On The Brink with Castle Island - Weekly News Roundup 07/31/20 Feat. John Collins of FS Vector (The OCC letter, Plustoken apprehended, Bitcoin's patronage system) (EP.107)

Episode Date: July 31, 2020

Matt and Nic review the stories of the week, featuring John Collins, partner and cofounder of FS Vector, to cover the OCC letter and its implications. Covered in this episode: Our Plustoken conspiracy Nic's bird situation USDC raises $25m from DCG Avanti's dollar-coin Avit Why Pats players keep declaring their intention to sit out the season Bitcoin Suisse raises $48.6m Polkadot raises $43m What tokensales and desert real estate have in common FTX is building a DEX on Solana Paradigm sponsors a Bitcoin developer Why Bitcoin's patronage system is a competitive advantage relative to other blockchains Our predictions on whether this rally will last The circular logic inherent in valuations of certain DeFi tokens Why distinguishing pseudo equity from cryptocurrency is so important  

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. call the Bitcoin. Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And you had a good idea. I think we should maybe release a podcast with the 15 minutes of just stuff that we say before we actually hit record. That might be a good podcast. That's the salacious stuff. This week we would start with the list of people that were telling us that EOS was going to overtake Bitcoin in 2018 and things they're now saying. That would be the first topic. Yeah, there were a surprising number of people. that told us that EOS was going to flip in Bitcoin. And I haven't heard from them, you know, nobody seems to be saying that recently.

I don't know what happened. Did they lose conviction in their EOS thesis? What happened there? Well, turns out it has not, but I guess maybe it still will. Who knows? You know, we're magnanimous, though. I'm willing to let these people back into the fold. You know, we never really did get to our Truth and Reconciliation ICO Commission idea,

which I wanted to do. The internet doesn't forget, though. Yeah, I'm hoping one day, you know, some people will own up to these, like, awful projects that they've endorsed. It may or may or may not happen. Well, we had a busy week and a good podcast episode. So I did an episode with Jesse Walden, the founder of Variant earlier this week. Jesse just started Variant. It's an early stage venture fund.

They're focused on crypto ownership economy. And he's leaving from A16Z's Crypto Fund. And he was previously the founder of Media Chain. So this was a fun episode. So definitely he's a deep thinker. We talked about the early days of Ethereum. We talked about what the landscape was starting a company like media chain back then before ERC20 existed.

And we talked about his thesis for the startup investing landscape. So I definitely check that one out. Speaking of the early days of Ethereum, there is now a history of Ethereum, which has been published by Camilla Russo. I saw that. I haven't read it yet. Have you? No.

She actually asked me if she, could interview me for the book back in the day, which is funny because I'm not an Ethereum. And I guess she probably realized that at some point because the interview never materialized. So that's a fun fact about that book. She said, you know, actually, I don't want to talk to you anymore. Well, yeah, I mean, I don't blame her, you know. Like, I don't really have a lot of insight as to the early days of Ethereum, aside from the fact that I thought the Dow was cool and then I was disappointed when the Dow collapsed.

I was much, much more naive back then. Yeah, the doubt was one of the craziest things that's ever happened in this industry. It definitely was cool. Yeah, there have been some crazier things since then, I think. Plus token. Okay, so here's an interesting thing. The plus token leadership are apparently have been jailed, right? Yes.

They, most of the Bitcoin, the plus token Bitcoin, about 1% of supply, something like 200,000 Bitcoin, have been liquidated. you know, based on chain analysis. However, it looks like the 800,000 ether they have have not been liquidated. They're kind of still in the plus token accounts. So the question is, does China, does the CCP now have control over these 800,000 ether? And if so, are they going to do the equivalent of the Marshalls auction where they, you know, these are the cleanest ether you've ever seen because they were sold by the government? or are they going to hang on to them so that they can have a vote in the future of the Ethereum system

when it moves to prove a stake and they can have influence over Ethereum? Because 800K-Eath is actually a pretty hefty chunk. All right. That's a tinfoil hat type of a conspiracy theory on that latter one there. But yeah, to your point, 27 suspects in the Plus token Ponzi scheme were arrested this week, reportedly. But the Ethereum on chain is still moving. So who's moving this Ethereum? Yeah, so clearly someone, you know, has control over the keys. They're not lost. It looks like all the main people from Plastoke when are arrested. So this is my tinfall hat moment of the week. I think China might actually want to hang on to those ether so that they can have a say in a theorem decision making at the point where your stake becomes equivalent to a vote. So, you know, that's my theory. Because otherwise, why wouldn't the coins have been liquidated the way they were with Bitcoin? So you think that the CCP is just worried about, you know, gas limits and we'll start to opine on some of these critical issues that they're facing, you know, like what should the block size be?

You know, forget about the Three Gorges Dam. What's, you know, what should this block size be? Make some commits. Yeah. You know, start calling into the ETH core dev monthly calls. All right. Well, that's a conspiracy theory of the week. And let's move on to the deals of the week. Yeah. So before we jump into the deals, I have to address personal strategies. tragedy that befell us this week. I didn't realize we were going to talk about this. Yeah, it's a sensitive subject for sure. So our beloved family bird passed away.

We had to euthanize that it was about seven years old. It was pretty sick. And, you know, it passed away peacefully. So rip in peace. That is sad. Yeah, the bird was sick. So I took it to a bird hospital. And the bird doctor informed me that it could,

be saved. So we had to send it off to bird heaven. Man, that's, uh, that's not good. And you were kind of babysitting this bird while this happened. Yeah, I was bird sitting. And so it died on my watch, which is, which is pretty bad. So I'm not going to be able to live that one down. But I gave the bird an honorable burial, uh, said some words. I buried it at twilight. You know, you've actually heard this bird in the podcast before because it's constantly chirping. the background. So it's been a part of On the Brink actually for a few episodes now. The bird has been in a lot of episodes, yeah. Well, you know, not to jump ahead of ourselves, but will there be more birds to come?

Yeah, there were two birds. So there's still another one. So we'll have to get that one a companion. And then it's like this never-ending loop of birds because one of them dies at a time. Then you have to get another bird, you know, to keep it company and so you can never get off the hedonic treadmill of birds, basically. Yeah, you just keep adding sooner. You know, you're going to be living in a zoo. Yeah, so it's impossible to extricate yourself from owning budgies once you own them. So I don't know if I'd recommend it, honestly.

And they, you know, interfere in podcast reporting all the time. Well, sorry to hear about your bird. It's in a better place. Well, why don't we talk about some happier things? Let's talk about some deals. company right in our backyard to start out with Circle. So this is the, I guess I would call it now a crypto asset financial services and API company. So the company founded by Jeremy Allaire and Sean Neville, they announced a strategic partnership

with DCG this week that involves a $25 million investment and it's a further integration for the USDC crypto dollar platform. So really exciting for these guys. And USC is definitely taking off. I mean, it's in that category, I guess, of the rate. regulated stable coins and it's growing quickly, not as big as tether, but the lending market is heating up around USC. A lot of positive things happening here. Yeah, USDC is safely the number two stable coin with a supply of 1.16 billion as of today, which is dramatically up in 2020. Obviously, tether is in the lead.

USC is tacked on over half a billion in Valley this year, which is pretty amazing. You know, Tuthers is definitely in the lead, but I would actually say they're quite different products. Obviously, USDC is kind of onshore. They're more transparent about the banking. Yeah, USDC is going to compete more directly with eventual bank stable coin projects here, which we definitely will see. So I don't see it as necessarily even competing for the same type of code. customers as tether necessarily. You think that we're going to see some real bank stablecoins here?

Yeah, I definitely think that we're going to see some, especially now with the OCC coming out in giving clarity around holding crypto assets. You know, that's going to mean Bitcoin. It's going to mean crypto dollars as well. And so the custody, I believe that the customity announcement last week really opens the door for banks to play much more actively in the space and that they will. Speaking of bank stable coins, Avanti, which is Caitlin Long's crypto financial institution, we had her on the podcast recently, they announced their intention to launch a dollar coin called A Vite, so a tokenized dollar held at a regulated bank. So whether it's from the crypto industry or from the financial industry, it looks like we're going to see a bit of a convergence here between kind of bank liabilities and. and crypto tokens. Yeah, and that's a great transition into actually our guest star for this week's episode.

So John Collins from FS Vector is joining the show. And we want to get into more of this OCC announcement. Talk about what it means for the startup ecosystem. So let's pass it off to John. So today to talk about the OCC's letter and the regulatory environment in crypto, we have John Collins, who's a co-founder and partner. at F.S. Vector. John, welcome to the show. Why don't you tell us a little bit about what F.S. Vector is and your crypto journey so far. Sure. And Matt and Nick, thanks so much for having me.

I'm excited about the discussion. So I started my career in the U.S. Senate. It's some early virtual currency work there, went pretty deep. We had the first hearing that U.S. Congress has had on subject this is back in 2013 so kind of a long time ago and in crypto as you guys know that feels like about 30 40 years had spent some time after that brand policy for Coinbase pretty early on in its journey and then spent the time at the American Bankers Association doing some international policy work primarily in Europe on financial technology broadly but a ton of crypto. And blockchain, and then two years ago, we started Vector.

It was founded by John Betcha, who was first general counsel and chief compliance officer at Circle. I think he was like employee five, not that anybody's counting. And then Raj Date, who among other things was director of the CFB. And we worked financial technology companies, again, a lot of them, cryptocurrency or blockchain companies, on engaging regulators and members of Congress and central banks and helping them manage their political and regulatory risk and helping them engage where they need to and, you know, be aware of intelligence on the ground.

That's awesome, John. Well, let's dive into the OCC announcement. I mean, from where we sit, this is a pretty big deal. The OCC giving clarity that banks are allowed to custody crypto assets on behalf of their customers. What's your take on this? Yeah, I mean, look, yeah, it's pretty amazing, right? I mean, positive is definitely the word I would also use. And, you know, we can definitely get to the guidance a second,

but I don't know if it's been totally as well celebrated or impressed upon people that, you know, just a few short years ago, you wouldn't imagine somebody coming from the crypto industry into such a prominent or even less prominent role in the U.S. government. So for Brian Brooks to come in, not only from a fintech company, and be so really have unparalleled experience in financial technology for for comptroller of the currency but to come from the crypto world which is like the X games to fintech Olympics it's pretty incredible so you know they've been in learning mode for a while they're going deeper they want to

take action and yeah it's a it's a it's a big deal yeah we thought so so let's get into what it actually says and maybe explain for those who have not read the guidance sort of what this process is like to even get guidance. What does the letter itself say? And let's get into it from there. Yeah. So, you know, and I won't get too deep in the weeds on the process piece or, you know, all I guess the specifics on the guidance because it comes out pretty simply. I mean, you know, the OCC, the Comptroller currency is pretty wide, you know, ability to offer guidance and do what the OCC wants to do. There's, there's quite a bit of power there.

And there was a number of banks who had essentially asked for guidance from the OCC regarding whether or not they could custody crypto assets. And so what the OCC said, yes. And, you know, the best way to think about what the guidance says is that banks can hold crypto in the same way that they have safety deposit boxes and hold all kinds of other assets on behalf of people. Obviously, I could take a hardware wallet or a USB now and put it into a safety deposit box. But what this allows for is essentially to have it, you know, be accessible to customers in a non-physical way. In the same way that if they put a gold bar in it, they could put Bitcoin in it except they can actually access it from their phone.

where you can, obviously, with gold. So it's a pretty, pretty insane deal, especially when you think about the fact that, you know, it was not that long ago that it was very difficult for any crypto company, regardless of size, to get a bank relationship at all. So for the banks in some way to enter the business is, you know, it's a big change. Yeah, I mean, certainly if you look at just other assets and who custody is those assets, it's always a bank.

And so for crypto assets, it's historically been, you know, state-by-state money transmitters. It's been New York trust companies. It's, you know, we haven't seen, to my knowledge, large national banks get into the space. Do you think that this opens up the floodgates here where we'll start to see more, quote-unquote, traditional entrance? You know, what are the kind of second order things that are going to start to happen here? You know, it's a good question. I think there's definitely going to be, there's definitely going to be folks to do it. I think it will be slow in part because, you know, they're going to kind of, we've got to see where the market demand is for it. There's obviously solutions available now.

But, you know, so the question is, if you're a large crypto holder and you're holding it with an existing custody provider, are you going to go then put it into JP Morgan or, you know, your local community bank? I think that's the second piece of it, which is, You know, is a local community bank going to be able to keep cryptocurrency that they're holding on behalf of customers safe? I don't think yet. So, you know, the financial institutions and even the big ones I think will and could have trouble. So the question they're going to have is, you know, is it worth the risk? Is it worth the money it would take to spend on the security and procedures they need to actually?

do it in a safe way. You know, a lot of those banks are likely using subcustodians for other types of assets like gold. So do you think this could be an opportunity for the likes of a fidelity or the likes of a Coinbase, Anchorage, BitGo, to get involved and be a subcustodian for some of these banks? Oh, yeah, 100%. I mean, I suspect that's where people will go. I mean, either it would be a white-labeled product or it'll be some sort of, you know, community bank custody of crypto powered by X company. I hope they come up with something a little more clever

than that. But yeah, I think that's a big business opportunity. Look, the industry, it needs it. There's, you know, a few business lines that make a great deal of money in the space. And, you know, it's mostly trading and brokerage services and then conferences during normal times. So custody is a growing business. And they need more diverse. revenue lines that aren't totally tied to the price of the underlying asset. So there's been a lot of noise made about the Wyoming SBDI and the potential to have, you know, banks with direct access to the Federal Reserve also be active in crypto custodianship. This OCC announcement potentially takes us in that same direction.

I guess one kind of continuing source of frustration is the state-by-state regime that crypto startups have to deal with. What are your views on kind of the prospects of a federal umbrella taking charge of those relationships with kind of crypto exchanges and custodians? Yeah, and the Wyoming point is interesting, you know, to before I get to that second point, Nick, which is, you know, part of the reason why Wyoming has done that is to have a competitive advantage, you know, be a state where that is there. The first state that's made, this available, you know, the OCC announcement really kind of undercuts that competitive advantage, you know, if it's to move forward in this way. So that's going to be something interesting to watch. You know, look, I think it can be really difficult for a federal umbrella to ever happen within, you know, money transmission licenses. They, this charter, obviously, or the proposed charter would do that, would potentially create a federal preemption. for many MSBs, money service businesses.

There was a fintech charter proposed three years ago or so. It's been in court since then with the states. You know, the states take very seriously their power, their ability to protect the consumers in those states. But I think, you know, the conference of state bank supervisors, which is the group that's, you know, hates this the most and has been in court for a while with the other charter. You know, they've been pursuing a program called Vision 2020 that it's really pushing states to maybe come up with a common application, you know, MOUs between them so you don't have 50 different, you know, assessments for your business.

So they see the writing on the wall. It seems like there's a rationalization happening. But, you know, unless something really changes, I think it'll be difficult for the feds to actually have a federal preemption. So, John, you guys work with a lot of startups that are trying to navigate these state-by-state MTLs. You know, what are you generally advising some of these startups just in terms of how to approach this, you know, how much money to spend, what states to start with? You know, how do you guys think about that? Yeah, so it's a good question. It has gotten much, much easier to get money transmission licenses if you're a crypto company, depending on what you're doing.

People are just a lot more informed. There's more of a kind of understanding in the same way that they understand how banks work or they understand how Western Union works. So that's been helpful. But it's still, you've got to go to a lot of different states. They all have different requirements, both in terms of capital and other requirements. You know, you've got New York with the bit license, which is its own animal. So it takes a lot of time still, and it takes a lot of money. You've got to have lawyers, et cetera.

We work a lot with companies on helping them manage the process and get them quickly because we've got a lot of experience doing it, both John and I and others in our firm. So, you know, it's an endeavor. I mean, if you want to get operating in all 50 states, you better at least expect it to be a year. and likely over a million dollars probably by the time you're all set and done. We're well over that, potentially.

John, I'm sure you've been following the discourse on stable coins and CBDCs, which seem to have been massively accelerated by the prospect of Libra actually launching at some point. Curious to get your thoughts on, you know, what distinguishes a privately issued stablecoin from a CBDC? and which model would be best for the American consumer and actually the prospects for getting a CBDC in the U.S. Yeah, so I mean, I guess the way I differentiate it, Nick, is, you know, a stable coin is on an open or semi-open network that is not run by the government or perhaps has really any kind of operational touch with the government. that allows really kind of companies to create wallets and manage wallets and individuals perhaps as well. Where central bank digital currencies are, and you see this in some of the proposals that were made in the U.S. Congress a few months ago, you really have an account with the Fed.

They create a wallet for you. You keep your money with the Fed. Perhaps your bank has a pass-through wallet that they offer you, but you've got a Fed account. And that's not a new idea. People have been proposing Fed accounts that you can access through the Postal Service and your post office as your bank branch for a really long time. So that's the way I guess I differentiate it. To me, it's interesting that Bitcoin, obviously, depending on your, I don't want to get into ideological wars,

but payments has been a use case that has been evangelized quite a bit since the white paper or was released. Staple coins kind of have returned us to that conversation more than I think it's been over the past few years. So that's really interesting. And I think beyond that, there's all kinds of implications for the financial crime frameworks that governments have put in place, which we can talk about more in depth if you'd like. Nick, I think I might have missed the second part of your question or I can't remember it now. So I don't know if you forgive me for that. No, that's okay. It was it was tripartite, which, which is unfair to make you among all the prongs.

I guess one thing I'm curious about is whether you think if we get direct accounts of the Federal Reserve or even these hybrid models, is there a notion of restoring the characteristics of cash, which include genuine transactional privacy, at least below certain thresholds, and kind of autonomy in as much as the government can't tell you what is acceptable to spend your money on? Is there a possibility for CBDC to restore those cash-like characteristics in the U.S. under kind of current legal interpretation? Yeah, it's a good question. I mean, you know, we are nowhere close to launching a CBDC in this country,

digital dollar, whatever you want to call it, any time soon. It's just it's not going to happen anytime soon for all kinds of reasons. But you look at the congressional proposals, which I mentioned, some of them specifically mentioned that these CBDCs, these digital dollars should incorporate some sort of privacy mechanism. So that's pretty big that that shows some congressional intent. I've talked to folks from FinC and other parts of the government that, you know, they maintain that it should have, you know, a level of privacy. The question is, obviously, what's that level? But at least there seems to be more than a willingness, that it seems to be a primary principle that it should drive it what you're talking about, Nick, which is very much in contrast with what you're seeing or know about the digital remand being in China, which in part the lack of privacy is the primary driver for the creation of that. And I think how that's used is going to reveal a lot and likely God, what happens here.

Yeah, there seems to be a bit of a paradox, I would say, and the government creating a system, which is meant to be at least partially private from its own inquiries. It's kind of like, can God make a wall so tough he couldn't break it kind of thing. Yeah, no, I mean, you know, look, you have certainly seen over time where the government has breached the walls that it just put in place for all kinds of different, you know, communications in particular. So there's a great deal of distrust with even if you were to put the proper controls in place, you know, how would they actually be enforced and people be accountable for following it? So look, I don't have the answer for you.

I think this is if and when we continue to move this discussion forward, that's going to be big part of it, no doubt. John, the other thing that people talk a lot about in this industry is just the role of the SEC going forward. And there's so many issues that sort of intersect with the SEC. But the two I'd want to get your opinion on is is custody for broker dealers and then secondarily just the classification of some of these assets as securities. So maybe let's dive into the first one. You know, where do we stand in terms of clarity for broker dealers to hold crypto assets on behalf of their customers? Do you expect that we'll see clarity coming from the SEC on that?

Or do you think we already have that clarity? How do you think about it? Yeah, you know what? I wish I had like a clever answer for you, Matt. I really just, I don't know. I mean, if I, I don't see your, I don't think you're going to see it under the current leadership. I just don't, I don't know if we're had to have an administrative administration change after January, if that would really kind of change the result there or not. So I just, I just, don't know. I don't feel like there's enough clarity now. And on the securities issues, you know, look, they're not they're not going to just kind of

make speeches and write letters for each individual crypto asset, whether it's like, yeah or nay, it's a security. It's just not going to happen. So it's either going to be found out through enforcement actions or, you know, perhaps over time through lack of action.

or other means we find some other kind of way to determine it. You know, obviously there's been a lot of interest in Congress and among states about, you know, bringing some rationality or clarity to that. I think if we are to have an administration, you know, if Biden has to be elected president, two things. One, I just don't see them engaging in a great deal of activity that might be perceived as deregulatory. might be argued by consumer protection advocates as dangerous, which it has been by consumer protection advocates when similar proposals have arisen in state. I just don't see them investing

in that. And frankly, investing at all will be difficult because, you know, regardless of who is in the White House in January, there's going to be a lot of fifting through the current economic issues that we've got in this country. So the priority of that, you know, may be just low at that time. But we'll see. I'm bad at predicting things I didn't know in December that we'd all be wearing masks to go to the grocery store today. So who the hell knows what's going to be going on in six months? Yeah. I definitely see what you're saying on the security front. The thing that I, you know, at the risk of predicting, I would predict that, you know, given this OCC guidance and the fact that I believe we'll see some really big name banks enter this space over the next year,

you're going to start to see broker dealers that have applied for the ability to do some of these activities, just get a lot more vocal around, you know, hey, SEC FINRA, give me some clarity on whether or not we can operate this broker dealer in the following way. You know, do you think there's any validity to that? Well, I mean, look, so I get what you're saying. I don't necessarily disagree, but it assumes two things. One, that the SEC would just follow the OCC, which it could. And then certainly it gives them, it certainly gives them more cover to do so. The other thing, though, is, and again, just going back to sort of the political environment,

but these are political issues, if there's going to be a change in administration, there's going to be a new OCC, you know, there's going to be a new comptroller. Brian Brooks will not be in that job. So what is the position of the OCC at that time as it relates to that guidance? It's just guidance. The next controller could have entirely different guidance. communicate to people that that, you know, is not their view of it. I don't know if they will or not, but they could. So that totally changes, you know, where we are now. So, you know, we'll have to

see. It's a very balanced analysis there. I like it. No, I'm a Democrat. Let me just be clear. But again, I'm not, after 2016, I'm no longer in the prediction business. So we'll have to see what happened, Jeremy. it. So, John, this has been great. Why don't you talk a little bit about just the startup ecosystem and in what you're seeing from clients at FSVector? And, you know, is it mostly startups that you guys are engaging with now? I know you're also working with some of these, quote-unquote, you know, large traditional companies, whether that be fintechs or banks that are trying to understand the space. So curious just from your practice perspective, where you're

spending the most time and what the hot button issues are right now. Yeah. So, yeah, we're lucky enough to work with both really, really small, in some cases, you know, pre-launch companies, both in the crypto space as well as payments and lending and other insuretech and other kind of verticals, other buzzwords. And then we work with really big financial technology companies, you know, really established ones and big technology companies are trying to get into financial services. So it gives us a good vantage point. But I think you know the issues that we're covering for them you know we covered a good deal of them you know a lot of a lot of work with money transmission licenses helping people under the current um you know under

the current regime we have kind of get them get them quickly efficiently and allow them to start running their um businesses you know we help companies especially crypto companies but other money service businesses payments and others um become bank ready you know they help them like we discussed earlier, you know, gain the bank relationships they need and work with banks on the same to, you know, there's a ton of banks that see the money being made by some of these other fintech banks, quote-unquote, that are partnering with fintech companies. And there's some money to be made. And so there are a lot of smaller banks that want to get into business. And so we help them do that as well. And then on the policy side, look, the election is driving so much.

people have a lot of questions trying to map out what the world's going to look like after November. So we're spending a lot of time on that. And in addition to following what's and working what's happening in Congress and at the FCC, the OCC is keeping us busy. Brian Brooks is making our jobs a lot harder, but in a good way, I think. So yeah, so that's kind of what we're mostly working on now. A lot of the issues that we already discussed. Well, that's great. Well, you guys are have been doing a great job and certainly helping a lot of the startups in our portfolio navigate the regulatory environment. So maybe to close out, where can people stay in touch

with FS Vector and find out more about your work? Yeah, so you can visit our website, FSVector.com, that's F, as in Frank, S as in, I was trying to think of a digital asset that I could shill, but S as in Sam and then Vector.com. And then, you, know, people can always reach out to me, just Jay Collins at FSVector.com or follow me on Twitter, DMA, whatever. And that's just John Collins, all one word. So, yeah, please reach out. I would love to talk to folks here what they're up to, hear what they're doing, and, you know, what challenges are good stuff they're seeing out in the marketplace. Well, that's great. Well, thanks for joining us today on the podcast, John.

Yeah, no, thanks for having me. And it's a pleasure to work with, you know, many of your guys' portfolio company. It's exciting and they're doing exciting stuff. All right. So really enjoyed having John on the show and the folks over at FSVector are doing a great job. We definitely refer all of the startups in our ecosystem over to them when they have regulatory questions and they're doing a fantastic job. Yeah, and those regulatory questions abound in this industry. Yeah. Speaking of which, Eris X came out with a little bit of a rebuttal to your podcast with Caitlin Long on some of the regulatory points you guys were talking about. Yeah, so we'll link this in the show notes. So basically, Aresex, listen to the podcast,

we did with Caitlin and pretty starkly disagreed with a lot of the takes in that episode. So take a look at their responses. Their view is actually that there's kind of more clarity than we represented about the exchange regulation in the U.S. you know I kind of so I I think that there's a lot of murkiness and but maybe the definition of murkiness is really what we're talking about here I just think that the fact that you have to go state by state just makes things really complicated for startups so that's what I think about when I talk about the lack of clarity just the fact that we don't have an overarching national way for some of these startups to emerge it just makes it difficult and I totally get ERISA's point that you know there's a set of rules we're operating within them and It's not easy to operate within them, but you know, you have to. So, but above all else, this is good chatter, you know, where this is like a doldrums of the summer type of a talk radio thing where you just start fights for starting fights. So I think we should just do more of this.

This is discourse. This is like, let's get into like your Mount Rush more of like top five baseball or top four baseball players of all time. Like that's what we're doing here. Is the baseball season happening or did they call it off? As of the time of this recording, there's still a baseball season. Who knows? Within the next 24 hours, there might not be.

I'm nervous about the NFL season, actually. Yeah, I'm very nervous. All the Pats players keep pulling out. I don't know what's going on there. I don't know either. But there's got to be something going on here that Belichick is orchestrating. Yeah, that's their second conspiracy. I think Belichick is, for whatever reason, telling his players to sit out the season.

and on Corona grounds. Whatever is happening, I'm sure it's in the best interest of the team and in Bill we trust. So, you know, that's- Trust the process. Yeah, trust the process there. All right, let's talk about some more deals. So Bitcoin Suisse, which is a crypto asset brokerage company, raised a $48.6-dollar series A round. 48.6 million dollars. Yeah, I didn't say that.

You said just dollars. Yeah, it was more than 48. So this is a pretty chunky round. They're valued at about $327 million now. It's their first external financing round. And it's led by Roger Studer, who is the head of investment banking at a Swiss bank. So, you know, the interesting thing is that Switzerland has these banks, which can custody crypto. So maybe the U.S. is kind of converging to that. But Switzerland has had this. This is a their reality. It's been a reality there for a while now. In other news, Pocodot, which is a smart contract platform, one of these Ethereum rivals, raised $43 million in a private token sale. So smart contract platform wars are still raging. Yeah, I actually saw a bit of a back and forth between Pocod and Avalanche recently. Okay. And it's just so funny to see these kind of Ethereum killers fighting with each other,

while, you know, Ethereum has a ton of traction, and I don't know how any of these alternatives are going to hope to get anywhere near that kind of level of usage. Yeah, I mean, there's a lot of cities being built, but at the end of the day, people need to live in these cities, so we'll see where the developers go. Yeah, that's why I compare ICOs to selling real estate in the desert and saying you're going to build a city there.

You know, it's not really even in your control necessarily whether a city appears or not. You just sort of have to hope for the best. Yeah, and what it takes to actually get those developers building on your platform, who really knows? I mean, you could try to copy the Vitalik model and just live on an airplane for two years and evangelize it, but is that really going to work? Who knows?

Yeah, and aside from Ethereum, which smart contract protocols have successfully attracted to kind of lasting usage, not many that I can identify? Yeah, and it's an interesting question, just in terms of, usage after Ethereum. How you'd measure that is another question. I mean, I guess you could look at just GitHub activity. Yeah, and it's hard to define a metric, which isn't trivially forged as a other ratio. Right.

All right. And then two just additional deals this week. So Cambrian asset management raised a seed round of financing. This is a crypto hedge fund. They raised $4 million for the management company. and then injective protocol, which is a decentralized derivatives exchange, raised $2.6 million in a round led by Pantera. So we're definitely seeing more and more of these decentralized derivatives exchanges start to emerge. Yeah, and we're going to be zeroing in on one of those decentralized dexes in an episode coming up here pretty soon.

So stay tuned for that. So a bunch of news this week. Why don't we start with MatrixPort? So this is the company founded by Jihan Wu. They announced the launch of Bit.com, which is a centralized crypto asset derivatives exchange platform, intending to compete with the likes of FTX and whatnot and Deribit. So we're starting to see more and more activity in this category.

And it makes sense because it's a growing area. And I think this options market is just going to be orders of magnitude larger than it is right now in a year. So there's a lot of competition there. So speaking of FTX, actually, FTCS announced their intention to build a decentralized exchange built on Solana of all places. So that kind of caused a bit of a stir, actually. The CEO of FTX had discussed issues with Defi, and then it turns out it was all kind of a teaser leading up to this exchange they're building on Solata, which apparently isn't subject to the same constraints as Ethereum. And why do you think they chose Solana versus any of the other smart contract platforms?

There's very little I could tell you about Solana. I have no idea. All right. So if you know anything about Solana, get in our tweets and let's hear what that was all about. Yeah. So here's something interesting. So Paradigm, the Crypto Fund, started by Matt Huang and Fred Ersom, hired Gus, Cole Debella as their GC, who was formerly the GC for the DHS, Department of Homeland Security.

It's a big time hire. Yeah, Paradigm is really making a ton of moves these days. They've added some pretty quality talent to the roster. They are sponsoring a Bitcoin Dev now, which is pretty cool. I saw that. Yeah, let's talk more about actually that Bitcoin Dev part of it. So Paradigm announced that they are sponsoring Anthony Towns, which is great. You know, obviously they have a Bitcoin position.

And Bitcoin has this, you know, patronage style model where large entities, chiefly exchanges and custodians, the benefit from Bitcoin, you know, give back by sponsoring a dev. Bitmex does a lot of this. You know, Fidelity does it through the DCI. There's a few. But it's become more popular lately, which is awesome, because the alternative is basically forking in a developer reward, which is what a lot. lot of other protocols do or having a pre-mine, which is obviously a non-starter for Bitcoin.

This is actually something that's afflicting Bitcoin cash right now. The chief developer, Amori Saseh, is promoting a fork of Bitcoin cash that would give him and some other developers protocol funded rewards. So deducting that from minor revenue. So because that's unacceptable in Bitcoin, we're lucky enough that larger and... institutions that benefit from Bitcoin are willing to be patrons and give back. And that includes chain code, which finances a lot of devs, Blockstream obviously funds devs. And now there's a new development as well, which is that GitHub introduced a sponsorship model. So you can directly sponsor developers building on GitHub with very little intermediation. And there's a bunch of Bitcoin

devs that are up on GitHub and are accepting donations, including Jeremy Rubin, Luke Dash, you know, Fanquake, Michael Ford. So Matt O'Dell built a website called Bitcoin Devlist.com, and it has all of the Bitcoin devs that are active on this GitHub sponsorship model. And you can easily donate to them. You can also donate with Bitcoin. So I'm definitely going to get on here and send a few bucks a month to a couple devs. Very much encourage any other long-term holders who believe in Bitcoin to do the same, because that's basically what keeps his protocol sound, and it also keeps it from forking in, potentially, you know, somewhat corrupt protocol-funded rewards for core devs. This is such a great initiative that Matt built here with this website,

and I'm glad GitHub is doing it. You know, it's so important. And to your point, the, um, You know, the sponsorship model here has really been proven to be effective in other open source projects. Linux comes to mind there. So I'm glad to see more funds and more startups in this ecosystem or doing things like this. Well, I would say Bitcoin is different from kind of commercial open source because oftentimes you'll have one corporation, which is the steward of the protocol, which is historically the norm. And they benefit commercially from its existence. and then they kind of sponsor most of them or hire even, you know, most of the core developers. And people were worried that it was going to go that way with Blockstream.

That obviously didn't happen. And now the sponsorship of core developers is super decentralized. There's a whole bunch of different organizations doing it. So I would say it's in a better position than if it was kind of captured or dominated by a single corporate entity, which frankly is the case for most. major kind of open source pieces of infrastructure. So I'd say Bitcoin is actually really unique relative to most open source projects. And then it's obviously unique relative to most other major cryptocurrencies because there's no pre-mine which is used to pay dev salaries.

So there's no element of capture, you know, potential introducing perverse incentives there. But you wouldn't say that Linux has any capture at the entity level. That's a sufficiently decentralized funding mechanism for the Linux project, right? I would say Red Hat dominates the development process there. So it is more centralized. And for a long time, Linus was the benevolent dictator, which basically wouldn't work in Bitcoin, right? Moving on to some other news.

So a bunch of interesting stuff this week. So the block actually had a good scoop this week where they pulled down a report from the SEC. So the SEC has awarded a single source contract to cipher trace, which is a blockchain forensics company. It's a competitor to chain analysis and elliptic. And the single source contract is for the ability to surveil transactions on Binances chain. So the native blockchain that has BNB as the unit of account.

What do you make of this? Yeah, so it's not clear if chain analysis was just missing. They had a gap in their coverage for Binance chain or whether it's something maybe more sinister and they're trying to, you know, de-anonymize the users of Binance chain, maybe for enforcement purposes. I will say that Binance chain is not fully open source, so discovering any information about finance chain is very difficult from a blockchain analytics perspective. Yeah, so that's an interesting point that I wasn't even going to talk about, but I wonder how Cypher Trace is actually just even doing this comes to mind.

The other thing that comes to mind is, you know, it is the SEC. do you think that there's something around BNB potentially being a security or maybe some of the things that are happening on that chain? Or it could just be as simple as, hey, chain alysis doesn't do this. We want to have full coverage and, you know, let's go get SipherTres to do it for us. There's been a bit of a war of words on the topic of B&B between CZ and Larry Sermak at the block. Larry pointed out that they'd change their white paper and it wasn't clear whether they were burning coins from their own treasure. or buying back coins from the open market and burning them. And CZ was basically saying it doesn't really matter if we change the wording in the white paper,

the intent is what matters, the effect is what matters. I'd probably take the side of Larry on this one. I think you can't unilaterally alter a white paper which describes the token dynamics. It's kind of like altering a shareholders agreement, you know, and just changing random parameters. It's sort of frowned upon in corporate governance land. Yeah, that was quite a dust up. I saw that too.

We'll see what happens there. But good job by the block of just surfacing this pickup here around the single source contract. So did you read the Fidelity Digital Assets Report? They put out a Bitcoin investment thesis, and they call it an aspirational store of value. And you were quoted in this. Yeah, I mean, my quote was kind of,

a pedestrian. I guess I wasn't really on the ball that day when Rio called me up. Would you, it was something like Bitcoin's going to be around for a while or something? Yeah, pretty much. That was pretty good. I've had better quotes, that's for sure. But yeah, the report itself is great. And aspirational store value is right. You know, we talk about this a lot. You can't really judge it by the standards of current established stores value because it's just still in that monetization process. and it's going to be a multi-decade thing. That's okay. That, you know, gold didn't become a store value overnight. It probably took hundreds of years to, you know, to really grow.

And if you look at gold in the 70s, he was actually super volatile. So, you know, you don't start out being mature and established, and you don't start out with low volatility. Yeah, I like the way that they call it aspirational store value. You and I have called it a speculative store of value, you know, just because it is so, nascent, the total market cap's really low, it's bouncing around everywhere. Aspirational sounds a lot more institutional. Yeah, that's a less pejorative way to put it. That's right. Leave it to Rehabilia to come up with a great way to put it. So Ria is the head of research over at Fidelity. And this is the type of thing that you put in front of institutional clients. And I think they, you know, they take note of a report like this. On a similar note, Coinbase had their first half of 2020. review, which kind of struck a similar kind of institutional tone trying to convey these topics

to an audience that isn't necessarily crypto-native, you know, covering crypto dollars, derivatives exchanges, DFI, prime services. So extremely informative as well, and we'll link it here. Yeah, I like this one a lot too. So this is more of a, here's all the exciting things that are happening and here's a quick details on each of them. And it does make you step back and realize that there's just so much going on in this industry right now. And it's, you know, it's hard to keep up with all of it. Yeah, I mean, we are full time on this, but there's absolutely no way. For instance, I can say breast or everything happening in defy.

Blog that I read. So Fred Wilson blogged about this crypto price rally. The title of the blog was, is this one for real? What do you think? Is this for real? We had a little run-up this week. Well, I think it's going to be a. enduring rally in the more established crypto assets.

Undoubtedly, Bitcoin is having a moment here. If anything, I was kind of shocked that Bitcoin was lagging, given the devaluation we've seen in the dollar, both the actual dollar index, you know, DXY, and then just looking at the 25% annualized growth rate of M2, which is, you know, kind of implicit devaluation. So I was shocked that Bitcoin actually hadn't really responded to that yet. So this seems to be compensating for that. And my guess is that it's got a lot further run. Now, for the small caps, you know, especially the defy tokens, people are excited about,

I actually think the air is going to go out of that balloon pretty soon. You know, not to make bearish calls or anything, but some of those projects are, actually the hype is being punctured already. And the reason for that is that they were built on these positive feedback loops, a lot of them, where I don't know if I, this is the last podcast I said this, but you had situations where the valuation is a function of earnings deriving from the usage of a protocol, and those earnings are bolstered by a yield farming event where you distribute a governance token. And that causes the usage and hence the implied earnings and the valuations to skyrocket.

And those are the valuations which are used to justify the value of the token. Right. So that is incredibly self-referential and circular. and if at any point the enthusiasm starts to deflate, you get this super linear effect where the valuation contracts for the implied valuation of all the cash flows from using the protocol contracts, the usage declines, then the unit value of the native token declines, and it all stacks up on top of each other and kind of leads to the collapse of the narrative. And so this is actually my guess about what's going to happen to a lot of these kind of newfangled defy governance tokens.

Many of them are spurious and are just teams trying to latch onto the new narrative. That's not to say that a governance token cannot be interesting or useful. It's just that I think we're kind of at the end of a little mini cycle here. And certainly we've seen a few projects, even one that we talked about last week with Ample 4 sort of run into some tough times this week. So my general take on this is to not get too worked up about the price. Yeah, we're still, this is early days. Well, and I would actually encourage people to have a distinct taxonomy in their minds. We have would-be base monies in these sort of crypto synthetic commodities, right, of which

I would say Bitcoin is one. And then you have other things that look kind of like ersats, kind of exotic equities, right? They entitle you control. They entitle you to cash flows. Those are taxonomically totally distinct from kind of digital species is how I would describe Bitcoin. So, you know, people have the dominance index. I think it doesn't make sense to even think about it like that.

On the one hand, you've got kind of layer one protocols, Bitcoin, Ethereum, et cetera. And then you have a whole bunch of tokens built on top of these things. most of the tokens are I call them pseudo equity they look a little bit like equity so you don't compare the supply of the dollar with the market cap of Apple you don't consider those to be in the same bucket

so why would we do the same for cryptoxes just because the wrapper is the same just because they both exist in sort of tokenized public key format doesn't mean they're the same breed of thing it's such a good point I mean looking at coin market

cap and appraising just the general health of the ecosystem would be analogous to looking at four assets, you know, gold, chucky cheese tokens, J. Crew rewards cards, and a share of Apple kind of all on the same yearboard. It's just like, you know, these things are just totally different. J. Crew rewards card is not competing to be digital gold. No, we just have to get accustomed to the fact that all breeds of assets now exist and tokenize cryptographic format and they circulate on public blockchains. But they're so distinct. I mean, we've got U.S. treasuries circulating on Ethereum now alongside, you know, total Ponzi's, alongside what Dow's, alongside what looks like equity, you know, so just learn to disentangle these things. And, you know, I think that's the issue with

of crypto assets is that it it lumps everything in together as a term we've got to start thinking about kind of market subsectors here it's not all the same phenomenon basically yeah i mean this is by the way it's going to get a lot more complicated and a lot harder to disentangle because cryptographically secured assets are going to be pretty much everything i mean digital identities like there's not much that you cannot cryptographically secure yeah and uh you know we don't think of uh stocks and bonds and currency is the same thing, even though they all existed in paper format at one time or other. We didn't call them paper, you know, paper assets. We referred to them in terms of their essential, you know, features as opposed to their kind of cosmetic nature. So, yeah,

everything's going on chain. That's obvious to us, I think. All right. Well, I think that's a good place to leave it. And we have an exciting podcast with the guys from Canacord on Monday. So that's going to be a good one. Kandekort is an investment bank that have been very active in research and trading and a bunch of other stuff in blockchain crypto assets. Probably the most active investment bank in the crypto industry, right? I would say so, definitely. Very, very active in the gray scale products. Well, we will release that on Monday. Everyone, have a good weekend. Talk to you then.