On The Brink with Castle Island - Weekly Roundup 05/09/25 (GENIUS stalls, Coinbase buys Deribit, Bessent on stables) (EP.622)

Episode Date: May 9, 2025

Matt and Nic are back with another week of news and deals. In this episode: We have a new Pope The etymology of ampersand The GENIUS act collapses spectacularly Coinbase consummates its acquisition of Deribit Did World Liberty Financial's USD1 torpedo the GENIUS act? Did "pro crypto" democrats snake on the industry Scott Bessent thinks stablecoins could reach $2T The OCC says banks can provide crypto custody and execution Stripe is launching stablecoin financial accounts The SEC explores a sandbox for tokenized securities Tariff the L2s

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... Welcome to Ron the Brink. I'm Matt Walsh. And I'm Nick Carter. And we got a new pope. So there is a new pope, and he's an American. American, first ever American Pope. We finally got one. Good for us. He was not among the favorites.

Actually, the prediction markets got this one wrong. An underdog. Yeah, this is a come from behind victory. He went to Villanova. He's from Chicago. I mean, very shocking, let's say. So his name is Father Bob, but he's going to be Pope Leo. Explain that one for me.

Matt, you're the Catholic here. So this is your job to understand and explain. I don't know. So when you get confirmed, you get to pick a confirmation name. And I just picked my middle name because I want to be able to remember it. And it's just easier. And who needs an extra name? Why can't he just be Father Bob to Pope Bob?

I think the popes always pick a Pope name. So you kind of transmute as a person when you become Pope. So he's Pope Leo the 14th. All right. I'm just happy we finally got one. It's about time we caught a break here in the U.S. It was kind of funny because I was watching the stream and there were thousands of people there waving all kinds of flags

and virtually no American flags. There was one in the whole crowd. And you know the Europeans were just, I mean, look, they're happy, they're there, but they were crestfallen that it was an American. They've had centuries of popes over there. Yeah, I think we deserve one for sure. All right, so I'm happy about that. Talk about a busy week.

I mean, we're recording this before the Genius Act is set for a vote. So we got that to talk about. We've got the largest M&A event in the history of the industry to talk about. We're recording podcasts at an alarming clip. That's the other thing. Insane rate. Bitcoin's 100K. Bitcoin's at 101 right now.

What is going on right now? We had a lot of podcasts this week. Wyatt's been on a tear. He sat down with Justin Garland and Hannah Jojo of asymmetry and then also was David Taylor the CEO of Etherfuse and then you sat down with Adam Healy of Station 70 and Josh Schwartz of Fortify wow yeah I mean we're just been pumping out these podcasts it's almost like we're paid podcasters although we're not no we get paid in absolute pittance to do this that's the truth of it this is a labor of love but yeah that was a

it was a fun podcast actually with Adam and Josh from Fortify so they're doing this failover mpc wallet thing that they announced together and it's it's just a good thing for the cybersecurity hygiene of the industry so anyone that wants to go deeper on that you should take a listen so uh deribit acquired by coinbase that'd been rumored for a long time as a 2.9 billion deal monster deal 700 million in cash and then shares of coinbase stock it's one of those things where almost certainly would not have happened had Trump not been elected. There's no chance this would have happened if Biden and Gensler were around. So Derbitt's the largest options marketplace.

I mean, they're much bigger than the CME in Bitcoin options. So the big, big deal for Coinbase gets them into a totally new line of business, really. And we did a pod with Luke Streger's. I don't know exactly how to pronounce his name. We did a pod with him back in the day if you want to listen to that. I was actually very, very impressed with him. And yeah, big congrats to the team. Congrats to both.

I mean, it's a nice way for Coinbase to expand their market too. Yeah, I agree. Makes a lot of sense. Coinbase has a lot of cash on the balance sheet. So $700 million for this plus stock. It actually looks like a great deal for Coinbase from where I sit. It is M&A season in crypto without a time. out so much M&A happening right now. Yeah, that's for sure. In terms of another announced deal,

Into the Block, which is an institutional DFI platform, they have merged with Trident Digital, which is a digital asset financial services firm to form a company called Centora. The new entity also announced that it has raised $25 million from Newform Capital, Tribe, Ripple, and others. Yeah, congrats to Anthony at Trident and Hizus at Into the Block. Elsewhere in deals we've used finance their digital asset infrastructure company there raised 12.2 million from galaxy digital e ampersand capital is that how do you pronounce that e and i think i actually have more to say about the ampersand in a minute and uh further ventures all right let's get into your ampersand take this sounds important it is did you know that the ampersand used to be a letter in the alphabet it was the last

letter in in what alphabet the english alphabet our alphabet this one do you know that No, I did not know that. Okay, there's so much to say about it. You used to recite the ABCs, ABC, DE, whatever. Then you would say XYZ and, but you didn't want to say and and, and, right? Right. So you would say and per se, as in the Latin for by itself, and. So you'd finish reciting the alphabet, then you say and per se and.

and then that all got smushed together and it became ampersand. Wow. I did not know that. That's the etymology. That's the origin. And then the character, the glyph, I used to really into typography it, so I know this, is a contraction of the Latin letters, E and T, and if you squish it together, then it becomes the glyph, at meaning and, it becomes the ampersand. that's where the character comes from. Yeah.

When did we change? We kind of dropped in the 1850s. It kind of trailed off. It's no longer considered a letter. I mean, it's not a letter because it's the word and. So it doesn't even make sense. It doesn't make any sense. You used to recite the whole ABCs, and then you say and per se, and.

That's where it comes from. I mean, you learn something new every week on this podcast. It's genuinely new information that it's. just learned. I know. People don't know this stuff, Matt. They just don't know. They don't know. We don't have a lot of, is that etymology? I guess that's not etymology, right? It's etymology. It's typography. It's etymology. I used to be varying to etymology. I used to design fonts. Did you know that? I did not know that. You did design our logo. I knew that. Yeah, I used to have an autistic habit of designing new fonts, but, you know, before I became a venture capitalist.

You replaced that with an autistic habit of just looking at blockchain network data. Yeah, and frankly, that's much more lucrative. So there's no regrets there. That's true. All right. Well, so that was Fuse Finance and E& Capital. Welcome to the deal section. Next one up, we have Doge OS, which is an app layer for Dogecoin.

They raised 6.9 million from Polychain and others. Can we just say, guys, this cycle don't do the $6.9 million rounds. Don't do the $420. We don't need this. This just makes you look like an amateur. I mean, this may just have been a coincidence, you know? Maybe it was just an accident. But yeah, I totally agree.

We're not doing the meme numbers anymore. Leave it in the past, guys. No, it's like raised approximately $7 million. That's how that needs to go out. Next up we have X. they're a blockchain-based cross-border payments company. There raised $3 million from LightShift, Jungle Ventures, and White Star Capital. Then it's Sonic, which is a layer one blockchain network.

They raised $10 million from Galaxy Digital. So on the news front, we've talked about the Deribate acquisition game-changing. I mean, that's an offshore derivatives venue. I don't know how they're going to come onshore. I guess Coinbase has an opinion that they can get into options. we'll see how they manage that. Big news of the week is the Genius Act, of course, which seems to be changing the probability of success by the hour.

Last we heard about five minutes ago, it looks like it's not going to go through with this late charge from the Democrats. Well, it's not going to go through with 60 votes. Is it still going to go through? I guess that's the question. But the time people listen to this will know the answer. But it's pretty unclear where some of these borderline Democrats

are going to come down. on it. And it seems like some of the Trump family's activities in crypto are really what's holding up some of these Democrats. Yeah, and everyone's afraid to say this, and I don't know why. I mean, I think we can just say it. World Liberty Phi issuing this USD-1 stable coin that's doing a big deal with finance, it doesn't help the prospects of the bill going through. I mean, could they just have waited, maybe? Like, why do they have to do it now? definitely doesn't help. The same time, some of these Democrats that were so actively pro-Crypto heading into the election and raising money and trying to shake down crypto people to donate to

them, Adam Schiff, Gallego. It's just a joke that they're abandoning it right now. Yeah, so they carried, in some cases, tight races, Gallego in particular, with money from Fairshake. And then there was already rancor about that. I mean, you had conservatives in the crypto space. saying, well, why are we supporting Democrats? Why are we helping them win tight races? The reasoning at the time was, well, you know, they're still going to be ardent champions of industry. They turn around at the last minute and don't vote for this pretty uncontroversial bill. So that didn't work, I guess. No, that's a total, it's a failure, you know, it shouldn't have been, we should not have been donating to those people, I guess. There's no other way to say.

I mean, now what? Like in the midterms or is stand with crypto going to reverse and say no more Democrats? Or are they going to, did they just make a miscalculation in terms of these guys? Or was it was the political calculus around Trump's conflicts of interest so overriding that even though these Democrats are fairly pro-crypto, they just had to go with the party on this? It seems to me like it's a pretty well-constructed bill, and it's surprising that this wouldn't be able to carry the day. If you just think about this from the perspective of proliferating the dollar and just making sure that the institutions that issue these stable coins are soundly regulated, this is something that both sides could and should and did agree on. Yeah, and Scott Besson this week said he thinks stablecoins are going to reach $2 trillion in supply, I think, by 28. I went and looked at this treasury T-back report.

They're citing, I believe, a standard chartered estimate. If that happens, stablecoins are going to be the single largest holder of U.S. treasuries. So there is a huge sea change in Washington. There is this view that stable coins are actually essential. They're not just important, but essential for the future of the dollar. Meanwhile, this bill looks like it's going to get stymied here for the time. being. All right. So we'll have more to say next week, certainly once we see how this Genius Act vote unfolds. So we'll keep an eye on that. Other regulatory news, so this is a big

deal. So yesterday, the Office of the Comptroller of the Currency, the OCC, issued Interpretive Letter 1184, confirming that national banks and federal savings institutions can provide crypto custody and execution services under existing law. They said banks can hold crypto on behalf of customers. They can execute trades at the customer's discretion. They can settle value and record transactions. They can provide tax and operational support. And they can use third party digital asset providers, basically subcustodians. Huge deal. I mean, this is in any other news week, this would be the number one thing we're talking about. Yeah, I mean, such a big change from the OCC. One thing we do hear from the bank still is that it's the Fed that gives them pause. One interesting thing I did see

this week from Michelle Bowman, who's up for confirmation as vice chair of supervision to succeed Barr at the Fed. Did she had a big exchange with Elizabeth Warren? Did you see that? I didn't see that. No, I didn't see. So Elizabeth Warren sent her a whole bunch of questions. that Michelle Bowman answered in writing. One of them had to do with fair access to banking, so not even crypto, but just more generally. And Michelle Bowman says, we need to, quote,

we need to make sure our supervisor guidance is in line with this principle so that we promote an environment that allows legitimate bank customers to obtain banking services. So coming out really strongly against Warren's view that banking should be politicized. So that was very encouraging to see from Michelle Bowman. That's great to see. So, I mean, this will be something that has an immediate impact on the market.

If you just think about how much traction NIDIG had before choke point and how many banks and even like credit unions were set up to do custody and trade execution through NIDIG, I think you're going to see the similar wave where now that it's actually permissible, you'll see some adoption. Yeah, and I mean, look how much bigger Bitcoin is today, as compared with when NIDID was rolling out, their program initially in 22, you know, those banks got, those, that was the subject to the pause letters, the FDIC pause letter campaign in 22, 23. Bitcoin is so much bigger now. So many more bank clients want access to it. So I think we'll see banks reenter the market here in force.

It's just good that the consumers were protected from all those Bitcoin gains, though, right? I mean, all of these people that use their bank as their primary financial conduit that they weren't able to participate in this. It's good. So did you see Stripes? What was it, a keynote? Anyway, I think the most important topic there was their stable coin financial accounts, which let companies to send and receive U.S. dollars in stable coins in over 100 countries, with Bridges infrastructure.

Pretty awesome, huh? Pretty great. Yeah, super, if you haven't watched it, definitely take a watch. They didn't share the numbers, but they showed Bridges growth versus the first few years of Stripes growth. And Bridge is doing numbers.

They didn't have a Y axis, but I did some tricks. And I think it's around four to five billion monthly, actually for Bridge as right now. Oh, how'd you do those tricks? Well, actually the Artemis guys did it for me. So creative use of chat GBT and using some known data points to back into the numbers. Right.

Well, here's another big, I'd say this is a news item. In a speech this week, SEC Commissioner Hester Perth proposed that blockchain technology would potentially allow firms to issue trade and settle securities. And that basically that the SEC should explore exemptions. from registration for some of these types of activities. So pretty compelling. I think we're taking steps in the right direction towards market structure that would allow for exemptions,

for commodities, and just registration overall for digital asset securities. Yeah, so she basically talked about a sandbox for tokenized securities. Some really interesting points in this letter. One thing she said was if you wanted to have an AMM system, for trading tokenized securities, that wouldn't necessarily be compatible with SEC's reg NMS. So, you know, maybe there should be a way to do that outside of sort of the existing

rule set. So, yeah, really interesting to see Hester, you know, trying to find ways for tokenized securities trading to work on DFI. It looks like cloture vote on Genius has failed 48 to 49 with Thune changing his vote to a no in order to bring genius up at a later date. So to be continued. I mean, that's not even close to the 60 vote threshold needed. No. I don't fully understand why you need a filibuster proof majority to pass anything in the Senate.

I mean, wouldn't there have to be someone that cared enough about it to do a filibuster? Is the threat sufficient at this point? Who would actually do? Would Elizabeth Warren be the one to filibuster against this bill? Yeah, it's like, do we even see filibusters anymore? Is it just about the threat? Does anyone actually go up there and do filibustering? Corey Booker got up there for a couple days, didn't he, and just made a speech? But I haven't seen a formal filibuster in years. Do you ever watch Mr. Smith Goes to Washington?

Yeah, yeah. That's a classic. Good filibuster movie there. So to be continued, that's very disappointing on the stable coin bill. But the weird thing is that for now, nothing really changes with tether or circle. I mean, they're still free to do their thing. It's just, you know, the more regulated FIs are going to stay out of the stablecoin space for now, I suppose. Yeah, the biggest impact here is that there will be certain financial services firms that don't issue their stablecoin until you have a regulatory framework, which is too bad. So this is an interesting little story developing this week.

So lawyers for Samurai Wallet, they alleged that the Southern District in New York prosecutors that went after Samurai suppressed evidence. in which Finsun stated that Samurai was not a money transmitter due to its non-custodial nature. So that evidence was concealed and the prosecution went along anyway. Kind of a shocking revelation, really. It's pretty nefarious, huh? Yeah. It's not what you want to see. No.

So you'd have to imagine that given this, the case would be dropped. I don't see an alternative here. I would think so. I would think so. All right. Did you see that movement labs, which we decided not to go too deep on last week because it's just a ridiculous story. It seems like there's a lot of impropriety there.

They have parted ways with their CEO, Rushi Manchi, following controversies stemming with the move token, market making agreements, a bunch of just shady token stuff with this guy, apparently. Yeah, and some of these agreements have been leaked. I don't know. The whole thing seems like a gigantic mess. Not looking into this one too deeply.

but yeah, be better, guys. Yeah, it's time to not do this anymore. So please know more of this. According to a report from Bloomberg, Robin Hood is planning to launch a blockchain-based platform that would allow users in Europe to trade U.S. securities on chain. That's a cool idea. Yeah, it's kind of incredible that it's still really hard to trade

U.S. domestic equity securities overseas. I mean, I guess there's the equivalent of ADRs in some countries, but it's kind of weird how primitive our financial infrastructure is still. I wonder if this will be what type of market this is, because I think you'll also see the perpetual swap used as a conduit to just get exposure to this. So I wonder if that's what they're doing or if this will be actual titled spot securities. So Ethereum has deployed its Pectra upgrade. It's the largest network upgrade since Denkun in March 2024.

I don't know how they come up with the names. Ethereum on the day is back up to $2,000. But if you look against the Bitcoin chart, it's a tough one to look at, one of the toughest charts in all of crypto. A lot of people were buzzing about the podcast that Tarun Chitra did with Max Resnick on Laura Shin's podcast this week,

where they talked about the story. state of Ethereum and it was a spicy one. Max Resnick does not like Bitcoin, does not like Ethereum very much. I met him for the first time recently and I didn't realize he was a big time Ethereum bowl, one of the top ones and then he defected to Salana completely. And now he's one of the most outspoken critics. Quite a journey. Yeah. I'd recommend listening to the podcast. It's quite good. Yeah. So I guess have the Ethereum's come to terms of the fact that they have to tariff the all two's Are they still internally debating that? Tarun actually said those exact words, tariff the L2s.

That's what we've been saying. The L2s need to pay more, basically. That's what it comes down to. I mean, half the time the L2's raised and launch on Ethereum and then become L1s, so totally don't do anything for Ethereum whatsoever. I mean, it's more than just parasitic. It's just stealing market share from Ethereum itself. Yeah.

Yeah, I don't know if there is an easy solution there, but Theorem's got a lot of work to do. All right. Other product announcements, following last week's public proposal to the SEC, Superstate has announced opening bell, which is a platform that enables companies to issue and publicly register equity directly onto any blockchain network. Sounds like they're starting with Solana and Ethereum. More and more of these meldings of traditional. securities and public blockchains going on in this market. Yeah, it's not going to stop.

And as long as the public market continues to reward entrepreneurs creating wrappers on blockchain tokens in a publicly listed manner, it's going to keep happening. And it's kind of like you remember when credit was exploding in 21, 22, and sort of like eventually you knew something bad was going to happen, but you didn't know how or what. That's exactly how I feel about these public wrappers for crypto assets that are stacking on leverage and debt.

You're talking about something different from what SuperState's doing, but you're talking about all of these micro-strategy clones, basically. Well, I think the first security at SuperState's going to trade is one of these wrappers, right? Oh, is that right? It's one of the Salana wrappers. You just know that someone is going to do something stupid with leverage, and that'll be the first warning indicator.

The second that one of these credit agreements, has a stomp out date. It's not a convertible note that it's actually an asset-backed loan or something like that. And someone will do something crazy, like put a $50,000 Bitcoin, you know, stomp out and the market will just chase them. Yeah, and look, we can run a long way before that happens, but I'm certain it's going to happen because the end of it, the micro incentive at the entrepreneurial level is to keep creating these things

as long as the market rewards it. but at the macro level eventually becomes toxic. I was out at the Medici conference in LA this week, which is an awesome event this year. So congrats to Adam and the team over there at Medici. But a lot of people are talking about these trackers. And I don't really have a good explanation for why there are so many of these things and why they need to exist, why they make more sense than owning the underlying.

I think you're just, you know, it's super confusing to me that people keep on doing this. I mean, if it were me, I would just own Bitcoin. In the hierarchy, it would be Bitcoin. And then if I really wanted to own one of these public names, I would own micro strategy. And then why in Earth would you own one of the lesser ones? I think people would say, hey, micro strategy trades at a big premium. And if you can buy into one of these things, maybe you get some premium. You get some extra beta on the trade.

But like, why? Can you just do other things? Yeah, it's one of the more confusing phenomena we've seen in recent years. But it will continue, it seems. There was a strive asset management announced some sort of play this week. It's like every week you have another one. Well, official confirmation is rolling in that the Genius Act's not going through. I know we talked about that.

LaMess just put out a statement saying she's very disappointed. I don't know. Kind of a tough day, actually, for the industry. That was meant to be the sort of uncontroversial, easier piece of legislation. And if that's dimied, I would say there's no hope for market structure. Well, you have to get this passed first. And be interested to see if this is something that they were close on with this grand

bargain that was happening last night behind closed doors. And this could get reintroduced or if this is just something that gets punted down the road. I mean, worst cases, the Republicans compromise aggressively on this and changed the KYC model. for stable coins, for instance, and forced the embedding of surveillance and the stable coins to make it less cash-like. So really hoping that doesn't happen. I haven't heard anything that that would be on the table.

That would seem like that would not have a lot of support on the Republican side. Bo Hines just came out with a statement. Democrats decided to play partisan politics today. They have once again proven that they are not pro-innovation and that they do not put the interests of the American people first. So that is from Bo Hines, who is the executive director of the president's working group on digital assets.

It's a tough one. We'll see. I mean, this is sort of one of these things where nothing, as you point out, nothing changes about the existing market. Stable coins continue to grow. Adoption continues,

but it really hurts the financial services firms that want to come into the space. That's really, you know, who suffers here. Yeah, on the Republican side, you had defections. You had Josh Hawley, Rand Paul, Thune voted no. I mean, I don't know what is going on here.

Well, I think Tune voted no so that they could reintroduce it, it looks like. So I don't know. We might have to have a regulatory expert on next week to go deeper on this. Well, busy week, we'll be back to digest all of the stable coin news next week. That was crazy that that all happened in real time. Yeah, hopefully better news for you next week, but Bitcoin's still over 100K, so it's not all bad. All right, everyone, have a safe and healthy weekend, and we will see you on Monday.