On The Brink with Castle Island - Weekly Roundup 03/26/26 (Trump supports stablecoin yield, Kraken's master account, death prediction markets) (EP.707)

Episode Date: March 6, 2026

Matt and Nic are back for another week of news and deals. In this episode:  What Dario Amodei and SBF have in common Trump wades in to the market structure debate and asks the banks to come to the table Why stablecoins are not like banks Kraken Financial gets a skinny Fed master account Visa and Bridge are rolling out stablecoin-linked cards The FBI arrests a suspect accused of stealing $46m in BTC from the US marshalls Morgan Stanley is coming out with their own Bitcoin ETF The Aave token governance controversy rumbles on Kalshi's traders are upset about their "death market" policy Content mentioned in this episode: The CIV Youtube Channel Alpen Labs, Size Matters: Architecting BTC Credit Markets

Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only is an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated.

The federal government loans American International Group, AI, $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 quantitative easing. You print a couple trillion dollars, and all of a sudden, people start to worry.

So out of this worry, we have something called the Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. What a, what a busy week, huh? There's a whole war going on. We're not even going to cover that. We'll leave that to some other podcast. Yeah, there's plenty of stuff to cover in the macro front.

Important update. We promised it last week and we'll announce it this week. We are now on YouTube. It's not video. It's the audio files. But it's YouTube.com and the handle is on the brink with Castle Island. So plenty of people have already found this, actually. Yeah, the views are just rolling in.

Even for our ancient episodes from five years ago. it's really interesting. Yeah, people are just searching for people that they like to hear from, it seems like. Yeah, what are the, was there, we had a Tom Lee episode. Tom Lee's episode was years ago and that's got a bunch of downloads or a bunch of listens. Yeah, so we haven't done video because that seems like a lot of work. I think we can figure this out though. I just, I don't know if the video adds anything at all.

now right now does that increase your enjoyment of what what difference does it make you know it seems like people are more than happy to just listen to the audio version of these things our canton

episode is just crushing people are really into canton yeah so if you are one of these mysterious people that doesn't use a podcast client but really likes YouTube way in you know do you like it or do you need the video

Yeah. Is this is this incomplete? Do you want us to put the Three Arrows Capital episode up? You know, we'd like your opinion on that. Is that one, did we withhold that episode? I think I've set that one to private, just given all the headaches that that caused us. A couple of these episodes I'd just like to forget about it. That was one of them. Yeah, we've had some regret.

No one's perfect. We'd never had Sam Bankman Freed on our podcast. That was deliberate choice all along. did have some FTX people. I think maybe it was just Brett Harrison, which I don't regret that one. Yeah, he was one of the less odious FTX people. Yes, for sure. You know what I was thinking of myself this week? Sam, the fact that we had Sam in crypto, it taught us a really important lesson about the EAs, which is they're just not to be trusted. Yeah. Not to be trusted. And they're megalomaniacs. You can't trust them. Now we're waiting into another big topic of the.

the week, the anthropic. No, I'll say it. Yeah. So Dario is like Sam 2.0. It's like Sam Banking-Mutfried 2.0. He thinks he's more important, more powerful in the government. Sam did think that. Yeah, Sam was, and he was very hypocritical. He was, you know, went around saying how he had this moral philosophy. He was so much better than everyone. He was going to save the shrimp or whatever it was. And it was totally important and permissible that he become a billionaire so you can get all the resources to promote his causes. And he had the better moral insight into how to spend money. And he had this fraud going on. Meanwhile, he was running around DC writing legislation. Dario is kind of like that too. I think he's like that.

We spent a lot of episodes talking about EAs back in the FTX crumbling days. So we've already been inoculated against their schemes. And I think the world is waking up. to kind of how nuts these people are. You know, they really believe they have some particular special purchase on morality and that they alone should be entrusted to kind of run society and set the rules. And I think that's what this debate's really about, is Dario thinks we're going to have super intelligence and he alone can be trusted to, quote, unquote, align it as an imbuit with his own morality. and he wants to sell the software to the government,

but decide what the government can and cannot do with it, which I think is crazy. I will say, I don't know if the other guy running a huge AI lab is much more trustworthy, even though he's not in the A. No, Sam is more Machiavellian, though. So he will submit at the end of the day of the government

because he knows he can't go to war with its own government, like there's data centers that live in the U.S. there's no way to run a functioning public company, large AI company with physical infrastructure, and have this antagonistic hostile relationship with your own government. So Sam gets that. That really threw a wrench in the anthropic IPO plans for this year. Seems like Open AI will beat them to it. Yeah, and I think the EA philosophy caused them to fly too close to the sun.

I think they self-destructed because they really believe this. They really think they're summoning this machine intelligence, this godlike creation, and that they won't be beholden to anyone once it exists. We'll have a runaway superintelligence. I think they really, it's kind of an apocalyptic cult in many ways. Kind of like the Bitcoiners. There's definitely no shortage of cult behavior in that territory as well. Yeah, that was anthropic.

We had two episodes this week. Wow. We're cranking them out. So Sean sat down with Alex Wilson, co-founder of Cyclops. We'll talk about Scycops later. They talked about stable coin payment solutions for PSPs and a number of other topics. And then I sat down again with Dana Syracuse and Josh Baum of Paul Hastings, talking about the OCC charter process.

I talked a little bit about the Post-Genius Act rulemaking that's going on. So, you know, we're cranking them out over here. Yeah, much more to come on the treatment of stablecoin yield. There have been some key developments on that front this week. Very exciting. Yes. major developments. Yes.

I mean, talk about a post herd around the world in the crypto industry. Before we do, let's hop into the deals of the week. All right. So first up, Castle Island Deal. The company formerly known as DeLAR App, this is the Latam Neobank building on stable coin rails. They have rebranded to ARQ. And they've announced a $70 million funding round co-led by Sequoia and Founders Fund.

Yes, big congrats to the team over at Arc. And then it's Cyclops. So we had Alex on the podcast to talk about this this week. Cyclops is a new stable coin infrastructure company. They raised $8 million in a round led by us at Castle Island, along with F Prime Ventures and Shift 4 payments. So really excited to be backing Alex and Pat as well as David. So huge congrats to the Cyclops team. Cyclops, part of the burgeoning Miami tech industry too.

Shout out Miami. Next up, we have, yeah, we have cross-executive. Markets, their digital asset ECN. There is 31 million from TradeWe, DRW, Illuminate, Ripple, Ver2, and Wintermute. Congratulations to Brendan, the team over there at crossover. Then it's QFEX, which is a perpetual futures exchange. There is 9.5 million from General Catalyst, Y Combinator, and others. Then we have, I don't know how to pronounce this, Acave. It's like Agave with a K. They're an on-chain data protocol. There is 6 million from Protocol Labs, no loan. Limit holdings and blockchain.

And it's five bells. This is a digital asset post trade settlement platform. There is to cede ground from ego death capital, time chain, epoch, and Fulger Ventures. Congrats to Anthony and Brian and the team over at five bells. And lastly, fascinating news. OKX, a well-known crypto exchange, they received a strategic investment from the intercontinental exchange, valuing the company at 25 billion. That's wild.

Yeah. congrats to Hong and the whole team over at OKX. That's really an interesting development. I was kind of surprised to see that pop up on the screen today. Yeah, you know, historically, I would have been shocked that one of these offshore exchanges would have been able to take an investment like that from a, you know, very reputable U.S. company. Yeah. So well done.

All right. Let's talk about market structure. Without a doubt, the biggest development in that case this week was, President Trump's post. His truth. His truth. So this popped up. I'm just going to read it.

So this is from Trump a couple days ago. The Genius Act is being threatened and undermined by the banks, and that is unacceptable. We are not going to allow it. The U.S. needs to get market structure done ASAP. Americans should earn more money on their money. The banks are hitting record profits, and we're not going to allow them to undermine our powerful crypto agenda that will end up going to. China and other countries if we don't get the Clarity Act taken care of.

The Genius Act was the USA's big first step to make the United States the crypto capital of the world and getting Clarity Act done is the next step to finish their job. And more importantly, keep this big, powerful industry in the United States. The bank should not be trying to undercut the Genius Act or hold the Clarity Act hostage. They need to make a good deal with the crypto industry because that's what's in the best interest of the American people. This industry cannot be taken from the people of America when it's so close to becoming truly successful. Thank you for your attention to this matter.

President Donald J. Trump. What do you make of that? What a great post from Trump. It's like he's been listening to this podcast or something. I mean, that's exactly my view on the matter, I think. If we ban stable coin yield, it's just a huge bailout for the banks. And there's just no reason to treat the banks with that level of privilege. They don't deserve it.

Yeah. I mean, he's clearly hitting the banks. I think part of this is also a message to the Republican senators who are being influenced by some of the local bank lobbying to say like, hey, get on board with this, like trains leaving the station. It's completely at odds, obviously, with what JP Morgan CEO Jamie Diamond is saying. Diamond is just an all-time manipulator on the PR side, huh? I mean, he's coming out.

What do you say? He said, look, we can't allow this. the crypto companies need to have a level playing field, they should go become banks. It's like, hey, no, they're not doing fractional reserve banking. That's not what we're talking about. You wouldn't tell fidelity you have to go become a bank because you're doing tokenized money funds. These are asset management type behaviors.

Yeah, it's a complete non sequitur. Yeah. The thing that requires entities to become banks is if they're doing maturity transformation and lending long and. basically taking deposits. Stable coins are not doing that. So it's playing on people's ignorance of how banking works and why banks need federal guarantees

and why they need oversight. That's the thing that bothers me about this whole debate. It's just the bank lobby is hoping that people don't understand why banks are regulated and why stable coins shouldn't be part of that. I think that's so true. I mean, Diamond is just hoping and praying that he doesn't get the second order question. And he's really just an odious type of behavior, right?

Like he's just betting that people are too dumb to ask the follow-up question. It's like, hey, I'm not actually lending out this cash. Why would I have to become a bank? Well, good post from Trump. I don't know if it's going to make a difference. The polymarket is pretty constructive on the Clarity Act getting passed. Yeah, so it moved. 71.

percent. You know, so you get this yield issue, which, who knows? I mean, I think he's going to have to peel off a few senators that don't want to just do what the bank lobby wants. I don't see the bank lobby changing their mind here. I don't think it's probably the tweet was not aimed at the banks as much as it was just the senators. As we said, the bank lobby doesn't have an incentive to compromise here because they don't, they couldn't care less really if clarity gets passed. Past. So they just want to say no. You know the real thing is so diamonds out here is just a completely disingenuous human being saying, look, we need a level playing field. All right, if you want a level playing field, I mean, you have crypto exchange executives that are put in jail because of criminal liability related to the Bank Secrecy Act. When was the last time that happened to a Wall Street banker? And how many like violations of OFAC and bank secrecy have we had at JP Morgan? Yeah, it is a double standard. There was more banking news this week, too.

Cracken Financial, I thought they were, had been forgotten entirely. So this is Cracken's Wyoming chartered full reserve bank, originally under the speedy legislation. They became the first crypto firm in the U.S. to receive a full Federal Reserve Master account, direct access to FedWire. They can settle payments without relying on correspondence. It does not allow for lending or deposit taking or earning interest. on reserves held at the Fed, but it does give them status as an equal peer in the fiat system, which is really interesting. This is happening now. Yeah, it's a big deal. Like you said, you're not going to see lending or deposit taking out of this, but this really allows you to

compete in the payment space. And so to not have to go through one of the global correspondent banks to run a stable coin payments business or even like a kind of a clearing network, right, like something to effectuate post-trade settlement for digital assets, this could be really interesting. And undoubtedly, this will cause a lot of innovation on top of this stack. So I think the skinny master accounts were, was this Waller's idea originally?

Yeah, that sounds right. Yeah. So hopefully a sign of things to come here. But I think that's a big, big development. Great for Wyoming, too, huh? Yeah. No, it's really cool to see.

I mean, I think the special purpose deposit. story institution thing was, I want to say in 2021, maybe that first came out. It was a long time ago. Yeah, and I guess we're not getting that, right? It's not a narrow bank as it is like a payments-oriented access bank. You're not going to hit the discount window either. So it's pretty narrow, but it's probably exactly what they need in order to be the back end for payments. So plenty of news involving the integration of crypto and the established financial sector. There was An interesting piece of news this week, Visa and Bridge expanding their collaboration planning to bring stable coin linked cards to over 100 countries.

Of course, Rain is the biggest service provider. Does this mean Bridge is going to be able to issue cards without rain? I think directly with Visa. That's what it looks like to me. I don't know if Bridge has the principal issuer status on Visa or not. Stripe probably does, though, right? But it shows you just how much heat is on this card category. That's one of the faster growing segments within the stable coin space

is these accounts that you can tie to cards and spend in the debit format. Yeah. And I think it answers the question. People are saying, well, no one's ever going to do a crypto wallet transaction at brick and mortar at a merchant point of sale. They will do it through a card. It will. Because that requires no new infrastructure.

The merchant doesn't have to buy any new. POS system. They don't have to learn how blockchains work. And the settlement is the thing that happens on the blockchain. It's very elegant. It's super elegant. It's a compromise solution. Yeah. And that's that's what's happening. People have the account on the blockchain or at an exchange or one of these neobanks or fintechs in stable coins. And then they spend with the card the way they're used to. It's pretty cool. Kind of have to meet people where they are. Right. It's the idea that you were going to ever have like QR-based payments take off at merchants never really seemed like that was going to work but the form factor of the credit card doesn't seem like it's

going away so how about this story have you been following this cash Patel tweeted today the FBI arrested this guy John Daggeta in St. Martin which is I guess an island in the Caribbean or something he's the son He was the son of some firm that was meant to be custodying the U.S. Marshall's Bitcoin, and he stole $46 million worth of it. Yes. So his father was in charge of this company. And I can't tell if the kid worked at the company or not.

Or did he just walk into his father's bedroom and steal the keys here? The fact that this was allowed to happen is crazy to me. This company that no one had ever heard of, what was called CDMS or something? And they got the contract. to custody, the government's Bitcoin. How does that contract not go to, like, Fidelity, Anchorage, Bidgo, Fireblocks? Boym Bay. That's crazy to me.

What's going on? Just some random guy in, like, Arlington, Virginia or something, had this contract, and his son stole $46 million of crypto. And he ran off to St. Martin, which I guess is an entirely different country, or maybe it's part of France or something. It's an island, but I think France has oversight, doesn't it? I should know, but he had a suitcase full of cash and 10 ubiquies and a bunch of treasers and the worst haircut I've ever seen. I mean, how does this happen? How does this happen? When people were saying we need an audit of the government's bitcoins, I get it now.

Yes. Because we're putting the clowns like this and charge the government's bitcoins. What is going on? So there's this website where you can go through and find every single government contract. And I was in the airport a few weeks ago. I was kind of going down a rabbit hole of, okay, you could query this thing and just find a lot of interesting things. But why don't I start with what I know an awful lot about, which is the blockchain space. There are so many contractors for blockchain oriented projects into the U.S. government that I have never heard of. And this is a perfect example. It's like, why are we actually allowing these people to win these contracts?

We have the infrastructure to do this. And what was this kid's end game? Like, hang his dad out to dry? and just scamper off to a different country and just burn everything down? It's unbelievable. How did he think he was going to succeed? I guess it warrants mentioning that Zach XPT is the one that broke this story and uncovered that it was the kid.

He found him. And I think it's because this kid, John, who went by some alias, he was bragging about having a bunch of cash or crypto on telegram. Yeah. And somehow Zach noticed or was tipped off that his accounts were related to the hacked accounts from the government. It's crazy.

And so it's again, these guys just can't help themselves. You know, these criminals just love to brag about their proceeds. That's just the one thing you can't do. We should bring back the bad boys theme. This would be a perfect bad boys. Yeah, I think we got a copy struck on YouTube for using that. Yeah, all the old episodes that have the bad boys had copyright flags, but it turns out that they're only banned in Russia and Belarus.

Is that right? Yeah, I guess they don't want to listen to bad boys over there. So we have been, we haven't even been on YouTube for a week and we've been demonetized. We've been demonetized. We're not even trying to make money on this thing, but we didn't even try and we can't. Russia's banning us already. Honestly, it's hard out here for a content creator. It really is.

It really is. But I'd like to give myself the Obama meme medal for trying to figure out this YouTube thing. Yeah, you did it. I wasn't involved at all. Pretty good work there. So Morgan Stanley has filed an S1 amended S1 with the SEC for their proposed Bitcoin ETF, the Morgan Stanley Bitcoin Trust, Coinbase and B&Y Mellon would be custodians. Pretty fascinating.

They're doing this now two years on after the first ETFs came. out. Yeah, I think it's interesting that they're actually doing it themselves as opposed to partnering. And obviously there are other ETFs on the Morgan Stanley platform. I also, it was interesting that Bank of New York Mellon is one of the custodians here. They've had a custody product for a while. I don't know that has any AUM on it. So the fact that Morgan Stanley paired up with Boney was interesting. Morgan Stanley's really been cooking lately with their crypto ambitions. They're probably the most forward thinking bank as it relates to cryptocurrency's digital assets at the moment, I would say. Yeah.

Congrats to them. The SEC has submitted a draft framework to the White House outlining how security's laws apply to crypto assets, potentially introducing a formal token taxonomy, determine which digital assets qualify as securities. Yeah, this is interesting, especially if you think that we might not get a market structure bill, you're going to see a framework rulemaking put out by the SEC. and the CFTC together. This is probably what you should be looking at

if you're trying to figure out what's going to be in that rulemaking. So again, it's just a draft framework, sent it to the White House, get some feedback. But this is probably a sign of things to come. The other thing on just the kind of the joint effort between the SEC and the CFTC, CFTC had some news this week.

So Chairman Michael Selegg said the agency is going to create a framework for crypto perpetual futures within the next few weeks. So it sounds like perps are coming on shore now. Elsewhere, there has been some controversy with AVE. I haven't followed this that closely. I know people are upset about it. Have you been following Ava?

A little bit. So Mark Zeller, who's been one of the main guys behind the protocol. He's leaving. So it sounds like he's leaving in July. It sounds like there's a little bit of a governance crisis happening. BGD Labs, which is the team that is built and maintained a lot of the code base over the past four years, plans to depart the project. So just a lot of governance challenges. I think AVE still has, you know, $44 billion secured across its platform at the moment. But it seems like

a lot of departures. Yeah, Avey kind of typifies Defy in that it is an extremely capital-efficient way of doing something that legacy institutions need hundreds or thousands of staff to do. So that's great. But also typifies Defi and that someone's trying to put their hand in a cookie jar and

plunder it and now everyone's upset and the whole thing is in chaos. Yeah. So it's the good and the bad. It's kind of this governance by Dow's is pretty tricky and I'm not sure that's ever going to be a mainstream thing.

Andresen crypto, A6Cin Z, crypto is looking to raise $2 billion for the next fund. Yeah. So that was an interesting announcement. And obviously, would they raise four in their last one? They weren't in that big wave of announcements. Andresen's been raising a ton of money. But it looks like crypto funds going out to raise two. Paradigm also said they're going out to raise another fund, $1.5 billion.

It's going to be broader than just crypto. So they're going to start making investments in other technology fields, which, I guess they didn't get skewered like they did the first time they said that. I thought that kind of makes sense for what they're doing. So one thing we didn't talk about was the Kalshi market on Ayatollah Kameni. And people are really upset about this. Yeah, why don't you tee this up? So there was a market on regime change, basically.

And I will note that it said in the text that this is not a death market. and so him being killed is not like a triggering event. Yeah. So it's not explicitly meant to be a death market because they don't have death markets on the platform. However, it was in practice a death market. It was on him exiting his leadership position, which not surprisingly happened through his death.

And there were $54 million, I guess, in total volume, which that number is always, exaggerated by the way because if you buy a contract for three cents that counts as a dollar worth of volume yes by the way yeah it does because um buying three cents of no is the same as selling 97 cents of yes or whatever right so you can never trust these numbers keep that in mind so they resolved the market to the last traded position prior to his killing A lot of people bought yes after he died, did not get the payouts. So let's think about prediction markets.

Nobody's figured out how to run them in an orderly fashion, whether it's resolutions, codifying the markets properly, avoiding abuse of the Uma whales, dealing with edge cases. There's just so many things that haven't been worked out around prediction markets. It's really a buyer beware situation. moment. It is. And, you know, people have been talking about prediction markets as death markets for the past 20 years, I think, but they kind of all are to some degree. Depends on how far you want to stretch that, right? So I'm looking at one right now, the next prime minister of Nepal. There's like 15 people on this that you can bet on. But, you know, if one of them were to die, that's, you know how that's going, they're not going to be the

next prime minister of Nepal, right? So it depends on like how far you want to take this. Yeah, you can be pretty penantique about the death market. There's also been a lot of allegations around it. Basically, any successful trade that's made in a prediction market now is alleged to be insider knowledge. And there have been a lot of this around the invasion of Iran. Yeah. And I think a lot of it will be, come out that it was insiders.

Well, it might come out, but it might never get revealed to polymarket, right? if you're working on the inside of one of these governments and you are found to be doing this, I think you're going to be handled in a much different way than a, you know, barring you from the platform type of thing. Yeah, and just to be clear, you're not allowed to, if you work for the government, you're not allowed to trade on that information. Well, that's the other thing, right? Like, there's a lot of this behavior that we're seeing on these prediction markets is just an outright crime

that could be prosecuted for any number of other criminal offenses. So that was the polymarket drama. Wired had a good summary of the backlash there. NASDAQ has filed with the SECC and not with the CFTC to list binary outcome prediction market contracts tied to the NASDAQ 100. These just seem, you know, these markets are going up on like what is the price of a stock or what is the price of Bitcoin going to be over the next five minutes? You'd have to be a crazy person as retail to actually bet on that. That is some deep degenerate behavior where you are not advantage relative. to some of the big participants of the market.

Yeah, I just don't know why you would need that flavor of risk. I mean, you can already express a view on a stock in a very detailed way with options. You know, there's so many ways. Why do you need it in this package? That feels like you're sitting in front of a slot machine, right? It's just like, is this going to be red or green in five minutes? Like, that is not a plus EV move.

Yeah, you can buy zero DTE. option if you want. Alpin Labs wrote a good report on Bitcoin credit markets. I'm going to put that one in the show notes as well. I enjoyed that one, actually. That was very detailed. That's got some good engagement too.

Credit markets are heating up overall. Yeah. Looks like a U.S. judge has freezed the assets of block fails. That's the company that we've been talking about the past couple of weeks that has a whole. So a New York federal court has barred the crypto trading firm from moving any

the Bitcoin tied to Dominion Capital, citing suspended withdrawals and insolvency concerns. So whenever these type of things happen, it just takes a long time to work fluid through it. But they're being sued. This is going to end up in a bankruptcy, is my guess. Still no major bodies floated to the surface, starting to think there aren't any. That MEV capital thing has been interesting. I don't know if you'd qualify that as a body, but, you know, big defy five. player that had a lot of AUM way down, clearly had some exposure there. Seems like that's falling apart.

All right. So I think that's it for the week. Yeah, I guess we're the deadline to work out a deal here on yield has come and gone. But it feels like there's a lot happening behind the scenes. And I wonder if we'll have a little bit more of a resolution seven days from now. I just don't know what's going to convince the banks to undiggin their heels. I think it's more about convincing some of these senators that this is important to Trump and they need to stop listening to the bank lobby. That's the vibe I'm getting. And honestly, crypto is a priority of the administration, but other priorities will soon supersede it, I think. So the window is closing rapidly. Yeah, I think there's a springtime window here, but then you get into the midterms and it's just a

whole different consideration set. There's just so many other pieces of legislation. they need to be debated and voted on. Yeah, I think that's right. All right, so that's a good place to leave it. Everybody have a safe and healthy weekend, and we will see you on Monday.