On The Brink with Castle Island - Weekly Roundup 08/20/21 (Uniswap governance wars, Bitcoin adoption in EM, OnlyFans gets Choke Pointed) (EP.237)

Episode Date: August 20, 2021

Nic and Matt are back for news and deals. In this episode:  Our current sentiment on the Senate infrastructure bill The controversial Flipside/Uniswap portfolio MIT's 2014 Bitcoin airdrop Chainalysis' new data on Bitcoin adoption shows that it's a developing markets phenomenon Is there a conflict between good stablecoins and a competitive market for stablecoins? Are lossmaking stablecoins anti-competitive? Gensler makes more noise about DeFi The problem with futures-based ETFs Content mentioned in this episode:  Bitmex's new Proof of Reserve/Liability Nic in Bitcoin Magazine, The Bitcoin Energy Debate is a Modern Reprise of the Gold Resource Cost Debate Chainalysis, The 2021 Global Crypto Adoption Index David Marcus on Medium, Good Stablecoins Sponsor notes  This episode is brought to you by Withum, a top 25 accounting firm with a cutting-edge Digital Currency and Blockchain Technology practice. To learn more, visit  withum.com/crypto.  

This episode is brought to you by Witham. Witham is a top 25 accounting firm. They have a cutting edge digital currency and blockchain technology practice. Wherever your company is from a stage perspective, from pre-cede to IPO, they have tailored solutions just for you. They have helped some of the largest companies in the crypto industry with audit, tax, and advisory needs. And they've also helped a number of our portfolio companies.

To learn more about advisory, audit, and tax services, head over to on the brink. link slash witham. That's on the brink. dot link slash with them. 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 to Britain's ailing economy with a new round of concentrated easing. print a couple trillion dollars and all of a sudden people started to worry. So out of this worry, we have something called a Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. There's a little bit of a slow news week in the crypto space this week. Yeah, you know, Congress didn't try and nuke the industry this week. Oh, that's good. But maybe next week. Maybe next week. Well, the house is still in recess. So, you know, it's hard for them to try to nuke the industry.

when they're on vacation. I'm starting to feel better about this. It's kind of like the Bitcoin ETF, you know, I just have permanent optimism about it. Oh, I'm back on pessimism with the ETF. I went down with, I'm back negative on it. Yeah, sentiment has flipped. Yeah, I mean, I agree.

But like, I'm like, this is like our attitude in early, remember earlier this year? We were super bullish on an ETF. I think one of my predictions for Sunnah's blog post was an ETS. One of my predictions for that came true, which was proof of reserves with the announcement of BitMex is proof reserve, which is very clever. Really, for those of us who are proof for reserve enthusiasts, it really pushes the envelope on the technology. So big congrats to BitMex. Thank you for doing that. Anyway, that's one prediction in the bank. Well, one of mine was around companies going public.

So we had that with Coinbase and we had some SPACs. And I guess we haven't really seen those specs officially become publicly traded companies, but it seems like we're getting there with Circle and the EOS one. That's a pretty generic prediction, but I'll give it to you. You got to predict something that can happen. Yeah, that was your gimmy. That was the free space on the bingo card. But, you know, I'm optimistic around the House now. Maybe we didn't get it done in the Senate, but you know there's a lot of pro-crypto representatives in the House. house and apparently Nancy can't get this bill through. It's word, word on the street.

Stephen Lynch, Stephen Lynch, I know you want to do something crazy here and I know you want to be hostile to crypto, but just don't do it. Don't do it. You know, we might get an amendment from like Lynch and Talib like doubling down on this broker thing, making everyone a broker. Every Bitcoin wallet addresses a broker. Everyone's a broker. Everyone needs to register with the SEC.

see. It's that seems like what they would want to do. You got a tax on unrealized capital gains, you know, register with FinCEN to make a transaction. We get to approve your transactions. You can only have authorized payments if we authorize them. Non-custodial wallets are banned. It's pretty dark. There's a lot of nonsense they could do. So yeah, maybe, I don't know. It could go either way. I saw it. a delightful editorial from Bloomberg today saying that the language and the bill was totally fair and crypto has to pay their fair share. That's a tired one.

I mean, it's, I felt like it was so clear that this was not about taxes. This was just about, you know, shutting off certain key parts of the industry. It's just completely unworkable language. I thought that was a day one take around tax advantage or tax advantage. Yeah. And as we've already said, raising whatever it is, $45 billion from crypto, is not going to plug the hole. Not going to plug the whole.

Well, here's the thing. I want to see what the buildup there is on the pay for provision. And so raising $45 billion, I think it's down to $28 billion over 10 years or something like that. How do you actually come up with that number? And why is that not a Freedom of Information Act request that can be processed? and why is there not a spreadsheet that can be published on a website that says, how did you actually calculate that number?

I mean, do you think that there are people in the Congressional Budget Office that are looking at uniswap volumes and just taking a percentage of that and extrapolating? They must have. They must have had to do something like that. But what I want to know is why they think, why they're pretending that they're going to pay for this with taxes. The government is not financed through taxation. Tax receipts are not sufficient to pay for the deficit.

You just got to look on the Fred website. Federal Reserve, St. Louis. Go look at the data. The numbers do not match, right? The government does not collect enough in taxes to pay for its spending. That's the whole point of fiat currency. Like the Fed monetizes the deficit. You know, come on, come on.

Yeah, that's sort of the first order problem that needs to be addressed. But I guess what I'm asking for is just a little bit of transparency and how you actually do the calculation. Put it on the internet and let us see what the assumptions are. It's, what, $3 billion a year that you think you're going to collect just by virtue of pushing this bill live? Where is it actually coming from? I mean, it's all completely made up.

It's completely made up. We're going to ask for the open source devs to put a uniswap proposal together to have just a button that just pays a fee to the IRS on every uniswap transaction. I think that's what they want to do. I mean Metamask put in fees so maybe they can put in taxes too, you know, who knows?

You should be part of a uniswap proposal to have an IRS button. That would be probably a little bit more popular than your current proposal. Do you think that would that pass? Well, to be clear, I, you know, I'm not behind this controversial uniswap proposal. I just happened to be named in it

through no fault of my own, you know, took me by surprise. Not entirely. But yeah, maybe we should talk about that before we get into it. All right. So why don't you set it up? What are we talking about here with the UNISWAT proposal? All right.

So it's the month of controversial UNISWWR Proposals. We had one for this legal fund, which was quite controversial, but passed. And now Flipside, full disclosure portfolio company of ours, Flipside Crypto had a proposal to take ownership of $25 million worth of Unipside. Unis and basically not actually liquidate the Unis, but put them to work in a variety of sort of like yield farming strategies and take that return and use that to pay for some basically open source analytics dashboards, you know, providing information regarding Uniswap. And so I thought it was actually quite elegant, you know, not actually liquidating the funds themselves. you're just taking advantage of the interest that you can effectively earn on them for a period of years. And my role was that I would be on the committee that determines whether they're doing a good job.

And I graciously agreed to do that. In the proposal, they called me a supreme being, which I don't understand. That sounds like a Dave Balder special. I think he came up with that. Yeah, Dave might have been trolling me. I saw people like getting upset with me online like who is, you know, how does Nick dare to, you know, like, who is Nick to, you know, determine the outcome of this expenditure and things like that? People were mad that you called yourself a supreme being. It's it.

People are really, people were bent out of. I didn't come up with that. I didn't come up with that. Anyway, so the proposal hit kind of a bit of a roadblock. First of all, certain members of the Ethereum analytics community started mobilizing against it because I guess they figured Uniswap was playing favorites. And then a bunch of no votes stacked up. And then there were election irregularities.

Uh-oh. Hanging Chad type of things? What are we talking here? Much like, you know, the presidential election of 2020. Or 2000. Apparently the tally software people were using a vote was doing the one thing that it was not meant to do, which was submitting no votes as yes votes.

Little bug. And so then the proposal was canceled. But it's very even. It's 47 million for, 46 million against. Who knows how many of those noes are yeses and yeses are nos. So that's kind of the state of affairs. A lot of drama in Uniswap governance land. I love crypto because you just wake up.

There's just a gutter war being waged on Twitter when I popped open the app this morning. It's a lot of drama on this issue. Yeah, I thought it was such a mundane thing. And then I got dragged into it because I'm named in it. And I like woke up to a lot of vitriol. It's like all I was going to do is sit on a committee and at one point say, yes, they're spending the funds appropriately or no, they're not. And a lot of people like, but you have a conflict of interest. And it's like, well, can you find someone in the crypto industry that doesn't have their finger in like 50 pies?

Like, would I really shatter my, my hard-earned reputation in order to like tip the scales in flip sides favor if they were doing a terrible job? I don't think so. So I guess that's all we have to say about that one. We'll see if it gets reproposed. It was a busy week of Castle Island content. So Ria did an appearance on the skim, which was really popular. So she did a pretty in-depth panel just on the cryptocurrency markets. That was a fun one.

And that's the skim with two M's. With two M's, yeah. That's the skim, Emma. It's a very, very popular website and newsletter. Okay, the skimima. And then you didn't put this in our newsletter, but I forgive you for that. No, this will be in the newsletter. The newsletter's in draft format here.

After much badgering, I've convinced Matt to include my Bitcoin magazine. article. That's my first for the Bitcoin magazine on this idea I've had for a long time, which is the Bitcoin Energy debate is just the modern version of the gold resource cost debate. So, you know, very, very fun article to write. Bitcoin magazine has great art on their website. You have to hand it to that. So that was part of the reason I wrote this for them. I know I have obligations elsewhere. I hope people aren't upset with me. But the other reason was because I told them that I would write the article if they gave me a panel at Bitcoin 20201 that's all inside baseball oh all right that was the deal oh you get you got the deal yeah

it's been months it's been months since the since the conference so I figured I owed them an article but the art was good it's very good art it's very good art all right well why don't we get into some deals of the week here first one up is figment this is a staking infrastructure company they raised $50 million in a series B. It was led by Senator Investment Group with participation from Liberty City Ventures, Tentie Ventures, Galaxy, and Anchorage Digital. So here's a weird one. Polygon, the ETH Layer 2 protocol, they have merged with Hermes Network,

which is another public blockchain protocol in a $250 million transaction. What that means, what that entails, I couldn't tell you. It doesn't make any sense to me, but yeah, they've merged. Merged protocols. I think, you know, we'll see more of this, actually. I mean, I don't quite understand it, but, you know, maybe it's not my place to understand. Do you think you have an investment banker for a merger of that variety? Yeah.

Is there a governance vote? A boutique investment bank that just does on-chain mergers, that'd be interesting. That would be interesting. I you know hey molest if you're listening this is the lane get in the lane it's a brave new world bit panda which is the Vienna based cryptexchange and fintech they've raised $263 million in a series C from Valar Alan Howard jump capital and others Valar's in some great fintechs and brokerage businesses and bit panda seems

like they're on a great trajectory there next one up is Sertic. This is a blockchain security company. They raised $24 million in a series B extension led by Tiger Global and GL Ventures. Tiger is circling the crypto markets. They're just playing a different game, right? They're making other VCs obsolete. We're being stalked by Tiger. Very scary. Next up we have onto finance, decentralized finance protocol. They raised $4 million from Pantera. Genesis DCG CMS. Coin finance. than others. Next one up is FinTech Collective. They raised a new fund. It's a 250 million fund and it will be focused on defy investments. So that's a really positive development there

if you are a fan of defy. And then lastly, chain flip, which is a decentralized AMM. They raised 6 million from Parify, distributed global, Delphi Digital, Coinbase, and others. So the deals just keep on going through the summers. You remember a few years ago it used to be maybe one deal a week in the summer months. Yeah. I mean, this is a light week, too, in theory. It is a lightweight. It is a lightweight.

But the numbers are actually quite large. All right. So let's get into some news. The first one up is Twitter. They have named Jay Graber as the lead of its new Blue Sky project. Blue Sky is the effort to essentially turn Twitter into a protocol. So the idea is build a decentralized social network. protocol and have Twitter the app sit on top of it.

And Jay Graber had previously been associated with Zcash. So it's interesting to see this Blue Sky project get some leadership here. Yeah, big congrats to Jay, hoping she can push this thing forward. I mean, I personally, I don't want to sound bearish on Blue Sky, but I'm, you know, always struggled with the idea that Twitter could disrupt itself. But honestly, if anyone can do it, it's Twitter. It's Jack Dorsey. It is Jack Dorsey.

You would think that this would be kind of interesting, especially to the ad model on Twitter. So if this Blue Sky project is ultimately successful, what does the monetization engine of Twitter ultimately look like? So here's an interesting piece of news, which isn't in the newsletter. OnlyFans has apparently made dramatic changes to what's permitted on the platform and has banned sexually explicit conduct. Isn't that what only fans is for? Yeah, it's like a bowling alley saying you can't bowl. So apparently this is motivated by surprise, surprise pressure from their bank partners and payment processors. Are we seeing an Operation Choke Point 2.0 here? Yeah, that's absolutely right. So Operation Choke Point is back. I mean, it's not even a secret that it's back. But yeah,

banks are, it's not a surprise that banks are incredibly puritanical or payment processors, really. It's because they get this implicit pressure from the government. And the Biden administration has made no secret that they are politicizing banking and credit and finance. And so this is kind of the latest victim is, I mean, maybe, you know, the headlines aren't as bad as it suggests, but it seems like a pretty dramatic reversal. Yeah, I'm not sure that's good news there. Next story is United Wholesale Mortgage, which is one of the country's largest mortgage servicers. They came out and said they will be accepting cryptocurrency payment, starting with Bitcoin. So I know who's going to want to do this?

Pay your mortgage with Bitcoin, but an interesting idea. The other one I saw was Palantir. I acquired a bunch of gold, which was kind of cool, but also said they'd be accepting crypto payments. Well, who's going to pay? Who wants to pay in Bitcoin when you can pay in dollars? Well, I mean, they're, well, hello, do you just listen to our last news item? Payment processing is just getting more difficult, more politicized. I think Palantir is just pre-hedging.

You know, they're preparing for what's next. Imagine if just the U.S. government decides they don't want to pay in dollars anymore. They just start paying with the U.S. Marshall Reserve of Bitcoin. Yeah, I guess. in the case of Pileinter, it's a little weird because they do sell services to government agencies. So it would be weird if the government stopped being able to spend in dollars. Yeah, definitely be strange. They produce them. Yeah. A little bit of regulatory news here. CFTC commissioner Brian Quintends, who was nominated in

2017 by Donald Trump, he will step down on August 31st. And so this is an interesting one to watch. So there's two open seats now at the CFTC. Quintens has been very, very friendly towards cryptocurrency infrastructure companies. And I wonder if the second order effect here will be, it will become easier for the SEC to do its land grab here. It seems like more and more of the rhetoric coming out of the SEC would appear that they're trying to take an increased oversight on some of the activity that the CFTC has historically been in charge of. And so I'm curious what this will mean. Yeah, I thought Brian was a pretty good commissioner, pretty down to earth.

The CFTC is definitely among the smallest of the financial regulatory agencies in the U.S. And it almost seems like the SEC is kind of stepping on their toes a little bit these days, as far as the positioning I'm seeing. But yeah, I think Brian did a good job. And what are the odds that he ends up at a crypto company within six months of leaving? think that would be great if he ends up in a crypto company. But speaking of being at a crypto company, former SEC chairman Jay Clayton, who really does not like cryptocurrency, or at least did not when he was in charge of the SEC, he has now joined Fireblocks as an advisor.

And this is just the revolving door. And every time we do one of these, you got to hold your nose at stuff like this. Well, I think it's our greatest strength is our ability to convert former regulators who totally despised the industry when they're in office and turned them into industry sweethearts once they leave. So I for one celebrate Jay Clayton's newfound appreciation of the crypto space. I believe it was the esteemed Rashid Wallace who said, cut that check. And that is what he's doing. That's what I'm talking about. More regulatory, Gensler is in the WSJ gun, terrorizing the crypto space, referring to defy protocols saying, it doesn't matter how to centralize they are. They can be regulated.

There's still a core group of folks that are not only writing the software, but they often have governance and fees. There's some incentive structure for those promoters and sponsors in the middle of this. Well, nothing he's saying is actually wrong. No, he's right about that. Yeah, no, I'm going to give him some credit for that. there definitely are choke points, dare I say, that the SEC could exploit to go after defy, whether it's the firms that developed these protocols and administer them.

There's an interesting paper recently that came out showing that something like well over half of all ERC20 have admin keys. So admin keys are pretty prevalent in this space, that you could use stable coins as a lever to go after D5 protocols. He certainly has, or you go after exchanges. Gensler has tools should he want to use them. Yeah, that'll be an interesting one to watch. The other thing that's been interesting is,

so Galaxy Digital filed for a Bitcoin futures-based ETF, and we're seeing more and more of this futures-based ETF, more and more energy behind this. What's interesting is, so it's clearly perceived as a pathway that could get the SEC's approval before just a physical, physically delivered ETF. The interesting question, though,

is, and there was a Bloomberg article on this post this week, just around the cost to roll those futures contracts and how inefficient that is. And so that's something that actually makes the GBTC and the Bitwise OTC products

look a lot more attractive versus a more expensive Bitcoin-based futures product where you're just getting massive inefficiencies because you have to keep on rolling the contracts. Yeah, I mean, the futures ETFs will have drift from the underlying to the tune of 10 to 20% annualized.

So the GBDC product looks, you know, equally bad or less worse. So Gensler demanding futures-based ETFs, it doesn't really protect the consumer much more than the default. Obviously, the solution is a spot ETF, which would have minimal tracking error. But it seems like this is the current regulatory requirement or insistence that we go for the futures-based model, which is just not really that good. Yeah, it's not that good. So we'll keep an eye on that. Speaking of companies that have ETF proposals, Fidelity Digital Assets, there's a big feature on them in the Boston Globe this week. it featured perspectives from four executives at that company, Tom Jessup, Peter Jabber,

Christine Sandler, and Terrence Dempsey. And Jessup and Christine and Terrence all had their pictures in the physical paper, and Peter Jabber didn't. So that Boston Globe has to issue a correction, I think. Just put his picture in there, too. Terrence was looking pretty good. They're doing our boy, Peter, dirty. But yeah, love the team over there.

pretty cool to see them in the globe. One interesting thing that came out this week is something I've been waiting for and anticipating for about a year now, which is chain analysis, this new adoption index, which is really, really great. Yeah, they do great work over there. Yeah, and it's just so, so informative because basically this is an index of on a normalized for GDP basis, where is crypto penetration the highest globally? And every year it's the same story.

I mean, if you look at this data, you can see it's not a developed markets or Western phenomenon. It is a developing markets and global south phenomenon. I mean, look at the names on this list. They're incredible. It's places with capital controls, with financial market inefficiencies. It's places with high inflation. with weak property rights.

It's just such a powerful advertisement for, you know, the actual purpose of Bitcoin and cryptocurrency. It's a wonder to me that anyone looks at this data and doesn't come away and think, wow, this stuff really matters. And so to go a little bit deeper on how they measure this, so there's three key metrics for ranking these countries on an adoption index. One is just on-chain value received. And so triangulating just the on-chain activity.

The second is looking at on-chain retail value. And the third is looking at the P-to-P exchange trading volume. And then they wait based on those. And the top 10 countries are Vietnam, India, Pakistan, Ukraine, Kenya, Nigeria, Venezuela, United States, Togo, and Argentina. And so these names, if you looked at the 2020 edition, which was quite good, these names will not be unfamiliar to you. And if you've ever looked at the P-to-P data on something like useful tulips,

these names will not be unfamiliar to you. But there's some interesting new names in the list this year. Togo, Tanzania, and Afghanistan are the ones that I believe are new entrants. There may be others, but those ones stood out to me. Afghanistan is 20th, based on the strength of its P-to-P exchange volume. But the odd thing is I haven't really encountered any chatter about Afghan usage of Bitcoin. You know, I haven't seen any mention of that. I mean, we saw stories about the president of Afghanistan fleeing with something like $190 million in cash.

That should have been an open day. Very heavy compared to what you could have done with the hardware wallet. Yeah. I mean, we have better technology for that now. Hello. But so cool to see the African countries, Kenya, Nigeria, Nigeria. Nigeria, Togo, South Africa, Ghana, Tanzania on the list. You love to see it. Shout out Africa. And then, you know, tons of Southeast Asia and then lots of Latam penetration. I mean, it's just such a great data point. I love it.

Yeah, and some of the brokerage businesses in these countries are really roaring as well. So be interesting to see how that evolves. Obviously, the brokerage business model in the United States is very well established, but seeing some of the upstart brokerages in the these countries will be great to see. I think there's going to be a ton of entrepreneurial activity because it's unlikely to me that you'll see a U.S.-based brokerage just pick up and go to Togo. I mean, that market will be dominated by local brokerages. Yeah, and that is a big focus for Kass Island, a little self-shill in there. Yeah, so if you're running a local brokerage in Togo, give us a call. Reach out.

here's a cool story. CNBC had an article revisiting the 2014 Bitcoin giveaway. So the Bitcoin Club at MIT worked it out such that every MIT undergrad, I think it was a $100 worth of Bitcoin back in 2014, and it sort of studied what people did with that. Not surprisingly with all sorts of air drops, people tend to sell early. But that was cool to see Jeremy Rubin and Dan Ellitzer in the news here.

That was an awesome, awesome experiment they did back in the day. It's great that Jeremy and Dan are both still active in the industry, too. I mean, seven years on. That's pretty cool. We tried to hire Dan at Fidelity right after this, and unfortunately did not get him. He went over to IDEO, but what could have been? He could have been in the Fidelity Mafia. It's a high-quality mafia.

And so was the takeaway from that story that basically they all lost their keys? There was a lot of that. a lot of people went to the local restaurant and bought a meal immediately. And if they didn't, then it would have been worth thousands and thousands of dollars. So it was the most expensive Thai restaurant meal they've ever had, that type of thing. The weird thing about hanging around the crypto industry for long enough is you just get air dropped. And if you hang on to it, stupid sums of money, without really doing much, you just have to sort of be present. Like some of those ripple airdrops, stellar.

Oh, man, the stellar Facebook one. I mean, they were, there were Bitcoin faucets back in the day. I mean, more recently, like NFTs have just been flying around. I got air dropped and NFT worth, you got a ridiculous amount of money. I mean, it's just like you just sort of hang around the hoop and these things sort of show up in your wallet. It's crazy. Yeah, but sometimes you lose them. I had these chain monsters back in the day, and I really have misplaced them.

I lost mine as well. Rip in peace. Terrible. I had a bunch of monsters. I think that's the fate of anybody in this space for long enough to lose small fortunes through neglect. It's too bad. I guess the moral of the story is never sell. Never lose a wallet.

Satoshi said you should never throw away a wallet. Yeah. I should have listened. Yeah. I mean, right now there's all these airdrops going on. People that have ever used ShapeShift have Fox tokens falling on their heads. It's crazy. Yeah.

Yeah. So now the incentive is to use every single service at least once to create your indelible track record such that you're eligible for the future theoretical air drop. And just, you know, that works until Gary Gensler swats it out of your hand. Yep, until he goes nuclear. So TBD on that, but Kerry, certainly no shortage of intimidating noises coming from that camp. So did you see there was a sponsorship deal? So former Oklahoma State basketball star, Cade Cunningham, has signed a multi-year deal with BlockFi, a sponsorship deal. So sign them up, and he's getting paid in Bitcoin, a Bitcoin signing bonus.

I did not see that, but the intersections between Bitcoin. and sports grow ever deeper. So he's the point guard for the Pistons. So this will be a fun one to see. Trevor Lawrence is also getting a sponsorship from FTX. So this is becoming more and more of a thing. So there was an interesting blog post from David Marcus of, I believe Libra is that his current affiliation? Well, Facebook.

Novi? Facebook, not Libra. formerly known as Libra. Facebook Financial. DM. Okay. A little bit of a tangle there in terms of the affiliations. So it was called, you know, good stable coins, a protocol for money and digital wallets.

And I found it quite interesting. And he was talking about what DM's business model will be. and how being super aggressive against stable coins is un-American, actually. So in the post, he's basically talking about what a well-designed stable coin looks like and suggesting that the best design for a stable coin involves holding reserves in cash at U.S. banks or very short-term treasuries, so probably three-month treasuries, and additional capital as a buffer. So I think that's probably a fair position to hold.

That would be a more safe model than a USDC or Tether, for instance. The safest, of course, would be if you had a direct account with the central bank. And, you know, there would be no risk whatsoever. But, you know, very few firms have access to that. One thing that occurred to me, though, is that Facebook or DM or Libra, you know, whatever the entity is called now, they can sort of afford to do that. In fact, he talks about business models, says that they wouldn't really have a business model, at least initially. They can afford to engage in a loss-wing activity like this because they have an enormous

other business. And then the stable coin or the on-chain-based payments mechanism would be complementary to their other business lines. But imagine if you had regulation, which said you can only hold, you know, extremely short-term treasuries to back the stable coins that are being issued in the U.S., that would effectively mean that there would be no business model in stable coins. You just wouldn't be able to make enough money to cover it. You would lose money. I mean, we live in a negative interest rates world.

So if that were to occur, then it would be highly concentrative. And it would mean that only the largest and most well-capitalized entities, effectively gigantic tech firms would be the ones that could issue stable coins. And so it really, I think, actually hurt the diversity in the stable coin space because you would lose profit-making stable coin issuers and you would just be left with these behemoths that are, you know, subsidized by big tech companies. So I understand, you know, the intuition behind, oh, well, we should have rules that force stable coins to be extremely safe, like narrow banks, a kind of Rothbardian full reserve,

no maturity transformation or illiquidity in the reserves whatsoever. But that I think actually has a chilling effect on the space. So anyway, that occurred to me whilst reading his post. It sort of reminds me in some ways of the browser wars where Microsoft was so advantaged because they didn't need to make money on browsers. They could just embed the internet explorer within Windows. And so they started to play a different game, which completely ate the other browsers, where the business model was fundamentally different, and you couldn't package it as part of an operating system.

So stablecoins are part of the operating system here for Facebook in a way that they just wouldn't be for a smaller arrival. Yeah, I guess my point is when you hear people talking about asking for regulation, the stable coin space, asking for stable coin issuers to have charters, things like that. and insisting that stable coin issuers can only hold a certain type of collateral, you know, interrogate the deeper reasons for that and ponder whether they're saying that through mere beneficence or because it would advantage their particular business model. And, you know, so I'm feeling a little troubled about that because I think there is a world where basically stable coin issuance becomes, you know, a non-point issuance becomes, you know, a non-profit making enterprise through regulation.

And we just get worse consumer choice. Yeah, I think that's quite likely, actually. All right, so I think that's it for the week. We will be back next week with another episode. And until then, have a safe and healthy weekend.