On The Brink with Castle Island - Weekly Roundup 08/01/25 (SEC's Project Crypto, In-kind ETFs, White House report) (EP.651)

Episode Date: August 1, 2025

Matt and Nic are back for another week of news and deals. In this episode: The White House publishes their highly awaited crypto report SEC Chair Paul Atkins makes a landmark speech Stablecoin-focused L1s DAT mNAV premia are converging to 1 Figma IPO The SEC embraces tokenized securities, airdrops, token issuance, and DeFi In-kind create and redeem has been authorized for Bitcoin ETFs JPM deepens their partnership with Coinbase  Roman Storm verdict is imminent  Further reading: Blockworks' DAT Dashboard Omid Malekan and Zach Pandl, Stablecoins and the Singleness of Money White House, Strengthening American Leadership in Digital Financial Technology Paul Atkins, American Leadership in the Digital Finance Revolution Nic Carter, The Last Word on Stablecoins and Free Banking

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. Guests 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 only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated.

The federal government loans American International Group, AI, IG $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 quantitative easing. You 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. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. I think this is the most bold up I've ever been in this industry. actually it's not an exaggeration to say. After 10 years, it's quite the statement. It's all happening.

All these things that we just thought were sensible to have the SEC and Congress acting on things, it's happening. This Paul Atkins speech is one of the best things I've ever seen from a regulator. Yeah, the White House did write an entire 160-page love letter to the industry. And then Paul Atkins just said he was going to do everything that we've ever asked for. And it's not like we're asking for things that are crazy. It's just sensible. And I think we just got in a place where we said the same thing for like six years in a row. And we expected nothing to ever happen.

But now it's actually happening. The White House report, they put in all these quotes from Satoshi in there. Did you see that? I did see that. And there was a hash at the back of it. They have all these quotes from Bitcoin Talk posts from Satoshi. who do you think is responsible there was that Tyler Williams special do you think I mean some of these I didn't I'd never seen before like some these are really deep cuts

like there's some intern in the White House is just encyclopedic knowledge of Satoshi did you see the picture I think it was in in the White House um Bohinds sacks Trump Tyler Williams all standing with the report a couple of those guys looked tired that was a long report to put together it's a lot and they didn't even tell us how many Bitcoins they have. That was like the one thing that we wanted to know. Well, I'll take the clarity on all, basically the whole industry and keep it a secret how many Bitcoin's the U.S. government has, I suppose.

So on the last page, they have the Genesis block, but that instead of the, what's the text say, like, chance are on brink of bailouts? Yeah. It has Trump's quote, which I think is a little sacrilegious, if you ask me. read the quote what's it say last year i promised to make america the bitcoin sewer power of the world and the crypto capital of the planet we're taking historic action to deliver on that promise i think we should just if that's not already hashed into the blockchain that needs to be so then scott besant tweeted out this little clip that they made and uh it says crypto welcome home

with the badge of the department of the treasury on it which is very discreetly important if you think about it. Well, I think it's great. What's wrong with that? No, it makes sense in context. But imagine going back 10 years telling some early Bitcoiner, the Department of the Treasury is going to embrace Bitcoin and say, welcome home. Like, what do you mean welcome home? Are they admitting that Bitcoin was developed by the U.S. government? That's how I'm reading this. I don't know. You think back on some of the early days, if you just told people that this was going to

happen, they would definitely, if not, believed you. I mean, Bitcoin trading at like a hundred $18,000. I think they would have believed that. But it's like the open embrace of Bitcoin by the government, is it not a little paradoxical at least to an early Bitcoiner? Yeah, probably. Probably. I mean, but you get it, right?

I mean, it's like, look at stable coins and look at what that does for the dollar. How can you not be embracing it for your treasury? So, maybe we'll have to do this in a separate episode to cover the whole working group because I will admit I haven't read it in full yet. Yeah, it's a long one. I mean, there's so much to talk about this week. I guess we talked about the free banking last week, but you released this piece on substack.

So we'll put that in the show notes and in the newsletter, but dispelling some of the misconceptions about stable coins and the comparison to free banking. I think we talked about a lot of that last week, right? We did, yeah. That's basically how I do my writing. I complain about stuff on the show, and then I just write it up.

So if you have 30, I think the recommended reading time is 33 minutes, 7,000 words. If you have the time, read it. It's on my new substack. I've left Medium. Subsack did not pay me, by the way. No one's ever paid me anything for my writing, much to my chagrin. But I think substack's better. So I'm there now.

Yeah. Well, you can listen to substack pages too. So you can throw that on a 2x and go for a run and just listen to free banking. Medium really fell off. I mean, it was the blogging platform of choice for crypto, and it totally fell off. Yeah, I barely use it anymore. And I went and looked at all my stats, and I've written 51 articles on Medium and well, millions of words, I think, and I've earned $1.36 in total for that.

You know, imagine how much you would have made if you just put like a BitConnect logo on one of those things. Obviously, I'm not, I don't write to make money. directly. It's indirect. But still, like, that's broken. And they paywalled a bunch of my articles. So someone was making money. Hold on. They can pay while your articles without you. So, yeah. So, like, I was opted into the partner program for a while for some reason. And they paywalled a lot of my articles. Oh, that doesn't make sense. So, but then I clearly was not paid. So the whole thing was just completely borked. That's very strange. elsewhere in Castle Island content wide sat down with Michael bentley the founder of

oiler finance to talk about that protocol the comeback story really really impressive so we disclosure we're investors there but we are really really impressive team I mean oiler has been through a lot FtX collapse the entire protocol was hacked TVL went to basically zero and then they came storming back this year really really impressive resilience yeah we became investors after all that because we were just impressed with the way that team stuck together. Well, before the news, shall we dive into the deals? Let's talk about the deals of the week. Couple in the Castle Island portfolio. Yeah, first up, we have Stable. They're a Stablecoin-focused layer one blockchain. There's actually a few of these. I think Stable is really interesting and compelling.

Strategic investment from Bipfinex. Tether is the sort of native asset. Gas is also in Tether. So it's very crucial and important. You don't have to own some other ancillary token in order to pay your gas, which I think matters a lot. And I think it's kind of the shape of things to come. You know, purpose-built L1, stable coin focused L1, makes a lot of sense. So they raised $28 million from BitFenex,

HackVC, Franklin Templeton, and us and others. Then we have Pair Protocol. This is another one from the Kassadn portfolio, decentralized pair trading platform. there raise $4 million from us, compound VC and Florin Digital. Next up, we have CEA Industries. They are a BNB Treasury Strategy Company.

They raise $500 million from YZI Labs, Pantara Capital, GSR, and others. All right, buckle up. More of these FG Nexus and Ethereum Treasury Company. They raised $200 million from Galaxy, Kraken, Hivemine Capital, and others. Then, you know, actually on that same topic, Rockworks came out with a great dashboard of the Dats.

I guess we call them Dats now. Dats, yeah, digital asset treasury companies. I don't really like that, but I guess we're stuck with it. And they have a really good chart showing the aggregate navs by asset for all the treasury companies. And let me tell you, they're converging to one steadily. You mean they're just not going to trade at premiums in perpetuity here? So in the last week, the ETH and the Seoul nabs have gone. ETH a week ago was at a 2.76 nav in aggregate.

It's now at a 1.2 nav. Sol was at a 1.7 multiple. Now it's at a 1.05. Bitcoin has the most resilience. In the aggregate, the Bitcoin Treasury strategy is under 1.58x multiple. So it's just all going to one, which really, really quickly faster than I expected, actually. I think it's going below one.

Yeah, in many cases, I think it will. All right. Next one up is Taseo. This is a zero-knowledge-proof infrastructure company. They raise $5.5 million from archetype, A16Z, crypto, and cyber fund. Then you have due, D-U-E. It's a stable coin payments platform.

There is $4 million from Speed Invest, semantic ventures and fabric ventures. Then it's Staun.Fi. Did I say that right? Stahn Phi. This is a decentralized exchange on the Ton blockchain. They raised $9.5 million from Ribbitt and Coin Fund. Then you have D2X.

That's an E-based crypto derivatives exchange. They raise $5 million from Circle Ventures, CMT, and 0.72 ventures. Zodia Custody is a digital asset custodian that raised $18 million from Farsalisallis capital and Circle Ventures. And lastly, we have ARO network. They're decentralized cloud computing protocol. There is $2 million from dispersion capital, no limit holdings, and escape velocity.

You know, this deal week thing in the next month or so, these lists are going to get a lot longer. There are some massive fundraises happening in this industry right now. Yeah. And Golden Age of M&A continues as well. Golden Age of IPOs, too. How about the Figma IPO? Yeah. I mean, they're really happy that this Adobe thing was blocked, right?

So, yeah, Adobe shareholders got rinsed on that. So Figma's IPO was priced at $33 a share. It's traded as high as $123 today. It's at $117 right now. Intraday market cap, $47 billion. Explosive IPO. Do you think it's because they have Bitcoin on the balance sheet, is that why? Yeah, they have something like $70, $80 million a Bitcoin.

point on the balance sheet. I don't know. Probably more of just a great product. But I was saying to you before we started recording, you could see a world where AI catches up to Figma at some point, couldn't you? I think Figma is a very good product. So I mean, they'll probably incorporate AI. It's a great product. I just wonder if designing websites and things like that in a few years, you're just going to be typing into chat, GPT, what you want your website to look like, and it just does it. We're just drawing a picture. It's like these management consultants. I guess you never worked in management consulting, but you probably saw enough of it at Fidelity Internal Consulting where some of the, you know, you get senior in the organization, you just take out a blank piece of paper. You draw what

you want the slide to look like. You just hand it over to an analyst. Physically draw it on paper. Physically draw it on paper. That's like, yeah. So now AI will do that for you. I mean, the big consulting firms, I think, are being hit hard. by this. Yeah, I mean, when I worked in mainstay consulting, one of the models was you would just draw on a piece of paper and then you would scan it and send it to India overnight. And then you'd come back in the next morning and you'd have PowerPoint slides built. Yeah, so we have AI for that now. Tough for consulting, I think. Where to start on news? I mean, should we start with the SEC chairman's speech, Paul Hackens, his speech on Project Crypto? Yeah, so this comes a day after the president's

working group on digital assets released their 160 page reports. Maybe we'll talk about that next. But yeah, Paul Atkins just delivered a speech this afternoon and it's pretty awesome. I mean, where do you want to start on this? Yeah, I wrote down the five passages that I was most excited by. There's so much stuff in here. Actually, the number one most important thing that I thought was they want to create a disclosure framework for coin offerings, air drops, rewards, which is kind of something we've been asking for or suggesting for years and years. And he's basically saying they're going to do it. So he says, I've asked staff to propose purpose fit disclosures, exemptions, and safe harbors,

including for so-called initial coin offerings, air drops, network rewards. Our goal should be that issuers no longer exclude America. from their distributions to avoid legal complexity, but instead choose to include Americans to enjoy legal certainty and accommodating regulatory environment. So that signals to me that there will be a way to do basically compliant to token issuance in the U.S. Yeah.

With some key disclosures made. Yeah, that's exactly right. I mean, the part that I found fascinating was, so they want to basically allow for super apps so that, you know, that's very popular in Asia, the concept of having commodities and securities on the same platform. So they want to create this framework where broker dealers within ATS would be able to offer traditional securities and crypto trading under the same license and be able to do staking and lending all in the same infrastructure. That's huge. I mean, how many financial services firms are

off sides now? They're going to have to scramble to get this infrastructure up and running. Yeah. In the past, it was one or the other. Now you'll have to be. tokenized securities trading alongside ordinary crypto assets alongside ordinary securities. They talk a lot about tokenization in the letter. He says many firms seek to tokenize their common stock bonds, partnership interests or other securities. I've asked the commission staff to work with firms seeking to distribute tokenized securities within the US and provide relief where appropriate to ensure that Americans are not left behind. He says also accommodating trading of tokenized securities on chain

may require us to explore amendments to reg NMS. We were actually talking about this recently. Yeah. Like how an earth do you apply reg NMS to on chain trading of tokenized securities?

Our conclusion was that you can't. So it looks like they're fine some way to deal with this. I guess it depends on what the security is though, right? Because if it's a listed U.S. equity, I would think you'd still have to comply with that. But then what if you, are you going to be able to trade these things in defy? Yeah, but so how do you have a national best bid best offer?

And how do you ask uniswap? No, you can't, right? Like you could, you could ask a centralized ATS player to comply with this for sure. Like you could imagine a figure securitized type of company becoming, you know, buttoned up there, but not a protocol. Yeah, I don't think you can actually enforce RagnMS on DFI. so maybe it gets carved out. Yeah, maybe just have a switch.

It's like, hey, I don't care about my execution quality. I mean, this is just really a positive development. I think the big takeaway from my perspective is that this category of tokenized real-world securities is going to happen here, with or without a market structure bill. He was also pretty open-minded about defy. Yeah. He said decentralized finance and other forms of on-chain software systems will be a part of our securities markets and not drowns. out by duplicative or unnecessary regulation.

So he distinguishes intermediate and disintermediate activity. I mean, this is a clear and ring endorsement of defy. Totally. Yeah, totally. It seems like they're going to allow defy to flourish here and not clamp it down. What else do you have here? I mean, there's recommendations that they're going to update regulations to support better on-chain software, decentralized finance.

applications. There's a section in there about talking about custody and trading solutions. So getting clear about the custody rule. It's really, I don't know what else you would want. There's nothing in there that was an orange or red flag to me. And I was actually surprised by generally how praise he was of crypto. So I think that you think about this, you have a market structure bill working its way through the Senate. It's already passed the house. But you're just going to get a lot of that done here via rulemaking, which is, you know, that's great. Obviously, that's not enduring if someone else comes in at the SEC in four years. But maybe you get this done and then you get market structure done and then it is enduring. So that's really positive.

What are the second order impacts here? I think you just start to see this whole pocket of the industry around RWA's pop up is one thing. Anyone who has a fund that an ALTS fund, should be looking at this and licking their chops. If you're an Apollo or someone like that that wants to distribute a global scale on chain, here's the framework. Yeah, I think tokenized securities will happen here, and that'll be any genre of token security, really.

I think airdrops, ICOs, token issuances will happen here, and you'll no longer have this geoblock where it's like Syria, North Korea, South Sudan and the state of New York are Americans. So we're not going to be lumped in with the pariah nations anymore, which is nice. And I think DFI will eventually find a way to converge, maybe take a while, converge with TadFi.

So pretty remarkable. Actually, even six months ago, I wouldn't have predicted this. Now, let's talk about the other big story here. So the White House Working Group paper on digital assets, a bunch of recommendations. So it's a 160 page report goes into a ton of detail on some of these issues. And it's way more issues than I think we've ever talked about on the podcast. It gets into the nitty gritty of tax policy. There's an interesting section in there around an improved framework for risk weighting

relative to what's set out in the Basel framework for banks that want to hold things like Bitcoin. So that was interesting. There's a recommendation to get rid of the wash sale rule, which I think some in crypto kind of want to keep that one around. But I guess you take the good with the bad. Probably does make sense to clean that up. And then they segmented at the back with who should do what. You know, there's basically assignments, the CFTC, the SEC, the IRS, the Treasury.

There's some sections that say, look, we need congressional approval to do this, things like the Clarity Act. but I thought it was a really, really well done piece. Extremely thorough and addresses so many different things. There's a choke point reference in there. Thank you for that. And also just well written and really acknowledges like crypto culture in many ways. It was written in a very crypto-native way.

Right. Which was nice. I mean, it couldn't be more different from the tone out of the Biden admin where you got really tone-deaf stuff and concerned trolling about Bitcoin mining. And obviously, the action spoke louder than words there, too. But the words as well were pretty confused. I mean, remember when Kamala Harris said she was going to protect black men from crypto?

Yeah. I still don't know what that means. No one's ever explained to me why that was something that needed to be said. She wrote a book. Did you see that? She's written a book now. No, I didn't say that. What's it about?

About the campaign. It's called like, I don't know, 100 days or something. Oh, no. I don't think I don't have enough time. Yeah, that's going to be one of those ones that kind of sits on the shelf in those airport bookstores. And I don't know if anyone buys it. But maybe she explains it in the book.

I don't know. Maybe we'll finally figure that one out. It's possible. I've been on a reading tear here lately for some reason. I'm in a good reading zone. But I don't think that's on my. wish list. Yeah, me neither. But yeah, a very well done report. We'll read it in full over the next week and share our findings with you. All right. So then here's another piece from the SEC.

So they have approved the in-kind create and redeem function for crypto ETFs. So this is a good development for sure. It's not necessarily something you're going to see and experience if you're just trading the Bitcoin ETF on retail platforms or anything like that. So it's more of a plumbing implementation, but it allows the delivery of physical Bitcoin to create the shares of the ETF, as opposed to having to just deliver cash to the sponsor. What's kind of interesting to me here is just on who's set up to do this. And so if you look at some of the authorized participants in the ETF flow, a bunch of them have crypto infrastructure set up. But there's a bunch like McCrory and some of the banks that, to my,

knowledge don't have custody infrastructure built out. So does that mean they just don't do the, I guess they won't do it themselves. Maybe they'll just send an instruction to send the Bitcoin from Coinbase or Anchorage or something like that. Yeah. So to be clear, this only applies to the APs, right? Well, this is the way the, the APs are the ones that have to deliver the Bitcoin, yes. Yeah.

So you as a kind of retail ordinary individual, you couldn't show up with Bitcoin. and get shares the ETF and keep your basis the same, right? Correct. Yeah, I was thinking to myself through the day how nice that would be if you could. But you probably could if you had a, I mean, if they had a big enough whale account, would one of these APs just set up a direct, like I'm sure you could do that. I know this isn't very cypherpunk of me, but I would actually love to do that. Yeah.

Just convert physical Bitcoin into ETF and keep the basis the same. There's a huge market there, and I think a lot of these sponsors see that. And part of the reason there is that I think people are worried about the security risk. And that if you have your assets in a ETF, it's harder to get them stolen, right? Yeah. I mean, it makes a ton of sense. I think in a few years' time, we're going to look back at the days when we were all self-custing Bitcoin and storing seed phrases on scraps of paper and be like, what were you thinking?

That was crazy. Yeah, I don't know. Maybe. Maybe not. I don't know. I go back and forth on that, because what if you flip? back towards a hostile administration that's trying to confiscate your bitcoins. But I don't think even under the most deranged administrations, they're just going to start

seizing funds like that. Yeah. Well, then you'll always have a subset of people that worry about centralized custodians and not your cues, not your crypto. Yeah. With the amount of Bitcoin that's been lost through flawed custody setups, it's considerable. That's true. All right.

other things in ETF land. So the CBOE, they filed a proposal to the SEC for generic listing standards for crypto asset ETPs, basically framework for how to get these things launched. I think there's a bunch of folks that just want clarity on what type of crypto ETFs you can do. And it was in that vein that this was proposed. The White House has reiterated their support for Brian Quintends, the nominee for CFTC, after his vote was delayed. There's a lot of speculation is for the reason for the delay. Apparently, there is politically reported possible conflicts of interest. Unclear what the cause is there.

Yeah, there's this, I think it's a substack. It's your favorite platform. But there's this guy, Dustin Gooker, that writes a blog that's called The Closing Line. And he had a blog post on the 26th of July, what a freedom of information request tells us about the CFTC nominee and potential conflict of interest. And there's some emails that are sent to Quintens's Gmail account that pertain to what's going on at the CFTC. He has a board seat at Calci, which he said that he's going to relinquish. So there's supposed to be a vote, I think, a couple days ago, and it was delayed.

So people are wondering if it's because of that. Who knows? Elsewhere in news, JPMorgan has conducted a remarkable 180 on crypto. They've announced a partnership with Coinbase that allow their clients to link their Chase accounts in Coinbase wallets, redeem Chase rewards points for crypto and stable coins and fund their Coinbase accounts with Chase credit cards. Yeah, I mean, that's a 180, huh? Yeah. I mean, it used to be kicked off JPM for trying to wire funds into crypto exchanges. I still don't know a lot of funds or startups that have been able to get through the, JP Morgan process to get a bank account, but maybe Coinbase, you know, is the exception. Yeah, elsewhere in brokerages, E. Toro has announced plans to enable 245 trading, I guess,

not 24-7, by tokenizing the top 100 U.S. equities on its platform. I didn't look into this one. It's got to be one of these SPV tokenized setup type of things, presumably. Yeah. Also in brokerage's interactive brokers, are considering launching their own stable coin, enabling 24-7 funding of brokerage accounts. It's actually pretty useful, I think. Oh, that's a no-brenner, huh? Yeah, I really like that,

although, of course, can't trade 24-7. So, well, depending on the asset class. You could get cash into your account for a margin call, though, on a Sunday, right? Yeah, people are going to love that. Yeah, that makes all the sense in the world. Yeah. Do you follow any of this Roman Storm stuff this week?

because we're supposed to have a verdict here pretty soon. Yeah. So I think there were actually big thunderstorms in New York, which, so the storm delayed the storm verdict. But I think that's slated for tomorrow. People are watching this case very closely. One of the developers at Samurai Wallet pled guilty yesterday.

Actually, it changed their plea to guilty. The storm case, I think, is not as cut and dry. So I know a lot of people are hoping for good outcome there. There was a big brouhaha because in one of the days the last week, there was reference to Dragonfly, which was an investor in this project. And there was some language that the government used around. They may or may not be a, basically there may not be a case against Dragonfly. And then they later came out and walked that statement back.

But I don't know what's going on with the DOJ case here. Yeah, extremely disturbing precedent if the DOJ. Jay is going to try and find criminal liabilities for venture capital as funding open source software projects. Yeah. Yeah, that was really surprised. It looks like there was, um, there's been going on for like two years. So that's not idea. Yeah. But it, yeah, it does look like they've dropped that threat now. Um, Coin DCX, which is India's largest exchange. They suffered a hack earlier this year. Uh, they denied rumors that were all around this week that Coinbase was going to acquire that business. crypto in India could be huge, but the regulatory landscape is tough.

Yeah, from what I hear from founders on the ground there, it's quite difficult. Even though, according to chain analysis, India is sort of number one or number two, most crypto-adopted nation. Which kind of makes sense, right? Because isn't gold usage in India through the roof? Yeah, very culturally salient there. And, you know, pretty wealthy growing population. very technically savvy.

It makes all the sense in the world. In personnel news this week, Sharp Link Gaming, which is an Ethereum Treasury company, they're led by Consensus CEO Joe Lubin. They hired former BlackRock senior executive Joe Shalom to be co-CEO. Got a good package to go over there too,

and you can read the AK. But congrats to Joe. Next up, Visa has announced an expansion of their stable coin settlement capabilities. They've enabled support for global dollar network, USDG, and PayPal's PYSG as well as EuroC, circles Euro StableC This is going to be every week. We're going to have more of these companies announcing partnerships. It's a stablecoin market right now is in FOIGO.

Some reading material for you this week. Please read my piece. Also, relatedly, Omid Malikin, a good friend of mine, professor at Columbia, wrote a piece called stable coins in the singleness of money, which is a rebuttal of sorts to the same critiques I hear. And I was trying to address my piece as well. So I'll put that in the show notes for you. I'll put that one in the show notes for sure. All right. Wow. I mean, do you think this is the most consequential week in regulatory news in the history of this podcast or the industry? I think genius was a really big deal. But just the amount, the breadth of what

happened this week was very significant. There's a lot to chew on. It's a lot to chew on. It's one of these things where I think people aren't even going to really appreciate what has happened here until you start to see companies being formed to address these clear opportunities, right? Yeah. I mean, any other week, the in-kind creation redemption would be the top news item. Yeah. But there's like four things that are more important than that. All right. So I think that is it for the week. Everybody have a safe and healthy weekend. And we will see. Yeah.