On The Brink with Castle Island - Weekly Roundup 04/12/24 (SEC sues Uniswap, Core dev funding controversy, CPI print) (EP.518)

Episode Date: April 12, 2024

Matt and Nic return for another week of news and deals. In this episode: Our reactions to the CPI print The SEC announces its intention to sue Uniswap Sen Warren doesn't like the stablecoin bill Howard Lutnick weighs in on stablecoins again Saylor's core dev funding controversy Sponsor notes: An Introduction to the Solana Network In Coin Metrics State of the Network Issue 254, we provide a data-driven overview of the Solana blockchain, exploring its architecture, ecosystem, network usage and adoption metrics

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 concentrated easing. You've printed a couple trillion dollars, and all of a sudden, people start to worry.

So out of this worry, we have something called the Bitcoin. Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to by Coin Metrics. And here is the Metrics Minute. For today's Metrics Minute, we're looking at Solana and its network data metrics. It's engineered for high transaction throughput and low fees, average blocks are 0.5 seconds compared to 2 seconds for Avalanche and 12 for Ethereum.

Due to its low fees, about 80% of the total value transferred on Solana stems from minnow transactions under a million versus 40% on Ethereum. Vote transactions on Solana drop from 340 million to 130 million since October 2023, while non-vote transactions rose dramatically into getting increased user activity. Recent events like the Jupiter AirDrop and meme coin frenzy causes surge in mean transaction fees upwards of 500% in March. This congestion has been exacerbated by biopiased. spamming transaction resulting in high transaction failure rates.

Stable coins are becoming increasingly crucial within the Solana ecosystem with the supply of USDC on the L1, reaching $2.5 billion in USDT at $1.8 billion. That's your metrics minute. And this is our first time recording video for this podcast. I think there's probably a 2% chance that we're actually going to be able to upload this to YouTube. It's not going well at all. No, it's not. It's a lot more complicated than it looks.

I don't know. All these video podcasters, I give them a lot of credit. I don't know how to do it. Everywhere. It's so hard. Disaster. Yeah. And it took us like six months to set up the studio, too.

Oh, yeah. We hired a guy. He honestly wasn't very good at setting up the studio. So then we ended up having to kind of do it ourselves. We DIYed it. And I, you know, I'm sitting up here in a studio. I didn't, you know what I didn't factor in? This is a studio in our office that doesn't have air.

conditioning in this particular room. That's going to be a problem this summer. How is there no AC? I have no idea. It's it was not part of the calculus. You're going to get hot. Especially with the studio lights. Studio lights, you know, it's kind of crazy up here. So we're going to have to figure that out. But maybe we'll get this on YouTube. The hottest I've ever been in a podcast episode was when I did Aubrey Strobel's podcast, the observation. Oh yeah? And it was, It was like summertime in New York, and they had to turn off the AC to record. And I was wearing a blazer also for some reason. Yeah, that doesn't sound like a wall blazer.

I sweated through my shirt. It's disgusting. Well, we did have a good podcast week. You had Quinn Thompson on the podcast. That was a good episode, all about macro. Yeah, Quinn's launched a new fun liquor capital. all very excited to see how he does with that. We recorded that one at my place in Miami.

That's the first time. A lot of interesting macro takes on that. So you guys talked about the halving, whether or not it's pressed in. It seems like Quinn thinks there's going to be a little bit of a sell-off here. Yeah, he is, he is takes on that. Actually, there's some macro stuff that happened today. I'm not an expert on this at all. But we had inflation coming hot, is my understanding.

Correct me if I'm wrong. I don't know. Inflation came in a little bit hot. And the 10-year, the long end of the curve is they say rallied. And regional banks sold off because rise in the 10-year long-duration bonds bad for the banks, I think is the way that works. And Bitcoin is kind of flat, right? Bitcoin's relatively flat. We've had outflows in the ETFs the past two days. Gray scale just continues to hammer it.

average AUM. Yeah, Bitcoin didn't really react very much. Actually, rallied, I think, on the... Well, hang on. When did the data come out? Was it 8 a.m.? 8.30 a.m.? It came out this morning, yeah, around 8 or 9 a.m.

All right, so Bitcoin actually sold off on the news, but then rallied thereafter. Kind of, like, tough to make sense of it all. You're honest with you. I mean, I've been listening to macro podcasts nonstop for the past three or four. four years. And one of the things I was thinking about because seeing people tweet about it this week is if you go back and actually listen to some of these macro podcasts from a year ago,

they're all doom and gloom predicting the end of the world. None of that stuff ended up happening. All right. So I think my interpretation for what's going on is inflation came in hot. Ordinarily, you'd think that'd be bad because it would imply higher for longer, right? however people think that it was going to cause another banking crisis which will force the Fed to reopen QE so it could be so bad that it's good it's the psychology you talked about this with Quinn but it's people thinking about the second derivative effect and thinking about how many people have the same view it's just you can get yourself in a pretzel thinking about this yeah I think that's where we are it's not so bad that it's bad We've actually transcended bad and we went back over in a good again.

It's so bad that it's good. It kind of makes me regret taking macroeconomics because you might as well be taking astrology. None of these macro textbooks had the concept of quantitative easing in them when I took macro. When I was an undergrad, the worst grade I got in college was macro. I find it to be very counterintuitive, the whole macro. It's not actually a science. Not at all.

not at all. Yeah, micro makes a lot more sense to me. Well, that was it. There's a very light news week this week. Basically nothing happened. And we are recording this on a Wednesday, so get that on the bingo card. Yeah, basically a lot of deals were announced this week and nothing happened. Newslines. We had some stuff happen. We had a treasury testifying, treasury official testifying about the anti-moner laundering bill and Iran. So there's some stuff to talk about, but why don't we hop into some deals? We're on the board twice here to start. Love it.

So first up, we have Monad Labs. They are building a new highly-performant blockchain, parallelized EVM. They raised $225 million from Paradigm, Us, Electric Capital, Green Oaks, and many others. Super excited about Monad. Super excited to be back in Keone, James, Eunice, and the whole team over there. this is a big swing for us i'd say this is probably the most excited we've ever been about a net new l one that's right i mean it's pretty much the only new l one we've ever backed

i mean it is the only new all one we've ever backed yeah we're fired up yeah we're fired up about this one so congrats to the monad team next one up is alpin labs this is a bitcoin layer two network that leverages zero knowledge proofs there is 10.6 million from ribet capital castle Lylein Ventures, us, and robot ventures, among others. So really excited about Alpin. This one happened maybe about a year ago, just got announced. Yeah, that's right. Exceptionally strong team.

Couldn't be happy to be backing Sims and the rest of the team. Really a star-setted cast over there at Alpin. And yeah, look, they've been working on Bitcoin L2's ZK roll-ups since long before it was L2 season on Bitcoin. So they were way ahead of the curve. And yeah, super, super excited about Alpin. Next one up is a really interesting one. So this is Link Doe.

It's an investment platform. Historically, they've been very active with blockchain-based companies for risen capital. They have agreed to go public via a merger with a SPAC. And the SPAC is blockchain co-investors acquisition. The deal is valued at 700 million. So congrats to the team over at blockchain co-investors. These SPACs, you know, they haven't been a ton of transactions as of late. So really exciting to see this happen.

and to have blockchain focused spacks back in the news here sign of a healthy market next up we have ellipsis labs they are building crypto exchange there is 20 million from paradigm and electric capital and then we have thesis this is the studio that is building a bitcoin l2 called mezzo they raised 21 million from pantera multi-coin hack vc and others then we have loomaz there are blockchain scaling infrastructure project there is six million from okayx hashkey and kukcoin then we have today this is a blockchain gaming platform there is 5 million from sphermion big brain holdings collab currency gsr and a number of others next up we have planet mojo a web 3 gaming studio there raised 10.5 million from animoka merit circle and sfermian ordinals bot which is a not surprisingly

a bitcoin ordnals focused company they raised 3 million from dacm eden block cms and others then you have Cellula, Cellula, Cellula, impossible to say. They are blockchain gaming company. There is 2 million

from 7X Ventures, OKX Ventures, and ForsyVentures. Then it's Open Trade, a lending and yield products platform that raised 3.2 million from Andreessen,

startup accelerator, CMCC, and Draper Dragon. Then we have Kiki World, a blockchain-based community commerce platform. There is 7 million from Andreessen, Esté Lauder, and others.

Estée Lodder. Have we ever had S. DeLotter named in the deal section? That might be a first. I like that. Then the last one, at least for now, is Aradine. This is a Bitcoin mining manufacturer. They raised $80 million from Stepstone MVP ventures, Mayfield, and Marathon.

Bitcoin mining. All right. Well, I'm going to start us off with a new piece of news that dropped as we were recording. Hayden Adams of Uniswomp tweeted that they got a Wells notice from the SEC. Oh, wow. He has a long tweet. He says, I'm not surprised, just annoyed, disappointed, and ready to fight. He says, I'm confident that the products we offer are legal and that our works on the right side of history.

And then he says a lot more stuff on top of that as well. Wow. Interesting. So Uniswap, I think we've known that subpoenas have been flying for, what, like two years, actually, at this point with large D5 protocol. So it's been investigations. Uniswap's a particularly interesting one. I'm curious to see what this eventual charge looks like. It'll probably be something along the lines of running an unregistered securities exchange,

if I had to guess. What would you think? I mean, there's also the token, of course. So it could, well, they also did turn on the fees recently, right? Yeah. I don't know if that made a difference at all. But I would say I am not at all surprised by this. Well, it's clear that the SEC has a view on these D5 protocols and particularly the ones that have done the token.

So I'm not surprised. Maybe it's a good thing for the industry, though, to have it be brought against Uniswap as opposed to any of the others because Uniswap is very well funded, has a great legal team. You know, it seems like they did their best efforts on actually being in compliance with the way they raised capital and actually disseminated the token eventually. So they will certainly fight. I didn't see the tweets on, but they will dig in their heels and fight, and I think they will have great representation on that. Yeah, they are one of the better equipped, if not the best equipped Defi protocol to go to the mat with the SEC on this.

So best of luck to Hayden in the team. So as it gets towards the end of the Gensler SEC regime, assuming that my kind of base case, maybe we should talk about this, My base case assumption is that if a Republican is elected president, Gensler will not be in charge of the SEC. But there's also a good chance that if Biden gets reelected, someone else would be put in that seat. And you could see Gensler wanting a bigger position, either in the administration or maybe he runs for office or something. So there becomes a time when, as you get towards the finish line here on the election, will they be bringing these cases? And then what's the discussion?

You remember when Jay Clayton went after Ripple, he had a meeting with. Gary Gensler towards the end there and presumably there has to be some sort of a handoff there you wonder if the next SEC chair will want to be as hostile well yeah i mean gensler inherited that case and didn't give it up so he did keep going on the ripple case yeah he kept going on it for sure so no that'll be interesting uniswap i wonder if there'll be some more shoes to drop yeah i mean technically the handover uh assuming it's not by which we don't know, is in Jan of next year. So there's still some ways to go.

Genser still has time to wreak havoc. Speaking of wreaking habit, did you see Elizabeth Warren had a letter to McKenry and to Waters about the stable coin bill, basically saying, be careful. Be careful about the stables. Yeah, so I was actually wondering to myself, is there any crypto product at all that Elizabeth Warren would be in favor of. Is there anything that could be created with crypto that she wouldn't hate?

That's a good question. What is she saying in the latter? She says, efforts to create new regulatory frameworks around the stable coin market, including those that aim to fold stable coins deeper into the banking sector could amplify and entrench risks

rather than mitigate them. The risks she mentions are risks supposed to consumer's financial stability international security. I urge you to remember the gravity of these risks as you consider proposals to regulate stablecoin and avoid introducing legislation that holds the potential of unleashing another financial crisis. You look at stable coins as a category.

It's what, what are stable coins, the 14th largest holder as a group of U.S. treasuries at this point? If we're talking about sovereigns. Yes. 16th by my count. team largest, which is pretty remarkable. I mean, this is at the point of, I would argue, being systemically important. Obviously, the dollar is being exported at tremendous scale.

Why wouldn't you just want to pass a stablecoin bill and make sure that you establish the rules of the road? So one thing she says in this letter is she talks about how USDC lost its peg last year. Yeah. And she says, this is one of the first instances of demonstrated contagion between crypto and traditional markets. Well, hang on a tick, Elizabeth. The direction of travel here was SVB had problems, and that caused problems for the USDC. It wasn't that stable coins were the problem.

Stable coins were the victim of the banking system being fragile, which, by the way, Elizabeth Warren is largely responsible for the bank run. she was the one sending harassing letters to Silvergate and kind of encouraging the bank run for God's sakes Oh, she was copying pasting letters from a shortseller in the Silvergate And I believe signature Signature. So really exacerbating it

That spilled over to SVB. So this analogy is this example doesn't work Because it wasn't the stable coins fault That there was a banking crisis So what kind of a point is she trying to make? I don't think that she's really going to, she's not endeavoring to be truthful with the explanation. It's just to get on the board and say negative things about crypto.

Man, we need Thanksgiving to come around. She can start saying bad things about big poultry again. Yeah, I mean, this is a very generic letter, to be honest. She says stable coins pose She just asserts that stable coins pose a risk to the financial system Through what mechanism? Through what mechanism? And then she says they pose a national security risk

Because, you know, bad people use stable coins Which, I mean, you could say the same for the banking system Say the same for cash So are we going to ban those Because bad people use them? What's her proposal there? So in what order do you think we get legislation in the crypto space whenever we get it? So if you look at stable coins, you look at Sab 121, pulling that back, and you look at a market structure bill, if you had to guess which one happens first.

Stable coin for sure. I think that one is 70% to happen in the next 24 months. Patrick McHenry had comments this week at a Bitcoin conference, I believe, saying that he thinks stable coins could actually happen this year, which a little bit surprising to me. I would be shocked if it did. But you would think that it is bipartisan to some degree that bill. So you would think that maybe that has somewhat of a shot. And certainly from the U.S. geopolitical perspective, that would be a home run. Just get a stable coin bill, allow other issuers that are regulated in the U.S. to emerge, compete in this market, export dollars.

I mean, if you say that stablecoins are 16th on the list of sovereign holders of treasuries, if you were to pass a stable coin bill, that probably puts them in the top 10 pretty quickly, I would think. I mean, there are $157 billion. If you look at the rate of change, it's actually, it's parabolic in the sense that it's a gentle parabola. It's not like hockey sticking, but it is growing quite quickly.

Because of crypto-native interest rates are high, crypto-balance rates are expanding. Not out of the question that we could be at $200 billion this year. new all time high for stable coins. I can definitely see that. I don't think it's systemic yet because there's no systems that really depend on stable coins aside from crypto

so I don't see it's systemic outside of crypto. But yeah, I mean, it's getting big. I think these things are all intertwined though, to be honest with you. So if you were to pass Sab 121, obviously get the banks in the industry. But market structure and stable coins really go hand in hand here. So if you want to cut down on, you know, pernicious token

launches and pseudo-ICOs and things like that, you really, you should be doing that because those are the types of platforms that will attract a lot of stable coins, I think. So if you just have a bunch of these Ponzi crypto AI scams that have yield farming and whatnot, there are going to be a lot of stable coins that rush into those things and have the potential to rush out. And so I think putting a framework in place for teams to be able to raise capital under an SEC oversight to prove that the token is decentralized over time. They're all tied together here. Those are the types of projects that you definitely want to, the scam ones at least, you want to be able to just choke off before you have the next decentralized FTX happen. So speaking of stable coins

and national security, our favorite investment banker piped up this week. Howard Lutnik? A certain Mr. Howard Lutnik who's so great. See an investment banker? What would you actually call? Cander is an investment bank, right? Yeah, he's my favorite banker, for sure. Is Canner not an investment bank? Oh, they do a lot of stuff.

I guess investment banking is part of it. But they're one of the largest players in the treasury space, aren't they? Well, they do work for Tether. I don't know. I guess they manage Tether's portfolio part of it. He loves Tether, but he doesn't just love Tether. His love is not confined to tether. So he says, what did he say?

All right. So he said, it's reported in Bloomberg, dollar hegemony is fundamental to the United States of America. That's what Bloomberg. They said the United States. It matters to us, to our economy. This is a journey analysis conference. That's why I'm a fan of properly backed stable coins.

I'm a fan of Tether. I'm a fan of Circle. He says, you know, he says, he's sharing. the love here he says stable coins like tether drive non-systemic risk to the world it drives demand for u.s. treasuries and it's fundamental for the u.s economy it's better and it's everywhere and thank goodness wow effusive afusive Howard lutnik he doesn't like spokesman for the industry he doesn't like cbDCs he says uh if we make a cbdc china will define it as the american spy wallet. Okay. I don't understand that. He says when proper blockchains, I mean,

blockchains that are fast and cheap are available. I think we'll see over the next 10 years tokenization of financial assets. No, tokenization fan too. Well, Howard Ludnik, I love it. It makes sense on the tokenization front though, right? It's a I think if you think about the tokenization of real world assets and the fact that Black Rock is so excited about this. The reason they're excited in the first place is that they're going to just cut down massively on the post trade fees. If you can have an asset on a blockchain, you can have a stable coin on a blockchain to settle it. And what if you could settle securities transactions in a Black Rock money fund or something like that? You just think about the net benefits

to the asset management industry versus the sell side on something like that. I think that's where this gets really interesting. So I tend to agree. I don't know how long that's going to take to happen though. It's really hard to bet on something that's less of a technology problem and more of a, you know, ecosystem problem, more of a minimum viable participant type of a problem. I will admit, I've never been enthralled by tokenization. Like, it doesn't spark joy in me at all. It sparks no joy. If you look at the income statement, it's more of a play on the cost side of things than it is on just creating net new demand. Although I'd say there are categories of assets that just are not freely available.

And so maybe you could democratize access to certain types of assets in ways that you couldn't. I think people outside the U.S. if they were given the opportunity to own, you know, U.S. securities in an easier way would definitely be buyers of that. Well, that, yeah, that part's more interesting is globalizing treasuries, dollars, etc. frictionlessly. But yeah, I'm somewhat scarred from going through the private blockchain days of your, where you'd have these great ideas, but then you'd figure out that, okay, actually, this only works if we get 20 different financial institutions on board, and we all go to the

DTC together, and even then it's not clear. So, you know, you just can't actually push anything into production. So then you end up tokenizing the hotel in Colorado instead. So how do we get Howard Lutnik on this show? How do we do it? Is he on the X? I don't even know. I mean, it seems like he goes on CNBC and Bloomberg.

Are you telling me we're not at the same level of prestige? Oh, no. I think we have way more listeners than Bloomberg, especially when they have you on on like the day after Christmas. I think there are 12 people watching it that day. Why am I catching straight? The thousands of brink listeners every day. Yeah, of course.

No, all my friends were watching Bloomberg. Friends and family. I was tuning in. Yeah, like there were at least a couple dozen. Yeah, I think we should get him on. We have a busy podcast slate coming up, by the way. Do we have a bunch of episodes in the can. Yeah.

Okay. All right. Well, we'll see if we can squeeze Howard Lent again. Is he on your top list? Yeah, he's my number one. Well, Javier Malay is my number one. I feel like Saylor needs to come on this podcast. I mean, we have a rich history with Saylor,

but I worry that we just ask him one question, and then that's time's up. Saylor was the subject of controversy on crypto Twitter. week. Did you see it? Yeah, fill me in on this. So what were people saying? Is he going to convert to an ETF or something? There was drama. I believe Matt O'Dell said that he was pressuring the ETF sponsors to not support Bitcoin Core development. That's the allegation. Because from what I understand, he thinks that it would kind of compromise the neutrality

of Bitcoin Core and would look like capture on the part of the sponsors. I don't share that opinion, to be clear, for like we are investors in Bitwise. We support them in their laudable sponsorship of various Bitcoin development associations. I think all ETF sponsors should do that. I think Fidelity should do it. I think BlackRock should do it. Right now it's just Bitwise in Vanek. Well, I don't know.

I think there are some that have been quietly supporting Bitcoin Core for years. I mean, Fidelity has been supporting the DCI initiative for years. I remember having Corey Fields in to talk to the group of Fidelity. So some people just aren't as public about it. Well, then eliminate the ambiguity, you know, put out a press release. Speaking of Bitcoin Core, did you see that Vladimir Vendelon had a code come out last week? Yeah. And this is, I would say, direct result of the COPA lawsuit.

being successful. You know, the judge ruling ends Craig Wright. And so, yeah, speaking of sponsoring Bitcoin Core, look, people think Bitcoin just runs itself and the developers don't need to be paid. They don't need support. They do. And COPA is a great example. There is a Charlotte and this liar and now demonstrable fraud, Craig Wright, who was legally

harassing these developers. and causing them to go into early retirements. That actually is a real thing that happened, and it caused tremendous brain drain from Bitcoin. And only because certain ecosystem members, and I would say primarily Jack Dorsey stepped up and funded Copa, came to the defense of Bitcoin Core Devs legally, which was a very expensive case.

Only because of that, now they feel empowered to go back to work. without living in fear that working on this open source project would cause them to be sued for millions of dollars. That is a great example of why core devs do need support. It doesn't just run itself. Yeah, yeah, for sure. I saw that news that, or I saw someone on Twitter say, hey, Vladimir just put in a code commit. I kind of had the same feeling I get when it's like, hey, there's a rumor that Tom Brady's going to come back or something. Yeah.

One of the all-stars is coming back in the game. We lost most of the long 10-yard core devs. It was a big loss. Are the chain code guys still active in the space? Yeah, they're still cranking away. Yeah, chain code had a nice stable of core devs. A lot of the block stream guys seem to have stepped back, too. Yeah, right now I'd say Brink and Chain Code are probably the two major organizations.

All right, so this has been a, I'd say this has been the bumpiest podcast we've ever had. Our video just went down. I just don't know. I don't even know if anyone's ever going to hear this. I give Riverside one out of ton. If there's anyone from Riverside listening to this, get your software to work, man. You guys suck, okay? You suck.

Come on. We've just been fumbling over here. And the other thing is that I need to figure out where I'm looking with these camera angles. I get cameras over here on the laptop. Matt, when you look at when you look into the main camera, you look like a politician that's during a debate where they stared directly into the camera and they're like, and now let me address America.

And now let me talk about Sab 121. And this one's for you, my fellow Americans. So don't do that. Don't do that. I would say don't. It's disconcerting when you stare directly into the camera. It's a little too personal. But then I need to look down at the deal section to read.

So then you're just looking at the top of my head. Yeah. I would say look anywhere other than, the camera that's too intense. I can't hold your gaze like Medusa. Okay. Yeah. All right.

Well, I'll try not to do that. I don't even use YouTube for podcasts. I'm a strict audio person. We're going to experiment. I think this one is probably not going to make the cut because we did fumble it significantly. Yes. But like if any of you want to watch on YouTube, maybe these people exist. They must exist.

It's possible this goes on YouTube, but I would give it at this point. as 0.1% chance that this makes it to YouTube. Also, I need a haircut, and it's just these are the types of things that really, you do too, I guess. Yeah, me too. So here's what I thought. I thought all of our listeners would put us on

while they were on a run on a Friday morning or doing the laundry or something. How can they listen on YouTube? Why would they want to? You don't want to carry your phone with you on a run. I know. Like looking at the screen. So I thought we were really an audio-based platform.

I thought so too. But all of these other podcasters are saying, you got to put it on YouTube. That's where everyone engages with it. So we'll see. We're going to empirically test this. We're going to test it. We'll do an experiment.

All right. So that was a whole fiasco. But that's the news for the week. We'll be back on Monday. We have a special episode on Monday. So everybody have a safe and healthy weekend. We'll see that.