On The Brink with Castle Island - Dan Matuszewski (CMS Holdings) (EP.22)

Episode Date: December 2, 2019

Dan Matuszewski, Principal and Co-Founder of CMS Holdings joins the pod this week to discuss a range of topics. Dan was previously the Head of Circle Trade, one of the largest OTC desks in the cryptoasset industry. In this episode we discuss:  - The secretive origins of Circle - Why banking was a big hindrance for early crypto companies - The genesis of Circle Trade and their relationship with Poloniex - Whether there is a market for 'virgin' coins - The nature of Tether and how it is used - The emergence of crypto volatility products

Hi, everyone. We have a great episode for you today. It's with Dan Medeshesi, principal and co-founder of of CMS Holdings. If you've been active in the cryptocurrency markets over the past few years, chances are you know who Dan is. Prior to founding CMS Holdings, he was the head of Circle Trade Trade, one of the largest OTC desks in the industry. Prior to Circle, Dan was part of the early team at Cracken. And Dan's one of our favorite people in this industry. He's a complete straight shooter. In this episode, we discuss a range of topics, including the origins of how Dan got involved in Circle, the genesis of their OTC desk, and the relationship with Poloniacs that ultimately culminated with Circle acquiring Poloniacs. Dan also debunks a number of myths that you hear

a lot in the cryptocurrency space, including the notion that Tether is a scam. And so we go into details around how Tether operates. We also talk about the lending markets. We talk about the emergence of VAL products that are being introduced. We talk about the prospect of of regulation impacting the growth of stable coins. We had an absolute blast with this one. It definitely could have gone on for a few more hours. Dan has a ton of stories, and he's really been at the front lines of some of the most interesting developments in the crypto industry for the past five years.

So without further ado, here's our interview with Dan Medeshesi. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market. is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. And print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something

called a Bitcoin. Bitcoin. Welcome to the On the Brink podcast. I'm Matt Walsh. And I'm Nick Carter. And we are very lucky to have Dan Mattesheski here today. Dan is a principal at CMS Holdings. Dan, thanks for joining the pod. Yeah, thanks for here. So we've known Dan for a while back to the Circle Days, and this podcast is going to be a lot about market structure, a lot about the trading environment. And so, Dan, why don't we just hop into it

and can you tell us a little bit about your journey in the crypto space, how you got into it? You've had stints at a number of large companies in the space and just would love to hear how you got into the space. Yeah, definitely. So I guess I first got into crypto. I was working on a fund called Bay Hill Capital, which was a very small hedge fund.

It's like 100 million under management. It's like 45 minutes out here in Duxbury. So we were doing Val Arb there, which is basically, one story short, to not get like into the two weeds of it. It's like you buy a bunch of names that are like, VAL looks cheap, you sell a bunch of names where like VAL looks expensive

and like ball being options. You net that portfolio out and then you like hopefully make money on the other side of it. And that trade works really well when the market is like falling apart. Like when the world goes to chaos, like all stocks tend to like become beta one, right? Let's see how it is like, everything goes to zero at the same time.

So like VAL becomes even across the board, which is great, right? So if you got like J&JVOL paired against AMD VAL, like that's money. But if like the world is just like grinding up basically 30 bibs a day and definitely like it just bleeds out like sort of as time. And VAL just was getting crushed, right? Like fixes that, I don't know, like a 12 or something like that. Anyway, so that strategy kind of starts to get not interesting post-2010, which is unfortunately, when I started to work there. So they'd made a ton of money

and they were all like jazzed up and like hiring. And I got the job to a guy named Julian, who's another guy who started CMS with us. He's like the S in it. So I was like, all right, like what's going on with this? Like what's like the future? I get hired to be a programmer there. That was actually my like stinting in this.

And I was primarily hedging deltas. So I was doing all the automated trade and like hedge the book like throughout the day, right? So you got to buy and sell stock as like the options move around. And so I guess, gotten really interested in like marketing like microstructure like how to route like how to like use advanced order types and we kind of all knew about crypto this is like probably 2012 mid

we would always like talked about in the desk um I don't know why we like had started talking about it I know like zero hedge used to put a bunch of stuff out on it and like I don't know guys would like read that on the desk um so it's like a known thing but like nobody was really into it right like they were just like it was something you talked about that was like just around and And I started looking into it a little bit more, mostly because at the time there was an exchange called Bitflore in New York. And there was this guy Roman who had built it, who eventually actually went on to build GDAX. People like don't know that. He like ended up going to work there later on.

And I was like, oh, this is like interesting. So they had a make or take or fee structure. So you got paid to like provide liquidity on it. They had like an API, which is like basically all I needed. I think it was like a simple rest thing. I think they had a fixed one, but like it wasn't up all the time or I couldn't get it to work. And I was like, all right, fuck it. Like, I'm going to give this a flyer.

Like, I'm trading stonks all day, right? Like, maybe I can, like, go trade something else, like, well, right? But Bitcoin's tiny at this time. This is, like, bad. So I finally, like, actually got into doing it. Like, Bitcoin was, like, $10. Like, I remember that because it was, like, it just crossed over that threshold. But, like, still tiny as, like, an asset class.

It's not maybe a couple million bucks a day trading across venues. Gox is still, like, the big liquidity point. And I remember the first bitcoins I bought, I went to the CVS in Kingston. and I like deposit a bunch of cash like just like slaps it on the counter and there was a thing called local till which I would really bet is like blown up now or like doesn't exist and that's how you got money

on the bid floor so I got the money on a bit floor and you had to deposit physical cash I had to like get cash yes I had to go to the ATM and I got like a thousand bucks right and then I like gave it to the cashier and the cashier like didn't know what the hell I was doing and she got the manager and the manager was like yeah you fill up this slip and I was like all right it was like 50 50 this money

is gonna like show up on the other side. And they just wire it over? No, so they didn't wire it over. It was like, I don't, like, bit as they used to do like a similar system, but like basically local till acted is like this payment processor for it. Right. So like they would credit BipFlor and there was an ID you put on it so that would like show up, right? So that was like how the money got into the system. This was like real earlier. You could you could bank wire in, but like I wasn't ready to do that or like I didn't want to like sort of expose banking or anything to that either. And actually, to be frank, I don't think I sent a wire at that point in my life,

which is kind of like wire. So anyway, that was like, all right, this is the fastest way I can do. I'll just deposit it at CVS. All right, so go back, like, money's not on the account, like, wait, like, shows up that night. And I was like, all right, so this works. So, like, I'm in, at least. Like, I can, like, do this. And really what I was doing in the beginning was, gox was, like, 80% of liquidity, if not more. And all I would do is, like, peg bit Florida Gox, right? So, like, if Gox would rip up, I would just, like, lift all the offers. Otherwise, like, I was paying it two way to, like, match gocks at all times. Like, very simple sort of, like, automated, like, strategy on it.

It was, like, making money. I don't know. Let's make, like, $50, $100 a day, like, on air. If there'd be a big move, it'd make, like, a couple grand. And then Cracken was just getting spun up. So we'd had a couple calls with Jesse via Bay Hill at the time because they got interested in buying equity potentially in some of these. Like, we talked to Coinsetter.

We had talked to Krakken. We talked to, like, a couple smaller ones. I never, like, when I was like, I forget what that. heck the name of it was. But anyway, there's like a bunch of like, there were all these exchanges like getting started that we were like potentially looking to make an equity investment.

It was really hard for us to like own crypto in the fund like pretty probably impossible. We never like really got that far like thinking about it. Because at this time it was like also starting the price was starting to get interesting right. So like we're going into 2013. There's that like first good run up where it's like, everybody's like, all right, there's something here.

Like there's some like notional moving like, hey, this thing could like stick. And some of the guys at Bay Hill actually bought some like sizable Bitcoin, which like worked out. for him like in the end the guy who ran that thing this guy Alec like got really into it too so he's the guy looking to do the personal investments on like the equity side so we were like looking all the companies anyway got started talking to crackin ended up basically doing what I was doing on bid floor on crackin right like

same training strategy but it was like empty books out of the gate and it like was a ton of the volume I think I was doing like a quarter of Crackens volume and like the early just individually just dicking around in my PA like not like a real well it's tiny like you don't you didn't need to to trade a ton and like crackman was really small. But anyway, got to new Jesse from it, right? Because I'm like, obviously trading a lot, like talking to them. And this is really, really early on when Cracking got started.

So anyway, they started talking to Jesse and he's like, I went out to the conference in SF. It was like the Quinole's conference. And I was like talking to them there and he's like, look, like we're looking to hire a trader. I was unclear why they were looking to hire a trader. But I was like, all right, like there's not really anything you can do in crypto at this point from like a trading perspective, right?

Like, there's not, even if you were doing all the volume on these exchanges, like, you were not going to be making enough money that this was like going to be a standalone business at that point. So I was like, if this thing's going to work out, there's really only a couple like investable real sort of corporates out there. Craggan was putting together their series A or had done it. And I was like, right, this is like a chance I could actually enter this industry. Like take a flyer on it. Like the hedge funds not doing poorly. It's not doing well. It's like not really going anywhere right now.

And I was young. So I'm like, I'll take a flyer, like take this risk on it. So I went to work cracking. So this was 2013, probably summer-ish time frame I'm like in there. I don't know, kind of loose on like exact time frame. But anyway, go to work, Cracken. Help them really on a lot of their market stuff that they were like looking to build out just because I was like, I've used this, like I get it and I know sort of what it needs to be.

Was there built out, I guess, a little bit. So the desk as it exists now is not anything like close to like. Like OTC wasn't a thing back then. Like nobody had huge liquidity needs. Like it wasn't like this, there was no need for this person to be doing all this time with. And like there was so little going on. Like if you were running like an OTC desk, like in that time like I don't know, you're doing like a trade every couple weeks or like a month. Like there wasn't like this huge vast need for like liquidity providers out there beyond like some stuff that was like happening on the exchanges.

So like I would take OTC trades if there were like people that were looking to do stuff. But like it wasn't like I was sitting around all day like looking at like net settlements and like make trade and stuff like that. wasn't really what I was like involved in. I was really just trying to like sort of help them build that exchange side out. So Cracken was like, so Cracken was my first time like ever working in crypto for like a crypto company. And I was like this is fucking wild. I was like like this seems like nobody knows what's going on like unclear if any of this

is going to work out. Couldn't get banking for shit. Like banks would just shutting us down for payroll. Like it was unclear if we were going to like have money to operate in like the next like two or three months. It was my first, first of all, the first time we're going to start up, we're going to crypto startup, and like 2013, like, nobody's, nothing standing on its own two feet. So definitely got a little spooked in terms of like, all right, is this like, well, I'm going

to work out, like, unclear. Like, it has, like, don't get me wrong. Like, Cracken is a rocket shit now. Like, that thing has, like, really worked out. And I'm happy, too, because I ended up actually exercising my shares when I, like, went out to exit. I was like, fuck it, I'll take the flyer. But Circle raised some money in Boston at the time.

So this was... And you were still living in Boston when you were working in the entire time. So I'd go out there for a month and then I'd come back. And then I'd go out there for a month and like come back. So I was like hopping back and forth. But I was still located in Boston. And John Jeremy raised their Series A at the time. And it was super secretive.

I don't remember if you guys remember when they did this. Like they like raised this money. And like they never even like said it was like a Bitcoin related thing. But it was like kind of a Bitcoin thing. So like whole thing was like veiled in secrecy. And like it was in South Boston. It was over in four point. And I was living on G Street at the time.

So like it's kind of like a walk from it. And I shot a cold email into them and I was like, hey, like, I'm in Boston. If you guys are doing crypto, like, happy to like chat. Like, love to like see what you guys are up to, yada, yada. Because there wasn't much of a crypto scene here. Like Anders and Sulkis who runs Masari now. Like they were around and like they were running like the meetups. But there weren't any like real companies.

I don't they, oh no, there was the armory guys were around here. Yeah. Yeah. They were like, but they were in New Hampshire. So they weren't even like really here. So anyway, like it wasn't like, nobody in Boston was like, doing crypto in any size or any capacity. So when Circle came in, I was like, all right, like somebody's doing this. And like they had a good background. Like Jeremy had a company

public before. And like they both like had like real pedigrees and Betcha who was on here a couple weeks ago was there at the time. It was like the three of them and like a couple of engineers that they had like known from like their previous lives that were like working on the first iteration of it. So I went in to talk to them and like basically the pitch was. So actually this is like a little No fact is like the first pitch of the whole thing like their idea was like we're just gonna like have a bunch of Bitcoin and then we're gonna like make Bitcoin become great and like our whole like their whole path to like profitability was just gonna be like Bitcoin went up which in hindsight was actually dead fucking on but like you couldn't actually pitch that to

investors at the time right like nobody like wanted that is like all right so your revenue model is you're just gonna like own Bitcoin and they're like so that like actually never some would say that's the block stream I was gonna say that was yeah but like imagine doing it in 2013 right like getting like a lot more multiple on it Yeah, it's a model. Like, it's a way to do it. I would have been a great business. But if you're an investor, you're like, well, why don't I just go buy the Bitcoin and

like not, like, I'm not going to give you the money to then go. Like, you know, it's like kind of a weird pitch. Like, it's like being like, all right, I'm going to like invest in the SP500 and like track it and be like, well, why do I, why do I, why do I got to pay you to do that? Right. So they were, but their core offering, the first thing they wanted to do was Coinbase at that time was like, Coinbase stepped in shit because they got that bank account Silicon Valley Bank and just got to dominate.

So, and Circle ended up actually taking the same route, but they were like, we're going to make the retail product, which is buy sell, send receive, that we're going to interface your bank. You're going to be able to buy small amounts or sell small amounts of Bitcoin and then, like, interact on blockchain. That was the first product they wanted to build. And they had been, like, working on it. And I knew it Krakken. I was like, the only way this, because it's not like Cracken hadn't thought of this. Like this was like a thing. You just couldn't, Krakken didn't have U.S. banking at the time.

It was like, unless you could not get U.S. banking in like 20. 2013, 2014. Like, it was just not a possibility. Like, Silvergate wasn't around. Like, they didn't care. Like, there was nobody, like, taking action on it. So Coinbase had this whole market cornered because they had this really strong relationship

with SVB at the time, which like, A16Z had basically been like, you're gonna bank these guys or like, we're gonna like come down on you, right? So like they did and it was working. They were like making a ton of money because they had this whole thing cornered. Like not, it wasn't easy by any stretch of my, like they were getting decimated with fraud at the same time, but they were making enough because they had the whole

market. So my, that was my needy concern was like, are you guys going to be able to do this? Like, are you going to be able to get a bank? And like, they had basically known that they were going to do the same thing that Coinbase had done. They were going to have their investors lean on Silicon Valley Bank to like make sure they like had banking to come in, which like work. That was like a way to get like market share in it. So I was like, right, keep in touch. Like, we'll like do something. And then it kind of went cold for a bit. So they were like building it out. They ended up hiring Josh Lim, who ran Treasury. He's a galaxy now. And then once they did the full availability of like the product offering, they were reached

down and they were like, hey, we need help, like hedging this thing, like doing the open market operations on it. Do you want to come on board? So I came on then, it's like October of 2014. So I had actually left Crack and I was like floating around for like three or four months in between just like basically prop trading Bitcoin and then jump back on to circle like after it. It's a crazy origin story.

I mean, I love the cash and the CVS in Kingston. Yeah. What's the only way you could do it. Actually, so that was, that didn't end as well as it started because Biffloor ends up losing their bank as you will, right? Like impossible to keep a bank in that time frame. And you, like I was not like just like happen. So because I'm making markets on the thing, right? So like the price of Bitcoin on Bifflore blows out to the price of Gox, right?

As soon as their bank is gone and they're public about it, like those spreads widen, right? Because you're going to get coin and get the hell out. So I, on the other hand, I'm on the other side of that so I get stuck with all cash. I got a bunch of cash in there. Like, not huge amounts, but, like, at the time, it was, like, something. And I'm like, shit, now, like, what am I going to do? So I ended up having to wait, I don't know how long it was, like, probably, like, four or five months. But it was, like, the Internet Archive Credit Union, which is a thing, by the way.

I did not know this. Because Roman was going around trying to find a bank. And he was just, like, let me pay these people their money back. I don't even want to, like, do anything with it. But, like, he had, like, a check for, like, all the deposit money. because the bank basically told him like get the hell out of here here's your money and finally that credit union was like we'll let you pay everybody back you can't have a bank account here going forward this is like a one-off you're like allowed to like basically so they which was really

a solid due for them so he got the money back to everybody like eventually but it took a while and like he had to like process all these I don't know how many frigging like checks had to get like cut from that bank it must have been of pain but he did the right thing you like made it all go through. Yeah, but that was like, that was my, well, that also started like, in the back of my mind, I was like, right, these exchanges have like real risk. I was like, this is just like keeping money at these things. It's like a problem.

And like, obviously then there's the Gawkes episode and then like the first Biffinx episode and BitSnap's like episodes. Like there's a history of these that I eventually go to live through, which like helps shape like how I think about exchanges now. But yeah, so got the money out that worked out, but definitely not like because Bifler's not around today, right? like people probably don't even know about it. So a whole generation of those exchanges like Trade Hill and a number of others.

Yeah, I remember talking to Trade Hill. We talked to Trade Hill at the time and like they were like in it. Like they were only alive for like a week or something. It was real quick. It was like in and out like boom done. And that was banking, I think that like buried them on that front too. Yeah, backing is definitely the kind of the common thread on how to how to kill a crypto company.

I was going to say like Circle ultimately lost that relationship with SBB. No, no, no. We still use SBB to this day. Coinbase lost it. Oh, Coinbase lost it. Yeah. So, Silicon Valley Bank was still the primary bank that we used Circle Trade as a four months ago. We were still doing that.

So, yeah, like, it's, but SCB is on you like a hawk. Like, their compliance team is all over you. Like, we had a really good compliance and, like, risk team at, like, Circle that, like, was constantly. But, like, look, like, you're probably the riskiest client to SVB. And this is why they don't really bank other crypto companies currently. Like, they'll bank funds and stuff that are looking to, like, do, like, one-off investments. But if you're actively training crypto, like, they don't want your business. Like we kind of grandfathered in and like paid them a lot in fees and like they've gotten comfortable with the relationship

But they're not looking to actively bank these things like it's Silvergate a signature It's like metropolitan like that's like sort of where you bank now it's better now right way better now. Yeah Silvergate really changed it it was Metropolitan in the beginning too But like they started really like sticking their neck out there and they're like look and it worked out like Silvergate just IPOed right like it's there they took a big risk on it like they're still taking a lot of risk on it like if there's like if there's like If there's one single existential risk to crypto beyond like any tech reasons right now, it's signature and Silvergate Bank and probably Silvergate because they're the biggest, like, one, banking all these guys. Like if Silvergate shuttered tomorrow for like God knows what reason,

that would be a huge problem for crypto. Like people don't really realize like how much money is flowing through that thing and like how much like assets are like effectively custody by like the desks that are sitting there at like one point. Like it would be a real, real ripple effect. So we couldn't just transition to a closed loop Bitcoin and Well, that was 2013 to a degree, right? Like you had like these fake dollars that you were just like keeping at all these exchanges like partially because they didn't have banks. Like it's it was a weird.

So what um, so what does that job look like when you took the job at circle? I mean at that point it's liquidity for the payment app. What's your day to day looking like in that role? Yeah. So the beginning was just hedging the order flow that was coming across. Right. So like we had we had this coin based model where you could like buy and sell yet it. But we didn't we didn't just pipe the flow through.

So I don't know how Coinbase's back end of that whole thing work, but there's two ways to do this, right? Like you just take the order flow and you like rat it to the exchange or you let a centralized desk like take it, right? So like we would take the risk and like we could do what we wanted to fit with it. Like we could lean it short, we could lean it long. We could like buy it OTC. We could like buy it on exchange. Like we could just not hedge it at all. Like we had free reign to sort of like trade that as like we saw fit like within risk tolerance.

And this is one of the reasons that we got pretty active in the OTC markets, right? It's because like the OTC markets had a lot of liquidity. and like we were net buyers of like a large amount of coin like every day because that thing was always skewed buying like that's like moan you had the way we're selling on the thing but like the net order flow is like almost always like buying um so like we were just sourcing blocks of coin out there and like we were looking for like ways to do at oTC because like we would use exchanges but like you could get a pretty good discount if you were willing to like be the liquidity provider for the OTC side so the desk really grew out of its core mandate to just like hedge sort of um the accustomed

order flow and like it was an easy pay We're like, hey, we can do this and keep doing this, like, extra stuff. And it, like, makes a little bit of money. And they're like, all right, just like make sure the risk is like buttoned up. And like, that was sort of the mandate as it grew outside of it. So that's how the OTC part of the whole thing grew to be much bigger in it. And like we started becoming much bigger on the exchanges. Because if you're providing liquidity to the app, you can like provide liquidity

of the exchanges, like it's like sort of all the same business at like some level. Was there a definite turning point when management is saying, hey, now this time, turn this into a dedicated business unit. This is not just a thing that's servicing a person. product as much as it is like a revenue generating business? I mean, the clear line was like when they got out of the Bitcoin part, right? Like when they got rid of in the retail app and we're like, well, like, we're going to keep doing this, right? Like this thing just throws cash off. And they were like, yeah, absolutely.

And then it was like, right, like this is definitely. But even before then, like, I'd say it really actually kind of started once we started trading ETH. Like once like we picked up another asset that had nothing to do with like the app, we're like, right, this is like a business in itself. like this is like we're gonna we're trading far beyond the needs of just like the liquidity of like the brokerage we're also trading like 10 times the volume of like the net flow of that thing a day I'd be like we'd have to like buy like a hundred bitcoin or we'd have traded like 15,000 over the course of the day and be like all right like clearly this is like beyond like the scope of just like this is much more the side part than it is and then like at the end we were like not even paying attention at like the retail or flow we were just like it just like flew into the risk or like whenever even thought about it like it wasn't like how we used to like but yeah I mean we started that thing like keeping risk on like spreadsheet it was on like Google Sheets and we'd like tally up all the transit. It was like a mess.

Like we'd like built it out like real systems. But yeah, I mean, I think definitely when we added like more assets, that was like, all right, this is totally moving over. What was the thinking behind turning off Bitcoin? This was like, so many Bitcoiners have this as a seminal moment where they're like traumatized by this. Yeah, it sucks. I mean, that thing was awesome.

Like, don't get me wrong. Like I'm not obviously happy with like the pet that like that whole took off. Look, there's a couple things. Like the big thing probably was like, Like, Bitcoin was in a prolonged bare market for like, like, people forget, like, 2014, 2016, like, it was not like a great time in crypto, right? Like, it doesn't look like it was going anywhere. Like, every, like, volumes were really low.

Like, it sort of looked like it was dying out. And we definitely panicked a bit and, like, made this pivot. And also, like, it was very, very hard. And not hard, expensive, I think is like the better, like, to, like, run the full compliance and risk needs of that crypto app. It was very, it was legal intensive. it was compliance intensive. There's a lot of fraud that comes across,

because Bitcoin's a great asset to steal. And we were taking credit cards and ACH. So, like, that's like a big problem that you have to deal with. So at some point, you're like, how much of the rest of our business in this point we were looking into like the payment, like the sort of Venmo type app,

how much of that are we going to let suffer so that we can keep Bitcoin running? And in hindsight now, it's like, oh, you should like, obviously. But like, at that point in time, it was like, Bitcoin is like really tiny and it wasn't clear it was going anywhere. So they were like, we have to build this thing to a larger sort of world and like they made a bet on that other part and ended up

being wrong. I think it's really easy to just look in hindsight and be like it was like a terrible decision but like in that moment it was it was hard. Like I feel that we made the wrong decision like but I mean like I was like I sit on the crypto desk like I'm like obviously going to be like the person who's like yeah we should be like now we should double down like we should start listing other stuff like it was it was a hard sell like it was unclear there was a path at that point in time like where Bitcoin was, that they would be able to support a mainstream sort of business beyond the size that we were currently at. And I think that's what's booed everybody.

But like the world changed differently. So I don't know. It's hard in the moment to like, no. Yeah. But it was bad. Like it was a big step back for us. That's like along with the Mike Hearn exit. That is one of the two like seminal moments.

It's like, damn. Well, is it's a board member too in Circle or an advisor. Like it's not, yeah. I mean, that thought process definitely was in on it at some point. It was a great app, though. I mean, I remember at the MIT Bitcoin Expo in 2015, they were handing out cards, circle cards, with $10 free Bitcoin on it.

Price was like $200 or something. People didn't want them. Like, it's wild. Like, I remember those promos, like, nobody was redeeming them. Like, nobody took them. Like, no, we were giving this suit away and, like, people didn't want it. What's funny is, like, a bunch of those, like, $10 Bitcoin accounts are now, like, a couple hundred bucks.

And, like, people have forgotten about them. So they, like, all go to, like, unclaimed property. and like Oh yeah Find mass money.com Yeah whatever it is Yeah but see here's the catch It's got to do it by the state

The person's in right So it's not like Or at least I know there was all I remember this being like a huge thing With like all the And you have your B-CH fork now And your BSV fork You get all the different

Yeah you get the whole like basket Yeah like there was surprisingly few people Wanted to actually take those things Lesson in there about air drops Huh People yeah I think people are just inherently Skeptical of like you giving them stuff So they just assume

if there's nothing there. Yeah. Which is fair. It's probably the generally right way to do it. Transitioning a little bit. So let's talk a little bit about some of the market structure. Obviously the market structure since your early days of Cracken has totally changed. But in 2017 with the huge run-up, Polonex was really the largest venue, you know,

one of the largest venues at least out there. So maybe just talk a little bit about Poloniacs and what that was like to face off against them before the acquisition. and kind of how Wild West that platform was. Yeah, so the story of Polonex in circle and like sort of how this like whole thing evolves is, remember I was saying we wanted to start trading Eath, right? So we wanted, we got, so in the beginning, everything was like really bundled up.

We had like full board approval. We're going to like, because it was the other asset besides Bitcoin. Like now, by the end, we were like we had like 40 assets we were trading. We're like, it's like going crazy. But like at the first time we're like, we're going to do something else. And I had to make sure everybody was like on board with it. But the big problem we had was, So we had an exchange with Cracken, like we traded a lot there, and they had liquidity for Eath.

But the real liquidity for Eith was on Polo. Like that's where the lion shared this stuff was trading. So we're like, all right, if we're going to start trading Eath, like, we have to trade on Polonex. But at that time, people, Polonius was just like mirrored in like all these rumors. They're like, they're in, I don't know, like Eastern Europe. They're like Russian. Like nobody knew who they were or where they were.

Like, there's a lot of rumors like flying around about it. So our complaint, we have to. do due diligence on any exchange that we do. And like we have to make sure they have an AML policy. We have to make sure they're like up to stop. Because like we get asked those questions by like, or I say we, but like Circle got asked those questions from state regulators all the time, right? And we were, we had all the money transmission licenses and like the Fed.

Like there was a lot of people scrutinizing everything we were doing. So we had to make sure that we were scrutinizing who we were trading with, right? So compliance is like, all right, you can trade on Polonex. We have to know their AML policy. We have to at least know that they're not operating at like a sanctioned country. Like we have to know what these people are. because you don't want to be like getting involved in like some OFAC issue or something like you don't even like realize that you're involved in. So I reached out to Michael Groniger, Chainalysis, who Groniger worked with me at Cracken.

So we were there at the same time. And we left at like a similar time. So I kept in touch with him through Chainllysis. And I was like, look, like if anybody knows whose people are, I was like, this guy probably has like. So I was like, hey, do you know with the people at Polonex like, do you like know who they are or what's going on? He's like, yeah, they're actually like a client of ours. So I was like jackpot, one, like they're buying compliance software. So like somebody's thinking about this somewhere internally.

And then the second part of it, I was like, well, can you like intro meetings? Like, well, I got to make sure that they would want to be introed. So like he went and talked to him. And like to this day, like it shocks me that they come back with like through the intro. We like have a phone call with them. We're like, oh, like we're in Boston. And they're like, oh, like we're in Somerville. And if you're like listening to this podcast, you don't know.

Like Somerville is basically like 15 minutes north of Boston. Like it'd be like they were probably as close. to my office as like I was like coming in every day. So I was like you gotta be like shitting me. They've been here the entire time. So we met him in person. Like we got to like know him and then like compliance was obviously like cool with it. Like and that's like sort of was the start of the relationship. The other big thing is like they they collected fees in crypto right and they had dollar liquidity needs. So we were like hey by the way like we're in the business of like giving people cash for like coins. Do you want to like have an open OTC dialogue? So we did a lot of trading with

them on like the OTC size like that relationship was like really good too but it was really good that we like stay tight with them because like if you remember Polo in like late 2016 early 2017 and stuff like like they were going through a lot of growing pains right like they probably went from having a couple thousand people on a day to like a couple hundred thousand people on every day and they probably had half a million people in a queue trying to onboard and like you know they're like these small teams of these exchanges they went from like having to suddenly support 10, 20, 50x the number of people. Like, it doesn't happen overnight.

You can't just hire, like, all this staff to, like, support this thing. And, like, these exchanges in particular, like, they have to be really, really secure. Like, they can't just be, like, hiring, like, 30, 40 people in a clip and, like, giving them access to stuff. Like, it's really hard. So, we had a good line in a polo where, like, hey, can we make, look at this deposit. Hey, can you, like, look at this withdrawal. Like, hey, can we get our limits bumped?

So, like, we had a good relationship there, which, like, really helped us when Ethan particular, right? Because, like, ETH got really chunky and really big on the order flow fast during the ICO boom. So, like, we went from trading 50,000,000 lots of ETH that were suddenly, like, $5,000, $20 million, right? Like, that happened really fast. So, like, we needed access to, like, real limits on these exchanges to be able to, like, move, like, real flow through. So that was, like, a good sort of help to, like, helping our, like, I said this, we were talking a little bit earlier, but it was, like, one of the big reasons, like, Circle trade was able to like capitalize and make so much money in 2017 is we just had the plumbing set up.

And like we had relationship with the exchanges and like we had sort of like all the pieces like put together. Like if you had a coin base account with like max limits like you could just print money every day for the back half at 2017. Like it wasn't rocket science. But it and explain that a little bit for those who might not be as familiar. So explain why that's so important to have the large withdrawal limits. Yeah. So well the thing is like all the markets like you look at everything now and like everything's pretty tight. Like all the exchanges trade within a couple bucks of each other.

There's like not like this like huge spread. But in 2017 like when you had this huge, huge rush of people like moving into the industry, all the prices dislocated really hard. So like you have Coinbase $500 to $1,000 over BitFenex for like months at a time, right? And like you look at it, you're like, oh, just like buy it on BitFinex and sell it on Coinbase. And like yes, that is the trade, but like you start to run into like structural issues with that where like how much money can can I get to BitFanex today? Like, how much money can I pull out of Coinbase?

And, like, where you end up finding out the gating factor is, Coinbase has you a $20 million withdrawal limits every day. And you're like, well, $20 million is a lot. And you'd be like, it's not a lot if you got hundreds of millions of dollars pumping into that thing via, like, their retail app every day. So the spreads just continue to dislocate and they keep getting bigger. And, like, yes, like, other deaths are trying to, like, smash it. But, like, Coinbase's, like, internal onboarding team is probably running around

with their, like, hair on fire trying to deal with, like, 500 other people. they're probably pushing more money through their bank than the bank even knows what to do it. So there's probably some compliance guy losing his goddamn mind at the bank trying to be like, what the hell is going on? Why are you guys moving billions of dollars through our pipes every day?

Right? Like the whole system gets stress tested really fast and like 10x more than anybody like had thought the like optimal like scenario of this thing like going through. And like everybody's just, I mean like remember you didn't know it was like a rally in 2017 until like Coinbase broke.

Right? Like you're like oh like now it's like going like it's like shut down. Like that was like sort of what. it was like every day on like all these different like exchanges so anyway like having that plumbing set up like we just were ready right like we had the ability to do it and like we had capital and like we were just sort of and we knew sort of how to do it at that time so it just it was a good perfect stuff but like it like it was I remember who was somebody on the desk I think said it I think it was like honestly you just like have to show up for work and like oh and then I was talking you know

Komeranski over at Cumberland I was like talking about 2017 he's like it was like those tube things you get in and like there's money just swirling around and like you just try to get as much as you can and then you like go home for the day and like you just come back the next day and you try to like grab as much as you can and like go back there was just it was like bonkers but like there was not enough capital in the system to like edge out the inefficiencies and like the plumbing just wasn't supporting it at the time I remember um we met for coffee at a cafe Nero probably might be early 2017 and you brought your laptop I brought my laptop this guy is a 24-7 operation right now dude my wife hated it and like I I love her to death and like she put up with some shit. But like I, I slept probably like 15 minutes for like all of 2017 and like I was getting up in the middle of the night. And like I was, I had my laptop everywhere. Brought to weddings, brought to dinner, brought to movies. Like I just like you had to be like on because like there was and we just did we were understaffed. Right.

Like we started. So Josh Lim quit early 2017 and we grabbed this guy Chris Vermita who's like starting up his own thing now. And we like grabbed him from our internal fraud department. Like Chris had never traded a fucking thing in his life. and we're like, all right, you trade now. And this is like, and the logic behind it was like, Chris was really into crypto, like, just like as a side thing. And I'm like, all right, at least he like won't send the money into the void.

I was like at a minimum, like he can like, he knows how to like move it and like operate it. So I was like, and I trust him and he's here. And like that's good enough for like the time being. So it's like him and me and like we're covering a 24 hour o'clock. Like I'm basically getting up at like three, four in the morning and grabbing all the crap that he, so he's in San Francisco and I grab all the stuff he did overnight. And like, we didn't have any tools to reckon so. Like, so I'm, like, wrecking all this shit in, like, a spreadsheet, like, seeing who's

got to get paid. What's owed? Like, what's in flight? And then also making sure that the position's right and that he hasn't, like, screwed anything up. And, like, I basically was like, this is the price you should look at, quote it this wide, like, and just pray, right? And just, like, kind of, like, try to, like, make it happen.

I was like, make sure you don't get short. And, like, that was, like, sort of the instructions that were living. So I'm, like, waking up. Like, Chris has become a really good trader. I'm not like, this is, but this is his first couple months onto the job. and like the market's like, eats going from like $10 to $200. So,

and then I'm trading all day until like eight o'clock at night and then I would hand him the book and like this was just like constant, right? This is just like, but like there's fires going out constantly. Like he's calling me in the night. Like, and like, so we, I mean, we rat,

we rarely we ramped up over the course of that year, but like you can't, you can only do it so fast and you got to get people you trust and you got to get people that you like know that like what's going on. Like this was the biggest or number two OTC desk in the US? Oh yeah. I mean like we,

We became the second biggest OTC desk. Like, Cumberland was, like, clearly the biggest because we just had colossal risk appetite. Like, I would do, there was no trade I wouldn't do that came across our desk. Like, I would price anything. And, like, I tried to price it better than Cumberland. Because, like, I knew where Cumberland would, like, price it. And I'd be like, I got to just be better than that. And, like, I'll be able to.

Like, here's the thing also. We, like, we came out of the gate making so much damn money in 2017 that, like, I had a ton of rope to play with. Right. So, like, it would have been hard for me to, like, it would have been probably impossible. for me to like lose on the year, let alone like the spreads were good. We were moving a ton through. And like you have confidence because you have P&L in the bank. So like you're like less concerned about going through.

So like we had a really good pay at dependency in the beginning that like our risk tolerance got like really big for like what we were like looking to do. And were you surprised at the amount of crypto hedge funds that just started popping up with appetite for some of these longer tail things? That was more a 2018 thing. There was. So there was some like funds flying around in 2017. But it really was.

It was really dominated by like either guys look. gonna get into ICOs and like VCs and like guys that needed to buy ETH or a Bitcoin to them buy ETH or like whatever asset to like get it and then there were like the liquidations coming from like the I the ETH the ICO issuers right like that was like the net and this is what was like wild about that time right it's like you end up net selling like a couple hundred thousand ether to the market and it would turn around and come back and get sold to you right because like it's just going into one hand and then coming back the other like it was this whole cycle that just kept like playing out over and over again so there's a ton of trading that was

going on across the time. So, like, that was great. It was, like, a great time, like, trade, but it was constant, and it was wild and, like, she was breaking all the time. And, like, but, um, I guess, like, just kind of getting back to that point, like, the hedge fund cycle of, like, crypto funds, like, that was a Q1, 2018 thing that we saw at heart. And, like, what really came in is, like, all these funds, like, they would raise five, 10,

20 million, whatever. Like, none of them had, like, huge balance sheet yet. And they, like, they were, like, clockwork. They come in. they'd buy ETH, they'd buy Bitcoin, and then they'd pick like two or three like shit coins, and they'd be like putting slugs into that. But this is why you sold like random stuff, like XRX would like jump like 400% like two weeks. And it's well, yeah, it's because all these hedge funds, crypto funds just got all their allocations

and they all just decided they like this is what crap was like random stuff was flying around on that time frame. So what was your reaction once you started to see all these ICOs popping up? I mean, were you guys ready for that? Was that unexpected? Just the projects raising via crowd sale and via token sale. So we definitely, so the first ones. like, I remember Definity really flew under the radar. That didn't really like pop up like,

because we saw that and it was like a couple million bucks and we didn't think anything. The Cosmos one, I definitely remember being like a definitive moment. I was like, this is a lot of money. And then I think like Matchpool did one really quick. That was like a lot of money really fast. And like they kept, they were trade, like they were getting liquidity on a lot of them like immediately. And they were like two or three X and I was like, I was like, this is going to get out of control. So like we were prepared that this was going to get bigger and wilder. Where we screwed up is we didn't think about. the implications for the price of Eith really, right? Like we, we should have, when we saw that stuff,

just been like, buy every damn ETH that's, like, not nailed down and, like, get along this thing to crazy. That's where we screwed up. And, like, I mean, like, it's screwed up. Like, I mean, relative, like, speaking, like, we didn't think about, like, we were like, oh, he's going to be raising a ton of money, but not thinking through the implications of, like, what this was going to mean, what this was going to mean, obviously it went way further than we thought it was. I didn't think he would be raising hundreds of millions, but I thought there was going to be like 20, $25 million projects raising, but didn't think a ton about like what it was going to do, the underlying.

Yeah. Did the, I mean, the converse is also true, though. Like, if ETH appreciated so much because of the ICOs, then, like, obviously the end of the ICU boom was terrible for ETH. Did that, like, give you pause at any point? So we generally, as a rule, just don't go short these assets, just because, like, the risk is so crappy. And, like, I mean, we also need crypto on hand.

Like, so, and I keep saying, wait. Like circle the time, like we needed to own crypto, right? Like if I'm buying and selling constantly, like, I need inventory that I can like settle trades with because I may not be getting coin in from you who sold to me for a couple days, but I got to send it out today, right? And like I need the coin on the exchanges to hedge stuff. So like we're naturally long as business. Like that's just 100% true. Like you have to keep like working capital and a lot of this stuff. You can borrow it to some degree, but the borrow can get expensive and like honestly just holding it out, right?

It's been like sort of great. So like we were never really short these things, that's for sure. I mean like, yeah, like that's like, yeah. was like the trade you like this like the wind got sucked out of the sales of this thing but then it's like when when was it really over right like it's hard to know like there was the you can definitely look back now and be like it was definitely over then but like there were still raises going on and then yeah yeah there are iCOs like well into 2018 19 yeah i think once the big public one stopped that was definitely like the i mean like they

they weren't just tossing an address up and being like send it now what was the level of sophistication of some of these teams that were doing iCOs were they you know were they coming to you and just saying like help me solve this of sitting on a bunch of Eith, I need to diversify, I need to get it. No, not at all. Like, it was like, get me cash now. Yeah. So they, they were sophisticated in the sense that they wanted the risk off. Um, they were unsophisticated in the sense that like, I think a lot of it was like a found money kind of problem, right? Where it was like, I'm just suddenly $50 million richer. Like, I'll pay two to get out of it and like do it immediately. So like, I think that was a lot of what was going on. But like,

you can't blame him. Heath was like flying around too. So like, I don't know. It's like get me into cash. So like, I mean, some of them kept real balances of like crypto that like hurt them, but a lot of them just took it in cash. Some of them wrote Eath all the way down. Some of them really wrote it. Yeah. Some were still holding on to it. Yeah. Digix is a good example. Oh, yeah. Isn't that a thing this week they're saying they're going to start? There was a thing about winding it down and distributing the treasury. Yeah. That's actually, it might be an interesting trade because like there's more ETH in the treasury than the tokens are worth. So yeah. So I actually, I remember having a guy on the desk to look at

this in late 2018. I was like, who, like, I was like, because you know, like, when a stock trade under its cash value, I was like, who was the equivalent of this for like crypto? I was like, yeah, who could we buy and then bully them to like distribute this for a while? Yeah, yeah, yeah, they were, they, their, their, their, their treasury was worth way more than the like market cap of the token. Yeah, but then I was like, well, like, what am I going to do? Like, shake down some, like, hostile takeover. Yeah, exactly. How do you actually realize this? And I was like, it probably just doesn't work. There's no actual claim on the treasury. Right, right, right, Unless you, like, threaten to sue them and you're like, this will go away if you, like, distribute.

But I'm surprised they didn't do buybacks. I honestly thought some of them would. There was an economy just wound down their token, and they gave people a share of a corporation. Like a GMBH German or Swiss corporation or something. Yeah, nobody wants that. Yeah, like, so that's like a bad outcome because, like, you have the retail shareholder base. Yeah, now you can't sell it. Yeah, so.

But, like, that's an interesting model, I think, like, just winding up the token. and like giving people, you know, converting it into like equity. Yeah, well. It's like bad equity. Yeah, then you really run into the whole security issue. That's the problem. So did you try and like secure relationships with miners to get those big chunks of like Bitcoin and Eith directly from source? So in the beginning, yes.

So like in the earlier days, we like had pretty good relationships with a bunch of miners who like, because like it was a natural like pairing. Right. Like they were consistent sellers. We were consistent buyers because of like the retail. flow on the app. The problem is like when when stuff started to get like wild in like 2017, they all got like really risk really fast. So like also a lot of them like just stopped hedging, right?

Like they kind of just like, well, I'm up so much. I'll just like keep more inventories. Like a lot of that happens. So like they sort of. And then they got richer and they got smarter and more sophisticated. And a lot of them have their own just like treasury functions now. Like the bigger ones just like manage it themselves. So like they're not like looking for.

But yeah, in the early days we definitely had like minor pairings that we were just like, we buy all their flow at like 50 bibs under. And then they would just market to XBX and we would just buy it. So this is great because like you're busting all these like industry myths. So like one of the big like conspiracies is like that like virgin coins go for a premium because like they're clean. If that happens, I've never seen it. People have pitched it to us and I'm like absolutely not. I was like and I've never seen anybody come to us trying to buy them.

So like I've never seen demand side. People didn't actually. Okay. So there wasn't even a bid for for for. like virgin coins. I mean like people would one time like people who didn't know what they were talking about would sometimes ask about it and they'd be like oh are these like virgin coins I'm like now these are just like fungible with every other coin like and then that would sort of like drop but it was never pitched in a frame of like I only want to buy these and I'm willing to pay more. The funny thing is there

isn't even such thing as virgin coins because the fees go in the coin base output so the fees themselves have a history and potentially are inheriting some taint so there's yeah it's not like unless there's zero fee block. There's no true virgin coin anyway. Well, the best coins are the ones from the Silk Road because they've gone through the U.S. Marshals and they've been blessed by the U.S. government. Those are very clean. Cumbian draper of all those.

That's so funny. Okay, this is great. We've got to keep cracking on these myths. Like, miners always sold to us a disc. I mean, I wouldn't buy them if they weren't. Like, if they wanted more, then, like, it was not going to happen. You would just get coins from somewhere else. Yeah. You want to debunk a huge myth? The frigging, people, like, because people forget about

this now because there's no CNY cross. People always used to talk about like this flight to safety trade that was like happening of like people pulling money out of R&B into like dollars through Bitcoin that was a bunch of bullshit because like it would trade cheap in R&B terms often right so like it in theory if that trade were happening R&B denominated Bitcoin on like the U.S. like assume that the U.S.D R&B cross is like fixed right like it's like what the published number is right then the R&B price of Bitcoin should be higher than the dollar price right because people are buying. R&B to then sell dollars. So like that trade should force that to go like that.

It was the other way. Like it was cheaper to buy it in R&B terms and then you could sell it. And you could actually do that trade because BTCC used to let you convert from dollar to R&B, which I'm pretty sure they weren't allowed to do. But they would do it if you like sent them a wire and then they would give you R&B for it. Because we used to put the basis trade on all the time, right? So we'd get expensive in R&B, four or five percent. We'd sell it. We'd just sit on the R&B and wait for the spread to collapse and then we would like close it out. you take R&B risk in the interim.

You could do a Korean wand too because remember that was trading really jacked up. Yeah, I was going to say the kimchi premium was real. That was real. Yeah. So we did that a bit. We did the R&B one a lot better than that. But it wasn't like a flight to safety trade. It was just Korean retail just loved crypto, right?

Right, right. And you couldn't you couldn't arbit it because it's as far as we found there was no good way in size to be able to arb that. Like you couldn't pull the Korean wand back to dollars. Because there was like a law against like. Yeah. There's only so much you can like there's like capital controls or something. Right, exactly. So like you can like, I mean like people will do like factoring where they'll like set up like fake

invoicing stuff like we're like we're like we're not like I'm not getting in that world. Right. Like but there. So there is a way that you can do that. Like it's the same way you can get R&B. There were people like illegally are bringing the. Oh yeah. Yeah.

Like retail. Yeah. Yeah. Well like you're allowed a certain amount that you're allowed to do every year. So you might as well do that at least. But you can also do the trade and just hope that the spread comes back. Right. You can just wait.

But it's a bad use of balance sheet because that. happened in 2017 and like you we were making so much money that it didn't make sense to like park a bunch sitting there for like a 20% like be like oh 20% is a lot of money but like we were turning the balance sheet multiple times the day like I can't keep five 10 sticks like sitting over in Korea just hoping something like collapses but we used to do it a lot with okay coin and like cobi and stuff when like rm b crosses were like liquid so the other thing I'm curious about so since you knew miners and you alluded to this earlier there's this big debate in the industry over whether miners are like pro cyclical or countercyclical.

So pro cyclical would be they, they are naturally long Bitcoin and they've like fiat denominated, you know, costs. So when Bitcoin runs up, the amount of Bitcoin they have to sell becomes less and less. This is like the theory. And so they like hold more and more Bitcoin. And then the converse is also true, I guess. Like when Bitcoin starts to collapse, they have to sell more and more. Yeah.

And so that's like added. selling pressure just makes everything worse. So like is this your experience as well? Yeah, that's how we've seen it. And like I think more it's of the logic. Like they, the things have changed because it's become much bigger business. But like historically it was like they sell when their hands forced.

Like they're generally trying to be as long as possible. But like you and you think to be like, well, that's silly. That's like bad risk management. But you also have to think about it. Like think about it in the context of their competitors, right? Like if you're holding out longer than the other guy is and like there's a big run up, you have a huge war chest and he does it now. Right.

So like you can't it's not it's not as clear cut as like oh you should have better like hedging techniques. I think going forward it's getting that way like they're going to hedge this stuff like they already sort of are. But like when the big bottom fell out in like 3K you like started to see like miners trying to sell forwards even because they were like they had sold they had already puked their inventory because they had to and now they were trying to like sell future coin. Oh that's funny. Yeah. So okay. So yeah that was my that was my theory as well. it's like minor not irrationality but just like poor risk management which leads to like the

intensified tops and the worst bottoms i think they exacerbate moves yeah yeah i think they stop selling as much on the way up they well at some point you do have to chuck it on the way down yeah like there's that reality right right but but this could potentially change if we enter some discontinuity and like your your average miner starts to be more hedged as opposed to like being more naturally I think the mining operations are getting so big that they're like starting to dictate like the capital involved in like this one round. There's like starting to force like much tighter risk control that like they're like it gives eventually to a point where like the whole thing is hedged out. Because people were talking about like quote unquote minor capitulation like this month. Yeah.

There's like a lot of talk about. With the idea that we might get something like that 6K to 3K collapse, which you know, some people believe was was driven by minor like bankruptcies or whatever. But I guess potentially it could be different. time because miners like maybe are more well-behaved. And also miners have much better access to capital now, too. They can borrow much better. Like, they're larger industries. I mean, we've got a public one now too.

Like, it's, it's, they're, they're getting options to them. And if they have their A-6, um, they still have a certain budget of coins they expect to mine in the next, you know, over the depreciation period of the A-6 anyway, so they can borrow against that, right? Yeah. Yeah. And look, you can always sell the future is higher than spot anyway. Like the thing normally trades pretty contango.

Okay. So since we're on this theme of busing industry myths, so like you were, you were incredibly central in the like crypto market from, I guess, 2013 through present, actually. But like, especially in 2017 when there's like this big, you know, bug bear, tether, of course. Everybody hates Tether. You know, Tether props up the price of Bitcoin. They're all unbacked, et cetera, et cetera. So you actually use Tether. Yeah, a lot.

Unlike the people that opine on Tether, you have actually. use tether um so uh so you've a really interesting perspective on this i'm very very curious to hear about the life cycle of the way that you employed tether what it was for and you know whether or not there was like actual demand for the thing yeah so first of all the the idea that like the price of bitcoin was driven up erratically by tether as much bullshit like that's like just not true whatsoever and like i say this as somebody who like created and redeemed billions of tether over like the course of my life it specifically created it in 2017 And like here's here's the easiest way to tell that this whole thing like doesn't make any fucking sense is if you go back, you can go back and look because like this stuff's all still like on trading view charts, you can go look at it.

Like the price of Bitcoin was highest on Coinbase. The majority of net buying inflow was on Coinbase. And that was purely because Coinbase was the fastest and easiest way to get into the industry and buy Bitcoin hands down. Right. Like that was just how you, if you were a new person, that's why he went and bought Bitcoin. So everybody in their grandmother is slamming buy on Coinbase, right? And like you can't even really onboard an exchange at this point because the cues are so damn long. So that's how everybody was getting exposure.

Now, that caused the price of Coinbase to just keep skyrocketing. Remember I said earlier, like that's where if you had the $20 million withdrawal limit, you could just like basically print money. The other side of that is coinbase was getting very, very expensive relative to all the other exchanges, right? So in particular, Bitfinex, which was very, very hard to get money into, was trading the cheap. And it was hard to get money into it because you basically had to have had this, like, already set up the ability to, like, get money into this thing months before, like, the big run-up had happened, right? So, like, it wasn't like you could just, like, overnight be like, oh, like, I want to go on Bipfinex and start wiring money in and, like, just start, like, buying Tether, in theory, right? Because you're depositing money into Bipfinex, which is adding to Tether.

Like, that's how, tether in dollars at this point, Tether and Bidfnex at this point are the same thing. Like, you can go in and out of them seamlessly, right? So you can deposit $50 million into Bipfinex and have $50 million tether. So we were wiring every day, basically as much money, like we would go in the morning and be like, all right, what came in from settlements and what's not nailed down and spoken for? All right, take all that money. Boom, shoot it over to Bitfinex as fast as you can, right? Because you wanted to get as much money there as you could so you could buy Bitcoin and Eath primarily because that was the markets that were on Coinbase, buy those assets and then go and sell them on Coinbase and then yank the money out the door as quick as you can. The only thing that slowed that process down was the money coming out of Coinbase, right?

because they were cutting you off every day at $20 million each. Anyway, the net result of this is massive issuance of tether, right? So tether's being created purely because there's a ton of money flowing into the system. And they were trying to orb out this spread that's grown out between the tether exchanges and Coinbase. And also, if you looked at any of the other tether crosses, they were all trading the same way, right? Like, tether was trading cheap. That's really what the result of this was. Like tethers weren't trading basically way out of whack with the dollar peg.

So we were trying to buy a ton of them so that we can synthetically sort of like crush that R in constantly. So that all makes sense, like how this, like why the tether issuance was happening as the spread was blowing up, but the spread was blowing up because the price was going up

because everybody was buying on Coinbase. So like tether is the lagging indicator in this trade. Like the leading indicator was the spread between the tether exchanges and Coinbase. And that drove the issuance of tether in the back end. And it went the other way, right? When this whole thing flipped in Q1-2018,

you see tether destruction because the exact opposite happened, Bitfinex and the Tether exchanges went rich to the spot price of Coinbase. It's also where knowing now that, like, BitFinex is depegged from Tether in the sense that, like, they're not one to one anymore. So, like, if you go, like, somebody's going to go on

and look at it and be like, oh, this is a bunch of lies. But no, at the time, that was, like, 100% true. Like, they were one for one. You could swap them out. But they are, they have subsequently, like, switched off that. What do you make of the fact, though, that the Tether's, a huge fraction of them stuck around and are still in the system,

as opposed to, you know, just all being redeemed and so on. Because I bet you if you looked at Coinbase's internal balance sheet, like more money stuck around after than like, right? Like we ripped up high. We came back low, but we baseline much higher than where we started, right? Like, there's still net more cash floating around in this system. So Cracken did a really good report on this when that Bloomberg reporter wrote that trash article.

Mostly, and they were like pointing the finger at Cracken for some reason, I know, with the whole thing because they had like a dollar tether exchange. And Cracken's like, look, we matched up our internal cash. deposits versus the tether treasury and they line up pretty damn well so like which makes sense people were trying to put money into crack in at the same time that they were trying to put money into bifenex and making tether so those two things were happening lock and step which i think is a pretty like because coinbase is not going to imagine imagine if all of the coinbase internal balances for dollars were public right like you would see the same exact thing it would just be sky high as like the

price is like flying but like it's not so like people only see tether so they like start to like see all these crazy things that are going on. Look, I can tell you that like billions of dollars were sent in like to make. Like that, that I can 100% without question verifiably guarantee like happen. Like I did it. Like I was there. Like it's not like a joke. But like people want to say like it's all fake.

Like that money wasn't just like being hypothesated. It wasn't just like coming out of thin air. Like that was happening. It's crazy that the transparency here is a total vice because. Well, because people don't want to stick their neck out, right? Like, I can, like, speak a little more frilly than I used to. But, like, when I was at Circle, like, I remember, like, having this conversation being, like, we should, like, say something.

Like, this is dumb. Like, we happen to know, like, it's wrong. Like, we should. But, like, internally, they're, like, why should we get involved in this? Like, there's a lot of hair on Tether right now. Like, you don't want to be, like, named in all these, like, actions. You don't want, like, the New York AG, like, rolling you into this thing. And, like, you don't, like, there's no upside.

Because Tether has, like, this bad rap on. Like, there's no upside now to associating yourself with any way, like, let alone coming on defending. And that's why nobody has. Like, we weren't the only desk doing this, right? Like, they were a bunch. How do you see the product? How do you see tether being used now versus a couple of years ago now that there's more competition for stable coins? Yeah. So I think you've got like this world now where

USDC is the super regulated stable coin. And like tether, it's not like black market, but like tether is like a little more like in the gray, right? Like, so you have two worlds. There's definitely a degree of people that like that aspect to tether. Right? Like they like that it's not like as like fully like sort of on the up and up. So do you have people that want that flavor of it?

Specifically people we've seen in Asia like prefer that like here's a deal. Like if something goes wrong with like USDC, like there is no chance that like CoinBas and Circle are going to fight whatever regulatory body comes in. Like they're going to just a 100% give in. Like just not a question asked. They're going to be like, what do you need us to do? We'll absolutely do it. Tether's going to fight and they have.

So people like that. People like to know that like maybe they won't just like hand over like or put all these KYC restrictions into the chain. or at least they'll try to fight it in a court. So I think that that has earned, I mean, especially in crypto, right? Like, I mean, it's like this whole ethos that they're like, yeah, like, no, you got to stand up for this stuff at some point. So I think that's where you say. And I think specifically we've seen this like at Asia where they're like very concerned and much more aware of like sort of capital being seized at any point.

Yeah, that's amazing. So the discord between the, you know, the crypto commentary who says, well, you should evaluate a stable coin based on how credible the backing is versus the practitioner who says, actually people evaluate the stable coin based on their ability to fight or resist regulators. Yeah, or like if they'll even bother, right? Like, coin-based circle had these huge businesses that they're not going to like, they've clearly shown that they're going to like play ball with every regulator. Yeah. One thing I found strange, and this narrative is starting to take off a little bit,

and mostly thinks of Libra, actually, is this idea that like, so Circle authenticated like the edges of the network in terms of USDA, like deposits, that it's redemptions and creation. They'll like KYCU there, right? Yeah. But the internal hops, they aren't exactly supervising that. You know, there's no, right, right, right. There's no information associated with that.

So this is the same with Tether, right? Like, Tether, there's, you, you cannot create a redeem any Tether without doing full KYCML. Like, there's, that's just, if people are telling you otherwise, like, that's a myth. Like, I could go to you and be like, give me $100 bucks cash for, like, 100 tether. And, like, that's, but if you're going through Phoenix or, like, the Tether platform, like, you're, you're fully K-YC. Like, those endpoints are just as policed as everything else and, like, comply. The point I was making, though, is that, like, it might be questionable for something,

like, USDC to say, well, like, we understand what's going on at the edge, but, like, we have virtually no insight to what's going on internally here. Yeah. Which, like, potentially doesn't necessarily comport with, like, how FinCense sees the world. Oh, yeah. This is, like, 100% could have, like, butt its head at some point. So it's just, like, a matter of time until regulators start asking really talk. of questions about like what happened here between hop.

So the argument though is like cash is the same way, right? Yeah. Like deposit or withdrawal, which law or mansion to cash your bank, you ought to explain what's going on. But like every transaction that happens in, like there's nothing stopping me from like giving you money right now. Like that's not police.

Like why is it if it's digital? I mean, that's the argument I'd make. I don't know if that's going to work, but like it's 100% going to. I'm very sympathetic to that argument, obviously. So I was at the Fed a couple weeks ago because a guy named Bob Bench who worked at Circle who went over there.

Like I was like talking on a panel. Bob is great. Yeah, Bob's great. Like, this exact scenario, especially the cash argument, has, like, come up multiple times, like, there. And they're like, well, like, it's sort of inconsistent if we're, like, everything has to be policed, but, like, everything does it in, like, the physical world. And they had the really good question of, like, if cash were invented today, right?

Like, imagine, like, there was, like, no, like, would it be legal? Yeah. Would that actually, like, fly? No, I mean, like, since the Bank Secrecy Act, we've been moving towards a domain where the government wants to surveil and have identity information associated with every single financial transaction. And cash is like an edge case

that they kind of hate. Yeah, it's like legacy and there's nothing they can do. But you hit the down in the head though. Like this is going to come up. Yeah. Like this is, regulators are aware of it. Like, it's not, it's just,

nobody's like talking about it yet. Yeah. So paradoxically, I think the tethers of the world might be more able to resist that as opposed to like the USDA season might actually have more longevity. As long as they can keep their bank account. Right. Yeah, that's a critical question.

This is the Achilles Heel to the whole thing, right? It's like at some point, all the dollars sit in bank accounts that can be basically hit, right? Like, is there a regulatory regime somewhere where the tethers of the world will eventually find their... It doesn't matter because they're dollars. Yeah. The U.S. government's going to exert jurisdiction. I don't know. Unless you want to like make Euro tether.

But like they tried Euro tether and like nobody really wanted it. People really like dollars. The America has really made a great shit coin in that sense. Everybody, everybody really likes dollars. This is one thing I've been saying, like, crypto is great for the dollar. Like, we made, like, a five billion-ish worth of dollars, which, like, circulate on crypto rails.

Like, I'm sure the number will probably increase. Oh, yeah. So this is, like, what, like, I've always, like, started like, through the thought process. So, like, imagine you're, like, a small country, right, with, like, a really crappy currency. Like, what's the stop, like, USDC or UST from just coming in and, like, annihilating your,

local currency. Like you cut out all of the like issues with cash. It's bound to happen. I mean, it's going to drive out the weak currencies. I mean, uh, if you look historically at some of the case studies here about dollarization when it happened in Zimbabwe, they had a shortage of dollars because they needed physical dollars, which they got from like tourism and very limited amounts of trade. So they couldn't really dollarize effectively. So the dollars became a unit of account, but not an MOUE because there was a shortage of dollars. Stable coins kind of solve that. Everybody's got a smartphone. Yeah, it's like a frictionless way to export dollars to,

on a directed consumer basis globally worldwide. And it's exporting them with full visibility into every single transaction if, you know, if designed to the spec of the government. So, you know, why wouldn't the government be supportive of such a platform? Yeah, like that's the underturn. It's like, maybe they're just going to be like, no, we're just going to let this happen. And we're just going to figure out how to figure out what's going on anyway.

Right. It's possible. And you've had, like, most dollarization is state-driven, like Zimbabwe is the government acknowledged. that their currency had failed, but Ecuador, it was more driven by the citizens themselves, spontaneously going to the dollar, which put additional pressure on, I think their currency was called like this sucre or something. And so it was a bottom-up movement. So, like, I wouldn't be surprised if a stable coin got more entrenched in one of these, you know, countries with a weaker

currency, we see this spontaneous crypto-dollarization occur. I think that would be fast. Yeah, if regulators put it on par with cash, like it's going to explode in volumes. So Dan, I want to transition a little bit just to talk about the lending market quickly here. So a lot of folks from traditional financial services take a look at some of the rates that you can actually get by lending out crypto assets, and they're really surprised at how high those are. So curious your perspective on just the dynamics of play within the lending market, why people are borrowing crypto. Can you get into some of that micro structure? Yeah. I'm surprised that they think they're so high because I feel like they're very low.

But I guess it's all just sort of the frame of reference you have. So there's a bunch of different reasons why people borrow crypto. I can probably only speak to the trading aspect of it, though I guess I don't know what the other aspects of it. There's an implied lending rate for cash and for coin via the futures curve, right? and a lot of times that will get wonked out from like what spot lending markets are. So there's a lot of guys that are just like borrowing cash and or coin to like arm those inefficiencies out.

So that's like a lot of what's going on. Then you also have the needs of like a lot of these desks that are actively trading. Like you need crypto, right? Like the base currency for like a lot of crypto is Bitcoin and like some of it like even like other stuff. So you need like active balances. And like if you don't want to just be long that much Bitcoin

like you got to like borrow it otherwise. I mean I actually think shorting is probably the least case. that people are like using it on because you can, hey, futures are a better sell. They're like much more liquid and like you can just do it. Like that's not like futures are very liquid now. You can just sort of go. If you want short exposure, you can do it via that. And like I said, you can sell the back of the curve almost always like higher than spot anyway.

So you get rolled down on it for free. Like why would you do it in the spot market? That's funny because some people have this, some bitcoiners say that like lending Bitcoin is like morally bad because it lets people short Bitcoin more easily. Well, I mean, but also here's the thing. Like let's say you want to go trade on Bitmap. Right? Like you need Bitcoin to deposit onto it if you don't want to have exposure to that you have to bar like you may be getting long You may not a borrow 100 Bitcoin to go deposit on bitmax to then go like trade

So I don't I mean like look some of it definitely like ends up a short interest But like there were guys that were doing this trade on like the GBT right like where they're like they're creating GBTC and they're like hedging the issuance with like the spot market or futures Like they may be borrowing Bitcoin right I think I think a lot of it's much more like arbitrage plays and people like I think I think it's hard for like people who aren't actively trading to to not think of things in like binary directional bets. Like, oh, I mean the long run short. Like there's no, there's way more than that that's like going on.

There's like all kinds of like risk profiles. Do you, what's your view on just the professionalization of some of the market structure here in terms of the exchanges, the custodians, prime brokerage merging? Like where are we in terms of comparing this to another asset class? Like a traditional asset class.

It's still busted, right? Like in the, we thought that's right. Like the biggest issue is like you can't net positions across exchanges. You have to, you have to fully collateralize everything on every exchange that you want to trade like that's terrible you have to take counterpart exposure to every exchange that you're like looking to operate on so like it's it's not there it's still I mean it's better than it was probably a couple years ago like the infrastructure is better like

the actual tech and like it doesn't go down it doesn't bust as much but in terms of like building sophistication into it it hasn't really gotten much better like you still have those same problems yeah so in terms of that that kind of infrastructure I assume that you know opens up a lot of opportunities for you, which maybe is a good transition to CMS holding. So tell us a little bit about what you're building now and kind of what you guys are up to. You've partnered up with Bobby Joe. Bobby, so Bobby was at DRW Cumberland for the longest time. Julian's worked with me for every way back at Bay Hill.

I brought him in. So you're one of the first guys I hired in 2017 when I was like, this is all just going to like blow up if I don't like get a handle on it. So like we brought him in pretty quick to like build out the infrastructure side. So he's doing a lot of the tech heavy lifting, but known him forever. Yeah, so CMS Holdings is pretty nimble in the sense that we don't have any outside capital currently. So, like, we can sort of do whatever we please. We've been, like, we've been concentrating on some, like, inefficiencies like we see in the ball markets and in the futures markets.

Like, we've been doing a lot on those sort of things. But really, like, the world's our oyster. Like, we do a lot of small cap sort of early stage stuff. Like, we do tokens, like really anywhere that we think we can find edge. like we're willing to like deploy capital as like we see fit into it. And then I mean like we have like a small long bias like just like obviously if you're in this like you're sort of inherently have that anyway. But yeah I mean really anything that we think is a persistent source of edge that we can like capture like we're going to try to like deploy against it. Do you guys so you're playing a trading type of a strategy obviously but do you have a bias towards this industry in terms of things that you think are most exciting or cat

of crypto assets that are going to be around for the long term how do you think about that or does it even matter it doesn't really matter on like the short term stuff like i have like opinions of like what i think of like larger like sort of crypto on like time horizons longer than a year but like that's that's irrelevant for like how we're like the time frames that we're looking to like capture and trade on like we're not looking to make like year multi-year bets like it's just like if we were we would be like raising and like doing it like on a much bigger size and scale because I think we also know like our our skill sets really in like the shorter duration and like sort of strategies yeah would you say that the easy bigings in terms of arving between

exchanges are gone on the spot side yeah absolutely yeah like that market's pretty much picked over like there's still like money to be made on that it's just not like as interesting and you need a lot of capital to like get it right so like the returns as a percentage have like gone down considerably it got I mean it just got efficient over time and like there's like large desks out there that are like doing this now yeah Do you think it will have a big risk event in terms of a counterparty failure in crypto anytime soon? I mean, only because like, look, it's a really volatile asset and like everybody's levered. So like I'm actually shocked that nobody blew up in 2017.

Like shocked that nobody was like on the wrong side of something that like just got completely pear shaped. Paint to picture. So what would that actually look like? I mean, is that an exchange going down? Is that just a fund or a desk blowing up? How do you think that manifests itself? really depends. Like in order of like terribleness, like it's an exchange going down.

Like an exchange having catastrophic loss of funds. That would be bad on many fronts. And I think people have really gotten complacent and like forgotten that this like risk is out there because it's been a while since. Like exchanges security practices have gotten way better, but like stuff still happens. Right. So that would probably be the worst case scenario like ripple throughout the industry. And then second to that. that would be one of the lending desks blowing up

because I don't know how daisy chain that risk is. I don't know how many guys are lending to guys that lend to guys that lend to guys that like the end. Like I don't know how tangled that web is on those desks like currently. So I think that would be pretty bad if something happened. And then like the spot OTC desks are probably the like, that stuff will settle pretty quick and it's spot.

So like you can only get so hurt on it. But the desks that are offering derives, yeah, absolutely the guys that are offering like options forward, like, facing people bilater. It's still very small, though. Yeah. So I don't think that's as big, like, a concern. Like, look, if you were to tell me, like, what's the single biggest risk that could

happen besides, like, an outright, like, China comes in and arrests everybody at Oki-X and Wobie, like, that's like, but, like, oh, it's just possible, like, what could happen and just, like, I think, like, BitMax's just toasting and, like, all the funds being disappeared would be catastrophic. That would be, like, a gox moment, like, round two. So we've talked about that in terms of what the actual impact would be. be on a price of Bitcoin. I think there's different schools of thought. Tom Lee has this theory that Bitmax represents quite a bit of cell pressure and the fact that they're taking Bitcoin denominated

fees. Yeah, but the fees are just got somewhere else. Yeah. I don't know. That'll like bounce around, right? Yeah. Yeah. And then I guess Bitmex is also a source of buy pressure for Bitcoin because because you need Bitcoin to trade on Bitmax. Right. And people go along it. It's also net, right? It's the net. There's net longs and short to even, so. Right. It would just be bad because like everybody has exposure to them. Right. And like every desk would be taking a haircut at the same time. And do you see any any viable competition for Bitmex at this point? Oh, there's definitely like I mean okay X futures product predates bitmax buy a lot like and it's still liquid and it's

still out there. There's other venues like Hobie like FTX like there's like other like venues out there that are like liquid that you could like go to. There's just so much coin on that thing at like one point right right? Like it is like it is a large single piece of this industry. Yeah. What do you make of FTX that's really burst on in the scene lately. People have very mixed opinions about it. Yes, I mean, like, full disclosure, like, I own FTT, so, like, I'm not, like, going to, like, come at this thing, like, completely unbiased. But, like, that being said, like, we use it a lot. It's liquid it works. Like, we realize that Alameda's backstopping the liquidity on it. So,

like, there's risk. Like, they could just, like, be like, like, nah, the market's going to go fuck yourself now, right? Like, and then we, like, don't have anything to do. So we understand that. But, like, I also, I'm pretty comfortable with it because a guy named Ryan, Salem from our desk, like went there and worked in Asia and like we've, we know him really well, we trust him. Like, I don't see any indication that they're doing this thing with like some long-term con. Like they also have, they have a really good business on like the sort of liquidity provisioning side already. I don't think they're willing to jeopardize the whole thing just for some weird sort of scam

that they'd be running in the interim. But yeah, I mean, we like it. I'd love to see more liquidity on it. That's like my biggest concern. Like beyond Alameda making the market is. But they're, they don't look like 50,000, these days. on Bitcoin the last couple days on the like perp. So like that's real.

And then like FTT, it's like I guess it's the same model as roughly speaking as BNB or LEO or something, right, in terms of like the value cruel mechanics. So you can use it as collateral. That's the big difference. And so like that's actually useful for your purposes. Well it's useful because like if we, we find it useful in the sense of like we own FTT

and like we park it to use as collateral on FTCX. So you like sort of not that you're, let's say FTCX is an exit scam blows up. Well, our FTT was going to be word zero anyway. So, like, if I've got to park there as collateral, at least, like, I'm not risky anything additional while, like, trading on FTCX, right? Like, that's interesting. So, like, if it blows up, like, yeah, like, my FTT goes to zero, but I already made that bet. Like, at least I don't have to worry about, like, any collateral that, like, we have non-FTT collateral on there, too, but we can mitigate it by owning a bunch of FTT. Is the, and the buyback element, the capital return, so to speak, is that just,

like, extra, like, nice to have? That's not going to be useful for a while, right? Like, if they hit like I mean look they hit like bit max levels then yeah then like it's a huge sudden like but it's it's like a hundred grand a week yeah it's not a huge amount yeah it's not a huge ton of I think like it'll it'll appreciate more in value if like the exchange continues to like pull people in to use it who will hold the FTT for like fee discount end for a collateral and it's nice being able to like mitigate some of our exchange exposure with the exchange token like we find that super useful that's funny I think the the like Direxion style um like 10x long short tokens are so funny. I mean, I don't touch them, obviously. You should. They just decay.

Yeah, yeah. So there's like, there's like a mathematical reason why they decayed. I think when they first listed the 10x ones, the next day there was like a 10% move or something. It was like, they did it and there's a big move. But like the long and the short tokens both basically got nuked and people like couldn't under because like people didn't understand. They're like, wait, I'm like long or I own the short token. It should be up. And it's like, nah, you got to like read into the rebalancing and you got to like, so people would be pissed because they'd be like both EEO's 10x tokens are down like 80%. They're like, well, that doesn't make sense.

Yeah, those things are like, they're kind of like traps, right? Like I remember like finding out about the like levered natural gas ETFs and being like, how come this thing like just truns zero? I can't believe that this shit's still legal in the equity markets. Like all the fall products too. That's wild to me that you can like still buy like TVIX and VXX. Yeah, like the VIX products. Yeah.

Actually, I don't know if they sell TVX. It's so funny because like the SEC is always saying like we believe in not consumer protection in terms of the Bitcoin ETF. Yeah, you got a product that mathematically is going to go down 90% every, like, five years. Like, more than that. I don't know. It just, like, naturally decays to zero constantly. I know.

Like, why is that allowed? Who needs that? People like, who wants to buy that? People trade the gold, the levered gold ETS all the time. Go trade the mixed futures then. You don't need that. What do you, do you think that these markets will just bifurcate as more, quote, unquote, traditional institutions come in?

I mean, obviously a well-regulated kind of proper financial institutions is probably not going to be trading like FTX as their initial foray into this. Do you think that we're going to just see a bifurcated market with like regulated venues, spot venues in the United States and then BitMex and FTX operating on the periphery? Probably. I mean, I just don't think there's any institutional flow. So like I kind of don't think that there's no new bifurcate at this point, like the whole entirety of it.

And like the prop chefs that trade this thing, like the closest thing that are too institutional, they trade on all those exchanges. Right. So like the people that are willing to like do this currently are trading on like the offshore jurisdiction. Like, look, CMB does a lot of volume. Like, it's real. Like, it's up there. Like, if CME had better leverage, it'd be doing a lot more

even, too. It's just like, it's... I don't know. I don't know if it'll bifurcate, because I don't even know if there is anything to bifurcate at this point. Well, I guess the question is when... What spurs the institutional flow? And I guess it would be things like retail brokerage is actually offering Bitcoin and the ability for like a Schwab account

to buy Bitcoin or something like that. Yeah, but that's spot, right? Yeah. And that's not... I mean, also like the The spot flow just gets hedged on the liquid offshore venues anyway. Right. I don't think you're going to peel the liquid away from those things. I really don't. Right.

Yeah. Oh. Even if there is some sort of like regulatory situation where the U.S. gets very serious about like, you know, harassing a bitmax or whatever. Oh, I mean, if they force it, yeah, then you got to. But people find ways, right? You'll just like every desk now has like somebody sitting outside the U.S. like in another not sure. Like we have it too. Like we have Julian Toronto.

We are like incorporated and came in. Like it's just like how you have to operate now. Yeah. And I guess the reason these things are sort of outside the reach of the law, I guess, ultimately is because the settlement is through Bitcoin or crypto or whatever. That's what's helped. Right. Like yeah, there's no bank to seize.

Yeah. Right. Exactly. Which is like very much help them. Yeah. Right. Yeah. Well, and it's, you're not untouchable.

But like it helps defend at least, I think, this idea that you aren't going to have somebody. Like, I'm sure that bank account would have been seized by now if they had to have one. Yeah. But this is the one cash with Bitmax. Like, I love Bitmex to death, but it is annoying that you can't collateralize in cash. That is, like, a huge issue with it because you end up in these situations where your long Bitcoin futures with Bitcoin Post is collateral and you have a nasty, like, risk profile on the way down. And, like, I think that is, like, the Achilles heel of a lot of these, like, crypto-backed,

like, crypto-collateral futures exchanges. And I think that's kind of the dominant model you see out there, as opposed to, like, CME where you post cash. Why do you think that BIMX, for instance, doesn't let people post collateral in Tether or other stable coin form? I think it's most because of regulatory concerns. Yeah. And it's also hard.

They would have to rebuild the risk engine. Yeah. Like there's some non-zero technical lift on that. Yeah. So Dan, I feel like we could talk for hours and you probably should write a book at some point about all the experiences you've had in the crypto market. But my closing question is, what are you the most excited about just in terms of the state of this market right now going forward. Yeah, so I'm really excited about the build out of all products going

forward. So we're seeing the first generation of some of this stuff like hit the tape. Derbitt's got an option market. Ledrax is tough because it's fully collateralized. So it's like, eh, like not really like useful. But some of the other exchanges starting to build out finance is building one. Okay, coins building one. I would guarantee then. Hobie's going to build one just because that's like how the game goes. There's pseudo ball products on FTCX now. You're going to have all kinds of options come out on either IAC's backed product or you're going to have it on CME. Like there's going to be a lot of like ability to trade ball. And my gut is there's going to be a lot of edge in that in like the short term.

So like I'm very excited about it. And also like I come from a ball background. Like that's like what I traded before I got into crypto. Got it kind of like dust off like, you know, all the old notebooks and like read up on my Greeks again. But like I'll, I'm pretty sure that's going to be like a fun time for stuff going forward. It may dampen volatility too. Like there's some reality and like that actually like playing out.

Well, that's awesome. So we're really excited to keep an eye on how CMS Holdings transpires. Thanks for joining the pod. This has been awesome. Yeah, anytime.