On The Brink with Castle Island - Weekly Roundup 03/10/23 (Choke Point 2.0, staking in the crosshairs, ordinals take off) (EP.396)

Episode Date: February 10, 2023

Matt and Nic return for another week of news and deals. In this episode:  Kraken winds down their staking as a service product The SEC asks all staking as a service providers to register Does 3rd party staking pass all of the prongs of Howey? The FT's article on the final days of FTX Did the FTX executives leave the labradoodles in the Bahamas? Ordinals are bringing NFT enthusiasts to Bitcoin Matt has had a tough week Kyle and Su launch OPNX So what's the deal with the crypto-focused Chokepoint 2.0? Major crypto-facing banks are cutting back their crypto practice What will be the fate of the Wyoming SPDIs? The boys review Bad Boys We discuss Colombia's hippo problem DCG reaches a provisional agreement with creditors Our Storybook Brawl conspiracy Content mentioned:  Nic in Pirate Wires, Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs Sponsor notes: Subscribe to the Coin Metrics State of the Network newsletter

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 Concentuteease. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have some.

something called a Bitcoin. Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. All right, just breaking in, they didn't submit the Metrics Minute. So what do they just want us to talk for a minute about coin metrics? Well, I have to come up with the Metrics Minute. Well, that's not part of the job. It's not part of the deal. Well, here's what we'll do. go buy some data from Coin Metrics. They've got the best network data. They've got the best market data.

They've got the best indices. They've got the best reference data. If you have FACSET, you can actually use Coin Metrics within Microsoft Excel now. And that was the Metrics Minute. And, you know, maybe if you buy the data, then they can hire someone that can do the Metrics Minute for me. There's a lot breaking as we go to press here. There's a lot happening in the industry right now. most of it not good, to be honest with you.

Well, we've got a regulatory response to some of the crooks that have been permeating this industry. And I think we're over-correcting a little bit on that regulatory response. Yeah, it's like we have autoimmune syndrome here. Cracking just minutes ago settled, I guess, with the SEC or agreed to stop doing their staking as a service product, which was a flagship product for them. And then Gensler announced that all staking as a service providers must register, presumably, as securities. Yeah, this is going to have a big impact. Really, any exchange that was offering staking as a service is going to be in the crosshairs here. Coinbase obviously has that product.

So it be interesting to see what happens. There's a lot of offshore exchanges that offer that product that I'd imagine Gensler won't be able to do anything about. although, you know, maybe he should. Well, the big one is, of course, Coinbase. I mean, presumably, I don't know if Coinbase has any argument that would be persuasive that Cracken didn't have. But they're a huge provider of staking services. Honestly, you know, not to sound, you know, pro-regulatory or anything, but I think the SEC might have a point here with, I don't want to get in trouble with

our crypto native audience. But staking as a service does actually, dare I say, pass all the prongs of Howie. It resembles an investment contract. This one is not one of these obvious, hey, the SEC is totally off base here. The staking products resemble investment contracts. I'll give you that.

Yeah, I mean, you're consigning your money over to a third party. So obviously there's an investment of money. They are doing it for you. So there's efforts of others. It's a common enterprise. What's the last prong, an expectation of profit? I mean, expect to make money. Well, yeah, they advertise staking yields.

So that is basically intermediated staking. So it's not surprising to me that the SEC believes that's the security. Staking itself, on the other hand, you know, that's a totally different thing. You're doing it yourself. So I don't see that as being problematic. but if it is with a third party, I kind of understand why the SEC has something to say about it. Although it doesn't seem like the most pressing issue.

It's not like the thing I would have gone after. No. Is it harming? Is anyone being harmed by staying as a service? It does not apparent to me. Do you think IEX was going to have this on their product roadmap? Probably. Probably would have been totally fine if they did it.

I mean, did you read that article? from the FT going back through the final days of FTX. I thought that was pretty fascinating. That was really fascinating. I mean, there's a lot in there that I would love to know more about. Did you see the part where it said his inner circle started to fray? Two of his closest lieutenants, Singh and Romnik Aurora,

who had led much of FTX's past fundraising, they cracked under the pressure. What does that even mean? I enjoyed, I savored that portion of the article. They cracked up. under the pressure. It's like, what they just decided, hey, I don't want to do fraud anymore? Like, what are we talking about?

They cracked under the pressure. How did they crack? What did they do? Just, they cracked under the pressure. They left the Bahamas and they went home. They cracked. So there's also one part about, I think they're all sitting in the war room and with the

Labradoodles running around, like, consoling them. So this is what I want to know. Do you think that in the chaotic waning days of that, fiasco, did they have the presence of mind to extract the Labradoodles? Or was it more like a U.S. withdraws from Afghanistan situation where they just leave all the dogs? I hope not. Do you think the dogs are okay? Look, I think there's a 30% chance. They forgot them. And best case, they're feral in the Bahamas now. Oh, they're just running around the Bahamas. Man, that's tough. I guess we're going to get to the bottom of that. Has anyone gone on vacation in the

Bahamas? We need a recon mission. Could someone scope it out? Has anyone checked if there's, there's probably so much like Adderall hanging around those apartments? I hope they cleaned it up and hope no one's breaking in. It wasn't a well-organized retreat. The other thing that I was found interesting in that article is Sam filibustered for days. He didn't want to sign the agreement giving Mr. John Ray control. Basically, he didn't want to sign the bankruptcy agreement. Yeah. And his father was was involved in that too his father was involved in the some of the delay it seems mr bankman senior so but what started to happen was individually all the pieces of the ft x empire were being forced into insolvency as far as i can tell well it seems like the u.s people

actually knew what they were talking about this ryan miller guy was was kind of on it as was the guy that ran ledger x yeah it seems like the folks in new york were kind of trying to, you know, be proactive and have an orderly bankruptcy proceeding. The folks in the Bahamas were deeply delusional. I mean, they probably could have forestalled bankruptcy and done some sort of a token. I bet there's another world where that actually was viable and the thing continued to run is fractional reserve. But that kind of only worked at exchanges that really were extremely well run in the first

place and, like, you know, suffered a hack or something like that. I mean, it's not very orthodox to do that bail-in thing with the recovery rights anyway. In FTCX's case, so much was wrong that I don't see how they could have recovered from this, even if they did do a recovery rights token or something. Yeah, and if they, it's having the U.S. CFTC regulated venue as part of the orbit funded through customer deposits, I think that would have been problematic. So Ria did another big-brained episode of the show. she's really bailing us out here.

She sat down with Josh Benner on of Bundler to talk about permanent storage use cases for public blockchain. Something we'll be getting into, I'm sure coming weeks. Ordinals, NFTs on Bitcoin. Hello. Yeah, I know. I like that episode. Our weave is a fascinating project and Bundler is building on top of RWeave.

So I like that one. Yeah, Ordnals is taking off. So were we ready to say this is like a big thing I'm kind of there. I think this is a big deal. Yes, I'm decreeing it a big deal. I was actually dismissive at first, but I now have an ordinal,

or someone minted one of me or like a wizard version of me. Oh, you have one. Wow. I don't have it, actually, but a depiction of me has been inserted onto the Bitcoin blockchain, thus I'm bullish ordinals. You know, it's interesting. I'm seeing regular NFT traders that never ever in their entire careers to use Bitcoin,

they're now syncing Bitcoin nodes in order to get active in the ordinal space. Isn't that just crazy to think about? Yeah, and have you seen how much of the blocks are comprised of ordinals these days? It's increasing at a pretty significant rate. Yeah, it's massively, I mean, average block size is now effectively four megabytes,

which was never the case before. Feet pressure is rising. I mean, imagine trying to be like, trying to explain this. You're a, you know, like you're a Bitcoin company out in West Texas and you mine Bitcoin with flare gas. And, you know, now you have to explain to your shareholders that your revenues are going up because people are minting wizard images on the Bitcoin blockchain.

And so now you're making more money. It's crazy. Did you say my pen just, there's a second pen that has exploded on me today? How is that even possible? How is this possible? Well, I think it was because I'm, I was just on an airplane or something, that this is a bad break.

This is why we need to do a video podcast because Matt was just covered in ink. Covered. Covered. I've got black ink and blue ink on me. I've had a hard week. I've had a really hard week. I didn't even tell you the extent of this.

So I woke up on Saturday morning. It was the coldest day in the history of Boston. I woke up and my wife said, you need to get down here immediately. I hear water. I was like, oh, crap. I went down to the basement and it was a full-blown burst.

pipe and I was up to my knees at 6.30 in the morning just bailing water out of my basement, just burst pipe, shut the water down to the whole house. Was it cold? Was it like sort of like Titanic iceberg water? Yeah, it was freezing. It was the it was the pipe that goes out to the hose. It was in my basement and I was just, it's an unfinished basement. So luckily there was no like carpeting there. But I was standing there in shorts, just bucketing water outside. the water was just freezing as soon as it touched the ground outside it's awful so whole house check down so you had to bail out your whole basement like not the whole basement it was like i had contained area so it i don't know it was probably a 10 by 10 10 10 by 10 just sitting there with like

a pale in a shovel and just got it all out got it kind of cleaned up called the plumber Plummer came on Sunday, emergency call, fixed it. Great, great plumber. Shout out Rizzo plumbing. And then I went about my day, went back into the basement to clean up some stuff later in the day, and saw that on the other side of the basement, I had a burst pipe. So called the plumber again. He came back, and we did it all over again. Two burst pipes.

Two burst pipes in one day. It was the coldest day in the history of Boston. It was unbelievably cold. Yeah, I feel no regrets about not living there anymore. You know, no disrespect to Massachusetts, but it's not for me. We have a portfolio founder in our portfolio, in Castle Island portfolio, who he chooses to rent, although he could own houses, but that's one of the reasons.

He just doesn't want to deal with the maintenance, and now I get it. So anyways, that's what I was dealing with. with this week. I mean, I don't understand where you're getting these pens. These are like the world's most brittle pens. I've never had a pen burst. So that's not an experience that I've ever dealt with. The Unibal pen. Yeah, it's a Unibal pen. I like the, I like the pens like that. You were exposing them to some unreasonable pressures that they have. Well, that's the thing. I was talking about the pressure in my ears on these flights, which by the way, shout out to one of the listeners who suggested these ear things to put your plugs to put in your ears. There's

special apparently and I got them and they're good. I flew this week. It was a lot better. So actually speaking of listener feedback, I got some this week. And the feedback was they like everything in the podcast, but they found the deals section boring. Really? Yes. Is that because their company didn't raise any money or something? I think the only people that like the deals are the people's whose deals we announce and they're like oh that's me that's us you know yeah yeah i think people like the deals all right let's see let's do the deals but let us know leave some feedback we've it's been the same format for years we can't change it we're on our almost 500th episode all right if you change it if you like the deals leave a five-star review with a comment on why you

like the deals and if you don't like the deals leave a five-star review with the comments on why you don't like the deals. And we'll read a couple of them next week. How about we do that? Personally, I'm actually sympathetic to the critique. I don't find the deals that exciting. But I think it's useful. You know, I think people ought to know what the deals are.

I liked how the intern was kind of slipping the fake deal, trying to slip fake deals in. That was interesting. Do you think he rumbled us at any point with like real fake deals? Probably. Yeah, I bet. Some of these offshore token things, like who knows? knows it's not like we look at half of them seemed fake i mean honestly there's one deal to be discussed

that you i would have thought would have been a parody deal but unfortunately is real which will get to did it happen this week this yeah the justice we go to press here the new exchange courtesy of our our resident bad boys oh gosh that's a real company apparently now All right. Well, why don't you start with that? You start with that deal and then I'll get into the real deals that are not started by fraudulent vendors. All right. We'll start with the deals. Basically fraudster associated deals. So this exchange is called OPNX. Opinx. So they ditched the other name, GTX, I guess. Founded by Suzu. I think Cal Davis is involved. And Mark Lamb, formerly von the Brink, apparently. fame also of two out of three yeah ronof failed uh coin flex exchange uh basically this is a very questionable exchange to trade claims for bankrupt companies including three arrows um which is the whole thing's absurd but that's the craziest part like they expect three arrows creditors to

trade claims against them on their own exchange that's insane what's what's going on there what is that so here's my conspiracy if they get enough of those claims on their own exchange can they just seize them and retire them yeah that's obviously what they're trying to do and then this flex token did you see who controls the flex token so uh yes another they brought another fraudster into the mix it's like who's who who is it seafood right

yeah i don't know who's christian name what what's his real name uh this is the guy He's Quadriga affiliated. Yeah, Quadriga affiliated Michael... Patron. Michael Patron. Michael Patron. So he's Xeroxifu. And it looks like he effectively controls this token.

And they made the Flex token, which was formally affiliated with CoinFlex. Now the Flex token is the resident token of this new exchange for some insane reason. And so, yeah, they basically brought in new fourth fraudster. onto the cap table. I mean, why not? Why not go all in? Why not give Doe Kwan like some advisor shares too while we're on it? I mean, anyone who puts money with these clowns deserves to lose all of it.

So you can't really have any sympathy for people that lose money on this thing because inevitably you will get scammed on this. So they did raise money. That's what I heard. I don't know who they're raised from. If you know, feel free to tell me. and we'll announce it in the deals next week. We will announce it.

We will announce it. We'll certainly announce it. There's no way that they raised it from a venture fund with limited partners. I just put that a zero percent chance. I really hope not. But the world is a big place, and there's a lot of money sloshing around. Apparently. Apparently.

All right, let's hop into the real deals. Well, they are. Let's hop into the real deals, the venture. are backed companies that are not frauds. Okay. First one up is coin cover. They provide insurance and physical backup services for digital assets. They've raised $30 million from Foundation Capital.

Next up, Beav Alimentis, they're the blockchain. Forensics Company, they raised $10 million from Parify, Moonshots, Spitfire Ventures, and Colaco Investment Group. The next one is a mining consolidation, a merger here. So Hut 8 has merged with U.S. USBTC Corp.

I figured we'd start to see some consolidation in the Bitcoin mining space, and it's underway. Yeah, this is a very interesting merger, actually. USBTC quietly, one of the larger miners out there. They actually, Anders from USBTC did do our podcast last year. But so this creates, and HUD-Ait was one of the more financially sound miners, basically, in one of the best positions with regards to debt and solvency and admits to mining crisis. So this is a very compelling combined entity.

So congrats to both parties. The next one is called Webacy. This is a company focused on wallet security. They raised $4 million from Gary V. and Mozilla Ventures. Then we've got Blockjoy. They are a nodes as a service company. There is 11 million from Gradient Ventures, Draper Dragon, and active capital.

Next, we have space ID. This is a decentralized identity company that raised 10 million from polychain and Dow 5. Then we've got Vault, a digital music collectibles company. There is 4 million from placeholder. All right, so those are the deals. I thought those are pretty good.

So feedback, welcome. But we've got companies that are being funded in this industry, despite the fact that we have an ongoing choke point crisis. So let's talk about this. Oh, that's something. Did someone say choke point? You put out a blog post around the coordinated action that we're seeing from the Biden administration

to deny crypto companies access to banking services. So the name of the blog post is Operation Chokepoint 2.0 is underway and crypto is in the crosshairs. I guess first of all, what is Operation Chokepoint and then what is the Crypto 2.0 version? Well, let me give you a little context on the article first. So do you know the expression hoist by your own potard? Have you ever heard that one? I do. I don't know what it means, but I've heard it.

Yeah, my dad used to say it all the time. I think it means a ptard is like an explosive. Okay. So I think it means you just basically screwed yourself, like you blew yourself up. Hoist isn't like, you know, knocked into the air kind of thing. Okay. So I hoist myself by my own ptard. I did a tweet this week that got really big, and then tons of people reached out to me.

They're like, you have to explain yourself. What do you mean by this? And then I had to write this article. And so that's where the article came from. It's because people demanded that I actually explained the tweet, which was a little fuddy. I admit it was a fud tweet. So then I followed it up with the fud article. All right.

So the tweet basically said that you're hearing a lot of things around the OCC and the FDIC and just the Federal Reserve cutting down on banks that are servicing the crypto industry. And basically it's harder for crypto startups to get bank accounts. It's harder for stable coins to interface with the system. And then you went into some detail kind of elaborating. But I guess we need to define choke point 1.0, I think, before we can really get into 2.0. Yeah. So they're actually somewhat different.

So choke. was an actual operation, started in 2013, basically spearheaded by the Department of Justice and the FDIC. The OCC was involved as well. And basically, the objective was to identify specific target industries and marginalize them by persuading banks to not do business with them. And then that meant they couldn't get payment processors and things like that. So they decreed certain industries high risk. So adult entertainment, parts of the tobacco industry, firearms, ammunition, payday lending, you know, some pretty insolubrious, but not necessarily illegal businesses. So legal, but questionable industries, basically.

A lot of people think it was political. It happened under the Obama administration. It wasn't strictly partisan. Like, you know, I wouldn't say the adult industry is right or left or anything like that. But it left to a very bad taste a lot of people's mouths. ended in about 2017. But basically, banks internalized this guidance because the FDIC had told them they'd be investigated if they did business with these high-risk industries.

And so then even after it ended, banks continued to adhere to what they figured the guidance was. So there was an implied or a shadow choke point that lasted. So that's 1.0. 2.0. Some people have taken issue with me calling this choke point 2.0. Either way, it's not good. Basically, bank regulators just in recent weeks have now ratcheted up the pressure

in order to make it much harder to deal with crypto from the perspective of a bank. So one thing is denying charters. So custodia was denied in explosive fashion. So the FDIC, so basically the Fed is. slamming shut the sort of speedy loophole, so to speak. The Fed also put out a document saying, even if you're not FDIC insured and you're chartered at the state level, we still have oversight over you. So they're actually growing their mandate and their scope. So the custodia thing and that new statement that the Fed came out with, that was a huge deal. That means that states

can't pursue this path to create crypto banks, de novo crypto banks. The next thing that happened, was actually simultaneously the White, the National Economic Council, NEC, put out a statement saying that banks touching crypto are incurring huge risks and they'd be considered high risk entities. Various banking agencies, the OCC, the FDIC, and the Fed, they put out a joint statement basically saying that, you know, banking crypto businesses is risky. Banks issuing stable coins is basically not allowed anymore. So no bank issued stable coins on public blockchains. And basically questioning the activities of any banks that touch crypto.

There's a few other things in here. if you read between the lines, you can see that a lot of the crypto-focused banks are curtailing or ending their crypto practices entirely. And the banks that still serve crypto businesses are getting buried in investigations and paperwork and things like that. So overall, like it's a pretty grim picture, I would say. I don't think the whole industry is going to be unbanked imminently, but I do think it means that it's going to be much harder to get banking, especially as a newer firm, startup, I think if you're a crypto company, it will be much harder to get banking here. Yeah, it seems to me like it's just rolling the clock back a couple of years when this was really, really difficult to get crypto banking. So we would oftentimes, you know, it would be

one of the first questions that we would ask a lot of startups is to do you have a bank account because it was just generally very difficult to get a bank account. And then, you know, signature and Silvergate came along and started to get easier. You know, you had Metropolitan Bank was a player there for a while. But, This is, I mean, there's a history of Circle and Coinbase, I think we've talked about it on the podcast, where the fate of Circle for a time was really hinged on that, you know, they were about to lose a bank account or they did lose a bank account. And they had to really shift the product direction of the company, in part due to losing that bank account. Whereas Coinbase was able to maintain their bank accounts and, you know, moved from, I think, SVB over to Metropolitan or something. So they were able to stay effectively functional.

But this has been a difficult thing. It's gotten a lot better, you know, over the past few years. But I think a lot of this scrutiny is generally unwarranted. I mean, if you look at Silvergate, you know, these short sellers are out here saying that Silvergate should have identified the FTX fraud. I think nothing could be further from the truth. I think from every public thing that I have read about Silvergate, they seem to have been fully buttoned up in terms of how they were engaging with FTX. I don't know how they would have identified it. So I think there's just some FGX blowback here that is really permeating into the banking sector.

Yeah, I mean, it's interesting of those names you mentioned. Metropolitan, I think, is out of the crypto banking game now. Officially, signature has halved or announced that they're going to have their crypto deposits. So they'll just be much more discriminating with their clients. And Silvergate is being investigated by the DOJ. you know, no criminal allegations yet, but fact finding at this point. They suffered a 70% loss of deposits as in a drawdown, which they were able to honor fully. And the state functional, right.

Which is remarkable for a bank. So I think that has a lot of regulators shook. And I think it has them erroneously believing that crypto in some way poses a systemic risk to banks, which is not at all the case. There's no way the crypto has any possible contagion that could spread to Tradfly. I mean, crypto already went through a collapse and nothing happened. The one thing that happened was this one bank had a bit of a bank run, but it was able to stay liquid. Well, the other thing here is that, you know, the Farmington Bank issue, which FTX did that crazy check into Farmington Bank, the deal that was led by Romnik Aurora, and there's

something shady there. So the fact that they were greenlit by the, I think it was the San Francisco Federal Reserve, maybe. We're going to find out more about that. I'm sure there's a bad story there. There's certainly a lot of laws that were broken there. So I think part of that might be driving it as well. I do want to talk about this concentration risk for the banks because I think that is going to restrict how big this sector can be from a banking perspective. So say that you're a, you know, you're an upstart bank. You're one of these Silvergate type. and you start to bank a startup, maybe a Series A startup, maybe it's a Coinbase style business, that business ends up getting really large.

All of a sudden, you have a huge concentration risk. So, you know, if there's only a handful of these banks that are banking startups and these startups start to go, that's obviously great for the bank from a deposit perspective, but it puts you in a dangerous spot where you need to diversify your business away from crypto. So what we really need is more banks to come into this space. I actually think it's a great opportunity, you know, to start working with some early-stage companies. And you can probably do it in a very low-risk way.

You can make sure that you're not banking offshore unlicensed derivatives exchanges. You can make sure that, you know, you require companies to get an audit. There's very common sense ways to bank this sector, but the appetite to do it is just really not there apart from some of the more entrepreneurial bank managers. Yeah, and that's one of the problems is that. if you get these only specialist banks doing it, they tend to be smaller. And of course, their depository behavior is correlated. So that is the net effect of all of this regulatory bristling is you end up with a few

marginal service providers and the whole industry is left worse off. Look at what happens when you unbank, you know, like Tether is a great example. Tether was chased around getting deprived of banking partners. They had to resort to shadow banks and really sketchy payment processors, who then eventually defrauded them in the case of crypto capital causing a loss. So if you push people out to the margins, things get worse for everyone, basically. Yeah, it makes it more dangerous. So you'll see Tether become more popular in a paradigm where it's more difficult to launch a U.S.

stable coin. And I think the data would support that is that inflows to tether are actually increasing faster than inflows to USDC and Paxos to USD. So, you know, that's probably not great from a regulatory perspective is to just have like the offshore euro dollar version of stable coins being much more dominant. And that'll continue to be the case that expect that more of these offshore exchanges will rely on tether as opposed to a, you know, U.S. issued stable coin. The other thing is that it's going to be a lot harder for a crypto startup to get a bank account, which will have a bad impact on the fundraising environment for crypto startups. And so there will be a lot of venture capital firms that will not finance a business unless it has a bank account,

which is kind of a common sense thing, right? So that'll be interesting. Someone will have to step into that void if some of these banks start to pull back. I will say like Silicon Valley Bank is still operational. they still serve a startup, Silvergate signature. They're still doing their startup banking. So I don't see that kind of going away. But if you started to see some impact there, that wouldn't be great.

Yeah, the other thing is I wrote in the article that I thought the motivation here was to use the banking rails to inhibit the next FTX, so to speak. So I think regulators believe that by leaning on fiat payment rails, they can stop the next FTAX, so to speak. So I think regulators believe that by leaning on fiat payment rails, they can stop the next FTX happening. They could use that as leverage to get control over these offshore venues. But I think that's very naive because stable coins already exist, including offshore ones. So people that want to get money onto these exchanges will be able to do so via stablecoins. cutting off the bank connectivity doesn't mean an offshore exchange can't exist.

So I don't see that as a very sharp instrument that they are now wielding. But that's a lot of the justification that I'm hearing for basically the new, more aggressive bank oversight regime. And what do you make of the Wyoming special purpose depository institution just charter? Like, does this thing just not work? After all that work, do you think it just will not be functional? I think under this Fed and this administration, it's dead in the water for now. I mean, the custodial lawsuit is still ongoing, so watch that space.

But, yeah, it doesn't seem promising. I know other states were looking to adopt it, but after these kind of setbacks, after the Fed making it clear that there is no loophole, you know, you are still subject to their oversight, even if you are, state issued and non-FDIC insured. And after the Fed really rejecting custodia super aggressively, it doesn't seem very promising for the SPDI. I mean, it's a, it's a blow for basically the state charter model and it's a win for federal power. So we'll keep an eye on this. Why did you publish it with Mike Solana's blog? They asked me. Yeah. So they saw the tweet and asked. And

And I was thinking I would publish it at a, try and publish it at a tier one, you know, financial publication. But to be honest, they wouldn't have let me publish it in the form and tone that I did. So I'm happy that, you know, pirate wires let me publish it with basically no editorial changes. All right. So we'll keep an eye on that. Should we hop into some FTCS crime family news? Always busy in the FTC side. Yeah.

What's the latest? What's going on there? All right. Well, just a bunch of housekeeping stuff. So you already talked about the Financial Times profile on the last days of the crime syndicate over there. The Wall Street Journal had a profile on their on-campus psychiatrist slash performance coach. That guy sounds like a trip. So just keeping everyone medicated down there, keeping up the coaching. The legal entity that SBF created to purchase the 500 or so million dollars worth of Robin Hood shares has declared bankruptcy. So that's a move. So they want to try to protect that in some way, his defense team. And then Robin Hood came out and they authorized, the board has authorized, the repurchase of those shares. It's unclear that it will happen, but they have authorized the repurchase of those shares, which is interesting. So we'll see. And then lastly, federal prosecutors have asked that the SEC and the CFTC civil cases against Sam Bankman-Fried be put on hold until after the criminal proceedings are done.

So it seems like he'll probably face these civil charges after he's already in jail, is my guess. So busy, busy week. Yeah. What was the other thing is Sam's asking the judge, he's appealing the decision to unmask the identities of his benefactors for bail. Is that right? That's right. And I think we should have an answer by the 14th. on that front. So I think we're going to find out who these people are. I think you're going to

have to see that revealed who co-signed. It's interesting these people are willing to stake their capital to support Sam, but not their reputation. Yeah. It's not going to be a good couple weeks for those people once their names come out. I can tell you that. They're going to have reporters in front of their house. Speaking of having people, you know, in front of houses and hunting them down, there is a full-blown manhunt going on for this Doquan guy. So South Korean officials were apparently in Serbia last week, quote, hunting for Doquan. So they just, it was like a field trip from people in the South Korean government to Serbia to try to find this guy and they didn't find him. Can we just have some like amateur internet sleuths, you know, determine where he is by the son's position and a podcast appearance or something?

I mean, the internet has done more with less. I think you just put out a, you know, you put out like a little teaser. It's like you put out a white paper for an algorithmic stable coin and you see who goes to the website. He's going to be trying to do some scam. All we need is for him to accidentally slip and have his webcam show the landscape behind him. And I guarantee you someone will go on Google Maps, Google Earth. and just figure out where in Serbia that is. Is Serbia a nice place to hide out?

I have never been. It just seems like a very strange place to pick. You'd think that Doquan would stick out in Serbia? Yeah, I would think so, right? I mean, there can't be that many Korean immigrants in Serbia. Yeah, I don't know. He's probably staying inside. I don't know.

Someone's probably going to write into the show after and be like, actually, That was an extremely bigoted comment. Serbia has a vibrant Korean diaspora. I bet there is. I bet now that we said that there is. There's probably maybe there's a historical linkage between those countries. I mean, there's got to be some reason he went to Serbia.

Maybe it's not an extradition to South Korea. I don't know. But why would these South Korean officials be hunting for him? I love Serbian food. I always knew that this crypto bounty hunter thing would be a category. And it certainly is. they're not very good they have they have they caught anyone

yet no we got the quadriga guys still probably alive somewhere he's on the run you get Kyle Davies and suzoo not only are they on the run but they're starting fraud casino exchanges where they're going to steal everyone's money we haven't done a good job of cleaning up the bad boys here speaking of which I watched bad boys

one and two last weekend what did you think I hadn't watched them in a while and I was like oh, this on Netflix. I liked it. They were good. Yeah. I was thinking that we could like splice in some bad boys,

like some like Will Smith clips maybe. All right. This is trippy because one of my good friends ran into Will Smith this morning in Miami. Really? No kidding. And he sent me a picture. So on Brickle Key, he ran into Will Smith,

who was just out for a jog. Bad boys. So I don't know the logistics of stopping. someone for a selfie on a jog, like, do you run up alongside them and jog with them for a few hundred yards? No, you can't do. You can't stop someone. That shows no respect. He stopped Will Smith. He stopped him and got a picture. Will Smith was smiling. That's terrible. Well, you could run alongside him and take a selfie as you're running. Will Smith would be liable to slap someone for doing something like that. He's known for it. Wait, so bad boy.

I've never seen it. I actually, what... Oh, it's a good. It's Martin Lawrence and Will Smith. They're cops in Miami. Oh, it's a Miami film. Yeah, you would really like it. It's all action.

I mean, I watched Ace Ventura, which is Miami film. I'm trying to... You know how, like, Boston has the classic Boston films, like the Departed or the town? Like, I'm trying to find the equivalent for here. Oh, yeah, you would like it. It's just 10 out of 10 in terms of action. It's just all action.

I don't even really know what the plot is. They just go after bad guys. It's like Russian. Russian mob, but yeah, it would be, it's great. Okay. It's not as cerebral as like Yellowstone, which is currently my favorite show on television. You know what I watched recently? I'm not a big TV watcher at all, but I watched this documentary on hippos in Columbia. Did you know that in the nation of Columbia, there are 133 hippos that live in the wild? Why? How did they get there? I thought hippos were native to Africa.

You thought right, Matt. You thought right. So Pablo Escobar illegally imported them. Wow. For hippos, for his ranch. He had like a whole zoo. And then they escaped and bred.

And by the time the Colombian government figured out that there was a hippo problem, like they started like eating fishermen and stuff. Oh my gosh. It was too late. The hippos had spread throughout the country. Like hundreds of kilometers. They migrated.

And now this is a bunch of hippos. in Columbia. No kidding. I'll have to check that out. Here's the craziest thing. I'm spoiling it. I mean, it's a documentary, but I'm kind of spoiling the plot for you.

They killed one hippo, and everyone in Columbia melted down. They're like, you can't kill the hippo. Or hippos, are they endangered? Well, I mean, they weren't a species. They're an invasive species. So they're both invasive and endangered, I guess. It reminds me of turkeys.

Like, this guy in the South Shore who let turkeys go in the 70s. There were no like wild turkeys, and then he let him go, and now the whole free and state is covered in turkeys right now. So it's like this, except imagine the turkeys for like 10 feet long

and could eat you, basically. That sounds terrible. Here's the craziest thing. They can't kill the hippos because there's a popular mandate, basically against not doing that. So now they have to capture them, sedate them,

and give them little hippo vasectomies. or tube tying, like, sterilize. So, like, they've got these surgeons that just do hippo, hiposurgery to sterilize them all day. Wow, that's incredible. All right. Well, that was good, good hippo talk. Back to the crypto stuff. Genesis has announced that they have reached a deal with DCG in several ad hoc creditor groups of Genesis Capital that in aggregate represent $2 billion of claims in that bankruptcy.

So this is a pretty complicated transaction, and it's not final, but as part of the agreement, DCG would exchange their $1.1 billion, promissory note that is due in 2032 for convertible preferred stock issued by DCG. DCG would also refinance its existing 2023 term loans through a new junior secured term loan, which would have two tranches payable to the creditors approximately $500 million on that part. And then there's this part where Gemini is going to contribute $100 million to earn customers as part of it. So estimates here say about an 80% recovery and then you get some equity kicker. So looks like it's a workable plan here.

DCG will also contribute the equity interest in Genesis Global trading to a new entity called Genesis Global Holdco. Basically all the Genesis entities go under one umbrella and DCG won't own them, basically. So I don't know. It looks like it's a solution. So I don't have much to say other than it looks like maybe they figured it out. Well, that seems conditionally pending this actually being approved by our relevant parties, like a ray of good news. I think so. Which is the first good news we've had in this saga for a long time.

Yeah, these restructuring guys are just making a gold mine. There's just so many restructuring attorneys and banker. and creditor committees in this industry. It's like the locusts have moved in on the industry. All right. So I think that's it for the week. A lot of regulatory stuff this week. But that's the world we live in, the post-FTX world.

Still a lot of interesting startups getting funded, but most of the news has been regulatory. Yeah. If you've got a bank relationship, hold on to that thing for dear life. Hug your bankers. hug your bankers you got to love your bankers shout out to our bankers i really like our bankers you know who you are i don't want to

that's right you got to hold these hold these relationships precious you remember when our banker took us to the red sox yeah i do i remember when our lawyer took us to the red socks back in 2018 and you had never been to the red sox game i don't think you'd have maybe it was your first baseball game

that was my first time of baseball game and honestly everything I thought about baseball ended up being true. I mean, it was so tedious the game. So you were sitting at Fenway Park and you pointed at the Green Monster and you asked me if anyone has ever hit it over that thing. Did I ask that? True story. True story. That was like five years ago. So I think probably the story has been warped over the sands of time. I said, yeah, some people have hit it over that thing. That's a fabricated story. And honestly, I'm going to cross-reference that with our lawyer now. I'm sure he's listening, and I'm sure he can attest.

That's a completely false allegation. What happens when it goes over? I don't know. No, I mean, I did ask some smooth-brain questions about baseball, but there's no way I asked that. Did you read that? So in that FT piece, it said Sam was like looking at baseball scores. He must be a baseball fan. But like, there's no baseball games going on right now.

Spring training starts next Wednesday. So I don't, like, what type of baseball is he? That doesn't make any sense. What I want to know is has anybody who's not Sam Bankman-Fried played storybook brawl? Yeah, I don't know. What is that? Is it fun? I might play it.

I need to know. Why does he like it so much? So here's my conspiracy theory on that. He can't talk on Signal. He's been banned from these encrypted apps. I bet he's playing games that have peer-to-peer messaging within the game. And he's talking to his lieutenants around, all right, I've got this ledger. it's hidden in the Bahamas.

If you don't talk, you can have my ledger with $10 million on it. And he's doing this talking through these video game chats. Yeah, it's his last remaining avenue to communicate. Now that they, I think they're going to surveil his phone. God only knows what we're going to find. I don't want to know. I don't want to know what's on there.

I was talking to someone, someone who works at one of our portfolio company, who's a very smart person. and she said she knew this guy was a fraud all along, and she had documented proof that she had texted someone who she used to work with that this guy's a fraud, because she said, you cannot be a vegan and be this overweight and just looked so disgusting.

So he's... I totally disagree. I take issue with that because veganism doesn't mean you're eating healthy. It means you're eating a lot of processed carbly, seed oil, impregnated foods. I don't know. I think she had a point that this guy was pushing himself out there as this, like, healthy vegan dude, and he was putting on 15 pounds. Nothing about him is healthy. Nothing about him is healthy. I was out in Palo Alto this week. I was very close to his house. I was like a couple blocks away. I did not stop by. I didn't stop by. I mean, he's got that arm security now, and they're red hot. I don't think we would have much to talk about.

They're expecting those people to come back that threaten them. I know. Those people are nuts. I wouldn't recommend harassing them because they're ready to blast. Yeah, I wouldn't do that. So do not go bounty hunting for people. You know, unless you want to go over to Indonesia. That's a good bounty.

Yeah, like Bali and Serbia is more than anything goes type situations. All right, so that's it. We will see you on Monday for a new episode. Have a safe and healthy weekend. You know,