On The Brink with Castle Island - Weekly Roundup 10/13/23 (FTX trial continues, ditching 'stablecoin', TARP 2.0) (EP.460)

Episode Date: October 13, 2023

Matt and Nic are back for another week of news and deals. In this episode:  Holland versus the Netherlands  The end of Pax Americana Ditching the 'stablecoin' term Why synthetic USD is not the next Luna Caroline Ellison testifies SBF wanted to be president How Teneo worked with Singapore to apprehend Su Zhu Will criminal charges ever be leveled against the 3AC principals? Lightning is getting more efficient  Content mentioned in the episode:  Nic and Martin join the Empire podcast Do we need a TARP 2.0?  Sponsor notes:  Coin Metrics STATE OF THE NETWORK — Q3 2023 Wrap-Up In Coin Metrics State of the Network Issue 228, we set out to analyze USDC's supply loss and its impact on Circle

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 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 the Bitcoin. Bitcoin.

Welcome to On the Brinkum, Matt Walsh. And I'm New Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. For the Metrics Minute, we are digging into circles, USDC. So the USDC supply on Ethereum dropped from 41.5 billion at the beginning of the year to 23 billion today, facing significant redemptions. after the SVB crisis, a large chunk of the USDA supply loss came from smart contracts. That was a disproportionate loss.

Large wallets with those over 10 million USC reduced their holdings from 22.5 billion to 12.5 billion. The top one and top 10% of USC address holders hold a larger share of USC supply than at the start of the year. The combination of their supply traction in the environment of rising rates poses questions about the sustainability of the business model. Their estimated revenue in the first half of the year surpassed their entire 2022 revenue with higher rates, of course. 77 million in Q12, 2022, again 7.72 million in all of 2022. So, of course, very sensitive to interest rates.

That is your metrics a minute. What's going on with, there's something going on with Justin Sun's stable coin? Oh, STU.SD. ST U.S. What is that? Is that what it's called? Is it T-U-S-D-T? Is it T-U-S-D?

I don't know. Whatever his scam thing, he probably has no collateral, right? So the staked tether thing he has, which has no relationship with Tether, actually. That one, I think, is fair to say, is very questionable. and it's not clear that that's fully reserved actually. TUSD he also basically owns, or it's strongly suspected that he owns. I don't know which one did the thread mention.

Both? I think both. I don't know. I mean, can we just stop dealing with these people that are shady? Neither is good. Hoobie also is having issues, suspected issues with their reserve composition. I will note they have not done a proof of reserve.

And now enough exchanges have done a proof of reserve that the lack of a proof reserve is a big red flag, in my opinion. There's no benefit of the doubt. There's no benefit of the doubt there. Not anymore. No, not post-FTCs. We're holding these things at a higher standard today. So that was the Metrics Minute, good Metrics Minute.

This is a, we are recording this from way different geographies today. Yeah, so you're hustling this week. you're in Amsterdam. It's after midnight there. After midnight. Doing your part. Yeah. I'm trying to put the team on my back, but you were in Bermuda. So I'm in Amsterdam. I was at the Theta blockchain conference, which is incredible. Like I cannot say enough positive things about Amsterdam and the folks at Theta that put on that conference. Very high signal conference. Highly recommend it to anyone. Love it. Yeah, I spent the week in Bermuda. I was able to go to the beach once. they have some nice beaches let me tell you that.

Wow. White sand? Pink sand. Pink sand beaches. Wow. Yeah. So I interviewed the premiere. That episode will be coming out on Monday, we think.

Stay tuned. Excellent. Premier Bert, very knowledgeable about digital assets, very focused on it. You know, people don't really know much about Bermude, I would say, but it is the big, big hub of reinsurance. And through that, they developed a very sophisticated regulatory apparatus. That's one thing I think people don't understand about Bermuda. And over the last six years, they turned their attention to digital assets.

And they've built up this framework. And now you have a lot of firms, both startups and very established crypto firms, that are basing their operations there. So I think quietly they've been very successful with that. Any talk about Mountain down there? Was Mountain a subject of conversation? Oh, yeah. They were mentioned a lot.

In fact, they're the talk of the town at the Fintech conference there. So, yeah, they're doing good, new partnerships. I think interest-bearing stables are on everyone's mind here. I think there'll be dozens of interest-bearing stables. I love it. So the big news in Holland, which is, I think Holland in the Netherlands are actually technically not the same thing. Can you explain this to me?

No, I thought they were the same. What do you mean? They're different things. I think everyone's, if you look it up on chat GPT, they said that there's a slight difference where one of them is a subset of the other. I'm not exactly sure. It's a wonderful place. Everyone's on a bicycle here.

So you would walk outside and almost get hit by a bike. Like that's, it's a bike first type of place. So the cars are very deferential. I actually think a lot of people were actually saying at this conference that with your VESPA, you might actually fit in quite well here. I well I have no Vespa I'm Vespa at the moment I'm probably forever

Oh it's gone forever it's gone I haven't resolved the Vespa problem but yeah we're not writing it's toxic If I write it I get $1,000 in tickets every time So I can't All right I looked at up chat GBT says Holland and the Netherlands are often used interchangeably But they actually refer to different concepts

Holland apparently only refers to to two provinces within the Netherlands. Not all the cities in Holland, not all the cities in the Netherlands or in Holland. So Holland is a subset of the Netherlands, as it turns out. Okay, that's what I thought. Yeah, you're right. I was right about that.

So this conference was at a museum called the Eye Museum, and you take a little ferry over, which is great, people biking everywhere. it's a very, very nice place. A lot of crypto traders here too. People coming out of the woodwork, a lot of prop shops. It's a very interesting crypto scene here. It seems like whenever we leave the U.S.,

we discover that crypto is actually thriving in all these places. Yeah, all these Europeans are just telling me about how, all right, here's how the regulatory apparatus works. Here's what you do. I'm like, well, I wish we could have that. Yeah, that would be nice. So, I mean, extremely grim week in many different. ways. Like a very bleak week it's been. Yeah, I mean, the Israel thing is just,

just a terrible, what a awful past weekend. So we have a number of portfolio companies and friends over there and just a, I don't even know what to say about it. Yeah, just extremely upsetting. And yeah, I mean, our thoughts really are with everyone affected. And we do have a lot of, we have a lot of Israeli portos and, it seems like a lot of these folks are now they were doing software last week and this week they're driving a tank or whatever yeah yeah it's insane yeah it's really bad so you know not much to say on that more to come i'm sure but just adds to the the world feels like a very unstable place right now yeah i think we're seeing the packs americana and it seems like

America, you know, is still intent on foreign adventurism. I mean, they sent aircraft carriers to the Gulf there and, of course, you know, engaged in a basically proxy war in Ukraine. But I think really America has made a more isolationist pivot, or at least people believe that they have. And so these conflicts which were frozen are now turning hot. Same goes for frankly Nagorno-Karabakh. Russia basically withdrew their stewardship of Armenia. And that was a frozen conflict for 20 years. Turn hot. Azerbaijan took over.

So when the hegemon's pull away, then you get explosion in a lot of these regional conflicts. So I think we're in for a period of great disorder this decade. And I guess the last thing on our mind should be the financial markets, but it'll be very interesting to see what happens. with the overall financial markets. Equity's shot up on Monday. It was very surprising to me.

I guess that's where we're not equity traders. But I don't know. Was that just factoring in that maybe the rate environment's going to change? I don't know what you're reading to that. We had a hot inflation print this week. I think my summary of what happens in war is oil up, yields up, inflation up. Yeah. Which, yeah, probably is going to be a bit of a drag.

on the financial markets. Yeah. So not the happiest of weeks. I guess in lighter news, we did have some interesting podcast. So you had Guy Young on from Athena, which I think that's like one of the more interesting. I guess you'd call it a stable coin. Everyone's calling it a stable coin. I think Austin Campbell had a good comment that maybe it's a structured product, not a

stable coin. But one of the most interesting projects out there, I'd say. I agree. I've been pretty fascinated. buy it. And Guy is super, super sharp. So I recommend that episode. And I kind of agree with kind of the thrust of what Austin is saying. Like, I think it's all about expectations management. And if you're committing to this financial product trading at 100 cents on the dollar forever, always in all market conditions, that's not going to be a promise you're going to be able to make.

Whether you are Athena or whether you're an ordinary fiat back stable, like even tether and circle for all of their strength. We're not able to honor the promise of being a hundred cents on the dollar at all times. So I think honestly, we just need to call it something else. The term stable coin connotes or implies that it's always a hundred cents on the dollar.

We just need to move away from the term. I think it's as simple as that. I think that's right. And maybe for those who didn't listen to that episode, set the table in terms of what Athena is trying to do here because it's pretty unique. It's something you couldn't do until, Ethereum went to prove the stake.

Yeah, it's a very different model from what you might expect. And to be clear, it's not Luna. Okay, I mean, we were Luna haters. Okay, we have receipts on that. We knew that Luna was going to collapse. And we said it, I think we said on this podcast, too. I mean, I'm going to have to go back and look.

It was on the podcast, yeah. And to be clear, we're not investors in Athena. So do your own research. We're actually dispassioned on this one. Yeah. So it basically, the thrust of it is you are using Ethereum as the underlying collateral. And to sterilize the FX risk, of course, Ethereum doesn't trade in line with the dollar, always. You have an

offsetting short futures position. You have a long staked Heath position, then you offset it with a short ETH future's position. And typically, because Ethereum funding is positive, you get paid to be short, eath, because your average trader kind of wants to be long eth, and they're willing to borrow to be long eth. Because of that, you get paid as a short side. Now, on the long side, your long staked eath, which has a positive yield, positive nominal yield. So you put those together, you get a yield on both leg of the trade, and then you can use that to create an insurance fund. or you can pass along some of that yield to the holders.

And the whole thing ends up looking a lot like a dollar, which bears kind of a crypto-native yield that's based on crypto collateral. So this isn't a new concept, actually. This is something that people have tried to do for a long time. But because now, ETH has moved to proof of stake with this positive carry for ETH, I think the idea is much more tractable now. And I think the conditions are right for something like this to emerge. But again, it's kind of hard to call it a stable coin.

So yeah, I think it's primarily a nomenclature issue and kind of expectations management. It's really a new crypto financial primitive. And so was it Arthur Hayes that originally conceptualized this? Yeah, I mean, because the first version of these synthetic dollars was on Bitmax because there's a time when Bitmax, I remember talking to them about this because they're like, yeah, we don't want to use stable coins because we don't want any exposure to the Fiat system. we don't want risk. And even though they did kind of get got later on, and so it wasn't enough to just use Bitcoin as the collateral on the exchange. But yeah, traders would want to be dollar exposed as opposed to Bitcoin exposed when they used BMX. So they would collateralize their account with Bitcoin. But when they just wanted dollar exposure, they would create a 1x short position

which with no risk of liquidation, which would give them a synthetic. Arthur Hayes obviously saw this. He wrote a pretty famous blog post called Dust on Crust, and he proposed the knock a dollar, which was Bitcoin based. And then Athena took that concept and spruce it up a bit with using Ethereum as a collateral. Do you think that the perpetual swap is sort of crypto's number one contribution back to legacy financial services at this point? I think the CME will have to list perps at some point, right? Yeah, I think the reason perps caught on in crypto is because exchanges were so islanded from each other and had to manage their own risk internally. And they weren't able to use clearinghouses to distribute the risk.

So that's why I think perps were the longs pay the shorts and the shorts pay the longs, I think caught on with the sort of crypto derivatives exchanges. But yeah, I mean, now it's like a concept that traders are familiar with. So I think it will spill over back into Tradfly. It's that and like AMMs, I guess, right? Bolish is now using an AMM model on their centralized exchange. So maybe the AMM is also going to catch on. It's interesting. There are these crypto concepts that are just bleeding into legacy financial services.

Well, in both cases, it's because of the unique constraints of crypto. Like an AIMM is popular in crypto because it's a gas efficient way to run a decentralized exchange, as opposed to using Klob. So because we're limited in terms of the data that we can insert on chain, we went for AMM. But it had been conceptualized by non-cryptop people previously. The AMM had. Oh, I thought that it was a Vatalic thing.

No, I mean, the concept existed in academia before. But it just became relevant crypto for gas efficiency reasons. And you know it was Bankor, I think, that had the first one. People don't really give them credit for that. Bankrupt. They like didn't really make it in the end. And Uniswap was the one that kind of got all the credit. Well, another podcast this week that you did was on the Empire podcast, which is a Blockworks podcast.

You went on with Martin from Mountain to talk about stable coins. So really good episode. Nice to see Martin out there. Very smart. He sounds very smart on podcasts. Super sharp. Yeah. Martin is, he's a wealth of knowledge.

I've learned a ton from him. we'll put that one in the show notes as well. All right. So we had a bunch of deals this week. Should we hop into it? I guess we'll talk about some FTCS trial stuff, but there were some deals. Yeah, things are heating up in the deal space. So first up, we have neutral and exchange focus on tokenizing carbon credits.

They raised $3.2 million from North Island Ventures and others. Next one up is Ordinals bot. This is an inscription service. It's built on Ordinals. They raised a million dollars from Kestrel, Lightning Ventures, and UTXO management. Then you have Cicada, a non-custodial crypto lender. They raise $9.7 million from Chapa Capital, Bitscale, Boady Ventures, and others.

Yeah, congratulations to Sefton Kincaid, who's the founder of Sakata. So great to see them on the board. Sefton, who's actually a podcast veteran of On the Brink. Remember we had him on? That's right. Yeah. So big congrats to the team over there, nice raise. Next up we have untangled a tokenized RWA.

platform, so hot right now. They raised 13.5 million from Fassanara, Gavital. RWA. That's a big RWA raise right there. So congrats to the Untangled team. Next up is membrane labs. This is a cryptocurrency trading and lending platform that raised $20 million from Brevin.72, Jane Street, and flow traders. Then you've got Republics, a Web3 content platform. They raise 6 million from Okax Ventures and 6th Man. Last up is Parsec, a crypto data company that raised $4 million from Uniswap and Galaxy. So kind of a busy deal week. Deals are happening. Yeah.

On the news front, it seems like it's mainly FTX related. Of course, it's not televised, but we are getting these great threads. And some interesting stuff is coming out. I mean, I feel like we kind of knew most of what most of the contours already. But new details are coming to light. I mean, if you're not following this guy at inner city, what is it? Inner City Press. Yeah, he is like the only guy that somehow has a cell phone in these

courtrooms. And so he's just live tweeting everything. And you just have to follow him. He's just, this is the number one Twitter follow right now. You know what I like about him is he has some vendetta against the UN? Have you noticed this? And it has nothing to do.

kicked him out or something. They don't let him in and he just like hates the UN. It has nothing to do with FDX, but every 20th tweet he gets in a jab at the UN, which hates the UN. But otherwise, his commentary is great. I'll profess. I have no idea how this trial is going to go.

I have no idea about the intricacies of the back and forth. But from his tweets, it seems like this judge really has no favor towards SBF slurs. It's just overruling them on everything, just sidebar after sidebar and it just seems like SBF, I mean, look, it's not that he's bad lawyers,

it's just that it's a very difficult case to win, I would imagine. I think that SPF made a strategic mistake with this trial in not delaying the trial. I think they should... How could he have delayed it? I think you can ask for more time.

Even though it seems like long enough, I mean, roughly a year, I think he could have taken long in a craft his case my suspicion is that he thinks he'll get off and didn't want to be in kind of pre-trial detention for that long. So they just went for the timeline as proposed, which is a mistake. I mean, I don't know, but Caroline Ellison was on the stand this week for two days. So just getting intensely grilled, as she should, because she is a criminal.

She's a soon-to-be-convicted criminal. did a lot of bad things. But she revealed so many things in these two days. So bribes to Chinese officials. So she's on the record saying that FTX bribed all these Chinese officials to untangle some of the money that they had on. I believe it was OKX in Huobi. So they had locked accounts and they needed to bribe Chinese officials to get it. So he's not even being charged with that yet because part of his getting back to the United States, the extradition,

was that they would not charge him with anything other than what they had just expressed to the Bahamanians. And this came to light after. So theoretically, he could be charged with bribing these Chinese officials at a later date. But they're not allowed to charge him right now with that. But she outlined how they bribed these Chinese officials. She also outlined. Hang on, hang on that. Do we know which officials?

Like, has this come out? It was presumably they would be facing punishment themselves, right? It certainly didn't come out in this trial, but I mean, it'd have to be CCP officials, right? That can't be wrong for them either. Well, I hope that they're probably on the run, right? You'd have to imagine. I mean, if you took money from SBF and now it's public, you better get the heck out of China, right? Okay, so that was one thing.

There's some other bombs. So that was one thing. I mean, the other thing that she revealed is that they were using. Thai prostitutes for money laundering. So basically they were opening accounts in the name of Thai prostitutes in order to get access to some of these international exchanges. And there was no pushback from SBF lawyers. It wasn't like they were like, no, we didn't do that. Like objection, blah, blah, blah, blah. Nope, it was just, all right. Wait, yeah, we did do that. Yeah, we did that. That was part of the strategy at Alameda was to pay Thai prostitutes to open accounts.

What a joke this industry must look like to an outside. that one of the biggest Sequoia backed companies, light speed backed companies, is, you know, Thai prostitutes opening a exchange account. It's just crazy. So that was out there. One thing that I just keep thinking about is, do you remember in kind of 21, 22, before everything went south, everyone would have this talking point about, wow, Coinbase is way overstaffed because they have thousands of employees.

and FDX has like what a hundred and FTCX is crushing it and winning market share that is debunked now because they weren't actually obviously following normal processes they didn't have compliance they didn't have proper accounting they were cheating they had unlimited liquidity delivered didn't have a CFO didn't have CFO didn't have risk management they had the affiliated trading desk so now it's clear that they didn't they weren't like this team of super humans with you know super lean and as it turns out you actually do need a lot of people to run in exchange yeah i don't know i just keep thinking about that turns yeah turns out compliance officers and cFOs are a good idea uh the other

revelation was that sam had ambitions to become a president um president of what you might ask you know, president of Alameda, president of FTX, president of the, like, poorly dressed human society. I don't take showers. Nope, it was president of the United States. Sam told Caroline Ellison that he thought that he could become the president of the United States of America. I mean, I kind of get it in the sense that he had such a meteoric rise.

And he would, if the numbers were real, he would have been considered the wealthiest under 30 self-made guy in the U.S. So I kind of understand why he would extrapolate that. But if you look at his actual political ambitions, he did a terrible job. I mean, he didn't actually achieve much with all the money he spent on politicians. So I think his political sense was actually really bad. Not to mention... That's terrible.

Aesthetics really matter in politics. Maybe they shouldn't, but they do. You have to dress well. frankly you have to be tall not really who's that senator from pennsylvania he doesn't dress very well sam probably saw a fetterman and was like we're waiting into that the fetterman debate as well i think aesthetics matter his aesthetics are absolutely terrible for being president terrible so so that was you know that was crazy um all right i'm going to read something else this is an exhibit so caroline ellison's uh infamous quote things sam bankman free

is freaking out about list. It made it into evidence today. So I'm going to read this out. Things Sam is freaking out about. Hedging. Yep, that's a good thing to freak out about. Bad PR for the next six months relative to Alameda slash FTCS. Well, the fact that they were the same company, that makes sense.

User experience, VIPs, APIs, click traders, front leg. Yep, that makes sense. There definitely was a front end lag there. Getting regulators to crack down on Binance. So that was clearly part of the strategy. raising from MBS. So that came up. So he was trying to raise money from,

what's MBS's full name? Mohamed Ben Salman. Yeah. Yeah. So I guess he said no. Getting capital from BlockFi, which the whole thing here with Caroline had about an hour about how they defrauded BlockFi and Genesis as part of this.

So that's a story for another day. The Alameda Medulla relationship. So Medulla was this other prop shop that they put, I think $500 million of customer money into. It was run by another woman that Sam was having a relationship with. So he had Alameda that Caroline was running. And then Madulo that was also affiliated. And then there's this bullet point,

Willie being happy. Who do you think this is? Is this. Who is Willie? Who is Willie? So to which I would say my guess is Will McCaskill, the EA guy? Ah, yeah, yeah, yeah. Yeah, good one.

Yeah. So that was kind of interesting. Other things Sam was freaking out about Reddit. I guess just, I don't know. Maybe he just didn't like Reddit, maybe want to buy it. And then it says, buying Snap. So Sam was trying to buy Snapchat. That would have been interesting.

He also tried to do the Twitter deal, and he got rebuffed by Musk. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.

Elon. Actual entrepreneur. We like Elon on this podcast. us now. And then lastly, it was making bonus process better for next semester. So they used to break down the years into semesters, two semesters, and people at FTCs used to get a bonus every semester. So Caroline Ellison got a $20 million bonus one year for running Almeda. But she was actually, she was underpaid relative to basically everybody else at FTCs. I think at one point she asked for equity and didn't get any. She had a 200K based salary.

but she made $20 million in 2022, I believe. So I think she was overpaid. I mean, from her perspective, it's all kind of tough and very bleak because Sam wouldn't admit publicly that they were in a relationship. He, I mean, she basically did his bidding. And I mean, of course, she has her own agency.

But, you know, she looked up to the guy and trusted him and was forced to, I don't know, maybe not forced, but chose to follow his lead and engaged in this massive deception. And then they break up. He doesn't reciprocate. And he tries to close down in Alameda. They had their whole Twitter thread on closing down Alameda, which is a ridiculous, insane thread.

And then he puts a ton of money into Medillo, one of, with some other women that he's having a relationship with. It's all very tough from Caroline's perspective. Very tough. So another guy that's resurfaced So Romnik Aurora apparently will be testifying I'd have to believe that he cut a deal with the government Tribuko too right

We're going to hear from both of these people So Romnik Aurora we've talked about him At length on this podcast Who's the head of product who's the head of Corp Dev He led all the venture capital fundraising So he's back on Twitter after being off for a while And his title on Twitter here You know you can have that little paragraph about yourself

It says thinking about type worked at FTX, Facebook, Goldman Sachs, and others. Not part of any, quote, inner circle. Well, if you're not part of any inner circle, let's just go through what we know about Romnik. He received $25 million from FTCS into his own venture capital fund called Toy Ventures. Like what, so you're not part of the inner circle,

you just happen to get $25 million of presumably customer money. He also ran the Moonstone Bank acquisition, which is that, which is now under, federal investigation where they bought a bank. They drastically overpaid. It was clearly just an attempt to have a cash on ramp into this fraud. He also was the point person for the BlockFi deal, which Ellison goes through in detail about how they defrauded BlockFi. And then he was the point person for raising all the money from FTX's VC investors. So that, I don't know. To me, that sounds like you actually were a part of the inner circle. Yeah. One thing to mention is none of them actually have assurances.

from the prosecutors, as far as I understand, they merely have the possibility to have the prosecutors write them a letter recommending leniency in the sentencing. Yeah, Larson has been good on this. She kind of had Brian Klein on and made it sound like if you get this form letter from the prosecutors, there's oftentimes you won't do time.

And so there's a world where several of them might not go to jail. I actually think that's wrong. I think they should all go to jail because they ultimately have their own agency. And it's not like Sam forced them to do anything. And they did break the law horrendously. So I would actually be incredibly disappointed if the lieutenants for Sam got off with no jail time whatsoever. I think that would be a travesty, actually. It actually seems like Ryan Salem is the only one that is not totally flipped.

and so he's played guilty, but he's not cooperating. So I don't think he's actually testifying. So he might have watched a couple too many mafia movies around like not turning on the boss. You can turn on Sam. Totally fine. They all flipped. Like, what was the, what was the name of the CTO of FTX? Wang.

Gary Wang. So he, in his testimony, he went and very quickly went and gave all the information he had to the prosecutors. Caroline, I think, actually waited a fair amount of time until her house was raided and they took her laptop and her diary and stuff. And then she was basically the jig was up and she was forced to flip. But there were actually, there was some latency with some of these people in terms of how long it took for them to decide to cooperate.

I think Gary Wang was on it. Yeah, he was first. So he was smart. You got to flip early if you're flipping on Sam. and I think Nashad was pretty late. He might have been after Caroline. And then Ryan was much later and actually I guess didn't flip. I'm not exactly sure what happened there.

But yeah. And apparently this also came out today is that Caroline's boyfriend, she had a boyfriend at the time. I don't know if she still does. But he was also an FTX employee. And so his laptop got confiscated. He was at the parents' house when this all went down. So there's just a lot of stories here.

And what's crazy is that Michael Lewis was in the mix for all this. We're talking about Thai prostitutes. We're talking about Chinese money laundering. We're talking about this guy thinks he's going to be the president of the United States. Do you think that would have been a good part to include in the book? How is that not in the book? There's so many salacious details that he didn't exclude. Like he deliberately wrote a more dull account of this.

He ended up writing this horrible book. And this is such a good story. and I was on this panel today with Tarun, and it came up, and I made a comment along the lines of this book, just didn't capture any of the salacious details, and it's unfortunate that it didn't because it would make for a great movie, and he said that Lewis's book is the only one that's actually been optioned for a movie or for a show. And so I don't know. Maybe it's like Michael Lewis is going to get paid for an eventual movie or a show here that has a bunch of these details, none of which were actually in his book, though.

So his is going to be the top seller out of this crop because whoever does the airport gift shop book distribution deals like loves Michael Lewis. I don't know if you've noticed this. Have you been through an airport lately? His book is everywhere. Yeah, he's everywhere. Who runs this?

Is there a guy that decides what books get showcased at the airport? it is the ordained airport read. A lot of people that never heard of crypto are reading the damn book because they bought it at the airport. Well, I read another book this week, so I'm just reading books. How are you reading?

How do you read so fast? I don't understand. I've been traveling a lot. I'm still reading the Elon Musk book. You turned through like five books in the last two weeks. I read Number Go Up, which is by this guy, Zeke Fox, I think his name was. He's a Bloomberg reporter.

He hates crypto. But this people seem to like this one. Even cryptic people are saying that it was a decent book. Yeah. Yeah, I mean, he talks about Machinsky. He goes in detail about how Celsius was all screwed up. He goes in detail about FTX. It's actually a much better book than Lewis's book.

It's getting none of the attention. I don't think anyone's reviewed this book. He's also a Tether Truther, right? He doesn't like Tether. Yeah, that's the thing. Well, and honestly, I don't know. I mean, it's not like we have the answers to how Tether works, but he was on this.

I think he started writing this book. Well, he started writing this book about Tether, I think. And then he ended up dovetailing it into a bunch of other things in the industry and captured a ton of stuff about FTCX. I actually think it's worth reading the book. Tether is an info hazard for no corners that don't understand how financial markets work. I have no patience for Tether Truthers anymore. Tether could still fail and they would have been wrong for five, six years.

Yeah. I don't have the I don't have the appetite to go into detail on all the Tether conspiracies. It's just ridiculous and also everything else in crypto broke over the last two years and Tether didn't. If Tether had been

air and there hadn't been any collateral there, don't you think that that would have been exposed throughout the massive credit crunch here? Because everything else, everyone else was fractional reserve was exposed. Tether wasn't. Yeah, they made like what, 15 billion worth of withdrawals over a couple weeks post-F-TX.

So, I mean, they had at least that much. So it's just like a completely preposterous notion. And remember, the Tether Truth has moved the gold posts all the time. So their initial claim was that there was no reserves. That's clearly false. Okay. Clearly false. That was the initial claim.

Now I don't know what the new claim is that it was buoying the cryptocurrency markets. That's also wrong because Tether's supply has massively gone up as crypto markets have sold off. So if the crypto markets are being quote unquote supported or artificially inflated with tetheres, that's not what we saw empirically. So they're just allergic to facts. They just live in a fantasy world. And none of them really understand crypto markets either for that matter. So it's just a terrible combo and I'm sick of it. Okay. I'm sick of it. I'm not even like a tether defender. I just can't stand the tether truthers. Yeah. It's really just. to it's a lot of noise, but who knows? I don't know. All right. Well, moving on, actually,

some more, I guess I don't know enough about Voyager to say if this is bad boys club or not, because we just weren't that close to this, but Voyager CEO, former CEO, I guess, Stephen Erlich, he's been charged with fraud by the CFTC and the FTC related to the collapse of Voyager. So more and more of these guys are getting charged, I guess. Yeah, Voyager has really flown under the radar. They were publicly traded in Canada. In Canada, yeah. I don't know really what happened.

They were a lending platform as well, right? Lending platform, 3AC took them for $600 million. I'm sure that there was fraudulent things happening there with 3AC. I'm sure that they were presenting balance sheets to Voyager that were terrible. But the facts actually don't look great for Voyager based on some of the court documents. I've read, but who knows? The thing that strikes me whenever I look at the claims markets is everybody else's claims are trading at 30, 40, 50 cents on the dollar, everyone else's, and 3ACs are still single-digit,

single-digit cents on the dollar. So that implies that the market believes that there has been no recovery of assets from 3A, which implies, it's not that the money vanished, of course, some of it was kind of just pure credit and artificial. But there was clearly some collateral there, which has clearly been squirreled away somewhere. Oh, yeah. I mean, they have big real estate holdings. Kyle Davies is still on the run.

People think he's in Bali. He's operating some sort of a fried chicken restaurant or something. It was something crazy. Did you know that Kyle and Sue were at Token 2049 walking around? No. At the actual conference? They went to the conference. They went at the conference.

Oh, my gosh. Can you imagine if we saw them? I know. That's what I was thinking. I ran into Leslie Lamb, who is running the OpenX or whatever. Wow. Yeah,

she was on stage, right? Weirdly nice to me. I was like, are you aware that like you're consorting with like my biggest enemies? She doesn't listen to out of the rank. Yeah, she must not listen.

She knew I was. It's like Leslie, like we're not friends at all. In fact, we're enemies. Well, I don't know issue with her specifically, but like you're,

you're friends with my enemies. Why are you? Your friends are some serious fraudsters. Pretty bad hombres. Yeah. There is an article in Bloomberg about how Susie ended up in jail in Singapore. Turns out Tuneo is on it. And they were monitoring his location.

I don't know how they figured that out. Yeah. So they knew that he was going to the airport and they tipped off the police when he got there. So shout out to Taneo. Good job. Good job tracking them. Good job to now. I mean, look, look at this FTCS case and look at what Allison is testifying. She says that she defrauded Genesis and BlockFi by providing false balance sheets. So you don't think that that's going to happen with 3AC?

You don't think that's going to happen when it says, okay, Genesis and BlockFi were both located in the Southern District of New York. They're U.S. companies. The exact same thing happened here. So, you know, stay tuned, I would say, in terms of fraud charges forthcoming. That's exactly what I was thinking, listening to that testimony. Alameda, their leaked balance sheet, the one that was in Kondesk, was actually meant to, that was a tuned balance sheet, which was meant to make them look good to borrowers, which is the funniest thing ever.

So, like, their best attempt at creating a good-looking balance sheet was horrifying. But you remember when that article came out It was like, what in Earth? But yeah, I mean, the thrust of one of the very bad things that it was lend or borrow under false pretenses. Lie to the lenders. That is exactly what three hours did. So, and we, I think, helped reset the narrative around this. People thought, oh, three hours just made bad trades.

No, it was because they committed fraud. They were lying to their borrowers. right that is crime totally it's amazing to me that it's taken so long for anything move on there in terms of legal processes but you have to imagine it's going to happen at some point i would imagine i mean i get so infuriid when i hear people try to explain what happens with three arrows so uh the block had this um frank did a from the block did a podcast with zach abrams this week and Zach Abrams is talking about Suzu and how, you know, that was just a blow up

that wasn't like criminal. It's like, what are you talking about, dude? You have no idea what you're talking about. Yeah. How are you actually covering crypto? Like you open your brain a little bit and just look into this a little bit. They're defrauding their lenders left and right.

These guys are going to jail and they're criminals. Yeah, just listen. I mean, listen to the people that are actually market participants that have firsthand knowledge of this stuff. Take a hike, Zach Abrams. Who are you? Yeah, actually, yeah, I don't know him.

Who is that? I have no idea. Someone that doesn't know what he's talking about. Should not be going on podcast. All right, some more dribs and drabs here. We'll put it in the newsletter, but River had a really comprehensive overview

of the Lightning Network. Lots happening on the Lightning Network. Yeah, it's interesting. As it turns out, lightning's getting more efficient in terms of transaction settlement, and there's more payments happening, but less collateral supporting the payments,

which is actually a good measure of efficiency as a payments network. So even though from the outside, the amount locked on lightning is declining in Bitcoin and USD terms, that smaller collateral base is supporting more payments. That's actually quite an interesting way that they characterized it. Yeah, it's good to see. Some more dribs and drabs here. So Eaglebrook announced a partnership with Anchorage to provide digital assets separately managed accounts.

that's actually a huge deal. So Anchorage is a federally chartered institution in the U.S. Separately managed accounts are just a no-brander. So Eaglebrook is a portfolio company of ours. And to my knowledge is the only company that's really pursuing this at scale. So big tie up here. I think this is a really interesting partnership. So the RIA channel is basically 0% penetrated as it relates to crypto ownership.

It's really, you know, it's a $7 trillion market that has, sub 1% crypto ownership. So I think separately managed accounts is a great step in that direction. And then lastly, in terms of things to read this weekend, there is this really interesting op-ed in American banker of all places. So this guy, Paul Graham, writes about the fact that we need a TARP 2.0 called a trapped asset relief program instead of a troubled asset relief program. And his premise in this op-ed is that there's a bunch of SVP.

VBs out there so that the rising rates is creating this issue in the investment security's portfolios where a bunch of these banks are off sides and basically need a bailout, or at least to liquefy some of these illiquid assets. So that would be bad. Yeah, I mean, I understand the point that he's making was banks had to do something with the funds, the deposits they got when rates were low and then as rates rose they just got crushed um you know with with the bond sell off but this is going to be very controversial i mean everyone kind of is of the mind that the banking crisis is over it's clearly not over but nobody likes bailouts at all so that's going to be a tough one yeah all right so i think that's it for the week it is extraordinarily late where i am yeah

Yeah, good job, Matt, your trooper. We will be back on Monday with an episode. Is this our first head of state? The Bermuda premiere? I mean, Bermuda itself is not an independent nation. It's actually part of the United Kingdom. But it's the first OTB episode with a head of government. Not the first time I'd have interviewed a head of government, though.

You know, forget Buckele. Oh, Buckele. Yeah, that's true. Yeah. Well, so hold on. Bermuda is owned by the UK. Do they want to, can we buy that? It was actually, I thought it was funny because they have U.S. outlets, despite being ostensibly, it is a British island territory. And they have their own currency. Their currency is pegged to the dollar, by the way. Okay. So they're part of the UK, sort of the commonwealth. but they have American outlets and their currency is packed to the dollar.

So they're coming our way. It's like the 51st state. Sounds like that to me. I mean, it's an incredible place, actually. It's really stellar. It's beautiful, very well-maintained, very good infrastructure, very high-quality regulator. So I would completely accept Bermuda as a part of this nation if they wanted that. I'd be very important.

I'm going to reserve judgment until I hear the episode on Monday. We'll see how pro-crypta there are. Yeah. I think you'll like it. All right, everyone, have a safe and healthy weekend, and we will see you on Monday.