Bankless - ROLLUP: 3AC Meltdown Continued | BlockFi Down Bad | Grayscale Sueing the SEC | Contagion Market?!

Starting point is 00:00:00 Defi markets performed flawlessly, transparent, on-chain. It all worked. We did the same liquidations that the C-Fi lenders did, except DeFi didn't screw anyone over. It actually performed exactly as it was supposed to. It's because our regulations are based in smart contracts. So the SEC and other regulators could view Defi as part of the solution here. Hey, Bankless Nation, happy Friday morning and happy fourth week of June. This is the the last week of June. We got a lot to cover here, David. I'm fresh back from last week. I did get COVID last week. I wouldn't be a chat some fun, but also got COVID. So I'm a little bit under the weather. So I'll try to meet the coughs, David. But how are you doing, man? Your new place looks

Starting point is 00:00:47 great. Yeah, thanks, my man. Doesn't the brick look pretty good? I got some big plans for what's going on behind me in the future. Yeah, what do you thinking? Some like little NFTs. I got a little bit of NFTs, but more than that, more than that, bankless studio. The plans for Bankless Studio is underway. More on that later in the show. All right. We'll save that to the tease at the end. But we got some hot things to cover, some big things to cover. I came back, and I feel like I'm, you know, I left kind of shaking my head a little bit. And I came back and I'm just like still shaking my head. Like, what a mess. Last week was a complete mess again. I think the theme of the episode today, the roll-up today is Cryptocontagin. Once again, it's continuing

Starting point is 00:01:24 to propagate. But we've got a few stories where we're going to chase down. What's the first one, David? Yeah, we're going to recap the dust that is settling around the Three Earth's Capital meltdown. We've done this a few times before already, and the dust continues to settle. We are finally starting to get some clarity, although there's still much more clarity needed. So we're going to go through all of where we is beginning to shake out as the final part of the story of Three Ro's Capital. And then that bleeds right into the story of BlockFi. Again, the same stories that we've been covering, but because Three Ro's Capital was related to BlockFi, We got to cover the settling of the BlockFi issue as well,

Starting point is 00:02:02 blockfi where it was previously raising at basically a $5 billion valuation about a year ago is now being valued between $25 and $50 million. Those are some, there's differences between those numbers. That's down bad. But then that bleeds right into the third big story of the week, which is that Rayscale is suing the SEC. And all of these stories are related to each other. One just flows right into the other,

Starting point is 00:02:25 which brings us back to the theme of this whole entire market, which is contagion, contagion, contagion. And it really, Ryan, it all kind of comes down to the GBT discount. And so we're going to walk the viewers, the listeners, through how all of these things are tied together, how one rogue venture fund that everyone thought was Chad's was connected to this GBT Greyscale Trust,

Starting point is 00:02:48 which is an inferior product as a result of the SEC regulation. Whose fault is the bear market? Well, it's a lot of people's fault, but we can definitely name some names. And so we're going to cover all those stories. All right, we're going to be name and names for you. Is that what you want in the bear market guys for us to talk about things that people did that were just straight up dumb? Because that's what we're going to do in today's episode.

Starting point is 00:03:08 I think we have to camp on that to learn from our mistakes, hopefully. Also, wanted to tell you about our friends at Juno. Juno is a crypto bank, okay? But it's not like all the other banks in that it has remained solvent. And actually, this is kind of a bank account that I think of as Defi's best friend. because they are so crypto-native and so defy-native. David, what kind of things does Juno provide in a bank account? Juno, I think pretty much has the world record for the fastest connection between your checking account and an Ethereum layer two.

Starting point is 00:03:41 So Juno, it's like your new financial services, crypto-enabled financial services. You can get a checking account with On Juno, and you can go from your checking account to Polygon, Arbitrum, optimism, and then they also are working on their Starknet and ZK syncing integrations as well. So, like, that's already mind-blowing. like checking account to layer two in seconds. You can also swap your money for crypto assets with zero fees. We love that. And you can also, in your on Juneau, a checking account, get 6% on your USDC, or it's 3% on ether

Starting point is 00:04:11 or 3% on BTC. And so, like, it's the crypto-enabled checking account for the future of the world. I mean, the address writes itself. Yeah, absolutely. And you may think, hey, why are the bankless guys telling me to go open a bank account? But we're literally telling you to go do that because this bank account is so crypto-native and crypto-enabled. And look, you're never going to get rid of your bank account. There's always going to be a place for the banks.

Starting point is 00:04:37 But this is what a neo-bank really looks like. It's completely connected to the crypto world. And there's no borders. You have seamless transition between both. So know you guys probably want to get started. You can head on over to the link in the show notes. And when you do, there is a $10 back reward on your first crypto deposit. and also $100 when you set up a direct deposit

Starting point is 00:05:01 because once again, you can actually get paid in crypto through Juno as a service too. So go check that out at juno.finance slash bankless. All right, David, let's get on the markets report. So what are we looking at with Bitcoin price this week? We're down, it looks like. Yeah, it's one of those weeks like, yeah, it's down every single week, isn't it?

Starting point is 00:05:18 Start of the week at $20,500. We are currently at $19,000. There's a few dollars above $19,000, down 7% on the week. That does not feel good to be below 20K. That's definitely bare market territory. It's getting chilly down here in the cold. How about ETH?

Starting point is 00:05:35 What are we looking at on the seven day here? Yeah, ETHR started the week at $1,100. We are currently at $1,026, down 6.7% on the week. Oof. Flirting with that triple digit. I saw triple digits this morning. This morning you saw it. I saw 999.99.

Starting point is 00:05:54 I was like, wow, that's a number. That sucks. That's a bad number. number, huh? Not for buying. How deep is the cut here? How deep we going? Oh, God.

Starting point is 00:06:03 You want to make some calls? I mean, I think we're going to have plenty of three-digit buying opportunities. Maybe not plenty, but, like, there will be numerous buying opportunities. There were three times I remember being able to buy $80 ether in 2018 to 2020. This is the second time that I've seen triple-digit eth. So count them, like two times. There you go, guys. It's, look, if you're bullish on the space as we are, and if you're as bullish as on

Starting point is 00:06:26 ETH and some of these other assets as we are, this is an incredible opportunity. I'm not saying that we're going to go up overnight, but I am saying that probably over the next weeks to months, maybe years, I don't know, will probably be one of the few triple buying ETH opportunities, if not the last one we ever see. But who knows? I mean, quote me on that later after I'm right. Don't quote me on that thing. Not yet. Not yet. Forget I said that during the bear market. ETH to Bitcoin, the ratio. What are we looking at this week, David? It's basically flat. We're at 0.054. That's where we were last week, so no significant change. Not going down, though. And total crypto market cap, we're down to? We're down on that one. Yeah, we are at a clean $900 billion in

Starting point is 00:07:11 crypto market cap. It's down $50 billion in the last week. 50 billion dollars in crypto market cap. That's not noise anymore. We lose $50 billion in the market cap. That's what is that? That's two and a half percent. Do you know, it's still funny, though, less than Excuse me, that's 5%. That's 5%. But less than a trillion dollars, right? It's like, you know, the dot-com boom got to like $3 trillion in the big dot-com boom. And if you do like inflation adjusted, that's more like $10 trillion.

Starting point is 00:07:38 So like, you know, crypto did what? $2 trillion, $3.5 in the peak. Not that big compared to like the internet or the dot-com boom. Yeah, exactly. Now we're back under a trillion dollars. But let's set some context here because, David, I know we're going to do a lot of macro episodes. And I think it's worth talking about macro for a minute. Our friend Kyla this week mentioned in her newsletter a meeting that happened at the ECB,

Starting point is 00:08:05 the European central bankers where all of the central bankers got together and they had a big conversation. And essentially, as Kyla says, they were like, wow, the entire economic regime is shifting from below inflation to whatever this is. Whatever this is, is definitely high inflation, new paradigm. And Jerome Powell is actually quoted as saying, we understand better how little we understand about inflation. What? This is what Jerome Powell says. And it's kind of head-smacking, right?

Starting point is 00:08:35 Because you're just like, you have one job, Jerome Powell. And that is to like look at the historical context for this thing. He said that out loud? Pretty sure he did, David. And so your job is to literally understand what inflation is. This should have caught no one by surprise. In fact, there's a lot of things that the Fed could be doing. That's not to say, though, David, that the Fed and Powell are the only ones to blame here.

Starting point is 00:09:03 Okay? Sometimes, like, all of the blame going around for inflation. People are like, oh, it's Trump. Other people are like, oh, it's Biden. They'd be like, oh, it's, you know, the war, Russia and Ukraine. It's Putin's fault. Everyone wants to blame someone. And the reality is, like, yes to all of the above.

Starting point is 00:09:17 Right. It's all of their fault. It's like there's a lot of collective fault. this was a post that I read this week that lists 15 things that inflation can be blamed on and justifiable reasons for each. Number one, COVID. Number two, Congress. Number three, President Biden, the CARES Act 1.

Starting point is 00:09:35 Number 4, President Trump in the CARES Act 1 and 2. Number 5, consumers who overspent. Number 6, consumers who shifted to goods. It's part of COVID. Number 7, the Russian inflation of Ukraine. Number 8, just in time delivery, supply chains. Number nine, Fed monetary policy. Number 10, wages and unemployment insurance.

Starting point is 00:09:54 Number 11, home shortages. Number 12, semiconductors, automobiles. Price go up. Number 13, corporate profit seeking. Number 14, tax cuts and infrastructure. On number 15, the author of this post, even added crypto. Why is it our fault? A little bit funny.

Starting point is 00:10:09 They just said a lot of people made a lot of money on crypto, and then they bought things in crypto and drove up the prices of other things. Yeah, but that's true about the equities market, too. There was more money made in the equities market than crypto. I don't feel at blame at all. I'll take one-fifteenth of the blame, I guess. Whatever. But like the point here is the broader point is it's not any one thing, David.

Starting point is 00:10:33 It's like a whole bunch of things that are causing like where we are right now with inflation. And it seems like the central bankers are still not quite sure what to do with it all. Right, right. I would summarize between all of those things, it really boils down to global. Because globalization made a pandemic global very, very quickly, it also is responsible for our supply chains, our very fragile supply chains. And then also like a Russian invasion of Ukraine, that also has global impacts just because we have a global network. So like we're super global. So like I think like five to seven of those things could fall under the globalization category.

Starting point is 00:11:12 And I think also five to seven of those things could fall under the fiscal irresponsibility category. Money printing category. Money printing, like, payments for infrastructure that, like, is probably, like, there's a bunch of corruption in the United States. Like, you know, no surprise there. So, like, between globalization and fiscal irresponsibility, I think is, like, two-thirds of the blame, I would say, for all these things. And then you got a war, you know. Well, that's globalization, though, right? Because then the war, like, impacts supply chains, impacts oil, blah, blah, blah, blah. Sure, sure. So there's the bumper sticker. Globalization, money printing, and war. caused inflation.

Starting point is 00:11:49 And crypto. And those crypto bros. Don't forget about crypto. It's Bitcoin's fault. Yeah. Well, you know what? I read a great, probably the best thing article I read this week was actually a letter from Dan at Pantera.

Starting point is 00:12:05 And we've had Dan on the podcast in the past. He's really good from a macro perspective in particular. And he was talking about the big blame. Maybe he would say like, more like, hmm. More like two-thirds itself is actually on Fed policy. So he would wait what you just said, and he would probably agree, but I think he would wait things more towards Fed policy decisions, at least exacerbating all of the inflation that we were about to have.

Starting point is 00:12:33 And two things the Fed did wrong. Powell, for some reason, and the Fed and Central Bankers around the world screwed this up in a big way. Number one, they kept rates low for too long. We should have been raising rates a year ago, David. That was clear. Right? We went to transitory inflation. So it's number one.

Starting point is 00:12:53 That's, that's happened at times in the past. But, like, that's, that's one issue. But the second issue is even bigger. They've been manipulating the bond market. Okay? First time in history, this has happened. If you look at some of these graphs from the Pantera, like, report, you could see, look what the Fed bought, $3.1 trillion in bonds.

Starting point is 00:13:16 Like, buying a whole bunch of mortgages. And Dan makes the argument that when you have an interest rate of 2.3% in the U.S. And when home prices are increasing by 20% year over year, the Fed is basically daring you not to buy a house. In fact, don't just buy one house. Buy two or three if you can. By five houses. Because it's all cheap money that the Fed is effectively giving you. So by manipulating the bond market and stepping in on the housing side of things and the market side of things,

Starting point is 00:13:47 the Fed just pumped this thing up way beyond levels that we've ever seen, probably historically, right? And so, yeah, we've got a lot of overvaluation to get through. And Dan actually says he doesn't think that this is going to be fixed until a few things happen. One, housing inflation goes negative, either that or unemployment rate goes up by 2%. So we're in a recession, that possibly, or core CPI gets closer to 2.5%. Core CPI gets closer to 2.5%. Core CPI. It's not total CPI, it's CPI less energy and food, and it's about 6% in the U.S. Or the Fed has unwound the majority of all of the mortgage manipulation that it's been doing. And important thing to like take a look at is this is kind of a U.S. problem, all right? The average core inflation across our peers, Japan is 0.8%, France is 3.2%, Canada, 5.7%, Germany, 3.8%. The average 3.4, the U.S. is 6%. No coincidence that we also printed the most amount of money for semi-checks.

Starting point is 00:14:54 We also gave out the most amount in like unemployment and seamless checks. And like surprise, surprise, we also have the highest inflation. 100%. So this has to unwind, has to make its way out of, you know, through the system. And you have to wonder, too, this is something that you picked out this week. The Wall Street Journal is talking about this in a different way than they've been talking about it. What are we looking at here? Yeah, they give that.

Starting point is 00:15:17 headline, rising interest rates will crush the federal budget. And like the conversation here is that if we raise interest rates and send our economy into a recession, not only is that a recession for the American economy, our own government can't pay its own debts. And so like the federal government is too indebted to suffer high interest rates. But also if we, so simultaneously that's a problem. And then if we send our own economy into a recession, where's all the tax money going to come from to pay off the debts. So like in 2022, you know how much like the IRS, the Treasury is going to receive in capital gains tax in 2022? Like nothing, basically. A lot less. No one's making capital gains. It's going basically to zero. So like they're not making any money on

Starting point is 00:16:02 capital gains. They're going to be able to make less money on just like other things just because overall when the economy is down, the economy is the thing that they tax. And so if we have a recession in, like they have no inflows to pay their own debts. Meanwhile, while the interest rates are going up because that's what we're doing to fight inflation. And so the Wall Street Journal, and it's important to note that the Wall Street Journal is saying this, because, like, it's an extension of,

Starting point is 00:16:25 like, some parts of the world are just extensions of the state. There's, like, arguments that, like, the tech sector is just a surveillance arm of the state. The media sector is just, like, a media arm of the state. If you just want to put this into, like, your conspiracy hats on, the Wall Street Journal is, like, very close to the state, right?

Starting point is 00:16:42 And so, like, when the Wall Street Journal is saying, like, hey, we need to defect from the policy of the Federal Reserve and say, hey, if you guys keep on raising rates, you're going to kill everything. It's important to note, like, where this source is. Now, this is just like one person's opinion in the Wall Street Journal, but, I mean, it was published by the Wall Street Journal. Yeah, and you know what? This is the thing I think we want to find out, and I want to find out, David, and we have a lot of macro people coming in the podcast in the next couple of weeks, right? Like, Lynn Alden's coming back. Who else? Luke Gromman. Yeah.

Starting point is 00:17:12 Yeah, Gromman. We also have Travis Kling on as well. Like, we have like so many different macro commentators who are going to give us. One big question I want to find out is, okay, so you have people like Dan from Pantera saying the Fed's got to raise rates like four to five percent. And the fact that they're talking about like half a percent or 0.75 percent raise is laughable because they're already like months behind. And so they need to raise it to like four or five percent. Because you have that. And then you have a conflicting.

Starting point is 00:17:42 kind of conversation going on saying the Fed can't raise rates or else the U.S. won't be able to pay its interest payments any longer. So how does this get resolved is a big outstanding question for me that I want to ask some of these macro brains on bankless. So bankless listeners, stay tuned for that. A lot of conversation coming up. The answer to that question probably is the answer that the whole entire market hinges upon right now. Like whether we are in a bear market or a bull market or like a recession, depression, or revitalization, depends on the answer to that question, I would say. Totally agree.

Starting point is 00:18:15 Guys, we got some more stuff coming up. Three hours capital. They're dead? I've got some things to say, Ryan. David's going to go through the full story, and he knows that he's been doing his research here. Also, BlockFi lent three hours capital $1 billion. BlockFi is suffering in this as well. This is the crash of the crypto banks.

Starting point is 00:18:35 And lastly, we're going to talk about the gray scale suing the SEC, what that's all about. We'll get back to these topics when we come back. But before we do, we want to thank the sponsors that made this episode possible. Rocket Pool is your decentralized Ethereum staking protocol. You can stake your eth in Rocket Pool and get our ETH in return, allowing you to stake your eth and use it in Defi at the same time. You can get 4% on your ETH by staking it with Rocket Pool, but you can get even more by running a node.

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Starting point is 00:20:33 Three Arrow's Capital ordered by court to liquidate. David's going to go through all of the details, but just a little bit of background on this. Three Roos Capital is absolutely massive during the Bull Run. 10 to 18 billion maybe assets under management. It's still kind of unclear, but a whole lot of money and a whole lot of prestige through this group. And now there's a complete meltdown.

Starting point is 00:20:56 David, what's the story here? Take us through the timeline of what happened. Now that we have seen the fallout, from some of this, we get to start to appear inside the black box that is three-hours capital. And all of this really started, and this behavior started at the very beginning of the bull market. For those that were here around the beginning of the bull market, the gray-scale GBT trust, it's GBDC is one-to-one towards Bitcoin, but not, there's no redemption window. And this is because we cannot have a Bitcoin ETF because of the SEC,

Starting point is 00:21:30 they had to make a trust out of things. And so you could come to the Grayscale GBTTT trust, you could deposit one Bitcoin, you would be issued one GBTC share, and then six to 12 months later, you were allowed to liquidate that share on the open market. This is for accredited investors only. As the bull market got underway, and institutions did not have coin-based accounts or FTCs accounts, they used the Grayscale Trust to gain access to Bitcoin. And since they're not one-to-one redeemable, since there's not a credit window, the Grayscale GBT's trust could have a premium. I think the premium got as large as like 148% as in like one Bitcoin was, one GPDC share was worth

Starting point is 00:22:11 1.48 times a Bitcoin when it should trade at par, but it doesn't because it's not an ETIP. So it's a nice arbitrage, right? It's a 48% arbitrage right there. If you can take the six months illiquity, illiquidity window. So here's what Three O's Capital would do. They went out and borrowed as much Bitcoin as possible from the market to turn it into GBTC shares to milk this premium. They would borrow Bitcoin from some source and they would put it into gray scale. Six months later, they would have this like 48% like arbitrage and that number would fluctuate. Because this premium would never go away, right? It was so persistent for so long that that's what people thought. But then even the most average person will like, yeah, if there's a

Starting point is 00:22:51 premium, people are going to milk it. And three hours capital, where are the people milking it? The thing is, Ryan, they weren't selling their GBT to capture it on premium. And they're they were using it as other collateral. So this starts off by three-year-old capital, borrowing as much Bitcoin as the market would lend to them from any lender facility possible, which is where this contagion starts. And so they put all their BTC that they are borrowing

Starting point is 00:23:17 into the grayscale GBT trust to get GBT back. And then they start using that GPTC as collateral to borrow stable coins. So they're now borrowing stable coins, based on their GPTC, and they started to invest in order to try and get the alpha, try and get the premium, to start to pay some of their loans back for borrowing Bitcoin in the first place. They invest bigly into Terra. We all know what happens there. They bought a bunch of vested AVAX tokens. Well, I mean, Avax is down bad, and they're probably still vesting anyways. And they started to take more and more capital from wherever they could get it, because they also have, like, loan and interest payments to get back, right? they get a $660 million unsecured loan from Voyager, which is a crypto exchange, not a lending facility, but somehow they convince Voyager to give them a $660 million loan, unsecured loan. They get a billion dollar loan from BlockFi over-collateralized. I believe the numbers were some combination of Bitcoin and also GPTC shares. We'll talk about that later on. So they get a billion dollar loan from BlockFi with a 30% over-

Starting point is 00:24:26 over collateralization. So like $1.3 billion inside of BlockFi, they get a $1 billion alone, and they go and speculate on the market with that. They get caught up in the staked-eath trade, like trading the merge, thinking that the merge is going to happen, like everyone's going to buy into staked-eath, but then instead of the merge happening, markets go down bad because of Fed risks, and like their staked-eath, instead of being worth one-eath, turns into being worth 0.96th, and they can't redeem that because that's how staked-Eath works in the first place. And so, also, like, there's illegal stuff happening too. And so the Singapore Central Bank just gave three arrows ascensures,

Starting point is 00:25:07 I don't know what that means actually, three arrows capital for alleged misleading and false disclosures. And there's evidence for this that's going around on crypto Twitter and in throughout the markets. There's evidence that they falsified records to lenders in order to access more capital. So fraud, basically. They committed fraud so that their balance sheet could look healthier

Starting point is 00:25:25 so they could get more and more loans out from other people. There's also public reports that Three O's Capital allowed other trading firms to use their account on crypto exchanges to trade through their account. Three O's Capital, they had billions of dollars. They could negotiate with crypto exchanges to like, hey, charge us less fees on your exchange because we're going to put a bunch of volume there and we don't want to pay those fees. And the crypto exchanges are like, yes, totally. You guys put all this volume through our exchange.

Starting point is 00:25:51 We'll totally charge you less fees. And then Three O's Capital let other people put. money into their account to trade on their account on crypto exchanges so that these third parties could access less fees as well. You know what that is, Ryan? That is an unlicensed prime brokerage with Bank Secrecy Act and wire fraud. These are criminal cases. And then there's also representation that they, there's also evidence that they represented

Starting point is 00:26:15 to OTC desks. They had relationships with other entities and other OTC desks that they didn't in order to presume some legitimacy to other OTC desks. So they start off with this very normal, like, I'll just borrow Bitcoin to get this GBT tray premium. They never sell. They never manage their risks. Instead of closing their risks, they just open up more loans on those risks. Then they somehow, like, give this crypto-Twitter, like a brand about themselves, that they're huge chads who make a ton of money. And so people loan them even more money. They took money in from DFI Treasuries who like DeFi treasuries like they raise $50 million. They're sitting on it. They don't need to go get yield during the bear market. So somehow Three Ro's Capital convinced them just give us your treasury and we will give you like this percentage. Meanwhile they probably like stick it into something like Terra and get 20% and then that thing goes to zero. So like a bunch of defy treasuries are down bad, down to zero because they trusted Three Ro's Capital to give them the yield. And so like not only did they like they are the one of the sources of contagion because they borrowed from Voyager. They borrowed from Bluer. They borrowed from Blossi.

Starting point is 00:27:22 blockfi. If they didn't borrow from Celsius, they are one degree away from borrowing from Celsius. What's crazy about this is like, this is the point retail starts lending to three hours capital without knowing it. So if you're putting funds into blockfi, right, and you're generating some sort of yield, you were effectively lending to three hours capital. Now, this is an over-collateralized loan, right, of course, so people think that's super safe. But we'll talk about why that wasn't so safe with GDPC a little bit later. But I think the important point here is it wasn't just institution to institution. This became a retail phenomenon when you're depositing funds into these crypto banks like

Starting point is 00:28:02 a blockfire Celsius. You are actually giving some funds to Sue and the Three Ro's Capital team. And that truth is rampant throughout the industry, right? Like Voyager, a crypto exchange, not a lending desk. Customers would kind of deposit their money into Voyager Exchange to do normal exchange stuff, and Voyager lent that money out to three-euro's capital. So three-euro's capital is at the center of the contagion. They are the contagion, Ryan. They have, they had their tentacles in every single entity that would ever lend the money, either over-collateralized or under-collateralized.

Starting point is 00:28:34 And so, like, it almost doesn't matter where retail entered the industry. Money flowed into three-er-as-capital because they took every single lending opportunity that they could and maxed that account out. That is crazy. Does this blow you away? It feels like they just made all of the nub mistakes in like one market cycle. They just did them all. It's like check the box. I'll think the GDPC trade goes on forever. I'll get into Tara and see if I'll do this.

Starting point is 00:28:59 I'll do this staking trade, expecting it like some sort of timing on the other side of this. I'll do the Alt Layer 1 trade with Avalanche and all of these other things. Like they're just checking the boxes of all of the mistakes a nub would make to lose their money during the bull market. Right. And like they made such a staggering amount of money. during the upside of the market. Part of that was on the backs of they borrowed it

Starting point is 00:29:22 and then it works in bull markets. And then they lost it all in the bare market, right? And so like, I can't remember where I heard this quote from, but like the venture firms or like, you know, hedge funds that do extremely well in one cycle aren't gonna be around it for the second cycle. Because if they were levered up, they were levered up on the way up,

Starting point is 00:29:40 they're also levered on the way down and they don't make it the second time around. So like having too strong a performance on the upswing means you're getting liquidated on the down swing. And that's definitely what happened. You want to see the cherry on top of this whole entire saga, Ryan? Yeah, give me the dirty chair. Suu has a $50 million mega yacht that is being seized.

Starting point is 00:30:00 And I can't remember what the name of this yacht is, but it's some like internet meme. This is a triple-decker yacht that Suu put a down payment on somewhere in like, I think it's the British Virgin Islands or somewhere, who has also made a court order to liquidate Three Ours Capital, because that's where three-oers capital, I believe, is domiciled. Anyways, yeah, so like this is something that Suzu still has. Is this like $50 million yacht that he has a down payment on? Which is absolutely crazy. Absolutely crazy. Absolutely brutal. And it sounds like the authorities are stepping in nation states.

Starting point is 00:30:36 British Virgin Islands are ordering the liquidation. So like the collectors are coming probably for that yacht as well. I would imagine all the assets are going to get liquidated. It's pretty crazy. This is not a matter of like three hours capital going under and like we're not, we're not seeing three hours capital again. Like this isn't happening yet. This is still in speculation phase, but this is a criminal enterprise.

Starting point is 00:31:02 This is a criminal enterprise. Kyle Davies and Suzu are in my mind. I'm not a lawyer. I do not have insight to these things. Do not listen to me. They are criminals on the run. Yeah, it definitely is starting to seem that. way. And unfortunately, it's cost the crypto market a lot in this cycle, including retail.

Starting point is 00:31:22 This is a tweet from Vitalik. What are we looking at? This is not him weighing in on the whole controversy, but I think he's maybe being a little subtle here. He's being a little snarky. Yeah, for good reason, Vitalik says that there are far more honorable ways to burn $50 million to impress people than buying a super yacht. They burned way more than $50 million, by the way. Like becoming a Gidcoin grant's matching partner. Here is the matching partners for our current round. So if you want to look around in the space and like look who is still capitalized and capitalized to the point of donating to public goods, it's the people in this graphic. We got Unlocked protocol. We got the graph. We got Radical. We got Aragon Project.

Starting point is 00:32:00 Zora, Figment, ZK Valder's, Selo, Yern Finance, ENS domains, protocol labs, chain link. Sorry if I'm not writing all these polygons there, Aves there. These are the people that are so well capitalized that they are still donating money to public goods. Nice job, guys. Yeah, there we go. And you know what? This is just, I hope this is part of the cleansing process of getting rid of the excess of like greed and leverage and margin that was going on during the bull market. David and I aren't like celebrating the downfall of three hours capital. At least I'm not. Maybe David is a little it. No, he's not, but like, it's, this had to end. This whole spirit of like D-Gen, short-term, traders dominating, like this had to end, and we had to get back to the fundamentals of what we're

Starting point is 00:32:51 actually building in this industry. And so I feel like from that perspective, this is the hard medicine, the crypto industry, and everyone in the crypto industry has to swallow. Because the stuff we were doing in the cycle, and by we, I don't mean bankless listeners necessarily, but collectively the industry was not sustainable, was not healthy, and had to stop at some point. And so better now than later, right? And I think this is a healthy thing. Well, let's talk a little bit about blockfi because the contagion has spread to blockify. You said they had a one of the contagion. Yeah. Yeah, they had a $1 billion loan outstanding to three hours capital, but it was collateralized by $1.3 billion or something to that effect. How does this even happen? How does

Starting point is 00:33:36 the contagion spread when you've got a collateralized loan to block-fi, David? How does this spread into block-fies, you know, potential bankruptcy or insolvency right now is what it's looking like? Well, so $1.3 of over-collateralized loan for a $1 billion loan, like, that's sure. But like, crypto prices went down by like 60 or 70 percent, and Thurros Capital didn't have any money to top up their loan. So that $1.3 billion in collateral was probably below the $1 billion loan that BlockFi gave three euros capital.

Starting point is 00:34:10 Well, my understanding is BlockFi, there was like a $1 billion something loan, right, that BlockFi had with three hours capital. They were lending them. And they had, you know, we'll call it $1.3 billion a billion over collateralization of that. A whole chunk of that was Bitcoin. And that could be collateralized. prices go down, BlockFi is going,

Starting point is 00:34:34 sorry, that could be liquidated. As prices go down, BlockFi is going to liquidate that entire position. And my understanding is they did. But another chunk of that, of the $1.3 billion that was supposed to collateralize this loan, was actually GDPC.

Starting point is 00:34:50 And that is not liquid in the same way that Bitcoin is liquid, right? And so my understanding is that's really where BlockFi has gotten hung up on the GDPC collateral, that was not worth what it seemed like it was worth in the market. And that's the part that really punched him and knocked him out.

Starting point is 00:35:11 I mean, there's other things that BlockFi was probably doing from a risk perspective, but this was certainly a big one. And has led what to BlockFi, it's a fire sale. There's been to purchase talk. Yeah, what's going on there? Yeah, there is a tug of war. There is a race to acquire BlockFi. And so this is a race between Morgan Creek,

Starting point is 00:35:32 which already has a bunch of block Y equity to begin with and then also FTCX. So FTCX gave BlockFi I think a $200 million like credit revolving door like facility I think a couple weeks ago. Yeah, $250 million. Yeah, credit agreement. And so like that allows for like users with to withdraw their money. As far as I know, users can still withdraw their money. And that comes off of like a credit agreement with FTCX. And I think what that means is that FTCX has the the ability to purchase FTX shares from the equity holders at like basically from what BlockFi was previously valued at basically free. At this current valuation, BlockFi is valued at $25 to $50 million, which is an extremely low number from where they came from. It's basically wiping them out.

Starting point is 00:36:18 It's basically you're taking all of the equity holders of BlockFi, whether that's the founders or employees or previous investors like Morgan Creek, you're wiping them out. But what FTCS was doing here is placing its debt to BlockFi as more junior to depositor debt. So that means they're kind of like protecting depositors. So if you were a regular user and you had deposited

Starting point is 00:36:42 funds into BlockFi, you want to make sure you're going to get that money out. And you want to get that money out before in a liquidation event, FTX gets its money out. And so that was the benefit that this was providing. And I actually think it's laudable that BlockFi is trying to look out

Starting point is 00:36:58 for its users. Maybe they're also trying to just prevent, like, criminal charges or something like this, right? So maybe it's not all kind of moralism here. Maybe they're actually trying to protect themselves here. But depositors getting protected in this scenario is a good thing. It's not clear that that's what's happening in Celsius. It seems like depositors are probably going to take some haircut when the Celsius dust settles. And so that at least was good about FTX.

Starting point is 00:37:28 But then Morgan Creek is like, why should BlockFi only be worth $25 million? Like this is somebody coming in and basically scalping BlockFi when they're down, and they're trying to raise some emergency capital to value the company at a higher amount and provide that $250 million injection. I think that valuation, if Morgan Creek deal goes through, is something like $500 million. So far higher than the FDX deal. Right.

Starting point is 00:37:57 But like you said, that puts the equity holders current and new equity holders of BlockFi above depositors. So this is not only a tug of war between FDX and Morgan Creek, this is a tug of war of who gets, who gets like bailed out first, I guess? Yeah, I don't know that's the case. I don't know all of the details of the Morgan Creek and what position it puts depositors in. I think Morgan Creek is trying to also protect depositors. That's not clear to me. but yeah, I guess there's a lot of dust to still settle in the BlockFi case. But in good news, I actually had some funds.

Starting point is 00:38:36 I know that I confessed two weeks ago that I had some funds on Celsius. Again, Ryan likes to try everything. Ryan tried some centralized lending lenders, including Celsius, NXO, a few others. Just a small amount of funds, right? Because you got to keep an eye on those crypto banks out there. You got to keep an eye on that. I'm not looking good for my Celsius deposit, all right? But I was actually able to withdraw from BlockFi in the last few days.

Starting point is 00:39:01 And so that's at least a good sign. That's a stress test of some sort. They're not freezing accounts yet. So it doesn't seem to be in as bad a position as Celsius is. I have a BlockFi credit card, too. I hope that's going to be okay. What do you think, David? If it's a credit card is probably going to be fine.

Starting point is 00:39:21 There's a really good article out of the block that really, summarize these whole things, saying four big takeaways from a leaked investor call, kind of recapping what we've already said, BlockFi is currently being valued at less than $500 million. If the FTX deal goes through significantly less than $500 million, we're talking about $25 to $50 million, if the Morgan Creek deal goes through, maybe it's around that, give or take. Morgan Creek Digital says BlockFi's loan to three hours capital was $1 billion, and the collateral on three-hour capital loan was two-thirds Bitcoin and one-third GBTC. during the call, yes.

Starting point is 00:39:56 The X-X deal gives the firm the option to buy BlockFi, but not if Morgan Creek can get there first. And then, of course, obviously, more layoffs may be in the works at BlockFi. It's kind of what I would be, I would expect. But, Ryan, I would like to take this opportunity to go backwards in time about one year to June 2021 when BlockFi was on the verge of going public, right when the SEC came into BlockFi and told them that they could no longer accept new customer deposits in their existing, their existing, like, lending products.

Starting point is 00:40:30 And BlockFi fought them on this. The SEC wanted them to close their existing lending products. BlockFi fought them on this and said, hey, we just won't accept any new inbound, but current customers get to be grandfathered in. And that's the settlement of that whole thing. Can I just- BlockFi then? Can we just say, like, is the SEC saving the day here?

Starting point is 00:40:49 I mean, like- They're not doing that. They weren't wrong about this, were they? They weren't wrong. Nope, not at all. And so at the same time, BlockFi wanted to go public. And so it was going to raise $500 million on their Series E, which would put them at $4.7 billion dollar valuation.

Starting point is 00:41:09 $4.7 billion valuation a year ago, 12 months. One year ago. Fast forward to today, BlockFi is on the market for $25 million to $50 million in valuation. Oof. Yeah. Oof. That's down bad. And it's unfortunate that retail has been involved.

Starting point is 00:41:29 And again, it's people depositing into BlockFi. You see the crypto contagion. BlockFi issues some loans to Three hours capital. Three hours capital goes bust. And eventually that flows back to retail, right? This is the problem. I think this is a great contrast point with Defi did quite well during all of this. A lot of lending going on in Defi.

Starting point is 00:41:51 and when crypto goes down 70% to 90%, right, a lot of the C-Fi lenders are caught, like, insolvent. And yet, Defi unwinded very gracefully with a highly efficient market. We're going to get more to a take on that in a little bit, but it's quite the contrast point. The juxtaposition is just so clear. Exactly. It could be more clear.

Starting point is 00:42:14 And as a quick, fun little side quest before we go on to the next thing, the SEC thing, There was an article out of the block that states that FTCX was interested in making a deal with CELCFIUS, kind of in the same way that they're making a deal with BlockFi. But then they looked at Celsius's balance sheet, and they were like, oh, no, no way, we're out of here. So declined buying Celsius once they took a look at their balance sheet, which is not a good sign. Allegedly, according to a source, Celsius has a $2 billion hole in their balance sheet. So, like, no one would like to take responsibility of that one. David, did you see that meme?

Starting point is 00:42:49 It was like a person reaching down to someone's hand and they're in the water and looking like they're drowning. It says, FTX and it's like, I'll help you. And Celsius is the person drowning in water. Then the person goes down under and it's only the hand. And like the FTX caption is like, oh, you're too deep. See you later. Sorry.

Starting point is 00:43:07 It's kind of like, it's kind of what's happening. I mean, Celsius is in a far worse place than BlockFi was. And so we're kind of seeing the quality of these crypto banks. right now, right? We have some that are still left standing. Nexo is still left standing. Juno, which we talked about earlier, they're still left standing. Coinbase is fine. They're going to be totally fine. CZ, Binance, they're actually like buying things. FDX, they're buying things right now too.

Starting point is 00:43:34 FtX is in a great position right now. Yeah, they're in a great position. Anyway, so, okay, what does the GDPC thing have to do with all of this? We've mentioned it a few times, and Gray Scale is actually suing. the SEC, they are the creators of the GDPC product. Can you explain what's going on here for us, David? Right. And so the GPTC discount is something like 30 to 35% at the moment, as in the GPTC is worth only 70% of what one Bitcoin is worth. And a lot of people- And GDPC is a product that you can get in your retirement account, right? Retail can buy in their

Starting point is 00:44:10 retirement account because we don't have an official ETF in the U.S. We have to use products like GDPC, which is a trust. Right. And it's like almost inarguably an inferior product. Like it's supposed to represent one Bitcoin, yet it's only representing 70% of one Bitcoin. And there's like a six month illiquidity lockup period for creditor investors between when they deposit Bitcoin and then they when can they redeem their GBTC. So like a lot of capital lockup, a lot of capital efficiency. During a time where crypto markets go down like 75% on average, there is a discount, a 30% discount on GBTC. And, and illiquidity lockup phase. When people need liquidity the most, this trust model sucks it all dry. And it's no fault of Grayscale at all. It's the SEC's fault because the SEC won't let them

Starting point is 00:44:59 turn this into an ETF. And so the SEC rejected Grayscale's bot Bitcoin ETF application, which from all the commentators like Jake Stravinsky and others that I'm aware of, say there's literally no reason why the SEC should deny this. This is totally above board. They should accept this. But for some reason, people just got the feeling that the SEC was going to deny it.

Starting point is 00:45:19 And so the day that the SEC said that they are denied the grayscale conversion of the trust to an ETF, Michael Sonnonshine tweets out, we're filing, we've filed a lawsuit against the SEC dollar sign GPDC, ticker sign GPDC, 15,000 likes, which is a big, big number. And so they also release this PR report that talks about the details, nice to like there. Grayscale investment initiates the lawsuit against the SEC. We're going to court. Crypto is taking the SEC to court. And everyone I think, in my opinion, should be behind this conversion of the trust into an ETF because it would immediately restore 30% of like capital that should be there in the GBTC token.

Starting point is 00:46:01 And it would allow a one-to-one redemption window between GBT and Bitcoin. So many people would get much more liquidity. So many people would become much more capitalized in a time, in a place in the market where people need it the most. So, statement out of Grayscale says, the SEC is failing to apply consistent treatment to similar investment vehicles and is thereby acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.

Starting point is 00:46:28 There is a compelling and common sense argument here, and we look forward to resolving this matter productively and expeditiously, says, Grayscale. Take him to court, Grayscale. Go do it. Well, look, man. Indirectly, the SEC cost retail a lot of money. money because of this market inefficiency.

Starting point is 00:46:46 Now, I'm not saying like Suzu's actions and BlockFi's risk actions caused all of this, but I am saying that there's an inefficiency in GDPC and the Bitcoin spot price that doesn't actually need to be there and wouldn't be there if the SEC just allowed Graysdale to convert it to an ETF. And so it's just kind of an example of like sometimes regulators in the SEC are helpful to the industry, right? In ways, like, okay, we have a centralized lending provider. We need some regulation. We need some windows into that. We need some auditing. We need some insight into that. Okay. So, like, there should be a role for regulators in, you know, looking at Celsius

Starting point is 00:47:30 in depth and looking at BlockFi in depth and making sure that, like, they're on the up and up, okay? That's one thing that we could benefit from. By the same token, we also want from the SEC an ETF. for retail. Like, so why can't you get rid of, like, help us with the things we need to help with as a crypto industry, but then also give us the things that will protect retail that we need, like an ETF, give us a safe space to play. And of course, like this kind of silence on defy from regulators and almost hostility towards defy, an undue hostility towards defy, and it's kind of a TBD. We don't know if we're going to allow that or not, right? When defy is part of the answer to this.

Starting point is 00:48:13 Defi markets performed flawlessly, transparent, on-chain. It all worked. We did the same liquidations that the C-Fi lenders did, except D-Fi didn't screw anyone over. It actually performed exactly as it was supposed to. It's because our regulations are based in smart contracts. So the SEC and other regulators could view DFI as part of the solution here. And they're not quite there yet.

Starting point is 00:48:41 I'm hopeful it gets resolved, David, but I just feel like anything with regulators is kind of a double-edged sort, because we want you guys here to help us with the scams and like the clear things that we need help with where retail is getting screwed over, but we don't want you to like say the whole thing is off limits and hamper the entire industry and try to shut it down and get it out of like the U.S. because part of the reason we're doing these things is because we are routing around dumb regulation that doesn't. work for the people. That's my rant on the SEC, David. Love it. So going back to the market section where we talked about like the 15 different sources of inflation, like here's the source,

Starting point is 00:49:23 here's like the four sources for the contagion in the crypto industry. We had like irresponsible centralized lenders, both unsecured and secured. We had three hours capital taking advantage of that. We had an inferior product out of gray scale with the GBT trust, again, to no fault of their own, and an SEC unwilling and unwilling to work with this industry to provide clarity or allow this industry to move forward in a way that protected retail investors, and allowed these markets to do efficient and orderly clearing of liquidations. Like the SEC, which is their mandate, got in the way of that. So like the contagion of crypto, the reason why it's so big, is like three or four different interwoven reasons, like some degeneracy culture,

Starting point is 00:50:08 like central like the same reasons of like defy people like talk crap about CFI stuff is like black black box human folly like you can't manage stuff so you let the code do it and then because of that inferior stuff you have like Thurros Capital who like exploits every single possible like way to get money out of it like that congratulations that is the bear market of the last six months that's a full context we're all on the hook for it's a lot of a lot of blame to be shared across all groups doing this David, we got more to cover, man. We're going to talk a bit more about Maker's Defi Governance, the biggest

Starting point is 00:50:42 maker proposal in history. Also, an update on Arbitrum Odyssey. This is their latest update and what's going on there. Guys, we'll be right back, but before we do, we want to thank the sponsors that made this episode possible. The Layer 2 era is upon us. Ethereum's Layer 2 ecosystem is growing every day,

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Starting point is 00:52:25 If you have a ledger already, you probably already have it and get started securely staking your crypto assets. And we are back. Longtime Bankless listeners will know that MakerDow holds a very close place

Starting point is 00:52:36 in my heart. I think it's a very cool project. There was the most contentious, most controversial governance proposal over Maker Dow just happened. The highest amount of all MKR showed up to vote. And it was neck and neck up until the very end. Here's GFX Labs putting everything into a nice summary. 30% of all token supply voted, which is crazy to think because like so many MKR scattered around like all of DFI, 30% of them showed up.

Starting point is 00:53:03 Voting was neck and neck until the last two hours. The vote was to add a new core unit to oversee the Dow's onboarding of collateral assets and also form a specific framework for growing the protocol. This core unit also came with a hefty price tag. Basically, the framework was a little bit more of kind of like a constitution, a constitution-ish about what Maker Dow needs to do, where it needs to go,

Starting point is 00:53:24 the direction it needs to go in. And it was a pretty big turn off of its current path. And so unlike the threat continues, unlike most governance votes, two distinct sides developed, those who wanted to see more organization and control voted yes, which is like the Tradfai VC real world assets camp, and then the nose, which are like the kind of the core MakerDAO community, opposed the price tag and didn't really like this specific direction and wanted to continue with Rune, the founder of MakerDAO's, his end game plan. That's the name of a post

Starting point is 00:53:57 that he wrote. And so after the dust settled, it ended up being that the Tradfy and VCs did not make did not make the proposal. They got out voted by about 15%. So the Maker-Dal decided to go with a continued endgame plan. But the idea here is that there are, there's a tug of war going on over Maker-Dal, and no one thinks that this is over. And so after this, Hazu actually put a very interesting thread together about his vision for the future of Maker-Dal. Hazu was on the yes side of these things, like the Tradfai and V-C side of things. And like, like, I know tradifying vCs are generally heard as a negative term, like abstain your opinions on that word in this particular context

Starting point is 00:54:41 because these are crypto vCs, we have opinions. Hazu puts a tweet out that says, I just propose a series of simple governing changes to MakerDAO that address many problems that exist in governance today. This includes a general lack of vision and strategy as well as low accountability for maker holders. Hazu has been thinking a ton about Dow governance lately, and so he puts this proposal into place

Starting point is 00:55:01 that basically streamlines governance, because there are so many things that's going on with Maker Dow that everyone has to vote on all the things, and there's no just like there's no centralization of decision making, basically. Like it's really taken the Dow at heart. So like he puts these vision, strategy, tactics, and implementation categories together and promotes like three different ideas that just streamlines all of these things. And so if you are into the world of Dow governance and like on the frontier of that, pay attention to what Hazu wrote.

Starting point is 00:55:30 We're going to get him on the podcast soon. But basically, there's a very controversial, Maker-Dow vote, pulling Maker-Dow into two different directions. And while this new direction did lose, I don't think it's going to be the last time we hear from this. Well, I do think it's healthy, honestly. I think the two directions are kind of healthy, right? So it sounds like VC investors are just like, hey, we want more accountability.

Starting point is 00:55:50 And our method for solving that is like, let's install a core unit, a new management team effectively, some more centralization, right? And here's the community saying, nope, everything's good. We have a plan. Let's keep going in the direction we're going. And this is a healthy tug of war, I think. The other reality is everyone who owns the maker token does have another vote beyond this governance vote. And that vote is just to sell their MKR tokens if they no longer believe in the direction of the project.

Starting point is 00:56:19 And so any investor in MKR tokens can do that at any time. And anyway, it's good to see. I do think sometimes communities vary on the other side of the whole decentralization debate too much. And they're like, no structure. all structure is bad all leadership is bad any kind of you know token mechanic that increases the value of the token is is bad and that is obviously not the right choice either right it's like i i would love to see a bit more investor action in something like the uny token for example like i would love to see it there anyway let's turn on that fee switch yeah exactly i think it's all healthy and i'm anxious to see how this

Starting point is 00:56:59 all plays out but it's playing out transparently in real time here's another governance vote from Lido, what's going on here, David? Yeah, this is not the end of the Dow governance saga, also related to Hazu. There was a proposal from the Lido Dow to itself to say, hey, should we cap ourselves? Should we limit how much ether is in Lido? Because ether is, like, dangerously close

Starting point is 00:57:19 to passing a threshold that would allow Lido to have undue control over the entire Ethereum network. I wouldn't actually be surprised if that limit has already been passed. So Lido submitted a governance proposal to itself saying, hey, should we like, cap ourselves? Should we prevent more ether for being deposited so we don't grow too big?

Starting point is 00:57:35 And surprise, surprise, 99.81% of Lido said, no, we should not cap ourselves. Which makes sense, right? Lido's not going to say, like, I think that we should make less money because our product is too good. Like, they're not going to say that. And so, Hazu, again, co-authored another proposal for Lido's stake to ETH governance, which I think is really innovative, and I think it is a model that we can take out for other DOWs, right? And so the idea here is that Lido governance will stay Lido governance, but staked ETH holders, Ryan, get the ability to veto any Lido Dau proposal. So they don't, like, staked Eath holders don't get to say yes.

Starting point is 00:58:17 They don't get to submit new proposals. But if a new proposal is submitted by Lido Dau governance and the Lido Dahl governance says yes, then staked ETH holders can come in and say no. That's kind of cool. That's really, really cool. Yeah. So, like, the safety holders get one tool, which is, no, you get to veto. Vito power. Right.

Starting point is 00:58:36 And so I think that's great. I think that's really cool. That's really smart. And that's the kind of evolution, which I'm most excited about in kind of Dow governance, is new ideas, like Haseu's idea here, and to see how that emerges. No surprise, though, that Lido would vote to you self-limit, right? In fact, the original proposal, I mean, there, I don't think anyone was calling for a self-limit. Like, even Vitalik was not talking about a self-limit.

Starting point is 00:59:01 He was talking about, like, raise fees after you have a certain percentage of market share. So even the original proposal seemed kind of like constructed in a very binary way. That was a little bit weird. But, of course, token holders are going to vote in their own self-interest. David, let's talk about some layer two stuff too. So Odyssey from Arbitrum. What is Odyssey? And what happened with it this week?

Starting point is 00:59:23 Right. So Arbitrum Odyssey is basically this journey around the Arbitrum Eco system where you would go and do some things and you would get some NFTs. The first week of the Odyssey was Bridge Week. So you bridge onto Arbitrum and you would get an NFT if you did that. And so they were going to go from Bridge Week into like App Week, which is going to be the remainder of the Odyssey, like Weeks 2 through 8. But as soon as App Week got started, Arbitrum got congested because so many people came on to Arbitrum during Bridge Week. As soon as I started doing App Week stuff, they got congested. And that's because a lot of the application

Starting point is 00:59:58 that was in this first week was like heavy computation stuff. There was a lot of, what was the app that was being used? It was GMX, which are perps and leverage, which just require a ton of computation. And so like, you know, simple transfers on Arbitrum, like, that's not going to clog the network. But, like, as soon as you do, like, computationally heavy stuff, that will start to clog the network. And so they are putting the Odyssey on pause until they release Nitro. And once they get Nitro back, once they get Nitro online and they get the Arbitrum, like, layer two, updated to this new update, then they're going to resume the Odyssey, and the Odyssey shall continue.

Starting point is 01:00:34 I asked some of the Arbitrum folks, like, if you could give us some numbers on, like, what, the scalability of Nitro, and they said a nice, easy to interpret number of seven Ethereums. As soon as the Nitro update is on online, Arbitrum is going to be about seven Ethereums. And like all layer two's, like these updates are just the beginning. And so, like, going to where Arbitrum is now, which I think is, like two to three Ethereum's going up to seven Ethereum's. Nice big jump. But then like there's also, again, EIP-4488 that increases the scale as well. And so there's also like some crazy numbers that we have. There's a Dune Analytics page, which I'll have you pull up Ryan, which just

Starting point is 01:01:14 showed the sheer magnitude of people that went on to Arbitrum during week one, 250,000 new bridgeors, at least bridging addresses that happened on Arbitrum. So 250,000 addresses went onto Arbitrum in seven days. And, like, that wasn't congested at all, just, again, because, like, simple transfers are totally fine. So can I ask you, David, did they, they just pause the, the Odyssey itself, right? They didn't pause the network or anything like this. Oh, God, yes. No, no, no, no. Network is doing just fine.

Starting point is 01:01:40 Like, the congestion's not even here at this point. They just paused their marketing program, basically, because they were like, oh, too much too soon. We wanted to deploy Nitro first, which is going to 7X their network. And, you know, so that's the reason why the pause. Why are people doing this for worthless NFTs, David? I mean, okay, so like the simple take is that if you get all the NFTs, you'll get all the airdrops. Oh, okay. That makes, these are like participation NFTs, right?

Starting point is 01:02:07 Participation NFTs. Like, it's so obvious that I'm kind of skeptical on it. It's like, yeah, like, Arbitum, obviously, we're going to give you NFTs. You can be on a list of people who got the NFTs. It seems so obvious. Dude, ETH is obvious right now at the merch. I think that that's what's totally going to happen. Again, none of this is, we don't know anything from the Arbitram team about any of this.

Starting point is 01:02:27 But what's really nice about this is if they're giving out NFTs for real things that people are doing, they get a pretty clean white list of actual individuals doing real things in the network. Well, not if you farm it, though. People are just farming NFTs instead. Right, farming NFTs, that's a concept. Yeah, I bet they'll find a way around that. But it gives a nice base of additional data to differentiate for a future air drop, which it's got to be happening, man. Got to be happening.

Starting point is 01:02:56 Oh, well, the ARB token is coming for sure. I've been trying to figure this out, Ryan. What is the arbitram token going to be called? A-R-B or ARB-I or something else? Arby. Arby? Arby? Arby?

Starting point is 01:03:08 Arby? It's kind of a cool. It makes me crazy costume. It's like Arbys. Arb is cool, though, because it's like an arbitrage. Right. Air B. What is optimism?

Starting point is 01:03:17 O-P. What's, O-P? It's just O-P, right? Yeah. Mm-hmm. Which is, I think, super hot. It could be A-R. A-R?

Starting point is 01:03:24 A-R versus O-P. It sounds like a gun. Oh, yeah, that sounds like a good. I don't know. I don't know. We'll have to see when it comes out. I do think optimism won the name, the name debate or the name fight. O.

Starting point is 01:03:33 O.P. is nice. That's just my take. O.P. Pretty hot. Okay. Speaking of O.P. They're going up, too. Trading activity surges on optimism's layer two as total locked value doubles.

Starting point is 01:03:46 David, this is layer two beat. Look at this. Optimism now number two ahead of DYDX in terms of total locked value on the rollup. The number two. roll up behind Arbitrum, which has $1.96 billion, it seems like the recent OPEAirdrop has helped in terms of getting more value locked inside of this platform. Also impressive that this is happening during a bear market. So roll-ups continuing to do well, even despite a bear market. Any other takes here? I wonder if the minus 11% flowing out of D-Y-D-X is a reaction to their D-Y-D-X chain, or if just people

Starting point is 01:04:23 are scared in the bear market, so they're not trading leverage. I don't know. Could be both. I'm tempted to say it's kind of noise for now, but that's going to be one to, DYDX no longer going to be on L2B, David. He's sad about that? Right, yeah. It's going to be L1B.

Starting point is 01:04:38 Yeah, it'll be a Factor at L1B. Yeah. By the way, guys, we had an episode with Antonio where they talked about earlier this week, they talked about their transition to an app chain for a layer two. You go listen to that episode. I have some thoughts coming out of that episode. Got some thoughts. I won't share them all here, but in the weeks to come,

Starting point is 01:04:55 Maybe we'll share some of those thoughts. But anyway, great episode if you want to hear their rationale for doing this. ETH stuff, merge stuff. When merged, David? July 6, something's happening. We still don't know that. July 6 is not when the merge is happening. That is when the Sepolia TestNet merge is happening.

Starting point is 01:05:11 And so that's coming up. That is the second of three test nets that we must get to to get to the actual merge. The second one is happening on July 6th. It's going to be live streamed on Anthony Sizano's Daily Gway or maybe the East Dakers. It'll just be a whole entire event. So that's on the horizon. That's good. Another dress rehearsal down.

Starting point is 01:05:29 David, speaking of down, though, NFTs have been down pretty bad. I don't know if you've looked at the price of your JPEGs lately, but it's not going to give you any comfort, okay? I love all my JPEGs. I don't look at the price. Okay, yeah, it's just, David's just here for the images.

Starting point is 01:05:42 He's here for the art, okay? So NFTs, USD volume. It's back to, like, 2021 levels, like early 2021 levels. Right. Down pretty bad. but there is one bright spot in the NFT economy, and that is dot-eath names.

Starting point is 01:06:00 ENS names. Outperformers right now, especially the three-digit numbers. Some crazy, crazy sales have happened in the last three days. 0.03.Eth got sold for 83.5Eth. 888 got sold for 38th. 037 got sold for 30th.Eth. 383 got sold for 27th.

Starting point is 01:06:19 83 got sold for 27th.Eth. Ryan, porno.eath got sold for us. 184 ETH. So E&S names are hot right now. Yeah. Hotter than Sam.Eath, which only came in in 100Eath. Oh, poor Sam.

Starting point is 01:06:32 Poor Sam. But yeah, look at these numbers, man. May was like the biggest month ever for E&S. And June looks like it's going to be strong too. So pretty impressive. All the while, Michael Saylor continues to dollar cost average into Bitcoin. In the bear market, he hasn't stopped. It's probably a better time to actually buy the Bitcoin at this point in time.

Starting point is 01:06:57 But he just purchased another $10 million of Bitcoin. David, are you getting concerned that, like, Saylor owns too much Bitcoin at this point? Like, he's got to be close to 1% of the entire Bitcoin supply. Yeah, okay, 1% is 210,000 and he's got 130,000. He's still got a waste to go for 1%. The only thing I see when I see Michael Taylor buying more Bitcoin is like, dude, you spend all of your ammo. at the top. Like, that's not dollar cost averaging. He's just like putting in his fumes at this point. Expand your time rise in the top of what? Not the top of the decade, okay? Just a local top.

Starting point is 01:07:33 It's just a local top, my friend. You can't time these things. You've got a dollar cost average. A kind of a useful website, Ryan, you might want to pull this up while I talk about it is bitcoin treasuries.net. And so this can just show you people and the treasuries of people around the world and how much Bitcoin they have and what they bought it out. The cost basis for micro strategy is, is basically $4 billion. They've taken $4 billion USD and bought it and bought Bitcoin with that, which is currently valued in today's dollars

Starting point is 01:08:02 at $2.4 billion. So they have lost $1.5 billion on their Bitcoin trade. They have down 40%. And then you can see how much of the $21 million they have. Dude, that's not bad. I've been down worse than this. Good job, Sealy. 40% or $1.5 billion.

Starting point is 01:08:20 Definitely the former, all right? I've been downwards than 40%. I do think that, like, I mean, I know people are making fun of him now. I do think this trade is ultimately going to pay off, like, really well. Like, when you zoom out, and, you know, the capital he's getting is kind of basically free. It's a publicly traded company. It's taking these, like, loans at very low Fed interest rates. I know that's not what micro strategy should probably be doing directionally, right?

Starting point is 01:08:47 Their business analytics firm, but it's probably going to pay off for them. I still think this. I just see the $10 million is a drop in the bucket on their $2.5 billion position, which started at $4 billion. Like, you should have saved your ammo, dude. Oh, yeah, but that's what everyone says, right? You can't time these things in my opinion. I mean, I'm also.

Starting point is 01:09:08 Sailor, I still support buying. I'm telling this to myself, too. Don't get me wrong. Yeah. Keep buying the dip, sailor. Yeah. It's, you know, maybe you could reverse things for us. David, this is a tweet from Narajj, from Coin Center.

Starting point is 01:09:22 And just through the crypto industry's attention to this, I thought this is an interesting story. Chinese officials are using the COVID health code system to stop a bank run. They turned all would-be withdrawals codes red before they could get to the bank, effectively, unpersoning them. So what was happening in the banking system in China, what's been happening is rather than suffer a bank run, where individual citizens were going to the bank to try to withdraw funds, the banking system would just give them a COVID code, a COVID red code. You are COVID positive. You cannot leave your house.

Starting point is 01:09:59 Exactly. Cannot leave the house. And effectively excommunicates you from the social system, but also the financial system. So cutting off your bank access that way in order to prevent a bank run. This, my friends, is very terrifying. This is scary. This is the reason we can't have in the nation states in control of the banking system. and in control of the money supply,

Starting point is 01:10:24 and with a bureaucrat's ability to just press a button and eliminate you from the economy. Why? To stop a bank run? Who, like, who knows? Who knows the why? What the why will be in the future? Maybe because you have different political persuasions.

Starting point is 01:10:41 Maybe you voted a different way. Maybe you've said something publicly on TV. This is very terrifying to me. And I think I am most alarmed that countries in the West are actually improving. racing similar capabilities. This is what a centrally administered central bank digital currency. Right. This is actually the power that that gives

Starting point is 01:11:01 the nation state. They wouldn't even need to deem people as COVID positive. They would just skip that step and just go straight to like, no, you can't have your money. There's a quote from this article says, the news about the health codes has gone viral on China's social media platforms. Sooner and later, this sort of thing is going to happen to all of us. Wake up people, one user wrote. National pandemic prevention policy has been reduced to a private weapon, said another. This is the height of expansion of power, ideological decay, and evil influence.

Starting point is 01:11:29 Oof. Guys, I think-coming to a CBDC near you. The end of the decade, we're only going to have two types of money. There's going to be state surveillance-controlled money, and there's going to be free money. It's all going to be digital. The free money, the only free money available will not be cash anymore. It will just be crypto. So you got crypto and centrally controlled.

Starting point is 01:11:49 money and those are the two options. And this is why we need to preserve crypto as an option. You hear that from us every time on bankless. David, there was a bridge hack this week too. We got to cover that real quick. What happened? Yeah, Harmony to Ethereum Bridge. $100 million was stolen in another bridge hack. I mean, we've been here before. Ryan, you want to know who was behind it? Who, isn't it? North Korea. North Korea. It was North Korea. Yeah. So once again, North Korea hacked a bridge and now has all the money. It does not look good when half of this industry's hacks end up in North Korea's pockets.

Starting point is 01:12:26 Oof. You know, it was interesting in our conversation early this week with Matthew Green, how he said he was having conversations with U.S. national defense. And they were like, hey, how can we come help the crypto industry to prevent hacks from these, like, happening? Because every time North Korea goes and hack something, right, they get more funding for their government to go, I don't know, what? Do whatever they do.

Starting point is 01:12:50 Nuclear weapons or something like this. So it actually becomes a, these hacks actually become a national security risk. Right. Interestingly enough. Right. Crazy angle on that. Use a layer two, prevent nuclear war.

Starting point is 01:13:02 Is that a fair take? Yeah, it might be a stretch, David. Is that a stretch? There's something there. Maybe there's a future article, David Hoffman article about this. Digital Wallet Maker Dynamic raises $7.5 million dollars.

Starting point is 01:13:15 Good to see a raise still coming through in the bear market. Anything special about this one? Yeah, this is something that, for those that pay attention to crypto Twitter, Nick Carter and Castleline Ventures raised put money into this round, an Ethereum wallet that has, like, digital identity features baked into it, and he got absolutely hounded by the Bitcoin community, like the Cyber Hornets, just because, like, from their culture, you don't touch anything that's not Bitcoin. And so Nick Carter, the blasphemous sinning Nick Carter touched something Ethereum. Now he's being like, X-Bronets. excommunicated from the cyber hornet culture.

Starting point is 01:13:50 Just, you know, a small peek into the window of Bitcoin maximism. Did you read his post? Bitcoin maximalism is dead, his bankrupts. No, I haven't, but I feel like I could already know it. Yeah, I think he's over it, man. He's over Bitcoin maximalism for sure. As am I, as are you. Always happen.

Starting point is 01:14:07 Still, even in a bear market, all right? This is an incredible time to get a job in crypto, because crypto is still hiring. There was a lot of money created and raised. raised during the bull market and good firms are still hiring. Here are a few firms. I will read them out, read them out and their job opening. Number one, Alliance Dow, CTO, Alliance Dow Software Engineer. Alliance Dow is also looking for an executive assistant. Go check that out. Otterspace is looking for a solidity engineer, abstract ventures, a front-end engineer, Boolean Labs, looking for a founder and for their Web3 community analytics platform and a CEO. That's a big one. Begless

Starting point is 01:14:46 We're still looking at Twitter specialist resumes. Blockchain Capital wants a research engineer, swell network, a tech lead. Go check out all of those roles on the Bankless Jobs board. There's so many more. That's the place. Bankless.pallet.com slash jobs. Guys, we'll be right back. Come back with hot questions from the Bankless Nation, as well as some hot takes from Twitter.

Starting point is 01:15:07 We'll get right back to that. But before we do, we want to thank the sponsors that made this episode possible. Arbitrum is an Ethereum Layer 2 scaling solution that is going to completely change how we use defy and NFTs. Some of the coolest new NFT collections have chosen Arbitrum as their home, while Defy protocols continue to see increased liquidity and usage. You can now bridge straight into Arbitrum for more than 10 different exchanges, including finance, FTX, Whoobie, and Crypto. Once on Arbitrum, you'll enjoy fast transactions with cheap fees, allowing you to explore new frontiers of the crypto universe. New to Arbitrum, for a limited time, you can get Arbitrum

Starting point is 01:15:38 NFTs designed by the famous artist Ratwell and Sugoy for joining the Arbitrum Odyssey. The Odyssey is an eight-week-long event, where you can play on-exempt. chain activities and receive a free NFT as a reward. Find out more by visiting the Discord at Discord.g.g.g.orghum. You can also bridge your assets to Arbitrum at bridge.orghum. I.O. and access all of Arbitrum's apps at portal.orghum. In order to experience defy and NFT's the way it was always meant to be, fast, cheap, secure, and fiction-free. The Brave browser is the user-first browser for the Web3 internet, with over 60 million monthly active users. And inside the Brave browser, you'll find the Brave wallet, the secure, multi-train

Starting point is 01:16:14 crypto wallet built right into the browser. Web3 is freedom from big tech and Wall Street. More control and better privacy, but there's a weak point in Web3, your crypto wallet. And most crypto wallets are browser extensions, which can easily be spoofed. But the Brave wallet is different. No extensions are required, which gives Brave browser an extra level of security versus other wallets. Brave wallet is your secure passport for the possibilities of Web3 and supports multiple chains, including Ethereum and Salon. You can even buy crypto directly inside the wallet with RAMP.

Starting point is 01:16:41 And of course, you can store, send, and swap your crypto assets, manage your NFTs, and connect. to other wallets in defy apps. So whether you're new to crypto or you're a season pro, it's time to ditch those risky extensions and it's time to switch to the Brave wallet. Download Brave at brave.com slash bankless and click the wallet icon to get started.

Starting point is 01:16:57 Question time. Questions from the nation. A tweet goes out of the bankless Twitter account every single Wednesday, and it says, what question do you have for Ryan and David? Let us know. We'll talk about it. Every time I put these agenda together in the mornings,

Starting point is 01:17:11 I go and check out all the hot questions and I grab some of the hottest ones that everyone seems to want. want asked. So we got two of them this week. Dan Scott says, does bridging ether to a layer two have similar risks as bridging ether to an alternative layer one like Solana or Avalanche? Ryan, you want to take this one? Sure. I would say it depends. It depends on the bridge that you're using. But one benefit, if you're kind of like into visuals, one benefit that a roll-up has versus an alternative layer one is it has a trustless, immutable bridge that cannot be destroyed.

Starting point is 01:17:44 Okay, so it's a bridge that works regardless of any security dependencies on the chain itself, on the layer two itself, right? So if you're picturing kind of bridges in your mind, the other bridges routes around to layer twos and to alternative layer ones, these bridges can be destroyed. These can be like, these can crumble, these can fall if some of the security assumptions on the other chain, go by the wayside. But a roll-up always preserves a bridge where you can always withdraw your funds back to Ethereum. And that is why a roll-up is a roll-up because it doesn't have dependencies

Starting point is 01:18:26 that are external to Ethereum for your security. So there's always that bridge. But there are some bridges you can take to these chains that are also like multi-sig and don't have those same security assurances. So you have to be sort of careful and cautious as far as which bridge you're using to transmit your funds onto the layer two.

Starting point is 01:18:48 I think there's a decent amount of like semantics confusion that goes around here when we bridge from like one layer one like Ethereum to another layer one like Salon or Avalanche. There's no actual bridge being built. Like there's no, there's, it's not like something you go across and you transport your ether from one side to the other. You put your ether into one contract on Ethereum and then somebody else on the Salonar or Avalan.

Starting point is 01:19:12 for other layer one application is looking and observing that contract and say, oh, they submitted some ether here, I will mint them an IOU on the other side. So it's a little bit more like a teleporter and like you have a central operator teleporting you with it with an IOU. And if the teleporter breaks, your IOU on the other side is worthless. With a layer two on Ethereum, there is something like like a canonical bridge, a cryptographic bridge that has much stronger assurances that doesn't actually have to operate on like what is usually a multi-sig. And so you have just an extra layer of risk removed because the layer two bridges,

Starting point is 01:19:49 they don't have to make their own independent blockchain. They are giving up their independence in the name of security and having an actual, like it's still not an actual bridge because at the end of the day, the metaphor breaks down. But you have like a strong cryptographic assurances that the bridge will always be there.

Starting point is 01:20:04 And if the bridge isn't there, then the whole network's not there. So like Solana can go up and stay up. Ethereum can go up and stay up and that bridge can go down. But on a layer two, if the bridge goes down, the whole network is going down, right? And so the network, the layer two network on Ethereum cannot stay up while the bridge is down. That doesn't work.

Starting point is 01:20:25 And so it's a bridge of last resort on the L2s. And so it's less risky is, I guess, the short answer bridging to a layer two. And that is essentially the point. Okay, so here's another question for us, David. What are some of the best daps that you can recommend to help beginners start living a crypto native life, a bankless life, David. What do you recommend? Yeah, I put some of my, some of my favorites down. First, you know, if you're going to go into the world of the bankless nation, if you're going to go into the metaverse, you need a name. You need,

Starting point is 01:20:54 you need your new metaverse name. And so you got to go get an ENS name. So go, like how you, when you sign into Instagram, sign into Twitter, whatever, and you make a new handle. When you're going into the metaverse, you need an ENS name. So go get NANS name. Somebody got porno. not Heath. Maybe not that one. So once you get your Metaverse name, I think the next coolest thing you can do is you can take some of your ether, you can put it into MakerDAO, and you can literally mint money. That is the cool thing about crypto. You can mint money. And then you can take that money, like put one ether into MakerDAO, like make sure you're measuring the gas fees, put one ether into MakerDAo, mint some dye, put that dye on a layer two, and then you've done like some really

Starting point is 01:21:36 cool stuff. And that's what I would say, where I would start with. I think that's great. I think that the path to going bankless is, like, number one, you have to start taking custody of your own keys, right? So it's the move from an exchange to actually taking custody of your keys, whether you're doing that in a smart contract wallet, like an Argent or something, a hardware device like ledger, or for small bits of money, maybe Metamask, something like that.

Starting point is 01:22:00 You have to go through that step. But once you're on the other side of that, I think about still like the money verbs that we've talked about so often. And what are the things you want to do with your financial life in a typical banking system? Well, one thing you want to do is, like, save your money and invest. And I can think of no better investment, my friend, and saving mechanism for the long run. It's going to be volatile in USDA and ups and down than something like ETH. Okay?

Starting point is 01:22:26 And maybe after that, a basket of some other tokens. But you definitely want to have ETH that you don't spend. All right, you also need some ETH for gas, but ETH that you don't spend. So that's like a store of value type use case. And once you have that payment use case, stable coins are amazing. Dude, I could send money to anyone in the world for like fractions of a penny. Okay? And like it can be any amount of money.

Starting point is 01:22:50 This is so freeing and so cool. And it's something that you should learn how to do, whether you're using USDC or die, having some stable coins in your crypto reserves is kind of cool. Then you can use something like pool together, which is like a fun defy savings type tool. really interesting starter application in defy. Go check that out. Pull together. And you can deposit your funds actually save your money. They have a lottery. It's called a no loss lottery. They have a system that, you know, rewards various people based on the pool side. It's really cool. Just check it out. It's a good first app. If you're lending and borrowing, AVE is fantastic.

Starting point is 01:23:27 And then trading, of course, like go check out Uniswap. So we got storing value, basic payments, savings, lending, and trading. And that's a good place to start. Because you just knocked off like, you know, five of the different money verbs that you're going to need for a crypto-native bankless life. From there, you can do all sorts of other things, but that's where I would start. David, let's get to some takes of the week, man. So here's a take from you, my friend. This is all about C-5 v. D-Fi. I say, C-Fi lenders are blowing up specifically due to the properties of centralization. They're black boxes. You got to trust them to withdraw your assets, and they're subject to human folly, human decision-making.

Starting point is 01:24:07 Not only now do defy lenders have fewer competitors because, like, a few of them have blown up, but their competitive edge is now proven and legitimized. C-Fi is fragile and unstable, D-Fi is robust and stable. And so I think it's that last line. Defi has fewer competitors, because all the C-Fi things blew up. They blew up because of the properties of centralization in the first place. So now, not only do they have less competition,

Starting point is 01:24:31 but their differentiation is just, and proven out in the market. And I think that's awesome. I totally agree with you. And you know, I think another lens on this, this is something I tweeted out is for regulators. And I said this. Regulators around the world should be watching DFI protocols closely to congratulate them. All right? Because DFI provided a fair, orderly, and transparent drawdown during the 70 to 90% downturn we've just seen. Well, the D, it's C5 peers went bust. You want to regulate crypto. DFI. Defi is crypto regulation. Self-regulation.

Starting point is 01:25:07 A commenter on this tweet said, yeah, it's effectively what a smart contract is. It's regulations written to code. That's what we're doing. That's the whole point. The EVM is the regulator for Defi. We are like, that's the whole thing that makes it what it is. Exactly.

Starting point is 01:25:24 Smart contracts are simply self-regulating and self-enforcing themselves. And this is where regulators can lend a hand, is maybe they need some smart contract auditors. on their team. Maybe they want to spin up some transparency dashboards. This is where DeFi can use your help, not to say that, like, we're getting rid of all defy. Anyway, don't know how many regulators listen to bank lists, but that's our message to them. Here's another take, David, from Aubrey. What's she saying? Yeah, Aubrey, the first time we got

Starting point is 01:25:51 Aubrey take in here, she goes, SBF will own everything and you'll be happy. Why is she's saying this? Because SBF is like buying up everything. He's like the lender of last resort. He's like trying to buy FDX. They provide a credit window for a bunch of other things. SBF and Alameda and all these people that were capitalized during the bull market and had a lot of stables are now looking at some pretty sweet deals right now. I don't think this is a fair tweet, David, because CZ is going to own at least some of this too. Not just SBF.

Starting point is 01:26:23 We're having CZ on the podcast tomorrow, so we're going to ask him about the CZ of Binance, of course. Today for the listeners, actually is probably going on right now as you listen to it. Oh, true. Wow. Stop listening to the roll-up. I really like this take. I really like this take. This is a kind of a snarky way that also is really educational as to how optimistic roll-ups work.

Starting point is 01:26:41 Kobe Gercam says, the security of optimistic roll-ups is based on the fact that people will, with great zeal, strive to prove that somebody is wrong on the Internet. This is how a fraud-proof works. If you do something fraudulent in an optimistic roll-up, you can get away with it, but the way that security of, of these optimistic roll-ups work is like as soon as somebody's doing something fraudulent, somebody's out there going to prove that. And so security of optimistic roll-ups based on the fact that the internet people like to prove that other people are wrong. And if they do, they get rewarded.

Starting point is 01:27:14 So that is a little quick lesson in how optimistic roll-ups are secured. Everyone becomes an auditor. That's the model we're moving towards. This is a take from bartech.eith. Being an Ethereum roll-up is like having the strongest army in the world securing your estate. becoming Cosmos chain, you are now protected by your token holders, unless you use interchained security an upcoming feature, which case you pay atom holders for protection. I think this is probably background commentary on DYDX's move from a Starkware roll-up to its own

Starting point is 01:27:48 app chain. And I know you and I commented on this after the show. We have a ton of respect for Antonio as a builder. He's built something phenomenal with DYDX. but it also seems like it's going to be a lot of work for them to spill it spin up everything necessary for a layer one chain and kind of the analogy to me is like you want to start a butcher shop and so you're founding a country in order to do that right I was like why not just park your butcher shop in a country that already exists because then you don't need to spin up your own yeah military and tax code system and money system and monetary policy and like defense network and legal like you're like you're going to spin up your own yeah military yeah military It seems like a lot less work, and I think it is. And so this is a comment on that. I do think that there's obviously room for all sorts of chains to spin up,

Starting point is 01:28:39 but what they are spinning up is sophisticated nation-state type of economies. And I think that's more difficult to do than some people assume. I think that's exactly right. And I think that is the loss of the takes. Ryan, should we get into what we're excited about? Yeah, what are you excited about? be bullish on. Do you see this like awesome brick background behind me, Ryan? I do. I do. It's amazing. It looks like you got a ton of room there. Right. Yeah. So like look at all, look at all this

Starting point is 01:29:08 base and like my desk is in the middle of this base. Let's see if I can zoom out. It starts off as a blank brick background, but it's going to change in the future. Right. And I'm not just talking about me putting up my NFTs on the wall. That's what people are envisioning. I'm sure. I'm sure that's what they're envisioning. It's going to change. Bankless Studio. is going to become a thing. I got some plans. I got some plans. Live studio for live podcast.

Starting point is 01:29:34 That's what you're talking about, right? Yes. That's what this means. Yes. Yeah. I did a show with Julia from Orca not too long ago, and we were very awkwardly on the same couch as I interviewed her. And then I looked at the YouTube comments.

Starting point is 01:29:46 I was like, well, that needs to change. So this is the change, bankless studio. It's going to be awesome, man. Yeah. I'm excited to come up there one time with you. Yeah, we'll do your layers here. I'll get you on a, no, I was going to say I want to get you on a layer zero. That's my podcast, bro.

Starting point is 01:30:02 I know, but I got to interview. Who's going to interview you? You know, let Anthony Sasano interview you for layer zero. It's got to be me. Yeah, that's right. That's right. Ryan, what are you excited about? I'm excited, I guess, about the overconfidence of bears right now.

Starting point is 01:30:20 Here's something I tweeted out. When prices go up too fast, people get dumb. Of course, that's true. but when prices go down too fast, people also get dumb. And I'm seeing a lot of the dumb sentiment now, David. Like, you know, just this morning, it was like cruising around Reddit.

Starting point is 01:30:35 The amount of threads, this was like an R-slash gaming of like NFTs were the dumbest idea ever. Ha-ha, crypto bros, get wrecked, you guys suck. Crypto's so useless. It's a scam. All of this noise is going on. And like, detractors and critics are absolutely gleeful, right? And what they don't know is like,

Starting point is 01:30:54 We've already been through this, like three or four times. Exact same people, not the same people necessarily, exact same sentiment, maybe a different set of actors. Crypto is dead. And I think the overconfidence of the bears actually makes me optimistic that we are closing in on a potential bottom. All right. Now, this could still last a very long time. We're still talking months, potentially years. I don't know how long it's going to last,

Starting point is 01:31:25 but I'm starting to hear that like overconfidence that feels very much and sounds very much like bottom type of talk. And I think it'll persist for a while, but it's actually making me bullish to hear the same patterns that we've seen so many times in crypto start to play out in the sentiment right now. So just curious, when prices go up, too fast people get dumb, when prices go down too fast, people also get dumb.

Starting point is 01:31:52 In what scenario, do people not get dumb? I think when, like, there is a sweet spot of sober time. Do you know, like, don't you feel like this in every, every market? Like, the sweet spot was probably for me, for this cycle around, was probably like sometime 2020, early 2020. Defy summer? Yep. And I think in late 2019 into 2020, I feel like we had six months or so, maybe nine months of just

Starting point is 01:32:20 the sweet spot. where things were happening, the builders were building, the market sentiment was like rational. So the end of the bear market? Basically. And that's the sweet spot. And then I start to hate my life again. Like I hate my life.

Starting point is 01:32:36 I hate my life now when things are like irrationally bearish and everyone's like, you're such an idiot. You have a crypto podcast. But then I also hate like the market, I don't know, three months ago, six months ago when you're like, oh. You know, this Tara thing might not be sustainable. And I'm just like, you loser, you're so dumb, you Heath Maxie. Like, I hate that side of it, too.

Starting point is 01:32:59 So we only get rest during like this eight-month period, I don't know, six to nine-month period, maybe in between these two cycles. And that's when the market is less dumb. I think I talked to how I experience it. I think I talked about this last week with Anthony when you were on your little AI vacation. But like my mom would text me every now and then saying, Hey, I met up with, like, Linda. She said, like, hey, how's Dave doing?

Starting point is 01:33:24 Is Dave doing all right during the crypto crash? And, like, I've gotten these texts, like, three times. Like, is David? Is David okay? Like, they know I've been in crypto since 2017. I'm like, can you guys please go look at the chart, please? I tell my mom, like, hey, I'm hiring a bankless if they're looking at it. Well, no, tell those people to go look at the chart.

Starting point is 01:33:44 Like, either at $1,000. Anyways. But just like, yeah, it's just like so frustrating. It's like, they don't really ask if I'm doing okay when ether is at $4,000. I didn't hear anything then. Mom, David's mom, don't be concerned about David until Eath is like double digit, okay? Then you can start sending phone calls and getting concerned. Then I might not be okay at that point.

Starting point is 01:34:04 He might not be okay. But bankless listener, we think you are going to be okay. This is all going to be okay. Ryan, you said at the end of 2019, start of 2020 was when you felt like most rational and like just the best in the crypto market. Like that was the era in crypto. and I was thinking about this earlier, that was the era in crypto where all the people

Starting point is 01:34:22 that stuck around during the bear market, that's when all the people were like, yo, wait, the bull market, it's on. That's what happens next. Like, people that stuck around

Starting point is 01:34:31 during the bear market, they identified that the bull market was started in April of 2020. Like, we knew this. Everyone had the conviction, like, yes, the mole market's back on. Like, it's on, baby. And the only way that you were able

Starting point is 01:34:43 to know that was if you rode through the bear market. And so the people that rode through the bear market, were able to ride the bull market from Genesis at in like April of 2020 when ether was two to three hundred dollars, Bitcoin was like $6,000, $7,000. And then they rode those things like before. And then retail figured out that the bull market was on sometime in like middle of 2021. So if you ride through the bear market, you have a one year head start in a bull market that

Starting point is 01:35:12 generally only lasts about two years. So like that's your alpha. That's your advantage. It's exactly where you want to be. That is the reason you don't leave during times like this when prices are down. The reason you stay is exactly for that reason. Totally. All right, David, let's get to the meme of the week.

Starting point is 01:35:29 What are we looking at on the screen? I'm seeing a whole bunch of bulls here. These look like sad bulls, though. This is a, what are these called? The Dungeons and Dragons, like disposition charts or whatever. So you got like lawful good, neutral good, chaotic good, you know, lawful evil, neutral evil, chaotic evil. So for the listeners, podcast, I'm sorry, this is going to be kind of

Starting point is 01:35:48 hard to explain. In the lawful good corner, we got good old USDA, being the lawful good. Like everyone likes us. These are all stable coins. These are all stable coins. Everything on stable coin, yeah. In the neutral good, top center, we got die. It's neutral. It's $1.00's good. And we also have chaotic good for fracks, the algorithmic, 85% backed algorithmic stable coin that has admirably held his peg. Nothing wrong there. Coming up in the neutral camp, we got the lawful neutral of the actual U.S. dollar. the Fiat in your bank account, the cash in your wallet. In the true neutral corner, we have the Curve 3 pool,

Starting point is 01:36:26 the tether, dye, U.S.C, curve 3 pool, and every single one of these has a bull that's colored, the color of the stable coin, and this bull happens to be both green for USC, excuse me, blue for USEC, green for tether, and yellow for dye. So true neutral is the curve three pool. Chaotic neutral, we got MIM. Didn't that one go to zero?

Starting point is 01:36:46 I don't know. Not yet. I don't, did it? I don't know. I don't know. And then in the evil row, we got the lawful either, which is evil, which is tether. It's lawful because it's actually one dollar, redeemable for one dollar, but it's evil because it's a black box. We got the neutral evil, which is USDD, the Terra fork on Tron that somehow is maintaining its peg.

Starting point is 01:37:11 And then we also have chaotic evil in the bottom right corner, which is UST, Terra, USD, with also if you notice Ryan Mike Novigratz, Wolf tattoo on the arm. It's crazy, man. I definitely agree with the bottom row, I think, and particularly the chaotic evil being UST, but also this Tron stable coin, man, like, that's got to be next to go.

Starting point is 01:37:36 Yeah. Like, Justin's son, I can't believe the audacity of this. I'm going to spin up a stable coin a month before UST goes, and it's going to be Algo-backed, same kind of mechanism as Luna UST. And like that is not okay. And if you're in that,

Starting point is 01:37:53 like be very, very careful. Yeah, it's a game of chicken. Probably not listening to bankless though. Yeah, that's probably true. I saw a post that talked about how Justin's son had plenty of capital

Starting point is 01:38:02 to backstop, backstop the USDD, depegging and depeged down to 94 cents, but he wanted it to depeg more so he could buy it at like a cheaper discount. So dumb. This is terrible. Justin's son is a central banker.

Starting point is 01:38:16 Thank you. Right. Give me, give me, ETH, give me Bitcoin. Guys, of course, none of this has been

Starting point is 01:38:23 financial advice. It never is. Crypto is risky. So is ETH. So is Bitcoin. So is all of it. You could lose what you put in. Definitely.

Starting point is 01:38:31 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. Black five. Rocket ship.

Starting point is 01:38:40 Get on board. So why is Mereo.

Bankless - ROLLUP: 3AC Meltdown Continued | BlockFi Down Bad | Grayscale Sueing the SEC | Contagion Market?!

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