On The Brink with Castle Island - Weekly Roundup 07/12/24 (Crypto in the GOP platform, Uniswap vs SEC, SEC v Paxos ends) (EP.544)

Episode Date: July 12, 2024

Matt and Nic are back for another week of news and deals. In this episode:  Germany is still selling Bitcoin ETHcc chaos in Brussels Trump is speaking at Bitcoin Nashville The SAB121 overturn veto override did not pass The Republican party includes crypto in their official platform Polychain Eclipse drama Uniswap versus the SEC over their exchange act The SEC drops its investigation into Paxos Ro Khanna's crypto summit Euros and Copa America developments Sponsor notes: State of the Network's Q2 2024 Wrap-Up In Coin Metrics State of the Network Issue 267, we take a data-driven look at the most important events that impacted the digital assets industry in Q2 2024.

Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guest and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only is an expression of their personal opinion. This podcast is for informational purposes.

Shut down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The Federal Government Loans American International Group, AIG, $85 billion. dollars. This is a different kind of market and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of constitutional easing. And print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Rick Carter. And this episode is brought to you by

coin metrics and here is the metrics minute. In today's metrics minute, we're taking a quarterly look at the digital asset ecosystem in Q2. In Q2, equities and crypto markets diverged, with NVIDIA and Apple gaining 36 and 23 percent, while Bitcoin and ETH fell 14 and 7 percent respectively, Bitcoin faces some headwinds, including the German law enforcement sale of about 50,000 bitcoins and the impending distribution of gox is 140,000 bitcoins to creditors ahead of the ether etifs 27% of eth supplies staked 11% in smart contracts exchange supply is trending down at 10% since marches den-don-count upgrade eith supply has become mildly inflationary as a shift to activity in all twos has reduced main net fees and burn rate stable coin adjusted

transfer volumes hit a record 1.2 trillion in May, led by die on Ethereum and USDT on Tron. That is your metrics minute. Pretty impressive that Bitcoin and ETH have been holding in here this week. Well, I guess ETH is less of a factor because that's not being dumped by the German government, but Gox coins and the German government stash here is pretty sizable. Yeah, well, people are saying that the FTX distributions are coming. and well we don't know what FTCS creditor is going to do with the coins. Are they, is it in kind or in dollars?

In dollars. Yeah, it's in dollars. Yeah, it's in dollars. So you'd have to think that some of that would flow back into the ecosystem unless people are just done done. So that's a bullish unlock. The Gox was not a bullish unlock as it transpired. Not a bullish unlock, but it's not really done, right?

I think they made some payments out to it. Yeah, they did sense. sum out it looks like to Bitcoinica, I think, maybe a couple other venues, but they're not all out yet. And the Germans are just trashing the market right now, relentlessly. The Germans have had it with Bitcoin, huh? They just decided to just dump all that Bitcoin. They're not making good decisions these days, the Germans. No, it's, I mean, energy policy and Bitcoin policy seem to be lacking in Germany. They're getting that one.

So next door in Brussels, apparently there's just total chaos in Brussels, from what I can tell. Yeah, so from Twitter it looks like people or crypto people are just getting jumped at this conference. Is that what it is? People are just getting beat up in the streets? Have crypto people tried to be less muggable? It's my question. Like, I feel like they make themselves very easy targets. Yeah.

Yeah. Maybe that's some of it. You got to be aware, no matter where you are. If you're at one of these conferences, you've got to be aware. You can't be walking around just unaware of your situation. You will get jumped. Yeah, maybe just like don't wear the Salana T-shirt and the ledger on a necklace or underneck

and the AP watch on your wrist. Yeah. Don't do that. No. Travel in packs too. You know, stay together. I mean, I didn't realize Belgium was so dangerous, actually. But, yeah, every conference this year there's been some kind of crisis.

it seems. Oh, did the Texas one have a crisis? Well, there were a lot of storms and all the flights were Canada. That one wasn't, I was kind of a very mild crisis. Dubai was underwater. Yeah. Yeah. Apparently there was a lot of rain in Brussels.

I don't know. Maybe God is telling us to not do any more crypto conferences. There are just so many conferences this fall. It's just an unbelievable amount. And President Trump will be keynoting the Bitcoin 2024 conference, it seems. well. I mean, that is kind of pretty remarkable, actually. I mean, imagine 10 years ago thinking, hey, a former president, recently former president is going to come in and keynote a Bitcoin conference. Like, that's a little nuts. It is crazy to think about just the fact that this industry

is now at center stage in terms of the political discourse. It's just fascinating. Yeah, we have more on that. just breaking today the attempted overwrite of Biden's veto of the Saab 112 overturn was defeated in the House. Yes, I don't think we thought

that this was going to pass since so many Democrats in the House were against it, but they had to put this up for a vote constitutionally once the president vetoes something, it needs to go back for the formal vote. So I think the votes were

not surprising. You did have some flip-plopping, on the Democrat side of the aisle. So you had some folks that voted to repeal initially and then changed their mind and hopped in line with Biden and Warren, including Dean Phillips, which I thought was interesting because Dean Phillips, of course, ran against Biden in the primaries. And he sided with him the second time, but not the first time here. So that was confusing. And then you had this guy, this Republican Drew Ferguson, who initially voted to repeal Sab 121 and then voted on Biden's side the second time. And I was really scratching my head about this for the past.

few hours and then he came out and announced that he accidentally voted the wrong way. That's incredible. He just made the wrong vote. So I guess all is forgiven. It wasn't like it was a close vote. So if you fat finger, I mean, do they use a button or do they raise their hands? Or how does it actually work? I actually don't know.

But Richie Torres had an accidental vote on some issue a few weeks ago. So it seems like it happens every now and then. that seems incredible that you can get a vote wrong by mistake. Like is there no undue technology? You have to think that that just comes down to the staffers, right? And so these guys can't be reading every single bill that comes in front of them. But hey, give me the bullet points. And am I yes or no on this?

Okay. This is my request to the audience. If you know how voting works in Congress, let us know. because I find it inconceivable that you could fat finger it and not be able to change it like 30 seconds later. Like even Gmail has that

where you can undo an email. Yeah. No, it's immutable. It's immutable. So this one's a little confusing because if you think about it, we're in quadruple negative territory. So first there's Sab 112

121, which basically prohibits the banks from touching crypto. Then there is the vote to repeal Sab 1-21. So that's negating the negation. Then there is the veto. So negating the negation and the negation. And there's the attempt to override.

So that's the quadruple negative. Yeah. Yeah. Actually, when you put it that way, I'm very confused. It should just been, are you pro-crypto or anti-crypto? That would have been the vote. Up or down. So status quo, still anti-crypto,

banks cannot touch crypto as of today. No. Well, that's kind of the least of the Biden administration's challenges right now. We'll talk about that later, though. Busy podcast week, kind of in the beginning stretch here of the summer months, but we're busy on the podcast circuit.

So you sat down with Leo Zhang, the founder of Alchemia, talked about Bitcoin fee exposure, a riveting topic. Yeah, I've known Leo for forever. And Alchamia has come out with this product allowing you to go long or short Bitcoin fees. So to treat block space as a commodity,

and just like any other commodity, there's people that are naturally shorted and want a long end and the other way around. If you are an NFT provider or something and you expect that there will be a mint that skyrockets the fees, you can lock in a rate, you get exposure to that if you're a trader.

You have a view on fees. now you can take a directional view on that. So very interesting product. And just today, just now we published an episode with Adam Levine. You sat down with him covering Fireblocks's Global Custodian Partner Program. Yeah, I think we've done, what, almost 550 episodes of this podcast, have not had Fireblocks on yet, which was unfortunate. But this was a great episode with Adam Levine over there.

And we talked about this new product that Fireblocks has rolled out around global. custody partners that are all using the fireblocks network. So enjoyed that one too. Encourage people to check it out. Well, plenty of news. A lot of political stuff like always. But before that, let's hop into the deals. First one up is TreadFide. This is an algorithmic crypto trading platform. There is 3.5 million from Newform capital, Aquanao, and others. Next up we have Dora, a blockchain search engine. They raise 5.5 million from Dragonfly, Lemnus Cap, Robot Ventures, and Mavene 11. Then we have Kalipa. This is a crypto payments company that raised 3 million from fabric ventures and White Star. Then we have Satoshi Protocol. There are Bitcoin back, stablecoin. They raise 2 million from CMS and Rocktree Capital.

Next one is term finance, a D5 protocol that raised 5.5 million from Electric Capital, Blizzard, Inception, and others. Then we have Idol, a yield automation protocol that raised 2.4 million from Rockway, Longhash, and Gumi Cryptos. Then it's Rome Protocol, a blockchain scaling platform. There is 9 million from HackVC, Hashkey, bankless, and a number of others. Then you have IDOS, a Web3 identity platform. There is 4.5 million from Fabric, Near and Arbitrum. And the last one is third five. This is an AI blockchain startup.

They raised 2 million from Outlier and ChainLink. So kind of a busy deal week. Sometimes slows down in the summer, but it doesn't seem like it's going to slow down here. We just have a lot of early stage activity in this market right now. Yeah, despite the major is selling off, actually, I think deal making picked up in Q2. So on the venture side, things are pretty still pretty robust. All right. So let's hop into some of the political news this week.

So I guess I was wrong. Biden is still the president. My prediction was that by the time we recorded this, he would not be. But I don't know. It's hard to say how this one's going to go. but can't really be pushed out if he doesn't want to leave, despite the fact that George Clooney is not on his side anymore. Do you see that story?

Yeah, I mean, if you don't have George Clooney, like, where are you? You know? Yeah, I mean, ER, what was the name of that show, ER? ER. He was ER. Yeah, he was ER. I mean, yeah, if you had told me 20 years ago, George Clooney would have this amount of power.

I would have been a little surprised, frankly. So the odds have. been whipsawing around. I think Kamala is still currently in the lead on the prediction markets, on polymarket. Is she still in the lead on the polymarket? It's been ebbing and flowing with Biden here. So I'm looking at the aggregated. Yeah, she's definitely in the lead. She's up 4% today on election betting odds, which is the aggregator. Not entirely clear what is driving that, but it seems like every day some new revelation comes out from the press. and some new senior Democrat, you know, backs Biden to leave.

So I do think the pressure here will eventually force him out. Seems like what we're going to have if he does agree to step down or step out is some sort of an abbreviated, you know, multiple week get to know you, debate type of thing. Is that sort of what you expect here? Yeah, I saw some pretty wacky proposals. about a like a blitzed primary primary blitz. Yeah.

Where like cultural figures, like I think Taylor Swift's name was tossed around, would interview various Democrats and they would just have some sort of abbreviated voting process. I don't even know if there's voting involved. It doesn't seem to be any actual playbook here. It's kind of unprecedented. Yeah, I think we're an uncharted.

territory here, but you sort of have one path, which is just anoint Kamala Harris as the next candidate, or you have some sort of an abbreviated, you know, forum slash debate. I've seen commentary and some speculation that Obama and Clinton would actually be the moderators of some sort of a debate. So it'd be interesting to see which way this goes. You could see this getting massive ratings if it goes in that direction. So on the other side, the Republicans have officially embrace crypto as part of their core platform. That was pretty cool to see. This is wild. I mean, so the full text, this is maybe to back up every four years, the major parties will put a PDF together of their major policy initiatives. And crypto is on the list here. So it's tucked within,

I think, a financial services and innovation category, but the full text of the crypto bullet point says, Republicans will end Democrats unlawful and un-American crypto crackdown and oppose the creation of a central bank digital currency. We will defend the right to mine Bitcoin and ensure every American has the right to self-custody of their digital assets and turn to act free of government, surveillance, and control.

What a wild development that crypto is now on the platform of the GOP. I mean, if you had told me that one of the major parties in the United States would actually have crypto involved in it in the 2024 election, you know, told me that a few years ago, I would not have believed you. Yeah, I'm actually pretty happy with this.

I mean, if you look, at all the prong. So ending the crypto crackdown, that's a little vague, but you can interpret that a bunch of different ways. That's kind of alone, a very important pillar. Opposing the creation of a CBDC, I don't think we're really likely to get one anyway, but that's nice to see. Defend the right to mind Bitcoin, kind of a smaller topic, but important to people like me, for sure, and it ties into notions of energy independence and I think extends to AI. I mean, AI is also part of the platform, a couple paragraphs down, basically depoliticizing who's allowed to purchase power.

I think that's very important. And then I was really happy to see enshrining the right to self-custy digital assets because there is a wing of the Republican Party that's skeptical of that. So that was very nice to see. And then transact free of government surveillance and control. There's not a lot else you would want to ask for. I mean, maybe something to do with tax policy, maybe something about securities laws,

although that might be a bit in the weeds. Overall, I think it just hits all the right notes. Yeah, it's just absolutely incredible. So here is something really weird. Polychain Disclose, one of its former employees, Naraj Pant had a mammoth side deal with Eclipse, already the subject of controversy. So they raised from Polychain and then he had a side deal for 5% of the total token supply.

And then I think he led the deal at Polychain or pushed it through. So it looks from the outside like a kind of pay-to-play situation, certainly a conflict of interest. I think regardless of the timing of when that deal was struck and when the round was led. But anyway, he's left now. He co-founded a company called Ritual that also raised from Polly Chain. But I found this to be absolutely wild. Yeah, this is a really bad story. Not sure how this was discovered or what set of circumstances led to Polly Chain announcing this.

It seems like there's an investigative journalism aspect of this from Coyn Desk. And then Polly Jane kind of got out in front of it. But this is really bad behavior. is the type of thing that gives the industry a really bad look. I mean, I think it pricks up the years of the SEC, frankly, if you see this kind of misbehavior. And this is why even if there aren't explicit rules about how crypto funds should behave, you should have rules and you should adhere to them. Because stuff like this is a terrible look for the industry.

Yeah, I mean, this is just looks like he was being paid to get the deal done at polychain. You know, 5% of the network is a preposterous sum. Yeah, that's an insane advisor share. I mean, it was, I think, later reduced to somewhere in the 1% range, but that's just not at all common. Let's say they were authentically bringing him on as an advisor, even outside of the funding. You'd be looking at basis points. You wouldn't be looking at 5%. That's crazy.

Well, you'd also be looking at having to disclose that to your employer and actually having to get sign off on that. So this is way outside the bounds. Yeah. Not a lot of good things we can say about that story. Pretty ugly. And crypto needs to clean itself up here. So Uniswap Lab submitted a comment load of the SEC, which actually cites the loper case.

I think we'll see a lot more of these. I think that case is now becoming immediately relevant. So the proposed changes to the SEC's Exchange Act would kind of bring all defy applications under the ambit of the SEC. And Enoswap obviously disagrees, and they are now citing the recently repealed Chevron doctrine in their letter, which is very interesting to see. Yeah, this was super interesting to see.

I mean, this Exchange Act, I think we've talked about this on the podcast in the past, but the proposed changes to the Exchange Act here are sweeping. And a lot of people are saying that this would actually wrap up messaging protocols under the definition of an exchange. And so if you're on, you know, Bloomberg chat and you're going back and forth, is that interface the exchange or is it a messaging protocol? It also applies to defy. And so some read this, you know, proposed rule change is saying that everything in defy that involves the exchange of value would fall under the SEC's definitions here. So it's very broad, very sweeping.

And obviously, Defi did not exist when the Exchange Act was originally designed. So I think they have a pretty compelling case to be made here that this loper bright change to the Chevron doctrine is kind of squarely what we're talking about with this type of thing, where the agency should not really have the power to broadly interpret the statute that way. Yeah. I mean, this is exactly the point. This is Scotis's point in repealing Chevron. as the administrative state had far too much interpretive power and conditions of ambiguity. And it really is a bit of a dagger in the heart of the SEC. I mean, this has been their modus operandi, is exploit ambiguity to the detriment of the crypto

industry. And it seems like judicially they can't do that anymore. So we'll see what happens. Well, I think what could happen here is that the SEC could just choose to push it forward, the same way they've pushed the private funds rule forward. And immediately they would get sued. And then I would have to think that the courts would decide in favor of whoever is suing them. And so that happened, you know, obviously with the private funds rule, it was pretty quickly turned around.

And I guess the SEC is back to the drawing board on that one. So, I don't know, how many losses do you think the SEC wants to take here? This is just a, it's not just the crypto industry that's fighting up against this one. If you look at the comment letters on the SEC's web page for this exchange act, it's, there's tons of them. So there's another loss of sorts for the SEC this week, just breaking today. They ended their investigation into Paxos, determining that BUSD is not a security, effectively. They had alleged it was a security before. I think that was a pretty comical one in the first place.

I believe we talked about it at the time. I didn't see any way you could possibly conceive of BUSD. and a non-interest-bearing stable coin as a security, whether under Howie or Reeves, which is the lesser-known security test. So I think in a sound and pragmatic move, they've actually ended this investigation. Yeah, so they sent them a Wells notice,

and now they're saying that they're not going to file suit. But, I mean, how much money do you think Paxos spent defending this? Yeah. It's crazy. You have to feel for them because they're dealing with frivolous harassment from the SEC. And remember, these are taxpayer funds that could be spent going after actual egregious issues. And instead, they're being wasted on pretty frivolous cases. So I do feel for Paxos in this case.

I mean, in Paxos, obviously, they're a venture-back startup, but they're of significant scale. So obviously, they can afford this. But this is the type of thing that would put a startup out of business. This is just not a shakedown here. So elsewhere in litigation, the custodia case, of course, that one has been rumbling on for a long time. There was an amicus brief filed by the Blockchain Association, co-authored by Don Verilli, who is the former Solicitor General under Obama. Some pretty notable name there. And they asserted that the Biden administration had been systematically owned.

unbanking crypto startups. They actually cited my pirate wars piece in that brief, which was pretty cool. Yeah, congrats on getting excited in that. I mean, this is pretty significant development that you have someone who is senior in the Obama administration. Obviously, the Obama administration was, you know, they put out choke point 1.0. So I guess they would know what they're talking about in terms of getting the banks to de-platform companies.

But pretty significant, I guess, defection from the ranks there, huh? Yeah. And it's notable that the architect of both choke points 1.0 and 2.0, Marty Grunberg, remains in office. He is still in office. Still in the sea. He has announced. He said he would resign, hasn't resigned. Just another scandal, my opinion.

One of many. Well, Goldsmith Romero, I think, is going through a confirmation hearing today, I think, as we speak. Okay. So, the Grunberg's reign of terror may imminently be ending here. Yeah, and, you know, the happiest people are probably not the crypto industry people. It's probably the women that work at the SEC, or at the, at the FDIC rather, who have apparently just been living through a halacious tenure under this Greenberg guy, the culture of calamitous behavior.

Yeah, and you know, I'd love to say that choke point two point it was over, but it doesn't feel that way at all. It's still hard to get banked as a crypto startup in this country, especially for any I mean the problem is it is possible it's just transaction banking is very hard and it tends to be much more expensive

so it's not impossible it's just a significant barrier to doing business which is completely unnecessary and probably unconstitutional yeah I think that's right so I think that's it for the kind of the core news has been kind of a slow crypto news week here

I think it's just all about politics at this point what do you think Trump is going to say at the Bitcoin conference in Nashville? I mean, just play the hits, right? Keep Elizabeth Warren and her goons away from your digital assets. I think that would bring the crowd down. Yeah, I mean, it's an easy one for him. He doesn't have to say much. Just he won't attack and harass crypto like Biden has done.

You know, I think he'll be pretty popular there at the conference. I mean, he'll have a VP choice by then. and I'd like to see Trump come out and start to float some of the names of these potential cabinet members. That would also be pretty impactful. It would be great to know who he's thinking about for SEC. I told them already that I would like to be the press secretary. I think that would be a fun job. Yeah, I think that would be the worst job in the world.

I mean, I guess there have been a lot of press secretaries. Even Biden's had a couple. It seems to be a high turnover in the position. It seems pretty stressful. Well, don't, you just kind of, you get sent out to lie every day. Is that kind of the job? Yeah. I mean, depends who your boss is, right? But, yeah, I think you just get to kind of harassed journalists and banter with them. I don't know. It sounds fun. This current press secretary kind of reminds me of Baghdad Bob. Do you remember Baghdad Bob? that was a little bit before my time but uh yeah this yeah i mean that's it's tough though because

you just have to follow the established talking points that you're given like i don't think you can editorialize very much oh no yeah it's complete that's why it's the worst job in the world i mean no matter what you think you just have to kind of say the party line and there's just yeah you have to be totally shameless and cynical yeah and just deliver the talking points You know, you just have to be totally poker-faced when you do it. It's great. Yeah, it would, it's, I don't think you want that job. So, look, if any Trump potential administration campaign people are listening,

I'm throwing my hat in the ring, press secretary. Thank you. Okay. Yeah, we'll see if we get there. You said that it's a busy, busy soccer week. I'm not participating in that. Yeah, I know. I was catching up on the latest developments in the world of soccer.

I don't think you're aware, but my team, England, I'm English originally. We made it to the final of the Euros, which is like, for the Americans listening, that's like the World Cup, but only European teams playing it.

So that's pretty cool. We're normally very bad at those tournaments. So it's great. Yeah. No real, you know, there's no real sports happening right now. It's pretty slow before the All-Star break for baseball. basketball's over some football training camp stories but pretty slow for real sports the other one is

the copo america so it's the south american version the regional tournament and uh it's very interesting the the uruguay columbia game was last night columbia beat uruguay and uh i was watching it at a bar here in miami is just tons of Colombian fans going ballistic and at the end of that game the Uruguayan, some of the Uruguayan players went into the stands and started fist fighting with the Columbia fans. Really? So. Is that illegal?

Is there any root precautions on that? I don't think you're allowed to do that at all. Like throwing chairs and just fighting with the fans. It was great. It was Bethlehem. It was amazing. It's like the Ron Artaest Malice in the palace. So yeah.

Yeah, I think that's prohibited behavior. Anyway, there's a lot happening in soccer right now. One thing we didn't cover that I want to get your take on was this meeting that I guess Rokana set up. So Rokana is a Democrat, a congressman. He's generally been pretty favorable on crypto topics. He organized a crypto roundtable that included Biden advisor, Anita Don, as well as a number of crypto people, I guess.

So Scaramucci was there. Brad Garlinghouse was there. Looks like there was representation from Coinbase and Paxos. Mark Cuban was there. No Ryan Selkis, though, unfortunately. That would have been, I would have liked to see that. But everyone kind of came out of it and said, yeah, step in the right direction.

Apparently Anita Dunn was surprised to hear that the SEC has been so bad, which I don't know how you can be surprised about that. But I don't know, do you make anything of this? Yeah, it looks like it was actually a pretty solid pull. getting Anita to show up. She seems to be fairly senior within the admin and someone who has Biden's ear. So I hope this materializes into some kind of moderation of their crypto policy. I mean, they haven't shown any real indications that they intend to change anything, despite Trump having seized the initiative there. So I don't know. I mean, I guess that's not

their number one priority at the moment. The number one thing is figuring out who the heck is going to be the nominee. Yeah. I mean, talk is cheap. I think this crypto, this crypto roundtable, the time for this would have been like three years ago. So a good effort, I guess, by Rocana to probably show that he's trying. But, you know, actions speak louder than worse. So I'll give you a chance to renew your prediction here this week. Do you think Biden is in office by our next podcast? No. I, well, Yeah, I think he is in office by our next podcast, but I think he is not the nominee. And I think that position is potentially untenable. So I have a, I guess a more complicated prediction.

I think that he will still be the president, but at some point before the end of his term, he will not be the president. So he's holding a news conference unscripted, which is rare for him today. so we're recording on Thursday that's probably going to be a very significant test to see how he performs there yeah I mean if that doesn't go well then I think he could be fully out of office I mean if he has a performance similar to the

performance it's just hard to imagine that he could still be the president apparently he hasn't had a news conference like that since November which is remarkable All right, so I think that's it for the week. We will be back next week. Everybody have a safe and healthy weekend, and we will see you online.