On The Brink with Castle Island - Weekly Roundup 07/29/22 (Physical NFTs, SEC investigates Coinbase, Stablecoin Legislation) (EP.337)

Episode Date: July 29, 2022

Matt and Nic return for news and deals of the week. In this episode:  Damien Hirst's physical NFT project  Why you need a bridge between the physical and the digital world for certain NFTs  Why physical NFTs provide advantages to collectors and brands Libra/Diem spawns Aptos and Sui Coinbase is under SEC investigation  Pat Toomey criticizes the SEC What is in the bipartisan stablecoin bill?  Squabbles over Voyager's Chapter 11 plan  The UK inches towards recognizing cryptocurrency as property More 3AC shenanigans  How 3AC was and wasn't like LTCM  3AC liquidators will try to force cooperation  Tether reduces their commercial paper holdings  Matt starts a Tether conspiracy  Harmony mulls a post-hack bailout Content mentioned in this episode:  Coin Metrics state of the network 165 Nic on Medium, Redeem-and-retain NFTs are the future of luxury goods FS Vector, Stablecoin Legislation Update  UK Law Commission: Digital Assets Consultation Paper 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 Concentuteeasy. 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.

And I'm Nick Carter. In this episode is brought to you by Coin Metrics. And here is the Metrics Minute. Coin Metrics had a pretty great state of the network this week. Technically, we're paid to say nice things about that. But that is my honest opinion. The state of network was good. They focused on trading hours.

So market activity patterns, so you can see on-chain for various assets, allowing you to determine where the bulk of the users are based on the time zones. I love this analysis. So USDC is highly concentrated in U.S. market hours. USDT, Tether, is more Asian and European market hours. No surprises there. Most activity for Bitcoin is now concentrated in European. or U.S. business hours.

Ethereum activity is actually more dispersed, but gas fees tend to be higher during U.S. business hours. That is the metrics minute. Pretty good metrics minute. I like the charts in that, too. They have a good chart person doing those heat maps. Well, let's hop in a ton of Castle Island content this week. So you went on Galaxy Brains with Alex Thorne, a wide-ranging conversation.

I enjoyed that podcast. Yeah, great name. I did that in their office. It was a pleasure to do it. Fun podcast. You did an on the brink episode with the dynamic team. It was a solid episode. It was a fun one.

Itai and Yanni, I think it was their first crypto podcast. So I'm sure first of many, but talking about wallet-based authentication. That was a lot of fun. Did that a couple weeks ago and finally got it out this week. So that was fun. And then I did a conference this week, SCB 10X. they put on a great conference. It's called Redefined Tomorrow.

So I interviewed Anton Katz, the founder of Talos, co-founder of Talos with Ethan Feldman. That was a fun conversation. That was at like 9.45 at night or something. So it's kind of one of these things where my lighting was all off because I couldn't get the backlit. I need to, we need to get like a studio or something.

You appear to be recording from, is that a closet that you're inside of right now? Yeah, I'm in an undisclosed. location right now in a closet. It happened. It's a dedication to the craft of podcasting. You just got to make do. Yeah. I haven't missed

a week. Well, I guess we have missed maybe two weeks in the history of doing this. One of them we actually did record. We just didn't publish it. Yeah. I think the one that we didn't publish was the one where we told everyone to avoid three arrows capital.

I wrote a piece this week on physical NFTs. So I'm actually super excited about that category now. We have a few portfolio companies that are in this NFT category playing at the intersection of real world things and NFTs. So you are obviously taking a view that this is going to be a big category. This could be a big moment for blockchains.

Yeah, no, I really, I became very excited about it recently. I mean, a ton of major brands are very actively, not just doing. proofs of concept, but they're actually deploying at-scale NFTs that are redeemable for physical goods and where the NFT gives you, not just rights to the physical thing, but also maybe it gives you a rendering that you can use in the Metaverse. It gives you access to various experiences. So luxury brands plus NFTs are a very natural fit, in my opinion.

We're seeing Adidas doing it. Nike has patents around it. Gucci, LVMH has a whole blockchain that's part of a consortium. It's really happening. And despite the NFT market cooling, you know, these major brands are getting into it. Pretty cool sector. And I talk about why it makes sense in the article. So I'll include that in the show notes.

Yeah, big, big NFT guy. I like it. I think this is inevitably going to be one of those categories where, every brand is going to have to have a strategy at some point. So some of them will be good strategies. Some of them will be bad strategies, is my guess. Yeah, there's an interesting one with Damien Hurst. He released, I think it was 10,000 prints.

It's basically dots. I don't know. It's not for me. It's modern art, you know? And so he released all these NFTs, and then you can redeem the NFT for the art, but you have to burn the NFT. So it's an either or. You either get the art or the NFT.

And so here's the interesting thing. He also made all of the prints up front. And then a lot of people wanted to keep the NFTs. So he had to burn 5,000 of these prints, which is insane. That's painful. It's like burning his proof of work. Why did he make them all up front? Did he not think anybody would want to keep the NFTs?

So that's the problem with that model. And this is what I say in the article is you actually want the thing, the physical thing, and the NFT. You want both. You want to be able to flex in the IRL world and the virtual world. I mean, increasingly, you want to flex much more in the digital world than the physical world, frankly. So I think his model, while interesting, is the wrong model. You want both.

We're investors in a business called Dust Identity that has a really important role to play there in terms of authenticating the physical object. And so they make a, how would you describe it? It's a material. They grind up diamond particles to form something like an invisible fingerprint, invisible barcode. You can put it on the back of anything. Put it on the back of a fighter jet wing. Put it on the back of a baseball card.

And you can even essentially cook it into a piece of plastic. So you can make it a piece of the actual good itself. And that forms the invisible barcode. And then, of course, you can timestamp that record down to a blockchain, which is pretty cool. Yeah. I mean, that was one of the most. interesting startup visits I've ever had

when we went to the lab. I know. I think we thought it was going to be like Theranos and then we were like, no, no, actually this works. Yeah. Post-industrial diamond particles and they take visual signatures but you can't really see it with the naked eye.

They did a demo with a pack of cards. I mean, they could have tricked us with a demo, to be honest. They could have been trick cards or something. I've seen. in the demo like 20 times at this point and it's pretty confident that they're not that it's legit. So the reason this matters is because if you want to link your NFT or your digital collectible doesn't even have to be an NFT, you want to link your digital version of the object

with the physical object. How do you do that? It's not enough to put a QR code on the object because any counterfeiter could just put a QR code on their counterfeit version. So you need like some sort of tag or signature chip. Now, you could embed an RFID chip into the object, right? And you scan the RFID and it takes you to the web address that corresponds the NFT. But you can also just, you know, pull the chip out and put it in a counterfeit. I don't know why you would do that, but you could. So if you had a signature, which was incorporated into the object, that can't be extracted, right? And so the digital signature, the physical signature,

which let's say you can do a scan with your smartphone, you scan the diamonds and it takes you to use the app to scan it, it takes you the web address. Now all of a sudden they're really intertwined and the digital is incorporated into the physical. So that's why I'm not saying dust has to be employed for physical NFTs, but you need something like that,

in my opinion, to really work. I was at their lab a few weeks ago, and they're working on this thing where you can actually build it into like a sneaker, so you can have it be part of the fabric of a shoe. I think we should get Castle Island shoes commissioned. Maybe this can be for our merch guy. Yeah.

A little idea here. That's actually what I was thinking. So I really like the idea of the merch, merch being NFTs that are then redeemable for physical thing. So it's more complex, but we haven't have portfolio companies that do this. So I think we should.

And then you also get to show off the NFT. So this is like a, this is a real thing that people are doing. I mean, it's not, it's not even a niche idea anymore. I'm seeing a number of different crypto firms doing merch in this manner. I think you'll probably also see this applied to things,

you know, like sports memorabilia. It would be a much better way to authenticate a, you know, Barry Bond's home run or something. Yeah. It's not that you'd, not that you'd want his home run ball, but. Why not?

You know? He's a steroid guy. Maybe, maybe a David Ortiz. Water under the bridge. Someone who is a lot more pure and who never did steroids. Like David Ortiz. I see, I don't know baseball, so I don't,

is that a joke? You're smirking it. It might be a joke. Is it a joke? No, no, no. None of these Red Sox got embroiled. Oh, I see. Okay, I get it.

I get it. Yeah. It also is better for secondary market sales because, you know, you want to sell your digital collectible. I thought, I don't know, does this exist? Someone told me if this exists. A market where the NFT, the link to the collectible, you escrow that together with the funds that the buyer provides.

That goes in an escrow. You then mail the physical collectible to the, the person that's the buyer, the buyer takes delivery, they scan the NFC chip, they see it's in good condition, they said it's the right thing, and then the escrow unlocks. I mean, that's a good, safe experience for buying secondary products with strong anti-counterfeiting properties. Oh, 100%. Yeah, I don't think that exists.

No. All right. Request for startup. You heard it? You could layer that on top of like an eBay even, just make peer-to-peer commerce a lot more efficient. You can see how that would just expand the addressable market for offline commerce. And I looked into it. I'm not a sneaker head. I don't even own any sneakers. Well, what do you run with? Well, right out running shoes. Do those kinds of, they certainly, I don't

own like sneakers that you would consider like nice or, you know, in any way stylish. But apparently there's just tons and tons of counterfeits in these markets. Yeah. Tons. So it makes sense for everyone. And then for the brand, I think the brand is going to want to have the NFT version. I think they're going to actually embrace it because if I'm a brand, people are going to be counterfeiting my stuff by like digitally counterfeiting by creating unauthorized skins that people wear in the metaverse, right? So you might as well get ahead of that and then be the official, you know, really control your presence in these metaverses. Not that there are any popular metaverses now, but there will be. So I think brands have

a strong incentive to actually embrace this. Yeah, and I think you're seeing that the brands are the first movers in a lot of that stuff. It's exciting. Well, let's do more podcast episodes about this. Okay, deal. All right, let's hop into some deals of the week here. The first one up is Apdos Labs. This is, of course, the ex-Facebook employee, or one of the projects from X Facebook, X-Meta, X DM employees. So this is a layer one blockchain. They raised $150 million. Participants included FtX, Jump,

and Drason Horwitz, and multi-coined. So Aptos and Sui, I don't know how to pronounce sui. Sui. Sui are the two different L-1s. Maybe it's sui. Sui. They're the two L-1s

that both came out of that Libra DM team. A lot of chat around Aptos. I hope Zuckerberg got his beak wet there. I mean, there would be a real shame for that whole thing to come true, and he's just kind of sitting on the sidelines. Not that he has much to cry about. I am curious as to when the world will have enough blockchains. Do you think that we have enough or too many or not enough? So this is a good question.

I think that there are so many people that want to build things on top of blockchains that you just can't do right now for scalability reasons that it's just we're going to continue to see more and more L1s just because the demand for block space is so large right now. You can't really run a central limit order book on a blockchain at a highly performing. I know that like

there are some but I mean just think about all the things that you can do on a private database that you can't do on a blockchain yet. I thought we were at saturation in like 2018 and I was wrong. People kept making L1s. Yeah. I mean it's not like

Like the COS did not solve the world's problems. So I think we're going to, you'll continue to see more blockchains. What was that one, the Iota, the, what did they call that? The Tangle web or whatever. So Iota, I remember being so irritated by them. I think it was in 2017 or 18 because they had these quote-unquote partnerships with Bosch and Volkswagen. And it was total air.

But, you know, that doesn't become clear for like years later. because I think they actually had people inside the brands that would kind of put up press releases and stuff. So you can fool people for a long time, but not forever. The market has a big demand for all ones. And I think we're going to see if you launch this year. It would be interesting. So on the fund side, NFX has raised the second fund

with $63 million in additional capital to fund follow-ons. And then Variant has raised two, funds for combined $450 million. One is an early stage fund. One is an opportunity fund. So congrats to Jesse and the variant team. Huge congrats to those guys. Next up, we have CryptoSnack, which has nothing to do with food.

Actually, they're a crypto payments platform. They raise 50 million from Gem Digital. That's a good name, CryptoSnack. Next one up is Trustless Media. This is a Web3 media platform. They have raised $3.25 million from Alameda. and Ava Labs. Then we've got Unstoppable Domains, which is, of course, one of the various crypto domain.

Startups, they raise $65 million at a valuation of $1 billion from Pantera and others. We did an episode with Matt Gould from Unstop Ball domains a couple years ago now, but go check it out. Zipmax, they are reportedly in market to raise new funding, which kind of goes without saying when you lose a lot of money, I guess. but they were one of the exchanges. We talked about them last week that lost money related to Babel finance. So, yeah, a lot of people trying to raise money.

Next up, we have Interplay VC. They're raising a $10 million fund that will focus on early-stage Webstered startups and tokens. Next one up is Neaurus. This is a decentralized blockchain cybersecurity protocol. They raised $11.5 million from Draper Associates and Holt Exchange. Then we've got CLSTA lending platform for digital assets. They raised 5.3 million from Coinbase and Cracken.

Next one up is DSCVR. What is that? Discover. What are they going for? Yeah, I guess that's Discover. Yeah. That is a social network. They raised $9 million from Polychannel and others. These like words without vowels, I get that people like it. They're just really hard to say. Artifact. Yeah. So it took me so long to figure out that Artifact was Artifact and not R.T. F.K. Yeah, it's just there's plenty of names to choose from, guys. Next up we have Cardinal, a Salana-based NFT financialization platform. They raise $4.5 million from Salonaventras, Alameda, Delphi, CMS, and others. Next one is space and time.

This is a decentralized data platform. There raised $10 million in a round that was led by framework. Then you have Sweat Economy, which is another move to earn app. They raised 13 million from electric capital, Spartan, OkX, and others. This is an interesting one. I actually remember Sweat coin. So this is the sweat coin guys. Sweat coin was a non-crypto, like move to earn startup.

And on the heels of the, I guess, success of Steppen, or certainly the notoriety of Steppen, they have now created an sort of authentically crypto app. So it's kind of cargo called crypto, I think, when they initially came out and had no real crypto elements. And now they've actually pivoted belatedly into crypto. I think I need to go on a diet, small diet, not a big one, but I might get one of these move turn apps. I need to get paid to lose five pounds. I mean, yeah, the number of people I knew on Steppen.

that made just stupid amounts of money going for a run every day was ridiculous. And to my chagrin, I never downloaded. I mean, how did I miss that? I go for runs and I like money. Right. That's the only criteria. All right. Last one is Quasar Finance.

This is a Cosmos DFI platform. They raised $6 million from polychain, blockchain capital, Figman Capital, and others. So busy deal week. The deals are back. I appreciate that depending on the blockchain ecosystem, you'll get different nomenclature for the startups. So Quasar, obviously, being a space-themed thing. You know, in the phantom ecosystem,

you got a lot of spooky names, you know, so it's always kind of, I don't know, it's funny how that is the case. People have fun with names. Yeah, fun with names and blockchain. Yeah. All right, well, let's get into, I guess there's a bunch of big stores this week,

But last week we talked about this Coinbase insider trading story where the Department of Justice is going out for Coinbase employee, two of his friends for insider trading, and the SEC came out last week with their own insider trading allegations, plus saying that nine securities, seven of which were in question for the insider trading case, but they came out and said that nine cryptocurrencies were securities. This week, a story came out that Coinbase itself is. under investigation by the SEC around allegedly having unregistered securities on their platform. And so this will be an investigation that I think a lot of people have been waiting for in the industry around clarity on whether or not some of these tokens might actually be securities offerings. It's going to be very controversial. I would say Coinbase is already pushing back very aggressively. And this will be a case to watch.

There's a lot to say, but what were your initial reactions to this report that the SEC is formally going after Coinbase? Not at all surprised. I mean, I am shocked it took this long. I mean, we don't know when the investigation began. Apparently it was before the insider trading investigation. So this would have been independent and not necessarily catalyzed by that specific one. I think it's a shame that, you know, we get these things on a piecemeal basis, on a per case basis

and that there has never been any real demarcation or clarity around what constitutes a security. We're now seeing that the HINMAN test, the SEC is disavowing the HINMAN test belatedly, even though they very much endorsed it back in 2018. And that was the de facto standard if you talk to staffers back then. So, you know, I'm kind of getting whiplash

from over there. but at the same time, Coinbase has listed some, no offense, but some pretty meritless tokens, certainly tokens that appear to pass the Howie test with flying colors. So not a surprise at all.

So I guess there's a couple of issues here. One is, look, if you put a gun to my head and you say, has Coinbase ever listed security on its platform, the answer is yes. Like I think some of these things are securities. Now, There's the question of how you actually should be enforcing this as the SEC.

And there's been a continuous push by industry, Coinbase included, and Drescent Horwoods, I think had a framework here at one point around codifying whether or not certain cryptocurrencies are securities and then how you'd regulate the spot market. The SEC hasn't really engaged on that beyond Hester Purse coming out with the Safe Harbor proposal, which remains a very good proposal, very sound, apparently just politically unpalatable. That would have been the preferred way in my mind of getting some clarity here. It's just, look, let's have a framework, let's apply the framework, SEC can regulate securities, CFTC can regulate commodities, and let's go from there.

I just don't think Gensler has ever had the appetite, and I guess before him, I don't think any of his predecessors had the appetite to engage on that. And so, you know, Clayton didn't do anything. Now it looks like Gensler's just going to go after this and regulate via enforcement, which that's a real shame. So there's kind of two issues. Like look, yeah, does Coinbase have some securities on the platform? Probably they say no, but probably.

But then it's like, is this the right way to regulate? I don't think so. Yeah, completely. And, you know, I can't believe I'm saying this, but actually it looks like the EU is going to pull ahead in terms of central regulation. Yeah. And possibly even the UK. They seem to be, you know, getting their house in order on this topic.

So if nothing, and maybe it's going to require legislative change, which we probably wouldn't get this year, although there is some interesting legislation we'll talk about in a bit. It seems like we're still going to be in a state of real uncertainty for the foreseeable in the U.S. There's a bunch of folks had things to say on the back of this Coinbase issue and just on the back of a lot of things the SEC has been going through. So Pat Toomey, a Republican senator out of Pennsylvania, came out with a press release explicitly saying Gary Gensler's refusal to give crypto clarity has hurt consumers, basically calling out certain places where the SEC did not take action, pointing at some of the blowups, Celsius included. And then some of the places where they did take action, which was regulation through enforcement against some of the actors that are actually trying to get it right. So that was interesting. CFTC Commissioner Caroline Pham also was critical, which you never see. You never see another agency just publicly coming out.

So she publicly came out. She was a commissioner of the CFTC. She publicly came out and said that the agency was going for, quote, gotcha regulation, basically saying that they're trying to regulate through enforcement and not being earnest in trying to put a framework in place to actually figure out who should be regulating the spot market for digital assets. So SDC is just getting slam from all directions here on the way that they're handling this. Rightfully so. Ryan Selkis industry lightning rod, Ryan Selkis indicated that he would run for office,

partly as a consequence of this. Oh, he said that. I missed it. Yeah, all right. What does he want to run for president? I think he would start with the house. New York. Is he in New York?

I would 100% of it. hold a street sign for Ryan Selecus. So yeah, Ryan, you have our support. I mean, look, I'm not your constituent. I wouldn't be in your district, but I might donate. Yeah, I'm behind that campaign. Let's make that happen. Yeah. So that's, I mean, this is going to play out here with the SEC for a long time. And I think, look, the other thing here is, and people have been talking about this a little bit more quietly is this was all going to come to a head between Coinbase and the SEC. Coinbase, I wish, went to bat here for their earned product. Coinbase had a really good case that the way that they were intending to launch the

interest-bearing account was not a security. Just because the SEC settled with BlockFi around that account being deemed to be a security doesn't mean that that's what would have happened if Coinbase took that thing to the mats and actually fought it in court. They just totally backed off of that product. So they didn't want the fight. And maybe that's because they saw that they were going to have to have a fight on the exchange side and whether or not some of these assets were securities. But now they're going to get it, and I hope they go to bat. They are capitalized to have this fight, right? So I think that they'll have to have it on behalf of the industry, it seems. I mean, then that's been their policy. They made a very

deliberate and clear shift from an extremely conservative listing strategy to a very aggressive one, the sad thing is, is that because onshore, you know, pro-regulatory entities are fundamentally constrained in this way, just look at what happened with their land product. The offshore exchanges have seized the bulk of the market share. So this is the consequence of the SEC being draconian like this. Consumers go abroad and they go to less accountable entities. And that's just a fact. That's just the way it works. And I would say it's even more sinister by the SEC and FINRA because you're saying, look, come in and register securities, come in and fall under our framework. It's like, okay, let's say that I'm a digital asset security. How many broker dealers are in line right now waiting

for clarity on whether or not they can offer digital asset securities and trade in these type of instruments? Yet none of them have been approved by FINRA and none of them have been approved by the SEC. It's like you guys aren't giving a clear path forward even on the registered security side of this. So what do you expect people to do? Of course they're not going to go down that path when they just wait in line for several years. And if you're a startup, you just can't afford to do that. So I genuinely believe that they have not been earnest in their appeals to people to come in and talk to them. That just seems like a terrible way to operate. There is a bright spot on the regulatory side with this proposed bipartisan stablecoin legislation, however.

Yeah, so what's the deal here? So this is a bipartisan bill that has now been delayed, but looks likely to happen still? Right. Yeah. The whispers are that this bill actually might have a chance to pass this year, 2022, in the fall. And there's some really good stuff in it. So FSVector released a memo on it. Basically, it would create a clear status for stable coins,

especially stable coins that wanted to operate onshore. So they would, in theory, and now, you know, this is the way the bill's been described. These things change. So they would have to be backed based on the draft language, one to one by dollars or high quality liquid assets. They could be issued, non-bank stable coins could be.

licensed and supervised by, for instance, the Federal Reserve, the Fed would apparently have the authority to provide them a master account. There would be tests for approval, liquidity capital, liquidation scenarios. No one would be grandfathered into it. But so, you know, this is, you know, still in flux, but the contours of this legislation would set the stage for the on onshore credible stable coin issuers to actually get a meaningful path to a stable status, stable regulatory status, which is really, really great in my opinion. Yeah, it seems like this would be really good for Circle, Paxos, Gemini, the crop of, and maybe like Silvergate, some of these firms that are looking to issue stable coins.

And one thing people don't know is that U.S. stable coins, so, you know, Paxos or any of the white-labeled ones that are issued via Paxos, USDC. Like these are HUSD, these are not all issued under the same regulatory model. In fact, there's a variety of models. So USDA has more of the state-by-state model that they're following. Others follow the New York Trust model. Others follow the Nevada Trust model. It's pretty fragmented.

And it actually causes the products to actually be and feel different if you investigate the nuances from a fiduciary perspective, from what happens to the assets in the case of liquidation perspective, from what kinds of assets the issuers can invest in. They're actually pretty heterogeneous for better or for us. So either way, I'm super excited that we might actually get some real legislation that appears to have been written by people that really know what they're talking about. I want to transition over to this Voyager news this week. So Voyager is in a Chapter 11 process.

The company has submitted a plan. We talked about this a couple of weeks ago. So they've submitted a restructuring plan that is the stocking horse bid. So if there's no better bids, what they will do is come out with a mix of claims on three arrows, VGX tokens, which is their token, Voyager Equity, and then customer deposits, which would be haircut because they've lost some customer deposits here. And those four component assets, quote unquote, would constitute what would go to credit. editors in a restructuring and they would emerge as a theoretically a going concerned company. First of all, the fact that VGX tokens are a part of that is a joke. Like, I'd rather have 100 ballpoint pens from BIC than VGX tokens like that is.

I don't understand how that can make it into a restructuring proposal with a straight face. But in any event, that's what they propose to do. Again, they don't have approval from a judge to actually do that, but that's what they would do if they can't work out a deal. And there's a process in place they've hired restructuring a firm and they've hired a lawyer, Kirkland Ellis, who seems to be doing a lot of business in crypto these days. And there's a process, I believe, indicative bids were due this week, I think. An interesting development happened in that FTX and Alameda, which are, you know, two companies that are owned by Sam Bank, Ben-Fried. One of them's in exchange, obviously. One of them's a prop

shop that trades on that exchange, they have come out and said, look, we'll make a bid for the customer deposit. So let's just use some hypothetical round numbers. Let's say Voyager has lost 30% of all customer deposits. There's 70 cents on the dollar left. What FTX Alameda is saying is that we will buy that $70 for all the customers. It would be important to note this. It would be denominated in dollars.

And so they would do a deal at the day of the transaction, this would all be denominating dollars, you know, whatever, took a couple billion dollars plus, I'd imagine. And then users of Voyager would then go to FTX and have to set up an account. And once you set up the account, you'd have, let's say you'd had $500 in crypto on the platform. It's haircut down to, you know, $460 or whatever. You'd have $460 waiting for you. You could either take the money out or you could buy crypto on their platform. Now, the interesting thing here is that, you know, it's a pretty smart move if you have a view that you just want to be long cryptocurrency.

So it tells me that Sam thinks that the bottom's in in this market and is willing to go that direction. Also probably doesn't want to have a bunch of infrastructure, a bunch of companies getting, you know, toasting their customers. So that's probably a part of it. He wants to do some customer acquisition. That's obviously a part of it too. But you wouldn't do this if you thought that there was a good chance that crypto was going a lot. lot lower, just would be a tough balance sheet move. But the Voyager team just came out super aggressive against it, said that it had no merit. And it was basically because they didn't want Sam to be

preempting their process. As my read between the lines is like, hey, we're talking to a bunch of people. You came out over the top. You didn't really engage in the conversations in a formal way, but you're doing this on Twitter. But hey, look, maybe they won't get anything better than this. So this actually might be the best deal that Voyager gets at the end of the day. And the way I saw Sam pitching it was that it would be a much more expedient process for the claimants with less intermediation, which is always how these go, these things take absolutely forever. And then the firms in charge of the liquidation of the trustees just take a huge chunk out of it at the end of the day. Yeah, so that's an important note. So he called out the legal fees and the restructuring fees, which are massive.

I think Kirkland's already billed $3 million on this case. lawyers just will take every opportunity to bill you as much as they can. It should be a crime. But the other thing, I guess, is just that this doesn't contemplate a Voyager entity that's a going concern. So they think that there's some residual value there on a go-forward basis. That's a very optimistic attitude that they're taking. Yeah, totally. Which maybe this is a good dovetail.

We've waited, what, 30-plus minutes to get to it. but the three arrows shenanigans of the week section. So let's cue the music. Roll the music. What you're going to do? What you're going to do when they come for you bad? What you're going to do? What you're going to do when they come for you?

All right. So we're back. I think we should play that for a lot longer. Like I'm thinking we should go like a minute of that song. It's just a really good song. I managed to screw it up last week. And I put the music in the wrong spot, which was not. Great. And then there was just air. So the whole thing is very confusing. Well, I hope we got this right because there were more shenanigans this week.

They were. Bloomberg, which I don't know, I always thought it was like a pretty reputable place, but I am starting to question that on the back of this article. So on July 22nd, they came out with an article titled Three Arrows Founders Break Silence over collapse of Crypto Hedge Fund. And I guess if I were to summarize this article, it's just that they gave a mouthpiece to Kyle. and Suzu to put maximum spin on their story. And, you know, I wouldn't really read this article if you're looking for facts. I'll give you a couple snippets and I think you probably have some too. It was very much like an LTCM moment for us, like long-term capital management. Zizu said, we had different types of trades that we all thought were good and other people also had these trades. And then they kind of got super marked down, super fast. It's like, yeah, I think

the only way that this is like LTCM in my mind is if LTCM was being run by Bernie Badoff. That's my personal opinion. I mean, I see the parallels a little bit because, you know, LTCM failed because they had these instruments where they thought the prices would converge so they had a massive convergence trade on and they had tons and tons of leverage and there was actually a credit crisis, a real world credit crisis. and they weren't able, they got margin called and the assets that they thought would converge

in the time that they needed them to. So I kind of see that with like stake Deth and ETH and GBDC and BTC. But then, you know, I don't think that's, you know, when all the facts come out, it's probably going to become clear that Three Aris had some other trades that were just purely directional. And, you know, what's more is, LTCM didn't bar under false pretenses or, you know, double pledge their collateral or, you know, lie to their prime brokers as far as I know. And it appears that that was the case with three arrows.

So that element was not present. I totally, I love that book when Genius failed about the collapse of LTCM. And I totally forgot about the piece where they were just lying their faces off to all of their lenders. In fact, I don't think that was. That was, that must have been the chapter I didn't. read in the book. I don't think I saw that. So there's some great quotes in this. Also, it's funny that they put the filler words in the article, like like and you know, which I say a lot, unfortunately, they put those in the article. Normally, they don't put them in. So it kind of makes

you like less smart than you are. Well, do you think that they were covering up just they gave them, they gave them a free article here to kind of put their own spin. So that's, yeah, Maybe they just said, hey, we're going to put in these filler words since we're giving these guys free publicity to try to spin this thing as best they can. My favorite part was the following quote. He referring to Suzu. He rejected the perception that he enjoyed an extravagant lifestyle, noting that he biked to work and back every day and that his family, quote, only has two homes in Singapore. And, you know, I think one of his homes is worth like $50 million. or something.

So, you know, modestly sized bungal in Singapore. He also, Susie, adds this quote, we were never seen in any club spending lots of money. We were never seen, you know, kind of driving Ferraris and Lamborghinis around. This kind of smearing of us, I feel, is from a classic playbook of when this stuff happened, when funds blow up, then, you know, these are the headlines that people like to play. I'm sure everybody feels a lot better about the fact that they didn't drive Lamborghinis or Ferraris.

Well, you know, they do have that yacht. I think that's... The yacht came up in the article, too. That's going to be the Alameda yacht by the end of the FTX. Oh, yeah, FDX yacht. FDX yacht. Yeah. So he biked to work, so he must have been super modest.

I mean, this is the same sous that called 100K ether dust at one point, effectively implying that it wasn't worth even collecting 100,000 ether. Well, there was another article keeping on the path of three arrow shenanigans here. This was under Bloomberg law. Someone sent this to me under a pay wall here, but three arrows liquidators, they're going to try to force cooperation here. So what looks like has happened is that they've got minimal selective piecemeal disclosure about the fund's assets, according to attorney Adam Goldberg. And he represents the liquidators. There is a hearing here, and it says without further cooperation, if they don't start to get this cooperation fast,

lawyers are going to try to compel the founders to turn over more information with the assistance of a U.S. bankruptcy judge, Martin Glenn. So I think this is going to get ugly here really fast if these guys don't start to hand over like details about the custody set up, more information about what types of assets they held. You can tell by the affidavit from blockchain.com and even the three arrows affidavit in the liquidation that they didn't keep very good record. over there. Like they're putting out Nav statements that are legitimately like three words. So it's quite possible to me that the line between a personal asset and a borrowed asset and a fund asset was pretty, pretty murky over there. Yeah, they clearly didn't have a sufficiently

large back office to handle the scale of assets and diversity of assets that they had. so it doesn't surprise me but I wonder how you could compel their cooperation here I guess we'll see well I think they're going to be we'll see how strong Dubai is in terms of protecting these guys

I don't know why Dubai would really want these two rogue guys in their country it's not like these guys have ever done anything for Dubai it wasn't Dubai that they're going to build that city that's 170 kilometers long No, that was Saudi Arabia, right? Did you see that?

No, I didn't see that. Is it a blockchain city? I'm sure there's a blockchain element, but yeah, so it's called the line, and it's a straight line. And it's a single, instead of being, you know, like a circle like many cities are, it's one long one. That would be, it seemed like such an issue on like a Sunday night if you're trying to get back like for work the next day. You're out there at like a beach house or something? Just the traffic on a single line is terrible. It's going to, they're going to put a train.

Anyway, yeah, I don't know if they've done anything for the UAE, but are they an extradition country? I don't know. Maybe not. I don't know. I don't think you can hang out in Dubai. I think that this guy should be able to operate, you know, just in terms of living, I suppose, in Dubai. I don't think they'll be operating a crypto Ponzi scheme there, but we'll see. So there was a really interesting, somewhat esoteric paper that came out from.

the Law Commission of England and Wales. And, you know, I forgive you if you don't know what that is. I didn't know what it was either. Turns out they advise Parliament. So they're actually pretty official. And the paper is over 500 pages. So light read for the weekend. Yeah. We're going to share a link in case you want to read this. It cites a lot of crypto-twitur personalities in the footnotes, including myself. I'm cited in the paper. That's all right. I was waiting for why you read this thing.

Yeah, I hit it with that control. Kobe was an advisor to this paper. It was incredible. You know, crypto, Twitter, and government working together. That guy has wide range, that guy. No, for real. And it's actually incredible. So the paper defines crypto assets as a third type of property in the UK.

a third type. So before there are two kinds, things that you possess that are tangible, and then things in action, which are like debt. And they find that it philosophically doesn't fit in those buckets. And it's a new kind of thing. So it's like a philosophy paper. And they basically formalize it for British law, which is, I think, really interesting. It shows a great command of the material. And I think it's going to be really important. One practical takeaway could be that in a liquidation scenario, you could maybe pay out the assets denominated in the crypto assets themselves.

So we're just talking about this Voyager issue with paying them out in Fiat, almost always historically it's been paid out in Fiat. Maybe now you could pay them out denominated in the crypto assets themselves. So kind of a big step forward for England. And another English development is Rishi Sunak is potentially in the running to be the next prime minister. He was sort of whatever they call the secretary of the treasury, the equivalent of that. Under his reign, they made some very pro-crypto noises. So, you know, maybe England could be a late new entrant into the blockchain nation discussion.

Maybe it's going to be a startup haven. Maybe people will go over there. I actually think so. I mean, I'm seeing more activity there. The FCA actually seems more reasonable than the SEC, and they haven't always been reasonable, but they actually seem like they're taking a positive view of these things. So shout out, England.

Wow, England. Way to be. It rains a lot in England, so I don't know. I don't know if they'll get as many startups they want. That's true. That's true. A couple other tidbits this week. so Tether came out and said that they hold zero Chinese commercial paper.

That was interesting. I mean, I figured that they must have been holding Chinese commercial paper. And they took their commercial paper down from $30 billion at one point midway through last year to about $3.7 billion today. So they did continue rolling it off as they said they would, which leaves the Tether Truthers in total shambles, to be honest with you. I guess, but I don't know, at the same time, you and I have talked to so many people that are in the real world commercial paper market, and none of them have ever done a little bit of business with Tether. So I don't know where they're buying this commercial paper. What type of paper it is. Look, it's not going to matter anymore because they're going to get it down to virtually zero as immatures.

Look, they said they were going to do it, and they did what they said they were going to do. Let's just say that Tether went just mega-long Bitcoin, when it was like $6,000 or something and that the backing is effectively Bitcoin and the gains from Bitcoin could the commercial paper piece just be like a company that holds a subsidiary company that holds Bitcoin

and offers like a commercial paper against that or something like what's it take to be commercial paper? That's a conspiracy that's up there in terms of the Zania stuff I've seen from the truthers and they're crazy. Did I just make that up? I just made that up on the spot. Yeah, that's how conspiracies

are born. You just invent them into existence and then they exist. I'm not a tether-truther. I actually think that there's probably, I mean, I don't know if it's 100% of the assets there, but it shocked me. It's clearly something. They've been making a ton of withdrawals that have been operating here. But it doesn't seem like they are willing to disclose as much as USDC. I'll say that. Yeah, and I don't think they would have the ability to obtain any of these licenses that we we just talked about if that legislation is passed. But honestly, like, look, USC is gaining market share.

They're actually going to flip in Tether if trends continue this way. Tethers market share is declining. If you were a truther, what do you do now? You know, do you just become a USDC truther? I've actually seen some of that. Oh, yeah, they're there. Yeah. You just pivot your attention to whatever the number one stable coin is.

Yeah, what was that piece a few weeks ago? It wasn't the TIEB piece, but someone else put something out about USDC and just it was like a spaghetti salad of... Oh, Tabi, yeah. No, he had one, but someone else had a blog post about how this was all like a Fugazi system and it was overly complicated blog posts.

It wasn't actually, none of it seemed to be true, but there's some truthers out there now. Look, the more misinformation there is in the market, the better for us, right? Because then you, some people become excessively bearish based on these stories that they tell themselves. If you happen to be a market participant and have a better grasp of reality,

then it can only work in your favor. That's true. It's true. Another just tidbit here, so CRED, remember them? That was a crypto lending company. They went bankrupt in 2020. They were way ahead of the curve in terms of failed crypto lending. They went out early. And they, as far as I know, didn't go out for anything related to three errors.

So they were doing loans to like momentum vines. or something crazy. I think it was even to like Chinese farmers. Oh, my goodness. Yeah, they would have been just a great participant in our credit crisis this time. Yeah, there won't even be a book about cred, but there ought to be. Anyways, the liquidation trust of cred is suing uphold, which is another name I haven't heard in a long time, but another crypto brokerage, apparently for damages.

Apparently they're collaborating on a product together. But that's what happens in these bankrupt. is that you end up going after, you know, whoever has been doing business with the company. So, you know, back to Tether, they liquidated a big Celsius loan. It was like over-collateralized Celsius loan. They liquidated it. I think Celsius had a $100 million loan, something in that ballpark. But you wonder if some of these estates are going to start to try to go after stuff like that.

Yeah. What's that term we've been talking about? like something disposition where you're actually not safe if you manage to call, you know, claw back some assets from a borrower that's near bankruptcy if the borrower had knowledge that they were insolvent at that time. Those assets can be clawed back. Right, which I heard someone on Lower Shinn's podcast talking about the Celsius maker and Ave positions. Can you imagine what it would be like to try to claw back a position from an individual meet the dress?

Right. So we're learning so much about bankruptcy law right now. This is great. I mean, this is your sweet spot, right? Yeah, but bankruptcy people are not friendly people. Like,

I would regularly be on calls with people that would tell other grown men that they were going to rip their faces off and feed them to them. There's probably calls like that that are happening right now. Oh, I'm sure. I would love to be on one of these three arrows calls. An interesting headline I saw was that the Harmony Protocol has proposed minting billions of their one, the tokens are called one, that's the ticker, to pay back victims of the June exploit, which, in which a hacker stole 100 million. So kind of an interesting thing where, you know, in the case of crisis, the blockchain kind of looks pretty centralized. after all. So they would dilute the holders to pay back the victims, which seems like you're basically,

yeah, I mean, effectively taking funds from existing holders and giving them to people that suffer the loss. Sounds like a very fiat concept to me. Yeah, definitely. I mean, it's effectively like a bailout kind of thing. That harmony blockchain, the number one app on it, was defy kingdoms. I wonder if that's still the case. I think I have some gold in the bank vault of Defy Kingdoms. I wonder if that's still there. Should check on that. I use the Harmony Bridge to initially play Defy Kingdoms,

and you want to talk about a white-knuckle crypto experience, that Harmony Bridge, that's like walking across Niagara Falls on a tight rub. Yeah, the bridge was pretty rickety. I mean, all the bridges are. This one in particular is very sketchy. And then I guess our suspicions were completely. it was hacked.

Yeah, I mean, as a user of that product, I think my first thought was this seems like something that's about to get hacked. Yeah, there's like a 30% chance you're just sending coins in a total ether at that point. You've got to use these things to figure out. You'll never find the great physical NFT projects if you're not tinkering around with this stuff.

Yeah, that's the remarkable thing, is you always face the risk of catastrophic loss. It's great industry. You've got to do it with like minimal. dollars at play. People that are trying to get jobs in this industry that aren't actually using the products that can't speak intelligently, it's just a, you're missing out. You got to, you got to tinker around with this stuff. Completely. All right. So I think that's it for the week. We probably have some more Three Arrow's News next week is my guess, because I think the deadline here

for the getting your claims in was this week. So we'll start to trickle, trickle out who has claims, I think. Do you think like the, you know, Let's just say like some mafia figures had claims here. Do you think they would like put their names in there? I'm not sure they would go through the standard legal process. They might have other mechanisms to recoup their claims. Yeah, I don't think we're going to hear about those from Kirkland, Dallas. On that sunny note.

We will see you next week.