On The Brink with Castle Island - Weekly Roundup 07/08/22 (Voyager files for Chap. 11, 3AC files Chap. 15, EU agrees on MiCA regulation) (EP.333)

Episode Date: July 8, 2022

Matt and Nic return for another week of news and deals. In this episode:  USDC gains ground on USDT Stable liquidity is sticky Why fiat-backed stables are still more censor resistant than bank deposits Do stablecoins make L1s unforkable Will the emergence of crypto prime brokers pressure crypto yields? Voyager files for Chapter 11 Should investors also be clients of lending firms they invest in? Circle's origins as a spot crypto broker 3AC files for Chapter 15 Genesis confirms they had 3AC exposure and DCG absorbed the losses EU agrees on tentative MiCA regulation MiCA avoids the PoW ban Did the EU write model stablecoin regulation? The WSJ pushes back at Gary Gensler on the spot BTC ETF The SEC's double standard in metal ETFs versus a BTC ETF 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 Concentuteeasing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called.

of Bitcoin, Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. Today in the Coin Metrics Metrics Minute, Tether Free Float Supply has contracted from $81 billion to $64 billion. So the redemptions worked seemingly as intended.

USDC since May 11th has grown from $42 to $46 billion. So the gap between them is closing very quickly. Here's an interesting thing. The number of addresses holding over 100K of the token is for the first time USDC is in the lead relative to USDT. Flippining imminent. Anyway, that's the coin metrics minute. Coin Metrics Metrics Minute.

When you said that USTC is in the lead, so is that on market cap? What were you referencing? They're in the lead in terms of addresses that hold at least $100,000 worth of the coin. Oh, interesting. Okay. Yeah, I'm looking at the market cap right now. So Tether is 65.9 billion and USDC is 55.8. Binance USD is 17.5 billion. There's like there's three stable coins in the top 10 of crypto assets right now. Yeah. That's kind of a vision of the future here. But yeah, Tether supply has, Tether dominance has fallen below 50% of stable coins. And, And according to JPM, stable coins represent around 14% of all outstanding sort of crypto asset capitalization.

I expect that to grow. Well, a lot of utility, obviously, a lot of things that are coming online dealing in stable coins, but there's also just a lot of selling out of other assets into stable coins. And it looks like I would say that this is an indication that a lot of that money hasn't been repatriated into the Fiat legacy banking system is just sort of sitting on. crypto exchanges, if I'm reading that correctly. Yeah, correct. I mean, I was actually just running these numbers. Peak to trough, you know, crypto capitalization is down 60, 70%, and stable coins are down

around 20%. So basically, the final leg back into fiat is not occurring. And crypto firms are still staying in stables. super bullish. Finally some good news. So there's a lot of cash just sitting there waiting for a narrative. It doesn't mean that it's going to burst back onto the scene and people are going to start market buying all these things. But it is an interesting thing. Once you go stable, you don't want to go back to fiat dollars. You don't want to go back to waiting days for international bank wires. I mean, if I could use USDC for every single U.S. dollar transaction I made in my life, I would be using it.

It is objectively a better payment rail than using just any ACH denominated payment. So I actually just did a presentation on stablecoins right before this. And here's an interesting piece of trivia. Which stable coin would you say has the most supply locked in smart contracts on ETH? USDC. That's right. it is more than double the amount of tether locked in smart contracts. And actually,

dye isn't far behind the amount of tether locked in smart contracts, believe it or not. So how does that work, though, with die? Because USDC, at least in portions, it's behind dies. So would that be a double count? Yeah, I mean, I guess if you want to sort of crack die open and look what's inside, USDC is around it looks like it's around

maybe 35%. So yeah technically USDC is kind of an interface or dies an interface to USDC. I mean there's some other stuff in there. I was looking at it recently. There's wrapped bitcoins in there. There's wrapped steak teeth. Wrapped steak teeth.

Wrapped steak teeth. All right. Wow. And there's just like completely impossible to understand what it is stuff like this one called GUNI-V-3-D-U-S-D-C-2-A-A. That's a material portion of all the dye collateral. What that is, I don't know. Couldn't tell you. What about Terra Classic USDA? How are they doing?

You know, I haven't looked. Did they relaunch that? I'm looking at it right now. It's a thing. it is certainly not trading at stable value to a dollar. It looks like it's about five cents. So I can't imagine that's too useful. Here's a quiz.

If you had to guess how many, first of all, of USDT and USCC, which one would you say has more banned addresses? They both have more than zero band addresses. I would actually say tether. That's correct. And if you had to guess, where would you put the number? Like 150. Not bad.

So it's about 600 on Tether. And on USDC, it's only 39. So kind of infrequent with the bandhammer is USDC. Well, I think that's probably because most criminals are just saying, like, I will not go with USDC because they are based in Boston, Massachusetts, and they are known to be compliant with laws. Yeah. So that is what I was thinking about recently, actually, is, you know, a stable coin is much more resistant to like, like people say, oh, stablecoins aren't censor resistant because they can be frozen. And it's just for them, it's like a binary.

But it's definitely not a binary. So to get your stable coin frozen, let's say like your government in some foreign country and, you know, you want to like confiscate someone's wealth and it's in stablecoin format, you have to get a, you know, a judge to, you know, come to a legal decision. You have to send that letter to the center consortium. You have to get them to honor your letter. And then they have to freeze it. That's a lot of steps. And that's a lot of sort of legal hurdles to clear. And that basically means, and, you know, like the U.S.

main center circle, they may not even recognize the validity of some judge's letter like some other nation. And so that means that it's basically impossible to do like extrajudicial seizure of assets, like civil asset forfeiture. So from my perspective, I don't know if people talk about this a lot, but stable coins, I think, give you a much, much better level of sensor resistance

than just your regular old sort of like bank dollars. The other thing on stable coins, I was listening to Alex Thorne's podcast, Galaxy Brands, shout out Alex, former Fidelity colleague of ours. He had this interesting point that I also hadn't really thought too deeply

about just around the forkability of Ethereum and some of these other L-1s, just given the prevalence of stablecoins on them. So imagine forking Ethereum, for instance, and then you'd have an equal amount of USDC on Ethereum, you know, version 2.0 or whatever, or maybe that's a bad way to describe a fork of Ethereum since they're going to 2.0. But, you know, you get the point. You'd have two versions of Ethereum and there's only one underlying bank account. And so in large part from a governance perspective, the stable coin issuers hold a lot of power because the fork that they choose to honor is the one that gets to have U.S. dollars on those rails. So they're very, very important

from a governance perspective. It kind of makes it more difficult to fork an L1 going forward if you have a large prevalence of stable coins on it. Yeah, I think I'll credit Haseeb, Dragonfly, with being the first one to make that case. But yeah, I agree. I mean, it maybe wasn't sort of the intended governance mechanism, right? It seems like a very contingent one that de facto, the stable coin issuers have maybe almost a veto over significant change. Yeah, I think it's a very good point. Also, how good is the name of that podcast, Galaxy Brains? It's really good. It was hanging right there for them to take and they took it. Yeah. So speaking of coin metrics, last week's podcast episode, I was a little bit upset with them from the just blatant disrespect,

lack of invitation to their happy hour, even though we're in the same office. I got an apology, so we're back on good terms. So thank you. Thank you for apologizing. Is there a podcast studio in the Coin Metrics office? There's one under construction. It's an on the brink podcast studio. Yeah. So I gave them very, very, very, very specific and detailed instructions. Well, there, you know, there's no table. The internet doesn't work. And, you know, there's no TV hooked up. But yeah, there's a room that has soundproof stuff on the walls. Okay.

It's a start. So we have the soundproof foam on the walls. That's the first step. Almost there. We're going to get there. That'd be fun. Our first podcast studio. We did have a busy week on the podcast.

So we had Dave Balter and Jim Myers from Flipside on the pod. Those three-way pods are always difficult. because people were talking over each other. I thought this one came out pretty good, though. Dave was one of the first appearances on the brink way back in the day. And it was good to have him and Jim on. We talked about NFTs, on chain data, a lot more than that, too. It was fun.

I did a bankless episode. I told them that they had to come on on the brink. And I think they agreed, or at least maybe David agreed. It sounded like an agreement. I'm a huge bankless fan. Everyone always asks me. I was at a Bank of New York Mellon client event, and they put me on the spot with where do you get your information.

I said, look, you got to be listening to the bankless podcasts, in addition to ours, of course. They're always very nice to me. Maybe, you know, they're nice to me. Even though they're, you know, very theorem focused, and I certainly wasn't always considered part of that community. It was fun, that appearance. All right, so should we hop into some deals here?

First one up, I love it when there's a Castle Island, deal leading off. So Hidden Road, which is a global credit network for institutional investors, and we'll talk more about what that is. But they raised $50 million. It was a Series A. We led it. We also had participation from Citadel, FTX, Uncorrelated, Greycroft, Coinbase, Wintermute, XPTO. I'm really excited about this one. So the way to think about what these guys do is they're essentially playing in the institutional prime brokerage space. And so if you're an institution, you, of course, want to be able to trade on as many venues and run your strategies. And so that's going to mean that you need to be on, I would say at least eight to 10 exchanges.

You want to be connected to a lot of over-the-counter liquidity providers as well. And of course, in order to trade on these exchanges, the idiosyncratic thing about crypto assets is that you're going to need to have assets on those exchanges if you want to trade there. You can't instantaneously move Bitcoin or Ethereum to these exchanges and immediately trade. And so it helps when you have an intermediary like Hidden Road that can facilitate that from a working capital perspective. If you're one of these large market participants, it's a really bad use of capital to just tie up, you know, tie up assets on 10 different exchanges when you could be using an intermediary to do that. And so it's a type of business that we love investing in at Castle Island, just a market infrastructure piece that we think is going to be crucial to more institutions coming into this market. And we think that this is the type of thing that can grow the market tremendously and just allow more byside participation in cryptocurrencies.

So really excited about the Hidden Road team. So here's an interesting question. If this model succeeds, does that actually drive down interest rates in crypto? Because I know obviously we've had a bit of a credit crunch and that maybe structurally high interest rates up of the past are. you know, we're built on possibly fraudulent or questionable activities. But part of the reason I think interest rates are high because if you want to participate in crypto, you have to collateralize your position on a number of exchanges all at once. And so I would pose this question to you.

If that model falls by the wayside, if as Hidden Road models get more popular, does that actually reduce the demand for crypto native credit at all? So I think yes, the answer is probably. In the short term, though, I think you're going to see rates go way up. I think it's a, it's a lenders market right now where you have just a, a lot of these lenders are kind of out of business, right? So there's a massive consolidation in the market. I think it's important to recognize that there is this reservation demand for lending. And so the lending market did not exist just because three arrows was running like a Ponzi scheme. So the the lending market exists there because, you have large institutional participants that want to borrow cryptocurrencies because they need to run trading strategies that require them to tie up capital on different exchanges. And borrowing is just a way better way to run those strategies. And so there's always going to be demand there to borrow. Something like Hidden Road just makes that way easier.

So I don't think it's a winner-take-all type of market structure. I think you'll still see these lending firms that lend out. but I just think you're going to have more institutional plumbing. This is going to look more like a traditional market at some point in the future than just a retail-driven market. But yeah, I think you're probably right. I think a longer term that drives down the rate. So next up we have our friends at coin shares.

They completed an acquisition of Napoleon asset management, a crypto-focused asset manager. They've been waiting for French regulatory approval since agreeing to acquire the business in December 2021. waiting for French regulatory approval on anything is not a position I would ever want to be in. So, you know, feel bad for anyone who's doing that. We have a couple of businesses that are waiting for U.S. SEC regulatory approval for various things, including a place we used to work.

But I don't, I feel bad for those people too. Next up, we have Wonderfi. They completed a $30 million acquisition of Coinberry, a Canadian crypto trading platform. Next one up is Bitmark. This is a provider of interoperability solutions for an NFT wallet. They raised 5.6 million from Galaxy and North Island Ventures. And like we always say, if you're going to be on a non-Castle Island island island, you're going to want to be on North Island.

North Island Ventures, shout out. Then we've got Mask Network, a decentralized messaging and payments networked. They raised $42 million for a fund that will invest in the social ecosystem of Web3. next one is caldron this is a blockchain gaming firm they want to become the pixar of web three they raise 6.6 million from cherry ventures does that mean they're going to make like a toy story they're building an animation studio does this imply that there is a dreamworks of web three that is waiting to be funded steve jobs do you know that he made more money on pixar than he did on Apple in his life.

That's, I believe that. I believe it. He was like a co-f, he was kind of a co-founder of Pixar. He's like first, first money in type of thing. But they didn't do Shrek. That one went to DreamWork. So I think, you know, in terms of the greatest of all time animated films. You think it's Shrek?

Oh, it's a classic for sure. I do like Shrek, yeah. Next up we have Mohash, an emerging. market credit DFI protocol. They raised $6 million from Sequoia, Kona Capital, and others. Next is Planetarium Labs, a Web 3 gaming company.

They raised $32 million from Anamoka. Then we've got Convoy Ventures with the K. They raised $150 million for Web 3 gaming focused fund. Congrats to the convoy guys. I know these guys a little bit, really smart gaming guys. So it's interesting to see these people that are just hardcore gaming enthusiasts

coming into the crypto web 3 space. Makes me think that we're going to see some really great games developed in the next few years here. Next one up here is Nexo. So they've signed an indicative term sheet to acquire Vald, which is a crypto lender. So I don't know that this means that they're going to buy them, but they have a term sheet to do some more diligence it looks like. Nexo is kind of pounding their chest on being acquisitive in the space. announced that they hired Citigroup to do a market assessment to see who they can buy,

which is kind of a weird thing. So we'll keep an eye on that. Yeah, it's an interesting one, as so many of their competitors have become distressed that they've maintained this outward posture. Next up, we have onto finance. They're a defy platform providing structured investment products. There is 10 million in a public token sale. Next is Oasis. This is a startup building a blockchain that is purpose built for gaming.

A lot of gaming stuff this week. So they raised 20 million from jump, crypto.com, Huobi, Kucoin, and others. Then you've got Kweebe. That's QI-I-B-E, a blockchain-based, B-2B rewards marketplace. They raised $4.8 million from Z5 Capital and others.

All right, so let's get into some news of the week. I want to talk about this Voyager bankruptcy filing. So Voyager Digital has filed for Chapter 11 protection, and this is a pretty interesting filing. I don't remember ever reading a filing like this. And I don't really think that we've seen that many crypto companies go through Chapter 11 proceedings, but it's clearly already packaged, I guess, is the way to put it. So there's a proposal here on how to come out of bankruptcy that I found quite interesting.

Let's just go through some of the facts here first. So Three Arrow's Capital was roughly 60% of the loan book over there. And there's a bunch of other loans, by the way, that are outstanding. So Alameda has a big loan outstanding with them, which is interesting because Alameda slash FTX is also an investor in the business and also provided a credit facility. That credit facility is going to take a haircut, by the way. So they didn't end up doing the full credit facility, but I believe in the neighborhood of $75 million was drawn down on that credit facility, that will be treated on par with customer deposits,

which look like they will get a haircut. I'm not a complete expert here on bankruptcy filings and proceedings, but from what I understand this process, there is a management proposed plan on how to bring this thing out of bankruptcy, and that is essentially the stocking horse plan. So they are pursuing strategic alternatives. It's possible that someone could come in and buy the company, and if that's better for everyone involved, then that's what they will do. In the absence of that, it looks like they plan to come out with some sort of a package where as a customer, you would get some fraction of your

cryptocurrencies back, you would get some fraction of Voyager digital equity, and you would get some fraction of the Voyager token as a way to come out of the bankruptcy, which is just a really interesting construct. And I think it also begs the question of, you know, will there have to be a view on VGX tokens and whether or not those things are securities as part of this process? What does it look like for, you know, a non-accredited investor to get equity in Voyager? Right. And there's actually a fourth part of this, which is the 3AC loan recovery. So that's, you know, so there's four parts. That's a question mark. The coins, the equity, the VJX tokens, and then the 3AC loan recovery, which who knows if there's anything to get there.

Really, like, makes sense, I guess, on the face of it, but you wonder if this is actually something that could be implemented. You know, what do you think? Yeah, that's a great question about can you just disperse equity to hold as to this thing? I mean, I guess they're a publicly traded company, so that might be easier. on the three arrows front it's completely unclear what the recovery prospects are there so if you if you look at the counterparties here this is this is really interesting so three arrows 654 million dollars is what they owe you know assume that that's zero alimito owes 376.7 and

you know a lot of people were saying well what the heck is going on here that ftx slash alamito would come in and try to do this credit facility if they already had this huge piece here. But what you have to remember here is that, you know, Voyager wants to keep on making money. So you keep these loans open and Alameda's paying interest on them. That's sort of your business right there. And from Alameda's perspective, you don't really want to give all the money back right away. You're putting it to use and presumably making more money than the borrowing rate elsewhere. And so you could look at this credit facility through the lens of, hey, they were just

willing to put up the $75 million to ensure that they didn't have to give back all 376 at once. So it kind of makes sense from that perspective. It interests me that Alameda is at once a shareholder in the business, a creditor, and then also a client of the business. Yeah. We're seeing a lot of that with some of these lenders that went down as, you know, like three arrows would actually own equity in the lender and then maybe they'd get preferential terms borrowing from them. So I don't know if like the glass Stegle of crypto that's going to follow this great,

you know, the great crypto crash of 2022, if that's going to include some sort of like, you know, Chinese wall requirement. But I could actually totally see that being part of a new regulatory attitude. Well, I think the whole this whole time, we're living through, it feels like the wild west of market structure, right? So you have FTX, which has an affiliated business in Alameda that is a prop shop. So you would never see like a prop shop attached to an exchange in a regulated equity market. You know, I don't think that you'll see that in a regulated crypto market at some point in the future.

I think that that's really going to be something that comes under scrutiny at some point. And then, yeah, to your point, I think you just have these business relationships with these entities that are very intrawoven. And granted, you have some of that in the legacy market. So that's not really a crypto-specific issue where, you know, certainly with investment banks that are attached to wealth management firms, there's all sorts of different ways. And, you know, there are Chinese walls there. And, you know, I guess there are ways to deal with that. But, yeah, there'll be more scrutiny on this market structure, I think, going forward. So Chapter 11 implies that there is a prospect of reorganizing the business, ridding it of

the debt load and then actually returning it to being a functional business. Is that right? Yeah, that's right. So a Chapter 11 proceeding would mean that there has to be a plan. And the plan here is Voyager tokens, Voyager equity, some fraction, some haircut of the coins you had on the platform, plus a claim on the three arrows. So that's the default plan to come out of bankruptcy with that type of structure. But it looks like they'll also be shopping the business in the interim. And so, you know, would you see like a coin base kick the tires on something like this? Would you see some of these other competitors swoop in and buy it? Maybe that's an outcome that could happen here.

So, yeah, it's not a wind down. It's not a liquidation that'd like to keep on running it. Obviously, that could change. Yeah, it seems far fetch for me to believe that they could just come out at the other end of this thing with maybe not the creditors on the business and land on their feet. I mean, the lending space, just confidence has been crushed. I can't see depositors coming back eagerly all of a sudden. You know what the crazy thing is here is that someone brought this to my attention yesterday.

The Voyager customer base is pretty large and you might think like how did it get that big, especially in the U.S. They ended up buying Circle Invest. And so the way that a lot of people that I know got their first Bitcoin was on Circle's mobile app, that was sold to Voyager. And so if you had an account on Circle, you ended up getting ported over to Voyager. And so, you know, there's probably some people that totally forgot that they had bitcoins because they bought them on Circle. They forgot about them.

And they're part of this bankruptcy process now. Those are some classic halcyon days of crypto history when you could buy Bitcoin at Circle. Oh, yeah. That was great. I remember being at the MIT Bitcoin Expo in 2015 and they were handing out like free Bitcoin on business cards. And it was a pretty material amount of Bitcoin. We covered that. I remember we talked about that with Dan Matashevsky on his podcast, his infamous first podcast on this show, where I think he said something like Circle got out of that business just because banking relationships were too difficult. And Coinbase retained their bank access and that made all the difference.

Yeah. Although, I mean, interestingly now, maybe from a valuation perspective, there might be a convergence again after a huge divergence. Yeah, I think the number one rule is just never bet against Jeremy Allaire. So speaking of bankruptcy, we're just talking about Voyager Three Arrows. They've filed for Chapter 15 bankruptcy. And this is essentially a way to protect U.S. domiciled assets in the event that there are other bankruptcy proceedings underway. So there is a liquidation slash bankruptcy underway in the BVI, which is where one of their entities was domiciled. it looks like that was petitioned by 3AC as well as blockchain.com was one of the initial firms at the table, I guess, for lack of a better word.

So they're filed for Chapter 15 in New York. They want this to all be baked into one process, it looks like, and we will see how it plays out. But a lot of people lost money on this, and those people live everywhere in the world. Yeah. Our episode in which you, I think for the first time maybe in a roundup, you said more than me. That's our most popular episode ever. Is it really? The one in which you went off on three errors. So I don't know.

I'm thinking we got to get you mad more often, basically. Just got to get me upset. Someone did say, hey, you haven't been talking about the turkeys lately. Does that mean that you don't have turkeys? anymore and quite to the contrary. I still have a major turkey problem, but I haven't been talking about it all the time. But yeah, generally speaking,

that's when I talk the most. It's about turkeys. So one of the bright spots in this, you have to look for silver linings. One of the bright spots is I'm learning so much about bankruptcy law. I didn't even know Chapter 15 was a thing. I had no idea that Chapter 15 was a thing either. And you're actually a professional that,

industry. I, you know, had a cup of coffee in the bankruptcy case. I once liquidated a hardwood flooring plant in Canada and had to use Microsoft Excel in French to do so. A lot less exciting than crypto Ponzi schemes. I feel like firing a bunch of blue collar workers is probably pretty demoralizing all things considered. Yeah, that's why I joined the crypto industry, so I didn't have to do that anymore. Yeah, a morally healthy industry. Yeah, it's a, yeah, not a lot of virtuous folks in the borrowing market these days. I'll say that. But maybe that's a good transition to a group that I do really like. So Genesis, which is, of course, the trading firm under DCG. I think these guys have handled their business

over the years in just an exceptional way. They came out, they talked a little bit, Morrow, Mike Morrow came out and said, you know, look, we did have three hours exposure. He had this series of tweets that basically said that DCG, the parent company, absorbed some of the losses. It probably came out to just call the market a little bit here and just say, hey, we're good. And it sounds like they are good. So congrats to the Genesis team. Not that many winners in a banking panic like this, but you have to say, Genesis, probably one of them in terms of market share and credibility and things like that.

It's not even a matter of like how much, who knows how much they lost, right? And maybe they were not a winner on that front and, you know, others were, but it's like you just have to like stay alive and then you're a winner. The whole thing for all of crypto startups is like stay alive, live to fight another day and you'll be good. And funds. And funds, frankly. I remember I had a tweet maybe eight months ago being like all you have to do now is survive. And a lot of people didn't take that advice. So here's an interesting one. I think maybe a little underrated regulatory development EU has agreed tentatively upon a set of rules to regulate digital assets. Entitled Markets and Crypto Assets or Micah, it still has to pass review in Brussels and then in theory

would be live in 2024. But we did get a few Twitter threads from people involved in the legislation. And I actually thought there was some pretty good stuff in there. What was in there? Some weird stuff too. I mean, you know, the greens were involved. So you kind of know what that means. But okay, so what was in the mica?

There is a blacklist product, construct. whereby you kind of have to opt into the micro rules or even if you are a company abroad as far as I understand it. And if you don't do that, then they would apply punitive measures against you to the extent they've leverage. So maybe if you have servers in Europe, you might still have to abide by mica or you or at least not sort of flagrantly violate the micro rules. So I thought that was kind of an interesting thing. that part wasn't my favorite. Another low light, I would say, would be the energy disclosures. So they did want to actually institute a proofwork ban.

They were stymied in that effort. So thanks to whoever did that and stuck up to the Greens. But, you know, issuers, they have their own version of VASPs, which they call casps, which is basically intermediaries in the crypto space. They have to disclose what kind of, blockchain consensus mechanism they use. And so basically it's sort of a transparency initiative. But in theory, you can see the intent there.

And it's basically tilting against proof of work. Now for the good stuff, I actually thought that their stable coin component was pretty good. So basically, stable coins are going to have to maintain reserves to cover all the claims. okay, sensible enough. They have to be redeemable. They're legally, they would, they must be legally and operationally segregated and kind of insulated in the interest of the holder and then protected in the case of insolvency. And now if you actually look at the existing stable coin models in the US, whether it's the state by state MTL, the Nevada trust charter, the DFS trust charter. It's not entirely clear that customers are protected in liquidation or that there is legal

segregation under those models. So I actually thought that part was pretty thoughtful and reasonable. So it's interesting. Do you think this will be a template that gets adopted in other countries or other parts of the world? Yeah, I could see that. There's a lot more. I mean, they, for instance, want custodians to be more responsible in terms of what they're listing. They want disclosures. from new listings. That part is also pretty sensible. Basically, a lot of it seems relatively common sense. I think this could be a template. They've basically steamed ahead of the U.S. in terms of regulating the crypto industry. I mean, nothing has changed here from a legislative perspective. And so, yeah, Micah could instead be the template. Did you see this Wall Street Journal editorial board,

Gary Gensler's Bitcoin regulation grab, basically coming out and saying what we've been saying on this podcast for a better part of a year and a half now that this ETF approval is really just a land grab for the SEC to regulate the spot market. And it's clear that that's what's motivating it. And there's a double standard here. And it's a product that should be approved.

And Wall Street Journal pounding the table on it now. Yeah, I mean, they're really cutting op-head from the WSJ. And frankly, there were, right. I mean, is Bitcoin inherently more manipulable than any other much smaller commodity that the SEC has permitted an ETF to be issued for? I mean, silver infamously was the subject of market manipulation. There's plenty of silver ETFs. You know, the op-ed makes the point that there's 70 crypto-etPs in Europe, which work just fine without manipulation. How is the U.S. a holdout? in here. So yeah, I think a great editorial from the WSJ. We'll see, but it seems unlikely the

Gensler changed his mind in time soon. Tom Lombardi had a really good tweet storm about the physically backed Palladium ETF that has roughly the same market cap and regulatory structure as Bitcoin as a commodity. It does not have surveillance sharing agreements. And, you know, that's approved. So it just, there's a lot of things that just don't make any sense here when you look at how the SEC has looked at the cryptocurrency market. And I think it's just very obvious that they, they want to expand the size of the SEC and the scope of the SEC. And that's really what's motivating a lot of their posture towards the spot ETF, which is unfortunate. And, you know, I don't know if this administrative procedures lawsuit from Grayscale is really going to solve this in time. My guess is that when that all comes to pass, Gensler will be out of the SEC.

There's plenty of commodities that have ETFs that are less liquid of a smaller aggregate market cap and certainly less globally distributed in terms of exchange volume and things like that. And they all have exchange-sured products. So, you know, compared to any metal, really, any commodity whatsoever. And frankly, there's also plenty of ETFs that are like double inverse levered natural gas ETFs that are sort of mathematically guaranteed to go to zero with time, you know, and those exist. All right. So I think that's it for the week. We're both up against the clock here. So I think we're

going to have to end. We have a mystery episode coming next week, but I think some people are really going to like it. All right. Have a safe and healthy weekend. We will see you on Monday.