On The Brink with Castle Island - Weekly Roundup 05/20/22 (Terra aftershocks, El Salvador's Bitcoin summit, Tether's redemption crisis) (EP.320)

Episode Date: May 20, 2022

Matt and Nic return for another week of news and deals. In this episode:  Was UST/Terra a ponzi or not? Fintech apps put client deposits into Anchor Tradfi yields are competitive with DeFi yields The GBTC discount reaches its highest ever level at -31% MSM crypto hate reaches a fever pitch The World Bank publishes a new paper on crypto adoption The Warren staff have a dossier of mean tweets Will generalist VCs lose interest in web3? El Salvador hosts a Bitcoin summit for a number of central banks Nic's secret origin story Is eSwatini a dark horse candidate for the next Bitcoin Nation? The Biden admin suggests segregating client deposits at exchanges TradFi thinks Tether is about to collapse Why no stablecoins are able to secure audits Tether receives a new assurance opinion showing $39b of treasuries How many outflows can Tether accommodate? Differences in redemption between USDC and USDT What does a crackdown in offshore assets by the CCP have to do with Tether? Cloudflare's wall of lava lamps Is it time for a new batch of FUD dice? We assess the quality of the Terra mea culpas Content mentioned in this episode:  World Bank, The ascent of crypto assets: Evolution and macro-financial drivers Sponsor notes: Subscribe to the Coin Metrics State of the Network newsletter

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of Concented Ease. 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 a Bitcoin. Welcome to On the Brink. I'm Matt Walsh.

And I'm Nick Carter. This episode is brought to by Coin Metrics, and here is the Metrics Minute. This Metrix Minute is brought to by Coin Metrics. We're on the clock. We got one minute. In the wake of UST and Linus Collapse, Tether briefly depagged dropping as low as 95 cents on the dollar, before returning back over 99 cents within seven hours. It's depegging on May 12th was its largest deviation from a dollar since May 2020.

And then Tether had $3.3 billion for redemptions on the 12th, 2.8 on the 13th, and about a billion on the 14th. Overall, in last week, they've had $9 billion in redemptions. Meanwhile, USDC, free float supply has increased by about $1.5 billion since May 10th. That's your coin metrics, metrics minute. That coin metrics chart this week showing the Luna prices and the UST prices, just straight lines. I've never seen a chart look like that. I haven't seen anything like it since BitConnect in terms of price action.

I mean, in BitConnect just seemed so removed because it was mostly retail halfway around the world. This one was U.S. funds, U.S. citizens, just the scale of this thing is just insane. I mean, probably at most, you know, 10,000 Americans last money in Bick Connect. I think at peak, the nominal value was like $13 billion. Sort of the actual money lost was probably in the single. digit billions. Tear was a different story. Well, Big Connect was such an obvious Ponzi scheme, and maybe UST was too, but you had very

reputable people out there telling you it was a interest account. Yeah. I'd actually thought about it a lot, and I decided the UST was not a Ponzi, actually. So I don't think it fits the dictionary definition of a Ponzi. It was just a crazy piece of financial machinery. So today I found out that there was. is a startup that was putting, it was sort of advertising it as a FinTech or kind of a neobank. It was putting client deposits into Anchor and offering a 15% interest rate.

Oh yeah. Several startups. I've seen a few pitch decks on that over the past few months. The one that you're talking about was Y Combinator startup. YC backed. They had $42 million of client deposits in Anchor and they went down to the ship as far as I can tell. And then they tried to pay people back in UST, in heavily devalued UST. Well, you know, the classic, you know, the classic version might be coming soon, it looks like. I mean, that's, I'm, I think we're almost lucky, almost that this thing blew up when it did, because give it another couple of months. And, you know, like, God only knows how many financial products would have built on top of this thing. It was the largest lending, DFI protocol by, uh, by deposit.

assets in all of crypto. It was bigger than Ave. It was bigger than compound. It was anchor was the number one. Well, it's totally distorting the lending market. The fact that this 20% APY was out there is it was just completely throwing off everything else, completely out of balance. The market's getting back to steady state now, it seems like, in the lending side. Yeah. And, you know, what's interesting is, like, legacy, Tradfai yields are actually competitive with crypto yields again. So it's not one of those things where we can advertise

that our yields are better than the alternative. So, yeah, we've got to take that one on the chin. It's not a lot out there for trades, right? The basis trade isn't really that interesting right now. There's no GBT trade.

Certainly there's some DFI stuff, but not like there was a few months ago. Well, this is the GBDC podcast. So we would be remiss if we didn't mention that the discount reached its greatest ever level. Why don't we give a plug to where do you go to petition the SEC for the ETF? It's the gray scale. Just go to Grayscale's website and write a letter.

Yeah, you can do that. We should, you ought to do that, frankly. But yeah, if I'm not mistaken, minus 31.4%. The SEC's doing a really good job protecting retail from getting their money. That's shocking. That's shocking. Yeah. So it's grayscale.com forward slash comment to let them know that you got to turn this thing into an ETF. I mean, minus 31%.

Anyway, so there is a trade there. I don't know if you want to do the trade. Sort of reminds me of this staked eith versus eith trade, where staked eith was trading at a discount to ETH, but you only get it after the merge. So it is also a bet on the merge happening. Well, there's a market there. I mean, you can understand why people would do that. Yeah, the merge is probably happening. That's a catalyst, you know.

Some people are saying take the summer off and just wait for the merge. Yeah, it does, at the risk of being premature here, we're being advised that it's due for the fall of this year. all right let's let's get that narrative going well it was a busy content week so you sat down with john cole and assa from abacus that was a fun episode talking about interchain blockchain applications and then you did a bunch of press on the ustluna implosion so you're on cnbc you went on laura shinn a lot of podcasts this week yeah i mean it's just one of those weeks where it's non-stop calls from journalists The fud pieces are coming in too, I got to say.

I think I noticed Crypto's dead articles in the WSJ in the FT and The Economist all today, Thursday, all three. They're hitting us from all angles. Those people that are running those how many times Bitcoin or Crypto died websites are very busy. I think today it died like 12 times. Yeah, so they are. I mean, here's the question, though. Is the bottom in when it's sort of maximum hate from, you know, traditional economists? Or is the bottom in when basically no one cares about you anymore?

And so they don't even care about you enough to hate you. And I'm thinking it's the latter. Yeah, I think it's probably the latter. I mean, you remember the 2015 bottom was pretty rough. People were putting lettuce on private blockchains. Like the bottom's probably not in until Walmart's doing a proof of concept on hyper ledger. I mean, I was in the camp of people that. gave up on Bitcoin in 2015.

Oh, really? Yeah, I tuned it out for a year or so. Oh, I was not tuning it out. Unfortunately, I was more of like a Bitcoin as a payments rail. I wasn't really on to the full thesis back then. That was a dark time. I mean, the narrative had not really taken hold back then. Well, it was your job to care.

You couldn't stop caring. Well, it was sort of my job to care about blockchain, not Bitcoin for a while. but luckily everything came together. Tough time. Yeah, until we're doing post-trade settlement on private blockchains, there's still hope. The industry is still vibrant. So actually, speaking of which, I'm going to get ahead of us on the news front,

I wanted to direct your attention to an unlikely source of a relatively bullish case for crypto. The World Bank. Now, the World Bank is historically not a friend. to crypto. Not even a little bit, but they did do an interesting study. I'll link it in the show notes called

The Ascent of Crypto Assets, Evolution and Macro Financial Drivers. There's a lot of good data. They have value sent on-chain, by region, by category type, Bitcoin, D-Fi, ETH stable coins, by transaction size. There's an interesting chart here where they show crypto penetrations, a share of GDP by region, by type.

I mean, it's incredibly data rich. Turns out Eastern Europe is really your epicenter, according to them, according to the World Bank. Eastern Europe, Southeast Asia, and Latin America, West Africa, Nigeria. Those, according to the World Bank, are the epicenters. They also claim that there's 200 million users of crypto assets worldwide. That's an incredibly big number. Yeah.

So we have now World Bank stamp of approval adoption data. Here was an interesting finding as well. They said that inflation expectations has a causal effect on crypto volumes. They find that country-levels. level crypto volumes, moving the opposite direction to gold prices, which actually suggests that crypto assets are seen as a substitute for gold. Interesting. So they're actually eating into the demand for gold, according to the World Bank.

So, yeah, a lot of data in this, pretty encouraging, honestly. And from a very unlikely source, so really suggest you read the blog and the paper if you're so inclined. It's a, I mean, the inflation point makes a lot of sense, not necessarily in the flying into Bitcoin use case, but certainly it's stable coins. And so if you're in one of these hyperinflating fiat regimes hopping into U.S. dollars on blockchain rails just makes a lot of sense. Yeah, and I like that they sort of assert a taxonomy here, and they don't treat everything as identical. I mean, you know, the quote unquote crypto space is incredibly broad and they don't all do the same thing. So, You know, well done, World Bank. Something I thought I'd never say. Good job, World Bank. All right, well, let's hop in some deals of the week. The first one is from our portfolio.

So evaluate market. An NFT analytics and portfolio management platform, they raised $4 million. It was a seed round led by Roe Capital, had participation from us, notation, drive by draft kings, Arka, and others. Congrats to the Evaluate team. Formerly of Boston, they moved to New York.

That's like Facebook leaving Boston. like come on Boston hate to say it doesn't have the vibrancy it once does the day of Valuate Market decided to leave Boston and move to Brooklyn is going to be a dark

dark day for this city we couldn't keep them here and it was all because of Elizabeth Warren and Stephen Lynch but maybe also they just had to go there I don't know yeah speaking of which Elizabeth Warren did the thing

we all expected to do do. You know, it's like in, you know, the Simpsons meme where it's like, say the line, Millhouse. Yeah. Is it Millhouse or Bart? Anyway, it's like say the line. Everyone expects you to say Elizabeth Warren did predictably bring up Tara today as a cudgel with which to attack the crypto industry. We all knew it was coming. And it happened. You know what no one's really talking about is that lawsuit against the D5 project. And it's a, it's some sort of a class action lawsuit. we should pull it up and maybe put it in the show notes.

But the person that's suing the protocol, they put like $10 into this pool lottery thing. And so they're suing the team. And it's someone that worked for Elizabeth Warren and just recently stopped working for Elizabeth Warren. So it seems to me like Elizabeth Warren's going above and beyond here. Are you suggesting that she's orchestrating legal harassment, vexatious lawsuits from behind the scenes?

I mean, I'm not making that accusation on this podcast because I think that would be a bad accusation to make. But I'm saying there's a fact, the person who is suing this lawsuit, I mean, to be clear, I don't want to be sued. We're just asking questions, you know? It just seems a little strange to me. This is a Warren Truther podcast now. If Elizabeth Warren comes out tomorrow and says she loves crypto, then I'm back. And I want her on the Monday episode. I don't know if I'm allowed to say this on the show,

but I had a call with her staffer, her chief of staff. And she brought up all these tweets I'd made about her boss, Elizabeth Warren. Yeah, they weren't nice ones, yeah. No, I mean, look, they weren't too, I'm pretty nice online for the most part, I like to think. They weren't that bad. There was one I called her a despot. That one, maybe that was a little over the line. She didn't like that one.

But so they have a dossier of mean tweets. that random crypto people have said about her. I mean, that's psychotic. They're just walking around. I mean, maybe we should just start saying nice things about her and she'd be nicer to the industry. Maybe that's what it takes. It all goes in the dossier.

I mean, it's like they have an operation over there in the office. I'm just picturing, you know, pile stacks of papers. It's like, this is what Twitter user 300 said about Liz Warren. It's not good. Can you imagine the amount of the logistics of that? anyway, enough of that. I was just shocked. I mean, they've long memory over there. On to some more deals here. Elwood Technologies, Crypto Trading Platform. There is $70 million from Goldman, Barclays, and Don Capital. Then we have Tip Top. They are a stealth crypto startup

led by Postmates founder Bastion Lehman. They raised $23 million from A16Z, Sam Alman, and Naval Ravikon. How can you be a stealth mode startup if you're announcing your company funding on tech crunch. Well, I guess it's just we, yeah, we know that there was funding and we don't know what it concerns. What they're doing? Yeah. It's not really

like stealth. I mean, that's just a bad word. Next up is SBI Holdings. They have purchased a controlling stake in BitPoint Japan, which is a crypto trading platform. They paid $99 million for it. Then we have Voyager Digital, the crypto trading platform. They raise $60 million in a private placement from Alameda. That's interesting.

Public company there. Maybe a little play for the liquidity there on Alameda's part. Interesting move. Next one up is Oasis Pro. This is a crypto securities trading platform. There is $27 million from Ledger Prime and Redwood Trust. Then we have CyberConnect, their Web 3 social graph protocol. Imagine trying to make sense of that 10 years ago. CyberConnect, Web 3, social graph protocol. Yeah, you drop that in 2007 to someone and they're not going to know what you're talking about. No sense whatsoever.

They raised 27 million. Oops, no, they raise 15 million from Anamoca brands and Sky 9 Capital. Next one up is CoinShift. This is an Indian Dow tooling startup. They raised $15 million from Tiger Global. Then we have Fordus Digital Ventures. They have closed $100 million fund

that will focus on a blockchain opportunity. opportunities. Nice. Congrats to Fortis. Next one is Sertora. This is a provider of blockchain-based security analysis tools. They raised $36 million from Jump, Tiger, Galaxy, and others. Then we have Dora Hacks, a Web3 hackathon organizer. They raise $20 million from FtX and Liberty City Ventures. Next is parcel. This is a blockchain-based real estate investment platform. There is $7.5 million from Fifth Wall, Jaws, IA, Capital, and others. Congrats to the parcel team. Some Boston DNA on that team. I don't think they're in Boston either. I wonder why. Hate to see it. Next up, we have BitKeep a crypto wallet provided. They raised 15 million

at $100 million valuation from Dragonfly and others. And Dorese and Horowitz announced that they're launching a gaming focused fund and they've closed it with $600 million in commitments. And Dresa, just a machine on the fundraising. Then we have network studios where the E is a three, but I can't pronounce that. with the three, we're just going to say network. They're blockchain gaming developer. They raised 46 million from Kleiner Perkins and Galaxy Interactive. Yeah, those like threes for E's.

That's tough. I don't know like those ones. It can also be a B. It could be a B. Like in three Lough. Yeah. I thought it was three Lough for the longest time. Turns out it's just Blow?

It's Blow, yeah. I thought it was three Lowe too. It's like Dead Mouse. Is it Dead Mouse or Dead Mouth? Yeah, I call them Dead Mile 5. Yeah. I think you should really pronounce the numbers. It's very, the whole thing is confusing to me.

Next one is Azra Games. This is a play to earn gaming studio. There is $15 million from Andreessen. Then you have Nonson. Everybody knows them, very popular on-chain data platform. They have made an acquisition. It is ape board, which is a D5 portfolio tracker. They acquired them for a quote,

eight-figure sum. Eight-figure-sum. Good little haul there for eight-board. Congrats to that team. Next one up is Singularity Net and Singularity Dow. They are partner protocols focused on AI tooling, and they've raised $25 million from LDA Capital. And lastly, coins.ph, a Philippines-based crypto wallet provider,

raised $30 million from Rivett and others. A lot of deals again. I mean, a lot of these deals happened weeks ago, so probably haven't affected. in the post-interest rate hike dynamic that's going on. Maybe this will slow down in the coming weeks, but still tons of, tons of startups getting funded. Yeah, I was talking to General SBC at Permissionless, which was great, by the way. And he said the only sectors that are still really firing in all cylinders are crypto slash Web3

and climate. Interesting. And everything else is much slower. Well, I think one of the dynamics that will be interesting in the crypto funding space is some of these generalists. And so rewind the clock six months ago, if you were a generalist fund, you were getting a lot of questions from your LPs around what you're doing in crypto, what you're doing in Web 3, and there is an urge to get on the board. And it'll be interesting to see whether or not there's still that urge right now. And so what does the later stage market look like in the

crypto space with the generalist pulling back, which they definitely will be. I mean, there's not going to be the pressure here to do crypto deals. And so maybe you end up in a dynamic where, you know, there's, you know, you still have the crypto-focused funds with the capital, but there will be sort of a gap there towards the later stage. Who knows? It certainly feels like the excitement about Web3 in generalist VC has diminished significantly. Yeah. Which is refreshing, I mean, selfishly, from our perspective.

Yeah, I think there'll be some positive externalities to that for sure. Did you see this El Salvador thing? So Buckele hosted 44 countries this week down in El Salvador, talk about Bitcoin, talk about what El Salvador is doing from a Bitcoin as legal tender perspective. Is this news? This is news. This is news. It did feel a little bit like Buckele was kind of, you know the scene in Clockwork Orange where they sort of like glue the main characters, eyes open, make them watch a movie? It's an interesting analogy, yeah.

That's kind of the vibe I was getting from Buckele talking about Bitcoin to all these foreign central banks. Okay. Just like pay attention. Just get with the program. You better listen. You can't leave the country? One of the attendees was the central bank of East Watini, formerly known as Swaziland, very close to my heart. That's where I was born.

Wow. Yeah, little known fact. You were born in a clinic in Swaziland. In Swaziland, now known as East Watini. Fun fact about East Watini Only country in Africa With an absolute monarch So King and Swati the third

Well and is he into Bitcoin After this After this weekend After his nice retreat in San Salvador How could he not be? I mean do you think this guy knows that you're Are you a citizen? You probably should be honorary

They didn't grant me citizenship I don't know It's something about the eastern hemisphere You know you don't get your birth birthright citizenship if you just happen to be born there. Oh, this is going to be great. So this guy's going to lean into Bitcoin. He's going to figure out that you were actually born in his country and you're going to

get invited there. This is going to be a thing. I'm ready. I stand ready to act. Have you been back since you left initially? Yeah. I went to visit the clinic, you know, see where it all started. It is, you know, is very small.

I mean, the roads will be. paved with bitcoins if this guy does what we think he's going to do so yeah king am swati the third if you're listening um i'm at your disposal i'm at your disposal i'll come or orange pill you i'll show you the way so yeah shout out east watini i think you know i think they're a black swan what is it dark horse dark horse this is going to be the story of the year this is the narrative this this market moves on narratives and we just found one let's see what are some of the other countries that attended Sao Tome and Princepe, Paraguay, Angola, Ghana, Namibia, Haiti, Berundi. I mean, the theme is these are all very small countries. I mean, you have the Gambia on there,

very small. But who knows? I mean, these are all sort of non-aligned nations that were sort of in the non-aligned movement. They're not necessarily close allies of the U.S. Right now they're probably more in China's orbit. Maybe we're going to get new non-aligned movement. That's what Ballagy thinks, you know? Yeah. The not captured by, you know, Sino capital, not captured by Western sort of

institutional, you know, liberalism. They're going to tread their own path. I'm pretty intrigued by this. I wonder if this has any legs. It's kind of hard to imagine impoverished countries really like taking a stand here, buying a lot of Bitcoin and putting it on central bank balance sheets. But stranger things have happened. I don't necessarily recommend it, actually.

You know, El Salvador looks likely to be the second country in this cycle to default on their debt. The Bitcoin purchases can't have helped. Yeah, I mean, they top ticked. They may not have hurt, but they can't have. have helped either. So we use Sri Lanka now and El Salvador, potentially defaulting. So DXY sold off last couple days, but if it keeps rallying, that it's just a wave of sovereign defaults.

Well, so what happens then? Do you have another Plaza Accord type of, you know, dubiousment? Unclear, but if you're in emerging markets, you want a softer dollar rather than a stronger dollar for sure. Yeah. Interesting. So did you see this news? The Biden administration is reportedly going to start pushing Congress to ensure that crypto exchanges distinguish between client funds and corporate funds. And it seems like this was brought on by the coin base disclosure last week where due to the SEC giving them guidance, they needed to disclose that it was unclear what would happen at a bankruptcy. Armstrong later came out and said, we would, you know, we would presume that we would not like take customer funds, but this, there's no bankruptcy settled law here. So it looks like the Biden administration is pushing for that legislation to clearly distinguish between those corporate funds and the client funds,

which is a kind of a no-brainer. Absolutely no-brainer. I mean, these are depository institutions. They should be treated as such. And yeah, in bankruptcy, depositors of exchanges are junior unsecured creditors. You know, they don't have a senior claim. And, you know, no matter which exchange you look at, no matter what regulatory regime, you look at Quadrigo, look at Cryptopia down in New Zealand, Quadrigo was in Canada, look at Cox, in Japan, the depositors are always getting shafted in these bankruptcy proceedings. So this is one way, very easy when I think, to really protect clients at crypto exchanges, I think should definitely be implemented.

I finally watched that quadrigo documentary on Netflix. Have you seen that yet? No. What do you think, Gerald Cotton alive? Well, I was in the camp of Gerald Cotton alive, but that documentary makes me think that he might be dead. I'm pro, I've always actually been pro. not pro, not in favor of, but I believe that he is deceased. I'm like 51% he's deceased, but it wouldn't surprise me if he faked his death.

Very fishy circumstances, but the reveals there around the fact that he was just a con artist from the get-go are fascinating. Pre-crypto-comast. Yeah, and he worked with Michael Patron, who was then rebrand. in the pseudonymous economy of Web 3. Yeah. And became Zerang's sea field. Yeah. Yeah.

I mean, I love that we were all excited about the pseudonymous. You know, we're starting from scratch and, you know, your handle is your reputation. And then it turns out it was just, you know, a fertile hunting ground for long time scammers. Yeah, this whole idea of like pseudonymous founders, that's. very, that sounds great, but I'm going to need to see a social security number and a driver's license please before we send any funds. Yeah, and you know, there's a lot of people that work in crypto and have public personas and also have their sort of like parallel pseudonymous crypto persona. And it allows them to sort of disguise conflicts of interest and get around,

you know, any compliance that they might have at their firm. So it's not all sunshine and rainbows, you know. Yeah, that's, that would be pretty ugly in certain edge cases. I think you'll see a lot of, a lot of similar such revelations in the coming months here. Yeah, that'll, that'll be interesting. I did take another note that Coinbase has communicated to staff that it will be slowing down its hiring plans. They'll also be doing some optioning up. of employees which makes sense given the share price I've been following this I think

it's a FINRA website where it shows the prices of the corporate bonds where they trade hands it's just fascinating like the Tradfai thinks that Coinbase is going out on a stretcher here I would beg to differ not not investment advice it's certainly trading that way it's yeah it's crazy so I think I don't know if this is new as per se I think probably big a story of the weeks are the and the I'm getting inbounded about this is the belief, especially in, let's say, boomer trad fly circles, that tether is about to collapse.

I'm getting, I'm getting a lot of phone calls, but they're the same type of phone calls I was getting two years ago, and there's same types of phone calls I was getting a year ago. I mean, eventually this thing will probably collapse, and it'll be over, but it's the same stuff. I don't even know if it will. I mean, I think the fallacy here, is thinking that tether had anything in common with U.S.T.

Terra's stable coin. They are so different. How about that fund that I'm not going to name the name here, but their front page of the Wall Street Journal with a tether short, and it was like four weeks ago. And so they're short tether, you know, hey, we got a whistleblower, dynamic, whatever. So they thought they knew something.

Meanwhile, $50 billion was absolutely wiped off the planet Earth. in UST. You're in the right neighborhood. You're in the wrong house. They missed the short of the centuries right under their nose. Meanwhile, Kevin from Galois is just out there, just climbing the leaderboard. I actually replied to the WSJ's tweet and said that they were shorting the wrong coin. Did you?

Yeah. But the thing is, like, UST is so complicated. No, like, UST was very hard to understand. It took me months and months to figure it out. It is. like tether is pretty complicated too if you think about how you actually get short tether i mean think about the counterparty risk of being short tether no you can do that come on it's like it's the most liquid uh it's the most liquid coin in the crypto industry i don't know i mean think i think the market

structure of being short tether is more challenging than people think about all of the exchanges that denominate in tether and think about what it would be like for them to unfold think about the trading desks. Think about how, like, capitalized some of these trading desks are. You're not dealing with, you know, bank prime brokers here. I think you can get borrowed. You can get... Well, you clearly can. I don't know how big. It's not going to be $50 billion or trade. No, that you couldn't. So Tether, interestingly, released a new quarterly assurance opinion, not an audit. People always ask for an audit. There are no big four audit firms that audit stable coin issue. any of them.

None of them get quote-unquote audits. The risk reward is not there, so just stop asking. Well, you can ask, but it's just not going to happen because these audit firms, their own reputation is they incur liability when they do an audit. So I learned this. I spent a lot of time talking to accountants when I wrote the proof reserve paper. Turns out the words that accountants have like their own little language. and the words they use really matter.

So what Tether received today was not an audit. It was an assurance opinion, which I understand is somewhat weaker. And basically, they have 82 billion in assets, according to this. And 39 billion of them are in short-term treasuries. So almost 50%, which is actually... significant increase from last time. They reduced their commercial paper share, which everybody was pretty concerned about and then there's some other stuff in there. But my read is they could

probably stomach outflows at least 50% of their supply without too much trouble. You know, treasuries are liquid. Yeah, I mean, all this news around, or all these tweets about $7 billion, which just wiped out a tether look, this thing's a scale. damn, it's like, no, that just means it's working. Yeah, it had never stomached redemptions anywhere near that scale. I think, you know, there were maybe one to two billion in redemptions in 2018. It was large in sort of a relative sense, but this is enormous and an absolute sense. One interesting thing I learned from USDA, I was on the panel at Permissionless this week with Joao of USDA,

and he said the USDA had $10 billion of redemptions since, May 9th, but it's just they also had a lot of creation. And so it was only, uh, it was, or they'd seven billion dollars for redemptions, 10 billion of creation. So on net, it was a growth of three billion. So USDC is very different from tether in that there's a huge amount of churn all the time. Creation redemption, creation redemption. Tether is much stickier. It's much more rare to see redemptions in tether because you have to think about the tetherous sort of client base who's using these things. It's a lot of entities in Asia. They may not have access to U.S. banking. They may not want to sort of, let's say, re-onsure their wealth to maybe China, if that's

where it originated. And one sort of like weird conspiracy theory I'd like to promote here is there was a report this week that senior members of the CCP will be barred from getting promotions if they don't onshore their assets. Well, that's going to be a lot of hardware wallet sales. So look, I don't know if they would, but certainly what do you do if you're a Chinese elite? You try and offshore your wealth, right? And so now the rule is bring it back onshore or you're going to be blocked from political growth. I think that could actually be one of the explanations here for why we're seeing Tether Redemptions is because there was.

sort of Chinese elite money in Tether and they're feeling the pressure. Back to this short concept, I mean, it's just, it's pretty arrogant, I think, to, for some of these traditional finance people to get into this and think that they have a stranglehold on it. Look at what happened the last time Tether had an issue. They printed a token and made everybody whole. These guys lost $700 million to crypto capital and solved it like that. I mean, I think you really have to be cognizant of the market structure and the fact that these guys own a money printing machine in the form of an exchange. So I'm deeply, deeply skeptical that these shorts actually know what they're talking about. Yeah, Kevin, from Galois, is it Galois or Galois? Galois.

We can say it the French way, right? Galois. Is that like an Asterix thing? Is there a, Astellic said Doublesque. Yeah, was there? Galois now? I mean, the Galois doesn't that just mean from Goul? From Gaul. Yeah. From Gaul. Wow, so.

I'm pretty sure they were Galois. Kevin doesn't strike me as very French, though. I don't think he's from there. No, I think that's, that name is false. So what he said on Odd Lots, which is a great podcast. That was great. That he did, was that Tether keeps making mistakes, but weirdly there's sort of successful mistakes.

So that's true. Like, you know, the loan from BitFinex to shore themselves up, he felt that that actually increased their credibility, believe it or not, because it's suggested that there's like an equity buffer, right? Like a secret equity buffer. And buying crypto assets to back tether,

which it appears that there actually are some, He said that they bought them at sort of very advantageous time. So he thinks they're actually over-reserved. Yeah. But because they keep making like really, you know, odd decisions. Yeah. I mean, everyone wants to be David Einhorn with Allied Capital here and have a book written about how they short the crypto market.

But, you know, what's going to end up happening is you're going to have a bunch of trading firms start a new, get behind a new token. You're going to have a bunch of retail flood into it. And these guys are going to get their doors blown off. So I'm just, it's just count me unimpressed. But who knows? I'll caveat all that with this thing could blow up and it also wouldn't shock me. Yeah.

I mean, that's always the case, right? It's just based on present knowledge, it doesn't appear to be anything, which I think is critically risky. Any regulatory action could change that, of course. They're always exposed to that. But the redemptions, to me, prove the success of the model, right? Terra could not stomach a billion dollars of outflows. Tether has now managed nine billion dollars of outflows. They lost the peg for a few hours and then regained it. The whole system works. You have funds like FTX, Alameda saying, yeah, we're redeeming this thing like crazy.

We're doing the arbitrage. It works. I mean, but obviously more transparency is always better. No question about that. A couple other smaller piece of news. Cloudflare came out and announced a series of Web 3 initiatives. They're going to be launching full Ethereum validator nodes. So that's kind of interesting. Cloudflare getting more and more into the ecosystem. One of my favorite things about Cloudfair is how they have a wall of lava lamps and their headquarters.

Do you know about this? Did not know that. So it provides really good randomness. Really? Yeah. there's a whole matrix of lava lamps, and they have a feed tapping into the lava lamps. And I don't know what they use the randomness for. Apparently it's hard to get good randomness.

And so they use that for some random number generation. I just roll a fud dice when I'm looking for randomness. That's how I do it. I wouldn't trust the fud dice. They haven't been, they're not balanced correctly. You know, the different divvits are of different heights. You know, so the weight won't be balanced. That's why Vegas dice don't have divots in them.

Did not know that. Yeah, so Vegas dice are flat because you don't want to be carving out too much material from one side and not the other. I mean, think about the six versus the one on the other side. Yeah, that makes sense. So you're going to get different roles. We haven't gotten any inbound from U.S.-based dice manufacturers after we put out that call. I'm starting to think that the only dice manufacturers that we can do business with are in Poland. I mean look the custom dice

They're called custom dice That's our Polish dice hookup They've been good to us They've been good Well yeah Well they don't know what orange is But other than that they're pretty good They had a failed batch

We have to move on from the failed batch They give us a slightly off color orange A different shade of orange So we didn't want I mean I think we're getting to the point Where there's like some good new fuds here There's a little no fudge here There's

Luna thoughts It's all Luna It's all one Luna trade That I mean The Luna thing Is gonna be with us Until the heat does

Of the universe I'm sorry It just is It's the perfect Stick to bash us with And we're just gonna have To deal with that forever now I mean if you're Doquan

Are you ever setting foot In the United States again I mean The incredible thing to me Is that Doquan is still Sort of active He's trying to relaunch She's launching Tether 2.0, Tether 2.0, sorry, Tara.

Tara T.R. T, yeah. There's like Tera Classic, I think. That takes a lot of gumption. You know, your scheme evaporates roughly $55 billion in wealth, and you just get up the next morning and you're like, you know what? Let's do it again. Let's run it back. His lawyers quit this week, not surprisingly. I think there's going to be a lot of work over there. But is he still suing the SEC?

see no one's really talking about that I think he actually lost that case oh really is that over the one where he said that the SEC can't serve him yeah they can't he lost that they can't yeah they did yeah they did yeah consensus right

it was no it was um massari mannet oh yeah I'm sorry um well I don't know things things are getting dicey the other kind of I don't really want to talk too much about this but the um these funds out there like talking about how much money they made

on this trade, you might just not want to talk about that. Yeah, so... Don't talk about that. There's a variety of mea culpa and just sort of retrospectives floating around from funds that were sort of like really affiliated or, you know, taro boosters.

Some were better than others. So I thought the Delphi one was actually really sort of humble and reflective and transparent, you know, super transparent. I thought it was a great reflection. There were a couple that said, you know, we sort of exited at the top. And that's challenging for me, because basically where you're saying is this is a scheme that you sort of

knowingly advertise it to retail investors in many cases. And then you're saying after the fact, once it collapsed, that you were smart enough to get out. If they sent that over to me for a proof rate, I would have just said, hey, why don't we just sit this play out? Yeah. It's like you had the option to not publish a self-congratulatory thing. saying that you exited most of the position before it collapsed. Yeah. You can invest in whatever you want in this space, you know.

But if you're going to promote it, you know, publicly and then exit and then have it collapse, I don't feel great about that. No, you're probably not the only one, is my sense. So this will be an ongoing story. I get the sense this one isn't really over. I mean, the magnitude of the loss, the number of firms and individuals affected, retail, you know, mom and pop, like regulators don't like it when, you know, mom and pop lose money. There's going to be some grandparents coming out of the woodwork here, having lost money. You can almost guarantee it. I'm sure at least one grandparent lost money.

I guarantee you that there's someone affiliated with a senator that lost money. It's probably someone's... Certain senator. Some orphan that was... It was the last 20 bucks. So I guess the last thing I have on Terra this week is this Washington National Stadium deal just looks pretty bad right now. So they took $38 million from Terra for the naming rights of their stadium. And that's tough.

That's a bad look. That's my team, the Nats. Yeah, you like the Nats, right? Well, look, I grew up in D.C. I support all the D.C. sports teams, and they find ways to let me down. And this is yet another way. well I think they're going to have to try to rename this because $38 million is about what this whole ecosystem is worth so I think that the people who lost a lot of money on Luna are going to probably want that money back I mean it did feel very topy when crypto projects but you should have known at that point when we were naming stadiums that's some real like dot com bubble type thing right there yeah but it's you know if this industry keeps on going like they're going to see more and more of that so some of it's fine like I

the fact that FTX has an arena, it doesn't surprise me. But Terra, that was like, the Reverend 20% yield, it was, like, do a little diligence on the thing. My question is, did the Nats invest in a payments infrastructure or such that they could accept UST for hot dogs? Yeah, I wonder, because that was part of the deal, right? I mean, what people don't know about Terra is actually started as a retail payments network called Chai. in Korea. That's right. Yeah. And so actually some of these, some of these investors that invested invested in that concept. That was the thesis. Yeah. I remember. It's fine. I remember. I remember that was the theory. That was sort of like the case for Tara. And then Chai, I think, went away. I think

there's a regulatory change in Korea. And it was like no longer part of the story. And then this whole other story emerged. It's, uh, they realized that L-1s were, were where it's at. and Algo Stablecoins could raise a lot of money. I mean, I distinctly remember, because remember we did a paper on stable coin models in 2020. I distinctly remember looking at Terra. And I actually talked to Doquan a couple of times to try and understand it.

And I was like, this makes no sense. There's no way this thing achieves scale. Well, it did get to scale. It got scale. It shouldn't have gotten scale. but it got scale. I mean, it got scale on the back of its investors, really. I mean, one of the most dramatic stories, I think, ever in the crypto space,

and Lord knows we have a lot of those. This one almost takes the cake from me. I mean, the collapse was so swift, so vicious. Oh, this is going to be, again, I feel like I say this every week about a story, but this is going to be a great book. I don't know if it's going to be, who's going to write this, Lourish in, you'd have to imagine there's going to be

an awesome book written about this. Yeah, Ben Mezork. The film made about this should be great. It deserves to be great. You're going to be like the Harry Markopoulos. They better, I hope they put me in.

Just saying, hey, this thing's not going to work. By the way, Celtics are up 100 to 73 right now. I can't believe we're taping this during game two of the finals. Do you think we're going to get the look for some tickets here? It's Celtics against Miami.

That was your fault. I just record late. I had a travel mishap. I didn't tweet about it. Shout out Josh Deems. But, yeah, some travel mishap today. So returning to the likely film here, I was not a very vocal critic.

I was a critic, but not really that vocal. However, if they do want to put me in, I think I should be played by Jay Baruchel. Who's Jay Baruchel? I don't know him. Does he have a thin mustache? He could. I just think that he's my actor.

look alike. Jay Baruchel. All right, hold on, let me pull him up. That's my, he gets my vote for, to play me. Do you think? Yeah, he, I could see the resemblance there. He kind of, he also sort of looks like Travis from North Island. That's true. Well, maybe they can just combine the two of us into one character. Yeah, Jay Baruchel, all right. I could, I could see that. What else has he been in? Yeah, the film, I look forward to that film. That's going to be a really good one. So I think that's it for the week.

We've got a fun episode on Monday with Rick Edelman. He brought the heat. We need to get the guy that does our clips here ready for this one. Because Rick Edelman, you want it to think that I don't like what's going on from a regulatory perspective. Rick Edelman doesn't either, and he has something to say about it. A clip guy is at the ready. Raphael. Shout out Raphael.

Rafael, keep up the good work and just get the trigger figure ready for this one Monday. All right, everybody, have a safe and healthy weekend. We will see you on Monday.