back a couple years from now uh and it's less interesting um on the other hand there are some interesting applications for example dispersing information that is you know maybe censored in certain countries people have put for example uh you know tenement Square images on on Bitcoin now right so that anyone that wants to you know run a full Bitcoin node that's that's you know technically accessible to them now um and people even put things like um you know like uh how to build a ghost gun right which is like relevant in certain regimes uh we're living in authoritarian area and they kind of ban that type of thing and there's kind of local militias that want to arm themselves and obviously I'm not

advocating violence but you know basically there is ways now it's just like immutable information that's out there it's very very hard to ever change the fact that it's out there um and so I can see why that block space is interesting in that regard in addition a lot of nfts are not actually storing the image on chain they're just kind of it's almost like a receipt that points to you know an external uh distributed way of of holding the image and so for some nft enthusiasts having the actual image on chain makes it more interesting and more scarce uh uh from their perspective so I don't really have a strong view I think that you know if if we get to a point where there's just more people that want to use Bitcoin for monetary purposes which again can can really just include wanting to take some

into self-custody every month right that can eventually having a free pressure to push out some of these more frivolous use cases but if if there's still enough demand for it some people will maybe want to pay high fees for that so I don't really I kind of neutral on that whole thing um one of the um concerns I took somewhat seriously is people point out that you could put illegal imagery into the blockchain um you know kind of like illegal like the worst type of illegal imagery um and then say well now it's legal to run a node because every node is now hosting being the worst kind of legal imagery but my understanding is that's already on the Chain technically and that's really only attack Vector if

media and Regulators are smart enough to kind of like coordinate around that and then actually pass the legislation around that so I think that's one of those things where that's kind of like one of those adversarial thinking type of things uh but that is you know we'll see what happens so I I mostly have not been super interested in it but I have kind of you know I had to you know kind of focus on okay how exactly is this being done what are the pros and cons uh what's happening here so I for me it's mostly a non-issue I've actually been more focused on a little bit what's happening over at Noster basically like decentralized social media which I think is another example of something where you know the technology is interesting

uh and that's an example someone that's being used that does not have a token and so you don't see a lot of broad crypto kind of enthusiasm for it because it's hard to make money off of it but it's something that's actually working pretty well and solving interesting problems and instead there's kind of so much attention around ordinals or regulatory issues but I think there's actually some pretty interesting technology being developed elsewhere yeah do you think there's any legitimacy to the idea of you know maybe starting a decentralized social media app and then everyone on the application who you know who used it like let's say the first 20 000 users they get a majority of some token Supply if there isn't necess a necessity to have a token in order to decentralize the network like do you not

find Value in kind of that new model of you know tokenizing ownership and giving it to the people who actually use the platforms instead of just farming likes and retweets on Twitter so I think you can um and I think that can accelerate adoption for a period of time but I think partially what you get from that is artificial adoption right so so one of the jokes kind of in the space is that there's more like web3 investors than web3 users right and and that's that's what you risk getting if you incentivize um you know basically a product or service with a token um it you know I mean that that's that's that's been used in the past I mean basically anything airline miles to rewards cards to you know membership perks like you know if you have a

membership to something you save money on it you know there's different marketing things that can pull people in with financial incentives and giving them some ownership is one of them but it gets undermined if it turns out that the technology doesn't even need ownership right if you if you create unnecessary ownership for something um and then give it to them uh I think that's kind of a weak way of doing it you know example with Noster is you have this kind of decentralized protocol nobody owns it um but the way that it incorporates quote unquote ownership is that if you want to run a relay right so the way it works is that you know not every user has to run a server right but there has to be a lot of people running servers right so not everybody has to but you need a decent

number of them out there that's what keeps it decentralized and and you can then choose which they call them relays but you can choose which relays which servers you connect to um in terms of of you know publishing information accessing information on that they store the information some of them run for free other ones you pay and you pay with the lightning Network right so it's an example of a distributed social network that makes use of the fact that digital native money exists you know Bitcoin and lightning in this case and there there is a way to you know for some users power users to monetize from it you can also tip each other with SATs right over the lighting Network and so basically instead of farming likes you can if you want you can Farm SAS basically you can you can

you know do different things like that um and I think that's potentially a more sustainable model because you're not you know no one owns the protocol it's just an open source protocol individuals can you can own individual relays and operate them and so you're you're still having the monetary incentives without you know artificially creating it a governance structure that then is now owned by early users that are mostly just owning the token rather than rather than actually using the network yeah that makes a lot of sense um you've already been super generous with your time so I only have one more question but I guess I just can't wrap my head around why would someone ever want to buy a cup of coffee with Bitcoin why would anyone ever want to buy a

house with Bitcoin or put down a down payment in Bitcoin considering well maybe not down payment because you know your thesis is the the adjustable market for Bitcoin is just money which is absolutely huge and I agree with you but why you know central banks today purposely induce inflation uh in order to stimulate economic activity to some degree so why would anyone ever want to spend a Bitcoin if it's ultimately disinflationary and then um yeah if you could just elaborate on your thesis there well so I think in the near term they won't most people won't right so unless you need censorship resistance or you're in an environment where it's very expensive to operate uh basically a lot of uh frictions in terms of payments you won't the only people that I think will

long term if people who over time due to holding Bitcoin and due to appreciation of Bitcoin and they don't want to go back to holding a lot of Fiat you know they eventually have so much Bitcoin they want to spend their Bitcoin right so a lot of people that are spending Bitcoin now are people that have been holding it for five years right I think I think in the future the people that have kind of been holding it now for one two three years you know when they've been holding it for five six seven eight years and it's a much larger percentage of their net worth I think an increasing number of them will want to spend it in addition you have things like micro payments like I mean Noster is a good example right if you want to tip each other uh these little

kind of uh you know kind of tipping environments or you want to pay a Relay operator uh you know a dollar um you know it's hard to do that with something like credit cards it's also uh if you do a credit cards you're now losing anonymity right so it's useful for like suit Anonymous like online payments and things like that in addition when you're talking about Global Payments or Global remittances um you know there's there's these pretty high fees on a lot of different uh types of payments um and you're prone to censorship you're prone to you know just uh not being a lot basically all forms of of ways that block your transaction going through or various rent Seekers along the way and so I don't think you're going to see a

lot of Bitcoin paying activity until Bitcoin is much larger much more widely held and so I think it's a slow grind but one thing to keep in mind is that everybody who accepts Bitcoin strengthens the network because it increases the censorship resistance of Bitcoin like let's say there's a world where nobody actually accepted Bitcoin as payment and all you know is is only available on like say 10 exchanges worldwide and you could convert Fiat to bitcoin you could you could you know get your Bitcoin you could self-cust your Bitcoin and nobody accepted the Bitcoin for anything it wouldn't be a very censorship resistant uh Network because if governments wanted to stop it they would just go to those 10 exchanges and say okay you're shut down or you know you need to kyc everybody you know XYZ

whereas if you have more and more marginal adoption around the world uh basically you know different type you know ATMs different types of um small Merchants accepting Bitcoin ways to convert Bitcoin into um uh you know gift cards right and you can use these days you can use gift cards for any thing in a lot of developing countries you can convert Bitcoin to like mobile time so you're buying data with your Bitcoin there's a lot of portals like this and especially in an environment where again imagine like a developing World context where if worse if overall bad payment infrastructure inflationary currencies I think this is like a way

that you can LeapFrog the current system and go right to the next system I think a final point I'll make is that you know already um the more people in the world have smartphones than bank accounts so bank accounts had a multi-century head start and still you know in a given developing country there's a sizable percentage of the population and in some cases the majority of the population that does not have a bank account there's even things like there's like weird situations you can find yourselves in there's almost no way to get a bank account like let's say you're a refugee you leave a country you go to another country you don't have an ID with you for whatever reason and the bank's like well we can't open without an ID you're like well how do I get an idea it's like well how do you prove you know

where you came from what your birth is it's like well if you can just get on boarded you know with a private key and a smartphone right now you're now you're basically banked right and so and that also applies the reason a lot of people in developing countries are not banked because they have like say a hundred dollars and the bank says well that's not worth our time right but if the whole process is automated if you're if you're talking about like a mobile app right that's that's more workable so I think that in a first world you know developed Market context where we have dollars Euros Yen um and you know for us in many cases these assets are like portfolio Holdings or even cold storage Holdings that were plenty to just hold for a number of

years there's very little reason to spend Bitcoin except for maybe you know Niche circumstances like again paying Noster relays or or you know things like that little online micro payments perhaps um but when you look at a global scale and long term I think that's where you're likely to see basically these alternative payment rails be developed for either people that want censorship resistance um or that just find the technology to be better more automated and more accessible than what they get in in Fiat markets okay so do you think like obviously Bitcoin started out pretty centralized you know it was just Satoshi mining Bitcoin um but it gradually decentralized over time ownership became more widely distributed now ethereum's you know

twice as young as Bitcoin and all the dapps built on top of ethereum and all these other L ones are you know three to ten times uh newer as well than Bitcoin do you expect over the course of the next decade for some of these systems to truly decentralize um because I do think it's fair to say that decentralization is a core ethos of ethereum but it's just trying to accomplish so much more that it has some constraints around uh you know node requirements that you can actually Implement in order to um truly decentralize it as much as Bitcoin yeah I think there are there are two main headwinds against decentralization for most of these other protocols compared to bitcoin one would be as you pointed out and as I mentioned earlier in the talk basically node size

right so if if and especially in terms of bandwidth requirements not just storage but but bandwidth requirements is in practice generally the harder limitation like already for example you can't run an ethereum node over tour but you can do with Bitcoin um and so you're already you're losing privacy aspects uh with that in mind and so if you have blockchains and ethereum is already I mean you know you can go further than that to ones like Solana right it's an even bigger node requirements so basically the more you try to do in terms of throughput or complexity on the base layer the harder it is to run a node and if a node is getting bigger faster than technology is improving like for storage and bandwidth then you're gonna get more and more

centralization whereas if you're growing slower than the rate of Technology bandwidth and storage then you you have the option at least potentially get more decentralized over time and generally I see most types of node requirements growing pretty quickly which is which is very concerning for their decentralization number two is is the kind of the proof of stake versus proof of work challenge which is in in proof of work you know the miners have a lot of costs and so they you know they end up Distributing their coins over time even if they try to hoddle them they usually end up running into some bear Market that like breaks them uh and they they kind of spill their coins out into the market uh and so you don't really have a lot of consolidation of

power there I mean the biggest Bitcoin miner is like five percent of the network and Mining pools have like no switching costs so like miners can just you know they're non-custodial miners can just you know if they're directing at one pool that's being a problem they can just instantly directed another Pool so it's really it's really the minor centralization that we would be concerned about and that's kind of inherently distributive uh whereas the challenge of proof of stake is that you can hold coins you can stake your coins and you get more coins and there's no virtually no cost of capital for for doing that and so you can just keep accumulating coins and you kind of have this consolidation that can happen over time if you know if certain things play out in certain directions so the combination of challenges in running a node as well as

kind of a lack of distribution mechanism as well as you know your stake in the network being tied to your ability to censor the network I think is pretty um problematic overall as well as if you're if your blockchain is competing with others on on utility right so if it's primary thing is not its own take but is is to provide some other service like if you're trying to be the best stable coin you know transfer mechanism right uh you're now competing with every other smart smart contract blockchain in terms of doing that which creates downward fee pressure and so it kind of it kind of gives you an incentive to innovate in such a way that you're more willing to

sacrifice decentralization to be cheaper and more efficient or risk stagnation and so I think that that's another kind of pressure that's out there and so a lot of these things are going to perpetually have road maps and a road map is almost inherently decentralized it's basically a small number of people telling you that the the future direction of how this is going to go whereas if you have like a protocol like a true kind of decentralized protocol it's a different story so I I do think there are a lot of challenges with kind of the prospects for a lot of these other blockchains decentralizing over time awesome yeah it's always fun to hear your thoughts on this on this kind of stuff we definitely disagree in a lot of places but I love like getting your perspective it's it's very sobering so

thank you so much for for coming on do you want to share with the audience where they can find you to learn more uh I'm at lidlawn.com I'm also active on Twitter at lindalden contact people can find me there and I'm always happy to have these types of discussions I think it I think everybody learns uh you know when we have these types of discussions or debates awesome great well I will be sure to reach out in like six to 12 months to get you on again thanks again Lynn