On The Brink with Castle Island - Weekly roundup 05/31/24 (Gemini Earn, Salame sentenced, PYUSD on Sol) (EP.531)

Episode Date: May 31, 2024

Matt and Nic return for another week of news and deals. In this episode: We recap the Coin Center annual dinner Will Biden follow through on his SAB121 veto threat? The Biden admin is reportedly reaching out to key industry figures Ethereum ETF prospects Recap of the fight that didn't happen Prediction market issues Gemini Earn recovery Sponsor notes Exploring the Impacts of ETH ETF Approvals In Coin Metrics' State of the Network issue 261, we explore the market reaction and network implications of ETH ETF approvals

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 Concentive Easing. You've printed a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the...

Bitcoin. Welcome to On the Brink. I'm Matt Walsh. I'm Nick Carter. And this episode is brought to you by Coin Metrics, and here is the Metrics Minute. For today's Metrics Minute, we're looking at the impacts of Ethereum ETF approvals. The increased odds of Ether ETAF approvals this week triggered a 26% surge in the Ethereum price, along with significant gains for Pepe, Uniswap, and Ondel. from a 50% discount just a year ago, Ethereum's gray scale trust, ETHE, the price converged to within

1.5% of the nav, with 20% of this reduction occurring over a span of five days. The ETH futures open interest hit a record high of $15 billion, with Binance contributing the largest share. Currently, 27% of the total of the ETH supply is staked, while 73% remains in smart contracts and EOAs. With a large portion of ETH supply locked up, a reduction. in available supply could amplify the price impact of the ETF. That's your metrics minute.

All right. So we are recording this in Austin, Texas. Consensus. It's always the conference weeks when on the brink becomes very tenuous and difficult to record. Yeah, I mean, we're recording this pretty early. We had the coin center dinner last night. I would say both a little worse for the wear. But it was a very good dinner.

It was a lot of fun. They do a great job at the Coin Center dinner. I think that's my favorite event of the year. They just do a great job. Eric Voorhees, a really good speech, really enjoyed it. Tom Emmer, what a speech. Tom delivered some spirited remarks. Also, he was on the podcast last week, so check that episode out.

Anytime you can start a speech by saying, Gary Gensler sucks as your first words, you're going to crush it. He bellowed that at full volume and everyone went wild. It was great. Yeah, it was just a great start to a speech. And then really profoundly good message, I think. Vorti's really good message. It was great to see a lot of podcast listeners too.

Yeah, we got a number of comments on the show last night. forgive me for forgetting your name, but someone came up to me and said that he listens to our podcast to help him fall asleep because I have a monotone and soporific voice. He actually said that, huh? Yeah. Huh. Backhanded compliment. I thought it was funny. I thought it a little bit backhanded compliment there.

Tom Lombardi said that this podcast is his green juice. I don't know if that was an analogy, like an analogy, or if he makes green juice while listening to the podcast. So he said something to that effect. I guess he'd take that as a compliment. I'm not really sure what that means, but yeah, take that as a compliment. Yeah, it was a good dinner. Ten years of Coin Center they were celebrating. Congrats on ten years.

It's pretty much been the same team for ten years. It's remarkable. Their longevity. And they punch above their weight consistently. Yeah. It's really great to have that team together for 10 years. I was thinking that too. Just a very mission-driven crowd over there.

A lot of the people in that room have also been doing crypto for a decade now, which is pretty remarkable. I mean, it's very grueling. Hats off to anyone that can do crypto for 10 years. Yeah. I would say a lot more of an uplifting crowd this year than it was last year. Last year we kind of down in the dumps. There was a magician as the key speaker last year.

This year we got 40 years. Last year it was kind of like, hey, you guys are a joke. And here's a magician that's going to also tell some jokes about FTX. Yeah. Infamously, last year, there was a magician slash clown. And I think the message was, you are all clowns, which frankly wasn't receiving. that well because we were all hurting a little bit too and uh it was a tough time a year ago

and yeah that was a tough time now we're back i think we are back the uh just the political you know shift here in the past couple weeks is people have really internalized that and optimistic about it a couple people asked me last night if i had ever heard of sab 121 and just kind of i didn't get the joke. I was like, yeah, it's the law that Gary Gensler decided to pass by himself. And they're like, I'm just joking. I listen to the podcast. You practically invented Sab 1-2-1. Yeah, but it's gone now. Actually, that's a good question. Is Biden going to veto it, the overturn? So if he doesn't do anything by June 3rd, I believe, which is Monday, it just goes away. If he vetoes it, things are going to get really ugly for Democrats in the Senate races.

Does he have to sign it? Or if he doesn't sign it, the bill passes? If he does not sign it and Congress is in session, the bill passes. Really? It's a little piece of esoteric knowledge right there. Procedural knowledge. Yeah, if Congress is not in session, he could exercise a pocket veto. but I think that they would just put Congress in session to pass it since it was so bipartisan.

So, yeah, I'm actually starting to think that this one is going to coming to effect. Feel good about it. And at that point, yeah, at that point, you need to imagine there's kind of a scramble going on at these banks. You know, a lot of them had built out some custody infrastructure, but do they actually have the teams to push these products out? How long would it take, you know, Boney and State Street to get custody products? up and running. Yeah, so that was kind of a story they had started in anticipation of being able to do this, and then they had to furlough those efforts, and presumably they're turning those teams back on

again now. Yeah, you might want to refresh some of that software. Hopefully it still works. So the other Biden admin thing is that they're now reaching out to key industry figures to get feedback, I guess, on their new, crypto strategy. Apparently they like crypto now. Hmm. So have they reached out?

I told myself after I had some very bad meetings with Democratic members of Congress. And I swore to myself that day that I would never talk to a Democrat or someone in the Biden admin ever again. So I'm honestly not sure if I would take the meeting. They haven't reached out, to be clear. I think they know not to. Do you remember when the Biden admin reached out to us and we spoke to them about stable coins?

And it was, I think the undertone was, isn't this all a scam? And it just felt like it was a waste of our time. This was years ago. Yeah, I've had a few of those, and it just never went well. I had some on energy, some on stable coins, talk to Treasury,

talked to a certain key members of Congress. And, yeah, I mean, I decided that I would leave the work of talking to basically our opposition, the people that want to undermine the industry to other more magnanimous people that have more patience. It's just not something I can do. I will talk to them if they make some changes, I would say, first. I kind of need to see some proof points. I guess the question is, what would you ask? let's say they come to you.

Tabula Rasa, we're wiping the slate clean. We're here to listen to you, the crypto industry. We're going to make wholesale changes. What would be your ask? Changes at the SEC. So new leadership at the SEC, new leadership at the FDIC. I have this crazy concept that startup should be able to get bank accounts. That's kind of conflicts with the Biden administration's view.

So I think and the regulation by enforcement drop the lawsuits against the stalwart companies of the industry Pass the stablecoin bill pass a market structure bill Make Sab 121 go away and come out publicly and say that Americans have the right to self-custody Yeah I mean it's true the DOJ The case against Samurai in particular I think through a lot of things into disarray as well in terms of non-custodial systems so yeah they have work to do if they want to

win our favor I think election betting odds as of this morning Trump 53.5% Biden 38.1% there is a wholesale panic going on right now I'm actually surprised it's that close because you look at the polls and the battleground states there's states like Minnesota and Virginia that are in play right now. Yeah. The polls would imply it's less close than the election odds imply. The election odds are also saying that Michelle Obama is polling in third place right now ahead of RFK. I mean, I kind of buy it.

Like we'll see how, there's a debate slated for what next week? Trump Biden? We'll see how Biden does. But I'm still not ruling out a convention surprise and a new candidate, especially Biden flops in the debate. Yeah, it's likely, right? I think that could very well happen. All right. So it's a little bit of a disjointed week. We'll go probably a little bit shorter this week. But won't we start out with some deals of the week? Felix Pago in our portfolio here, a stable coin remittance business, a really great team here. they raised $15.5 million led by Castle Island Ventures,

participation from Switch, H20, Mercado, Libre, and others. Congrats to the Felix Pago team. Yeah, fascinating business uses a WhatsApp chat interface to facilitate remittances. And, of course, the back-end settlement occurs on stable coins. I mean, really shows the power of the sort of natively global, highly integrated stable coin market. And that is a good example of a business that those ideas have been around for a decade.

And it just didn't work initially. I think there wasn't a critical mass of exchange infrastructure. Stable coins weren't liquid enough against Fiat pairs. Today it seems to be working. It's a great example of how you get these inflection points when infrastructure just hits these key development milestones. Yeah. I mean, a lot of these businesses were attempted in the early days using Bitcoin,

and it just didn't work from a technology perspective as well as a liquidity perspective. But income stable coins. Next up, we have another Castle Island deal. This is the Bitcoin staking protocol, Babylon, founded by David Say. They raised 70 million in a funding round led by Paradigm, with, participation from a number of funds, including us. Congrats to the Babylon team. Really excited about that.

Next one up is CoinFlow. This is a Web3 payments company that raised $2.25 million in seed funding from CMT, DCG, Jump, Draper Dragon, and reciprocal. Then we have the Colombian cryptocurrency wallet, El Dorado. They raised $3 million in a seed round led by Coinbase and multi-coin. Then it's switchboard, which is an order. developer. They raised 7.5 million in Series A funding from Tribe, Rackaway, Lemness, Breed Capital, Starkware, and others. Next up, we have the AI Infrastructure Project Guy Annette. They raised 10 million in a seed round

from Byte, Trade, Marana Ventures Mantle, EVM, and Brian Johnson. Brian Johnson. Is that the I'm trying to live forever guy? Yeah, I mean, there's a few Brian Johnsons, but the longevity one. is one. I don't know if that's the same one. But he is a Brian Johnson. It could just be a random guy named Brian Johnson. It's a common name, I think.

Huh. All right. Then we have Parasale, which is a permissionless abstraction service for level guarantee hardware coordination. That just rolls off the tongue. Raised $4 million from Protocol Labs, Forsight Ventures,

and others. Next up we have Anzen. and there are RWA stablequin issuer. There is $4 million in a seed round from Mechanism, Capital, Circle Ventures, frax finance, and others. And lastly, we have NodeOps, which is a Node Infrastructure Company

that raised $5 million from L1D, bit scale, double peak, and finality. Those are the deals of the week. On the news front, it was a lighter week. The political blitz has settled down as we await the fate of these bills. We see what happens with Saab 112. The campaign rumbles on.

Trump is now accepting crypto, I think via coin-based commerce. So no major changes on the political front this week. What do you make of the Ethereum ETF developments here? Doesn't seem like these S-1s are going to come anytime soon. Any prediction on when it actually starts to trade? Yeah, that's a good question. And also, I still have a bet with Justin Drake for a tungsten cube about this. So, I don't know.

Do I win the bet if the ETFs don't go live today? I think I might still win the bet. I think you owe him a tungsten cube. Are you going to get it engraved? Yeah, I mean, I suppose I have to. But I guess technically I won the bet, right? Well, no, they got approved. I mean, the 19B4 has got approved, but they haven't been formally trading.

They're not trading. All right. Here's my other bone to pick with prediction marks. market. So as we all know, I was meant to fight this week. In fact, I know, I was meant to fight today. And look, I'm actually much more sympathetic to David than others are. So he, you know, he broke his rib with about a week to go. And we couldn't line up a replacement. A lot of people offered to fight me, but the names offered were of two categories. One, people that are actually trained fighters that would murder me. Keep in mind, I only had three months of training. And then people that had absolutely no experience and decided they didn't want to fight after thinking about it for a day or so.

So there was no unsuitable, which makes sense. The whole fight was arranged between me and David because we were the same size and experience. So that's why it was a good match. Here's what I want to talk about. First of all, I'm disappointed. I saw a lot of people wearing t-shirts with my face on it, which was very heartwarming. Kyle Somania yesterday I ran into him. He was wearing a t-shirt with my face on it.

Oh, wow. I want to get one of those. I'm very, my heart is gladdened by the level of support, truly. And I'll probably be back and I'll fight at some point. So, polymarket, there was a big polymarket. And I was a favorite. There was about $90,000 liquidity on the polymarket. The market resolved in a weird way.

So the draw entry in the fight, which was trading it, I think, 8 cents on the dollar paid out. So if you had a draw bet, you got paid out at more than 10x. If you bet on me, you lost. Yeah. That doesn't seem fair. I think people should have just gotten their money back. A lot of people were encouraging you to just walk into the ring and just accept. to victory so that it could resolve to a Nick Carter win.

Yeah, I honestly feel bad about it. I don't control Pollymarket, but I feel bad that the people that backed me on there lost, even though many are saying I'm the moral victor here. Many are saying that. I do feel bad. I mean, you can't expect David to go in and fight with a broken rib. I mean, that's like a suicide mission. Yeah, there are many conspiracies about the rib.

To be clear, I believe that he broke the rib, and I know for a fact that he can't fight with a broken rib. There's no way. You just can't do it. No. It wouldn't be safe at all. So I have been offered a new fight, so it's quite possible that Hoffman versus Carter,

that story is not over. It may well still happen. Have you guys thought about taking up something else? Like maybe you guys could train up in chess or something like that, and just have a big chess match, it just seems like that would be more your guys' speed. Yeah, I mean, I don't think either one of us

is cut out for the fight game, to be honest with you. I mean, I don't think anyone that's not a professional should fight, frankly. It should not be the purview of amateurs, certainly not an MMA-style fight. I would tell you that. Maybe with like 20-ounce gloves or something. Yeah, so that's basically

my view is if you are an amateur and you have less than a year's training, you should not, under any circumstance, fight without headgear and with four ounce MMA gloves, because the small gloves mean there's a much higher odds of a knockout, basically. So if you are going to do a charity fight, you should do it with 16 ounce gloves. It should be boxing. And yeah, so that's how it should be, frankly. That's kind of my lesson that I learned throughout this whole process. I don't think amateurs should fight.

Crypto nerds should certainly not fight. Leave it to the professionals, you know? It's definitely all anyone's talking about down here. It's that and it's, hey, what do you think Gary Gensler's next job is going to be? Do you think MIT's going to rehire him? It's Hoffman versus Carter and

Gary Gensler's speculation. There's a great deal of disappointment in Austin, Texas over the lack of the fight. I'm still going. I'll be there. Joe Rogan's going to be there now, apparently. I was very excited when I found out. Yeah, that was my chance to impress Joe.

I mean, I might still get to meet him. I was going to propose that he finally brings a crypto person on the show. Has he even done a crypto show? I don't think so. I mean, it would be nice to get someone on the show to talk about what's going on just in the political landscape, right? Yeah, look, I think Salkus is the main character right now, dare I say. He'd be great on that show.

Yeah, I think Ryan would do a good job. My days of trying to appear on those big podcasts are behind me. I'm retired from that aspect. You went on Lex. I would give it a SELCUS. Yeah, in 2019, five years ago, I think. Wow, that was five years ago. Yeah, that was a very different time.

All right, well, let's hop into some news here. This was an interesting one. So there's a company called Semler Scientific, which develops an arterial blood flow product. It had about a $100 million market cap. They came out on Tuesday and said that they have bought $40 million worth of Bitcoin and that they have adopted Bitcoin as their new primary treasury asset. So taking a page out of the micro strategy playbook, of course, So the stock went crazy.

The market cap is basically like doubled on this news. Is this a trend? Why? Okay, but explain this to me. Why would the stock double if you bought Bitcoin? I mean, shouldn't it then just start to trade more in line with Bitcoin? I mean, you've added volatility to the stock, but you haven't fundamentally changed anything. It's kind of like turning it into a meme stock in something.

capacity and maybe there's a view that these guys are just going to take out debt and buy Bitcoin like Micro Strategy has? I mean, there is a, I guess there's a playbook, right? Yeah. I mean, with Micro Strategy it worked because they were buying Bitcoin at a good time to buy Bitcoin. I mean, they started buying Bitcoin when it was trading at something like, what, $14,000, right? In 2020, summer 2020. Yeah, they're in at a pretty good level. Yeah. So I guess there's some theorem. There is a paper that needs to be written here about how companies can improve their fundamentals by engaging in meme-like activity, which I guess lowers their cost of capital maybe is sort of my charitable explanation there.

Well, so that was an interesting start of the week. And then, you know, this was another one. I feel like we talk about this Mount Gawks thing every two, three months here. So the Mount Gawks estate moved 100. 140,000 Bitcoin. And people kind of start to panic. I guess this happened on Sunday night or Monday night. And it seems like they did not actually pay out.

This final payout is apparently happening by October 31st, 24. Market went down almost immediately. I think the view is, hey, these things are going to get sold. But like we've said on this podcast in the past, if you wanted to sell your monk ox claim, you've had many, many years to do. it. And so I just think a lot of the holders of these claims right now are long-term oriented. There's a lot of SPV capital in this thing. And a lot of these SPVs are structured with in-kind distributions where the underlying investors in the SPV just want the Bitcoin. So I think

this is kind of a non-event. It's an interesting thought experiment because, okay, so this traces back to 2014 and the peak price of bitcoin at that point was $1,100 I think right and these people are getting 15 cents on the dollar back in Bitcoin terms right something close to that yeah but Bitcoin is now trading at $60 whatever $68,000 so in fiat terms they actually did great right even though they're don't you think that a lot of these forced 10-year Bitcoin holders, even though the quantity of Bitcoin went down, they actually outperformed what they would have otherwise done by being forced holders of Bitcoin for the duration.

So you're saying that they would have sold it? Yeah, there's some number of folks that would have just sold and exited. And instead, thanks to Malcox and Japan's very long bankruptcy process, they actually had a better outcome, even though they lost 85 cents on the dollar of the Bitcoin. I'm sure there's a bunch of holders like that, but there's also folks that probably would have just, you know, held on to the Bitcoin forever. So I don't think anyone's really thrilled that they were locked up here. But again, you weren't really locked up. There was an active claims marketplace here. Fortress was actively buying these things since an early time.

So you really could have gotten out of this if you wanted to. So speaking of estates, Gemini Earn was able to return 2.1 billion of digital assets in kind. And this was actually a great outcome for creditors. Earn creditors got everything back in digital asset terms. So they got the benefit of the appreciation from whatever asset it was they had earned. Yeah. So it's a great outcome. Really good outcome here.

So you have to tip your hat to the Gemini team for making this happen. So it's basically a full recovery here. Gemini actually put in some money themselves to make good on it. So this is probably the best outcome I've seen in one of these bankruptcies. Yeah. It really hats off to the to the Gemini team. I was able to talk to a few folks over there at Gemini yesterday and they were thrilled about it. I mean, it was a bit of an ordeal, frankly, over the last two years.

So, well done. So in FTX news, former FTX Digital Markets co-CEO, Ryan Salem, he was sentenced to 7.5 years in prison for these campaign finance violations. So Salem was the person that was donating a lot of capital to the Republican side of the aisle, well, Sam was making all these Biden and Biden affiliations. contributions. The sentencing guideline here is up to 10 years, but the prosecution asked for, I believe, five to seven years, and he actually got more than what the prosecution was recommending. I was really, really surprised at this. I was shocked. He's also still has access to his Twitter

account, and he's tweeting plaintively now. It's actually all very depressing, frankly. He's been silent for the duration, and now he's back on Twitter. But, yeah, I mean, was Salem 30% as responsible as Sam was for FTCS? I would say no. But he got 30% the prison term. Yeah, there's no accusation that he knew about the fraud at FTCS. This was all about the campaign finance, you know, making the straw man donations.

So this is just a, I don't know what the overall message is here. I guess if he had cooperated, he probably would have gotten a lot less time, but he refused to cooperate and seemed like he kind of went down with the ship. But meanwhile, you have Tribuko who clearly cooperated, who hasn't been charged with anything, who played a, like a major role by all accounts in this fraud, and he's getting nothing. And then you have others that, you know,

we don't even really talk about on this podcast that, were definitely involved, definitely cut deals, these senior executives that were very involved in the fraud, and they cooperated, they gave information, and they were able to somehow stay below the radar. So it feels a bit unfair to me, to be honest with you. I agree. And if you look at the parents from hell, I mean, Barbara Freed and Joseph Bankman, they were involved in the campaign finance stuff. I mean, it looks like Barbara Freed orchestrated a lot of this strategy

and there's no notion of them even being charged. Meanwhile, Salem is staring at 7.5 years behind bars. I know you can't expect, you know, the math to work out in terms of the criminal justice system and every case is different, of course, but yeah, this feels strikingly unfair. Yeah, yeah, so, all right, not a lot of. a positive things to say about that one.

Do you see this PYUSD news this week? Yeah, I thought it was really interesting, actually. So PayPal is launching PYUSD on Solana, and they put out a post on Mirror, XYZ, explaining it why they wanted to go for Solana. And my takeaway from this is the NYDFS, is my understanding, has to approve the blockchains that DFS registered stable coins circulate on. So to me, the big takeaway is DFS got comfortable with Solana and whitelisted that blockchain.

So I think that's actually a pretty big deal. I think it really cements Solana as a blockchain of significance. So, you know, you think you have regulatory clarity in this country. You have the NYDFS. I'd say it's probably the strongest. regulator in the space at the moment in terms of their understanding of the space. So they're saying they're fine with Solana. Meanwhile, the SEC has lawsuits against Coinbase and others that say that

Solana is a security. So go figure that out if you can. That doesn't make any sense, actually. All right. So I think it's going to be a short podcast today. We need to get on with our day here. So hopefully this one gets posted. I think the lost episode was actually one that we recorded a few years ago, similar

dynamic. on this day i just never published it yeah so we're going to publish this one we learned our lesson we have to specifically carve out time at conferences to record even if it's 8 a.m. the day after the coin center dinner we're out here in the trenches for brink nation we're we're grinding here and it's a but it's an uplifting conferences here so congrats to the to the coin desk team for putting on a really good conference. I walked the floor yesterday. I try to walk the floor at these conferences at least once a year and just get the vibe. It didn't feel like a kind of over-the-top euphoric vibe, but I didn't have the inclination to sell everything based on how topy it felt. It felt

very normal. Yeah, I haven't been in. I will be delivering remarks on the main stage today. Well, I guess by the time you hear the podcast, the remarks will have been delivered. And that was also meant to be a panel with David Hoffman. So that was the whole idea, is that we were going to do our panel on Bitcoin Renaissance. Actually, that was meant to be the topic of the panel, Bitcoin Season 2. And then a few short hours later, we would go fight. That's not happening. That's not happening. So we have to scramble. We have secured new panelists. So I will be attending the conference. We'll see how it is. All right, everyone, that's it for the week. Everybody have a safe and healthy weekend, and we will see you on Monday.