On The Brink with Castle Island - Weekly Roundup 10/07/22 (Gensler's theatrics, tokenization picks up, MKR buys Treasuries) (EP.358)

Episode Date: October 7, 2022

Matt and Nic are back for another week of news and deals. In this episode:  Kim Kardashian settles with the SEC Gensler's promotional campaign ruffles feathers at the SEC Was the SEC indirectly throwing shade at Jake Paul with their video? Is Gensler cracking down on crypto as part of a bid for Treasury secretary? Can the industry outlast the SEC? CBOE signs on to Pyth Hamilton Lane is tokenizing three funds GoldenTree invests in Sushi Should DAOs pursue an LLC wrapper? Maker is buying Treasuries and IG debt Should stablecoins pass along interest from treasuries to tokenholders? Celsius executives cashed out prior to bankruptcy Starry Night NFTs are on the move Ark Invest partners to put their active strategies on the Eaglebrook platform Sponsor notes: Talos powers institutional access to the entire digital assets ecosystem via a single-point of entry. Connect directly to your preferred prime brokers, lenders, investors, custodians, exchanges, OTC desks and more, or meet them on Talos. Get started at Talos.com Subscribe to the Coin Metrics State of the Network newsletter 

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of concentrated easing. You print a couple trillion dollars, and all of a sudden, people start to worry.

So out of this worry, we have something called. 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. All right.

Today's Metrics Minute. We're doing a quick recap of Q3. So Bitcoin's realized cap at the end of the quarter was $408 billion. The total value settled on-chain on Bitcoin in the quarter was $851 billion. The total spot volume across Coin Metrics trusted. exchanges was 1.2 trillion, minor revenue was 1.8 billion. On Ethereum, the total value settled this quarter on chain, inclusive of all assets, was 2.7 trillion. There were 74 million in fees paid. The total ETH spot volume across trusted exchanges was 468 billion, and there were 1.1 million new

eth staked. That was a mouthful. That's your metrics minute. This episode is also brought to you by Talos. So if you don't know who Talos is, then you need to know. Head over to talos.com. They power institutional access to digital assets. So if you're on the buy side, whether or not you're on the sell side, TradFi, Crypto Native, you tap into the Talos platform and you get access to the entire liquidity landscape in the crypto space. So they can do your pre-trade, post-trade, and obviously your trade. Everything from price discovery, execution, and settlement. You trade through their API or their web-based GUI, and you connect everywhere. And so you can connect to prime brokers, lenders, investors, custodians, exchanges, OTC

desks. You just head over to tallos.com and you get started. All righty. Well, busy week in the podcast, you had a conversation with Vivek of Bituda. That was a fun one. We've done now three episodes on the merge. But Vivek is, we could have talked for hours about really anything in the crypto space. I enjoyed that one.

And the Biduda team continues to pump out really good research as well. They're also selling a lot of mining equipment and things like that. It's an interesting time probably to be over at Biduta. I mean, a lot of miners going out of business, just like 2018-19, a lot of that, those A-6 coming online on the secondary market. Yeah, absolutely. Yeah, we'll get into some of that news this week. But you actually had a podcast with the Aspen Creek Digital folks, speaking of mining.

Yeah. I mean, one of the most interesting minor business models I've come across, they focus on renewable wind and solar assets paired with batteries in a behind-the-meter configuration. And their whole idea is that they are bringing new power assets online, partially for mining and partially just for grid purposes. So it's all about addativity. And so I think if you're a critic of Bitcoin mining, you'd be hard pressed to find an issue with this model because they are literally bringing new power assets,

renewable assets online. Really interesting model. Aspen Creek is actually where Dave Cushing works. So a legend in the Tradfai space at Wellington, now at a Bitcoin mining company. So it's really interesting to see the talent from traditional financial services come over to crypto space. It's actually a good dovetail into the deals of the week. And Aspen Creek Digital is the first one up.

So they raised $8 million from Galaxy, Polymer. chain and others. So congrats to the team. Next up, we have Menteo, a Latam-focused NFT marketplace. They raised $4.3 million from Fabric Ventures, Dune Ventures, CMT, OpenC, and others. Next one up is one key. This is a hardware wallet manufacturer. They've raised $20 million from Dragonfly and Ribbet. New hardware wallets. You don't see those every week, huh? It feels like Treasurer, ledger, and Cold Card really have had a stranglehold on that market for a while. You know, I just don't believe that years from now we're still going to be writing down seed phrases. I don't believe it.

I don't either. I think it's going to be somewhere in your brain or your eyes or something. Yeah, embedded chips sub-derminally inserted the cypherpunk future. I'll guarantee you, though, if you make a hardware wallet, I will buy it because I am really into these trinkets. I think I have hardware wallets from hardware wallet companies that never even got the public. with their products. I have a lot. The Alpha version. I think I have almost every edition of Open Dimes.

I'm a big Open Dime guy. Open Dimes are great. That's a really good. Holidays are coming up. People love Bitcoin. People probably love it more when it's 60K, but people love Bitcoin on an open dime for a holiday present. Yeah, along those same lines,

I recently encountered this physical Bitcoin bill product, offline.cash. So they're basically polymer bills that have denominations of Bitcoin on them. Same idea as an open-dime. The Bitcoin is actually on the bill. Same concept. So, I mean, they look more like a kind of a gift card cash like product that you might. Anyway, offline.com. All right. Next one up is smart token labs. This is a Web3 software development company. They've raised $6 million from hash global bottle and Fennbushi capital. Then we've got exponential DeFi tooling protocol. They raised 14 million from Paradigm, Han Ventures, FDX, and others.

Next one up is a company called Blowfish, which is a Web3 firewall provider. They raised $11.8 million from Paradigm. Then we got Juno, a Web3 banking platform. They raised $18 million from Parify, Greycroft, Hash, and Sixth Man Ventures. Next one is Stems. This is a decentralized music platform. raised $4 million from IDO CoLab. Next that we have Golden, a Web3 data protocol.

They raised 40 million from Andreessen and others. Man, the deals are just cranking this week. What bare market here? There's no bear market. Speaking of deal, Circle has acquired payments from elements for an undisclosed sum. Some more M&A on the horizon here. Circles just have a war chest right now with this net interest income. We're going to return to that later in the episode.

Some new developments there. Speaking of Circle, I went to their conference in SF. I was on a Bitcoin panel. I was amazed. They had a Bitcoin panel. And I was very impressed. They got a lot of speakers. You know who was on the panel after me?

Who? Charlize Theron, of all people. Really? So she sounded American. I think she's actually South African. I guess as an actress, she does have the ability to change her accent. But yeah, she was on. right after me. It was pretty cool. She didn't really say anything about crypto. I don't think she

said anything about it, actually. So why was she there? Why not? Everybody loves stable coins these days. That's true. I mean, they're just dollars, right? Yeah. So, yeah, why not? But it was a good conference, and I was very impressed. So congrats to the Circle team for putting it on. All right. Next one up is Horizon, which is a blockchain-based gaming platform. They've raised $40 million from Brevin Howard, Morgan Creek, and others. Next up we have Lassau Labs and NFT tooling protocol. They raise $4.2 million from electric capital, ethereal ventures, and open sea. Next one up is Solvo, which is a Lithuanian digital asset exchange. They raised $3.5 million from index, coin fund, and FJ Labs. You don't see a ton of Lithuanian digital asset exchanges.

That might be the first Lithuanian deal we've ever announced. Congrats to Salvo. Come on the pod. Let's talk about the liquidity landscape in Lithuania. Estonia, there have definitely been deals from Estonia we've talked about. Estonia is vibrant, yeah. Latvia even. Latvia, there's definitely activity in Riga.

We've never done a Kazakhstan exchange deal, I don't think. Call for startup. Yeah. Or Monta-Ros. Belarus. We haven't done anything there. The times are a little tough over there. I think it might be illegal to actually send a wire to Belarus right now from America.

Oh, dude. That's why there's stable coins. Okay. Next up we have, I don't know how to pronounce this. Exaltz. Is it X-altz? You guys got too cute with the name. Too cute with the name.

So it starts with an X and then the next four letters are alts. I think it could be a. clever like exult like I'm exulting in this. I don't know if that's what they intended for the name. I see what you tried to do, but I'm looking forward to what your name is going to be in two years when you realize that this is confusing. It's very difficult to pronounce they raised. They're an asset management firm for crypto. They raised six million from city ventures and Excel. Next one up is scale three labs. This is a node infra company. They raised 5.2 from red point Mistin Labs and Howard University.

I think that's the first time Howard's been mentioned on this show. I didn't know they were doing. I didn't know they did direct. And lastly, we've Blackbird, a Web 3 hospitality platform, focus on restaurant loyalty. There is 11 million from Union Square Ventures,

Shine Capital, and Multi-Coin. That's a cool idea. You know, loyalty programs. You could see that being a pretty, there's a lot of restaurants in the world. That's correct. All right. Well, hey,

let's talk about the news that crossed over this week. So I had people reaching out to me asking me if I was impacted by this story. I am happy to say that we were not. Kim Kardashian has been taken down by the SEC $1.26 million settlement over her June 2021 endorsement of something called Ethereum Max, which I'm happy to say I had never heard of. Apparently she took $250,000 in exchange for putting up an Instagram promotion, which a pretty good bank for the buck probably right i mean that's 250k just to put out one tag but then it cost her 1.26 no does that move the needle for kim krodash in 250k probably not and pretty risky when you

so she runs a um a private equity firm which is uh in partnership with a guy that used to be at carlyle i believe and uh obviously you don't want to be running into SEC issues if you're running a PE firm so anyways she took um she took the 1.26 million she didn't have to admit any culpability. She just paid the penalty and moved on. What was more interesting here was all of the stuff around it. So this is not the first time the SEC has gone after a celebrity. Remember DJ Khalid, remember Floyd Mayweather, the whole ICO run up. There's a bunch of these. So it's not new information. But what was interesting was, so Gensler was on, SEC chair Gary Gensler was on CNBC almost immediately. And they released this

really weird video. Did you see the video? Yeah. I wasn't great. So I guess describe it for people that didn't see it. The SEC released a, I don't know, a gotcha video. I mean, they put a lot of work into it weirdly. It only has 12,000 views on YouTube, so they really need to up their, you know, social media game here. So basically it's Gensler, you know, lecturing. people about not listening to celebrity endorsements. And they actually hired actors to act as celebrities touting, you know, various insolubrious investments. And they have an actor in the video. There's a, at one point, there's a big dollar sign. It says SPACs and there's like a crypto coin behind him. And he's doing this movement. Like, it's hard to describe it.

be, you know, when you have like a wad of cash and you're just like flicking bills off into wherever. And he looks like Jake Paul. The guy looks like Jake Paul with tattoos, necklaces, he's blonde, the beard. This is my conspiracy. I think this is a subtle dig at Jake Paul. It's just mean. It's it's tough on Jake Paul. So that was that was interesting. I mean, they made a huge deal out of this Kim Kardashian thing as if it was the, their biggest news in crypto and they're finally cleaning up crypto. But meanwhile, they've done this before. It's just, I mean, it's obvious these celebrities are dopes to go out and promote these things. But what was even more interesting was Charlie Gasparino, who's, I guess he's at Fox now, but he was at CNBC

for a long time. He came out with a report that SEC enforcement staffers are upset at Gensler because they say that he broke protocol by telling CNBC about this and arranging to be on air right after the case got announced, which I guess is very irregular. And it also states that the move is part of a plan by Gensler to burnish his reputation in an attempt to be named Treasury Secretary when Secretary Yellen departs after the midterm. So interesting that the SEC enforcement staffers have, I don't know, is this a revolt? What's going on over here? I love that Gensler's treating this like he just won a boxing match or something and he goes out and immediately does the press, the press conference, you know, with his recent scalp of the, you know, celebrity that he nailed.

Very strange. And it's not even like this was a difficult case. It wasn't tricky. You know, this was a clear error or whatever, violation, whatever. This is just totally the SEC's bread and butter. It's a weird amount of attention to be putting on a single relatively minor case. This whole thing was just strange all around. It's strange that they made such a big deal out of it. It's strange that they made the video. It's super strange that the protocol appears to have been broken. And it's really, maybe the bigger story here is just, it seems like the SEC, people

aren't too happy over there. It sounds like there's a lot of turnover. And so I guess the theory is that Gensler is gunning for this role of Treasury Secretary. Is it confirmed that Yellen is leaving or is that still as a rumor, right? It's just a rumor, but it's the, everyone is saying it as if it's a fact that she's going to be leaving at the end of the year and that it's been known for a long time. It seems like it's been known for a long time that Gensler's been gunning for it. Yeah. But yeah, to be clear, that's not confirmed yet, her departure.

Although I wouldn't surprise me. But I guess when it happens, we'll say, you heard it here first. That's right. The timestamp this. They should spend less time making YouTube videos. and more time winning their case against Ripple. I don't know. Are they going to win that case?

Who knows? I mean, not like promising. If they were going to win that, you'd think they would be saving their efforts for, I mean, I can't imagine what kind of video against her is going to make if they win. Oh, my gosh.

I mean, that'll be crazy. He didn't, he didn't even start that one. That one's been going on forever. That's true. I don't know. I'll settle for some clarity on tokens and a safe harbor.

That's really what we need. But I guess, and it's not like there needs to be a lot of time spent on it. There's already a very good proposal out there from Hester Purr. All you have to do is dust it off. But I think you probably need an act of Congress to make them do that. The fact that they're spending so much time on these really marginal easy win cases makes me think that they're not optimistic about their prospects with the big marquee cases. I mean, the ripple one has got to be fascinating because Mary Joe White's on the other side. who's formerly in the head seat over at the SEC.

So that's a real brawl. Here's the other thing. The crypto industry can outlast these people. I mean, not to sound cock. I don't know. I guess the ripple, not everyone in the crypto space. Certainly not everyone who ends up in the crossers, the SEC, but the industry writ large will be here when Gensler is gone

and when the SEC turns over. It will be. I guess the question is, is it going to be largely domiciled in Singapore and other places by that point? There's no other alternative. Singapore is certainly not an option. The UK is not really. I gained some clarity on this last week. It doesn't appear that the UK, the FCA, is super friendly to crypto companies.

There's not really anywhere else. The Europeans did pass regulation. It's not that friendly to crypto. or native firms, there's no alternative. Yeah, well, it's a global industry, and it's very difficult to cut down on open source software. So I totally agree. It'll be around long after the current regime is done.

Why don't we move on? There's some interesting stories this week around some of these Oracle networks. So CBOE Digital has become the latest exchange to join the PIF network. This is a real-time market data feed, and it's decentralized in nature. So it's similar to ChainLink. And ChainLink was also in the news to Sigma, which is a hedge fund, joined up with that network, and they're going to be providing data into these oracles. So this is huge news, I guess, for Defi.

Yeah, it is interesting to see these centralized firms, TradFi legacy, whatever you want to call them, actively getting involved in defy, at least through the data provisioning lens. That doesn't mean they're necessarily active in sort of defy liquidity, but this feels like a good intermediate step. Another story that caught my eye this week, so Hamilton Lane, which is a very large asset manager in the alternative space, they said that they would be tokenizing three of their funds in partnership with securitize, and they're going to provide direct access to select private market investments this way. This is the same type of deal that KKR recently did.

with their health care fund with Securitize. So these tokenized funds, these seem to have some legs. Yeah, are security tokens a thing now? I mean, I feel like I hear it every week now. Yeah, I mean, you have to hand it to securitize. It's been a firm that's stuck at this for a long time. Hamilton Lane and KKR, if you want to say, where would you look to for validation?

These are two stalwart. So security tokens will be a thing for sure. All right. So here's a weird institutional finance defy intersection Golden Tree

the asset manager has invested in sushi swap and they posted on the sushi forum about it basically introducing themselves

so they made a $5 million investment into sushi and apparently they plan to be active in sort of the sushi ecosystem, et cetera. So kind of interesting, you know, it's like introducing, it's like a hello world to the sushi community. Yeah, I think it's pretty cool. ARCA did that months ago, right? They were active in the sushi. I don't know if they still hold the position, but they were active in some of these governance discussions on sushi.

Yeah, I mean, you know, no disrespect to ARCA, but Golden Tree is a $50 billion asset manager. So I mean, this is probably only a small sleeve of that, but, you know, it feels notable to see these intersections. It's like SOSGen with their maker discussions. We're seeing more and more of this crossover where these kind of legacy firms are trying to learn how to interact with decentralized communities. I mean, sushi swap is one of the most, you know, diffuse communities out there because it was really created with very little structure. So it's kind of, you know, how do you even begin to engage with that community? Well, yeah, I guess you post on the forum.

Hop in the forum, start having conversations. Yeah, it's good to see that, especially in light of the CFTC action against Oki, Dow. There's a big question around just the governance of some of these communities and where the legal liabilities lie. So we would benefit from having one of those Wyoming-style Tao, LLC frameworks that really could work for some of these public D5 protocol communities. But there's a tension there because I think, you know, doing the LLC wrapper means I think you probably have to de-anonymize yourself, right? Yeah. I think that's probably where 90% of

this market goes, though. For these, you know, like sushi is all about pseudonymity. So for some of these more cypherpunk style, DAOs, the, resolving that tension in terms of having a legal wrapper, but then connecting your real identity to your, you know, your status and doubt. That's a little tricky. I think that that's, unfortunately, for the real people that don't want to have that, that's where this whole defy thing is going. I think permission defy, at least at the on-ramp AML perspective, it feels like that's going to be where we go as an industry. Okay, so, okay, here's another thing on the intersection of D-Fi and C-Fi. This is a theme. It's happening. Maker is investing $500 million

in treasuries and investment-grade corporate bonds. So Maker was kind of trending in this direction already in terms of going for real-world assets. This is very interesting because initially they had a lot of stable coins like USDC inside of their treasury basically or as collateral basically but if you're holding those stable coins you're not getting any yield in fact what you're really doing is you are funding the stable coin issuer because the stable coin issuer collects all of the yield and the treasuries that they are holding to back the stable coin. And then you are just, you know, tolerating inflation while they collect all the yields,

which are now material. And so Maker is basically cutting out the middleman and they're going direct to the treasuries, which makes sense. But it's also a blow, I think, to the stable coins that they were using as collateral. So anyway, I find that very interesting. I think eventually there'll be a pressure for stable coins. to actually pass on some of those yields, especially if inflation continues to run hot,

you'd kind of want to be compensated for holding the dollar instrument. Yeah, I wonder if there's securities laws, issues around that passing through the yield, though. Back to Maker, that whole community right now, that's one of the more interesting dialogues happening in all of the crypto space, is just some of the tension between real-world assets

versus truly decentralized maker. and cutting the peg entirely. So it's going to be really interesting. It almost feels to me like there's two projects there, and they're in one right now. It's hard to see them forking it. But there's the real world assets view of where Maker goes, and then there's the original vision of just crypto collateral.

Yeah, I mean, you know, the Maker had that debate what feels like years ago with the purple pill debate. So there's the blue pill and the red pill. I don't remember which side was which. And that debate, I think, was convincingly won by the, like, let's push towards the convergence with Tradfai side. Yeah, but what the tornado cash really shine the light on how vulnerable Maker is, if you look at USDC right now.

So what if USDC was to get blacklisted within Maker? That would be devastating. You know, the stable coin sector is maybe one. of the most interesting places in crypto right now, which is remarkable. But, you know, whether we're going to get legislative developments in this country, which I'm now optimistic about, I now officially think we will get stable coin-friendly legislation in the U.S.A. Before the midterms, after the mid-terms?

Maybe lame-up Congress. I don't know if it would be a priority. Maybe after the mid-terms. I would say in the next 12 months. Let me be hudged and say that. All right. I think we get that there was interesting stable coin regulation in the EU. I'd like to have someone on the show to talk about it.

I want to learn about Micah. So anyway, there's a lot of interesting stuff happening in stable coins right now. A bunch of interesting stuff happened in the Celsius and three arrows part of the world this week. So appears that Celsius, the top three executives, cashed out $42 million as the company was approaching bankruptcy and as they were just about to suspend withdrawals. That's not good. Yeah, I mean, I don't think this is just going to be bankruptcy. I think there's going to be some potentially, you know, criminal repercussions here, as far as I can tell. I would agree.

And then on the three arrows front, there was some news this week. So the Starry Night NFT portfolio was on the move. And Taneo, which is the liquidator, put out a notice that they have possession of those assets. And Vincent Van Doe is cooperating. So I don't, do we know who Vincent Van Doe is? I don't know. Do you think 10 years from now this is going to be the kind of thing where it's like the Draper Silk Road Bitcoin purchase where someone buys all of the NFT portfolio at auction?

And it's like, you know, it's like, oh my God, amazing purchase price for those Fidenzas or whatever. I don't know. It's a legendary purchase. Or it could be the opposite. But they, you know, I will give them, I'll say this. I think they actually had good taste with their collection. It's just that they way overpaid. That's sort of the least their troubles,

the fact that they overpaid for these NFTs. Well, they overpaid with other people's money that they stole. So, yeah, they have more problems than they know what to do with. In other news, so a couple just quick hitters here, Fidelity launched an Ethereum index fund. This is the second crypto index fund under their umbrella. They, of course, have a Bitcoin one. and then ARC Invest has partnered with Eaglebrook advisors,

and they're doing a separately managed account partnership where ARC's active crypto strategies are now going to be available on the Eaglebrook platform. So more trad-fi overlapping with the blockchain space. Very cool to see. So I think that's about it for the week. We're actually under the gun here. So I think we got all the big news. I wanted to talk about the cheating scandals in poker.

and chess in particular and fishing. But we'll have to leave that for another week. We'll leave that for next week. Yeah, I have been staying up on those fishing scandals. That's crazy. Same with chess. The chess ones is incredible. I know so much about chess now.

I've been binge watching chess analysis videos. Speaking of cheating scandals, what's going on with Tom and Giselle? What's happening? I don't want to talk about it. I don't think that there's a cheating scandal there. I don't feel like talking about that right now. I've got enough going on. Is FTX responsible for the breakup?

I don't. You seem like you're having a good time with this. There's nothing to say about this. Is it because of their crypto infatuation? It was one of them lost money in crypto. It was Tom got Giselle into crypto, and then she bought the top. Is it one of those?

I would say this. If this is actually true, which I hope it's not, all the guy wants to do is play a little bit of football. Just let him play football. Will it be awkward if they run into each other at the FTX headquarters? Do you think that, I don't think they're like hanging out coding and doing podcasts with Sam. Well, stay tuned on that.

That's my news of the week. All right. Well, we'll have more fun with that at some later date when it's just proven. I think that's it for the week. Have a safe and healthy weekend.