On The Brink with Castle Island - Weekly Roundup 04/18/25 (Signature Postmortem, Mantra collapse, Powell on stablecoins) (EP.615)

Episode Date: April 18, 2025

Matt and Nic are back with another week of news and deals. In this episode: We recap Nic's article on why Signature collapsed Crypto exchange OKX announced their plans to expand to the US Kraken announced that US equities are now supported on the exchange MANTRA, a layer 1 network focused on RWAs, saw the price of its native token crash 90% in a matter of hours Global Payments agreed to acquire Worldpay, a payments processor, for $24 billion from FIS and private equity firm GTCR The US Department of Homeland Security has launched a probe into Anchorage, the digital asset custodian, related to the company's AML polices Jerome Powell reiterates his support for stablecoin legislation Strategy (and others) buy more Bitcoin Content mentioned in this episode: Galaxy Digital,  The State of Crypto Lending Nic Carter in Piratewires, Signature Didn't Have to Die, Either

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 as 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, IG 85 billion dollars. 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. I have a brutal cough. This might be a tough episode. I'm I just be coughing. you're looking somewhat unwell over there. I feel fine.

I've just been coughing all day. I don't know what it is. I feel bad for our podcast editor. I've started to hear rumors that there's like a new China virus. Are we allowed to say that? Oh, great. There's a new China virus out there. Awesome.

And the conspiracy is that it's revenge for the tariffs. Oh, really? That would make sense. That there's a new one. Yeah. Yeah. So maybe that's what you got. So, all right.

Well, I know I have a playbook. What we're going to do. Just buy a lot of toilet paper and, you know, I know how to deal with lockdowns. Buy financial assets. Yeah, I know. Yeah, right. Double down on crypto.

Get the money printer up. When ETH wicked down to $89 last time, remember that? It did, didn't it? Yeah. I mean, that was kind of pre-soul being a major player on the financial markets, I would say, though. Or know if anything can save Ethereum right now. Everyone's mental model now is crisis by risk assets. We had trained.

Which is not a great mental model, right? I mean, historically, that's not the way the world works. But when the Fed is ready? You know who might have the hardest job in America right now is Jerome Powell? I was going to say Scott Besson. Yeah, maybe Besson, but Powell's getting a lot of heat today. I don't know if you saw this. Well, Trump is trying to fire him.

Right. Trump wants rate cuts. Warren is lashing out at Trump saying that he needs to be independent, but Warren was calling for rate cuts to Powell six months ago. What's going on here? If you're looking for ideological consistency with Elizabeth Warren. Yeah, not an enviable job either at the Fed or the Treasury. It's just remarkable that we don't have better data.

I guess the Fed has a lot of access to data that maybe normal people wouldn't have, but the Fed's just definitionally going to be behind based on the data lag, don't you think? I want to wind back the clock and address something. Did the soft landing happen? I guess so. Can we declare victory on that? I think it was a soft landing, yeah. I mean, it was, right?

Like, nothing broke except for three banks, but we got stuff to say about those banks. So basically nothing broke. Nothing broke. I mean, we did have some extraordinary measures, right? What was the BTFB? They created new, yeah, alphabet soup. facilities.

Yeah, I mean, basically there was a, I feel like we were dismissive of this. So we have to do a vehicle now and say there was a soft landing. Were we on record? This is a great thing about this podcast. I can't even remember our stance on. We just never remember. Did we say that there was going to be a soft landing? I think we thought that there would be a hard landing.

Maybe that's what I thought. I think you got to give Powell some credit there on the soft landing. I think it was soft. but who knows maybe there's a it's kind of like you could fall further at this point though the landing now is not soft the trapdoor is what it is yeah i don't know if it's landing or yeah that's it we were on the floor and now we're in the basement yeah there's a dungeon there that we didn't know and it was tariff related i think so we had a very big podcast week this week we did um you you you've you've you said

that down with Yuval Ruse and Eric Sereniecki of digital asset, which is kind of a funny name for a firm. Yeah, this is digital asset holdings, now called digital asset. I would say there are few people in the industry that have been so vitriolic towards private blockchains than myself. That's right. That was, that's one of your causes. It's hating on private blockchains. And I want to give myself a lot of credit for not being closed minded to the category. And because what digital asset is doing is not really a private blockchain. They have a public blockchain with a with privacy on top. So I think about it. I'm radically oversimplifying it, but there's private chain elements on a public chain. So consider me intrigued. The private and private

blockchain refers to the data, right? It's not publicly available for someone to scrutinize. Is that it? Well, what I was sort of, refer to the validation. I mean, I was reacting to, you know, at a big financial services firm, you'd have these companies come in in 2015, 2016, that would just come in and say, look, Bitcoin is not going to be a thing. And what we need is a consortium blockchain and not have it open to the public. We're never going to be able to make a public chain work for anything. So it's more of that vein that I was really allergic to. Is it, I guess we have a taxonomy question here.

Is the notion of a private blockchain that not just anybody can publish data to the blockchain? Is that it? Yeah, that permissioning around read, right is definitely one dimension. I've seen various approaches to that. There's also private chains at the validator set shouldn't be confused with privacy on public blockchain. So I think maybe there's a paper to be written here around how to segment privacy versus private node infrastructure and things like that. Yeah. So, because there are a lot of public blockchains that are high.

permissioned in terms of who could do the validation. Yes, correct. Well, Wyatt also did an episode this week, Fred Soon, Michael Ho, from D3 on domain name markets. We've always been pretty intrigued with domain names as a use case for blockchains. I thought it was a good one. I was very bold up on a handshake back in the day. Didn't really take off. I was very bold up on one name back in the day, which is a little bit different.

It wasn't quite a domain, but this was the team from stacks. And now it's stacks. Yeah. There were about four pivots in there. One name was a cool concept. It was kind of a digital identity. It was closer to a domain name for yourself, I guess. I don't know.

I bought my one name back in the day. I did too. It was in the opera turn field, I think. I think it was on name coin, actually, initially. But then maybe it moved over to Bitcoin. I think that was the first not crypto asset thing that I ever bought. I did that and then do you remember the project Open Bazaar, which was like Decentral Earth eBay? Yeah.

That was one of the first use cases. That one didn't really go anywhere, huh? No, he shut it down. The guy shut it down for, I think he was afraid that he was going to get in trouble. Right. There was a ride sharing app back in the day that was one of the first. use cases of an application on Bitcoin. I think it was called Arcade or Arcade City. I'm getting maybe confused with the band, but pretty sure it was called Arcade. And it was a decentralized Uber,

but it would never, there were never any rides. Well, I mean, Bitcoin just doesn't have the latency characteristics to do that. No, I think there was some real actual Web 2 issues there where you'd press the button and there's just no cars in the city of Boston that were on this app. The new one is teleport, right? Is that what it's called? Yeah. I think that's right. So, okay, well, there's not a lot of news this week, actually, but there were a lot of deals.

Well, before we hop into the deal, should we talk about your article? Speaking of Castile-I-on content. So you're back on the scene with Operation Choke Point articles. Yeah. So I guess we're also creating the news to a certain degree. So this is my hopefully final missive in the trial. choke point series. I think it's the last one. You think so? I mean, I think I've covered all the banks at this point. There was Silvergate, covered that one, ad nauseum, now the signature. This was the

abiding mystery to me, was what happened to signature. And I think I've got the answer. All right. So for those who haven't read the article, what is the, what is the synopsis of the article here? And I guess I want to go into some details on the sourcing here. And I mean, you talk to Barney Frank on the record. So Barney, he called me yesterday and he was like, yeah, I always go on the record. I don't believe in off the record. Like, I love that. Good for him. I wish everyone was like that. Right. But not everyone can be like that. So that was very interesting talking to Barney. Yeah, so this started because, well, years ago, you know, signature had been closed down. It was very muddy. A lot of questions is whether a solvent or not. Barney Frank came out immediately and said they were.

He said they were targeted for their crypto business. I totally believe that at the time. I mean, it's weird for a bank to be shut down if they're solvent. Other banks got accommodations. And signature was the second most active crypto bank at the time behind Silvergate. But I didn't ever really have any evidence one way or the other. So my new conclusion is that probably at the margin crypto played a role. For sure.

And Barney told me, I asked him, have you changed your view in the last two years? And he said, I'm more confident that we were shut down for crypto. He actually referred to the Coinbase case with the FDIC. And he referred to those pause letters and said, now we know for sure that there was an anti-cryptoinoes. But the story kind of developed as I talked to these sources. And I know people hate confidential sources. There's like very good reasons why I can't share these people's analysis. And not only that, they wouldn't have talked to me if I had insisted it be on the record.

So the only way this article gets written is if people are on background, on deep background, or fully off the record. So I'm sorry, guys. I don't know. I know people are complaining. But that's the only reason this article exists. So. Well, I said, yeah.

I don't think you're, you don't really have an editor. So I don't know if you have to apologize. I do have an editor. I do have an editor. I adhere to the highest journalistic standards. honestly, even though I'm not really a real journalist or anything. But suffice to say, these are people that were in the room when all of these events went down, basically, on both sides. So I want to start with SVB, first of all. So SVB has the fastest bank run in history.

I think it was 42 billion withdrawn on Thursday, 100 in withdrawal requests on Friday. That was almost all of the funds in SVB. And so that's by far the fastest bank run in history. The second fastest was signature on Friday, by the way. SVB collapses. At this point, they're sent into receivership at noon on Friday. At this point, there's two banks that have collapsed. Silvergate, they voluntarily liquidate. They're in California. Silicon Valley Bank. They're also in California. At this point, the crisis is not, quote unquote, systemic. A political pressure campaign begins to save the SVB depositors. Frankly, from my perspective, I think it was the right call, actually, because this is, what, 50% of the domestic early stage startup industry? You can't

let that fail. I'm sorry, you just can't. There is very good positive externalities associated with the relatively modest cost of saving SBB. I stand behind that. A lot of people disagree with that. based on what I write in the article is Nancy Pelosi calls the White House. And SBB is not even in her district, by the way. Rokana's district, yeah. Rokana, yeah. So she calls the White House. She says, we need to find a way to save SBB.

But of course, bailouts are politically unpopular. And the systemic risk exception, which is a rule that dictates whether the FDIC can sort of override and do a bailout and make uninsured depositors whole, That hasn't been triggered because the crisis is arguably not systemic at this point. So there's a need in a perverse way to find another bank that has failed or will fail, such that the crisis could be declared systemic. That bank was signature. They're in New York. They're a very different kind of a bank.

They banked real estate, accounting firms, law firms. They were not like SVB. They didn't have this flighty department. depository base of tech startups. But they were under pressure, for sure. They had a high percentage of uninsured deposits, and the stock price was under pressure. They're a big bank.

They peaked at $110 billion in deposits, a large institution. They were teetering. That weekend, Barney Frank called Jerome Powell. This is what you get when you have Barney Frank on the board. He calls Jerome Powell. He asks for help. Powell passes him onto Michael Barr. Barr doesn't like crypto. We know that. Bar doesn't call back. They were asking for their collateral at the FHLB to be passed over the Fed so they could borrow against it and get sufficient liquidity to open on Monday. That request is stonewalled. On Sunday night, they're sent into receivership. They're not given the chance to open. They're not given the chance to save themselves. They're sent into receivership. 47 minutes later, the systemic risk exception is triggered.

and everyone's made whole, including SVB. So that's kind of my best explanation for what happened is they were a very convenient takeout candidate because California needed a New York bank to fail so that the crisis could be considered systemic. That's just absolutely remarkable. And I guess it traces its way back to Dodd-Frank, right, that you needed these three banks.

Yeah, and I was had a very interesting conversation. with Barney, he's like, in some sense, this is my fault. I mean, he didn't say it like that exactly, but because it was his law that rewrote and tightened up the systemic risk exception. And then very ironically, it came full circle and it was his bank. The other thing I haven't mentioned is this didn't have to happen. There were offers on the table from at least four financial institutions to acquire SVB on Thursday. This is before the the worst bank run which was on Friday. Those offers were turned down by the FDIC.

I discovered that the reason behind this was Marty Grimberg was beholden to Elizabeth Warren, who had helped him regain his seat as chair of the FDIC and beat Adrian Harris, who was in contention. Warren hates bank mergers, so he was just carrying out his instructions from her. No merger was allowed. the crisis was allowed to continue. That was an interesting wrinkle in the story. By the way, no one's ever reported on that.

And one of these banks was a G-Sib as well. No one's ever reported on this. I think it's very, very notable. This crisis could have been nipped in the bud. It was allowed to continue. Crazy. Well, good reporting there. I mean, really feel bad for signature employees and signature investors, too.

I mean, it seems like this bank did not have to go under. And depositors. A lot of people, employees, depositors, reach out to me and said, thanks for writing this. And my heart goes out to them. I think it was a crime. I think what happened to Silvergate was particularly egregious, but I'm also very sympathetic to signature.

So I'm glad I wrote this. Michelle Bumman said you would look back into those failures in our confirmation hearing. So maybe we will get a reexamination and maybe more facts will come to light. Well, well done on that one. All right. Moving on, let's hop into some deals of the week.

First one up is Aradine. This is a company in the Bitcoin mining space. I believe they're an ASIC manufacturer. They're also pushing into the AI space. They raised $153 million from Stepstone Group, Maverick Silicon, Qualcomm ventures, and others. That's a chunky raise. Next up we have Towns, a decentralized communications protocol. There is 10 million from A6 and Z crypto, Coinbase Ventures, and Benchmark. Plastic Labs is a decentralized identity protocol that raised $5 million from Variant, White Star, and Beto work. Then you have Emberlabs, a meme-centric application chain. Don't know what that means. Raise 1.8 million from Robot Ventures, Lottis Fund and Temple Dow. Then it's optimum, which is a blockchain memory infrastructure layer. They raised $11 million from 1KX, robot, and CMT digital.

Layer zero, the cross-chain bridging protocol raised $55 million from A6 and Z-Crypto. That's a big raise, too. That's a big raise. Yeah. Then you have neutral, which is a delta-neutral yield protocol that raised $5 million from Sticks, Accomplice, and Figment Capital. Then you have Oro AI, decentralized AI platform. There is 6 million from A6 and Z crypto and Delphi Ventures.

Resolve is a stable coin yield protocol that raised 10 million from Cyberfund, Maven 11, and Coinbase Ventures. Then you have Glider, a crypto portfolio management platform. There is 4 million from A6 and Z crypto, Coinbase Ventures, GSR, and Uniswap Labs. And then the last one is Candy Digital, which is an NFT Collectibles company. they were acquired by Futureverse, a Metaverse technology company. I've actually done a podcast episode with Futureverse. Not a space that I'm very deep in,

but Metaverse type of technology seems to be converging with blockchains. So actually also in the news, we have an acquisition. This is not a crypto deal per se, but Global Payments has agreed to acquire World Pay, the payments processor, for $24 billion from FIS and the private equity firm GTCR. World pay is active in the stable coin space. They apparently processed a billion in stable coin payments last year. And apparently they operate as a validator on blockchain networks.

It's a huge deal. I mean, all of these global payments businesses are going to have to be in the stable coin game to some degree. So it'll be interesting to see who goes first and who the laggards are. There's probably some public market investors who are starting to get their attention piqued about stable coins. maybe from the perspective of, like, who are the shorts? You know, who's not adopting this technology? Yeah, I mean, that's the story of stable coins, is creating a big consumer surplus at the expense of maybe some of the margins

of some of these payment processors. I think so. I mean, just the more capital efficient. I guess you will see a lot of these remittance companies adopt stable coins, though. It'll be the ones that can go quickly and figure out the last mile that benefit. Yeah, it's a choice of adoption, or being disrupted.

So I think it's an easy choice. All right. So here's a really weird story. There's a blockchain out there called Mantra, which if you've never heard of, I guess good for you. This is a layer one blockchain network focused on RWA's real world assets.

This was, what was it? Last weekend, this token, which apparently was like a top 20 token on coin market cap, it crashed by 90% in a matter of like an hour.

And no one really, knows what happened here. There's definitely speculation that a market maker dumped the whole supply. There's speculation around the team being involved in this. I guess what's notable here is less that you saw something fall 90% is that this thing was actually a pretty large market cap token focused on a category in RWA is that like has no real regulatory clarity. So it's like what real world assets were you saying were represented on this chain? And why would the token itself be valuable. It doesn't make any sense to me. That's the most notable thing to me is this RWA L1 with very unclear value capture was worth over $10 billion. But it's like a gimmicky $10 billion.

Clearly this thing was being propped up in some capacity by network participants in a way that was just raising capital from retail people on this dream of, hey, it's real world assets. But no one went a level deeper to figure out that you couldn't do a lot of these real world assets on chain. And even if you could, why would this blockchain stand to benefit? It's just a real, it's a puzzling one. I would put onto in that same category. Very mysterious as to why it's worth what it is. The use case is clear.

The token mechanics seem not to be. So I don't think anyone knows what happened here. I'm sure there'll be more of these. Yeah, be careful out there. there, I guess is the lesson learned there. But I think we're going to see some more stories coming out on Montra, because just the mechanics of how something like that falls 90% deserve a lot of scrutiny, I would say.

So also in the RWA space, arguably Cracken has actually announced that U.S. equities are now supported on the platform. This is a sign of things to come, right? I mean, if you're if you're cracking, this makes all the sense in the world, you have a lot of retail and high net worth eyeballs on the platform. on the platform that are buying and selling cryptocurrencies and doing stablecoin stuff. And so why not move into equities? I think you'll see a convergence here.

We see more crypto-native brokerages adding things like equities and almost trying to be a new front door to financial services for their customers. Cracken bought Trade Ninja a few weeks ago. So definitely a concerted push into broader financial services here. Also in exchanges, OKX, the offshore crypto exchange, they announced their plan to expand to the U.S. So they settled with the DOJ for $500 million over operating an unlicensed money transmitter business. It looks like they are feeling empowered to enter the U.S. market now. You think we'll see more of this offshore venues coming to the U.S.?

I think so. I mean, Deribate pending acquisition by Coinbase is another great example. Is that really trading to Coinbase? I saw that report, but I don't know. Don't believe everything you read in the news is what I say. I predict that it happens. With a high degree of confidence. All right.

Let's talk about micro strategy. It wouldn't be a podcast episode without talking about them. So micro strategy or strategy is they're now called. They acquired 3,459 Bitcoin the past week for approximately $285 million. They now hold $531,644 Bitcoin. We also saw Metaplanet, which is the Japanese investment firm, kind of running the same Playbook, they acquired $26 million worth of Bitcoin. They announced it on $4,500 and change Bitcoin. And finally, similar Scientific, which is another one of these publicly traded companies that

is stock buying Bitcoin, they filed an S3 statement this week announcing a securities offering to raise up to $500 million for purpose of buying Bitcoin. They currently have $3,100 and change Bitcoin. So we're seeing a bunch of these publicly listed companies, get more active in putting Bitcoin on the balance sheet. There are dozens of these now, dozens. And I don't understand how or why, because if you wanted to buy the public company, Bitcoin company, wouldn't you just buy a micro strategy? Why would you buy one of these smaller ones?

Well, I don't think I would. But I guess the theory is that you can do more out of the corporate wrapper. Right. So you can lever it up maybe in a ways that you couldn't with pure. Bitcoin. You could also issue convertable notes and maybe the convert market is interested in having something with an esoteric exposure and upside of Bitcoin behind it, the preferred market. So it seems like it is financial engineering to fund a buyer basis beyond just the pure I want to buy Bitcoin customer. Now there's companies that do this for

Solana or company, I guess. What is it called Janover? Yeah, we've talked about that on the podcast last week. So it's a playbook that will maybe be run on other assets in the crypto space. I kind of have a hard time seeing this working with like the 20th biggest all one, though. I think it has to be one of the majors. Yeah, it's not immediately clear to me that this is a replicable playbook, even in Bitcoin, let alone other assets. But who knows?

Doesn't mean people won't try it. No one's doing it for Ethereum. No one is doing it for Ethereum. Is that right? There's not an Ethereum version of this? There has to be. I would say consensus probably aspires to that if they eventually list. Ethereum is just getting smoked, huh?

The sentiment is very bad. Just kind of stuck in the middle, huh? Between Bitcoin and faster smart contract chains. Every time we said that, we get a lot of heat, though. I wrote an article about this like four years ago. You know who wrote an article about this? John Feffer. He did. Pfeffer was right.

For a long time, people thought he was wrong, but he was actually right. We're going to get a lot of heat for that. Every time we mention that article, we have Ethereum people in our DM saying you're wrong about John Feffer's paper. It's been seven years, seven and a half years since he wrote that. Yeah, at least. At least. That's, wow, time flies. I remember so clearly when that came out, it was December 2017, I think. one of my favorite podcast episodes ever

was sitting down with Feffer when we used to have that office in Cambridge and just, it was like a two and a half hour podcast. That was a very early one on our show. I think he wanted the first 50. Went out and had a nice steak dinner after that one. That was a great steak.

Yeah, good wine, too. So Jerome Powell is under threat, but he also likes stable coins, apparently. He says, I think the climate is changing and you're moving into more mainstream of that whole sector referring stable coins. He says, so Congress is again looking at a legal framework for stable coins, depending on what's in it. That's a good idea.

We need that. Wow. I like that. So in a week where Jerome Powell is getting a lot of heat, I like what he has to say about stable coins. I mean, the Fed is the biggest outstanding question in terms of banks ability to touch stable coins, in my opinion. That's tone at the top.

You know, my question on the bank's sketch. getting into the stable coin market is what do they want to do here? Do you want to tokenize treasuries or are they going to try to just push tokenized deposits? From a business model perspective probably would make more sense for them to push a tokenized deposit, don't you think? Well, they don't want to disrupt themselves. I mean, a high yield savings account is not yielding anywhere close to the rest of your rate. So they want to be careful.

Well, they want to be careful. but if you're just issuing and you're having to just keep the collateral immobilized and kind of have a narrow bank type of apparatus, there's not as much credit creation. But would a bank want their deposits moving around on an open loop network? I mean, that's antithetical to the way banks work, right? I would think, plus you talk about SVB and just the deposit flight and how fast that happened, I'd be worried about that if I was a bank.

Yeah, I mean, you could just nail the basics. onboard the issuers, on board the PSPs, build API level banking. Let your clients use stable coins for deposits and withdrawals. Let them deposit and withdraw outside of banking hours. Let them use as an alternative to international bank wires. Just do that. And you have a great franchise. Yeah, it's kind of, there's some very low hanging for it there to just do things like

what you just said versus launching a competitor to tether a circle. So speaking of banks, JPMorgan now supports 20. 24-7 blockchain-based settlement in British pounds, in addition to their Euro and dollar offerings, via their permission network, which is now called Kinexas, formerly known as Onyx. Apparently, they handle $2 billion in payments volume daily. I mean, maybe we owe them an apology. Like, is their private blockchain is working. Yeah, but you don't see announcements about private database products launching within banks.

And it's just like, why is this news worthy? It's like, JP Morgan, right? runs a private database that they call a blockchain and it does a lot of volume. It's like people's Oracle systems do a lot of volume too. They got us to talk about it. So it's become newsworthy thanks to us. Yeah. Like now we're talking about it.

But I don't know. They rumbled us. Don't get too excited about a private blockchain is what I would say. Here was a very good tweet from a certain Mr. Alex Thorne had research at Galaxy. See, they, I think maybe for the first time, actually assembled all of the data in terms of lending. And crypto lending is just nowhere near where it was in 21, 22, which is arguably bullish. Yeah, that's a good development. He got his hands on some really good data here.

So he was able to get these companies to actually disclose quite a bit around the total size of their loan book. I guess the takeaway is that it seems like it's in a helpful. through a spot these days. Yeah, so he followed it up with a segmentation between defy lending, CDP stable coins like maker, I guess it's called Skydow, and then CFI lending. CFi lending is way, way below where it was. But defy lending is at an all-time high, actually. So the composition of lending and crypto has changed a lot. It seems like people just trust defy lending apps more now. But I would say the market's still arguably starved of credit. There's a dearth of credit, in my opinion, in these markets, especially on the private side.

Well, you talk about opportunities for banks. I totally agree that there's a dearth of credit. Why wouldn't a bank look at an over-collateralized Bitcoin loan, like a cash loan against Bitcoin collateral as an attractive place to play? Helping some of these companies that are trying to initiate these loans. But it's a very safe credit if you just imagine you can liquidate the collateral, you know, if it's at a good LTV, right? Yeah. So his data shows that aggregate lending peaked at 3% of crypto market cap in 1Q 2022. It's today just above 1%.

So it's actually really comfy data, if you ask me. It shows us that the leverage is not where it was, which you know, these cycles in crypto are arguably credit cycles now. And we had a massive credit destruction event in 22, 23. I think we're in a healthy spot. Where I think the credit in the leverage in the system is less opaque is around the centralized financing for the basis trade. So you think about these. Yeah, that is a source. Right.

Like you think about these pod shops that are buying spot Bitcoin and shorting the CME futures contract for Bitcoin. They are very highly levered. And some of those pod shops own, you know, tons of Bitcoin. But they're doing that strategy across every other asset class. too. So it's not a crypto-specific phenomenon. Yeah. And if you look at their solvency, I mean, I'm less concerned about them, so I don't see credit destruction coming from that unless the structural contango in Bitcoin disappears. But yeah, you're right. That is a source of leverage that is less easy to discern

and harder to quantify. And arguably, micro strategy is also a source of leverage for Bitcoin specifically or they utilize leverage to buy bitcoin they do but they don't do it in a way that i think they would have to have a radical drawdown in big i don't even know if there's a level that he could get stomped out he's been able to do that largely through converts my alarm bells are not ringing there when it does get to potential credit risk issues will will tell you but yeah i'm not concerned about the leverage build up there the podshops just generally I guess general comment outside of crypto, if one of those things were to have a real bad blowup from a risk management perspective, that's probably at the level where it's systemically important.

And you're talking about a long-term capital management style bailout situation. Well, everyone's talking about the basis trade, not the crypto basis trade, but the treasury basis trade. Yes. Which apparently is collapsing right now. Yeah, I think you've seen some movement there. I wouldn't be surprised if you've seen smaller pods below. up over this. But yeah, I mean, the 10 years moving around like crazy. It's either someone's selling,

some nation state is selling or some bank at a nation state is selling, or you just have these pod shops risk managing by blowing people out of positions. I think it's too early to tell whether sovereigns are selling treasuries or not. And also, I'm a seller of this idea that there's going to be a structural rotation out of U.S. tech companies into rest of world because they just don't sell the same product we do. They're not building the next OpenEI or Tesla. It's not built anywhere else. If you want exposure to these high growth tech companies, there's only one place to get it. I've been asked twice in the past two days around dollar dominance. So outside of crypto, how does how would the dollar losing its dominance impact the state?

stable coin market. And I'm curious your thoughts on this, but the way I'm thinking about that is there's really no alternative. You could have a basket of currencies maybe emerge, but it's going to take a while. And then for that to translate itself into the blockchain space will take even longer. So right now you're just seeing 99% of the stable coin market be denominated in dollars. And I don't see any signs that that would change anytime soon. And I think the stable coin market is an excellent indication of,

If the sovereigns are not involved and you let the market do what the market does, the liquidity characteristics mean that you have extreme concentration on one asset, basically. Right. So to me, that's very indicative that these things are enormously sticky. And for efficiency reasons, you don't want to be trading in and out of a basket of different effects. So I think the stable coin market's a great indicator of continued dollar dominance. I mean, that's the only free market for currencies in the world. I mean, to take this a step further, to end up with something like a bank or, like the Keynesian bank

where it's a global currency that it's almost like a, what is it, the special drawing rights is maybe the closest thing to this, the IMF special drawing right vehicle. The only way that's going to happen is if there's a world war and that is agreed upon at the end of the world war. Like that's not something that is organically going to pop up. absolutely not and you need a superpower to underwrite that system and manage it the UN does not have the authority to do it the IMF certainly doesn't the Bretton Woods institutions don't you need one large very powerful sovereign to say this is the system we had the opportunity to do bank or actually

in that Bretton Woods conference and we chose not to and we went the dollar out but yeah you need some sovereign to say this is the new system there's been no structural change yeah we have some de-globalization, but there's no break. The U.S. has not lost to World War. Nothing is going to change. I don't know why people are panicking, saying the dollar is going to collapse, et cetera. It's not going to happen.

Yeah, I mean, I think this, like I said, it only happens at a world war that probably the U.S. loses ultimately, right? So it's, you just wouldn't want that to happen. But I don't know. Within the crypto space, I do think you need more, you do need more diversity in stable coins, if for nothing else to facilitate some of this last mile liquidity. into places like Latin America and places in Africa,

whereas it would just be a lot better to have their version of fiat tokenized on a blockchain to make that an easier process. But I don't think you're talking about massive scale in terms of the total float of those currencies. Yeah, I do think the stable coin market would be much healthier if the dollar dominance is down to, say, 95% from 99.

Because as you say, it's much easier to do an on-chain swap from the dollar to some other FX, but you need those other FX stable coins to exist. They basically don't exist. All right, I think that is it for the week. Not the busiest news week, and everyone just wants to talk about tariffs.

This is the wrong podcast for tariff takes. Yeah, but there's another, what, 75 days of this tariff pause, and then we get to do it all over again. Yeah, we'll just get a 90-day extension, and we'll just talk tariffs all year. How about that? Did you watch all in? they've talked about tariffs for a long time.

No, I, you know, the last all-in episode I watched with Besson, and I liked it, but then the world melted down. Yeah, so you're staying away. Boycotting that podcast for now. All right. Well, I think that's it for the week. Everybody have a safe and healthy weekend, and we will see you on Monday.