Bankless - Genesis & DCG Meltdown? | Was 2021 Just a Gigantic PONZI?

Episode Date: November 23, 2022

Is Genesis the next domino to fall in the 2022 Contagion? As one of the biggest lending desks in the industry, what does it mean for Genesis to be in danger? In this episode, we dive into David's conspiracy theories about unravelling ponzi schemes and the death of the bull market. Has David figured it all out? ------ Infura | Join the New Decentralized Infrastructure Network www.bankless.cc/infura  ------  SUBSCRIBE TO NEWSLETTER:          https://newsletter.banklesshq.com/?utm_source=banklessshowsyt  ️ SUBSCRIBE TO PODCAST:                 http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS:  ️ ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  👯 DESO | DECENTRALIZED SOCIAL BLOCKCHAIN https://bankless.cc/Deso  🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  📡 TRUEFI | CRYPTO FINANCIAL HUB  https://bankless.cc/TrueFi 👾 SEQUENCE | ALL-IN-ONE PLATFORM  https://bankless.cc/Sequence  ⚡️FUEL | THE MODULAR EXECUTION LAYER https://bankless.cc/fuel  ----- 0:00 Intro 4:30 Barry Silbert in 2021 7:00 The Pyramid 11:30 Who Made the Money? 16:15 The Yield Game 23:00 The Players 27:00 Arbitrage 35:45 Deploying 41:00 The Macro Picture 45:00 Terra Luna Crater 48:30 The Blow-off Top 54:00 The GBTC ETF 58:00 3AC Liquidated 1:02:00 Saviors FTX and Genesis 1:05:30 FTX Threatened 1:09:50 Greyscale vs SEC 1:13:00 SBF Crumbles 1:20:00 SEC's Role 1:25:20 The Genesis Domino 1:32:00 Is this it? 1:36:00 2021 Was a Scam 1:40:00 Hitting the Reset Button 1:44:00 Comparing Bear Markets 1:47:00 Looking Forward ----- Resources: Barry Silbert Tweet https://twitter.com/BarrySilbert/status/1408191462324441092  Bull Market Pyramid https://docs.google.com/drawings/d/1BoRcwjJx3yp1UG9G2eFMNEzKDG4ufThLI1_JR1wk2y4/edit?usp=sharing  Who Made the Money? https://twitter.com/TrustlessState/status/1590483734650056706  https://twitter.com/bmcmillan888/status/1590516943211368449  GBTC https://www.sec.gov/Archives/edgar/data/1588489/000110465921000026/tm2039668d1_sc13ga.htm  https://miro.medium.com/max/4800/1*Axga-kkSolJ1eG0VfdRE_A.webp  Investing into AVAX https://www.theblock.co/post/117895/polychain-three-arrows-capital-lead-230-million-avalanche  Solunavax https://twitter.com/zhusu/status/1471807725742931969  Inflation https://www.cnbc.com/2022/02/10/january-2022-cpi-inflation-rises-7point5percent-over-the-past-year-even-more-than-expected.html  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

Bankless Nation, we've got another segment for you, something special today, something different, something I guess we need to talk about. We had a regular state of the nation planned, but events overtook it once again. It's been the story of the last three weeks. I think what people want to know in today's episode is what's happening with Genesis, this large institutional crypto lender. Is this the next domino to fall? If that happens, what happens next? and then higher level, as David was pitching me this episode, I don't know if you guys have ever seen that picture of Charlie from Oisone in Philadelphia,

and he's got like, let me share the picture as I'm talking, he's like in front of some kind of a board, like a half-craved detective. This is David coming into this episode, right? Because I think David, you feel like this has linked, this last series of events with Genesis, has linked a whole series of things in your mind and is helpful to explaining and you, for you to explain what happened the last two years in crypto.

Everything. I mean, the question is like, I'm coming to this episode and David's like, yo, I think the last two years, solid 12 to 18 months at least have been a ginormous Ponzi game. Dude, the whole 2021 bull market was a gigantic Ponzi scheme. Can you make the Charlie face? Yes. head, the whole thing,

dude. What's going on a thumbnail? The whole thing. The whole thing was a Ponzi scheme. And now we're at the end. It's completely unraveled. And now we're at the final conclusion.

And so I was going to make a show about, all right, is Genesis insolvent? What's going on with Grayscale? What's going on with Barry Silver and Digital Currency Group? And like answering that question, what's going on in the last seven days has been the final puzzle piece that fits over the broad category of 2022.

Contagion, Contagent, Contagent, Contagent, why was there so much contagion? We now know. We have all the answers. The good news. I think we have all of the answers in today's episode. If you had any question coming to the day's episode, you'll leave with the answer to your question.

But really, I think this is, we're going to walk through it. We're going to end with the last domino. We hope is one of the last dominoes to fall, which is Genesis, a digital currency group. What's going on with kind of, it even ties into, retail products like Gemini earned people still have funds stuck on that what's going to happen and all that we end with that but in order to explain that we're going to take you through 2021 2022 and the series of dominoes that led to this final domino falling so this is going to be an

interesting episode and guys i just got to like i looked over some of david's notes real quick coming to this but at some level i'm along for the ride with you too all right because i think david's going to unpack his brain and i'm just here asking questions before we get in I want to tell you about our friends and sponsors at Consensus, more specifically at Infura. If we're going to rebuild crypto, which we absolutely are going to do, we have to build it on decentralized infrastructure. And Infura is an Ethereum infrastructure provider that is doing God's work to make sure that all of our defy tools load in the pages and in the ways they're supposed to load. they are taking steps to further decentralize this infrastructure as well. And they wanted us to let you know that there's an opportunity to find out more about what they're doing.

David, take it from here. What does Infura want to communicate to the bankless nation? Yeah. So Infura has been this critical infrastructure provider for all of Ethereum. Like running a node, if you just want to easily build something, you would just plug into Inferra in order to access Ethereum. Well, they themselves want to decentralize their own stack. So they want you to help them foster a brand new decentralized infrastructure ecosystem.

And so we can get this journey done. We need all these people, we need more people to come at help Infura in this role of decentralizing themselves. So there is a link in the show notes. So you can plug into the Infura stack as an independent infrastructure provider. So we can decentralize a core piece of Ethereum. Good stuff there. All right. Let's talk about the high level of the episode that we're about to get into, kind of the daisy chain of events. And I'm going to bring up a tweet from Barry Silbert, who's kind of, I guess, the first player in this story, but also one of the last players of this story. Why did you want us to look at this tweet? And this is from June 24th, 2021, a tweet from Barry Silbert, who of course, will introduce the actors in a little bit. but he is the leader of digital currency group, Genesis, what else, David? I guess the GDPC and the eth, eth trusts that people can buy in their retirement accounts.

What is Barry saying here and why is this relevant to the story? Yeah, so this was June 24th, 2021, which if you remember was this first big crash in crypto after a meteoric rise of basically all crypto asset prices. Ether hit $4,300, Bitcoin hit like $60,000. And then in one or two days, we lost like 50 to 60% of the crypto market cap. And then, as the dust settled, the bull market actually resumed. Again, this was in the middle of 2021. And Barry Silbert tweets out,

There is a daisy chain of borrowers and lenders in the crypto space, most well capitalized, but some are not. Lots of leverage still in the ecosystem, including in some non-obvious places. important to understand counterparty risk and where the weak links are in the chain. Now, this tweet was like the most, was the indication of all things to come over the next 12 to 18 months. In our Shakespearean tragedy story, this is a foreshadowing. This is foreshadowing. This was the tweet to pay attention to at this moment.

No one really wanted to, no one really knew how to unpack these things because all of these were centralized lenders, so it's a black box, so we didn't have that information. But this tweet became true in fantastic fashion. And the irony, Ryan, is that Barry Silbert tweeted it. And that daisy chain of borrowers and lenders has come full circle back to his own trading desk Genesis, which is part of his company, digital currency group. The full circle nature of the story is absolutely insane. Back to Barry.

This is where the story starts. this is where it's actually going to end when we get into it. I'm going to pull out a few phrases here. Daisy chain of borrowers and lenders, he says, most well capitalized. Some aren't lots of leverage. He says, important to understand counterparty risk and where the weak links are in chain. What do we have here, David? This is a diagram I think you put together for this episode.

And maybe is kind of the different sections. All of these layers maybe represent domino. explain this for us. Okay, so I stayed up like late last night because I was going down this rabbit hole. So I made this pyramid. Happy Thanksgiving, by the way. This was the 2021 bull market. So like the 2017 bull market was determined by ICOs printing tokens out of thin air to fundraise and they would buy ether and USC and that end. It was a bunch of printing tokens out of thin air and that's what the ICO mania was. I regret to inform you, Ryan, that the 2021 bull market, was the same damn thing.

We had these yield farming, defy yield farming, pool twos. Remember pool twos with like 500% APYs if you were like willing to take the risk of like other yield farmers to dump on you? So like pool twos with incentivize APYs and farmers would play chicken after they,

after like everyone would want it to farm. And then and that was like, you know, crazy 100 to a thousand percent APYs. That rested on top of the pool once, where it was lower risk. You weren't providing liquidity. You were just incentivized to stake your tokens,

whether it's like whatever, D-Fi yield farm. You were to stake your tokens and you get a yield. You didn't really have to have as much risk. Moderate 10 to 90% AP-wise. That was the top of the pyramid. That was where...

Defy Summer. It was D-Fy Summer. And also like that, and then Solana, Avalanche, Phantom. That was their game as well after Ethereum took it over. Okay, hold on. You're saying top of the pyramid.

But actually, you're describing it, I almost think that this pyramid should be flipped on its head. Do you know what I mean? Like so the top should be kind of like the weakest part. But that's where it really starts, right? It's like, uh, pool two twos and pool ones, the defy summer is actually kind of like the start of the pyramid and what the full 2021 bull market builds into. Is that right? Sure. It depends on your perspective. Uh, okay. What we are looking at here is a risk spectrum as well, where you, if you are at the top of the pyramid, you are on the highest end of the risk curve. You are the things with the most APYs, with the most risk, and then the risk actually

gets lower as you go down, which is why... The perceived risk gets lower? No, no, the real risk. It's just like, this is why people are concerned about Genesis and digital currency group, because they are the foundation of all yield. All that yield, all that crazy speculation, all fell down at the end of the day to Genesis. And that's why we are talking about Genesis today and why we feel, I feel confident that this is like the last big dominole of... Okay, so pool two's, Pool twos and defy yield farms were supported by pool ones. Pool ones, which were the basic yield farm, that's where Alameda and Three Ours Capital got a lot of their money

in the second half of the bull market. Head funds maxed out lines of credit from anyone that would allow them to borrow from them. This is what Alameda and Three Aurs Capital did, and this is where so much contagion came from, because Three Ares Capital and Alameda borrowed from as many different lending desks as possible. BlockFi, Voyager,

Celsius. And then when three euros capital and Alameda went under, they took all the lending desks with them, except for Alameda and FTX found a way to print a bunch of FTT to support all the lending desks. But ultimately, all of that money, all the capital to block five orders or Celsius, where were they getting their yield? They were getting their yield from Genesis, the GBT arbitrage, and ultimately the whole entire digital currency group system. And that, Ryan, was the 2021 bull market. All of these high, high risk yield farms ultimately was supported by the largest player in the game, which was Genesis and also the arbitrage for the gray scale premium. So you're telling me everything that happened in 2021, all of the price appreciation that we've now,

by the way, walked back and reset was just smoke and mirrors, was almost like a Ponzi scheme of stacking risk and stacking like interest that wasn't really real. Yes. And it was all in the whole reason why this whole thing worked was because we were able to print tokens out of thin air, which is the way that every single crypto bull run has gone since its genesis. So like you want to go to and click on that tweet. You know, remember this tweet that caused a bunch of like, like crypto Twitter murmurings because this was the one that like Richard Hart responded to. And Richard Hart, like I tweeted out. Okay, three errors capital is insolvent. Alameda is liquidated. FtX is insolvent. If all these people are insolvent, I'm, I'm sorry. I asked, then who made all the money? Richard Hart comes in like, hello there. It was me. Well, it wasn't him, Ryan.

The actual answer is the next tweet. The actual answer is this guy who used this illustration of a neighborhood with 100 houses and has one sale for a million dollars. Therefore, the collective houses are worth $100 million. But then the remaining 99 houses only sell for like 10% of that. So actually, like $91 million of equity is actually gone. This is what happens when all these e-liquid chip coins, all the defy yield farming, all of the degeneracy high APY, pool one and pool two's, when all of those tokens go down in price, the entire system gets wiped out because of all of the systemic risk that got built up by players like Three Earth's Capital and Alameda. And so that's what happened, Ryan. That's where the money went. We printed all these.

The money was just not real. It was just a fabulous. It was just numbers on a pay. And there may have been some people, by the way, that cashed out close to the top based on those valuations. Some few people walked away with with some amount of money. But what you're saying is the price of... They walked away with Bitcoin, Ether, USDC, blah, blah. Yeah. Real monies, like hard monies.

Yes. And left everyone else kind of holding the bag. And that's where we are. Yep. So now here we are. Genesis has what's reported to be like a $1 billion hole. people are now worried about the solvency of gray scale and digital currency group empire we're going to talk about that and when we get back david i want you to walk us through this whole story

if you could i think we just we just saw the the preamble if you will and i think what we're going to go through is i show you domino by domino how these pieces were stacked and what caused to what caused their fall and what's going to happen next so guys start Stick with us. We'll be right back. But first, we want to tell you about the fantastic sponsors that made this episode possible. Arbitrum 1 is pioneering the world of secure Ethereum scalability and is continuing to accelerate the Web 3 landscape. Hundreds of projects have already deployed on Arbitrum 1 producing flourishing defy and NFT ecosystems. With a recent addition of Arbitrum Nova, gaming and social daps like Reddit are also now calling Arbitram home. Both Arbitrum 1 and Nova leveraged the security and decentralization of

Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM-compatible. On Arbitrum, both builders and users will experience faster transaction speeds with significantly lower gas fees. With Arbitrum's recent migration to Arbitram Nitro, it's also now 10 times faster than before. Visit Arbitrum.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app. With Arbitrum, experience Web3 development the way it was meant to be. Secure, fast, cheap, and friction-free. The Brave Wallet is your secure, multi-chain on-ramp into Web3, and it's built directly into the Brave Privacy Browsman. Gone are the days of managing multiple wallet extensions that put you at risk of

fishing, spoofs, and tracking. With the Brave Wallet, you can securely manage your crypto assets across more than 100 different chains, including Ethereum, Layer 2s, Solana, and more, all without downloading risky extensions. The Brave Wallet is easy to set up and removes the headache of jumping between wallets and extensions. It's lightweight, but packed with great features, like built-in token swaps, buying and holding NFTs with a gallery view and support for hardware wallets. But also much more than that, because Brave is shipping new features every single month

with a mission to make Web3 easier to navigate for its over 55 million users. Wall extensions are a thing of the past. So get started with Brave's Web3 ready browser today and experience a decentralized web seamlessly without all the clutter. You can download the browser at brave.com slash bankless and click the wallet icon to get started.

If you've been listening to Bankless, you know that we're fans of the modular blockchain thesis. The idea that blockchain will separate execution from data availability and consensus, allowing all three to become the best versions of themselves. And Fuel has built the fastest modular execution layer in the industry. By supporting parallel transaction execution, fuel unlocks significantly faster throughput for the web free world. Fuel also goes beyond the limitations of the EVM, with its own Fuel VM, which is more efficient and optimized, opening up the design space for developers.

And lastly, Fuel brings a powerful developer experience with its own domain-specific language, sway and a supportive tool chain called fork. With fuel, you can have the benefits of smart contract languages like solidity while adopting the improvements made by the rust tooling ecosystem, letting the fuel development environment go beyond the limitations of the EVM. If you want to learn more, there's a link in the show notes to see how you can get involved with a fuel network. Was the 2021 bull market just a gigantic Ponzi scheme in crypto? That is the essential question we're raising in today's episode. And David has brought some of the receipts. going to take us through the timeline here all the way back in January 2021 when this Shakespearean

tragedy started to first unfold. I think in order to set this story up, David, and do it justice, we should do a couple of things. First, we should set the stage where we were in January 2021, the feeling of the market, the prices, that sort of thing. And then we should talk about the key players as any good, I guess, tragedy does. We have to lay out the background and the actors and the players, the characters that are going to be in this, that are somewhat reoccurring as well. So let's talk about where we were, and I remember it actually,

coming out of December 2020. ETH was low in December 2020. We had a show that was... $4 to $700 in December. We had a show that was kind of like the bull case for Eith. And what was really interesting is Defi had had its moment back the previous summer. This was a summer that came to be known as Defy Summer. This is the summer of 2021 where people realized that DeFi tokens were real things.

Previous to that, all tokens were kind of dead. There was Bitcoin and there was a little bit of ETH, but then all of the other tokens, nothing mattered. Defy Summer 2020 showed people that no tokens did matter and talk about yield farming, that sort of thing. But ETH was still kind of lingering in the 400s. Bitcoin had seen a moment. there was this move of to say, all we need is Bitcoin and Defy tokens, and there's no real use case for ETH.

So, ETH had not yet popped at the end of December 2020. So take us back to that feeling as we start this story in December in January 2021. What had the market done with DFI? What was the price of Bitcoin? What was the price of ETH? Yeah. So at the time, DeFi Summer, Compound really announced the governance token. And that was the new primitive that everyone was super stoked about.

This is how we're getting a decentralized ownership and control over these systems to as many people as possible. And that was the shiny new object that really incurred Defi summer and the concept of yield farming to begin with. And like I said at the beginning, yield, yield farming, liquidity mining was this era's ICO. And before the ICO era, there was the proof of work fork and fair launch phenomenon, like almost zero tokens made it through. So like we had the 2013 bull market was the proof of work for and fair launch. We just made a bunch of tokens.

2017 bull market was the ICO mania where we just made a bunch of tokens. The 2021 bull market Ryan was the defy yield-summing era where we made a bunch of tokens this time with yield. This was the thing. Yield was the thing that identified the 2021 bull market. Not just at the very high risk end of the spectrum, but down all the way into how regular institutions got involved. in crypto and why they got involved is because there was demand to borrow assets. And this is the

story of how everything got built up and how everything fell apart. So if we're injecting ourselves into this story in January of 2021, which is kind of when the story starts, Ether began January at about $900. It ended January at $1,700. Bitcoin started January around $25,000. It ended that January somewhere around $35,000 to $40,000. And so it's on. The bull market is on. 2021. People felt like the bull market was fully on.

And they were also hungry, I feel like. Maybe we could start to inject terms like greedy. And they're certainly hungry for more yield. Things were frothy. Like, oh, let's do that 2020 DeFi summer thing again. That felt great. Let's do it all over again. Yeah.

And this starts to inject, I think, this idea that we've seen in many cycles, David, is the concept of a metaphor we call it the euthanasia roller coaster. This is a picture of the euthanasia roller coaster. And it's a it's a theoretical construct, but the physics of it would actually work. And basically, you start the roller coaster and by the end of it, after all of the loops, you're kind of dead. Yeah. Like, it's just been a one-way ride.

There's no life left in you. But each of these loops, like, describe this in some more detail. And where's the analogy fit? because we've seen this in previous cycles as well. Yeah, so again, proof of work forking and fair launch. What happened? Somebody Charlie Lee made light coin by forking Bitcoin. And that created like a billion dollars in market cap.

People saw that and they did that on repeat. They did that over again. And all of a sudden. Another loop. Another loop. Like, oh, that worked for Charlie with light coin. Let's make 17 other forks. And then let's make 17 forks of that fork.

Eventually, it created a mania. and then eventually people got fatigued and people just got done. And so they left the bull market. Same thing with ICOs. What was the great big ICO that triggered the 2015 ICO mania? It was the 2015 Ethereum ICO, followed by the very successful 2016 Auger ICO. And all of a sudden people realized that they could do ICOs to mint tokens. And that would generate a bunch of hype.

And that's how you could do things. So it started off legit. It ended in tragedy. And so as the ICO mania went on, ICOs got the loops got faster and faster and faster until people just got fatigued. These things were just way too scummy. Retail investors just lost all their money. And no new inflows of money came into the system.

And then we had a bear market. This was, of course, DFI summer. The first OG yield farm, the first liquidity mining event was compound, followed by every other defy app that had yet to issue a token, followed by copycats on Ethereum. think about sushi swap, which, I mean, allegedly was San Bankman-Fried. And then we had avalanche, Solana, Phantom, all of these Ethereum killers show up and then start doing yield farms on their chains. And eventually, people got fatigued, people stopped making money, and the energy ran out of the system. But this is the pattern of every single bull market so far.

The first few loops in the euthanasia roller coaster are fun. And the last couple actually kill you. Yep. And that's right. That's how all both cycles end, including this one. So we're going to talk about some of those loops. But as we get into this, the other thing to introduce is, I think, the players here, the reoccurring actors that are important.

I want to talk about a few of them. First is the House of Barry Silbert. Okay? This is like the Montague's and the Capulets, right? In their Shakespearean tragedy, the House of Barry Silbert. So Barry has been a crypto-O-G from the very beginning of crypto. I don't know. He might have been in.

in crypto as long as like Eric Vorhees and speak like this, early Bitcoin holder for sure. But he decided to go the institutional route behind things. So he formed this company called Digital Currency Group. There's a group within that called Genesis, which maybe you can explain some details. Also, Grayscale, which is a trust type product. Maybe you can explain that to us. And there are some other products he owned, including media. So, like, CoinDesk is actually owned by Digital Currency Group.

So talk about the House of Silbert. And who's Grayscale and who is Genesis? So Grayscale is this trust that what allowed people to have Bitcoin exposure on the traditional stock market. If you didn't want to go and set up an exchange that maybe you didn't trust, maybe Coinbase is too sketchy for you because you are an institutional investor, you could just buy access, buy exposure to Bitcoin via the Grayscale Bitcoin trust. The thing is, it doesn't trade one for one.

And so the GBT share on the traditional stock markets are a subject to market forces in the same way all assets are. Even though that they are backed by Bitcoin, they do not represent a one-to-one redeemable share for Bitcoin. Why not? Because we weren't and we aren't able to have a Bitcoin ETF. An ETF would have solved this problem, but we don't have one of those. So we have to have the next best thing, which is a gray scale trust. There's the BTC trust. There's the Ether Trust.

There's a few other trusts. but the Bitcoin and Ether are the very big ones. So that's gray scale. That is owned and operated by Digital Currency Group, which is where Barry Silbert started. Also, part of Digital Currency Group is Genesis. And Genesis is Cryptos only like full service prime brokerage. What is a brokerage? It's a custodian.

It's an OTC desk. It's a lending desk. Basically, all financial services, all under one roof. It's like a Fidelity account or an E-Trade account or Charles Schwab. account except for big institutions, not for everyday users, not for mom and pops, not for retail, but for big institutions. It performs all of those services. Yes, correct. And so these are the two big players. The Coin desk is also related here because they were actually the ones that published that Alameda report, but not really a key player here. But that's the House of Barry Silbert. That's

the House of Digital Currency Group. Brian, this story starts there. It also ends there because that is where the contagion has finally come home to roost back to where this whole thing began. But we'll get into how it began in a second because how it began was some players in this game. The next house we're going to talk about are the house of the hedge funds. Three years capital, Alameda both came into fame in 2019, 2020. And these are the people that spread out of the contagion. They are the things that connect everything because of how this bull market progressed. They ultimately borrowed from whoever they could get their hands-on money,

that wherever they could get their money from, they would borrow and borrow and borrow. And they are the middlemen of all the contagion. And so we'll get to that story as well. There's also, of course, the House of Doquan and Terra Luna, which probably started the casket. It was probably the first domino to fall. There's the Heath Killers.

I think you remember the acronym Soluna Avax, Soluna Vax, if you remember that. And then, of course, there's the house of San Bank been freed also alameda ftx and all of the sam coins fttt srm salana and also ryan the last player in this game is the s e c and gerry gensler or what they chose to not do rather than do so these are all the players the house of the regulators these are the cops on the beat okay so um we've got our players we've got our background people hungry for yield traveling on that euthanasia uh roller coaster take us to um domino one. Right now, I think what we're going to do is we're going to lay out the major dominoes

that haven't fallen yet, but that are being stacked in a row. Yep. And they're being set up right now. So the first domino is back to December 31, basically January 2021, 3-Eros Capital and the GDPC premium. Let's talk about this. And I think it begins with the SEC or cop on the beat. We're looking at an SEC filing for the grace scale Bitcoin trust for this product called GDPC. Why are we looking at this? Why does our story start here? So this is actually a filing by Three Arrow's Capital at the start of 2021. And if you scroll down, you'll see that Three Arrows Capital is declaring that they have become an owner of 6.1% of the total GBTC supply, as in they own 6.1% of the trust. How did they get 6.1% of the GBC? How did they get 6.1% of the GBTC trust. They bought it, right? They put up some money. Okay. But not with Grayscale.

They had some money. They had investors. Three hours capital got investors somewhere. They probably put up some of their own money. And what did they do? They gave that money to Genesis as collateral to borrow Bitcoins because they could take those bitcoins because at this moment in time, Ryan, the GBT, like I said, it doesn't trade one to one. It doesn't. It's not. equivalent to one Bitcoin, it is at a premium or at a discount to Bitcoin based off of the net present value of all the assets in the trust. And so, for a long time, GBTC traded at a significant premium to actual Bitcoin. And so what could you do? You could take one Bitcoin, you could deposit it into the trust. Six months later, you could receive and redeem a GBT share,

which had a premium associated with it versus the Bitcoin that you deposit. And then you could sell that premium and pocket that arbitrage. Okay. This is an arbitrage opportunity for three years capital. And it seems like a riskless arbitrage opportunity, right? With six months of time, but yes. The context of this is three hours capital just made a boatload of money and Defy Summon all of the yield products and degenning away over there.

And now they're like, where's our next hit going to come from? And they're seeing this big, juicy ARB opportunity in between the spot price of Bitcoin and GBTC. And by the way, they're the only ones that can kind of access this. And when I say the only ones, I mean, large institutions like Three R's Capital are the only ones because retail investors cannot buy this product from groups like Grayscale OTC over the counter, that is. They cannot produce this arbitrage. They can only buy GPTC on the secondary market.

Right. They cannot mint new GPTCs. Okay. So the Suzu, Kyle Davies are like, lick in their lips. Here's another arbitrage opportunity. That's what our fund is set up to do. is make money, three hours capital, it goes in and buys six percent of this product. But it's not, it's not like this coming in like ape into 6.1 percent. What do they do? They take, they take whatever

winnings they got throughout 2020 and 2019. And I mean, you know, starting at February 2020 after the COVID crash, it was up only from there. So if you were in at February 2020, you're making money, especially DeFi Summer was probably the most lucrative time in the last like three years. And so three hours capital takes all their money and they gives it not, again, not, not, to Greyscale, but to Genesis. They put up their capital capital in Genesis as collateral, and they buy as many Bitcoins as, I borrow as many Bitcoins as possible. And they take it and they give it back to Greyscale to produce GPC. So they're buying this on margin. They are borrowing Bitcoins on margin from Genesis. However, the thing that is crazy is that Grayscale and Genesis,

again, are both under Digital Currency Group. And so, hang on, let me open up a document to make sure I get this right. Since they are both owned by Digital Currency Group, there's this unique position that Genesis has because Genesis is like the only term Genesis is the only

authorized participant, aka in Cryptonate's speak, the only party that can mint and burn shares of GBTC. So when Three Earth's Capital borrows Bitcoin from Genesis, they were actually giving it straight back a round to Genesis because Genesis is the one that's minting

GBT in the first place. And so it's this very incestuous relationship between Genesis and Grayscale that is the linchpin of this whole thing and why there's so much contagion. Because what Genesis would do is they would just like, hey, Grayscale, come put up capital and then have this free arbitrage opportunity. And why is Genesis incentivized for this? Well, when you can take and Genesis is like giving out people for depositing their Bitcoins are giving them a yield, Gemini Earn, for example, if you come and deposit your Bitcoin

and Gemini Earn, Gemini gives it to... That's how it flows down to retail. That's how it flows down to retail, right? So retail, retail, so retail, they... Gemini gives that Bitcoin to Genesis. Genesis pays Gemini and Earn, Gemini takes a percentage, passes that onto retail. Genesis allows Three Arrow's capital to take that Bitcoin and then convert it into GBT through their sister subsidiary company, Grayscale.

And the thing is, when that happens, Grayscale takes 2.5% yearly fees of all assets under management. And so there is this huge question as, what are the incentives of Genesis? Why does Genesis, we think about this. As a system, part of this overall system, it's Digital Currency Group, digital currency group makes more money,

the more assets are under Grayscale's management. So if Genesis can get all of the bitcoins into gray scale, that means it's a revenue engine. It's a revenue engine, right? And so all they have to do, all Genesis has to do is create this arbitrage opportunity that allows people like Three Eros Capital to come in an arbitrage. And so they do. And so three years capital milked the absolute F out of this premium. And so at some point in the early 2021, that premium, which is what we're looking at here, that it's all premium. And you can like all. of that premium on the left half is the arbitrage opportunity. At some point in very early 2021, it gets milked and the premium goes to a discount. This is- Because everyone's doing the same trade, basically. Everyone's doing the same. Well, three hours capital is like leading this trade, but everyone starts to follow them because of how incredibly lucrative and profitable it was. And so it's actually a big problem when the premium goes to a discount because this was,

the original yield farm. The GBTC premium arbitrage opportunity was three-erous capital yield farming as much possible out of this premium. And who is buying that on the other side? It's any retail investor or anyone who's buying GBT on the other side of the trade. And so that is who.

And they're doing it. Retail is doing this because, like, their money is generally, it's stuck inside a retirement account, for instance, or some sort of locked institution that doesn't have access to spot. this is not a real

ETF type product, it's just a trust type product. So they kind of have to buy if they want to buy here. What are we looking at here, David? What is this chart? Yeah, so this is the Barry Silbert that we talked to tweet that we talked about earlier. This is when after this week, we go from January to May and we have that first crash.

And Barry Silbert starts to see why is Barry Silbert the one that has all this information about this daisy chain of borrowers? Because he created it. Digital Currency Group, incentivize the creation of this daisy chain. That's why Barry Silver can see it. And so when going back to like the discount versus premium on the GBT,

this was the first domino to fall, but it actually didn't cause too many problems in that moment where all of the GBTC that through ERA's capital and others that held as collateral under Genesis or blockfy or whoever, when that turned into a discount, that was bad because they start to become underwater. But at the same time, Bitcoin is up only, Ether is up only like the part of this part of the market is like up only and so this is the second

part of this whole like set of yes let's talk about that so that's the first domino but like three hours capital they're feeling good right now right and so what do they do this is the second domino to get to get put up there which is three rows capital they've taken their winnings and they're actually deploying it into crypto and some of maybe what we might call at this point in the rotators rotation is what three hours capital are they just rotate in and out of things, the blue chip assets, like Ethan Bitcoin. So what are we looking at here this tweet? Yeah. So Domino number two is Three Ours Capital takes their winnings from this, and they go long on Ether and Bitcoin. And then this tweet, and particularly fast forward to November

where we actually skip into Domino number three, where after- November 2021. Yeah, November 2021, where they take their Bitcoin and Ether winnings and they start to go even further out on the risk curve. And so they... The 2020 for them was milking the GBT premium. That premium turns into a discount in February of 2021. So 2020, they were milking the GPDC premium. 2021, that premium turns into a discount. But they've made enough money to go long on Ether and Bitcoin.

And that was the first half of the year. That was the first half of 2021. But then they start to go out on the risk curve. And so this next tweet is Three Roast Capital, leading a $230 million investment. into avalanche tokens. And so that happened on September 16th, 2021. I think that's the next link, Ryan, if you want to click that one.

Yeah. So this is, yep, Polychain, three hours capital lead, $230 million investment into avalanche. Importantly, Ryan, locked Avax tokens, illiquid Avax tokens. The next two tweets, here's as Suu being bullish on SolunaVax. And this was a tweet, like hashtag that got really, really popular.

And it's because they were going out on the risk curve. They were done with Ethereum and they were going on to the Ethereum killers. This next tweet is Kyle Davies being bullish on Luna. When was this next tweet? Want to click on the next tweet? Yeah. This is from March 28. March 28 at the beginning of 2022, right?

And so three errors capital went out on the risk curve. They borrowed a bunch of money from Genesis. They won with Ether and Bitcoin. They started to go out on the risk curve with Solunit. at A-Vax, right? Remember all this? Remember this phase in the bull market? Yeah, are you guys seeing that euthanasia roller coaster of the circles getting small? Like, we just went through the, so, um, what's happening is through us capital and, you know, other D-Gen hedge funds like them are doing similar kind of trades, but they just made a whole bunch of money on D-Fi summer. They're coming in,

right now, they're coming back and they're arbitrate, uh, using an arbitrage opportunity in GBTC, right? They're making money at the beginning of, uh, 20-21 in that way. And, and, and, and, And then they're going margin long, by the way. And then they're pouring that into blue chips like Bitcoin and Eath, right? And then that's not enough. They've kind of milked that. And then they rotate down the risk curve or up the risk curve, I suppose, we might say, into the saluna Avax communities. And then by the time we get to you this tweet from Kyle Davies in March of 28th, 2022, all of the previous things have not been enough.

So now you can see they're getting ready to rotate into Luna. And you can just say it's so transparent because what they are doing as D. hedge fund managers, of course, is they want to, you know, what the saying is Phil, then Jill. So anytime you see a Kyle Davies or a Susu tweeting something like this, Kyle Davies goes, Grandpa, what would the world look like when Luna was less than three digits? It's less than three digits now, Kyle. Definitely a lot less. And he's tweeting that because he's hyping up a fill that they had previously made.

He's hyping up the Luna rotation that they're in. But also remember, Ryan, their foundation, is underwater. Their GPDC collateral, which is their collateral in Genesis, is below when they bought it for. They're not insolvent. Wow, that's right. But this whole time, GBTC is supporting their loans and that they don't want to pay back because they'll take the loss on it. So they got the one, they got the dub on Bitcoin and Ether, and then they got the dub on Solana, well, actually they miss Salana, Avalanche and Luna, but they need to go out on the risk curve because they don't want to sell their GPDC because it's underwater.

Yeah. Well, so far they're getting the wins, right? They're so far they're getting there. They have one big loss because they didn't sell their GBDC, but they're still stacking wins. Okay. And that take us to, so this tweet is March 28th of 2022. And guys, I just want you to remember that time frame we were in. It was basically like alternative layer ones were kind of kings and boss. You know, Luna was kind of the next Ethereum killer. And people like Kyle Davies and Suu and Three Ro's Capital were traitor gods. Okay. everybody else was wrong. All the holders were wrong. The Bitcoiners were wrong. The Ethereum people were wrong.

And these were Trader gods were at the top of their game, like pristine reputation of the last couple of years of making money every single cycle. That's where we left things in March 2020. But David,

we've got these three dominoes that I think we've kind of stacked up. And then something happens with old Jerome Powell around this time. Right. Tell us about the macro story. because if we're looking for an outside actor, the one that actually pushes these dominoes over

and starts to cause the cascade that we now see up to November 2022, you have to, like, I think Jerome Powell was the finger behind this initial push of the domino. What are we looking at here? What's this story? This is in February, inflation surges 7.5% on an annual basis up highest since 1982. And so not long after that, the Federal Reserve starts hiking interest rates. Remember that episode we did with macro elf, Brian, where interest rates and bond market volatility are at the bottom of the pyramid?

Well, in the bottom of the crypto pyramid, it's all about low rates because this bull market was a bull market on yields. We were printing free money because risk was free. And these yields were like, there were zero yield in the normal markets because that's because the interest rates were set to zero. But as soon as the Federal Reserve gets into the game of jacking up interest rates, that shifts the whole entire crypto pyramid because this was a bull market on rates, on yields. And when the Federal Reserve increases interest rates, it pulls down yields from the whole rest of the stack.

This is what starts to happen. And this is the federal funds rate, a historical chart. And we could see, right? This is what we're starting to see in April 18th. So the federal funds rate April 18th was about 0.33%. And of course, now we are, here we are today, about 4%. One of the fastest, steepest inclines in history on that rate. So the risk on days are over for crypto and for the cost of capital.

And we are now moving to a risk off regime. Guys, this is the first part of the story. This is the part of the story where Powell tips over the first domino and the rest of them start to collapse. We're going to tell the rest of that story when we come back. But before we do, we want to thank the sponsors that made this episode possible. Sequence is the all-in-one developer platform you need to build Web3 games and applications. For your users, Sequence is a smart wallet, and it's the easiest, most intuitive onboarding your users will ever experience and comes with all the features users need to feel empowered in the Web3 world,

multi-chain support, NFTs, and users can buy SFTs, NFTs, and crypto directly with a credit or debit card. For developers, Sequence is the plug-and-play platform for Web3 games and apps. Their APIs let you bring NFTs, SFTs, and tokens into your game or application.

And a Sequence relayer enables gaseous transactions for your users. Sequence already power some of the best web three games like Skyweaver, NFT projects like Cool Cats, and marketplaces like NiftySwap. And Sequence is compatible with all the EVM chains, including Ethereum, Polygon, Binance Smart Chain, Arbitrum, Optimism, and Avalanche.

So go to Sequence.xyZ to get started unlocking the full potential of your application today. The reality today is that five corporations control the entire world of social media. They own our names, they restrict our content, they monitor our every move. And their time is up, thanks to our sponsor, Diso. D. D So is a layer one blockchain built from the ground up to decentralize and scale social networks. With Dyso, you can own your own identity, content, and social graph. and take it with you across hundreds of applications already built on the censorship-resistant

D-So blockchain. D-So storage advantages make it finally possible to build infinite state applications that can efficiently store and index large amounts of content and data fully on-chain. D-So also offers multiple crypto-native monetization primitives for developers and creators, including social NFTs, social DOS, social tokens,

and social tipping. So in order to experience the social layer of Web3, go to DESO.com and claim your username That's d-es-o.com. Trufai is Defi's largest credit protocol connecting global lenders with institutional grade lending opportunities. TrueFi has completed over $1.7 billion in originations and paid out nearly $35 million to lenders, proving that Defi is ready to take its next big leap into the $8 trillion credit market. TrueFi gives lenders like you access to sustainable high-yield opportunities backed by real-world investments,

usually reserved for high net worth individuals. At the same time, fund managers use TruFi's financial infrastructure to bring their portfolios on-chain, benefiting from the global liquidity, cost savings, and transparency of Defi. Trufi is a decentralized financial utility. The protocol is owned and governed by the TruFi Dow, and Truffi is here to bring Defi into the golden age, bridging the power and access of crypto with institutional-grade lending opportunities and portfolio tooling. Explore the diverse financial opportunities available on TrueFi or launch your own portfolio at trufi.

And of course, Terra is the first domino to fall. An unbacked algorithmic stablecoin. Of course it is. Of course it is. It's the most risky thing. A stable coin with nothing behind it. But first, before it falls, they have to drop up their reserves, right? And so this is coming in, when it was this, April 7th, Terra buys $200 million of Avax tokens to bolster their reserves beyond Bitcoin. An interesting choice because of how illiquid and, and, and no.

non-collateral like Avax was. On May 5th, the Luna Foundation Guard, if you guys remember that, buys $1.5 billion in Bitcoin. $500 million of that came from Three-Ero's Capital, and it would be later revealed, Ryan, that 200 million of that purchase that got sent from Luna to Three-Ros Capital, 200 million of that was U.S.T. U.S.T, of course, went to zero. So Genesis bought that. Three O's Capital.

So Genesis did an OTC swap and they also did an OTC swap with Three O'S Capital. Three Roe's Capital out of the $500 million of Bitcoin that Three Roeer's Capital sold to the Lunar Foundation, Three Roos Capital agreed to take $200 million as U.S.T for compensation for that. Now remember. The OTC swap includes one billion UST for one billion worth of Bitcoin. Imagine trading U.S.T, which is on. its way towards zero, just people don't know it yet for a billion worth of real assets, which is Bitcoin.

Yep. And then it actually, and so people, this was the event that actually triggered the collapse of UST, where UST liquidity was sold off for Bitcoin. And so there was not much to prop up. There was not much reclidity left to prop up UST. And so this happened on May 5th. May 5th, Luna Foundation Guard buys $1.5 billion of Bitcoin. May 13th, Luna UST collapses.

So just eight days later. And this was also, Ryan, the beginning of the end for FTX. So if you want to go to the next link. This is where the contagion really starts to hit. And this was an article out of decrypt that had a ton of analysis from Nansen. Nansen has been going on chain trying to track all the money that happened as a result of this. And so in $4 billion, this is when $4 billion in FTT, token tracked from Alameda to FTX aligns with a report of FTX loans to Alameda using customers funds.

And so this is where the House of Sam enters the story and the House of Alameda and the second hedge fund to trigger a bunch of contagion enters the game. Okay. So where are we in the story? So we've got the fourth domino, which is the collapse of Terra. Now that has tipped over. Again, Powell is kind of the finger at the one end of the dominoes. that tips over.

And by this point in the story, has three hours capital gone under yet? They are about to. I'm so happy you asked. They are about to. Is that what's next? Yeah. So I would say like domino number five,

if we want to add on dominoes, ether and Bitcoin are about 50% off of their highs in this present moment, right? Okay. This is when you and I are doing a bunch of macro shows. We're understanding interest rates. We're understanding inflation. Everyone's kind of learning about interest rates for the first time.

Ether paked out at $4,800. Bitcoin peaked out at $69,000. And by this moment, right at the end of that red square, Ryan, which goes from about middle of November to the start of June, was all of that. This was pre-Tera-Luna collapse. And so pre-Therraluna collapse, Bitcoin and Ether are 50% off of their, excuse me, about 60% off of their highs. And that is the collateral base for Three Eros Capital, for Al-Lamita.

but not only that because Soluna Vax, which I think is at the next link, no, no, it's not. It's just like, this is Suzu just talking about the super cycle, right? Soluna Avax, which was the other collateral base for Three Ro's Capital, is off 80% off the ties. No way. In this moment, before the Terra Luna collapse happens. So at this moment, Three Ro's Capital is an extremely tough spot. So if you're in a tough spot, Ryan, as a hedge fund with a bunch of illiquid collateral that you can't sell, what do you do? Do you call it quits?

Narrative spin, my friend. Narrative spin. And you also borrow from any lender that will give you money. You also forge documents and defraud investors to give you more capital so that you don't have to sell anything because Suu and Kyle Davies were so goddamn delusional that they were doing the whole super cycle thing that the entire industry fell for. So they were pounding their super cycle chess while they had to use the super cycle for people who don't know. The super cycle, Ryan, was the cycle of crypto that we get two cycles instead of just one. And so while it might have felt like we were off on at the end of one cycle, we were actually going to go on and begin a second bull cycle. That was the narrative that three hours capital led.

And they needed that narrative to be true because they were locked up in a liquid shit coins. Basically, the way I remember it is, you know, we've always had boom and bust cycles in crypto, like, forever, right? And so the narrative around the super cycle is, like, those days are over. Now we're mainstream. Now we have, like, suits. We have like FTCs. We have Wall Street here. And like, and so that's not going to happen anymore where we've matured.

And so we'll get blips down. But gone are the days where you see a down 83% Bitcoin. Like that was last cycle stuff. gone are the days where you have ether off 90% all-time highs, right? This is kind of a new era. And boy, were they wrong. They got a lot of people on that, though. Yep. You know, would you count yourself among one of the people that was kind of seduced by the super cycle idea? Yeah, dude, it was intoxicating. The super cycle idea was super intoxicating. It's like, oh, yeah, like the one cycle to rule them all. Like, yeah, I'm on board with that.

Sounds nice. Right. And so like that turned out to like start to become threatened, right? And this is where Three Euras Capital started to increase the level of contagion that they had. They borrowed from anyone that would ever give them money, like the big lending desks like BlockFi and Genesis, down to like the C tier lending desk that would give them any amount of money, down to the money that they stole from people that traded on their accounts, right? So this is one of the, rather than becoming humble and selling for a loss, they doubled down. They brought as much money as possible, and they increased the amount of contagion in the system. And that was just as a result of the Terra Luna collapse, which was a big part of their position.

But that was just the start of it. Yeah, let's see. Where are we at here? Okay, so this was in June 1st. Interestingly, June 1st, well, the whole entire industry is on fire. FTX passes Coinbase in market share. while the next day Gemini lays off 10% of its staff to prep for winter. So FTX somehow doing great, yet Coinbase,

yet starts to beat Coinbase in Marketchair. And while in contrast Gemini is starting to laying off people. And this is when you and I, when we were reporting on the Thursday weekly or the Friday weekly rollup, you're like, yeah, FTX is coming to save the day. FTCS is just like this huge story of just like success. Well, it's basically seemed like, okay. So at this point in the story, we were at, what, like, June or so. June of 2022.

And there was contagion, right? Obviously from the Terra Luna collapse. And Theoros Capital went completely down. A whole bunch of other funds were completely wiped by this whole mess. And what it looked like is the exchanges and the funds left standing were the ones that were responsible with their funds. They were the ones that made it through the storm and came out strong. and Alameda was among those.

Look at FTX is like surging on the back of this relative to Coinbase, whereas Gemini is like laying off 10% of its staff. So it looks like there's a changing of the guards here. The move fast kind of exchanges and like funds are the ones that have made it out. But that was all a facade as we later learned. But what's this tweet from Grayscale here? Yeah, so we're going to take a quick rabbit hole here because in this moment, Grayscale had previously

or Grayscale, yes, they hired this guy Donald B. Vrilli, who's a former Solicitor General of the United States as an illegal counsel and they put a thread together as to why. And basically, if you just want to skip forward to the Jake Trevinsky tweet,

Jake is oh, I guess I didn't put that in there. I don't know if I have that. Basically, I'll just read it out because I have it in front of me. Somebody asks, hey Jake, just to check my reasoning on this, they are hiring this individual because they want to sue the SEC when in a few days the Grayscale request to turn the GBDC trust into an ETF. Well, the SEC has to give an answer in like two or three days

and Grayscale is predicting that the SEC is going to give them a no. So they are hiring this legal counsel to take them to the Supreme Court. And Jake Chrivensky is like, yeah, this is exactly what they're doing. Okay, but so Grayscale wants to convert their GDPC product to a real ETF, right? It's like kind of Pinocchio wants to become a real boy and this trust product is not a real ETF and they want to convert it to a real ETF. By the way, that would

be great, wouldn't it? Because this would be a more capital efficient, retail friendly product and their retail is already buying these trust products which are trading off of like NAV or not like necessarily you're getting ripped off

potentially if you're buying this product. You don't know how it's just trading off the spot market price of Bitcoin and Eath. And so they want to convert this. So the entire industry is cheering them on. Is there some other ulterior motive towards converting this? Or do you think this is a real sort of pure motive from Grace Gail saying just like, let's make this thing an ETF? What would that solve for the kind of contagion story here?

The timing of this is really interesting because in this present moment, GBTC is the collateral for three arrows capital and so many other. in this space. Smaller people that, you know, we don't say their names because they're just not as big as three errors capital. But GBDC is the collateral that is backstopping a lot of these loans. Also, the loans coming out of Genesis, a big player here. In this moment in where, when is this, June 7th of 2022, the discount on GPDC is negative 30%, as in there is 30% of Bitcoin collateral that is not being accounted for because it's not an ETF. As in anyone that is using GBDC as collateral is only accessing 70% of the total potential collateral that is there in Bitcoin,

but they aren't able to tap into all of that collateral because of the discount on the GBDC trust because it's not an ETF. And so that's a lot of problem if you're using GBDC as your margin as your collateral source for a loan that you take against it. It's a huge problem, right? I mean, like you cannot have the GBTC price go down. Especially when Bitcoin is going down, but the GPDC token price is going down even more than that, right? So like in January, when Bitcoin was like $69,000, then back into moving forward into July, it was something like $25,000.

That's bad. But the GBTC price went from above 30 to negative 30%. So it had an additional negative 60% move versus Bitcoin. And so Grayscale is preparing to sue the SEC to get the Grayscale GBT subs. trust you turn into an ETF and fix this discount that is sucking up so much capital out of the industry. Anyways, we'll come back to that later. First, we have to get to this first round of contagion. So a bunch of dominoes have started to fall. The Block 5 valuation goes from $4 or $5 billion down to just, what is it, $1 billion in their attempted raise in June 7th. That $1 billion

valuation does not last. And let's see, what's the next one? And then as a result of this, And this is the middle of Three Ours Capital has, this is the title out of Coin Death. Three O's Capital faces possible insolvency after unforeseen liquidations, right? And so this is Taraluna going to zero. This is their ether and Bitcoin, like losing 60%. They have locked avalanche tokens. If they were in Phantom, that thing's at zero. And so they don't have any money left.

And so they are getting liquidated because they borrowed all this money to backstop any of their loan so you couldn't have to sell. But then the final nail in the coffin, which is Tara Luna collapses, and they start to get liquidated. BlockFi. Yeah. Liquidated them as well.

One of the others that liquidated them. Yeah. So, lingering on that for a moment, it's actually unknown how big of a whole three euros capital left in BlockFi. But this is definitely when the BlockFi troubles start. So Three Eurs Capital,

it's liquidated by BlockFi. At the same time, BlockFi becomes significantly insolvent. Well, it's the story of this. like at the at the at the at the tail of this human centipede of like greed and and yield is like retail yeah um which is like if you if you wonder where not in all accounts but like say for example block five how is it generating the yield on even in and btc it's this whole process of arbitrage between gdbc and bitcoin and large funds and genesis they're all kind of tied up in this and retail is kind of like just downstream of these yield they just get a smaller cut

but then the big guys, right? So Three hours capital is making a lot of money on this arbitrage, and this shows up in like maybe a three to four percent yield in BlockFi at the other side of this. But when that opportunity goes away, the yield goes away too. And so does some of the margin that has been kind of protected against this. The same story with Voyager. Before you move on, Ryan, in that article right there,

there's a line here that says a substantial amount of the Bitcoin that customers deposited at BlockFi was directed to GBT, or Three Ro's Capital. As a result, a large number of BlockFi's Bitcoins are illiquid. So where was, in addition, for Three Ro's Capital was paying BlockFi to borrow from them. BlockFi was also taking customer funds and working the GBTC premium just like everyone else. But they could, once the net asset value went negative, they couldn't redeem that because it was underwater.

So not only Three Ro's Capital needed the trust to turn into an ETF, BlockFi also needed that too. They were doing the same thing that Three O's Capital was. So here's a Voyager. Of course, we all remember. Voyager gave Three Ro's Capital an uncolateralized $660 million loan. So that's not bad. So that went to zero. But then Alameda comes in with $200 million in cash and a USDC revolver, $200 million in USC as a line of credit, along with 15,000 BTC, intended to help Voyager meet customer needs during this liquidity crash. Oh, good old Alameda. Thank you. Alameda, saving the day.

Well, that's why at this point in the cycle, you were like, well, if Alameda's bailing companies out, like, they must be doing okay. Right. Must have cash while everyone else is like underwater. So that seemed to be bullish for Sam's empire in the house of Sam coin here. And, you know, that's the first of two. FTCX also backstops BlockFi to keep them solvent. So Block 5 valuation drops down to as low as $25 million after being as high as $5 billion just a year prior.

And FTX gives BlockFi a $4 million line of credit to keep customers liquid. And the quote from this article, FTX CEO Sam Bankman-Fried has been seen as the lender of last resort in the space. In addition to BlockFi, Sam Bankman-Fried's company Alameda Research also provided a $5 million loan to Voyager. So this is where SPF really rose. and saved the day. Like everyone else was insolvent. FTX seemed to be the one solvent one in the room, and he just bought up and backstopped the entire industry.

Turns out that that was not the case. Turns out that he was not the lender of last resort. That turned out to be Genesis, which we'll get there. This is the Zach Prince's thread announcing, very happily announcing that he was going to be able to restore customer deposits thanks to FTX. That was really a lifeline at that time. It was a life line.

It was a life line. It would have gone under without it. Meanwhile, the Domino's continued to follow Three Ro's Capital files for bankruptcy in the British Virgin Isles. This was announced on July 1st. On July 18th, Genesis was discovered to have lent $2.36 billion to their capital using only an 80% collateral margin requirement. And so 20% of $2.4 billion. That hurts. And of course, they are seeking repayment of the outstanding debt through our. arbitration in New York, a spokesperson told, for DCG, told the block that both DCG and Genesis

balance sheets remain strong, with no remaining exposure to three hours capital. Genesis continues to be well capitalized and its operations are a business as usual. That might have been true. Here's Michael Morrow, which I found this tweet while I was staying up super late. Who is this guy? He is at DCG, former CEO of Genesis trading. I found this tweet, which says, since then, we worked with DCG to find the optimal strategy to further isolate the risk. DCG has assumed certain liabilities of Genesis related to this counterparty, that's Theoro's Capital, to ensure we have the capital to operate and scale our business for the long term. Basically, DCG bailed out Genesis.

And that's where one of the big holes in Genesis comes to be, or DCG as a whole. You know, so much was going on in July that I don't think I really noticed this so much, right? We were all like, okay. You didn't know what it means. Thereos Capital blew up. You know, is retail going to be okay? Celsius, we missed Celsius, but of course, they were long gone by July. I actually went through this agenda and deleted all the Celsius mentions because they just went

under under their own steam. Yeah. She didn't have any contagion. He can't even blame anybody on the institution. It was just Alex Michinsky was like DGN gambling with company funds. Okay. And then what's this? This is the summary, right?

July 22nd, Suzu says that Tara and GBDC led to three errors capital and solvency. This is like their retrospective interview. you, right? It's like, why did things go wrong? And they point to what? GDBC trades? Yeah, GBT and Terra Luna as the big ones. But of course, they never sold. They never took profits. They were up only. It was a super cycle. And yeah, they just got the icris too hard. So I think we're a domino five now that has fallen. All right? And this is where, um, so things are like starting to like settle out. The dust is starting to settle. And we're like, was that the bottom? Like, are we just crab market from here? It felt really.

bottomy. It felt very bottomed me. Wait, was it in July or was it later in August? It was the end of July when things started to calm down and we didn't really make new lows. Prices were low. Like ETH price was down to like new lows. Did it spike down to 800? 800 was the low. But that was that was in, that was in like July or June or something. Yeah. So that's where we are. Okay. So now Domino 6. Enter FTX. The FtX fraud, which we have now uncovered, which people didn't know about at the time. Nobody knew about this, but there is some, I guess, records, some things on the blockchain because, of course, all of your transactions, all of your fraud is when you put it on chain. It's always on chain. This is from Nansen. I think you have some like maybe stats to read out about FTX and some of the things that they were tracking retrospectively. This is a report they put out last week, it sounds like. Okay, tell me about this. Okay, so three big transactions on the 12th of May, FTA. X transferred 90,000 Ether, $211 million, and $6.8 million FTT tokens, $224 million, to Alameda,

the Alameda address 0x780, which was then transferred to Genesis. That same day, FTCS sent another $155,000 ether, $320 million to Alameda, which then eventually was transferred to Genesis once more. May 26th of this year, FTCS sent 3.5 million FTT tokens, $103 million to Alameda research, which was eventually transferred to Genesis once more. This was in May. I notice all of these transfers are only going in one direction. This is FTX to Alameda, not the other way around.

And then Alameda to Genesis. Why to Genesis? Because Alameda had loans from Genesis that they needed to be collateralized. They were about to be margin called. This was the FTX bailout. This is how FtX plugged the whole temporarily. We were, the whole industry was just like gushing, flesh ruined and FTT, or excuse me, FTCX and San Bankman-Fried, she says, I know what can plug that whole FTT tokens. Is it FTT tokens?

Yes. It's a bunch of ether and also FTT tokens. Okay, where's that ether coming from? Those are probably customer deposits, right? Those are the customer deposits. Yeah. So Alameda gets a hole blown in it, like a bazooka hole. and then Sam is doing the thing where like, here's the Band-Aid over that, and what am I going to do?

FTT tokens, which is basically a valueless token that I can mint and have unlimited access to, and then depositor funds, very likely through this trend. Probably investor money to wherever they could get their hands on. So the big question was, where did Elameda get all the money to be able to bail out the industry? And the same rules to answer this question apply to where 3 Aeros Capital got their money to try and plug their holes when they were underwater right before Terra collapsed, which was wherever they could get their hands onto cash. Customer deposits on FTX, which Sam made sure that he was able to do with that custom back door. In the accounting system, in the accounting system. They also minted funny money, FTT, that they used as collateral to borrow from anyone who would take it, regardless of its liquidity.

profile. Genesis then took that FTT as collateral and the two billion dollars that they raised from investor money. But this was the capital that FTX and Alameda were using to plug the holes of the Luna collapse. Is it very strange to you that Genesis is using all of these weird like funny money tokens as collateral? Like to me, I would be like my collateral is dollars. It's Bitcoin and it's ETH. Anything else I don't even know about. Like don't even come to me with your FTT tokens. I wouldn't accept that as collateral. I guess they thought that maybe they hedged against these things, but of course they didn't. Is this, where do we go to next? Yeah, so this is just a summary. Genesis received over a billion dollars of FTT tokens from Alameda and FTX within the last three

months. Surprisingly, the hole in Genesis is about $1 billion. Weird. Meanwhile, on the SEC side versus Grayscale, what are we looking at here? What's the House of Gary Gensler doing at the SEC? Yeah, so this is the June 29th announcement that Grayscale initiates a lawsuit against the SEC because the SEC denied their request to turn the GBT trust into an FT, into an ETF. And so in this thread, they say through the ETF application review process,

we believe American investors overwhelmingly voiced a desire to see GBCTC convert to a spot Bitcoin ETF, which would unlock billion dollars of investor capital while bringing the world's largest Bitcoin fund further into the U.S. regulatory perimeter. The SEC is failing to apply consistent treatment to a similar investment vehicles and is therefore acting arbitrarily

and capriciously in violation of the Administration Procedure Act and Securities Exchange Act in 1934. Why? The timing of this, to me, Ryan, is really interesting. I think, you know how we started this whole thing with Barry Silber saying, hey, there's a daisy chain of borrowers and lenders, some are capitalized, some are not. Yeah.

The timing of this when is they sue the SEC, the moment that the industry needs the GBT trust to convert to an ETF the most. Oh, right. The thing that would bail out most of the industry and would actually plug the hole rather than a liquid exchange tokens like FTT would be the unlocking of all the capital that is lost because of the trust. Because right now GDBC is way underwater. It's trading at a massive discount to NAV.

And what's happening is this is this is. making all of the collateral on Genesis, basically underwater. And it is kind of like rocking the entire foundations of this crypto lending and borrowing institutional market. And Sean and sign here is maybe it's like, obviously, the whole crypto industry can get around this because we want a ETF product rather than having trust products. But also selfishly, they kind of need it to bail out Genesis. and all of the large institutions that are kind of underwater on their GDPC collateral and ETH collateral. Is that right? Yeah, that's right. Meanwhile, what's the SEC doing? Charging Kim Kardashian for touting crypto securities. That's what in this same time frame,

that's what the SEC was up to. Going after Kim Kardashian. Do you think Gensler's playing 40 chess here where he like knows how much pain the crypto industry is in? And it's like, I'm not doing this right now. Dude, like, get crushed. The conspiracy hat is on right now, man. Who knew about this? This whole thing seems like Gary Gensler's like, hey, if I don't allow for the GBT trust to convert to an ETF, the whole crypto thing will, like the whole... You think he knew that?

I don't know. He probably didn't. But man, is it just like the scripting on this is insane, man? Yeah, the script writers have outdone themselves in season 2022 of crypto. All right. So that's the sixth domino. And then the seventh domino is when we start to see the fraud. This is the most recent domino to follow.

And this takes us to, I think, like, maybe three weeks before that domino fell. So right now we're coming. We're in October. We're like, oh, that was tough. Wow. Two. Glad that's over. Glad that's over.

We had all of the underwater funds. They're out of here. The Algo stable coins are out of here. Now we have the players that are remaining, which is like finance, Coinbase, the responsible exchanges, the responsible funds like Alamo. Mata. Good job, guys. You're bailing people out. Thank you so much. Oh, and FTCS, of course. You know, Tom Brady supports you. So thankful. You're still here. And then Sam starts to weigh in. This is Sam Bankman Freed on Crypto Regulation. That's where we're picking up the story with

Domino number seven. So this is the famous tweet thread on his current thoughts on crypto regulation. Yeah, and this is, of course, where a lot of people started to pay attention to Sam Bankman-Fried. What's he doing over there? And of course, the FCX blog, possible digital asset industry standards. I thought DC investor had a pretty good take, which I put next, which was SBF is the most effective value extractor in crypto. He's very transparent that he wants to siphon value out of your account into whatever causes he claims to care about, couldn't care less about decentralization. Meanwhile, MPCs and Sims worship him like a hero. This was in October 19th, Ryan. This was before all the people, we all realize that

FtX was insolvent. What's interesting is when I saw this tweet from DC Investor, And of course, like, silently, I'm nodding my head being like, this could very well be true. This is probably true. And yet, you want to give people the benefit of the doubt, right? And so how do you steal man, Sambank, Ben-Fried's argument around regulation? So, you know, D.C. October 19th is painting him as a pure villain. And that was not at all clear at the time that he was. Of course, he turned out to be.

I think the wording siphon and money out of your account, it's just like so prescient, man. Like, that's exactly what happened. And remember how I said, like, when three hours capital went under, the last thing that they did was they maxed out the contagion of the system. They were underwater on GPTC. They were down bad on Bitcoin and Eath. They were down even worse on Soluna Avax. And so while they borrow money from wherever, borrow money from wherever you can get, like unsecured from Voyager, BlockFi, like investors. wherever you can get like forged documents so you don't have to sell well you know you know sam

was like when this recovers i'll pay all the depositors back oh i mean like you know that's true it wasn't a long-term plan to to just be in a constant state of like not having a one-to-one backing of all of the bitcoin and eth on these exchanges uh this is kind of the gamblers play when you're down bad you borrow and then double down some more right so yeah this is the exact there's like the through line between SBF and Three Ars Capital was that in their last moments, they levered up instead of levering down. Instead of saying sorry, we screwed up, but we don't want to make it worse. They just were trying to save it. Their egos got in the way. They loved their personalities and they refused to take the L. It was wins. It was going to be a win or destruction. That is the

commonality between both of these parties. As a result of their ego, Ryan, they made choices. that maxed out the contagion in the system, which we are now feeling to its massive effect today, but we're still not there yet. Okay, so this is FTX at this point in time, and Sam was, you know, weighing in on crypto regulation as if everything in his house was like fully in order. And he's just helping the crypto industry have a seat at the table with regulators. Meanwhile, this was the first big report that came out of coin desk, right? And so many dismissed it as FUD, as FURN.

uncertainty and doubt at the time. But this report really revealed that Alameda and FTCS were kind of interlinked. And the balance sheet between these organizations was not looking too healthy. That came out on November the 2nd. This is because what happened was that all the real money, the U.S.EC, the ether, the Bitcoin in FTX was paid back to all their margin calls. And all they had left was FTT. And so they were minting FTT to back. stop Alameda. And this was also when like a lot of the confusion as to like, all right, where's the line between Alameda and FTX?

I don't really know. They're just like swapping FTT tokens between each other. And so CZ as a result of this report in a bunch of launching analysis, I'm sure, realizes that he's like the last big bagholder of FTT that is where FTT is being used as collateral everywhere. And so CZ is like, well, I'm not going to be like SBF's like. exit liquidity. Exit liquidity. Right. Like I'm going, he's going to be my exit liquidity. So if he's going to do this to me, no, I'm going to front run. I'm going to dump all of my FTT because I'm not going to be a guy very publicly. Very publicly, right? And so because Binance invested in FTCs, they had a bunch of FTT tokens. And so at once this report that came out that showed that FTT was being used across the Sam universe as collateral for all of these loans. He's like, well, that puts FTT an extremely precarious position. I would like to actually cash in on my investment into FTX before it goes to zero.

And so I'm going to start selling. That is where the FTX empire gets punctured. Here he is, like tweeting out like here. Here's me moving to almost $600 million of FTT tokens to move to Binance. And then I really like this tweet, this next tweet, which of course CZ retweeted. Let's be clear, Binance did not define SBF stance on the bill that's going to regulate defy or debate Eric Forgees on the merits of FTX stance and regulation, or shitposts on Twitter,

or, like, ruin Alameda's balance sheet, or fail to address the concerns of FTT liquidity. Basically, all of this was Sam Bankman's Freeds doing. Right? This was his contagion. This was his responsibility. And then CIS really just drives a point home. Two big lessons.

Never use a token you created as collateral. Don't borrow if you're going to run a crypto business. Don't use capital efficiently, have a large reserves. And then Biden says, Bynus has never used BNB for collateral. We have never taken on debt. This is the striking point of, this was November 9th when we realized, we were first realizing that there was an absolutely massive hole in FTX and Alameda balance sheet.

And it just struck me because out of that original regulatory post that San Bankman-Fried laid out, we actually invited him on to bankless to have a debate with Eric Voorhees on the merits and the path forward for crypto regulation. And of course, you guys will remember SBF was giving the case for why Defi should be much more harshly regulated, including defy front ends. And he was saying that if we don't do this, far worse things will happen. This debate was going on in the midst of a $10 to $16 billion hole on the FTX and Alameda balance sheet. Well, this guy in the background knows he has tried to cover the Alameda hole by,

taking depositors funds from the exchange and he has the audacity, the audacity to argue for greater defy, you know, regulation. It was just an incredibly bizarre episode to have happened. And I tweeted this, 11 days ago, we hosted a debate in crypto values with a billionaire who was secretly gambling away billions of dollars of depositors funds. This guy was lecturing us, David, on crypto regulation while committing the biggest fraud in crypto history. That same day, it finds out that FTX tapped into customer funds to try and plug its $10 billion hole. It was actually where it created the hole. Crazy, crazy timeline.

Back to the SEC, resumed that rabbit hole. Here's a tweet that I really liked. By failing to create an ETF for Bitcoin, the SEC, one, allowed the gray scale GBT trade to rip retail investors for five plus years. It's created the GBTC negative premium. forced most crypto trading outside of the U.S. jurisdiction and let FTCS. as fraud hit millions of Americans. It shouldn't have. Ouch.

This is where I just get on to like this simulation scripting like a conspiracy theory. It's like you could not as the SEC created a worse environment to protect retail investors in 2021 and 2022. They created what like one of the biggest reasons why the contagion was so bad is the SE. It's three hours capital's fault. It's FTX's fault. And it's also the SEC's fault. Yeah, they certainly created the circumstances that led to this. And for kind of the arbitrage and greed and, I guess, closed room meetings to kind of happen.

Right. I mean, if we just had an ETF product from the beginning, this GDPC arbitrage would not have been there in the first place. I do think they play a role. But certainly, we can't say that they are the. reason that this happened to crypto. They were a significant player. Well, obviously, the greed, the margin trading, the yield chasing, all of the things happening out of 2020 in this effort to get more and more and more, right?

You can't just blame the SEC for like FTX, what Sandbank-Bin-Fried was doing with Alameda versus like there are so many unethical players involved in this. at this point in time, that it's just, yeah, it's a, it's a house of actors. This is, this was interesting, too. Why did you include this piece here, the story of Coinbase dropping its lend program? Yeah, so Coinbase, which didn't have like an earned program with Genesis in the background. I think, and they wanted to make this lend program where you could get yield on your deposited assets, and they would get yield via their own routes, asynchronous, independent from Grayscale,

from GBDC, from Genesis. but the SEC denied them. The SEC said, hey, if you guys do this lend program, we're going to sue you. And so, like, we had this systemic, like, lending desk, daisy chain of borrowers and lenders that Barry Silbert talked about. And Coinbase wanted to make this onshore,

U.S. regulated lending program. And the SEC said, if you guys do that, we're totally going to sue you. And so Coinbase had to drop it. It's absolutely insane. And then remember Brian Armstrong's tweet thread about, like, how they want to go toe to toe with the SEC, and he starts off the street threads like really sketchy behavior out of the SEC.

And so like, come on. Like all the onshore regulated stuff we can't do, pushed it all offshore, push it all unregulated, allowed for the FTX fraud to happen, allowed for the three hours capital to defraud investors, and just created this extremely toxic situation outside of the jurisdiction that they were able to regulate. You're muted. It's interesting about this, though, David, is like, I'm not sure why Coinbase Lend got the axe, but like Gemini's earned program didn't, for example, and BlockFi was still able to

exist, and some of the other institutional lenders were still able to exist. It does feel very arbitrary, I guess. What's this tweet showing us? This is Colin Wilhelm says Gensler, who was pressed on CNBC as to why the SEC had gone after lower hanging targets in the crypto space, and if he was hoodwinked by FTX after meeting with them in March. Gensler replies, Building the evidence, building the facts, often takes time. This is a response to Elizabeth Warren, who of course, this is November 9th, blamed the crypto industry for the largest collapse in history, shows how much crypto, she says. The industry is spoken mirrors.

And Brian Armstrong replies, FTX was an offshore exchange not regulated by the SEC. And he says the problem is this, that the SEC failed to create regulatory clarity in the U.S. So American investors going need to go offshore as well as 95% of trading activity. Punishing U.S. companies for this makes no sense. So regulators created this a loophole for some of the big villains in this story to exploit retail anyway by not approving things and not letting the good guys have a path forward. So now are we here? Now we are at present times. Present time.

Okay, so we've just sped run through all of this. We're almost here. The contagion started to feel like it was spreading beyond just the Sam FtX empire and other things. Of course, when I think my first inkling of this, there's a tweet before this, but when Gemini Earn paused their accounts. And so if you were part of Gemini Earn, you could no longer withdraw. That happened later.

So this is November 9th, this tweet that we're looking at, and Gemini Earn paused on November 16. Okay, so they paused November 16. So I wasn't even paying attention to this because so much was going on and just like following Sam's tweet threats. But what is this tweet from Genesis in November 9th? Yeah, so November 9th tweet from Genesis,

and that date's important because the timeline events start to speed up. We want to provide an update on where things currently stand with our lending business. In anticipation of the extreme market volatility yesterday, we hedged and sold collateral resulting in a loss of $7 million across all counterparties, including Alameda. The Genesis saying, hey, we took a $7 million haircut, but it was to control risk. The next day, Genesis tweets out and says, we also had $175 million in locked funds in our FTCS trading account.

This is not impact our market-making activities. Fast forward, six more days. Genesis halts withdrawals in the wake of the FTX collapse. And so their lending desk is shut. Gemini Earn is now unable to do facilitate customer redemptions because they use Genesis in the back end. And so getting closer and closer.

And then this is Grayscale tweeting out on 16th. So four, six days ago, in the wake of recent events, our investors should know that the safety and security of the holdings underlying gray scale digital asset products are unaffected. This is basically saying, hey, there's grayscale, there's Genesis,

there's a firewall between these things, unlike Alameda and FTCX. so I could see how you guys would get that confused. But the assets inside of gray scale did not go to Genesis. It's actually the other way around. And this is where we come to today or just more recent times. It's apparent from the rumor mail, we haven't really seen this confirmed,

that DCG owes $1.1 billion to Genesis via an underscrow's promissory note that has been hidden from potential investors, which now indicates why digital currency group is doing a one-based, billion-dollar raise, which apparently that they cannot find investors for. And so this timeline of events is kind of a big, oof. So November 8th, no material net credit of exposure. November 9th, we lost $7 million. November 10th. Oof, okay, we actually lost $17 million. Sorry, no new withdrawals. November 17th. Okay, we need to borrow and raise a billion dollars.

November 21th. We'll go bankrupt without the money. It is now, Ryan, November 22nd. yesterday. Let's start looking. Has CZ tweeted anything? Has Barry Silbert tweeted anything? Have any of these people weighed in on things? Yeah, so Barry Silbert recently tweeted out something. I haven't had the time to look at it yet. Should I pull that up? Yeah. So that was the last two years. Okay, I mean, we're going to summarize this right now, but this looks like a very long dear shareholder's message from Barry Silver. This got tweeted out about an hour ago. tweeted out an hour ago that brings us to the current time so current time what everyone wants to know is is genesis going under right um is gdbc backed uh all the gray scale products is that is that

backed by assets somewhere and there's some kind of um shakiness as to whether like gdbc and and uh the eth the eth products from gray scale are backed and coinbase has has come out and said they're in a coin base custody it's all good here um but there's some like fud going on about that. I don't know what's true and what's not. And the big question is, is Genesis going to get a bailout here? Are they going to be able to raise funds or not? Word on the street recently is that CZ looked as he looked at SBF's balance sheet,

an FDX empire's balance sheet and said, nope, I ain't touching it. Also did so with the Barry Silbert Empire and stepped away. So now here we are. Have you, as I was talking, had a chance to scan through this letter from Barry. What's it saying? Yeah, the line, they're basically going through a recap and saying, hey, we are, we borrow, DCG borrowed a loan from Genesis alongside of hundreds of other crypto investment firms. It's a normal thing that we did, normal business operations.

And in that third paragraph, that third big paragraph, he goes, aside from the Genesis global capital intercompany loans due in May 2020. and the long-term promissory note, DCG's only debt is a $350 million credit facility, a small group of lenders led by Eldridge. And so the chatter that I've heard on crypto-twitter, so I've seen my notifications pop up, is that the contagion is perhaps not as bad as people thought.

However, I will remind people that this is a picture of text and not a verifiable on-chain view source that is defy. So we are still just trusting people. but right now people seem to be like okay the contagion's not so bad but i don't think we will really know until time so we don't know if genesis is going under yet for for those that have deposits in gemini earn it's very it's contingent upon what happens with with genesis i think you're not going to have any answers until the market knows what to do with genesis it seems like the gdbc products and the e products i mean they're all likely fully backed by

the ether and Bitcoin behind them. And the big question is, if this is the last domino to fall, is this going to take down the digital currency group empire, the House of Barry Silbert with it? Or is the House of Silbert going to survive another bull bear market and what will become of Genesis? David, what kind of contagion do you think will come falling out of this? And by the way, I've seen the chat as we've been talking about this,

also ask about a few other things that like in these types of markets everything is in question right is like people are saying let's get all other funds out of all of the exchanges people are saying usdc is not safe people are saying tether's not safe all of these other things here is everywhere here is everywhere so by the way what i would say is general practice i hope we have learned at this part in the cycle is don't keep your funds on exchanges people bankless for a reason go bankless as soon as you can so that goes without saying and is at any stage in the market use an exchange like a public bathroom. Get into your stuff, get out.

Okay? So that now, like, we're going to hammer that home as long as we can. But do you think this is the last domino to fall? Or do you think that there are other landmines here waiting for us? Like in a stable coin, God forbid Tether? Could it explode? What do you think about this? Well, if we don't have as much clarity as defy will give us,

then we just don't really know. But there's a reason why I put that pyramid structure at the very beginning with the pool twos at the top and grayscale Genesis GPDC at the bottom this is the epicenter in my opinion and this is why I started off this this whole entire thing stating that I can't remember what the term for this Ryan is

but there's this term in musical composition where you start like a musical piece you take the end and you place it at the beginning and then you play that you play the beginning which sounds like the end this sounds like the outro, but then, then it starts. So you start the whole song with the outro. And that's what it feels like is going on right now. We started this conversation, talking about how three errors capital was the missing, was the link between greyscale and

Genesis. And they would borrow a Bitcoin from Genesis, and they would give it to a grayscale, and that would prop up the GBT trade. The reason why the GBT premium is negative is because so many people did this, including Thero's capital. This is where Genesis started making a ton of money, and it's because they were able to facilitate these trades, but they were also able to incentivize the siphoning of money out of retail investors, out of Gemini Earn, out of FTCs, out of whoever wanted to get yield,

because again, Ryan, the marker of the 2021 bull market was yield. Where did that yield end up going into the grayscale Bitcoin Trust, which they could then charge 2% of the AUM as a yearly fee. And that was printing money for digital currency group. And so all of this yield that we got from 10,000% like 10,000, 10,000% DeFi yield Ponzi pool twos with stacked on top of Pool 1s, stacked on top of Alameda and Three Arras Capital, stacked on top of Gemini Earn, like all of these lending desks, Block 5, Voyager, was stacked on top. top of Genesis, which was an umbilical cord to the grayscale Bitcoin trust. And that was the foundation of all of the yield that happened over the last 18 months. And why, Ryan, I feel like this is, this is the foundation. All of that collapse, the collapse of illiquid, high risk

assets because the Federal Reserve turned on interest rates, all of that came collapsing down. And now we're at the bottom. This is the end. You're muted. So Genesis was the tube connecting this whole human centipede contraption together, basically. And this kind of does go back to like the dominoes, right? It turns out the dominoes were stacked, but they're kind of in a circle. I think this might be the last domino to fall in this circle. And we certainly hope that's true. But it goes back to the tweet that we started with, Barry Silbert, the profit.

Why did Barry Silbert see this before everyone else? 2021 that summer, there's a daisy chain of borrowers. lenders in the crypto space. Some are not well capitalized. Lots of leverage in the ecosystem, including some non-obvious places. Important to understand the weak links in the chain, the weak links in the chain. And so that brings us to, I think, the question we started this episode with, and maybe the realization that we now have, which is like if you look at all of the gains of 2021, and even early part of 2022, it now looks like all of those games, were a scam.

What I mean is just like smoking bill market was a Ponzi scheme, Ryan. What the hell is our industry? Nothing real happened probably post January 2021 in terms of fundamental value

and utility. And this is how markets go, by the way. This is also how 2017 happened. There was a point at which like the price of crypto and particularly Ethereum kind of caught up to the hype And then after that, it was all kind of ICO raises and smoke and meers and nothing, nothing, nothing.

Do you remember the euthanasia roller coaster? Okay? The first couple of loops feel pretty fun. They're actually valuable. By the ninth loop or so, you're dead. Sick. You're actually dead. Gehforce is killed.

Well, you're dead. I mean, you will be dumped off, right? So this is essentially how these cycles go. And it's, what's interesting to me is like, remember we started this episode, trying to explain all of this. With in January 2021, what was the price of ETH? It was $1,000 right now. Well, where are we? We're back to ETH at $1,000.

And the reason I say ETH is because it's kind of like, for me anyway, it's sort of like that blue chip asset of like it kind of is, yeah, it's the benchmark asset for me. It's really what I denominate in like to a lesser extent Bitcoin, but much more ETH than Bitcoin for me. And look, we've just erased all of the gains from 2021 forward. But now maybe there's some hope in that, okay? Because there was fundamental value back from like 2016, you know, up up to now.

We didn't even have defy in the 2018 cycle when the bull market came crashing to a halt. We were propelled into another fair market. Now we have all of this stuff. Maybe a fair price for that is around very low for digit Eath. Maybe that's the fair price. and we just hit the rewind button, and now we're in a rebuild phase again. That's what this is telling me as well.

And so much has evaporated. But also the feeling that, like, David, I'm buying ETH this week. You know, it's not quite triple digits. So I'm not deploying, like, everything, all the dry powder for that. But, like, we are approaching lows, I think. We're approaching the end to all of the spoken mirrors, right? No more pool twos. last time you heard the phrase pool two it's all gone um so wow i guess we could have like

stopped the podcast in january 2021 and then just resume now and been okay without all of the pain and learnings the other big takeaway that uh that i've gotten from this is like one of vitalics takes was that he was really glad that we haven't had ets approved because if we did all of our Ponzi shenanigan games would have gone into retail investors even more. Like that's what he said. Like the world, we are as an industry not ready for an ETF because look at the games that we play. But they still did.

That's the thing is they still did. They still found their way and squeezed in there. You can't actually plug that. You know, there's no way to kind of plug that because the way they found their way to retail was through like three steps of the human centipede. if you had to go through Genesis and then three hours capital and then ultimately you got your yield in Gemini Earned so retail still found these things. So I don't think I don't even think that would have protected us.

It's just if you're playing the crypto game, right, you have to kind of protect yourself. Don't invest more than you afford to lose. Careful when you look at that yield, where does it come from? Do you know? Look man, crypto is volatile enough. like maybe don't go after yield. Take, like, stake your eath. Just hold it.

There's all sorts of lessons coming out of that that we've learned. But do you feel somewhat defeated? Yeah, dude. Last two years have been a waste. This is the second bull market that I've been through where both of them are just gigantic Ponzi schemes. And like, is that just what crypto cycles are? Is like, we just find a new way to find a new Ponzi scheme and then like,

dude, how many times like the reason why I was real, it was real. it was real until, um, it was real and look it was real until it wasn't. It was real until the end of 2020. That was all legitimate and like, yes, uh, we have built something real here. And then it stopped being real. And it's no mistake to me, like, there's no accent to me that, um, we see people like Chris, uh, Berninski like kind of check out, you know, sometime early 2021. They're like, this is stupid.

This has gone too far and started to get bearish. It's because he saw the signs of, um, us the kind of Ponzi game smoke and mirrors that happened after that. But that doesn't mean, David, that each cycle, we haven't built, you know, things that didn't exist the previous cycle and just kind of added, like, our, our bottoms are lower, right? And, I mean, our last bottom was 80th. We're not even going to touch that this cycle. Like, look, you know, I don't trademark, but, like, we're not going there, not even close. So, yeah, that timing of that Molly White episode where she's like, yeah, but like the what crypto brings to the table versus the harm that it creates,

like it's not worth it. But she's going to be right in the short run, but wrong in the long run, I think is kind of the arc of critics. So how many more cycles are Ponzi schemes versus when we actually have sustainable real world use cases? How many more Ponzi times do we have? What if it's every cycle? What if it's every cycle?

It's every cycle I've been in. I mean, it's kind of the Bitcoin Fork Mania. Is that like our new branding? is like, hey guys, come in during the bear market, stick around for the bull market, make sure that you exit at the top of the Ponzi scheme, and don't go on loops four through 10, get off at loop three of the euthanasia roller coaster. Just dollar cost average in the whole time and just don't play the games and just like back to, I remember that the first bankless post wrote about like Bitcoin and Ether

are the only assets that matter. And that was a thesis about like crypto money and value accrual on the base protocol. call, right? There's other assets that are going to be important as productive assets, but like those are, and I'm back to like, what am I excited about right now? That's primarily ether. Like I'm kind of back to that post from, you know,

2019. It's a full, it's a full reset. So, yeah, that's, I guess that's the other lesson from all of this. Wow. Waste of time. I don't know. I don't know what the last two years have been, David,

but they've been something. I feel older. I remember, I remember, like, getting so optimistic and just happy about, like, NFTs and how they were going to come and,

like, revitalize human culture and, like, allow artists to, like, create. And, like, oh,

crypto's finally here. Like, we made it through the 2018 to 2020 bear market and we're finally mainstream now. And then I look at all, like, the shenanigans that we got up to in 2021. I'm like,

dude, we are so far away. I'm just reminded of two things. One thing is something that Vance, Spencer said on another podcast, which is like you measure the success from cycle to cycle, not by the not by the peaks, but by the troughs, right? And so what's kind of the lowest point? That's the actual value. Measure troth to troth rather than peak to peak. Okay, that's the way you make sense of these markets. So that's kind of the investor tip.

And the other thing is somebody asked me earlier this week, hey, this market's pretty bad. Like the 2022 bear market is pretty bad. Like have we? ever been through something comparable, do you still think, because they heard me say that, you know, 2018 was still worse? Do you still think 2018 was worse? And I just want to come back and say, having been through these market cycles, I think I speak for many of the veterans. Yeah, 2018 was still a whole lot worse than this. I don't know. And the difference. I'll push back on that. Okay, well, so let me state my case. Then you can give me the pushback. The difference for me is 2018 felt like we might not make it. Like we might not recover.

So the difference to me was like Ether still didn't, Ethereum didn't have product market fit. Bitcoin did. I knew Bitcoin would recover, but I didn't know that there'd be a future in crypto for smart contract platforms, for anything beyond Bitcoin. And Ether was just like, I don't know, it could actually die. It might not be able to scale. It might not be like do all of these things. And so that was existential. This time, I am not at all worried about the existential risk of the core crypto assets.

like Ethereum, for example. And last time it was much different than that. So last time I was a little, it was much harder to press the buy button in the depths of the 2018 bear market. It is not so hard now in 2022. And that's why I kind of measure it. But yeah, what's your perspective on this?

Do you think it's worse? I 100% agree with that take. Whether or not this current bear market is worse than the 2018, like, yeah, so like crypto peaked at December of 2017, and it bottomed in like December of 2018. Which one was worse?

Ether and Bitcoin went down way more last bull market than this bull market. 83% for Bitcoin, 95% for ETH. Right. And so by that measure, this bull market or this bear market's not as bad. However, in 2018, well, I guess we had ICOs

and ICOs kind of went down 99%. Maybe that was pretty damn bad. Not just ICOs like Cardano, like all sorts of things went down that hard. Cardano came back, actually. I did, yeah. Like substratum, like, remember those, like stupid ICO tokens, those went to zero. So maybe that was worse.

But the things I don't remember in 2018 was an exchange as equivalently large as FTX go to zero and take all used customer deposits with it. Same thing with Celsius. Same thing with blockfi. So it's affected more. Yes. It's affected more innocents. People that owned Bitcoin and Ether. they're like, oh, we're only down 60% versus the 85 to 95%, but some people, Ryan, are down

100%. And a lot of them are retail. Yes, I see. When you, when you invest your money, like you think you're putting your money into a centralized exchange, you think that's a bank type experience. Remember, Luna, like Luna, Defi. It's great. 20% yield. Oh, no, it's a zero. I feel like it's a little bit, like, more DGN on the spectrum, but like, FDX. But no, They had centralized lending to like, hey, come and just like wire us money and we'll give you like 12% yield. And that sucked them so much money out of Asia. I see. Yeah.

I get it from that perspective. So your argument is that 2020 is worse in that it impacted more kind of like, I guess, innocence. Let's just call them. Like people that weren't playing the pure D-Gen game. There was more capital-destructed, certainly. Like the total market. Oh, there's way more capital-destructed. And so by that measure, like this bare,

market has been like two to four times of work in terms of capital destroy yes i think that's true i think that's another way to look at it my way of looking at it was more like um you know because now what's going to be look guys the next if you're listening still now is the next few months of your life in crypto if you're still here if you want to be that seller not that tourist it's just going to be complete it's going to be crypto is dead never going to recover boring ftx um like was the end of crypto scam the entire industry. And this will be month after month after month coming from here, right? And so you'll feel like it really is dead.

Once we get six more months into this, nine more months into this, you'll feel like it's dead. And I guess the difference there when I compare that to 2018 is like, I kind of felt like maybe it was possible that the bankless future was actually going to die. This time, I know there's no effing way. I'm confident that we will recover and we won't we won't build back in the fragile way that we've built this industry which is like the genesis lending and kind of the centralized exchange and the custodate like we'll learn the lessons and we'll build back stronger in 2018 I was not sure that that would happen in 2022 I sit here even though the impact is greater in terms of total capital affected and innocence and all of these things I am much more confident that we're going to come back, like close approaching 100% uncertainty. Again, look, this is just me. Again, we're going to end this episode with all the usual disclaimers, which I could, like, we could be wrong. Sassette class

could drop to zero. Like, we could be completely wrong on all of these things. But that's the way I'm feeling versus 2018. It's a much different. Yeah. I think in 2018, can people go bankless was in question. In 2022, can be people go bankless? Seems like the most simple and logical and justified and supported path forward. In fact, how do we build back better? It's by not doing centralized lending and doing bankless lending. So actually, I think where like previously we thought like, oh, maybe this thing won't really work.

Now I'm like, this is the only way that that works. Yeah, there's no other option. Well, that's it. Guys, I hope you enjoyed the episode. David, thanks so much, man, for doing all the research to put this together and put these pieces in play. I do think that this is a really good analysis of what the heck happened the last 18 to 24 months. I don't think anyone's actually put this full comprehensive story together.

It's like we needed the DCG gray scale piece, piece of the puzzle to map everything together. And now we know. Yeah. Yeah. And whether Grace scale, sorry, whether Genesis falls or not, I think this is still like probably the last domino to fall on this. Guys, of course, thanks for hanging with us. disclaimer's got to remind you once again, none of this has been financial advice. This entire asset class could drop to zero. We have no idea what we're doing. Eth is risky. Crypto is risky.

DFI is risky as well. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.