On The Brink with Castle Island - Weekly Roundup 09/15/23 (Token 2049 reviewed, Stables are the killer app) (EP.452)

Episode Date: September 15, 2023

Matt and Nic are back for another week of news and deals. In this episode.  We review Singapore and Token 2049 Singapore food reviews Is crypto pivoting to Asia? Singapore bans the 3ac boys from the Securities industry for 9 years The offshoring of dollar stablecoins Stablecoins are becoming interest bearing Fortress is hacked and acquired by Ripple SEC versus Stoner Cats Sentiment is turning against John Ray III We review Arthur Hayes' party in Singapore How involved was Joe Bankman in FTX? Genesis is ceasing trading operations 19 hour flights Content mentioned in this episode: Nic's Token 2049 Keynote (slides) Bloomberg, How Sam Bankman-Fried's Elite Parents Enabled His Crypto Empire

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 Concentuteeasing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Welcome to On the Brinkum, Matt Walsh.

And I'm Nick Carter. And this episode is brought to you by Coin Metrics, and here is the Metrics Minute. For today's Metrics Minute, we're looking back at the Ethereum merge. Today, the largest validator pool on Ethereum falls under the Lido umbrella. That's 30% of the roughly 800,000 active validators. yields have decreased towards around 4% on Ethereum. Since the merge, Ethereum has been mostly deflationary, but it's now trending towards being inflationary,

again, due to lower user activity and lower fees. But there has been a supply reduction of around 300,000 eth per year. ETH fees have been a hurdle to high-frequency, low-value transactions, of course, but L2s have now merged. There's also something called. called the EIP 4844 upgrade, which I just heard about, which is apparently going to reshape fee dynamics on Ethereum. More on that in the coin metric state of the network. That's your Metrics Minute. Pretty good. Pretty good metrics minute. Well, we are recording this from foreign lands.

We did token 2049, and it was awesome. Yeah, it was electric. You know, not to, you know, punch down at America or anything, but I heard permissionless was actually pretty sparsely attended or were even allowed to say that. But the contrast can have been greater. I'm not aware of it. It was, uh, Singapore is electric as a crypto hub. I just can't believe, so I'm still here. Um, you're not, but I cannot believe the energy here. It's just really one of these like very optimistic gatherings, I would say. Yeah, I'd never been to Singapore before. I'd heard it was like the Switzerland of Asia. It's just so great. in every conceivable way.

In every way, it's great. I think they should just make U.S. politicians come over to Singapore and just see how things work. I went in the subway the other day, and I wasn't sure how to get a ticket and walk down. Turns out you just put your credit card against the turnstile and you walk right in. And it's air conditioned and you could eat food off the floor. It's just incredible. I bet there's no homeless people and they're trying to eat your face off either. No.

There's no bath salts. There's no rats. It's not 127 degrees. It actually goes fast. It's incredible. Yeah, we need to take San Francisco politicians specifically and send them on a diplomatic mission to Singapore. So they know. Yeah, or Boston or New York, too. I mean, it's possible. I didn't even know that it was possible to have trends with air conditioning in the metro. And it turns out it is. Yeah, I don't even know what the best thing about Singapore is, man. We didn't really have enough time. I really liked their mud crab delicacy, the spicy crab situation they had going on. That mud crab was one of the best meals I've ever had.

I think we ate a tourist trap, but it was awesome. We went to this place called Jumbo. That's actually highly regarded by the locals. Yeah, that's not a tourist tree. It was great. They put a bib on you and you wear gloves and you have to, they didn't give us napkins. for some reason.

No napkins. Yeah, that was kind of strange. That was odd. Kind of have to use a shirt. Yeah, you just use your shirt. Yeah, I mean, the food, we kind of knew the food was good in Singapore, but it was just exceptional. Food was awesome.

There's so many startups out here. You know, you turn left, you turn right. You got a startup that's doing $5 million a year in revenue and is in a really interesting category and you've just never heard of it. Yeah, I mean, there's a palpable feeling of excitement there. They have regulators that, I mean, despite Singapore being ground zero for some of the biggest collapses and failures in crypto, they haven't turned against the industry at all. I mean, they have regulation like they're pushing forward. There's clear rules. I was going to have the

the one gripe about Singapore was going to be that they haven't come down on three arrows guys. And then yesterday, while I'm in Singapore, my phone is blowing up that the three arrows guys have gotten a nine-year and from Singapore. So excellent. Yeah, I mean, I think, I don't think they have to leave the country per se, but they can't do any capital market transactions. They can't run a fund, I think, in Singapore, right? Well, I mean, keep in mind, these guys are scammers. All they're going to do is scam, and it just says you can't scam in Singapore. The thing is, I don't know if that is actually going to dissuade them. I think Singapore will come down pretty hard if you break their laws. That's the thing. That's true. That's what I've heard.

So I think these guys will be scamming in Dubai if I had to guess. All right. Here's my problem with Singapore. The one problem, F1. Okay. So isn't even a Singapore specific problem, but F1 was happening, is happening, contemporaneous with the token conference. And they, the track is like the downtown area completely entoming and encircling the hotel in which we were staying. Okay.

So I didn't even tell you this. It became impossible to leave the hotel. So two nights ago, I was out with Sean and we got back to the hotel and there's a huge fence in front of it. I don't know how to get through it and went to the other side. There's still a huge fence. I got on and so did Sean all straight on our stomachs and we shimmied underneath the fence.

It was like a 12 inch opening. It was like a commando style entrance. And then we walked into the hotel. They're like, why didn't you just go over there? Like there was some door on the other side, but like I didn't see it. So I'm just covered in, covered in like so. It became a huge problem, honestly. I couldn't.

The conference venue was like half a mile from the hotel. But in between the conference, the hotel, there was the actual F1 track. And the number of times I had to like dodge heavy machinery and squeeze through there. Just there was no other way. The Uber drivers refused to pick you up. Like they wouldn't do it. That was a factor. That's not Singapore's fault.

It's just I think the conference wanted to be at the same time as F1, but yeah. So really good conference. There was a lot of peripheral events that were really good. The Medici guys put on a really good conference as well. It was, I can't say enough good things. We'll have to have a more formal debrief maybe next week on some of the interesting things and some of the interesting developments over here. But you did a keynote.

So that was really good. You did a half hour keynote on Stable Quartz. Yeah. I apparently everyone's talking about stable coins. Hopefully my keynote is a contribution to the discourse. I'm really glad that they gave me the slot. Yeah, I mean, we put together some great data for this thing. I'm very proud of it, actually.

So I published the slides. I'll put them in the show notes as well. But basically my point is stable coins have decoupled from speculative cryptactivity. like there's something going on in stable coins that shows sustained utility, which is independent of the more speculative side of the market, and that's very clear in the data. So that is the point. And then I, you know, I put together chart showing that stables do 70 to 80% of all on-chain transaction value,

which I don't think anybody's ever compiled the data this comprehensively before. I mean, we went to some weird chains, weird stable coins and some weird chains to really get to the bottom of this thing. And yeah, the other thing that I was talking about was the offshoring of dollar stable coins and tokenized treasuries. So the whole point is, yes, the U.S. has been hostile, but people are issuing this stuff offshore. So like crypto euro dollars. And Singapore is one of those places, right? I mean, they have a stable coin legislation. There's dollar stables being issued out of there, out of Hong Kong where I am right now.

I mean, so it felt like a very apt time to give this talk. Very apt. It was, yeah, it was very well received. Huge room. Were you nervous? Yeah, I was. Yeah, I'm not going to lie. It was quite a, quite a scene.

So I made some predictions in that thing. Actually, the same day I gave the talk, we published the Peter Johnson. episode, which is one of my all-time favorites, OTPB. I made Peter give a ton of different predictions for stablecoins too at the end of that episode. So I also really highly recommend that one. So then, yeah, you released the Peter Johnson episode, the long-away did Stablecoin episode with Peter Johnson. He said it was his favorite interview that he's done. That was very kind of them.

Yeah. So we were doing a new miniseries. I called it Stablecoins 2.0. We already did crypto dollars back in the day, if you remember. So we have a new crypto dollars miniseries. So we did Martin from Mountain, which is a deal we announced this week. And Peter Johnson, I'm going to interview the Athena guys. I think Athena is pretty interesting.

So we're going to dig into basically new stablecoin business models. The whole thing's changing. I think Tether and USDC, there obviously. the incumbents. This is all going to change very dramatically in the next year. That's my prediction. All right. Very exciting. All right. Well, why don't we hop into some deals of the week? Why don't you kick us off? All right. Well, from the Castle Island portfolio, we led Mountain Protocol, which is a Bermuda-based interest-bearing stable coin. So this is the first stable coin registered in Bermuda. It's a dollar stable coin, and they pass on most of the yield

from the underlying treasuries to holders. And it's not available in the U.S., to be clear. Don't even think about it, guys. Don't even think about it. If you're a U.S. person, don't you dare? I think you dare touch this thing. So not available in the U.S. And thanks to that, they're able to pay yield.

Two holders of the stable coin, it's composable in defy. It looks and feels just like any other stable coin. It's just that you balance accrues constantly in a rebase. method, which is pretty cool. So congrats to the team, excited to see where they take it. Excellent. Congrats to the mountain team. Next one up is Ripple has acquired Fortress Trust, which is a Nevada-based trust company. This is a controversial deal. It turns out that Fortress Trust got hacked and they had something like, what was it, a $15, $20, $25 million hole. Ripple has made the customer's hole. This is just a debacle. This is the prime trust.

guys started Fortress Trust. Apparently they don't know how to run a custodian, but some of the bigger Bitcoin brokerages like Swan Bitcoin built on top of this thing. And now it's owned by Ripple. So, you know, the hardcore laser-eyed dopey maxis, they're, you know, all their Bitcoin is with Ripple now, I guess. Yeah. So you're Bitcoin Maxi. You use Swan Bitcoin like a good maxi, right? First of all, you're sending money to insolvent Prime Trust. That's what you did. Now you're sending money to ripple. It's just incredible. It's just incredible.

And Swan is like scrambling, trying to do PR and be like, oh, we're going to create a Bitcoin-only trust company. It's basically fan fiction. They haven't done it, but that's their new line, basically, that they plan on doing that. So, yeah, as a Swan customer right now, you're stuck with Fortress. So congrats or something. Yeah, have fun.

Well, I'm sure there'll be more to that story. Next one up is Anna Moka. They have raised $20 million from CMCC Global, Kingsway, Liberty City Ventures, and others. Then we have Bitget, the satial-based cryptocurrency exchange. Those of you with long memories will know what happened to prior social-based cryptocurrency exchange. they established a $100 million fund to invest in crypto startups. Maybe Seychelles is the next place we go for a token conference. Yeah, next up we've got Revery.

The crypto advisory firm, they've launched a $20 million fund one to invest in crypto startups. Tough time to raise. I mean, incredible job getting this done, guys. So shout out to Larry Sukarnik, a longtime friend and Darren. Eric Sue and the whole team over there. Pretty excited about this one. And yeah, I mean, look, they're launching into a tough market, but that's historically a good time to launch on the allocator side.

So really excited to see where they take this one. Congratulations to Larry and Derek over there. All right. So a lot of news this week. Don't know where to start. While we were, you know, celebrating all the innovation that's happening in Singapore, apparently Gary Gensler was coming down on. the stoner cats nfts collection which is i think it was ashton kutcher and myelikunas were

behind this right yeah i mean look i stand with gensler on this one uh ashton kutcher and mylic kunis are insufferable and uh this project seemed to be extremely stupid what what is this what i don't i have no knowledge of what the stoner cats is all right so the stoner cats from what I understand. Do you remember the launch video? It was Ashton and Mila sitting in their kitchen and then Vitalik was there. Vitalik was in their kitchen.

And Vitalik was just explaining Ethereum in their kitchen. And that was how they launched it. It was like a big deal, I think. I don't know. Back in 2021 or whatever. No. Yeah, I mean, look, these guys have enough money.

They don't need to try and grift people on top of that. Okay. So I think the idea was you would buy the NFT. And the aggregate funds would then be used to create a show about the, I guess, the stoner cats. And then, I don't know, a lot of question marks. And then I guess the NFT holders would make money or something. So it's like people try and do this all the time. Like raise a ton of money with NFTs with the idea that someone's going to use that money to create some great IP.

And then everybody's going to win. But it never happens. right like IP needs to come first right you can't just force it like that well i think the the two dissents so ueda and purse dissented here and i think they're just the basis is just that it sets a bad precedent you can't just blanket and say that every nfts is security maybe maybe these were i don't know this one yeah i might be dissenting with the dissenters here um this there was not a lot of this wasn't very thoughtful this project. Wow, I don't like to see, you know, big Ws from Gensler,

but it looks like you got one on Sternherkats. Next up, the FTCS estate has sued Lair Zero Labs. Over $45 million deal that they did with FTCS as it was collapsing, and apparently 40 million withdrawals that the company engaged in as the exchange was collapsing. So I saw that there was some analysis posted on the day. docket, some people were tweeting about this on the bankruptcy docket, looking at what the clawbacks would be if you looked at 15, 30, 90 day windows for people that pulled money off FTX in the last few days, or the last few months even, that is going to be a complete debacle

if John Ray wants to go down that path and start to claw back money from, you know, venture capital funds, trading firms, individuals that pulled money off of FTX in the waning days. That is going to be adding years to this process. Yeah, I've actually seen sentiment turn against John Ray the third here quite significantly. The clawback methodology they're employing doesn't seem to make sense. They're doing it on kind of apparently on a gross basis. Yeah, I think this guy's going really slow, and I don't know if I like some of these moves. So why he's not sold the venture book?

You know, you've been talking and getting billable hours for this FTX reboot for months at this point. Just put something in motion. If you're going to do it, do it. Stop, you know, doing the legal fee thing. And just the way they're disposing some of these assets just doesn't look like they're maximizing value. So I have no dog in this fight. We're not creditors, but I just don't know if this guy's doing a great job. Yeah, a lot of people are, well, there's a split of opinion on their approach to liquidating all the liquid assets. Yeah. Which they've tasked galaxy width. So some people are involved of the view that we should rip off the band-aid, but it looks like they've taken the view that they're going to do it over a very long period of

time, which is probably worse in the end because you're just maximizing legal fees by doing that. Maybe it protects the market itself a bit, but I would just market sell, guys, market sell. I mean, that would be a disaster. It's over 10% of the total salinas. supply. You can't market sell that. Who's going to buy that? I mean, you could. You could be market selling that thing down to nothing. Yeah, I mean, look, we've had times when the price of major crypto assets has hit zero for short periods. That's happened. Well, it almost hit zero on Bitcoin during the COVID crash when the Bitmex is going insane. And Arthur just shut it down, which was probably the right call. Okay, speaking of Arthur, his, all right, Bonapick with Arthur.

So he threw a quote unquote pool party in Singapore and about 3,000 people showed up. Well, I was fast asleep, but I heard there was a Nick Carter setting. I mean, look, I didn't even go in because the line was like half a mile long. I was late. And yeah, the reviews were bad for the pool party. Not well reviewed. So he invited too many people. run a tighter guess list next time, Arthur.

Well, he came to one of our portfolio companies, happy hours, and did a little fireside chat. And when asked who he reads, he said, Vitalik and Nick Carter. So that was quite a compliment. Yeah, I was beaming. I'll admit it. That warmed my cold little heart.

That was quite, yeah, quite nice of him to say. Pandering to the crowd, I thought, but that was quite nice. Yeah. I think it's more like he was kind of looking around the room. He's like, all right, wait. Who do I like? Who do I like? Oh, yeah, yeah.

This guy. Nick over there. This guy, yeah. Old Mick. Yeah, him. All right. What else happened this week while we were over here? Franklin Templeton has filed an application for a spot Bitcoin ETF.

So everyone's talking about this over here too. When are we getting the spot Bitcoin ETF? I'd say a lot of people think that Gensler is going to find another reason to deny. The prevailing sentiment over here is that the U.S. just can't get things right. and that things are all going to be happening outside the U.S. So I hope that people are wrong on that. Something interesting that dropped overnight is this long, I think Bloomberg magazine maybe article on the Mr. Bankman and Mrs. Freed.

I have not read it. What's it say? All right, I recommend the article. So it basically aligns with what we've been saying, which is, look, I mean, the fact that in particular Joe Bankman got off well, Scott Free, in fact, is very surprising. Because if you read the article, he was effectively the general counsel for FTX in the early days. I mean, he was involved in the capital raising.

He was involved in the structuring. And from the looks of things, he was kind of de facto leading the legal strategy, at least at the beginning. But he was certainly, he was present, very present. he was an employee of FTX he was involved and his involvement was really quite material so I recommend the article does it get into the fact that FTX gifted him $10 million and that he is using that $10 million

to fund his son's legal defense which is banana land crazy yeah I mean the the bank man freeds profited from the existence of FTX as well Like, I mean, he, did you know that Mr. Mr. Bankman appeared in the infamous Larry David commercial? He had a cameo in that. Oh, that maybe that's why he got paid. $10 million from the customer money.

Yeah, for his services rendered. So they were big Larry David fans. So they were really thrilled at that commercial. They loved it. I'd say you'd lock them all up. Lock up that whole family. take the house. I agree. I agree. It's a questionable family for sure. Weirdly, like, Mrs. Freed, her whole, I mean, her whole philosophy, like, definitely informed Sam. Like, she was, she's a academic

utilitarian, which is a, you know, she's a consequentialist, which is a branch of philosophy I revile. I'm very, very strongly against it. I might have even read some of her stuff when I was an undergrad. And he was this rabid consequentialist, and he used that to justify a lot of what he was doing, right? So philosophically, like, the apple doesn't far from the tree here. It would fall far from the tree. Social experiment gone wrong. That's, yeah, you have those views, and then your son ends up during 100 years in jail. I mean, there's nothing more dangerous than a zealot that is absolutely persuaded that they are righteous, you know, that they are on the side of goodness. That is the most dangerous thing on the planet.

So that's that. You want to talk about some fraudsters who were sentenced to various things this week? Okay. Let's, yeah, let's start with Faruk, Fati, Ozer. So they know how to do things in Turkey. He was the founder of the collapsed Turkish crypto exchange, Thodex. And he was sentenced to a mere 11,196 years in jail. that's for a lot of jail.

That's so much jail. It's maybe a little gratuitous, but yeah. That's a ton of jail. All right. Next one up is Carl Sebastian Greenwood, who is the co-founder of OneCoyne, which I've never spent time actually understanding what this thing was, but it's one of the biggest scams of all time. But got founded back in 2014 with the Crypto Queen,

who is, I think, still on the run, this Ruea Ignatova. So this guy got 20 years. years in jail. Yeah, I mean, I don't think that Ruha Ignatova is still with us. Oh, you think she's dead? I think the, yeah, I mean, clearly she probably defrauded some pretty bad people. I've seen some whispers that she didn't make it. Yeah. All right. Well, I mean, because how can you be on the run for that long? You know, she'd been on the run for years. So the third fraudster that had something bad happened to them this week, not same to not him. And it's not Romnik Aurora, but it is the three arrows boys. So we already mentioned

this at the outset, but they are barred from the securities industry in Singapore. They need to go do their frauds elsewhere. This open exchange or whatever this bankruptcy fraud claim thing is, they got to take that out somewhere else. Probably Dubai, if I had to guess. Yeah. They got three years for each arrow. So yeah, No more doing business in Singapore, guys. That's great. I mean, that was, you don't want to have a very friendly crypto place where you just have two rogue guys run around, and now you don't.

Yeah, I did kind of ponder to myself what would happen if I ran into Mr. Suzu in Singapore. Apparently, he's there. Yeah, he's there. I don't know. I don't even know how I'd react. I don't know. I'm glad you're not threatening violence or anything because they don't allow that here. No, no, no, I might have had sharp words with him, but, you know, I'm a very civilized person, so.

Well, speaking of places that were defrauded by three arrows, unfortunately, it looks like Genesis has ceased their trading operations. So that's really end of an era. That was really a mainstay of the trading space for a very long time in this industry. Yeah, really sad to see, you know, there were rumors of a sale, but it looks like they're just shutting, down. I mean, you know, stalwart firm, a lot of great people work there. So really, really sad to see. And then dribs and drabs here. So there was a couple op-eds this week that called out Gary Gensler's mismanagement of the SEC. We'll put it in our newsletter. But the Financial Times wrote one title is an interventionist SEC risks a courtroom backlash, just talking about how a lot of things the SEC is doing are just illegal. And then the Wall Street Journal, there's

is Gary Gensler's plan to control information. The SEC wants to limit predictive analytics. The result would be the throttle market dynamism. So strong critiques, I would say, of Gary Gensler's SEC. All right. So you're due to get on a flight now. You seem deeply unwell. No, I think I'm...

I don't know if they're going to let you on. I mean, I just woke up. It's a... I feel pretty good, actually. I recovered from pneumonia. Okay. I was just nonstop in Singapore. just wake up all day, meeting, meeting, meeting, meeting.

It's hard work, but someone's got to do it. But yeah, I think I'm going to sleep. It's only, you know, it's only takes, I'm looking at when I'm going to actually walk into my house and it's like 36 hours from now if things go well. So there's some kind of a hurricane situation. Yeah. Yeah, no, there's going to be a hurricane like hitting Boston. No, I thought that I was nervous about the flight, but it's actually amazing.

the nonstop from JFK 19 hours I have nothing but positive things to say about Singapore air much like the country they just know how to run an operation that's true well my my trip's not over

I'm gonna go present at Mainnet so I think that's gonna be the barometer for US crypto is Maynet as hot as Singapore as token so yeah next week we got a big

New York trip. So we've got made that couple other conferences down there. So yeah, we'll see. It's, um, I'm sure the regulatory environment will be what people are talking about. I saw that Sherrod Brown, the who controls the banking committee in the Senate, he's a Democrat out of Ohio. He came out yesterday and said all these laws that we have are good enough. So don't worry about it. So I guess these crypto bills aren't getting through Sherrod Brown, but it would be really good to focus on Sherrod Brown's competitors, I would say, and try to, let's try to find a way for them to win. Yeah. So, yeah, if you want to help restore crypto policy to sanity in the U.S., support his challengers in the race. Yeah.

There's three kind of neck and neck right now in Ohio. But, yeah, let's get Charlotte out of office. All right, I think that's it for the week. Everybody have a safe and healthy weekend, and we will see you next week.