On The Brink with Castle Island - Weekly News Roundup 07/17/20 feat. Alex Treece (Twitter is hacked, social media property rights, fintech meets crypto) (EP.102)

Episode Date: July 17, 2020

Matt and Nic review the stories of the week, featuring special guest Alex Treece, president and cofounder of Zabo. Alex joins the show to discuss his report covering the intersection of fintech and cryptocurrency. Also in this episode:  We gripe about the SaaSification of the world and the loss of genuine ownership Whether the Bitcoin hero's journey requires a private blockchain digression The boys argue about the merit of soccer We talk Twitter hack scenarios Why the Twitter hackers had to use Bitcoin Social media handles as property Grayscale's blockbuster quarter Abra settles with the SEC We cover the theory that individual bitcoins don't actually exist    

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, and the Fed 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 Concentive Easing. You 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 On the Brink. I'm Matt Walsh. And I'm Nick Carter. Another podcast delay because of interference from the radio. Who listens to the radio anymore? Indirectly, all of our podcast listeners do because it's ever present.

Even if you can't hear it, it's like, you know, it's a subconscious thing. There's AM radio and all of these episodes. But it was like that was used. You too, which is good song. Again, great band, but we didn't need that on the podcast. People say that you two is dad rock, to which I say, if that makes me a dad rock fan, so be it, because I like you too. I like you too. The song Beautiful Day, that's a phenomenal song.

They're a great band. Food Fighters, U2, Nirvana. I love the food. I love the food fighters. Like, it was a good era for music. It was. That was back when you could listen to a CD front to back. You know, now you just listen to individual songs.

Well, that was sort of how it was before the CD era, right? Like you'd buy individual singles, right? Well, that was, you could also, in the cassette era, you could buy the full album or you could buy individuals and, you know, before that same thing. The thing that gets me is like people would pay, I don't know, five or ten dollars for like a single track, right? Oh, yeah. Yeah.

I think I still have a collective soul cassette and it has two songs on it. Yeah, that was, you'd get like the A side and the B side. and that was it. Yeah. And you would just have to get $10 worth of enjoyment out of that song. Yeah, I listened to that nonstop until it almost didn't work anymore. And now everything's free for a subscription. Well, for a subscription, but we did go through the absolutely free stage,

but then you just got all sorts of computer viruses from Napster. Yeah, so you didn't pay with money. Yeah, I mean, that was actually the best stage, in my opinion, because it was free to a certain extent. and you had real ownership. Like you would get an MP3 file and you could own that file. It wasn't like DRM'd or it wasn't a subscription.

Today we own absolutely nothing. Nobody even has a music collection anymore. That was. I had an external hard drive with a lot. Theoretically, I had a lot on there. Not that I ever illegally downloaded music. No, and even, like nobody even buys books anymore. I still buy physical, but most people buy digital.

And you don't actually own the book, you know? And, you know, let's say, let's say you're reading a book by Stephen Pinker or something, and, you know, he gets fully canceled. Probably his book will just be deleted off your Kindle. Oh, it's possible. You're not a huge Pinker fan. I really don't like Stephen Pinker. Don't like him. Yeah, you're right, though.

It's people don't have that physical ownership over their goods anymore. That's why I still buy physical. I still buy physical books. I like to read a book, you know, sit down, just actually feel like you're accomplishing something. No one's going to own cars in the future either. It's going to be made illegal. Right. I'm ready for that, though. You're going to need to rent from the Tesla fleet of autonomous vehicles, and everything is going to be SaaS. I really think it has to do with Fiat currents, you know, since from 1970 onwards.

Everything's back to that. Everything got financialized and SaaSified and turned into a subscription. You can't repair your tractor anymore. You have to subscribe to the software updates from John Deere. Well, you get a higher valuation if you're an ARR business. Exactly. That's it. It's all financial engineering. It's MBAs that took our manufacturing businesses and turned them into tech companies and software companies. Apple's going through the transformation right now and look at the impact it's had on their PE ratio. Yeah. And the Federal Reserve is busy buying Apple bonds because clearly their cost

capital was too high. Well, that was quite a digression, but we have a lot to talk about this week. Yeah, we also were bringing on a special guest in a few minutes. It's Alex Trees from Zabo coming on to talk about a report. And a lot of news this week with Twitter, a bunch of deals. But before we get into it, let's talk about our sponsor. And it's BlockFi, one of our portfolio companies. So if you're not using BlockFi yet, you should check it out. A lot of great products on the platform.

They have interest-bearing accounts for users. They have crypto loans. They have trading. A number of products and services for institutions. and they'll be coming out with a cashback credit card in the next few months. So the team over at BlockFi is shipping product at a really fast rate. They have some great offers. New clients can get a 2x bonus on crypto interest.

So head it over to BlockFi.com and get yourself started. Big BlockFi fans. BlockFi is one of the fastest growing companies in the crypto industry. They started life as a lender and now they're just going to become effectively a full-service brokerage. Yeah. As they like to say, they're, maybe a recession, but they're choosing not to participate over there. Yeah, we chose not to participate in the recession.

But sometimes the recession chooses you. That is true. Well, there's some deals this week. But actually, maybe before we get into that, some interesting podcast stuff this week. So you had Caitlin Long on. Yeah, Caitlin was one of those guests where she was on kind of the short list for guests when we started the podcast. because we are sort of ideologically aligned in so many ways. And she has all these really esoteric opinions about things that most people have never even heard of.

So just an amazing guest. So I really recommend this episode. And her views on Bitcoin banking and full reserve versus fractional reserve banking. And what the nature of the relationship is between depositors and exchanges is just so interesting. and so valuable. You know, I think so many of her these stances are totally underappreciated in the crypto industry. And, you know, most people don't really think about the nature of the claim that you have at an exchange. You just take it on faith that the exchange is sound.

But you don't really ever question these edge cases, which, you know, unfortunately do become pretty salient every now and again in crypto. Yeah. What I really like about Caitlin is how honest she is. her journey in the space. And so I had a similar journey to her. So she sort of started off being interested in Bitcoin. And then she became involved with private blockchains. And you know, you kind of have to go through these, you have to go through these idea mazes in order to actually see what's going on, right? Like everyone kind of jumps into this and next thing you know, they're checking out private blockchains. Is there anything there? Got to find out what's

ripple all about, you know, do I, is there anything to pay attention to with Stellar? So you go through through and you kind of form your point of view. And now she's out building a full service bank in Wyoming, which is super exciting. Well, for the record, I never found private blockchains interesting. So just to be very clear, I avoided that pitfall. I did not fall into that intellectual trap like you may have. It seems like you're admitting to that. But I, uh, I, uh, is if this is the truth and reconciliation time for me to say, I did go down a little bit of a private blockchain. phase. Yeah, I just don't find back office stuff very interesting. But I mean, you know, I was, I've been a fan of other coins before. People sometimes bring that up and they, you know,

attack me for not being a purist, which is true. I'm not a purist. So I don't really claim to be one. So we've all had our digressions. I think I got you a Monero sweater. Was that 2017? That was Christmas 2017. Yeah, that's a great sweater. I still have it. Yeah. So you were big Monaro guy. I still like Monaro. I just realized at a certain point that Manaro was never going to be sufficiently liquid because exchanges just wouldn't list it. That was basically the issue. That was your deal there. So anyways, good episode there. Moving on to some deals. There's a few this week. So Evertas, which is a crypto asset insurance company. They're seeking to become an MGA. And it looks like the model is they would go in almost in a similar way to getting travel insurance.

You'd be able to get protected and pay to have you. or assets insured, your crypto assets insured on various platforms. So they raised $2.8 million for Morgan Creek Digital and plug and play. This is an interesting category for sure. I think we're going to start to see some more activity in the insurance space. Another deal is AVE. A lot of you will probably be familiar with AVE. Honestly, I don't know how to pronounce it.

It could be A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-A-V. It's a decentralized lending protocol. They raised $3 million from Framework Ventures and Three Arrow's Capital. They're one of the hotter DFI defy projects these days. And speaking about private blockchains, which we're just talking about digital assets, which was the firm that Blythe Masters founded. She's since left, but they have added VMware as an investor to their Series C round. So, you know, private blockchains are still around.

They're kind of clinging to life there. Here's kind of an interesting one, though. So there is a NFT-based fantasy soccer platform called Sorare. Also not sure about the pronunciation. Raised $4 million in a seed from eventures. And if you're a soccer fan, you'll know that one of the angels in the deal, André Shirla, who's a German winger, who won the World Cup with them, also played for Chelsea, which happens to be.

my team. So, rooting for these guys. You know, soccer is the sport of the future, and I think it always will be the sport of the future. That take never made sense to me because it's already the biggest sport in the world by a lot. So it's the support of the present and the past, maybe the future here in America. Well, that was talking soccer. Soccer is an amazing sport. The Premier League is going on right now, which is very strange. It should be done by now. It's still going. I'm just looking to football starting. We've got Cam Newton coming. It is a new day. Well, my NFL team is in the process of legitimately disintegrating in every conceivable way. So I'm not feeling good about it. Yeah, there's going to be a new name down there. It might be time for you to just become a Patriots fan.

You know, people have suggested that. And I don't think a lot of people know what it's like to go through the process of having their team identity, even if it's extremely, you know, like not politically correct, just to be stripped from the team and then you just come up with some like contrived new name. It's like it doesn't really make sense. There's not a lot of good things to say about Washington Redskins right now.

It's the R-apostrophe apostrophe S now. You can't say the name anymore. Can't say it. But yeah, extremely shambolic franchise. It actually manages to get worse every year. It's impressive. All right. So why don't we get into the big story of the week?

And it's definitely this Twitter hack. So maybe for those in the audience who are living under a rock, what happened here? So it started with a crypto Twitter account called Angelo BTC, who tweeted that he was opening a paid group, which everybody with a brain realized he'd been hacked. But it's kind of normal for people to be hacked. So that didn't freak anyone out too much. But then Binance's official account posted a link to clearly a scam site soliciting Bitcoin donations, and then CZ and then CoinDesk, and then Coinbase and Gemini. And soon it was basically every big account on crypto Twitter was commandeered.

And initially people thought it was maybe they'd been fished or their cell base two fact they'd been sim swapped. But then it was so many big accounts that that became implausible. People thought it was something to do with one of these social media tools that people used to manage their accounts like HootSuite. But then again, it was so many different diverse accounts. People eventually realized that it was actually an internal Twitter kind of tool that had been hacked. They gave them the God mode key to basically post a tweet from any account at all on the platform. And eventually this thing went to, it went completely mainstream. So they hacked Elon Musk's account and Bill Gates and Kim Kardashian and Joe Biden and so on.

So basically the hackers either with the assistants or by socially engineering a Twitter employee got access to their admin dashboard and were able to post tweets. Most of them basically soliciting BTC. They didn't really get very many BTC. They got about $120,000 worth. But all of Twitter was in complete shambles for, about a four-hour period yesterday. It was pretty surreal to witness this kind of in real-time. So there's so many different takes and angles and implications here, but I guess the first is, you know, what do you think this does to Bitcoin? You know, is this good for Bitcoin? Is this

bad for Bitcoin? There's a lot of back and forth on this. I would say it's a setback in terms of the narrative because obviously Bitcoin was the instrument of this fraud here. And that's because Bitcoin has great settlement qualities. So people that might hate each other can transact with Bitcoin and trust that it will settle, whereas the fraudsters couldn't have done stock transactions or anything like that, because those would have just been reversed. So I think, unfortunately, it does kind of align Bitcoin with this really insolubrious nature in the public imagination. So I don't really buy this whole all news is good news thing that people have been talking about. Yeah, and I guess, you know, James and Lopp had an interesting tweet that it was effectively said that, you know, they could have done anything. They had God mode, which, you know, we'll get into it. I think they probably will be another shoot-a-drop here just based on what these hackers were able to access. But his point was that, you know, look, they could have done anything. And it's clear that their number one priority was just get more Bitcoin. And so in some ways, it just shows, you know, that Bitcoin as a desirable asset is, you know, you know, pretty high on.

the list, even if it is for nefarious use cases. But I guess to your point, you know, they just could not have done this with shares of stock that are held, you know, in brokerage accounts. So it just turns out that this is the only kind of digital bearer asset that was, you know, possible. Yeah. I mean, there's no equivalent of sending cash on the internet with anything else other than basically Bitcoin is the most liquid one. And Bern Hobart had a really great take on this. He said, look, if you commenter Twitter, you can do whatever you want, how do you actually monetize that? Turns out there's really not that many ways, right? And scamming people for Bitcoin is pretty much one of the only ways that you can do it and actually

take final settlement of the, you know, the proceeds of your scam, you know, the fruits of your labor. And so he basically said the existence of Bitcoin is a way to monetize these hacks is effectively a bug bounty for these platforms, which although it's very disruptive, you know, ultimately the actual cost to society was fairly low because they barely collected any Bitcoin. So I thought that was kind of an interesting take. It means that people are motivated to find these exploits, but the damage they can do is kind of limited, at least for now. So it might be that there's another shoot at drop here for Bitcoin and for just this hack. you know, when you think about what these folks who hacked, whoever it is, you know, what they could

have access to, you're talking about every single DM on the platform. And so there's a rich trove of data there. And there's potential that, you know, folks could be blackmailed, folks could be put into these kind of ransom situations in firing off more Bitcoin. Do you think we'll see another shooter drop? Initially, I thought this was possible and I thought it was a state actor, but actually my opinion has changed. And I think it was just basically a hacker that wanted to do small scale scamming on crypto Twitter. And then they realized that they actually had all this access. So they scaled up the attack as time went on.

But fundamentally, their pattern here didn't really, it didn't seem that sophisticated the way they went about it. And also extracting data from DMs is, you know, you'd have to run some pretty heavy duty tools to pull all the. DM history from all the accounts. I think they were just busy pasting Bitcoin addresses for the duration of the attack. So I'm actually, yeah, I feel slightly better about it today than I did yesterday. I don't think there is going to be a huge database of all the DMs. Yeah, I think we'll have to see what the postmortem is here. I'm interested to see what Krebs and some of the other

security experts have to say on the matter. Yeah, and actually, if you look at it today, the hackers have been kind of amateurishly mixing the bitcoins that they obtained. So if they were sophisticated, you would have seen those coins go into Wasabi straight away. Right. Go into Mixers multiple times. But it seems that they've transacted with Bitmax with Coinbase before. So they're leaving a big old trail of breadcams. It does reveal just how insecure these centralized services are and how disastrous this can be. And it really does make you think about some of these proposals and entrepreneurs that are trying to build platforms where users hold self-sovereign their own data. Yeah, this is something that I've been talking about.

Other people as well, Alan Farrington, Elaine Ooo, have also brought this up. Thinking of social handles as a genuine form of property and something that should be mediated by cryptographic key pairs. That's the only way to have property outside some corporate entity that custody is at four year outside of the state. and Bitcoin does that for money, but some of these projects like Erbit do that for networking. So I'm extremely bullish on that. That just fundamentally is a much more robust configuration.

All right. So why don't we move on? Did you see this gray scale news? So they released their digital asset report for Q2, and it was another record-breaking quarter for them. Talk about an asset-gathering machine over there. So they raised $905.8 million into their suite of, investment products, which was double the previous quarterly high, which is about $504 million. And so now the total capital raised in those products is up to $1.4 billion.

Most of it is in the Bitcoin Investment Trust. So that product saw inflows of $751 million over the last quarter. So it continues to be, looks like mostly hedge funds that are putting assets into these vehicles. And obviously there's an interesting trade. to be had there as the OTC product becomes freely tradable after six or 12 months depending on the product. What do you make of this? Yeah, keep in mind that the hedge funds are just the vehicle to convey those coins effectively to retail, you know, so it has to be processed through them initially, but they're not the long-term buyers of this thing. The fact that the inflows are so significant

and that the premium remains above zero, that shows that there is a retail bid for these products. and well the premium's fairly low it's actually in single digits today but there's been a persistent premium even though this trade has been going on and on and on so it's amazingly impressive the amount of AUM they've been able to attract into this thing yeah it sure is it's over four billion dollars as of today it's quite a franchise they have done there so kudos to the gray scale team why don't we move on to the next one so abro which, you know, this is an early company in the space.

They're a crypto wallet company. They've done a bunch of things over the years. They were initially focused on remittances. And then they had this product, which was really interesting, I guess. It was effectively security swaps. So they were allowing you to deposit Bitcoin and then basically take directional bets on equity securities and get some synthetic exposure to those, which kind of struck me as, potentially on the fence from her regulatory perspective, and it turns out it was. So they were the subject of two enforcement actions this week. One was from the SEC, one was from the CFTC. Effectively,

they're saying that these were unregistered securities that they were selling to retail investors in their fine. I believe it was a $150,000 fine from the SEC, $150,000 from the CFTC. So I guess not entirely surprising here that that ended up that way. Yeah, that's, that one's not. a shock at all. I mean, we're talking about products that track the return of of equities, which the SEC considers to be within their domain. So the actual penalty seemed fairly small. So a lot of people were crowing about this, you know, a lot of, you know, crypto skeptics and so on. But ultimately the outcome wasn't that adverse for them. Yeah. And it looks like the business continues. I'm not sure what the core business is these days, but they're still in business. So

we've to fight another day, I suppose. PayPal, man, did you see this letter to the EU? So they came out and they explicitly said we are developing cryptocurrency capabilities. So not a surprise since this has been leaking left and right. And we know that the executive team is really knowledgeable about crypto. They were in the Libra consortium for a hot minute before they left. So these guys are up to something. Yeah, the PayPal rumors keep gathering steam. On that topic, the intersection of fintech and crypto, we've got one of our portfolio company founders on the show to talk about it. And so we're bringing in Alex Trice, who is the president and co-founder of Zabo, which is one of our portfolio companies, to talk about this amazing report that he did on the intersection of fintech and crypto,

It's honestly a topic that doesn't get that much coverage. So I'm very glad you did it. It's totally action-packed. We're going to put a link here in the description. Definitely read it. It's very readable. There's lots of pictures, lots of charts. It's just incredibly dense with content.

And so we brought Alex to talk about it a little bit. So Alex, welcome to the show. Hey, guys. Thanks for having me on again. What was the inspiration for putting this together? Yeah, so our business is Zabbo is right at the intersection of fintech and crypto. And as a result, we spend a lot of time talking with fintechs. And so part of it was just education.

You know, we thought there was a lot of really interesting data and results that have kind of happened at this intersection that we wanted to share with people. But then also certainly there's one interesting thing that we've seen in the market is that there's a lot of fintechs that you would think would want to be in this market or kind of in this market, you know, given the success of the Robin Hoods and the cashups of the world. But that really hasn't been the case. And we thought that was really interesting. And so we sort set out to just take a look at the market and see what's happened. Fortunately, there were some really big releases in early 2018, namely when Robin Hood, Revelood and Cash App all released crypto products.

And so, you know, now here in the kind of mid part of 2020, we have a chance to look back and see, you know, what happened with those releases. They were sort of bets at the time. And there wasn't clear consensus that that was, you know, an amazing idea. And, you know, clearly I think the results have been really great. And so I think just stepping back and taking a look at that, that's a key part of the report. And so I think all those things sort of went into why we wanted to actually conduct the report in the first place. This kind of looks prophetic. Did you publish this before the rumors about PayPal working on a crypto product came out? No, it, actually, that sort of happened right in parallel. So we were probably, you know, 80, 80 plus percent of the way

through the report of making it when that came out. But yeah, I think it's very part for the course. And, you know, there's PayPal and Vimmo. That's about as big as it gets. But I think you'll see a lot, lot more of those types of announcements from other companies, you know, certainly over the next 12 months and definitely over the next couple years. I think my favorite slide in the report is this, the slide that you have of Robin Hood and Revolut and Show showing the valuations pre and post adding crypto. And obviously the valuations have gone up quite a bit. So I guess my question is, do you think this is a causal relationship?

How do you think about crypto in the context of just the enterprise value of some of these companies? Yeah, definitely. I mean, first, it's obviously really tough to draw like a really clear causal relationship unless you have great data from all the parties involved. But I think in this case, you can piece together enough parts to show. that it is indeed causal. I mean, this is sort of the debate, whether, you know, these are just the best companies and so therefore they have, you know, the high valuations, or did crypto play

a meaningful part? And in my view, whether it's correlation or causation, it's still a really great signal for crypto. You know, either crypto helped the very best companies become the very best or the very best companies in FinTech have crypto. And so like either way, it's a, it's a massive signal that people should be paying attention to this project. And so, so, So yeah, it's an interesting question. I think we definitely fall on the side of being causal. Some of the things I would point to kind of support that is not only do we see that Robinhood and Revolut have big step-ups in valuation after they offer crypto products, but if you compare

their Series D rounds versus competitors and other FinTechs, which this is in the DECA as a slide, you can see that their evaluations were a lot larger at the Series D level. And I think part of that is because they have higher growth. and more user acquisition that came from these crypto products. And that's a really kind of key part of the crypto thesis in Fintech, I think, is it's not just about generating revenue from things like transaction fees. It's just a really strong marketing tool and user acquisition tool. You're essentially opening up an entire new asset class your user base, one that a lot of people really care about. And so it just totally makes sense that these companies would grow really quickly.

I guess as you point out, the customer base has a lot to do. with this. So you're dealing with these fintech companies that are really creating a new front door to financial services for a broad swath of their customer base. And there's a big overlap between these millennial customers and, you know, people that are interested in buying Bitcoin, for instance. So there's a kind of a good customer fit there. Yeah, 100%. I mean, you could almost think about it from Robin Hood and Cash House perspective as being like a product arbitrage play, where, you know, there's brands like Coinbase that have, you know, tens of millions of customers. a lot of them are millennials in Gen Z, and Robin Hood and Cash App have those same customer bases.

And so, you know, naturally, if they offer that product, people will be interested. So I think, especially in late 2017, early 2018, there was just this pent-up demand for this product. And obviously, you know, these FinTech apps do a great job with user experience. They have big user bases already. And so they were able to offer products and be really credible and do a great job. And so you saw really fast user acquisition. So like Robinhead, for example, they had, you know, a million and a quarter signups for their crypto product before they even launched it. They put out a wait list. So it just sort of gives you an indication of just the pent up demand.

I mean, that would, that would, that would be, you know, larger than their entire user pace. And for them, it was just the signups for a single product. So, Alex, you talk about a few interrelated phenomena that could potentially bring fintech and the crypto markets together. What are the most compelling ones in the near term that fintech should be paying attention to here? Well, I think this is kind of a boring answer, but I really think that just more exchange and, you know, buy-sell products are actually the lowest friction, easiest thing to do for a lot of fintechs. You know, there's still a huge number of fintechs that haven't offered that product. And if you go looking and kind of, you know, go across Reddit or Twitter and sort of look at their customer bases, you can see that they're asking. for those products and they're certainly holding those assets in other places.

And you can also look at things like exchange volumes for both spot and derivatives. You can just see that, you know, there's a huge amount of volume there. It's growing. And, you know, those things are not going to be going down anytime soon. So I think, I think the most actual opportunity for a lot of those folks is to, you know, simply offer access like exchange, buy and sell. Another one that we're really excited about in the, in the PFM space that we're obviously biased towards because it's kind of involved with our business, but is doing

crypto data aggregation. And if you think about any modern Pintech experience today, usually the very first thing you do is connect your other accounts. You know, if you're connecting, if you're downloading VINMO, if you're downloading, you know, a digital bank app, or you're downloading an investment app or, you know, even something like Coinbase, one of the first thing you do is you connect your account. And a lot of times that's, you know, to do funding. You're transferring money over other times is to, you know, track your accounts and be able to track your balances and transaction histories. Today in crypto, that's really difficult and none of the kind of PFM tools in the market are doing that. And it's an absurd

opportunity for somebody because there's, you know, literally hundreds of millions of accounts out there that are just kind of lying around. And, you know, these apps are connecting bank accounts, investment accounts, every other type of account, but crypto accounts are sort of left out from that. So, and historically that's been difficult to do, but I think with tools like Zabo, it's a lot easier. So I see that as like a really obvious opportunity, both for, you know, the users to benefit, but I think also the fintechs because then they actually get inside into like, you know, hey, you know, what type of assets do my users like to use? What type of things should I be focused on?

How should I build products? So it's really kind of a win-win for both sides. Is there, I know you touch on the stable coins and that's obviously something we've paid attention to a lot this year, although primarily with respect to emerging markets where maybe dollars are more scarce and there's a lot of organic demand on the ground for dollars. less so in developed markets where dollars are abundant, obviously. What do you imagine the intersection between fendex and stable coins to be in U.S. markets? Yeah, I think you're starting to see some companies come out that are doing really interesting

wealth and savings products. And obviously it's sort of targeting the emerging markets and areas where there's like, you know, really bad Viat currency regimes like Venezuela, areas of there's high inflation. So I think that's going to be. I think you're going to see a whole set of applications in fintech that sort of use stable coins to give people safe wealth accrual and potentially payments. So I think that's really interesting. Obviously, I continue to think that stable coins will be continued to use to use in trading use case. That's today, as you guys know, trading is kind of like the main use case for a lot of stable coins today, but in terms of volume. And as we see more and more different types of tokenized assets and sort of assets that are created natively on blockchain.

that are sort of outside the traditional financial system. I think, you know, those stable coins will continue to be used in those instances because they're just so frictionless. And then, you know, probably a lot of that outside the U.S. So I think that the stable coin fintech story really is in areas outside the U.S. And that's probably you're going to see, you know, the most product market fit. That's not to say that eventually, you know, you want to use this here in the U.S. as well. I just think that that's where there's kind of the highest demand and need for it.

How do you think about crypto credit in lending? You know, some of these markets are very nascent, but, you know, BlockFi is probably the fastest growing company in the entire industry, you know, playing in the brokerage and lending space. And you've also seen some decentralized credit protocols emerge here. How do you see this space just in the context of broader fintech opportunities? Yeah, this is one I'm actually really excited about. I think flies a little bit under the radar because if you, and this is in our presentation and our research, we sort of look at the amount of active collateral and active debt. And the amount of crypto that's being used in collateral transactions is really low.

I mean, it's like something like 3% of crypto is being used as collateral. And so I think just inside the crypto industry, that should increase a lot. And if you kind of look at the curve, both crypto credit and active collateral are going really fast. But then I also think that crypto is going to be accepted as collateral and other just regular transactions. And to me, that's actually the bigger opportunity. And that really like really expands its addressable market. So that that three percent figure I mentioned, that's, that's really crypto collateral that's being used kind of intra-crypto industry. But it's probably closer like

zero percent for, you know, every day, such of transactions like, you know, getting a mortgage or, you know, B-to-B types of lending. And so I think, I think that's a huge space. You're kind to see it with like prime brokers, you know, are starting to get into that space and do a lot of lending. So it's it's an area to watch one I'm really excited about, one that I hope that our company Zabo can play a part because, you know, a key part of crypto kind of credit and lending or actually just sort of lending in general is you have to assess the creditworthiness of people and companies. And I think that's one of the big barriers in crypto right now is it's just difficult to assess crypto creditworthiness when you're dealing with just on-chain data, just on-chain assets.

And so Zabo is one tool you can use to sort of, you know, help that. And we think that'll a lot of companies are going to start wanting to do that, whether it's credit cards or other types of lending products. So that's actually one that I'm really excited about. Alex, you actually profile a few fintechs at the end of this report and describe how they got involved with crypto and what capacity when and what that added to the business. Which of these would you say that crypto had the biggest impact on their business? Yeah, if I was at a point to one, that's just really notable. It would probably be Robin Hood. That's like the really obvious one, just because, you know, again, they went from something like 3 million users in early 2018 to 10 million.

And, you know, in early 2020, it's probably way more than that now after kind of all that activity with COVID. And, you know, there's just been a lot of trading activity. And so you can look at app download data and you can see that at one point, you know, there's a graph in the research that shows that they had their app downloads peak over 2 million at one point, which was their highest ever. It was in the exact quarter that they released crypto. So it was that 1.25 million of people who had signed up for the waitlist and then a whole bunch more that came into Robin Hood from crypto. So it's really clear that they've built a huge business around this.

It's 100% synergistic with their existing line of business. I think their average age of their customers is something like 27. So it's just sort of right down the middle of the fairway. I think one that's not as obvious that people don't necessarily think about as much is Etoro. They really were the early, early entrance on the Fintech side. They got in in 2014. And back then, it was a totally different landscape. And so all these, all these myths that we talk about, FinTech still having today were much stronger back then. There was far less consensus. And, you know, today, E Toro has like 13 million plus accounts. So they're huge. They're as big as

as a, as a Revolute or Robin Hood. And they've really gone after that crypto market hard and made a big part of their business. So they're definitely one of the big winners and just a really clear case study on that product arbitrage opportunity I mentioned earlier about how, you know, they saw the opportunity early, they had conviction, they had the will to do it, and they did it, and it panned out very well for them. Yeah, when I think about Eitoro, crypto very much seems like part of their brand, whereas with some of these other fintechs is just merely part of the service offering.

Absolutely. Yeah. I think they've really taken to it. it and made it a core part of their identity. So, Alex, let's talk about how you're playing in this market, put out this great report. And, you know, how are you positioning Zabo? People are starting to call you the Plaid of crypto. Yeah, definitely.

So today, I mean, that's what we are. I think if you're familiar with Platt's business or Cuobo or Yodley, you know, which is, you know, linking bank accounts and investment accounts to Fintacups, we do something very similar on the crypto side. So Zabo can let you connect exchange accounts, self-custy accounts, including things like web wallets, mobile wallets, even hardware wallets, and we standardize all that data. And today, just given the fragmentation of crypto and the number of connections, that's a really heavy lift for dev teams and companies and apps to do themselves.

And so we're saving customers a lot of time there and letting them offer products that they couldn't do before. And so, you know, where we want to play in this market is, you know, enabling these different sources of data and venues to connect to each other. And basically, you know, further integrate FinTech. and crypto. I think today, even though we've had all these companies that we've talked about that have made integrations, there's still a pretty wide chasm between fintech and crypto, and it's going to get closed. It's not a matter of if, but when. And we're sort of at the

vanguard of helping close it. Today, we're more on the data aggregation side, but I think we'll be involved in other product areas in the future. So definitely would love to help companies who are interested in this intersection. Well, that's awesome, Alex. It's a great report. So maybe just to close this out, where can people learn more about Zaba? Yeah, the best spot is Zabo.com. Zabbo.com. You can find us on Twitter at at Zabo API. And if you're interested in working with Zobbo as a developer or company application, you can sign up and get free API keys and start playing around with it. So we'd love to see you. Thanks for coming back on the podcast. All right, guys. Thanks for having me. So always good to have Alex on the show. That's his second

time. It's a recurring guest now. First of money. He's a great perspective. Definitely check out the report. It's in the notes here. It's really great. And, you know, it covers kind of a segment, which I think people don't spend a lot of time thinking about for the most part. But it does seem like the actual financial system and crypto are getting ever more intertwined. On that topic of fintech, did you read Lex Sackolin's analysis of Coinbase? It was a kind of a back-of-the-envalope valuation model of how he thinks Coinbase could be worth 15. billion dollars as a publicly traded company. Lex continues to pump out good content. Yeah, he's one of my favorite analysts. So he did this based off of publicly available data. I actually think the upside

case might be higher for Coinbase. Obviously, we don't know the numbers. We're not investors in Coinbase. But if you just think about all of the growth avenues that they have in front of them, they're not active in the derivative space. You could see them getting into the regulated derivatives in the U.S. or maybe unregulated derivatives offshore. You can see them moving more into prime. I also wonder, you know, that venture portfolio, they're in a lot of companies. I don't know how, you know, how you'd value that. They're sitting on crypto assets from these earn.com type of promotions, the education platform. So I can't wait to see what Coinbase looks like as a publicly traded company if the rumors are true that they're getting ready. You know, and we'll see. You look at,

they could be the first company if they get out in this category. And it's, we've seen draft kings and some of these other novel companies that are kind of the only way to get exposure to the industry. So we'll see what happens. Yeah. If you, if you, you know, the most unforgeable metric for an exchange slash custodian slash crypto bank is just the deposits they've been able to attract. And I think that's the best one to measure them against. And by that measure, Coinbase, in terms of the assets under custody with Coinbase, they're about three times bigger than the next, competitor, which would be Hwobi. And so they are absolutely dominant, and at least the retail facing kind of crypto custody, crypto brokerage industry. They're just a behemoth. And they have exposure

to the whole upside of that asset portfolio. And of course, they have exposure to volatility. If crypto markets ever really meaningfully pick up again, that's going to manifest in terms trading volumes. Yeah. So check out Lex's work. I think it's worth the click. So here's a fun debate. It's the intersection of sort of philosophy and Bitcoin, which is one of my favorite intersections.

So Jerry Brito has been having this argument for a while with, it was actually catalyzed by a St. Louis Fed employee who had asked, why can't you just track a linear history of certain UTXOs? And Jerry Brito said, hey, actually, it's a lot more complicated than that. There actually is no such thing as a single Bitcoin in terms of something that you can trace its entire lineage through the chain. Now, people talk about chain analysis and tracing the history of coins and UTXOs, but the units. of Bitcoin are constantly recombined whenever a transaction occurs. Whenever UTXO is sent, it's consumed, and they get combined into novel configurations. So basically, what Jerry's conclusion is,

is that there are quantities of Bitcoin, but there is no such thing as a specific Bitcoin, which is really, you know, in the very concrete sense. Although, of course, you can reason about units of Bitcoin. But when it comes to identity, it gets very complicated when we're talking about individual bitcoins as they traverse time, which if you want to really get stuck into this debate and it's endlessly deep, this rabbit hole. You should read Jerry's post and then you should read Craig Warmke's article on UTXOs. He's an actual philosopher and he goes into detail on this. It's, you know, academic article, but it's a particular interest of mind is these kind of basically metaphysics questions around Bitcoin. I've been, I've wrestled with this over the

years. It's one of the big things. Is there a meme about this? I feel like I've seen a meme that's the galaxy brain is when you realize that there are no bitcoins. Yeah, that's right. Someone should make it. But yeah, that's correct. There basically are no actual bitcoins. There are quantities of Bitcoin. And this actually really matters. The context it came up in was a member of the St. Louis Federal Reserve saying, hey, why can't we just track specific bitcoins and ensure that as they reach exchanges,

they get permanently blacklisted? That's kind of the taint philosophy. and it's just fundamentally not commensurate with reality of how Bitcoin actually works. But it's a very common misconception. And of course, you can do risk scoring and stuff like that. But fundamentally, you can't actually trace the identity of a specific unit of Bitcoin over time. They just get, it's kind of like they get melted down at each step and then recast at each step. Yeah, when I was first learning it, I think I used the metaphor of,

like water. So it's like melting ice cubes and then putting ice cubes back together and then melting them and putting them back together. That's sort of how. That's precisely it. Yeah. But that doesn't mean that we can't account for all the bitcoins that exist out there. It just means you can't really precisely account for an individual Bitcoin. And that's fine. That's probably that's great. Actually, it's that has, you know, good privacy properties. Yeah, definitely. The other sort of thing, it's tangentially related to that that folks on their learning journey always kind of come across is that, you know, the bitcoins that you have on your hardware wallet or, you know, in your self-custody, you know, you don't actually have them. You just have the keys to access the public ledger.

You don't actually have the physical bitcoins. Yeah, they're not there. They're on everybody else's hard drive. Well, that was a busy week. We'll wait with bated breath to see if any of Elon Musk's DMs get leaked by these hackers. I really kind of hope that this is the end of it. But everyone on Everyone was kind of celebrating not being in the blue checkmark brigade. They were like, oh, you know, all the blue check marks. If this person actually had root control of Twitter, everyone's DMs are out there. So I don't know what people are celebrating. Yeah.

And if the hackers were this sophisticated and they were able to download the full history of DMs on Twitter and they leaked it, it would be a Panama Papers tier event. It would destroy reputations. It would be catastrophic. This is definitely the type of thing that would raise awareness for just how dangerous some of these central data monopas are. Yeah, and that was my big takeaway from yesterday is that, look, a lot of people have been preaching this stuff for a while, but this made it extremely real. I mean, we're talking a God mode key. One single employee could compromise 330 million monthly actives. And we're talking about geopolitical consequence.

here. You know, they could have ignited a war between, you know, India and China. They could have done anything. If anything, we're lucky that they just chose to scam for small amounts of Bitcoin. Well, another exciting week, and we will be back next week. We have several episodes lined up, so we will see you all next week.