Bankless - SotN#5 - HEDGED (WHERE INFLATION, CRYPTODOLLAR BAN, COINBASE IPO + SPECIAL GUEST!)

Episode Date: July 14, 2020

STATE OF THE NATION #5 - Tuesday, July 14, 2020 The State of the Bankless Nation is....HEDGED! The bankless boys discuss why. Plus a special guest...Nic Carter from Castle Island! Watch the video here. ----- GO BANKLESS WITH THESE SPONSOR TOOLS: 💸 ARGENT - BEST ETHEREUM WALLET FOR GOING BANKLESS (we love it) - open one today! 🌈 AAVE - LEND & BORROW YOUR CRYPTO W/O A BANK - earn some interest! 💳 DEVERSIFI - DECENTRALIZED EXCHANGE FOR PRO TRADERS - use this exchange!   💸 AMPLFORTH - MONETARY EXPERIMENT FOR BASE MONEY - learn about this experiment! ----- Covered: TOPIC #1: WHERE’S THE INFLATION? - w/ Nic Carter TOPIC #2: CRYPTODOLLAR BAN HAMMER! - w/ Nic Carter TOPIC #3: COINBASE IPO BONUS TOPIC: BANKLESS TOKEN DROP We show: Nic's brilliant Cantillon effect effect meme Coinbase blacklisting USDC article Coinbase blacklisting USDC tracker FSB Paper describing stablecoins --- Episode Actions: 1) Read crypto dollars whitepaper by Nic & Castle Island 2) Check out bZx Token Drop to Bankless Token Holders  3) Listen to David melodically read the protocol sink  Also...subscribe to Bankless YouTube to watch State of the Nation every Tuesday! ----- Don't stop at the show! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This is not tax advice. Talk to your accountant. Do your own research.   Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

Welcome to episode five of State of the Nation. What we're doing today is talking about what's happening in crypto like we do every week. We related to big picture stuff and then we drop some insights and action items. Today we have a very special guest with us. We'll surprise you with who it is in a moment. We've got three or four topics to cover that are most relevant for the bankless community. Just as a quick reminder, we do this every two. Tuesday. We release on YouTube. Then we also release it in podcast version on Wednesday. So make sure you

subscribe both to YouTube and the podcast. So you're catching up on that. The first question I always ask when we kick these things off is the same. David Hoffman, what is the state of the nation today, sir? The state of the nation is hedged. And this is going to reveal some of the topics that we are about to talk about. But it's a mixed back. We have all-time highs. in stable coins on Ethereum, and we also have all-time highs in banned addresses of those stable coins on Ethereum. We have all-time highs in the valuations of defy tokens, and then we have absolutely all-time highs in flatness for both ether and Bitcoin, right? So there's a lot of, there's a tug-of-war going on between like really bullish sentiment and really worrying sentiment.

And so the state of the nation is hedged. All right. So when you say hedged, right, so like crypto prices, highly volatile, doesn't feel really hedged. What do you mean by hedge, David? Yeah, I mean, there's this tug of war going on between, like, Defi is, people are super bullish on defy. Chainlink just roared up to $8. One of our, one of our sponsors, Ampleforth just went from a $10 million market cap to $130 million market cap. And at the same time, like, you know, in the macro environment, BTC and therefore ether are largely correlated to, from what we can see are largely correlated to the legacy markets, which are largely correlated to coronavirus and the impact that coronavirus has. And so there's these two different forces at play,

and they are pretty much at opposite of each other. Yeah, I was thinking, you know, one other area we're hedged against is basically nation state actors, nation state kind of politics, the banking, the traditional banking system. We're not so much hedged. from a financial perspective, right? We still feel the volatility that reverberates through the bankless alternative money system. But we are hedged against certain things from a censorship perspective, right? And I think that's going to be one of the topics that we get into today, the actual blacklisting of specific bank type stable coins. So we'll get into all of those topics. We've got three or four for you and a special guest. But before we dive in, we want to

talk about our bankless state of the nation sponsors. The first that I'm super excited about, use this wallet all of the time is Argent. So Argent to me is the best Ethereum wallet for defy. It's the one I'm using if I'm on mobile. It's got easy access to your favorite defy protocols like ABE compound pulled together, Khyburn token sets. Plus you can access it with wallet connect. This is secure, easy to use. It's a smart contract wallet. So they add some additional features like social key recovery, so you don't have to remember a 12-word, 24-word key phrase. They've got over 20 million in locked assets. So there's increasing Lindy effect being poured into this. And best of all, it's a bankless wallet. So it's non-custodio. So go check out

the Argent wallet. Download it if you haven't. Start experimenting in D-Fy-Fi. That's Argent, A-R-G-E-N-T, X-Y-Z to find out more. is a borrowing and lending protocol on Ethereum that the bankless community absolutely loves. It's a place where you can go in deposit assets to take out a loan. And one of the best things about AVEA is it allows you to pull out a stable loan where that interest rate doesn't shift under your feet, which is a really important tool for thinking in the long term, both as an individual but perhaps also a business. In addition to these stable interest rate loans, they also have a flash loan protocol,

which allows developers to get pretty creative with what they can enable their use. users to do. A flash loan is where you can borrow infinite amounts of whatever is available for zero collateral so long as you pay it back inside of the same transaction, inside the same block. So things can get pretty crazy. There's a lot of creativity, untapped that we haven't really got into there yet. So developers, you are absolutely encouraged to go try and leverage the AVE flash loan protocol. Check them out at AVE.com. All right, awesome. So now let's introduce our special guests because the first topic we're going to talk about is where is the inflation. And we brought on someone I think is particularly apt to talk about that. He had a very successful

meme last week, and that's Nick Carter from Castle Island VC. We've had him on the podcast before. And David's about to do his video DJ stuff and beam Nick in as we speak. So, Nick, are you on yet? I'm here. Here I come. Awesome. I'm beaming in. Nice work, David. The magic of technology.

I presume that I went swimmingly. It was perfect. It was flawless. So, Nick, you had a super successful meme this week. Not only are you an incredible writer in the crypto space and thinker and also a venture capitalist, but you, sir, are a meme artist to get 10,000 likes, I think that's what we're at right now, on a meme is no small feat in Twitter, especially when we're in this corner of crypto. And I want to actually show the meme you put out because I think there's a lot of truth in it. So I'm going to pop that up on the screen and then we're going to walk through that.

But Nick, why do you tell us, like what is the inspiration for this meme that you created? You said, I think the top of your post, it says, I've held off making this for too long. Yeah. Oh, man. Well, thank you for congratulating me on the meme success. You know, all the things that people congratulate me for, that's one of the most important. So, yeah, you know, the story behind the meme, you know, what can I say? The truth is, actually, I had a thing I had a fight with my girlfriend that day.

And I was feeling kind of down in the dumps. And I was like, you know what's going to perk me up? like a real like serotonin boost or whatever the chemical is. Yeah. From getting like a zillion impressions online. Wow. And I'm not even kidding. And, you know, like I just knew that if I used the American chopper template, like,

people would like it because it's the funniest template out there. Yeah. Yeah. And I also like, I wanted to talk about inflation because like inflation is such a, it's like the subject of so many like debates where people like talking past each other and like they don't agree on common terms. And so I was like, all right, I'll do the inflation American Chopper template, which is a very obvious one. Okay. So I feel like even explaining the meme takes away the humor. I know. I'm going to do it anyway. All right, all right.

Well, we'll walk through a panel by panel, but I'm sure, you know, people who are listening to this have seen the American Chopper meme. A funny story, David and I, when we're doing like a review for this and picking up topics, we spend about 15 minutes doing that before the show. preparing. So a lot of time invested in these shows for prep work. But we honestly didn't know where the meme came from. Like I knew it was a reality TV show, but had not seen it. And it's like an ancient meme. This is from like circa, what was it, David, like 2003 or so? I don't know when the meme came from, but the video, the episode came out somewhere between like 2003 and 2008. So like it's very, very old TV show. Yeah. So we watched that we watched the clip by way of research.

and it's actually like um what are they are you hearing about okay so the guy with the handel bar mustache is just yelling at the other guy for not showing up on time taking too long of breaks and overall just being like a lazy worker and then the other guy says it doesn't matter because I still get my shit done and so that's what they're arguing about it's a it's a classic boomer versus millennial I think uh trope you know what was funny here is that I kind of inverted it because the millennial talking points are being done by the old guy. And some people are like, how come the old guy is the one that has these like newfangled opinions on inflation? And the answer is that I thought the old guy looked cooler. So I wanted to make him the

hero of the story. He's definitely the hero. All right. So let's take this, uh, frame by frames. That's the beauty of it. Like you can sympathize with either guy. You know, so like this is, this meme has wide appeal because like it's like the. blue dress or like the silver dress or whatever. You can pick a side. Yeah, exactly. All right. So, handlebar mustache guy in the first panel, he goes, he's yelling at baseball cap guy. And he's saying the money supply is growing faster than the economy, which necessarily means that inflation must be occurring. So he's making the argument for inflation, right? Is that a one-to-one, like, if this, then that analysis? Like, if the money supplies go is growing faster than

then the economy, then therefore inflation? Is that just rock solid? Or are there nuances there? No, it's not rock solid. Yeah. So, like, I'm also making fun of the debate itself in the meme, right? So I'm, like, parodying this inflation debate specifically. Like, I'm laughing at myself, right?

Because I make these arguments. And I'm acknowledging here that they're kind of stupid as well. Okay. So Handelbar mustache guy says that, you know what? We should go maybe through all the panels first. so people get like, because people will be listening to this on podcasts, they won't have the visual in front of them. Handelbar mustache guy makes the claim that money supply is growing

and therefore inflation exists, right? Baseball cap, millennial says, CPI, that's consumer price index, demonstrates that inflation is low and stable, despite monetary issuance. That's when things get heated. Handelbar mustache guy goes, financial assets have been bid up to record highs and valuation.

There's your inflation. kind of a drop the mic moment. Then chairs start flying. Millennial goes, assets like stocks and property are capital goods, which consumers don't need to buy, and so aren't indicative of QE-driven inflation. TVs are cheap, right?

It continues. Now, it'll bar mustache is getting really angry. You can almost see the spittle flying out of his mouth as he made in this last panel. And he says, offshoring and tech are deflationary. So TVs are cheap, the goods that cancel on insiders by like property education,

health care have been bid up alongside issuance and demonstrate its inflationary effects. So I said that in a relatively monotone tone, but this guy is clearly yelling the last panel. Right. So it's the classic, we're not like inflation is happening because money supply is increasing side of the argument. And the other side is saying CPI isn't going up. Therefore, inflation doesn't exist. So yeah, what's your take?

Like, who's right in this meme, Nick? Well, clearly I sympathize with Handelbar Moustache guy, for sure, which is why I gave him the last word, right? Like, I didn't let baseball cap guy get another word in because there's more to the debate, you know? What would a fifth panel be? What would a response be? probably a rehash of like the the third panel yeah so this seems to me like this devolves right into

a subjective discussion as to what should be involved with the CPI or not like do yeah does real estate does property capital assets like investments do they belong in to be included in some sort of inflation metric and yeah and think the fact that perhaps that they're not is indicative of why there's wealth disparity. Yeah, so this is really a meme about like how you would measure the impact of the injection of new money on society. And, you know, a lot of people think it's very contrived that the government produces the metric, which is used to measure inflation, which is like suspiciously always pretty low, even if it seems to us, like we're young dudes, you know, we are renting in urban centers or buying property.

Anyway, you know, like, so we're young guys. We are experiencing the effects of property, call it inflation or like appreciation and property values and urban centers. We know what it's like to have student loans. And there's a significant delta between the cost of an education now and median incomes in this country.

So, you know, If you look at these more comprehensive metrics in terms of the things that you actually need to buy to have a fulfilling life, that's not just the price of eggs and these like consumer purchases. That's bigger things like education and arguably financial assets. Financial assets are how people save for retirement in this country. And if the price of financial assets is very high relative to their earnings, which is the case today, you're frozen out from saving. So you don't have the ability to build like a financial portfolio. that's going to shepherd you towards retirement. So that's really the broader point here

is that the price of financial assets does matter. It matters to the middle class in particular because the way that they build wealth is through home equity and through owning a share of the S&P 500. And if these are effectively too expensive for people to actually get a toehold into that wealth generating and savings process,

they're going to be frozen out. And I think that's a really big part of the reason why there's so much strife in the U.S. today is because people feel that they don't even have the chance to get on that ladder in the first place. It's not worth it to get a white collar professional job because, you know, you have to pay exorbitant rent, you know, in downtown to live there. You know, you don't really have a chance getting an downhaving on a house. You're coming out of school incredibly indebted. So people just feel miserable and they feel that they're totally frozen out of the system.

And to me, that's the real effect of, you know, asset price and inflation. Called inflation, called something else. We know that asset prices have massively run up in the last decade. And I think a lot of that is attributable to quantitative easing. You know, I mean, like if you want to take issue with one thing, you would try and maybe take issue with the causality there, monetary issuance and asset prices. But yeah, that's effectively the crux of the debate. So Bitcoiners love the phrase Bitcoin fixes this. And I think the way that they would apply that line to this is the fact that like

the CPI, if we want to have a fair money, the CPI of a money should include all things, like the whole world of all prices everywhere ubiquitously. And the only way that you would ever get that is to have a money that is outside of the control of any one individual person. Because if we want to take a malicious perspective on what the CPI is. The CPI is just a tool to reprice or move certain assets out of the purview of the average American, right? So anything that is capital, right? Anything that returns wealth to its owners. We just price that out of what money is.

And so I think this is why Bitcoiners will be like Bitcoin fixes this because Bitcoin is something that the CPI of Bitcoin is just the whole world. just all assets and goods everywhere equally. Is that a fair take? Yeah, I would say Bitcoin quote-to-quote in theory fixes this in two ways. So one, it's like a good stable measuring stick. So the issue with the dollar is that the dollar is like really measured against other currencies, I would say. Like forget like consumer goods. Like if you want to measure the strength of the dollar, you measure it against an index,

a trade-weighted index of all the other currencies. But those currencies are also being effectively inflated too at like a consistent rate. So you don't have an absolute measure of like the purchasing power of the dollar. You have a relative measure. And that's relative to all these other inflationary currencies. So you're not really getting a lot of reliable information out of that, right? Then you have to return to things like gold. You measure things against gold, which is like what Austrians like to do.

So Bitcoin, you know, is fixed, right? So the supply is fixed. So in theory, the price of Bitcoin contains more information than the price of the dollar. You know, the second way that Bitcoin, quote-unquote, in theory, fixes this would be it's a new monetary good, as opposed to the existing dominant monetary goods in the U.S., which are property and capital assets, like equities. Those are the main ones. The dollar is like, you know, people don't hold the dollar for savings purposes for good reason. So it's kind of like been demonetized as a savings device.

But so, you know, the way that like Bitcoin and like cryptocurrencies potentially help alleviate this issue as far as like young people that are entering their or in the midstage of their careers like us is it's an alternative savings device, which hasn't been bit up like crazy by the boomers and the central bank money spigot. And so it's like you're getting in on the ground floor, instead of with equities, you have to get in a price earnings ratio of 30, which is historically double the average. So that's the other way. So if, you know, cryptocurrency is really monetized, I wouldn't say they have yet. Writing that monetization wave, you want to be in now. So it's more the maturity of that asset matches our career trajectories, as opposed to you're buying. the top if you're buying property or equity in this country. That's just the fact of it. You're buying like the top in kind of a generational sense. Yeah. So the idea of the cantalone effect is basically

those closest to the money spigot get the benefit, namely those that are holding assets that the money spicket essentially reward. So those are, you know, S&P 500. Actually, we're having Ben Hunt on the podcast later this week. And he talks a lot about the clubtocracy. right, the oligarchy that is basically pillaging the U.S. right now. I read something over the weekend. There could potentially be between 20 and 28 million Americans, U.S. citizens, evicted over the coming months. So 10 million over five years was the great recession numbers in terms of eviction.

20 to 28 million. Yet at the same time, we have peak NASDAQ price, right? what I don't understand, right? Like I understand why the Fed's doing it, right? They have kind of their set of instruments. And so they've got their hammer and their screwdriver and they use those instruments. But the rest of the federal government, do they not see that this massive inequality, these people that are getting left behind, whether it's millennials or, God forbid, Gen Z, right?

Or whether it's the middle class, essentially, they're going to be pretty pissed about. this? Like, doesn't this, I mean, end in some kind of a revolution? You can think of crypto as one tentacle of that revolution, but there are other revolutions as well. Like, what are the 2020s going to be like? I mean, is this just all going to bubble to the top? I mean, I think actually, and I don't want to delegitimize like the protests that we've seen already, but I think part of the anger does have to do with this exact phenomenon. In addition to, like, the, obvious racial inequality component that's part of that. So I think part of the reason people are so outraged right now is because they feel frozen

out. And they may not understand, you know, mechanically, really precisely how and why, like what the mechanisms of their destruction are. But I think they just emotionally understand. My hopes of getting, of entering and staying in the middle class and being upwardly mobile are now worse than they've pretty much ever been at any point in American history, right? Millennials are the first really downwardly mobile generation.

And I really do believe that it has to do with asset prices and our kind of demographic shift and the fact that we've stacked on so much debt, which the bills are going to come do, and it's going to come do on our generation. And I think if we get a revolution, my guess is that something's, going to change. Hopefully it's peaceful as opposed to like the French Revolution or something.

If they got, if, if, if, uh, if all we got was a crypto revolution, that would be the best case scenario, right? Because that would be bloodless. That would be certain goods get demonetized and other goods get monetized. And there's winners and those losers. But that would be effectively peaceful transition. I'm not optimistic that that's all we're going to get. I think and you ask like why Congress or the government isn't acknowledging this. I would say as far as the Fed is concerned, there's tremendous inertia in central banking. It's a, you know, intellectual development there is very slow. And they have a specific mandate, which they're in their opinion, they're trying to meet that mandate. So I'm not surprised that there has been a slowness of reckoning there. Well, Nick, you actually had Fed. Fed chair members, right? Or Federal Reserve representatives, like respond to this meme? Members of regional feds, yeah. So like the St. Louis Fed. Yeah, David Endolfo, who's part of the St. Louis Fed,

he retweeted the main. He's like, yeah, this is like not a bad discussion, actually. Oh, he retweeted it. Yeah, yeah, it's funny because like it's accessible and it really captures a debate, which has been rumbling for a long time. I guess the debate never gets conveyed in meme format. So this is new. But yeah, you know, like I think with Congress, we actually are seeing the beginnings of a transformation

and this understanding that income and wealth inequality is extreme, and asset prices are partly to blame for that, or they're at least a manifestation of a fairly broken system. And we're seeing a rebellion against capital, against even property rights and an embrace of effectively like proto-socialism, you know, AOC is probably the best representative of this doctrine. Of course, that's maybe not the, that's not like the mechanism that I would endorse to deal or reckon with the situation, but that's, I think, a symptom or a reaction,

which is going to get louder and louder. But yeah, Congress also, the composition changes slowly. And, you know, populism takes a while to make it smart. But, you know, you could also say Trump's election was also partly reaction to this. You know, part of his platform was re-undering American jobs. It's precisely this financial system that we have today with the dollar's primacy, which led to the offshoring of those jobs in the first place. So we are seeing reverberations in the electorate already.

My guess is that 2020, the election also continues on that trend. I think we'll have a lot more millennial Congress people. I totally think there's like this bubbling energy at the bottom of all of these. And we see it arise in so many different ways. And one of the ways that we see it arise is the fact that this meme in particular blew blew the fuck up, right? And so that, to me, that illustrates that same energy that, like, elected Donald Trump or is pushing a OC into, into a power, not power, yeah, power. Yeah, no, she has power. She's one of the most powerful members of Congress. People just don't realize it. Yeah, absolutely, right. And, like,

we are giving her that power because of this energy, right? And the energy that got people into the streets to protest. And I totally agree with you. It wasn't necessarily a Black Lives Matter protest. It was a anti-state protest because the state is the institution that is keeping the powerful elite the way that they are, which then manifests itself as like a racial issue at the same time. And I'm coming, and one of my questions for you is like, to what degree is the, what is being described in this meme, the cantalon effect, to what degree does that basically define the current issues of across the world? Is it like one of the biggest economic forces that it defines, the current state of the world or is it just one force among many like what measure does the

cantalone effect really just create the reality around us or is just a part of the puzzle well um the cancelon effect is a very useful term in terms of precisely defining a source of inequality but the main thing that's really happening in the world is we're on year roughly speaking 40 of a fiat fully fiat regime And we're on year 40 of the global reserve currency being a fiat currency, which is the first time, really. You know, previously the global reserve currency might have been the pound, but it really was gold, right? And so we finally severed that link to like genuine matter, and we moved on to this world of really complete and total abstraction. and we've seen lots of financial crises. The modern central banking doctrine hasn't made our financial system any more stable,

if anything, it's become more unstable in those 40 years. And I think we're really at the terminus. You know, the system is clearly degenerating in front of our eyes. And the world is reckoning with the dollar being its reserve currency. There's lots of sovereign currency failures happening right now. and emerging markets, really actually the whole world is completely overloaded with debt, which I think, you know, these debt levels are now at a place where they can't really be reckoned with without a devaluation or default, right? Those are your two tools. You either say you're not going to,

you're just going to start up not repay the debt, Larkar, Argentina, or you can just debase the currency so that the debt load becomes much lower in real terms, which is how, more developed nations, basically get rid of debt loads. And what that is, a default is a transfer of wealth away from debtors or in favor of debtors, right? So I think we are going to see jubileies here. We're going to see wholesale currency devaluations. To me, that's the most politically amenable way we'll get out of this situation as opposed to austerity. So, yeah, I do think that, you know, the Kinslawn effect is a precise definition of an important.

important concept, which people don't pay attention to. But the really big trend here is that we're at the end of a kind of a macroeconomic super cycle. And there's a huge amount of pent up energy. And it's going to be unleashed in the next decade. And it's going to be amazingly disruptive in particular to middle class wealth. Yeah, absolutely. Great way in on that. As you can see, there's a ton of thought behind a simple meme like that. And Nick, Thanks for sharing that with us. It's been great to have you on. Hey, do you have a few minutes to stick around and actually talk about our next topic?

We're going to talk about stable coins. You have a few minutes? Of course. Yeah. Sorry, there's sirens outside. It always has time for stable coins. That's COVID-related is my guess. But yeah, of course.

Yeah. Awesome. All right. Well, David, we should do our second round of sponsors. Then we can dig into the next topic. So I want to tell you guys about Diversify. Diversify is a decentralized exchange. It's a professional grade exchange.

So that's high fee, high speed, low fee. It's private and it's deeply liquid. The way they do that is through some roll-up technology. So it's kind of a side chain that's also secured by the Ethereum main chain. My question is, why use a centralized exchange at all? We are starting to get to the place with solutions like Diversify where Dexes are as good as centralized exchanges. They also have a token called NEC, which is NEC, which is a perpetually deflationary token. So they have a buyback and burn scheme similar in some ways to make her.

These guys had the original liquidity mining token back in 2008. But what you have to do is go check out their exchange. The user experience is phenomenal. It reminds you a lot of Coinbase or Binance or Cracken that you used today. That's at Diversify.com. we will include a link in the show notes. Our next sponsor is Ampleforth. Ampleforth is a token, a sound base money experiment, which I particularly think is rather interesting.

So it's very much like Bitcoin in the sense that it's non-dilutive. So when you own a share of the Ampleforth tokens, you are guaranteed to be owning that same share of all of them. However, the amount of Ampleforth tokens that you own will always change because the token tracks a dollar. and so where the price of Ampleforth is inelastic, the supply of Ampleforth is completely elastic. And so they are spinning out their geyser system, which is a kind of a yield farming mechanism in hopes to distribute and spread out the AMPL token to as many different holders as possible. So if you are interested in participating in the Geyser incentive mechanism, you can check them out at ampelforth.com.

All right. topic, guys, Nick, we're glad you're still hanging with us. And that's this. We can talk more broadly about stable coins, Nick, and you put out a fantastic white paper about that that I'd love to get to. But first, we've got to talk about the main topic issue, which is the crypto dollar banhammer. So, USDC got its first banhammer. One address was blocked. So inside of the USDC smart contract, So all of these tokens essentially are smart contracts on Ethereum. Coinbase and its affiliated banking partners through the center organization have the ability to blacklist certain accounts. So they can essentially say, this eth-th address is involved in behavior that breaks our terms of service.

It's suspicious and they have detailed terms of service of what they deem blockworthy. they haven't yet executed a blacklist move until this point in time, but they did last week. What are your thoughts on that, guys? I guess maybe start with you, Nick. Is this kind of to be expected? Is this kind of a like, you know, this is what everyone signed up for, crypto. These are what bank staple coins are. This is sort of to be expected.

Or is this something more sinister? Is this a reason to think and. look more closely at crypto-native coins like Bitcoin and Ether and even stable coins that are more algorithmically derived like a die. Yeah, great question. I think obviously there's a clear hierarchy in terms of the counterparty risk and just there's more ambulances out here. In terms of the quality, the settlement quality and the ownership characteristics in

these assets and crypto-native assets are at the very top and then stable coins which are derived from crypto-native collateral are obviously better and then these fiat-backed stable coins are the most convenient but there's enormous embedded risks one of them is that your account gets frozen um i would say that the blacklist isn't you know surprising really to me i don't think to anyone the big, big question is, can USDA actually remain on this blacklist model? Because if you think about it, the blacklist model is actually incredibly progressive when you compare it with something like PayPal or Venmo. You know, a few analysts have pointed this out.

JP Conig in particular pointed out that, you know, those stable coin issuers have a relationship with people creating or redeeming the stable coin, but they don't really have a relationship, but they don't really have an ability to track or monitor everyone else. Now, they might claim they do, you know, like with chain analysis and stuff, but like fundamentally, your ability to do that is limited, right? Especially as like anonymizing smart contracts get created, for instance. So, you know, you actually have an awareness of like a relatively small share of the network activity,

which is much, it's much more similar to a genuine digital cash standard than, you know, then, well, it's basically the closest thing we have to a digital cash standard in the world today. So far, regulators have sort of indicated that they don't want that to exist. So the fact that Fiat back stablecoins using a blacklist as opposed to a whitelist model actually exist is kind of amazing to me. And I think that'll be the big, big fight in the next year or so with FATF and the stable coin issuers and the banks, basically. Can this relatively low encumbrance model actually survive? Yeah, that's a fascinating thought process. And the interesting thing I'm sharing my screen now is that you can see in kind of the crypto world,

somebody put this together on an analytics website called Dune Analytics, which is basically going to track the banned USDC addresses over time. So just as Nick was saying, with a stable coin like USDC, Coinbase is not identifying all the individuals. There's no AML, KYC for every individual ETH address that holds that asset. That would be more like the PayPal or Venmo model that we have today. Once you've entered into the USDC ecosystem, essentially. You have kind of free rein to send to whatever address that you want without any

identity being linked. But they do have this ability to essentially blacklist certain accounts and freeze it. And this one, I think, how much was it? 100K maybe? Yeah, 100 USDC. And you could see it right on chain. So you can see as this happens. So that adds a level of transparency to the playing field that we didn't have before. They can't freeze addresses necessarily in the dark. They have to do it in the light. And other staple coins have done this too. So USDT, Tether has done this. This is to Eric Wall tweet.

Almost a million dollars of USDT has been frozen previously. So 22, Ethereum accounts. That's this year. So it is going on as we speak. But as you mentioned, Nick, it is a different model. I don't know what JP's thoughts are. who you mentioned. I almost get the sense when I read some of his work that he's like, hey, you know, the government should kind of look into this and maybe close some of those loopholes

because it's not fair. I don't know if like what you think, but it feels like that would be certainly a hamper on the banker staple coin industry if it was squeezed tighter from a regulatory perspective. Totally. And, you know, today you have de facto anonymity if you're using a if you have back stablecoin. There's like a small risk that your transaction or account will be frozen, but there have been millions of transactions with Tether and USDC.

I don't know how many exactly, I'd have to look at the number and how many of them resulted in a freezing. Now compare that to PayPal, you can get your PayPal or your Venmo account frozen if you put Cuba in the memo field of a transaction, right? If you say Cuban sandwich, there's a risk you get frozen. So the level of discretion and intervention

from the administrator side is many orders of magnitude more in the PayPal system as opposed to if you have back stable coin. So and honestly, I don't think blacklisting hundreds of thousands of addresses is a scalable thing at all. So to me, the blacklist model is fundamentally different and it's much more like a digital cash standard online. and we'll see if it can survive. I mean, opinions might differ on whether it should survive

or we should have that anti-fragility proven out for the less fragile systems like die or just native crypto units in the first place. I think it's basically the number one kind of battle to fall over the next year. I think there are two big points to bring up here. one of them is that I don't think it's possible for us to go to a whitelist model because the cat's out of the back. Like Pandora's box is opened.

Like turning USDA from a blacklist model to a whitelist model would cause so much havoc. Right. I don't see an elegant solution to doing that. It would be catastrophic. It would be catastrophic both for individuals and for applications on Ethereum that are legitimately using USDC in a, I mean, I'm not a lawyer, but in my opinion, an appropriate way. And just trying to unravel that, there's so much diffusion with USDC. Like what are you going to do?

And there's over a billion dollars on Ethereum. Like, what are you going to do? You're going to just revoke USDC from people that you don't even know who they are. One of them might be me. One of it might be my company. I don't understand how that. And so, and at the same time, there is the expert. of do you need this address blacklisted because I can do that for you.

Like we do have solutions at the table, which I think will appease the regulators. Yeah, the mechanism of turning it into a whitelist model is not clear to me. I mean, I guess you could cancel redeemability for all but a select few. And then people that know that they wouldn't pass the strong KYC or whatever would then have to sell it at a discount, basically. But it would be amazingly disrupting. that would have happened. Ironically, I feel like our greatest, crypto's greatest defense against this is getting traditional banks more deeply involved. So JP Morgan starts issuing its stable coin directly on a public blockchain network like

Ethereum, right? Well, now you've got big finance who are starting to, like, and they've got a powerful lobby, obviously. We're just talking about the Cancelon effect. That seems to be a strong defense. It's almost kind of the defense that the internet had. It became so damn useful, right? And big companies and the broader economy became so dependent on it that cows out of the bag and governments, nation states could not block it for fear of getting left behind other nation states that leave it open and free. Yeah, I think you're absolutely right. And I agree. It was quite easy for the government to kill Egold or Liberty Reserve back in the day. I'm not saying those are perfect analogs, but that was easy because they had like 100,000 users max,

and the stakes were much lower. But if you're talking about, you know, thousands of American businesses that are using these systems and potentially millions of Americans, and you're going to try and just bring down the ban hammer for systems that have lots of legitimate use, maybe some illegitimate use too, but lots of legitimate use, you know, they're just fundamentally an alternative settlement rails. We're kind of reaching a threshold here where it's going to be very difficult politically to effectively destroy these systems. Like you can't really put the toothpaste back in the tube kind of thing.

So maybe that's how we kind of win rights in the Internet domain is, you know, we demand the right to have genuine digital cash standard, which does not exist today. There's no digital equivalent to cash, which is dollar-denominated, that exists in the financial system. There's nothing with a settlement quality of real cash. So it could be that this is how we win it just through the sheer force of numbers. That's why, you know, part of the bankless nation, we talk very much about not needing banks, not needing crypto banks as a path forward to the future. But that's not the full story is because I feel like very much we do need them.

as a bridge, particularly now to legitimize the industry and to essentially provide a heat shield to the nation states. So I have a somewhat divided opinion myself on that. Like I don't love the blacklist. That's not like crypto anarchists. That's not super bankless. But at the same time, we need crypto banks as a bridge to Fiat and to embrace this tech

if we want the wider movement to succeed. Sorry, David, you were going to say something. Yeah, at the very least, the technology that crypto offers us, offers us like a weapon, right? It offers us a check upon banks. And so the mere existence of open permissionless protocols is what created this in the first place. And that kind of brings us to the conversation of die, right? So we had $100,000 worth of USDA revoked. I don't know, a lot more of tether that was blacklisted.

Anyone who got tether blacklisted from them or USC blacklisted, they're not going to use that product again. They're going to use die probably. as the most permissionless censorship resistant stable coin crypto dollar that that's out there right and the amounts of that got blacklisted versus the total supply of dye is significant right there's a 190 million die out there and what got blacklisted was like 500 000 dollars almost maybe a million dollars and so i i think there's also going to be a conversation coming between like users of usdc versus users of die because illicit users of usdc are going to be pushed into die and i'm worried about Dye's branding as like, why are you using Dye, bro? Like, just use USDC. Like, what are you,

what are you doing? What are you up to? Like, what, what is your transaction's history even look like? Why, why do you even need to use Dye? And so I'm kind of worried about, like, the nation state stance towards D.E. Because they're pushing all the illicit activity out of USC. That's a really interesting point. I think it's Paul Stork talks about having metaprivacy. So as you, like, like, not only having privacy when you, transact, but having the notion of transacting with a specific system not being considered to be illegitimate because it's primarily used for illicit purposes or what is perceived to be illicit. So that's a great point about potentially not having metaprivacy when you use die.

I don't know if you guys have read the FATIF report on the quote-unquote so-called stable coins. Yeah. It actually makes for pretty interesting reading. So I definitely recommend reading it to get a sense of what regulators really think about this stuff. And they do directly contrast die and fiat back stable coins. Or not die by name, but they implicitly refer to it. And so called stable coins. And what they say is, yeah, decentralized stable coins are very hard to regulate in any way. But they're,

they basically say they're not as worried about it because they don't think that they're going grow as large as VATBAC stable coins. But they do say that that's like kind of a strategic worry that they're like monitoring and that kind of thing. So they totally acknowledge the difference in in decentralization. We'll include that report actually in the notes today because it's a fascinating report. And I think one of the few I've read from a group like that that actually understands the distinction between these stable coins. They totally got it. Yeah. I don't know if we want these people to be the sophisticated ones about it. Right. Yeah, they get it. Yeah, and they're advising, you know, the G7 and central bankers around the world. So it's fascinating. Nick,

this has been absolutely phenomenal to have you on. I want to do one more plug. So Nick and Castle Island put out a phenomenal paper, a white paper on stable coins this last week that you absolutely have to check out. In fact, there's a, I'd love to chat with you about this, maybe some time in the future, Nick, the entire section that, that you guys put together on a new dawn for free banking. So we will include a link to that white paper in the show notes and look through the whole paper, but in particular, page 21 and 22 and 23 are where you're going to find this kind of model of free banking from kind of the Scottish archetype to crypto banks to, to, you know, the things that Defi is trying to do with systems like Maker, just a great reach.

So make sure you take a look at that. And well done, Nick. That's a great paper. I don't know how you guys find the time to put all this stuff together. But it's great. We appreciate it. It's an important topic. So we wanted to bring attention to it and also translate it to a language that non-crypto people

to understand. So as you can tell, it's kind of actually meant, I mean, it's a great reference for crypto people, but it's also really meant as something. that outsiders could dig their teeth into and understand, hey, wow, this crypto phenomenon is interesting. There's this enormous parallel financial infrastructure, which has been built out and is being used. So I wanted to introduce outsiders to these practitioners that are basically vindicating this as a financial infrastructure as opposed to just a mere asset class. Yeah, absolutely.

We did a great job with that. Nick, it's been phenomenal to have you. Thank you so much for joining State of the Nation today. Thanks, guys. Take care. David, how much more time do we have, sir? We are hitting the 50-minute mark. Okay, well, that's a bit long.

Yeah, that's a bit long. Yeah, so lots of stuff to talk about. Lots of stuff to talk about. You know what? Maybe we should just kind of cut it off now, you think, and leave some of these other topics. We're going to talk about the back. Yep, put them in the backpack.

Put them in the backpack. We're going to talk about the coin-based IPO, I guess in short, guys, Coinbase is looking like they are going to IPO at some point, maybe this year even. We think that is extraordinarily bullish for the entire crypto asset class. Legitimizing, right? Legitimizing. People love shovels.

People want to invest in shovels, and Coinbase is a shovel. And having that being available on the public stock market is super legitimizing. And it'll just look very well around the rest of crypto. Yeah, I think it's going to draw the eyes of Wall Street, certainly. Also, even just the transparency alone. So, you know, when they publish quarterly earnings reports in 10Ks and those sorts of things, they're going to have to list out all of their annual sales, how much Bitcoin, how much ETH they sold. It'll be phenomenal to have that. So that's big. And I think lines up with our, you know, thesis of this is 2016. You know, there's a lot of things building that could explode at any point in time. The last thing, we will include a link to our first bankless nation drop. So this is a community drop with, the BZX token. Don't have time to get into it today, but we'll include a item in the show notes and for your action items list. If you want to dig a little bit deeper into the bankless nation, all the things that were going on, there's this thing called a bankless token badge that you can

pick up, become a subscriber, pick that up, and you can start participating in bankless governance, national governance items. And there's actually going to be a token drop to NFT holders, token holders that is coming, I believe, some time today or tomorrow. We actually don't have control of that. They basically, the issuers themselves look at the list and they see the value of the bankless nation, the community, and they're like, we want your engagement, we want your governance help, and they issue tokens to our, to NFT addresses that hold the tokens. So it's a pretty exciting development. I think this is the first maybe community drop that I've seen that is really member-based. Yeah, I think there's a huge rabbit hole of conversation to go down.

I do hope at one point into the future. We do talk about that. But part of the vision of, and why we call it a bankless nation is because it has its constituency, right? So you, the listener, are part of the bankless nation. And so I think as a political force, the bankless nation is cohering together slowly. And we're just, we're rallying the troops and getting everyone into the same room so that our voices are louder together. Right. Like we all want to have, we all deserve participation in the greater.

Ethereum ecosystem. And as a result, all these applications, this is the vision, the applications will arise and look to tap into the power and influence of the bankless nation. And they're going to do that with these sort of token drops, these governance drops to the bankless badge holders, which is why you should get a bankless badge. Yeah, you definitely should. And, you know, it's exactly what we said, David, and the reason this is so important is because God bless the VCs, God bless the crypto banks. We don't want them as the primary and only shareholders in governance decisions for our defy protocols, right? We want individual retail users like you to be involved in the governance process. That's how we decentralized. And the protocols want that too.

They recognize that that's key for their success. So I think this is a win for everybody. We're going to wrap it right there. Action items today. You've got a few reading assignments. So read the crypto dollars report that Nick Carter put out with Castle Island. We will include a link to the show notes. Also check out the bankless badge drop. We'll include a link to that as well. David wrote a fantastic article last week, David, you actually did on the channel too. You have a audio recording of it with you reading it. You want to give a tease on that? Yeah. So take your pick. If you like to read or listen, maybe because you're listening to this, you are a listener. So you can go to the bankless YouTube and check me reading out that article to you or you can just go

straight to the bankless website and get the article in word form. It's called the global public goods and the protocol sync. The protocol sink is a theme that you have heard many times on this show and we really pull back the layers as to what that thing actually is. What is at the bottom of the protocol sink? It's a meaningful question and I offer my answer to it. So check that out. Right, that's it from us. That was episode five. The state of the bankless nation is hedged. We are edged against nation-state politics. We have an alternative money system. We have an alternative economy, and we are headed west.

Thank you so much for joining us.