The SBF/FTX Trial Begins, The Future of Ethereum, Another XRP Win & More | Round Up

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode hey everyone this episode is brought to you by Maverick protocol awe of liquidity tools built around an Innovative amm Maverick helps token projects Dow treasuries LPS or basically anyone in defi shape their liquidity with efficiency and flexibility how you might ask stick around and you're going

to be hearing about them more later now on with the show all right everyone welcome back to another weekly Roundup at B curb you got Michaels one and two and Vance guys welcome we're back we're so back why don't we start with talking about the obviously we have the SBF trial that's going on right now we're just talking a little bit before we can get into some of the details about the trial which I feel like there have been a couple tidbits that have TR uh trickled out nothing you know that we didn't really know going in I think the one thing that has surprised people I think maybe not you guys but I was surprised by the takes of Michael Lewis actually in the book going infinite so obviously Michael Lewis the backstory here for folks who didn't know is be before FTX was revealed to be you know a

fraud um and all the criminal activity that was going on there alleged criminal activity that was going on there uh Michael Lewis was planted and we can get into there's kind of an interesting backstory Nick Carter has a really great threat about the IEX Lewis relationship he obviously wrote Flash Boys which was the accusation being sort of a an advertisement for IEX FTX has a big Financial relationship with I ex so maybe there's some kind of relationship there but either way Lewis found himself a plant for about six months in FTX offices this book was being written obviously then FTX imploded and at least my assumption was going to be that all right he probably did a lot of work but he's going to have to rewrite it and he came out and did a 60 Minutes interview and a whole bunch of other publicity

essentially with the the through line being these were some kids they had a profitable business but they just got in way over their heads and now there is you know quote this SBF sized hole in the world it's has been a pretty bizarre take the other uh blatantly or glaringly incorrect uh representation of the facts is that this was a bank run and there can only be a bank run if you have under collateralization in a system because you don't have all the money available to be able to pay people back and even if it is denominated something else you know we we've talked about on this podcast I don't know nine months ago about how it was pretty clear that there was rotation from assets that they didn't like into assets that they did

like so even if you didn't have a onetoone backing of the assets that people deposited into into FTX let's say someone puts in a Bitcoin and they're going to sell the Bitcoin and maybe buy you know something like ftt or Maps or something that you know they were trying to promote even if you didn't have that one to one um you still should have the value to back up all of the deposits uh especially if you have a highly profitable business and that's how exchanges work uh you know that's not how um that's not how Banks work and and hence why if you have a bank run you know you do based off of Basil requirements have to have a certain amount of cash and treasuries and liquidity to be able to back stop the amount of loans balance sheet that you develop as a bank that's the business

model of a bank uh a bank run is not possible with a onetoone backed exchange period end of story I had a couple reporters reach out to me about you know like why do you believe this business wasn't profitable very very simple logic tree so people only wanted to trade on FTX because you could trade against alamid you could trade crazy mobilecoin perss you could trade you know the Trump win lose you could trade like you know all these like you know basically shitcoin per they launched and then subsequently destroyed like they were the initial liquidity providers for that if you remember the Stargate uh IO they bought all of those tokens and then proceeded to seed the per and trade against people and that was why you traded there you

could trade against Alam and Alama was so bad at trading that they had to steal customer deposits to backfill the the shortages like ipso facto this was not a profitable business it was just margin that was being internalized and then lost by Alama and that's really the only reason that people wanted to trade there same thing with soul you know same thing with the Holy Trinity of like serum soul and I forget what the other one was there's the third one but like this was not a profitable business not even close um and I think the only other surprises to me are like just the I've read parts of the excerpts on Twitter like some of the details are so sorted that Michael Lewis is share do

you see the one where he's like going through all the women that s SPF slept with and like SPF was like Whispering him this to him it's like Michael Lewis like do you need to go to horny jail like what is what is wrong with you man um like you know he's like he was like you know different girls every night of the week and like windmill dunking what a Chad it's like dude how old are you um he just a picture of a person that was totally enamored byf and for some reason won't let it go I wonder if it's because of stupidity if it's because of incentives or if it's because there's something he's trying to like xst facto rationalize for himself or his audience but there it's funny I've I've seen a lot of Twitter comments

from like ex Solomon Traders which is where he used to work and they said you know it's good to see uh Michael get exposed as a midwit that couldn't make it as a Trader was a terrible at sales and is likely to fall for you know the uh the sorted song of you know some random guy who pretends he's a billionaire for a short period of time I I think you know he's just frankly gotten this one completely wrong I mean he's gotten things wrong before he wrote liars poker thinking that it would be this entire expose of the bond trading uh shenanigans that were going on at solman brothers and you know it destroy the industry it take down the culture of Finance it did nothing more than engender a culture of Finance Bros for multiple decades you know that became It

Like the Wolf of Wall Street right like before before that he may understand how to sell books but I don't think he understands the culture around the things that he's writing about the first thing that I actually thought about when when I was watching all of this and I'm I'm conscious of the fact that we live in a little bit of a bubble and we're like really into the details and it's like hey it's this thing that you really care about now you're raising your hand but I my first thought was man maybe we gave the hft guys a hard time and I think it's sort of an Open Secret that anyone that works in high frequency trading is like this book's not accurate and what what struck me I think there are two levels this and one there was I was listening to this interview that he

gave it wasn't the 60 Minutes interview but I was struck by it's not like he got it wrong he a little bit wrong he got it 100 180 degrees wrong and he the the phrase that he used was he keeps calling it a profitable business which it just wasn't a profitable business so there's just a factual in consistency there but the way he describes it is there was this profitable Casino FTX and then there was Alam and if it hadn't been for Alam then FTX could have gone on and survived and that is0 argument too this is what 180 degrees the wrong we remember we had a conversation when FTX was imploding and we all were like hey well which which

one do you think he actually wanted which one mattered more the answer is Alam because FTX was never real but Alam was the vehicle that he was using to siphon all of the wealth out of FTX so to paint it like that from Michael Lewis is is just so incorrect but it's almost too perfectly Incorrect and then you start to look at it on multiple instances and you're thinking to yourself wait a second this happens multiple times how much of the entire thing is wrong all of the body of work I think his explanation was completely wrong pretty disgusting no respect for victims and the weird part is like in the 6 Minutes interview he's like you know what was he really doing you know stealing or you know re hypothecating

money from just crypto Traders like who really cares about them you know he was going to give Trump five billion not to run and so wasn't so bad was it it's like no um those don't make it okay to steal from people A and B like the chances that that Trump phone call ever happened I'm putting that at about 1% like who knows what Michael Lewis was fed where his primary sources of information were how much SPF was just bullshitting and making up as he went along I I don't know it I just think it's so sad that's the book we got what will be very interesting I think is what the ultimate outcome of this trial is because in a certain way

it's kind of putting the story that Michael Lewis purported which as you as you just said is the same story that SBF is trying to to put forward in court it put that's on Tri it put that it puts that case on trial that storyline hey everyone wanted to take a quick second to shout out this season's partner Maverick protocol now many of you probably know Maverick is an Innovative amm which they are but in reality they're a lot more than that as well Maverick is a suite of tools for defi users and builders that allows them to put liquidity where it will get the most work done since Maverick launched in March they've been gobbling up market share and at the time of this recording which is the end of September on a trailing 7-Day volume basis Maverick is now a top three decks by volume and they

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let them know that I sent you thanks guys let's talk about the overunderish 115 um I mean Lance and I have talked about this I'm I'm putting the line somewhere at 20 you know is it is it is it well under that is it well over that that that's kind of the question federal crimes you also don't get good uh good behavior OU early Dynamics on either so he'll be there you know for however long he gets I I would say 20 is probably the right number I would I would take the sadly I would take the

under on that I would take the under too how long did Bernie made off yet he 165 165 165 and then Elizabeth Holmes uh for Securities laws violations uh the sentencing rubric that she received was one year for every 11 million of Fraud and it was found to be that there was approximately 121 million dollars of Fraud and and really what that represents is when she went to go and raise $121 million from investors there was misinformation there were there was deliberate fraud about the representations of the company and people put in $121 million and then it obviously went to zero uh so that was

sort of the the you know black and white of what happened with her and in you know 11 years for $121 million of fraud I'm getting the same on I don't know I I just don't understand one thing I'm very confused about is why this narrative is still hitting of a bank run I it wasn't a bank it was an exchange and I don't feel like that's a huge logical leap to make I don't think that's something that you need to have a background in this industry to understand there was no there shouldn't have been rehypothecation going on so why is that line still flying I don't get it I don't know enough about the case or about the law uh to know the minutia of what else they could use but if you just use the

same rubric that was used in the Theos case you know how much money did FTX raise on false pretenses and how much was raised deliberately misrepresenting you know all of the things that they had all you know the connections with Al the use of funds the profitability like if anything's incorrect on that pitch deck um you know coincidentally Matt Wang is taking the stand today he he is a defense witness today from Paradigm uh and so I think part of the case is going to be representing that and in that case you know it it looks bigger than and I don't know if they can prove it I don't know what's going on in the case uh outside of what we hear afterwards but I I do think that

there is a through line there in terms of just pure Securities fraud the unanswered questions for me are probably the most interesting part I put one of them you know which is like what happened with that hack uh you know right I guess it was November 9th or whatever that day was you know the 500 million that was stolen who did it who owns it where's the money because it's moving around right now a lot of it's wash trading NFS on salana in some sort of like weird laundering operation I I don't know that's one the other one I'm really curious on is the identity of Chef Nomi and whether we will learn that and if it wasf because one thing that I'm curious about is you know Alam started as this programmatic trading firm and they started with 170

and then they got redeemed down to like 30 or 40 uh and then you know somehow that turns into you know tens of billions of dollars tokens at some point my theory is that SPF is probably Chef Nomi that he was basically the large scale industrial farmer of sushi you know turn that money around farming sushi at $20 like a $5 billion market cap where they gave away 100% of the supply takes that you know that's basically his capitalization base invest in salana log wealth ens SES and you know that's that's kind of like the story but there is like this missing middle of like bro you didn't make billions doing this Kim ARB where you lost the Ripple token away you know like like what happened in the

middle that would be one thing I would I would be looking forward understanding and and schelly who knows he's like a court reporter now which is greaty he's like you know he's show he's like showing up live tweeting the whole whole thing um that's what he says he thinks is is gonna happen so lend some Credence to that we're missing the whole middle part of the story H how did Alama get so much money I would love for us to be able to uncover that I think the government is just going to take a stance that like L listen we have you know parts of this case that are just dead to rights there's no way to deliberate on it we don't need to confuse or you know add other flavors to this whole thing we're just going to do

the the even uh you know very straightforward path that that I hope that we find out more but I I unfortunately think it's just going to be like let's do this let's get it done fast and move on I would settle for the the right outcome happening my curiosity wants to know but I'd be happy if just we get the right outcome here the the other stuff that I've just like been thinking about as I read through the case and and just the different things is um there's this line I think we've talked about it before where you know what's what's the utility of a bet where you know you keep doubling up uh and you can do it infinitely until you you know get infinitely wealth wealthy or you go to zero and like SP SPF has always thought of this as like the St

Petersburg Paradox and it's like a highly valuable game for him because he would just always keep betting keep trying to double up until he gets to Infinity wealth and in his own words like lock into this hugely valuable existence that really was like kind of the underpinning of everything that he was doing his risk management style his trading style like taking these huge bets where you know the payoff would be 100x to one It kind of just feels like that's how he ran the exchange too he's like you know if I get caught I go to jail but if I don't you know I I become the wealthiest person on the planet and I can do all this effective altruism you know where that doesn't line up though is what doesn't don't you hit some amount of money where you just don't need I mean a lot right like let's

say a billion dollars I mean what can you really do with 10 billion that you can do with one outside of like the mega yacht right that's like the only I think the hundreds of billions range gives you like nation state status which is kind of you know even the Bahamas thing it kind of all lines up with that like you know he's I mean whether this phone call happened or not with Trump I don't think it did but like he's like you know I can give him five billion not to run that's where his head was at he was also talking to the Bohemian government about paying off all of their debt allegedly you know the N billion yeah that's so funny like there's all these little tidbits that are coming out and the only way that you could possibly

think about you know paying five here and eight here and you know pretty soon those small numbers would become a really large number is if you're thinking in terms of hundreds of billions and you know that that I think is probably where he was shooting I also think you know maybe there was some truth to him thinking that okay uh you're right though like Mike you're right there's no possible way that a human can spend that level of money over their lifetime other than if they're doing things like what we're talking about which is you know buying this you know get out of jail free card in the Bahamas making sure the Democrats win next time you know against Trump um all that type of stuff is is as van said nation state level capital the Michael

Lewis excerpt where he's like no like Tom Brady really was his friend you know they had this very special he paid him $55 million the the craziest I thought be my friend if I pay him $55 million Kevin o1 15.7 million for for 20 hours of work how much do you trust all of that uh Kevin o saber rattling against FTX or against binance uh in favor of FTX right as FTX was collapsing goes on CNBC no you know CZ did this I know it I actually meant to bring my tin foil hat and I forgot to bring it but the the relationship that we were talking about with Lewis to because folks might not be

aware of this so I mean for those of you who read Flash Boys Flash Boys was one of these books that Lewis wrote about hfts and the way that it was portrayed was people didn't understand what was going on there was this nefarious Force for why people weren't getting the execution that they sh thought they should it was shrouded in secrecy is this world of high frequency trading and it was ripping people off and it sort of portrayed in the same way the big short sort of lionizes the the short sellers of the time the Michael burries and I'm blanking on the the other names but um sort of lionizes that group there was this group of insiders within institutional finances as well who were aware of this hft problem these predators that were praying on everyone

and it what it what it wound up with was the creation of this exchange IEX now IEX is pretty much I could we just call I mean it's not successful it has not largely been successful as an exchange I ex stands for the investors exchange and it's supposed to be much more friendly for investors but no one really wants it and just just to be clear this this started as a uh you know Equity Securities Exchange not had had nothing to do with crypto yeah thank you um so timeline here and this is all just this just comes right from uh from from Nick Carter here doing his little investigative him and Matt are actually in another life could be investigative they like go in and get all the details um they do uh but this

is really helpful like in March of 2022 FTX and IEX pre- partnership hold joint meetings with the SEC aiming for Safe Harbor US operations April 2022 FTX us announces an investment in IEX the deal is described as small and strategic size not disclosed later emerges that it's 270 million described as a controlling stake as reported by the financial times large stake with the option to buy May June of 2022 Michael Lewis begins closely shadowing SPF in order to write a hagiography presumably similar in tone to Flash Boys uh somewh of 22 G Gensler keep meetings with I IEX and FTX is Lobby in Congress so yeah I mean the timeline I clearly if Michael Lewis

wrote this book about I ex he knows Ronin and all the guys over at I ex I mean also ex is protagonist of The Flash boy story you the book ends with like and these guys are going to fix it right and then it didn't work yeah what do you think the chances are Michael Lewis introduced IEX to FTX probably higher than like 20 30% or it could have been the it could have been the reverse totally I wonder if Michael Lewis has any Financial incentive in IEX or other like something about this is so strange and I don't think we're gonna find it out exactly but one last thing just because I I want to leave FTX here

but do you guys understand how how does the claims Market work for FTX so I was kind of looking at this a little bit this week anthropic the AI company that that FTX invested in has actually been doing pretty well they raised a big round from Amazon then a couple days after Google looks like they're going to put in an additional two billion doll at around a 20 to30 billion valuation so that's good for FTX creditors I I think I saw they're trading between 30 and 40 on the dollar I don't I don't know if that implies more recovery for that like how does that market actually work the claims Market is is not a very efficient market yeah yeah okay I mean none of like there's been basically no big

claims that have traded despite everyone saying you know to the contrary I do think that Galo sold theirs at like 14 15 cents on the dollar which like sounds bad but also Kevin can make money and like having the capital opportunity cost is you know expect this in years and you know it's amazing that anthropic has been doing so well and that you know the recovery might be higher than initially expected but anthropic isn't exactly a liquid asset either and and we'll see valued properly either yeah I mean it's it's being done at I think 300X Revenue forward so we'll see um I do think the the the so I've heard

like just on the topic of claims and you know Distributing crypto that was uh stolen back to victims I think in some ways it's a little bit of like a bullish airdrop like people not having their crypto is not helpful if people are like somewhat recapitalized by mixture of like you know uh claims being distributed price action getting a little bit better you know maker endgame you know providing a bunch of yield Farms like I do think there is a world where these are actually bullish events versus strictly bearish but it all depends on the structure and having Galaxy starting to sell things for US dollars is kind of

like the bearish side of it but I don't think it's it's like necessarily like a one-sided good or bad thing I think there's Nuance there and having crypto people back with their crypto I I think is just important in in general I like this phrase they used the recapit uh the DG need to be recapitalized that's been that was a good that's stuck they do I mean I think there's a few opportunities for that to happen coming up and frankly like I think of these is air drops in many ways let's let's move on from from FTX I want to talk a little bit about enshrinement with you guys and this this sort of trend so vitalik wrote this piece this week about um get the actual title of the piece should ethereum be

okay with enshrining more things in the protocol and he actually he spoke I I heard him speak at ECCC back in July about this exact thing he talked about it within the context of account abstraction and 4337 and basically he he outlined this this philosophy that ethereum has taken for a very long time that was inspired by Unix which is keeping as little inside the protocol as possible and pushing complexity out to the edges but ethereum is a lot larger than it used to be back in the day it's faced with much more complexity and I think this was vitalic sort of like reasoning about okay maybe it does make sense to bring some things in the protocol and he went through a bunch of different categories

that this could apply to and we'll link it in the show notes I'd encourage folks to actually go and and read it he spent the most time talking about uh count abstraction and 4337 and he walks through this entire history of trying to enshrine account abstraction or actually bake it into the protocol and he talked about some of the technical challenges of doing that but also why it wasn't prioritized at different periods of time and it kind of gives you a very firsthand understanding of why this is such a complicated process and the sets of stakeholders that need to align on something like enshrining so it was it was just a very good it a really good history of that and he he goes through a number of other categories that this could apply to so

um he talks about uh ZK VMS um he talks about uh PBS proposer Builder separ ation enshrining private mols liquid staking and pre- compiles and everyone should go and read this themselves this is where I'm just gonna in my sense of he kind of goes through and and talks about the pros and cons of enshrining each one of these group of things ZK EVMS I think he was the most undecided on the the ending was enshrining ZK evm EVMS presents both promise and challenges the challenge being you sort of have to pick one set of standards and then you risk favoring one uh one developer basically um epbs in trining

PBS is already we the community's already basically decided that's going to happen it's just an implementation detail and when it ends up happening um liquid stake uh private M Pools uh the technology it seems like we need more technology there but in theory it's a good idea um pre-compile seems okay liquid staking is probably the one that spend is worth talking about because the push back on Lio has been heating up quite a bit I would say in recent weeks and we've talked about it on this show it was interesting to hear vitalik's take on it my take on vitalik's take is that he was balanced vitalic is always balanced when he talks about this stuff but he did come out and actually say some and shrining something like rocket

pool or a mechanism that would support a rocket place that or a Marketplace that rocket pool had built would make sense um and this is where I'm firmly entering my own realm of speculation here but I think it says to me and if you take that with the the additional context of danrad and Danny Ryan and some of the leaders at the ethereum foundation pushing back really hard against Lio I would just say it's indicative of the fact that at the very high highest levels of ethereum people are concerned about the protocol I have I have thoughts about that I'm I'm just like curious what you guys think about this you want to insine insr Rocket pool in eth that is the least decentralized worst option I I think vitalic take was honestly like pragmatic and I I

don't think he actually said we should enshrine anything on the LST layer uh he basically punted on it and he said like we need to be kind of pragmatic and Lio is kind of the best that we have right now and hopefully they continue to decentralize and there's things that you can do on the margin like setting the churn limit lower that you know theoretically could help but like I I I I kind of don't get it other than they have a sensitivity around the ldo governance token being structurally important to eth I mean look you have all these l2s that have their own governance tokens that are arguably taking fees from you it's like how do you pick which Hill you want to die on um I just don't I don't

see them being able to a really do anything about it you know it's still growing faster than any other LST protocol their efforts are probably better used to coordinate and make it better in Partnership versus getting into a antagonistic relationship with the 9 million eth that are Stak in Li today on staking in general uh from Pete to trough and I think Pete was around June maybe mid to late June in terms of the validator Q it's it's literally down 90% like there there isn't really as much I think of an issue with needing to have to change dynamics of like churn uh um limits uh which is effectively

withdrawal limits or or making it taking it longer uh to get into the uh validator ecosystem like I think a lot of this stuff you know is going to sort itself out so I think that just generally like this lsds are not uh are frankly just not growing as fast as they once were there just aren't as many people moving into the into the validator process as there was it's starting to Peter out um so I think you know Market sentiment will probably change therefore but I will say as more of like a global comment on any sort of enshrinement there are things that I think you know make a lot of sense just you know something like a account abstraction is a perfect example you know it's it's a

feature it should be something that is in the protocol itself um you know potentially precompile as well um like there there are things that make sense to just bring them in because instead of having some third party to often develop it and everybody has to adopt that standard this should be part of the standardizations um and it's once once again vitalic you know pushing the ball forward having the conversation around things that he used to think were you know sacred cows or or maybe not quite but something along those lines and questioning some of his previous assumptions uh I think it's healthy for you know the protocol to or or any of the people um who are working on the protocol to think about different ideas that may change as Market sentiment and

and market dynamics change I I do think Michael just to talk about the the drop in the active validator queue I think so we've done research correlations between positive price movement and E staking extremely strong I think you know if you believe that there's you know a bull market around the corner like we do I think staking activity is going to pick back up the other two Tailwinds that I think staking is going to ride are uh a reaking you know that that is just like another source of yield there's more money on the table there's more people that will want to come and grab it and the second one frankly is just makeer endgame um you know WAP Ste if you look at spark subow is the main form of collateral that's being used there to do all sorts of loops and interesting types

of borrow trades you know there's just going to be more yield on the table it's going to drive specifically liquid stake tokens up specifically the ones that have enough Network effects and collateral backing to be used in these protocols so I I see no other real option other than for Lio to grow uh and to figure out how to De centralize itself further um I don't think you can really reverse put the cat back in the bag and rein Shrine it at this point the funniest tweet that I saw today was someone tweeting that the EF should just take Lio private at $10 a token and enshrine it that way like look have all the options on the table I think that's

probably the most realistic I as a more I like the way you phras out like a maybe a more Global comment on this I just I think we've talked about this before but I don't think this is if you view ethereum as a incredibly neutral platform for applications I just don't think this sends the right message to developers and I I think it's this was whether it was explicit or not what Lio is doing first of all I think they're a best intentions team and they're just doing what the incentives say to do and they found a market which is win or take all or winner take most pretty naturally and they're devoting an enormous amount of their incentives to decentralizing you know this isn't a team that feels

like they're acting in bad faith and I yeah I just I disagree with the the philosophy one of the kind of classic lines that I think in the in the 2010s was really prevalent in the startup World especially with with VCS was um VC's you know really hammering entrepreneurs who were trying to raise money and you know their big question was why wouldn't Google just build this themselves and I think that that sentiment is sort of kind of the same thing like if you open up the door for uh product uh or or major um major features as opposed to like minor protocol upgrades or products themselves versus minor protocol upgrades you kind of put yourself in that same camp of

like you know Google in the ecosystem who starts up all the oxygen and you know becomes uh you know the the prohibitor of Entrepreneurship and Innovation because you want to have that stretch out to the edges um is my opinion at least and I I I hope we don't get into a situation like that I mean how that ends is you just have to underwrite all of your friends and enemy relationships and figure out who's who and what happens when an L2 has you know for a single day or two more fees than eth are they friends are they enemies or you know should we rein Shrine the L2 because that's kind of like the Dank sharding road map is you know scalability on the L1 you know the L2 is kind of lose some of their relative you

know speed transaction whatever advantage like I just don't think that's a road that vitalic is prepared to go down because once you start going there you need to go all the way it just doesn't make sense not to yeah I I think there's a philosophical thing here which is this this is sort of I don't really think this what this is but in it's sort it's more Socialist Communist than it is capitalist I would say this Viewpoint and if you look at most communist regimes and countries it require it they run counter to human nature so it requires this actor to sit in and actually be sort of a very authoritarian actor because it is there's a forcing function that is making everyone act in ways that are

counter their to their personal incentives and I would just say I don't think this is the route that blockchains want to go down and you you you you you're already seeing it it's cropping up there first of all guart is there a better new account to crypto Twitter than guart in the last like six month I mean it they make me laugh all the time but it's this it's the beginnings of this push back against this concept of ethereum alignment and I think it's ethereum alignment is a great thing ethereum has great values it's I I firmly believe it's all done in really good intentions but at the same time it's starting to feel a little Illuminati esque it's like we don't have any transparent rules here like what makes something eth aligned versus not eth aligned whenever that stuff's not transparent I think it's not e either

like I've been following people since the since maker announced that they're going to do like in five years like a svm backend govern people were like man ever since they announced the svm and started tokenizing uranium like they've really lost their way I don't even think they're aligned with you know it's like what are you talking about like that it's not even in like like R is like the assets are going to stay on eth we're going to keep building there and we're funding all these evm clients and that's just like not good enough for some people I think it's it's almost like the EF is now pandering to like the the Twitter you know outrage crowd which is like not good they should not do that so I don't know everyone in the EF the people that

I've interacted with there I think they I think they are really like Technical and heads down and I don't think this is the majority of how EF people feel but I I I don't know I think it's the the other thing the the reason why by the way I think this is an important issue to to push and like I I did see someone tweet today that basically putting the onus on consumers and consumers should be conscientious and value decentralization and should stake with a multitude of different LST providers little LST providers and it's like the what that is like is like you should be like you shouldn't bank with JP Morgan you should be a conscientious banker and put your money in small Community Banks because of your values it's like no you

should put it with JP Morgan and Bank of America and do the thing that's safest for you so you don't lose your money and if we all decide as a society that there shouldn't be you know one or two big Banks then we should make a systems level change but don't put it on the consumer I think that's totally wrong and it will probably get people to lose money that that's the most likely outcome from a scenario like that go with low cap you know untested no network effect lsts I just think that's that's where that could be really damaging and that's that is where I think that's super important to push back on that's not yes you did lose all your money but for brief period of time you were fully aligned with the EF and and I don't even I don't even I

wonder if this I because again I'm not trying to like defend but the people I know at the EF don't really think like this I do wonder if it's this kind of thing where Twitter just run with it or something it's also like you know I think of this as like a very small like a bare Market thing yeah I think so too de and the bear everyone starts coming for each other you know at some point and mostly nothing happens I I I've been through and Michael too and you as well you've seen so many metas come and go you know uh I remember when wum was going to be the thing we were going to write smart contracts in Python and JavaScript lost track of that one because didn't

happen yeah if you don't like something on crypto Twitter just wait three days it'll be gone it'll disappear actually Jason and I I was we we did a little offsite this week and we did like a super in-depth uh history of the 2018 to 2020 2020 through the current period and we just relived some of these like Trends and you just see these things just come and go um totally what were some funny ones do you remember do you remember Malta as a as a place as a thing like yes that was like the place post Asia that binance moved to yeah I'll I'll actually get these headline we we drew these headlines it wasn't just like you know coin Telegraph it was New York Times and Bloomberg and Forbes the

headlines were like new crypto Hub yada yada they 8,000 people at an event in the first year like stuff like that um that was a pretty funny one today I didn't know that that many people could fit on Malta either they launched their own cryptocurrency remember that mimble wimble the Petro dollar uh there's so many random ones but oil back stable coins that was one that people are really about then oil went to neg3 and now it's whoops one similarity I forgot to point out on the enshrinement debate is that's actually occurring over in Cosmos at the same time so in Cosmo verse which happened this week in Istanbul stride announced the a sort of

proposal and wanted to get a temperature check on a potential acquisition of stride by The Hub so they wouldn't necessarily call it enshrinement that's not the word that they would use because they have this entity called the Hub over in Cosmos land but there that's it's kind of like the Hub has had this identity crisis where where there isn't really a good monetary or economic model or just value prop baked out for the Hub so this would kind of just to connect this with the Lio debate there have been attempts over in Cosmos land to solve some of the problems that eth is experiencing with their liquid staking so they introduced something called the liquid staking module which makes the Hub aware of and able to regulate the liquid staking that's going on in of at

least atom or staked atom which is pretty cool and you this could this is kind of like a trend further in that direction where actually the The Stride which is the leading liquid staking provider over in Cosmos would get absorbed into the Hub so it's more functionality for the Hub it's a clearer value proposition but it also is more credible neutrality and decentralization for stride as a liquid staking provider um so again they don't call it enshrining it into the protocol but it's the same premise it's they're doing it for the same sort of reason um which is which is kind of cool um and what it makes me think is just to get back to this EA debate a little bit because I I

really don't think the ethereum alignment thing is a negative sounding thing but they have a branding problem because it feels very Illuminati esque but one of the big differences that I've always thought about between Cosmos and ethereum is Cosmos does have token voting which has a lot of drawbacks but at least like you know there's there's voting in governance there eth has no token voting and a lot of the governance of the protocol doesn't take place in a super transparent way or there's no formal structures it it is transparent there are Dev calls and things like that but there aren't formal structures so I do Wonder as eth enshrines more and more if the solution is like we don't want to deal with lto andrine something like this enshrine this EK evm eventually it's gonna have to govern all this stuff

so if there's no formal governance mechanism do do you guys see that as being sort of a tension or I don't know it's just a fundamental difference between between Cosmos and E there there is some sort of formal governance like the stakers have the power at the end of the day um and so if this ever comes to pass in a very contentious way which like I do have a lot of respect for the EF I don't think they're going to let it come to that um then there will be some sort of voting even if it's signaling and I think that will be the start of a new type of government process government governance process um I don't think token voting is good for the big l1s um it introduces too much volatility

at a stage where it's probably too mature I think you can also say the same for you know going down the path of enshrining things like what if we had this debate on bitcoin it would be like a civil war and that's what eth when when it really when the chips are down does well is it like coordinates it actually has like the not like Illuminati but like the main people can get together and plot a path forward um and I expect that is going to be the case here maybe some changes on the margins but um you know you're trying to build the plane while you're flying it and once you start going down the path of fixing things everything you know you're a hammer and everything looks like a nail so I I would advise against it it's cool to see it play out in smaller ecosystems though

I think there is product Market fit for that probably in a different way I tend to agree with that we're talking about e Futures eth Futures launched this week uh it was kind of um like a sudden start like there was Rumblings I think last Thursday that it was going to happen and then Friday there was like this like hurry up offense that was run by the SEC to get everyone ready ahead of a potential government shutdown which didn't end up happening um and they launched and it was funny on the first day everyone was like a like these are not like what the like there's only $2 million of first day volume for vanc I think the things you need to understand are number one like these people were rushed out the door there was no like you know monthlong heads up it was you know creating Demand on the

first day number two 50% of ETFs run at at a loss like there are so many ETFs they're so hard to actually get any sort of volume for this still made for a top 10 ETF debut this year even with the muted volume that it had on the first day by day three and a half I guess we're at right now we're at like $42 million of volume across all of them and you know this is a product that's going to have probably in the next few months you know hundreds of millions of dollars in it like to me that's a huge success and I think the even bigger thing on the background is etherum is officially you know not a security and and you saw Brian Ken say that you saw all these

government people say that but like this seems to be the real lasting impact of regulatory Clarity on the second largest crypto asset so I just see I'm I'm not going to name any names but certain fund managers you know I can see what they're doing they're trying to like talk the price down or like you know do different things and I just think it's worth pointing out that there's a lot of context and nuance and that this is actually a pretty successful start um despite all the Twitter kind of chatter I think it got a bit of a bad rap because Bido got more volume and it was getting compared to that but totally different point in the cycle I mean that came out during the bull market so not really a fair comparison yeah it came out came out of the actual top wasn't it like uh October

21st or 22nd or something like that it was it was give or take one month from the absolute top that indicator just remains undefeated in terms of of timing the one question I have is like what is a direct I I know that there's been some analysis on like spot buying of assets particularly Bitcoin how does that have a price impact you know for every net dollar that's being bought what does that do to the value uh you know of all of the market and there was some you know leverage effect of like spot buying has I I can't even remember what the number but I want to say like five to seven X uh Market impact in terms of you know what the what the purchase value is I wonder what the eth futures or any Futures product does to the underlying

spot value um and I don't I don't know if anybody's done that analysis I would I would imagine it's a little bit more muted just because of the way you know these these Futures markets work eventually you have to get down into something that spot because the Futures will have to hedge at a certain point um or someone will have to buy the asset at a certain point but it's not it's not a one to one um and so I guess what I'm saying generally also I think yesterday or potentially the day before former MD from black uh from Black Rock came out and said you know strong certainty that uh SEC is going to uh actually approve all of the spot Bitcoin ETFs at the same time in the next three to six months and you know mostly because they

don't want to give anyone an unfair Advantage um so you can imagine it's going to be a race you know if when that ever happens uh in the same way that we're talking about which ETF is doing well compare different times different places um but that race will be a really interesting one I mean that just becomes a marketing game at that point um but that that if that goes if that goes through in the way that they suggest it will um very interesting I I I think I I mean it's it's so positive that we have that we have the havening like we have a really good setup in my mind and I also like how vck has been playing the E future stuff where first day they tweeted out all caps low volume just like the jpegs like they're in this for

the long run they're starting to do marketing and you have to think about what are their Alternatives you launch like the 500th ESG fund you launched the 600th uranium you know ETF like this is new it's exciting for them and they're in for the Long Haul and that's what you want like access to these products is huge and their benefits are only going to be far felt when you know the buyers really start to show up and I think we have a setup that'll you know be favorable for that I tend to agree with that also I um the vck has been a real they've been in it for a while they were at least when when I started paying attention and they were I feel like maybe mostly a Bitcoin shop back then but when we helped create off the chain which became the pump podcast later on

uh Gabor garbach was one of the early guys to come on the show and I remember thinking like oh it's a trafi guy but he really knows his stuff about about crypto so Props to Van I think vanak is going to be a big player in this you know it'll take time but I think they're they're doing it the right way xrp got another minor win as well this week so the appeal that the SEC filed got struck down so this this this is not a necessarily a slam dunk win and the SEC still has the option to come back but what it is is it's just kind of another another strike against them um so what I don't know what you guys made about that

but it actually seems like kind of big news that went slightly under the radar not a lawyer but I've listened to a lot of them talked about the situation what they did uh what the SEC did was they filed what's called I think an interlocutory appeal which means we need to stop the process of this current case we need to stay it until we can get resolution on the summary judgment that they just received in particular I believe having to do with um primary sales being sales of security secondary transactions happening on Exchange being s non- sales of Securities um non SEC jurisdiction um and uh I believe the bar to get an interlocutory appeal is is

fairly High um and so uh yeah the the judge decided that the SEC did not meet that bar and denied the interlocutory um um process what this means though is that the rest of the case in particular uh the case against Brad garlinghouse and Chris Larson need to follow through um and continue forward and then once that is settled the SEC can appeal or Ripple can also appeal depending on what the judgment is um in in the rest of the case or anything that's happened so far in the case um because Ripple didn't win all of the different you know things that they were they were alleging um so really what this means is that um

timelines now become a variable of interest um estimates of maybe this case gets finished sometime in the April May 2024 timeline which means that at that point you can have uh an appeal process begin which pulls you know the entire process again for this entire case and who knows how much you know they would want to appeal on who who knows how much they'd have to go back and and relitigate um but it sort of starts to clock again for this entire case um and so that that probably gets the can down the road to a post 2024 timeline um which means that the summary judgments that exist so far um are going to be kind of the um the the state of

perspective um for the time being and probably for you know the next 18 months at least connecting this back to kind of like what we see with entrepreneurs and what the sentiment is on the ground in every bare Market it usually gets very unfashionable to launch tokens or even like think about launching them and we saw this you know in the 2018 2019 bare Market compound was not never going to launch a token it was going to be an OTC desk and then you know price action changed there's a little bit of regulatory Clarity and then it was like very much in the Z guys to launch tokens and it feels like we've almost come in that full circle in this bare Market too where like we met with a couple launchers based in SF in New York and they're like yeah I mean like you know

optimism launch to token we can figure out a foundation and you know the stakes are worth it for us where we think this could be big enough where you know we'll we'll you know fight the charges you know go to court you know whatever people are emboldened in a way that they haven't been in a while but it's not kind of like the tourists like it's not worth it for them anymore and like The Jig Is up on creating vaporware and selling a token but there's real entrepreneurs who are just no longer scared and I think that's kind of the silver lining of where you know we need to see where where us regulations go to tell where to tell where the space really goes in the US long term but until that happens it feels like it's no longer a barrier whereas probably six

you know certainly a year ago people were too scared to really do anything um that feels to have changed the Ripple decision only applies to Ripple it doesn't apply specifically to anybody else uh so this isn't you know a new a new a new framework that people can use but it maybe shows Direction ity as to where um ports at least are having their you know perspectives uh on on these different types of matters um but goes back to the same thing that we've been saying for the last I don't know how many months uh new regulations are going to be the thing that creates the framework for which entrepreneurship can happen in the digital asset space in in the US that's it did you did you guys see that Brad garlinghouse got a xrp

tattoo yeah that worked well for the last guy who got a jinx of this magnitude we did not need every lawyer we talked to told us that Ripple would not win or they would win on certain things but not this oh this was another speaking of Malta but this this is another flashback I mean back do you remember in like 2018 2019 period F first of all lawyers used to talk a lot at our events and they talk talked at a bunch of events and it was like the Hammer Of God is going to come down these icos were getting away with murder all these people are going to go to jail yada yada and in some sense that was was true there were enforcement actions that were brought most of them were just civil and they ended up not being a gigantic deal in the meantime so

I don't know we feel a lot of questions like that from newer blockworks employees or people that are newer to the space it's like whenever someone's just aggressively Shilling you doom just maybe push back on it a little bit and especially lawyers I've actually started to feel a little bit hopeful I I don't know how much you guys have been paying attention to what's going on over in the macro for a little bit but the what's going on with the selloff in longer dated treasuries is I mean it depends on how you view bullish it's not you know that doesn't mean that stocks are going to go up it's bad for stock prices soon but what it indicates is that like term Premier compressing this is kind of the last thing that needed to happen before we could reset and the FED could start

uh start cutting now probably what ends up happening is something might end up breaking before then which would not be excellent but we do need need some sort of catalyst uh unless we just want extremely high rates for a long period of time but that's all kind of lining up with what we were talking about around the having and the Bitcoin ETF I also listened to the oddlot's podcast this morning listening to the Chicago fed uh president basically say the only time we would revisit uh dropping rates is if unemployment or growth are going in a direction that doesn't bode well for the US economy um so I I agree be bare steepening especially when you have an inverted yield curve very strange and you know tons of people have talked

about this the inversion has also dropped like 70% in the in the last you know few months so you know the inversion is working its way through I I think it's we're probably going to see some interesting stuff in the bond market in the next couple of months what that does to other asset sectors remains to be seen you know some of the things that we're seeing here in San Francisco and Commercial Real Estate do not bode well for the rest of the economy there's definitely some some uh consternation I mean as an example uh apparently there's effectively Zero commercial real estate lending market right now so everybody who has financing that's coming du um on

properties in San Francisco which probably have a pretty sizable you know 30 40 50% markdown on the equity value um you know there's no Market to be able to roll that loan um so it's tough and you're going to start to see that in sectors but commercial real estate is sort of like a slow moving train wreck truly because it's not Market driven it's not liquid and uh doesn't trade like any other markets there there will be some Market that probably hits the skids at some point uh is just where I think things are going to net out in the next few months bonds are confusing to the lay person um I had a friend that own I'm not going to name who is but he owns a bunch of bonds and he's like hey the yields going up I was like not yours um somebody's

[Laughter] I mean like that that is just to explain briefly you know the price goes down that means the yield goes up because if you're holding a you know four and a half percent flavored 10year um you know there's there's a there's a five out there now or close to it you know 475 and so that's the reason that the price drops but the way to think about bonds you kind of need to think about them in two ways one is you know backed by the full faith credit military you know whatever regime of the US uh know they can always print more uh it's very creditworthy the safest asset in the world it's also an asset where if you remove the fact that it's backed by all those things it's you know 40 to 50% held you know in in a meaningful sense

by the Federal Reserve um they are not buying anymore uh in fact they're starting to sell and if that was an equity you know if somebody owned 40% of an equity and was like you know what I'm not buying anymore in fact I'm gonna start selling I mean you just wouldn't want to buy that stock um and the question is you know you you listen to CNBC same same every day two hours of you know outrage the tenure going up you know how could they do this to tech stocks there's too many bonds who's going to buy them and it's like hours and hours and hours of this stuff and the answer is like it's not going to be uh the private sector yeah they a small technical detail they they don't technically sell the bonds

they just let them mature and they roll off the balance sheet which is also some like you know I guess a Readjustment of the definition of what QT is the QT definition was supposed to be we just started selling bonds I think if you tried to like Galaxy scalp all the bonds that they owned into the market I don't know what would happen but the bottom line is that they're just gonna have to start buying these again there there is there is no version of the future where we are able to run you know two to three deficits per year and not buy our own bonds there's a forced buyer here year um which is uh you know bank balance sheets which obviously you know deposits aren't going massively up in fact they're kind of rolling off there's also an element of Pension funds um that need

to be buying these things just because um they've got mandates to hit 5 67% yield and they're going to they're willing to take the loss for the next two to three years if they can lock in 5.6% on the 30 um or 4.6% on the 30 because you know they can lever it up and and earn hit that five um I do think there's an element of we don't really know what's going to happen I but um I don't see necessarily any other Market that's as liquid that is going to potentially have issues just based off of all the wonky stuff that is happening like that if I was to pinpoint where something breaks generally I think it's going to be in fixed income I mean I don't know how you define break but if

you look at something like TLT which is 20 % 50 plus percent 50 plus it's it's a the the index is 21 years old it is almost it is almost flat on now you've been getting fixed income that entire time but in terms of price appreciation it's basically down to Flat the the person who I outsourc my thinking too on this is Joseph Wang the FED guy you you've had him and he's super smart and he's basically just been tweeting for the past two years the pain trade is higher in yields he just keeps weeing this and they just keep going higher and now he's like all right we've run out of buyers and it's been a lot of retail demand you know aping from bank account deposits to money market funds um now the likelihood of something breaking is

increasing where I think it could be imminent and I think yield curve control is the endgame which is a fancy version of saying QE and so like they're gonna have to buy these bonds Michael to your point the Pension funds definitely can buy them but the scale of selling on the treasury side is far larger than the scale of buying that can be provided by somebody like a pension fund and so you know this time is not different like the FED will cut rates they'll buy bonds it'll be the whole thing again it'll be under a new acronym I'm sure to confuse us but like there the financial math is only one way like and and the Spooky part last part spooky part is that the rates have been ripping as inflation and the signs of inflation has been

decreasing and so what that tells me is it's not an inflation story that's driving this it's a supply demand story and that is probably we've never hit that invisible ceiling before mostly because we haven't leted ourselves because we've been buying the bonds but now we're we're about to do some serious napkin math and probably realize what we've known the whole time which is we just need to keep buying these things make a argument that there's sort of soft yield curve control in place right now the banks have this thing called the btfp facility so yield curve control is just you have a target for what you want to pay out in interest rates like the the most crude way of

doing that is just like we're infinite bid at X price uh mostly no one does that anymore the bank of Japan is the only one that really does that we did it back in the 40s but the another sneakier way that you could do it is say hey big holders of bonds don't worry don't sell we're going to let you still like here's a lending facility where you don't actually have to sell and you could get like the full face value of your bond totally but all all they're trying to do there it is soft yield curve control but all they're trying to do there is stop them from selling these bonds and stop the from rising further like they're trying to remove another seller uh from the market but the math is they are still the biggest one far

right you know it's like it's very easy to do on an nain in tell that you just need you need to be buying these things one of the interesting things now that this is a macropod is uh the UK rolled out version of btfp uh uh two maybe it was a week ago or two weeks ago but this is becoming like a standard operating procedure for most of these markets with a sovereign you know uh bond market where okay you're sitting on a huge loss we'll lend you money against it um and they're not just rolling it out for big Banks they're rolling it out for non-banking financial institutions uh Pension funds potentially fintex like anybody who's sitting on a loss can pledge it as collateral surely this will work 100% of the time and there will be no negative

externalities it's just like it literally is like the you know the boat starts leaking like you you plug it with your finger and then like you know you like get your other hand you like put it on the other hole it's it's it's the water is going to keep coming into the boat well there should be consequences to your actions I don't know I I I don't want I don't want people to be without pensions and without the things that they need so I think it's very simple they just need to start buying these bonds again bar report on Silicon Valley Bank um you know saw they saw interest rates Rising they knew they were sitting on all this fixed income they knew that interest rates Rising would drop the value of the fixed income they decided and you know they're they're freely uh welcome to hedge you know their fixed

income Risk by buying interest rate squats they decided that the FED wasn't going to be able to or have the gumption to raise rates you know as high as they have now uh and that they weren't going to buy the full swaps because they thought they be able to make more profit you know because swaps obviously cost a ton of money you know it's it's hubris it's um short-termism it uh there there will be more examples like that but ultimately that was the death nail for Silicon Valley Bank all right guys well I guess we can yeah we can we can wrap it here this a good one [Music] pos