On The Brink with Castle Island - Weekly Roundup 09/09/22 (Stablecoin wars, White House energy report, Gensler attacks) (EP.347)

Episode Date: September 9, 2022

Matt and Nic return for news and deals of the week. In this episode:  Nic's shoe problem Web3 merch for OTB? The White House releases a report on crypto asset energy usage Why the US should encourage mining within its borders  Coinbase is funding a lawsuit against OFAC  Binance is converting USDC into BUSD on their platform  Poolin is having liquidity problems Russia considers crypto for cross border payments  The US Government recovers $30m from the Axie hack Gensler keeps firing barbs Nic doesn't buy the supply shock thesis around the Merge Will ETH have another high fee era?  What could an ETH carry trade look like?  Content mentioned:  The White House, Climate and Energy Implications of Crypto-Assets in the United States Gary Gensler speech at the SEC, Kennedy and Crypto Sponsor notes: Subscribe to the Coin Metrics State of the Network newsletter and read their Mapping out the Merge report  

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 Concented Easy. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called.

of Bitcoin, Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. So today's Metrics Minute, it's all about the merge. Merge happens next week. Ethereum did the Bellatrix upgrade on the beacon chain on Tuesday, apparently.

That was part one in the merge. It was a hard fork. CM found that the average number of missed blocks per epic, rose from under one to over three and the 50 epics after that upgrade. If you don't know what an epic is, you're not alone. I don't know either. Turns out a bunch of people,

nodes didn't upgrade their clients ahead of the upgrade, and the number of miss blocks is now coming back down. That is your metrics minute. We're coming into the merge. This time next week, we'll probably be merged when we're recording this. That's right. we have a special merge episode

with the one and only David Hoffman who's spoiler alert he's pretty bullish on the merge he is yeah he's a fan I became more bullish talking to him he was contagiously bullish he has that effect on people those guys just got Arthur Hayes to come on their podcast

and talk about the merge what are we doing over here why is Arthur Hayes Arthur Hayes lives Nearby Why is he not coming on our podcast? I mean, if he lives nearby You got to go get him

Get him on the pod I'll see what I can do I don't think he'd want to talk to us Why not? I think we've Didn't you you wrote a You wrote a blog post about Chitcoin casinos back in the day

Yeah but I know BitMex was never really one of the ones that I targeted Yeah, I don't think I've ever actually really criticized Bitmex. All right. Well, let's get them on. No, I think BitMets, well, until their recent transformation, which was really disappointing, I think they're one of the best exchanges.

I think they got a lot of undue hate, my opinion. It's crazy these people that are coming into crypto now, they don't remember BitMex, and it's color it is. They don't remember Arthur Hayes was the FTX of that generation. people don't remember Jed McCaleb it's like this guy's out here slinging still he's still selling his I think he might have finished selling his ripple he's selling a lot of things he's selling a lot of things took him a long time to burn through because he had some sort of deal with ripple where he could only sell a certain amount per unit time something like that yeah he struck

an incredible deal there so yeah um there's a lot of history that just goes missing. You know, people, the youngans, the newcomers, they're all about NFTs, apes, Nike. They don't have any respect for the crypto history. Come on, who's going to teach them? Go read your block size wars, Johnny Beer. Got to go read that book. We need some textbooks. Dude, need some on-chain archaeologists. So this is one of the later episodes. Really down to the wire here. It's only a few hours still publication time. Our 6 a.m. standard. Yeah. We tried to do this earlier, but you had to catch a flight. So it's almost midnight.

We did attempt. Yeah. So if we sound tired, it's because we are tired. We're tired. Yeah. We're tired. But it's the podcast had a busy week. So you and Ria sat down with Stephanie Howard and Bennett Collin, the co-founders of N-state, one of our portfolio companies, the Web3 footwear. That's the thing. Yeah. I bought one of their recent drops. I cannot wait to get it. So here's my problem with shoes, buying shoes online. I need to try them on at the store. I don't know what size I am. What are you kidding me? No.

What are you not? You don't buy? I don't buy shoes online. I don't trust. What is this? 1987? What are you doing? So I want to try the shoe on.

I think that's pretty reasonable. I want to try the shoe on first. I don't know if it fits. I have wide feet. Okay. I'm frequently wide feet. Do they change sizes? Most people just, you know,

know what size there? No, because it's actually not standard between brands. Okay. And if you are an outlier on the foot width spectrum, as I am, probably three standard deviations, it really matters. Okay, some brands are very narrow. They don't support. So then I have to size up sometimes. You know, maybe then it's if it's true to size, it's all this uncertainty. So I don't buy shoes online. I buy them at the store. I only buy them. using my metamask and I only buy N-States now. So that's why I have some trepidation. I also participated in the N-state drop.

I got a great pair of the TL sneakers, but I'm worried that the analog version won't fit, and then what do I do? I can't return it to the blockchain. You can't go to the blockchain and say, I want to return. I don't think you can do that. I think you hop on our community on gm.xy-z,

forward slash on the brink, and see if anyone's your size. Frankly, I probably would have recourse as an investor, but yeah, you know, that's my problem with Web3 merchandise. I think from a business perspective, it's a great thing to not have returns, which is where are you going to send it? You got to send it to the Metaverse.

For sure, yeah. I do like the rendered version of the shoe, though. I think I might like the digital more than the physical. I mean, that's the way the world is going. I think maybe I'll get more use out of the digital. So we were actually discussing Web3 enabled merch for this very podcast. Yeah, is that happening?

I know there's been some chatter on the community side. So we've failed to so far honor our promise to create digital trinkets for our enthusiast community on GM. Don't worry, the trinkets are coming. I have it on good authority. They're coming. I think Web3 merch is cool. I bought the GM hoodie, which is Web 3. It's a Web 3 hoodie, as in it has an NFC chip in it.

that lets you claim an NFT. That's what the definition of a Web3 piece of merchandise is, I guess. I think we can do that. We definitely do that. We've sold some very orthodox Web 2 merch in the past. What about Web 3 March? What about the Fudd dice? Could you put a little, you know, I guess not an NFC chip,

maybe a little dust identity tag on there? Yeah, you could do that. And then that could take you to your NFC. Yeah, the NFC chip wouldn't fit. Yeah, we should workshop that. There have been four, five generations of Fudd dice. Is it five now? There's more and more FUDs.

We got EPA FUD. We've got SCCFUD. I don't know if the SEC was even on the original FUD. Yeah, so I did read today a long government document, which was just FUD after FUD all about crypto mining. It actually, I've been, kind of on hiatus about the Bitcoin proof of work stuff, you know, being the

defender of proof of work, I hung up my boots, I was done, I put down my sword, I went back to the plow and now I've been called into action again. I don't know, what's going on? They drag me back in. Oh, really? All those mouth breathers on Twitter needed a little help?

Yeah, so I guess, you know, the Bitcoin Laser Eye community, they're not really doing a good job of defending themselves from the government from their latest attack. You know, so I'm back. As far as executive orders,

it's in papers on executive orders, it's the only one I've ever read, but it's the worst one by far. There's a section in this one. So the title of this, anyone wants to read, it's called, Climate and Energy Implications

of crypto assets in the United States. There's a suggestion in this that the United States could take the action to just ban proof of work money. That's, now that's, That's banning math. That's shot 256. You can do that on a piece of paper. How do you ban math?

Yeah, there is that suggestion. It's actually the suggestions part is pretty weak. I would say, like, it's not entirely clear what they would actually do. And if they do ban, here's the point I'd like to make again. If they do ban proof of work domestically, they basically guarantee A, that emissions for Bitcoin go up because you're going from a relatively low carbon intensity. situation here in the U.S. to more higher carbon intense generation abroad. And B, it's like a gigantic wealth transfer to Russia, to Iran, to Venezuela, to North Korea.

Not the best places in the world. Because that's where all the alternative Bitcoin is going to be mined. It's a huge subsidy to those countries into the governments that control them. So why would you do that? That's crazy. Makes no sense. It's not, you can't stamp

out Bitcoin mining global. all you can do is determine whether it happens within your borders or outside of your borders. It should happen here. We have relatively clean electricity. We have a lot of energy. We have plenty of stranded or kind of spare energy that. It does not find a home. Why on earth would you push it outside so that it can be mined by Maduro and Kim Jong-on and Putin, basically?

It makes absolutely no sense, but not a lot of things are making sense right now. Yeah, so this report, I have spent the last few hours annotating it, and it's just a sea of red. And I guess I'll publish those annotations. I was inspired. Catherine Wu used to do that. Do you remember? I do, yeah. She used to do those annotations.

And so I'm going to do that. Because I feel like it's too much to respond to. There's just too much. And so I'm responding kind of piece by piece. And so we'll see. I like that. Yeah. All right, we'll see.

I hope the administration receives my annotations. I'm sure they will read that with bated breath. Why don't we hop into some deals of the week? First one up is go-go pool. This is a decentralized staking protocol. It's on Avalanche. They've raised $5 million from Framework and Coin Fund. Okay.

This one confused me. I thought it was 21 Inc. I know. We're reusing. Wow. Are they back? 21 Inc. 21 Inc., which started as mining company.

and then they made these little mini miners, these like API things. Remember those? They used to have one. Yeah, and then eventually became Earned.com, right? That's right. And folding Coinbase now. So this is 21.com, not to be confused with 21 ink,

no relation. This is the parent company of the crypto ETP issuer 21 shares. They've raised $25 million at a $2 billion dollar valuation from Marshall Ways, Valor, and others. Next one up is Metaverse Magna. This is an African Web 3 gaming Dow. They've raised 3.2 million from old-fashioned research, We Made, Gumi Crypto, and others.

I swear they're just making up the names of these funds now. Metaverse Magna. Old-fashioned research. That sounds like a drink. Next up we have Credix, a decentralized credit platform. There is 11.25 million from Motive partners, parifying others. Next, we have Dust Labs, not to be confused with Dust Identity.

This one is an NFT software business that has raised $7 million from Foundation, Solana Ventures, Jump, and FDX. Then we have Omni, Web3 Wallet provider. I feel like there's five Omnis in crypto. So many Omnis. There's definitely been several of these things. Didn't Coinbase buy a company called Omni? I mean, there's been a bunch of these.

Omni was the rebrand of Counterparty, I think, unless I'm or MasterCoin, one of those two. Oh, yeah. Tether was issued on Omni back in the day. Anyway, this Omni is a web through wallet provider. There is $11 million at a $50 million valuation from Spartan Group, GSR, and Eden Block. Next up, we have Spice AI. This is a blockchain big data platform, and they've raised 13.5 from Medrona.

Then we've got Fuel Labs, a modular blockchain execution layer. There is 80 million from blockchain capital. Bain, Crypto, Coin Fund, Alameda, Spartan, and others. Next, we have an L1, Mistin Labs. This is the company behind the SWEE blockchain. They've raised 300 million. It's from FTX, Andresen, Jump, Apollo, Binance, Franklin Templeton, Lightspeed, Green Oaks. This is, of course, the second Facebook spin-off chain.

So, L1 season, maybe that's on the horizon. Yeah, so many big deals coming out of that Facebook group between Sui, Aptos, and LightSpark. Now, next up, we have MetaWeb, a crypto VC fund. They've raised $30 million for their first fund. A lot of deals this week. And a bunch of news. So why don't we talk about this Coinbase one first?

So Coinbase is backing a lawsuit from six individuals, two of which are Coinbase employees, and they're suing the Treasury Department over this tornado cash sanctions issue. So if you miss this one, the Office of Foreign Asset, has placed tornado cash, the software, the smart contracts on the sanctions list. And that's the first time that's ever happened. It's usually has to be a person or a company. And tornado cash is a piece of software. So Coinbase is funding these lawsuits.

So I like this. You got to hand it to Coinbase. You get us stand for something here. Yeah, shout out Coinbase. This is great. So I guess some of the plaintiffs are Coinbase employees, but this is not an official Coin-based lawsuit. It's just that they're funding the lawsuit. Is that right? I think they're just paying for it. Yeah. Yeah. I mean, I've seen some of their GC's commentary on Twitter. I thought it was

extremely sensible in one of those threads. Paul Growal said, or their CLO, said that nothing about the OFAC system requires that validators actually filter out transactions. I did see that, yeah. Which was interesting. I actually really considered that the miners or the validators aren't necessarily transacting with sanctioned entities just by including their transactions in a block. They're just broadcasting a record of those transactions.

So I think that's an important distinction. Definitely, definitely. Did you see this Binance news this week? So Binance has announced that they're no longer going to be supporting USDC, true USD, or Pax dollar on their platform, and they are going to be automatically converting those customer funds into Binance USD,

their form of stable coin, starting on September 29th. And this is going to be fascinating. So first of all, I think this is a, from a political kind of corporate strategy perspective, this is just a great move. You have to hand it to CZ,

just playing for keeps going after USC. We're about to see some real competition here between USDC and finance BSD. Yeah, I mean BUSD was at just over a billion in early 2021. Now almost 20 billion in outstanding capitalization. It's really broken into the stable coin market very aggressively. Not entirely, I think not sort of a very orthodox move. I think if it was a regulated exchange, it would be pretty problematic just to kind of arbitrarily

substitute user assets. I mean, stable coins aren't fungible with each other, in my opinion. They are different products. They have different governance characteristics, different credit risk, different redemption conditions. They're just different products entirely. So not entirely kosher, I would say, but when does that ever stop finance? You got to, I mean, this is just capitalism at its rawest form, I think. The exchanges really do have just a tremendous amount of power here around stable coins. I don't see any reason why the largest exchanges shouldn't really be in the driver's seat for stable coins. Yeah. Coinbase is also in a pretty strong position if they ever wanted to defect from USC. Well, yeah, I mean, that should be a point in USDC's favor, I guess,

is that Coinbase is aligned economically and so presumably supportive of USDC. Now, could you imagine a world where Binance, Tether, and Paxos all get on the same page here and form like a consortium? That would be interesting because I think Tether's still on Binance. So I didn't see any mention of what's going to happen to Tether. They did not get folded in. That's right. Tether looks like they're okay with Binance, but I don't know. That would be something to see some collaboration on that front.

So Tether represents, according to the block, about 47% of all stable coin capitalization. BUSD is 14% approximately. So the two of them together are about double the USDC supply. Tether has actually been growing their market share since February of this year. I know people kind of wrote them off, but they've recovered a little bit. found some back. Yeah, they took a hit there around, you got to wonder what the percentage of tether users are that are Chinese nationals. I've always really wondered, you know, if you could access that data, what that would look like. Yeah, I keep trying to find real world adoption data regarding stable coins. It's just very hard to obtain. And I think a lot of stable coin users are not too keen to disclose what they're doing with stable coins. coins so we'll keep looking what's going on with this pool lending so apparently they've suspended withdrawals I don't quite understand how a mining pool can have liquidity problems

they should in theory just be dispersing the mine Bitcoin to their clients what is what is the liquidity problem for a mining pool you shouldn't we don't we don't We aren't liquid. You shouldn't have a liquidity problem because you're mining Bitcoin, that's liquid by definition. There's no maturity to it, right? It's not a bank. It's 100% liquid. And then you honor the withdrawals from your contributing miners whenever they want the withdrawal.

So maybe the miners hold the assets with the pool for a certain period of time. But the whole system should be liquid. So how could you have a liquidity issue? I don't understand. The company has said that they have, quote, liquidity problems, and they also say that they will release a more detailed plan and update within two weeks. How about you give a detailed update like right now? This sounds insane.

I don't understand what's going on. Give me two weeks, and I'll tell you what these liquidity issues are. Like, what? And this isn't like a minor pool, a minor with an O pool. Like this is a serious major. Bitcoin mining pool. They have 11% market share. They have 11% marketer.

So one weird maybe edge case situation, I don't think this is the case, is that there's actually different ways to pay miners for their work on the pool, right? And this is something that someone's smarter about mining than me would be able to explain well. But there are situations where a pool can become insolvent if they are. basically being cheated by the contributing miners. The miners might be doing something with a sneaky where maybe they're selectively withholding blocks.

Maybe the pool is contributing the miners for work done, but when the miners win a block, they don't broadcast it through the pool, stuff like that. So they're kind of our ways for the returns of the pool and then the contributing miners to actually become misaligned. That is possible. but it would really shock me if that was the case here.

I mean, Poulins should be pretty sophisticated about all this stuff. So if I had to guess, I would say they're doing something sketchy. There was like a principal agent problem. They're doing something or other with the bitcoins that had been entrusted to them temporarily. And they lost money. And now they're, I don't know, now they don't have the required funds. someone called Taneo. You got to get these Teneo guys on the podcast at some point.

It's going to be the biggest celebrities in the history of liquidating firms. So this was interesting. Russia is now maybe legalizing crypto for cross-border payment usage. Is that really the case? Can we all just agree that we have no idea what Russia is doing, no idea what they're doing, no idea what India is doing in crypto. people are investing in those places with absolutely no idea if crypto is going to be illegal the day after they wire the check it's all a very kind of schizophrenic policy from russia on

crypto it's one day it's banned next day the central bank is using it or something um i mean i think they outlawed it in 2020 and now you know then there's suggestions that they might mine and use their energy resources to mine. It's all very unclear. I mean, empirically speaking, crypto usage is popular in Russia and Ukraine, for that matter, for sort of regular folks. And now apparently international trade is going to be settled in crypto assets. I wonder what type of crypto assets. Is that just set the stage for China's digital currency to be the preferred cross-border payment mechanism or a way to settle oil trades.

They are certainly open to settling oil and new currencies. It's interesting. You know, I feel like a few years ago, the thought of commodity trades being settled in something other than dollars was unheard of, and now it's completely been normalized for, you know,

major commodity trades to be settled in yuan or rubles or whatever. So, it's funny how quickly things change. Do you see that the U.S. government was able to get $30 million of that recent Axy hack? That was a $600 million hack. Lazarus Group, North Korea. So Chenalysis helped them find it, came out with a press release, that they got 30 million of it back.

I've always wondered how this works. I mean, it's not like they walked into North Korea and infiltrated a laptop. So my guess is that they found an account or two that was on an exchange that they could strong arm. Yeah, that must have been it. But if you're Lazarus group, presumably, you're probably. pretty smart about how all this stuff works, why would you leave crypto laying around on an exchange? That's crazy. I don't get it.

I mean, maybe there was the $30 million payment to like an intermediary or something. You never know. Could have been like, wasn't there a case study where the U.S. actually was able to hack a hack or strong arm, some sort of like server, like web hosting service into getting the credentials that a user had stored on those. And it was described in the press as the government had hacked Bitcoin erroneously. I believe that was the Bitfinex hack, right? So that's the way they got towards the Bitfinex hackers, which we still don't really know

how those BitFenX hackers actually hacked Bitfinex. So maybe our North Korean friends in Lazarus were storing their credentials in AWS. I would find it very unlikely. Or, you know, Hetsner. Actually, that would be against the Hetzner terms of service. Yeah, you can't do any crypto-related things on Hedstern. That's right. Corn metrics actually dodged the bullet on that.

They had all of their infrastructure on Hedzner last year and then moved away from it just in time. Do you see Eaglebrook, they're a crypto-SMA platform. They launched a separately managed account platform. form with Franklin Templeton. So we get some of the TradFi folks are still building through this down cycle here. Yeah, you know, that has been one of the interesting features of this bear market is large scale institutional asset managers keep getting active in the crypto space. So their enthusiasm has certainly not been abated by price action. Oh yeah. So much is getting built this cycle. So coming out at the end of this, I think you're just going to see a lot more on ramps and asset

management firms that are actually doing things. The trading of the spot products is also increasing with BlackRock and firms like that. So Gary Gensler again made hostile noises about the industry this week. Was it a speech or an op-ed? He gave a speech. Yeah, he's at it. He believes that we don't need any guidance on this stuff. The guidance is clear. These things are all securities except for Bitcoin. That's what he actually thinks. We've received the guidance. That's the guidance. So it's just that he thinks we don't like the guidance and that we want

different guidance. Well, if that's the guidance, to be clear, I don't like it. Yeah, I'm not a fan of the guidance. It's I mean, it's crazy. You have to read Matt Levine's column on it. He really goes into this and just, it doesn't really

make a ton of sense to not have some sort of a path forward here that the SEC can work with industry on. And so if you think about it just from perspective of how big these markets could be and how great that would be for the United States, none of this makes sense to me. I mean, you could come up with a framework to get these things into a security apparatus if you want. I mean, you could think about things like actual real world security tokens, so tokenizing things like real estate and tokenizing private company ownership. These things that are overtly securities, and everyone would

agree with that. But you don't have clarity there. So you don't have these ATS venues that are approved. The SEC has not given clarity on what it means to custody something that's actually security. And so when they go and say, hey, just come in and talk to us, register as a security, it's like, so then what? So then my business dies because I have no ability to know how this thing could be traded or custody. So you're giving me a death sentence if you tell me to come in and register as a security. Now, there's other things that just aren't securities. Like Ethereum's not a security. So I don't know how that construct would even work. I mean, I think the closest thing that the SEC could do there to actually play a role would be to do the safe harbor proposal.

But his words really just say that he doesn't think that the safe harbor proposal is necessary. So it's very confusing. Yeah, it's a mess. I mean, between Gensler's comments and this Biden admin paper, they wrote on proof of work, I'm just not feeling very good about this administration stance on crypto. I'm going to be honest with you. No, it's been a dumpster fire. Color me dissatisfied.

I mean, yeah, Matt Levine made a number of good points. It's weird that, you know, basically you're penalized for kind of playing by the rules and maintaining U.S. presence and being willing to talk to the SEC and pick up the phone. Whereas there's these just kind of lunatic operators out there that launches crazy Ponzi that everybody even knows is a Ponzi. And because they don't engage with the SEC, they basically avoid scrutiny. And then the most serious operators

that talk to the SEC get punished for it. It's just, that's not how you create a level playing field in any industry. You know, pick aside, you know, make everyone play by the rules or forget about the rules. I hate this in-between thing where it's like half of the participants are trying to play by the rules. And so they're, you know, fighting with one arm tied behind their back. And then half the participants pretend there's no rules.

And they succeed at the expense of the ones that play by the rules. That's not fair. Totally. Totally. It doesn't make any sense. And, you know, to go back to it, it's hard to describe how big and how big and how powerful these capital markets would be for the United States. And so if your ambition here is to just be a regulator that, you know, has a historic legacy and grows the footprint of the organization,

think about what it would mean to actually give clarity on some of these securities. You'd have thousands of new securities being launched. You'd have a lot of people probably need to get hired by the SEC to oversee them. You'd have broker dealers growing and adding them. It's just what part of that is not attractive from a U.S. point of view and even from a regulator's point of view. I mean, this innovation is going to happen. It's just a matter of do you want it to happen in the United States? Yeah, it's like, do you want to be the cop that just bashes people all the time? Or do you want to be the cop that actually, you know, helps the grandma across the street and gives people directions a little bit? Or like the cop that becomes the mayor and gets remembered as the

hero that, you know, I don't know, this is a big industry. And so if Gensler decided to, that he wanted to actually step forward and work with the industry to create a path towards a safe harbor path to decentralization for some of the open protocols and then just give clarity on the ones that actually do want to be securities then we're talking about a you know like a legendary cc chairman someone that would be remembered for a very long time i thought matt levine had a funny line where he described the cc stance on crypto as similar to the dea stance on cocaine just no desire to change policy or really have any discussion with the market participants, just hostility.

So one week until the merge. Less than that. What's up with the countdown clocks? It's not by Blockhead, right? So it's based on difficulty. So how do we not know the exact time? And why is everyone giving it in UTC? just aren't we all in eastern standard time yeah i hate utc what is that uTC is like

greenwich meantime right is utc just london i think that's just london how come they get to be the center of the universe who decided that they're they're not not anymore we miss this entire football game yeah so um that's i guess that's my fault partially but uh yeah we missed opening night Bill is 31 to 10 And they look good this year Well it doesn't seem like It was you know I feel like we didn't miss much then

No I don't think so Big game for the past Down in Miami actually This week Sunday Yes Sunday Opening day Merge predictions What do you think

Is it a sell the news Kind of event I'm a sell the news on this one I well I have no idea What's going to happen to the price but I think that it will be successful. And I think that the ramification on the supply is just, it's going to take a while for the start to be felt, I think.

But it'll start to constrain over the next few months. I think this is going to work. I'm a seller of the supply shock thesis, same way I was around Bitcoin. A, it's not a shock. Everybody knows it. So informationally, I'm an efficient markets guy. Always happens.

The merge is not priced in. Second of all, the burn dynamics are not very pronounced right now because Ethereum is in an on-chain bare market. And so there's just not that much fees being paid and thus it's not even in deflationary territory right now. But wait until people start buying these sneakers. The fees will go up. I think there's enough alternative block spaces that you won't have another fee crisis on Ethereum. It's kind of like Bitcoin had one fee crisis and then no more. I think it's actually going to be the same.

No more fee crises on Ethereum. Well, the reason Bitcoin had no more fee crisis because Roger Ver stopped playing his little game or whatever he was doing. No, there really was a fee crisis. Bitcoin was the only game in town in 2017. And then it's same with Ethereum. Like Ethereum was like the main place

to do defy stuff and do NFCs. That's just not going to be the case the next time you have another bull market like that. So they're not going to get the benefit of all that activity and then the fee burn and the deflationary thing. Because why would you use a blockchain that has run extraction built in when you could use a blockchain that doesn't? You know, it's just a competitive dynamic with the block spaces.

Well, it's not just the burn. It's the fact that you don't have these miners that are going to have to pay to keep the electricity on. And theoretically, these stakers won't have to sell as much of their block reward. Yeah, that was actually one of the things in the Hoffman episode. I don't want to rebut some of the things David said before the episode even comes out. But that was actually one of the things I disagreed with. So the miners aren't continuously selling Bitcoin, contrary to what a lot of proof of stake enthusiasts believe.

I think it would be better if they did, but they don't. They actually hoard the Bitcoin. This is very observable. It's very easy to tell just by looking at their disclosures. And then they go bankrupt and then they sell the Bitcoin all at once. So the miners, they're very pro-scyclical. Historically, they did sell a lot of Bitcoin. A lot of proof of stake enthusiasts will maintain the miners sell their Bitcoin all the time.

not true. They've been, they scoop up the Bitcoin and then try and hang on to it and then oftentimes they sell it in their market. So it's pro cyclical. With the stake, if ETH yields are very attractive, you will get a carry trade where you borrow ETH, you stake, you could capture that yield, and then you have to sell some of it for dollars in order to pay your interest, right? So there's a cost of capital. So there is a cost of capital. So there is a cost of capital. So there is a cost to staking. That's also what stake people are not acknowledging. There's a cost. So there will be a selling of yields, of rewards from staking if the yields are sufficiently high. If they're not, then, you know, then there won't be. So I do think you, it's not the

same dynamic where all the staked eth that are crude astakers are hoarded by the stakers. I don't think that'll be the case. That's interesting. Yeah, we should do a little bit more on that. Have a couple more merge-related episodes maybe lined up. Yeah. Carrey trade. That's, I think that's going to be a really hot trade. If the yield is sufficiently high, you know, you know, remember the hurdle right now is treasuries, which are yielding 3% or whatever. So I think by most estimates that Eath yields aren't going to be that high right now, at least. a lot of people are going to want to do the staking MEV isn't that high fees aren't that high

so I've the estimates I've seen in the 4 to 5% range I know a couple guys in Dubai who are probably trying to borrow some money from some royal families to do that youth carry trade right yeah we're the the kings of arbitrage yeah speaking of which we didn't have our segment this week I don't think we I think we need to wait until we have like real concrete stories every week. So Nansen actually had an address

movement. It was reported that it was 3AC, pulling money out of Lido. But it wasn't. It was Matrix port. Oh. Yeah. I was initially excited. I didn't realize that it had been fact checked and debunked. Yeah, it was

debunked about a couple hours later. See, I've returning to our previous conversation, I think there will be like macro economists, crypto-economists, crypto macroeconomists like the Zoltan for crypto. Why does this not exist?

I think you're already seeing it. I think Arthur Hayes is a crypto macroeconomist right now. I mean, I love Arthur as much as the next guy, but I mean, someone that's really deep, and, you know, like truly deep. Not that he's not deep, but an on-chain native. It's a new discipline. I think you probably will see it.

I mean, there's just so many interesting dynamics because you have cross-chain interoperability really coming on the scene. So you're going to have a lot of interesting trades that emerge, I think, and the flow of capital between these things is going to be fascinating. It's very complex. If you are that person, please come on our show. We'd love to interrogate you about e-fields and so on. Come work at Castle Island.

Oh, yeah. Or also work for us. All right. So I think that's it. Have a safe and healthy weekend. and we will see you for an episode on Monday.