On The Brink with Castle Island - Weekly Roundup 10/13/22 (FASB accounting rules update, Warren's letter to Texas, Howey's orange groves) (EP.361)

Episode Date: October 14, 2022

Matt and Nic are back for another week of deals and news. In this episode:  What is XEN and why is it driving up ETH fees? Bittrex settles with OFAC SEC is investigating Yuga labs Mango and Binance Smart Chain are hacked The FASB settles on fair value accounting for cryptoassets Warren writes a letter to Texas about mining Coin Center is suing OFAC 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 Concentive 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. 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. Metrics Minute brought you by Coin Metrics. Here's an interesting one. In the last week, the XEN token has consumed 50% of Ethereum block space. Have you heard of this thing? No. We don't own that, right? we don't own it we probably shouldn't uh so it it's uh like a kind of hex it's got a lot of the

properties of hex which is another thing you probably shouldn't own mike alfred's big on hacks right he likes that he likes hating on them so xen appears to be like kind of look i'm not just going to go around calling things scams but uh it's certainly scam adjacent at best um they burned over 3,100 ETH in the last week. So this token, which people for some reason are excited about, has turned ETH deflationary again. So it's kind of funny how ETH benefits from this somewhat to meritless projects, so we say. And it brings supply created since merge down from over $13,000 to 9300 ETH. Another twist in the story, kind of a strange one.

Who's behind this X-E-N? Is it a Ponzi scheme? Is it a scam? Who's behind this thing? I don't know, but it's really popular for some reason. And, you know, it's kind of similar to where you, you know, you lock up some tokens and you get more tokens. I don't know. Anyway, Ethereum holders are benefiting from the massive gas consumption. That just sounds like the type of deal that 3 AC would be. doing a treasury deal for just simpler times back then yeah it is funny how like you occasionally get these they just totally take over uh eth block space like plus token like things like that oh what a classic so it is weird that you just are as a holder of eth and that benefits from the token

burns your long demand for block space and sometimes the demand comes from the craziest stuff it sure does. All right, well, that was the Metrics Minute. This episode is also brought to you by Talos. And if you are an institutional player in the digital asset market, you probably already know about Talos, whether you're on the buy side or the sell side, if you're in TradFi or a crypto-native firm, tap into the Talos platform and you get access to the entire ecosystem right at your fingertips. So you can either trade through the GUI or the API. You can connect to pretty much any category in the market, whether that be prime brokers, lenders, buy side investors, custodians, exchanges, OTC desks, everyone's on Talos. They've got a great leadership team that has decades of experience, and that's why everyone is on Talos. So head over to Talos.com and learn more. Great read, Matt. The enthusiasm is really... I got to tell you, I talk about Talos all the time, even not on the podcast. That's true. I can attest to that.

It's like a 15c3-3 for me. It's like on the bingo card is, have I told you about talos lately. So I looked that up actually because I was on a panel about security tokens this week in DC, which is odd because I'm not a security token guy. And I was going to do the 15c3-3-3 talking points. So I would sound smart. It was actually at Fannie Mae. So it was all about like real estate, security tokens, et cetera. Also, side note, the Fannie Mae office is suspiciously nice. That's that bailout money. That's your taxpayer dollars at work. It's too nice. Yeah. So, and then I looked it up and turns out I think it's actually not a problem. I think it's a problem. It seems like the SEC gave some language to broker dealers saying, you know, go ahead in 2020. I'd love to see that

language. I'd love to understand why we don't have more venues that are up and running on that front. I just, I don't want to, you know, eliminate your favorite talking point, but, you know, I looked into it. And I think it's sort of not an issue. Well, I'll tell you what, there's a lot of people that want to do security tokens that perceive it to be an issue. So if it's not an issue, I think we'd have more broker dealers getting through their FINRA processes. So, you know, who knows? But either way, maybe security tokens are back. Security tokens, by the way, will be a thing.

So we've been kind of wait in C mode on that. I've gotten some DMs from people that say, hey, I've got a project. It's a real thing. Trust me, we know it's a real thing. We'll have more to say within the coming months on some bets that we're making in security token space. Put it that way.

Intriguing. Intriguing. Okay. We had a good podcast suite. Weak, Ria sat down with John Charbonov, Delphide Digital. First time a podcast guest has requested that instead of putting their headshot in the banner that we put one of their memes and we obliged. Oh, that's interesting. That's an interesting request. We put one of his memes in the in the promotional banner.

As usual, got a lot of comments from people that said, hey, when Ria does the podcast, it sounds smarter than when you and Nick do. So appreciate that backhanded compliment. I mean, yeah, Ria does put more thought into the questions, I think. But, you know, we've done like 350. episode so I think you can forgive us for mailing it at this point. I think, you know, at least we're smart enough to surround ourselves with better talent. I think that's what you can say. So you also did an episode with Rob Benke of Halborn. Talk about timely on this one, huh? So Halborn's one of our portfolio companies in the cybersecurity space. We taped it and then like that night, Binance chain got hacked. And then of course there was the mango attack a couple days later or so

cybersecurity at the top of everyone's mind this week. Howlboro just, just, Just by the way, they're doing a great job. So for D5 protocols and for centralized institutions, they're very busy over there. Yeah, I mean, that mango hack, that was an astonishing one. Crazy. I guess, do you want to talk about that now or get into it in the news section? We've got to read the deals first, Matt. All right.

Let's get into some deals of the week. First one up is Crusoe. So Crusoe has acquired the great American mining company. So we're seeing some consolidation here in the Bitcoin mining space. Yeah, so those are two of the more high profile miners active in the flared gas mitigation space. Nice acquisition by Crusoe there. Next up we have Rye, a web through commerce startup co-founded by Twitch founder Justin Kahn. They raised 14 million from Andreessen and others.

He had a startup in the NFT space too, right, Justin Kahn? I believe it. I'm sure he did. Everyone's getting into the Web 3 space. I like it. All right. Next one is a big one, Uniswap,

which is, of course, the, I think the largest decentralized exchange, certainly the canonical one. They have raised $165 million from polychain and Dresin, Paradigm, SV, Angel, and Variant. Next up, we have copper, another huge raise,

Crypto Custodian, former on the brink sponsor. They have raised $196 million reportedly as part of their ongoing Series C round. Love the guys at Copper. Had Dimitri on a couple years ago. That's right. One of the original MPC custodians. Next one up is Pine Street Labs. This is a crypto infrastructure company.

They have raised $6 million from Polychain. Next up we have Moon Mortgage, Crypto Lending Platform. They raised $3.5 million from Cadenza Ventures. and coin fund. Settlement is the next one. This is a low-code platform for blockchain engineering. They've raised 15.5 from molten ventures, OTPB ventures, and others. OTPB ventures.

The heck is that? No affiliation. No relation to on the brink. What a terrific name. Well, I mean, I need to find out what it stands for now. Yeah, it's probably on the brink. They are, hmm, let's see. OTB. I'm looking it up. What is OTB stand for? OTPB. Not outside the box. That's

outside the box. Okay. All right. Okay. I get it. No copyright infringement coming. No letter from us. Next up we have Step, which is a banking app aimed at teens, launching some crypto investing features. They have raised $300 million worth of debt. All right. Big debt deal. We don't do a lot of those on this podcast other than to say debt deal has gone wrong in the Bitcoin mining space.

Sometimes you don't about that. Next one up is Sorabon. This is a smart contract platform. They've received a $100 million commitment from Stellar to launch on their network, which I guess that means Stellar is giving them $100 million. So congrats to this team. Exotic deals this week. And next up, we have the unpronounceable N-X-X.

XYZ. I predict they will be changing that name. Nix, Nixie. Next, Nixie, yeah. Nixie, yeah. So they're a blockchain data infrastructure business. They raise $40 million from Peridon, Coinbase, Greylock, and Sequoia. So this is like a querying tool for network data, it looks like. And yeah, I'd say I'd vote on like changing that name probably, but that's a, that's an unpronounceable name.

And then next up, we have Arch. crypto asset management platform, there is 5 million from DCG and upload ventures. Next is an acquisition. So off-chain labs, which is the team behind Arbitrum, they have acquired Prismic Labs. And Prismic Labs is one of the core development teams actually behind the Ethereum merge. So talented team over there. I guess we've done a couple episodes in the Ethereum merge, but it's still like such an impressive feat that that actually went off without a hitch. we have covered it now i think three separate episodes i did see this deal raise some eyebrows on account of client centralization right because uh having a number of different clients client diversity is one of

those hallmarks of ethereum definitely something they tried to optimize for and does look like consolidation in the space interesting next one up is zirion this is a web three wallet they raised 12.3 million from Wintermute and a number of others. I thought it was interesting that this deal was led by Wintermute, obviously Wintermute vying for the liquidity play there. So these wallets certainly can become pretty lucrative. And I guess monetization via payment for order flow is going to be a pretty popular path for a number of these companies. Next up we have Tatum, their blockchain application development platform. They raise 41.5 million from Octopus Ventures. circle and lead block fund.

Next one up is Otter Space. This is an NFT startup that raised 3.7 from Cherry Blossom, Bessemer, and Coinbase. Then we've got GOMU and NFT infrastructure business. They raise $5 million from Coinbase, Defiance, and Sazon Capital. Busy, busy deal week. So these deals are not slowing down. So I think the number of new companies getting started right now is probably as high as it's ever been. in my eyes.

Yeah, despite fractures developing in financial markets, like TradFi going crazy, certain sovereign debt appears to be more volatile than Bitcoin now. Various of stock indices more volatile than Bitcoin. So kind of crazy stuff going down out there in Tradfai land. Yeah, it definitely is. So the CPI number was big today. Stock market took a hit.

Bitcoin took a hit. and then just absolutely ripped back. So I don't know what's going on there. I can't make sense of the stock market. Yeah, for no apparent reason. Yeah, Core CPI continuing to climb. That was the one that a lot of the economists were pointing to in the early days of the inflationary boom saying,

well, headline CPI is high, but look at Core, actually. And, you know, I don't see them saying that same thing today because Core CPI is kind of telling the other story, which is that inflation now appears to be sticky. and enduring. There were some comments from Yellen around being concerned about the functionality of the treasury market and the liquidity landscape for treasuries seems to be drying up a little bit. So maybe there's a sense that they're going to slow down a little bit on the rate hikes,

given everything's going on. Or maybe they pause or pivot. And this is the hypothesis of a lot of thinkers. I mean, I listen to Luke Groman on this. He thinks the Fed has a shadow third mandate, which is the orderly, orderly functional. functioning of the treasury market, the marginal buyers have disappeared. Japan's not going to buy that, right? I mean, who's a logical buyer of treasurer right now outside of stablecoin issuers? So the Fed is divesting their treasuries, right? They're letting

them roll off. Foreign central banks are selling treasuries. It's not entirely clear who's buying. And if you're sort of mathematically guaranteed to lose money in terms of inflation being higher than the yield, it is a fair question. Why would you buy treasuries? I think that they should be rolling out the red carpet to the front desk of circle and just making it easier for them to buy treasuries because that's really the logical market participant that has the appetite right now. Yeah, I was down in D.C. this week for the always excellent DC Fintech week run by Chris Brummer. exceptional conference. It's funny. It was five years ago I went to the first one, I think, and I was probably the only crypto guy there, and now the whole thing's about crypto. And there was a lot of chatter about this possible stable coin bill in DC. A lot of enthusiasm about it.

It doesn't look like it's going to pass before the end of the year. But generally, there's a feeling that Congress will pass a stable coin bill, maybe next year. Yeah, I guess, but right now would be the best time to pass it towards the end of the Congress, right? I mean, why is it not, why does it not have the support? Because, well, ahead of the election, which is quite soon, it's just not a priority. Everyone's campaigning. After the election, it's a lame duck session, and there isn't a ton of political appetite to do much. So, at least from my perspective, I think it's likelyer in 2023. Could be with a new Treasury Secretary, though.

I think there could be some complicating factors there. So another thing on the inflation print, we have now baked in the cost of living increase for various inflation linked products. So Social Security will be receiving an 8.7% cost of living adjustment, Kola, for next year. And this is a reminder that those entitlements, social security and healthcare spending, are real as opposed to nominal. So you can't inflate them away.

And if you think about this, this basically means that the working class, people earning a wage, their real wages have been declining. Retirees are kind of safe, in a sense, at least through their entitlements, which are inflation indexed. And so it's kind of been well-true. transfer. I feel like this is kind of often the case today, a wealth transfer from the young to the old. I think those boomers really set it up well for themselves, huh? Yeah. So I don't think it'll be that popular once people realize what's going on. Kind of an interesting situation where Luke Grumman compares it to Germany during the Weimar, where they had their World War I reparations denominated in gold, I think. And so they couldn't

inflate them away. And eventually they stopped paying them and then, you know, some of the allies seized German territory in response. So, yeah, you can't really default to your way. You can't print your way out of kind of real liabilities like that. I don't know. It's very uncertain times of the macro front. Yeah, I think we're heading towards a fiscal crisis in this country with interest expense.

defense spending, tax receipts coming down most likely, and massive, massive entitlements. Something has to give. And I don't know if people want to give on military. They certainly don't want to give on entitlements. They can't give on interest. Not clear where the gap is. And of course, no one's buying treasury. So it's not clear where the fiscal gap would be filled.

Well, I guess, you know, you could always raise taxes, right? But I don't think that would be very popular. Right. Right. but that might be where we go regardless of who wins this election so quite a few pieces of news this week guess we'll start with bitrecks they have settled with ofack ever-present ofack for 24 million and 29 million for two separate charges related to sanctions and aml violations fairly hefty fines there yeah pretty pretty steep fines and this centers around

basically activity that happened on the platform between 2014 and 2017. So this is from a long time ago where they did not have a full-blown compliance program in place. They weren't screening their customers for where they were from. And there were a bunch of actions on the platform in sanctioned countries, parts of Russia, Iran, places like that. Cuba, Ukraine, Sudan, pick your country. They were doing things. the liability here was through the roof. And so if you read the complaint,

I forget the exact number, but it's potential fines in the billions, which is basically a death penalty. I guess this penalty, you know, might be a death penalty too, although you'd think that since they agreed to make these payments, that they're able to support it. But again, just shines a light on a couple things.

One is that if you're running one of these types of businesses, brokerages, exchanges, is you need to have these controls in place. You need to be using travel rule compliance software providers. You need to be buttoned up here. You need to have a chief compliance officer. So pretty obvious stuff. But the other interesting thing is just that this happened a very, very long time ago.

And it's like a five-year process to actually unearth this. So we'll see more of this for sure. Think about those crypto trading platforms of your Poloniacs, BitTex, Bitmex. Bitfinex all struggled in their own way. Oh, I think like Cripsy and all these other. And some out of business. It's a tough game. And the kind of ones with Domit,

who will be basically getting acquired, the ones dominating today are kind of on the newer front with the exception of Coinbase. Yeah, there's just kind of this, you know, feeling in the industry that's really hard to start a new cryptocurrency exchange, but you forget that like FTX is only a few years old. Yeah.

And maybe it is hard to start a, new centralized one. We'll see. But there's a bunch of upstarts now. Speaking about upstarts, the world's oldest bank is in the custody business. They're the newest upstart in crypto custody. So Bank of New York Mellon was public this week saying that they're launching their custody business, which will hold Bitcoin and Ethereum initially. But just a huge deal in my opinion that they were able to push through, persevere, get this through DFS in New York. So it's going to be regulated under New York license. And obviously, this is a, a, you know, this is the most trusted institution on the custody front in Tradfai.

So I think it's an enormous leap forward for the industry. Yeah, I think one of the most important institutional developments, really, that we've ever witnessed. And we have some friends and colleagues working over there at BNY Mellon. So congrats to them for pushing this through. Definitely seeing a huge amount of enthusiasm regarding this development. people are excited. So, you know, people will have like follow-up questions, I think, in terms of why this is a big deal.

So I think there's a few things that I want to point out here. One is just that they were able to navigate the political process to get this through. And so they're regulated by a lot of different parties and they were able to explain this. It's also significant that top leadership at Boni bought into this vision, hired out the crypto team, spent the time to, get integrated with all of the blue chip crypto startups that are service providers from trade execution to market data to compliance. So it's a huge deal that they were able to push forward on that. Now, from a commercial point of view, why is this a big deal? I think the first thing to point out here is that this will unlock more by side participation. There are pools of capital that just

were not comfortable holding their assets with the existing crypto custodians and will be with Boney because they have relationships already with Boney on the custody side. And there's also just the political aspect of it. So if you're a sovereign wealth fund and you're looking to deploy, it's going to be really hard for you to explain if an incident happens with a startup company that you have a custody relationship with.

It's going to be a lot easier to just say, well, we went with Boney. Same as kind of going with Fidelity, right? So that's a big deal. The other thing is that Boney is going to be able to do these really interesting tri-party relationships with Tris. trading firms and prime brokerages.

And it's going to look and feel a lot like tri-party relationships in TradFi. And so from a market structure point of view, you just got a team over there that understands how things need to work in traditional venues with large hedge funds and large byside participants. And they're just going to be able to run that playbook here in a world where a lot of the crypto startups just don't do these type of things. They don't speak that language. And so I just think on the margin, more capital is going to be able to flow into Bitcoin and Ethereum as a result of this.

Undoubtedly, the other thing I'll say is, you know, the main bank regulators are not friendly to crypto right now. In fact, in most cases, they're overtly hostile. Like I watched OCC Commissioner Michael Sue give comments two days ago. Very hawkish tone. it's no secret that they rolled back. A lot of Brian Brooks's much more pro-crypto guidance at the OCC and other regulators, FDIC and Fed are also fairly hostile and have been releasing formal and informal guidance, discouraging banks from touching crypto. The fact that B&Y Mellon got through this in light of this environment is very impressive.

So there's one thing that needs to be further. clarified for this to be as impactful as what I'm describing. And that's just the posture of the SEC around some of these issues that the Wall Street Journal wrote about a couple of weeks ago around the balance sheet requirements and the cap on assets. And so I'm interested to see how those progress, those talks. Because really what you want to have here is Boney be unconstrained in terms of the number of assets that they can have on the platform. And you want to just run this like you'd run your traditional custody business. of course within the confines of the laws,

but the SEC accounting rules still need to be ironed out here. So there was another very significant development on the institutional front this week, and I would say that's the FASB basically changing their mind in terms of how to account for crypto assets. This is a huge deal. So the way it works up until this new FASB clarity is that if you're a company like micro strategy and you buy Bitcoin, I'd say $50,000. You have it marked as an intangible. And so when it goes down, you need to market down, but you can't market back up.

And so this thing is bouncing around like crazy. But they just didn't have this concept of marking it to market. And I think the view was it's just hard to market crypto assets, which is completely erroneous. You can have a 24-7 reference rate. And most big financial firms are using coin metrics to power those reference rates. It's like a 24-7 mark-to-market on that. And now the FASB has come out and said that you can market to market, which is obvious. And so why does this matter?

If you're a publicly traded company that was going to put Bitcoin on the balance sheet, you were likely to not put it on the balance sheet after you learned about these accounting rules that would require you to take a write down and not be able to write it back up because you're just reporting these losses. And now you won't have to do that. And so on the margin, again, more companies will be willing to explore putting crypto on the balance sheet, I believe. Yeah, completely. I think this is a very direct effect on corporate willingness to hold Bitcoin.

This is actually one of Michael Saylor's campaigns. So I'll give him credit for being allowed on this topic. But yeah, due to Bitcoin's volatility, the prior method of accounting for it as indefinite and tangible meant that you were guaranteed effectively. to take a gap right down on the position and you'd have to account for it in a non-gap way. So now you are free to market to market. And obviously, data providers exist that can facilitate this. It's never been hard to do that.

And now there's sophisticated reference rates out there. So really significant development and kind of an esoteric thing, but a very, very important thing. So this being the regulatory podcast, I guess that we need to make mention of the SEC is reportedly investigating Yuga Labs, which is the parent company of the Bored Ape Yacht Club, the NFT platform. And this is on whether or not some of the company's offerings constituted unregistered securities

offerings, I guess for the Apecoin token as well as the NFTs themselves. So we will see what happens here. It's just a investigation at this point. Yeah, I mean, to be honest, coin was unnecessary. There wasn't really much of a point to it. I mean, I don't want to be too harsh.

The other side land sales were also, if you apply a Howie lens to that, it very clearly satisfies all the prongs of Howie. I mean, it would only be more obvious if they'd been literally selling virtual Orange Groves in the

Metaverse. Did that exist? Honestly, I think someone should do a performance art project, which is selling rights in virtual orange groves. I think it would be funny. Does the original Orange Grove still exist in Florida? I need to, yeah, I want to visit the Howie Grove.

I need to see this for myself. Do we have any listeners in Florida that can check on this for us, please? I think there should be a museum down there dedicated. You know what we should do? We should have an ICO museum. Down in... Is there an ICU museum? It can be like all your favorite ICU.

we can build it at the Orange Grove. It'll be like the Telegram ICO. I like the Tezos ICO. That was a good one. We can have some failed ICOs. Like what was the one where the guy had like the Ashley Madison account that got hacked and all the customer funds got lost? All right.

So I'm looking this up right now. So it's the Howie of the Howie test is a man named William John. Howie and he was the mayor of the town of Howie in the Hills, Florida. All right. And he did develop and sell citrus groves. He was one of Florida's greatest citrus developers. Actually ran for governor. And so I guess probably he was one of the first people to pasteurize fruit juice.

I mean, this man was really innovating in the orange industry. All right. So, yeah, I want to. I want to find out where this is. It appears to be in Winterhaven, Florida, which is kind of, it's central Florida, basically. Yeah, I think it kind of merits a pilgrimage. I mean, I want to see these groves for myself.

I think the Red Sox used to have a farm team down in Winterhaven. I don't think they do anymore. But, yeah, I think we need to get down there. He was also a director of the Florida Citrus Exchange. I mean, this guy was like the Sam Bankman-Fried of orange juice. He was clearly ahead of his time. Yeah, unjustly persecuted. I think it's just that the, you know,

the SEC wasn't really open to that type of innovation back then, you know? So he ran, yeah, he did, he did, he ran for governor under the slogan Hoover, Howie, and Happiness, Hoover being Herbert Hoover. I don't know why he thought riding on his coattails would be wise. Yeah, I don't know. that didn't age well. Not a candidate you really want to attach yourself to. No.

But he did lose in a landslide. Maybe the voters had, they held the grove coins and they lost money. I don't know. All right. So let's see if we can figure out what they have down there and maybe we can raise an unregistered security to fund a museum or something. Yeah, I think it would be really funny if someone created an orange grove. of NFT product.

Not me. You know, you probably have to do it anonymously or something. But look, it would be entertaining, a little satire. It just set up your, what do they do now,

the Lithuanian foundations? What's the best way to do an ICO these days? I mean, as long as you don't answer the SEC's emails, I think you're good, right? Is that how works? I don't know. We should,

we never really got around to doing those exposés on bad ICOs, like we said in our, first episode. We said we're going to go deep on all the really terrible stuff we've been looking at. We did say that. And Zach XPT kind of did it. You know, there's a few sort of freelancers out there that are taking up that cause. What you really want to be able to do is access some of these pitch decks from back in the day with the people that were putting their faces on these advisor pages and just really shine a light on that. That's really where the craziness was.

Yeah, I have a shocking number of pitch decks. and still in my email that I think have aged very poorly. Yeah. Got to dig some of those up. What a time. All right. So here, let's talk about these hacks. So just a bunch of hacks continuing.

So the big ones this week, so the Binance Bridge was hit for over $100 million. Binance smart chain did a hard fork to recover some funds. That was a big one. And then this Mango one, Mango markets on Solana, this was a $100 million loss of funds, and it was not an overt hack necessarily.

It was basically a very sophisticated market manipulation of long-tail coins, thinly traded coins. They attack that way. So it was basically like a liquidity attack on the network. And that one is fascinating from a couple of different perspectives. One is that I'm not going to say the name here in this podcast, but it seems like this person's been identified by the sleuths online based on tagged wallets and there's an FTX interaction and it looks like it's not his first rodeo in terms of running

one of these attacks. There's a lot to talk about here, but I guess the first thing is I don't know if this is dead to rights illegal on this mango attack. I mean, I mean, look, it's totally unethical. He totally stole the money. It should be illegal. but I don't know off the top of my head what they're going to get him for on this manipulation. I don't think it's like cut and dry that you broke X law on this.

I think that you'd be able to find something. I mean, so basically that, you know, there's this MNGO token, and the attacker tricked the protocol into thinking it was worth more than it's kind of fair value. And so they bid it up on thin liquidity. And then I believe borrowed a significant sum against that. And so it was sort of Oracle price manipulation, but it wasn't that the Oracle was wrong. The Oracle is reflecting the real price. It's just that the real price was extremely illiquid at the price level that it was bit up to.

So, yeah, basically it was poor economic design as opposed to any technical failure. But yeah, I mean, you'd think that Defy protocols would kind of learn from this. This is a fairly common way to exploit these DeFi protocols. at this point. But like who gets in trouble for this? Is this mango's fault for not designing something that their customers were protected by? They didn't get the proper economic modeling work done on this, or is it the attacker's fault and is this an overt crime?

I think that's the type of thing that a regulator would struggle to define. It's not very clear. Something like the Binance Bridge, we're just exploiting something and stealing funds is much more obvious. Yeah, and the mango attacker is now negotiating. apparently with the Mango Dow itself, which is kind of interesting. If the Dow votes to consider this a white hat hacker and maybe get some of the funds back and, you know, grant the hacker a bounty as a, you know, post facto white hat,

does that absolve the hacker? Because the community said so, I don't know. I don't know what the precedent is there. I mean, you just want to be like, hey, man, like use your talents for something better. Why are you doing this? You're obviously really smart. Can you design a way to knock one of these asteroids out of the sky or something? Stop messing around on D-Fi protocols, please.

I want to talk about this Liz Warren letter to Urquhart to the Texas Energy Authorities. Oh, boy. Yeah, here we go. So basically a number of members of Congress, not just Liz Warren, kind of the usual suspects. Sheldon Whitehouse, Ed Markey, Rashida Talib. They wrote a letter about Bitcoin miners in Texas. Basically, I would say concern trolling would be the term, suggesting that Texas, you know, really didn't know what it was in for with the Bitcoin miners that they've been inviting into the state and suggesting that the Texas grid would be destabilized by Bitcoin miners.

and saying more stuff about demand response, basically implying that demand response is illegitimate because you shouldn't be paying minors to turn off. They should just be doing it out of the good of their hearts. And the whole thing was very strange because these are mostly senators and representatives from New England. And it's not like New England really has their house in order when it comes to energy policy.

You know, like actually, Massachusetts refused to build pipelines from the Marcellus shale, which is up in one of the richest shale deposits in the world, very cheap energy. Upstate New York, Pennsylvania, very short pipeline you'd have to build, but they resisted it. And instead, they import LNG from places like Chad for much, much costlier prices. and in fact the New England grid this winter is going to be pretty dirty, pretty emissions intensive due to their general energy scarcity. They're going to be burning oil. And prices are going to be extremely high. So all of that to say is I just don't see how they can lecture Texas on the energy grid when their own house isn't really in order. It's odd to see Warren antagonizing Urquat

on this basis, especially when if you actually, I'm sure Texas will respond and you'll find that they're pretty comfortable with the miners in the state. And there's a lot of mitigating factors there. I mean, the miners aren't really stressing the Fort Worth, Dallas, Houston area. They're mostly in the west part of the state. So overall, very odd letter. Not something I think I'm really going to respond to. I think I'll let Texas do it. Yeah, really strange kind of cross-state politics at play here. I mean, I just continue to be really, shock that Elizabeth Warren spends all of her time trying to write these letters to crypto industry participants and that she hasn't found a reason to get excited about some of the

some of the things that crypto does for some of her constituents and how this is leveling the playing field for a lot of people. So it doesn't make any sense to me why she's opposed to it in the first place. The other thing just to keep in mind is that Elizabeth Warren has never really passed any meaningful legislation and is generally viewed upon as someone who just makes a lot of noise within these circles. And so I certainly wouldn't expect anything real to come out of this similar to this DOL, you know, letter that she wrote a few months ago. It's, she doesn't carry a lot of weight in the actual circles of passing laws. That's not really something she does. She just makes a lot of noise. Well, on the topic, so she did raise a question which people not familiar with power

might find compelling, which is if miners are curtailing selectively when there's high power prices, how come they're paid to do that? The answer is, of course, they're selling insurance to the grid. And you prefer that insurance exists. So you don't find it unfair when you pay your insurance premium. It's a better situation that there is insurance rather than there isn't. But we did elaborate on this in an episode. I sat down with Blake King, who's an expert in these matters.

We'll be releasing that one in the coming weeks. I'll give you a very clear answer on why minors do that demand response stuff. So I think that's it for the week. We'll be back. We have another episode coming out on Monday. Patriot season is back on. We're on. We've got a new quarterback, Bailey, really excited about that.

So I don't know how your commanders are doing, but. They play tonight. They're not doing great. In fact, they look like one of the worst teams in the league. So I stacked my fantasy team heavily with commanders players because I kind of figured nobody else would want them. and if they did well, I would have a killer fantasy season. And that's gone about as you might have expected.

Yeah, that doesn't seem like that's going very well. All right. So we will see you guys on Monday. Have a safe and healthy weekend.