On The Brink with Castle Island - Weekly Roundup 10/18/24 (Hagerty's Stablecoin Bill, WLF Launches, GOAT Coin) (EP.568)

Episode Date: October 18, 2024

Matt and Nic are back for another week of news and deals. In this episode: Nic's Dutch misadventures Federal versus State regulation of Stablecoins TD Bank filed $3b for money laundering Are stake rewards property or income? Italy hikes capital gains taxes on Bitcoin Is Polymarket manipulated? Has the first AI bot millionaire been minted? The World Liberty Financial tokensale flopped Sponsor notes:  Withum's Digital Currency and Blockchain Technology Team specializes in crypto-assets, offering accounting, tax and advisory solutions to fortify trust in a dynamic industry. Contact them today to get started. - withum.com/crypto An Overview of the Flow Blockchain: In Coin Metrics' State of the Network issue 281, we provide an overview of the Flow Blockchain

Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only is an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated.

The federal government loans American International Group, A.I. $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 quantitative 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. Welcome to On the Brink on Matt Walsh. And I'm Nick Carter. And this episode is brought to by Witham. So if you listen to the show, you know that we take. tax accounting and auditing very seriously. And when it comes to digital assets, building trust in relationships with your custodians, brokerages, and even regulators is critically important. And that's where Witham comes in. They're a top 25 accounting, tax, and advisory firm,

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All right. Crypto Tax and Accounting. Let's go. Yeah, we were supposed to have a tax and accounting episode this week. We pushed it to next week. But, yeah, more to come on that. Stay tuned. So you're over.

This is a late night episode for you. You are in Amsterdam right now. You're at the Theta conference. That's right. Another late episode for me. You know, we're just so locked in. We just don't miss a week. No matter what, we don't miss a week.

Good for us. We really don't. How was it this year? That was a, so it's the Legends for Legends conference. That was a really good conference last year when I went. It is actually, it's a very high quality conference. Yes. Although, you know what, Matt, I have a bone to pick with Amsterdam.

Okay. I got a bone to pick with Amsterdam. know. So first of all, there's a music festival here. And did you know about this? Like a gigantic music festival. I think last year there might have been one too. Was it the same?

Yeah. Yeah. So my hotel is full of British tourists. No disrespect to the Brits, but as a Brit, I'm allowed to say this. British tourists are the worst, the absolute worst. Just drunk, right? All the time. Yeah, they're just very obnoxious.

I think America, like America doesn't deal. with British tourists. They don't make it over there. But they are probably the worst genre of tourists, in my opinion. And then in Amsterdam, they don't know about iced coffee or ice lattes. They won't make it for you. You can't get an ice coffee in Amsterdam? So I went around asking for it. You know, it's like 65 degrees, which in my opinion is a completely valid ice coffee weather. Oh, I get ice coffee when it's January in Boston. Yeah, when it's snowing. Yeah. And they make me a hot coffee and throw two ice cubes in and give it to me with a smirk. Like they did me a favor or something. It's like this is just lukewarm coffee. It's not ice coffee.

Like, what are you talking about? Watered down coffee. And also they don't have Zen here, Matt. There's no Zen. I thought everywhere in Europe has Zen. How is that? I thought it's a pride of Europe, isn't it? I think it's northern Europe that has snooos or zen. Oh, yeah, the veloes or something. So I'm without ice lattes. I'm without zen. We're just really, really struggling over here, to be honest. Yeah, you're just like wandering in the desert without water right now.

That's tough. I also got lost. I got lost earlier because you have to take barges, fairies. You have to take fairies together. Those are great. I remember those. Yeah, those are great. The city is waterlogged, let me tell you.

And I got on the wrong ferry, and my phone died. And I can't understand Dutch signage at all. So I was for about an hour there, I was just ping pong around the city and different fairies trying to find my neighborhood. Thank God, you know, I just had to lock in and figure it out for Brink Nation. So I did make it safe and sound in the end. Good to have you back. So you moderated a panel, right? Yeah, I actually had Robbie Machenk talk.

Very underrated guy in the crypto space, in my opinion. I don't think people realize how important he was over there at Black Rock over the last couple years. Totally. Yeah, but it's probably my vote for sort of like most important character of the year that people just don't know about in crypto. Yeah. Larry Fink gets all the credit. Right, but it was like really, it's just like the hard work of people like Robbie, spending years and years behind the scenes. Like getting Larry comfortable with Bitcoin.

Yeah, that's awesome. All right. Well, busy week this week, you're on the podcast circuit. You're on with Chris Brummer, the FinTech Beat podcast, talking about Operation Chokepoint 2.0 and Stablecoin adoption. Always like Brummer's podcasts. Yeah. Chris is the man. and we'll see what happens in D.C. in November.

But he was once slated to be CFTC commissioner. So who knows? He was, wasn't it? Yeah, I forgot about that. So he was kind of in the running to be the head of the CFTC this cycle. Under Biden. Yeah, under Biden. Yeah.

So if Camel wins, there could be something on the cards there. All right. Should we hop into the deals of the week? Yeah, first up, this is from the Castle Island. portfolio, we have Yellow Card, Africa's largest crypto exchange. There is 33 million from blockchain capital, Us, Third Prime, Hut Capital, Polychain, and Galaxy. Congrats to Chris and the Yellow Card team. Then it's Ithaca. This is a developer of a layer two network on top of Ethereum. There is $20 million from Paradigm. Next up we have Blockstream. Well known, Bitcoin

diversified infrastructure company does all sorts of things. They raised $200 million in a convert, note financing from Fulgar Ventures and others. My goodness. Wow. It's a big, big raise. They have like a mining operation over their block stream. Maybe that's going into the mining business or something.

Yeah, I think that's the hosted mining is. I think that's the primary business line, actually, these days. Fascinating. So they have like a dozen things that they do. But yeah,

I think mining's the biggest. Next one up is called Towns. This is an on-chain messaging platform that raised $25 million from Andrescent. benchmark framework and others. Then we have opacity labs. They're developers of a data verification platform. There is 12 million from archetype, Brayer Capital, EV3, and others.

Bitnomial, which is a crypto derivatives exchange, raised $25 million in a round that was led by Ripple Labs. Luke from Bitnomial was on the show a few weeks ago, actually. So congrats to Luke and the team over there, Bitnomial. Next up we have Asra Games, Web3 game developer. there is 42 million from Pantera, A6, and NFX. Then it's Praxis. This is kind of a weird one. So this is a network, quote unquote, network state.

So this is a group of people that is planning on building a physical city. The headline is that they've raised $525 million via a drawdown financing facility from a gem digital manifold trading and others. I don't really. that seems like a kind of a strange construct. I have heard of this Praxis thing. This is quite something. So, all right,

he had a whole threat about this, but I think we should dig into it. So he says that he raised, there was a big New York Times expozeo in Praxis. Do you remember this? I do remember that. So they're trying to buy like a plot of land in Italy or something? Yeah,

I don't know if they, you know, country but they were trying to purchase land or do some kind of joint venture with the sovereign to start some kind of you know a special economic zone or something and then the new york times article i think scuppered that and then they had to go back to the drawing board and then they raised the money but it was kind of unclear the nature of the fundraise uh i think it's more callable capital as opposed to sort of like up front. But yeah, it's kind of very, yeah, I'm not sure who Gem Digital is actually. I think it's an affiliate of a different fund.

Might have to not classify this as a deal of the week until we learn more about this one. Yeah, there's some holes in this one. I actually found a DM in my inbox from Dryden about the race, maybe miss the opportunity to do that one. Oh, 525 mil. Yeah, that's okay. Next up we have Hermitica. There are developers of a yield-bearing stable coin on Bitcoin. There is 1.7 million from UTXO management.

Our friends at CMS holdings and ethos fund. Then we have Lombard. This is a liquid staking protocol for Bitcoin. There raised a million dollars from finance labs. Then we have predicate, a crypto transaction policy engine. There is 7 million from Tribe Capital, 1KX, and Figman Capital. Blockcast. is a decentralized content delivery network.

They raised $2.85 million from lattice, finality partners, RW3, and others. Then we have Solve Protocol, a liquid staking protocol for Bitcoin. They raised $11 million from Lays of Digital, blockchain capital, and OKX ventures. The last one is called The Arena. This is a decentralized social network. They raised $2 million from Avalanche's ecosystem fund, abstract ventures, and DIY ventures. The Arena, that's a good name. man in the arena, the startup in the arena.

All right. So a lot of news, kind of odds and ends this week. Last week after we went to tape, Senator Bill Haggerty released the draft of a Senate version of a stable coin bill. It was pretty similar to McKinery Waters. It's called the Clarity for Payment Stable Coins Act. A couple specifics that I found interesting. So stable coins with more than $10 billion under management or in supply could stay under a state supervision as opposed to going to a federal regulator.

So the way I interpret this is that if you're in New York and you're in the DFS, you're good until you hit $10 billion. Otherwise, you have to go to a federal regulator, which that kind of just means if you're a successful stable coin, you're going to a federal regulator. Yeah. The other thing is that federal stable coin regulation would be split between the federal reserve for banks and the OCC for non-banks. That seems to make sense to me, have the OCC look after the, you know, PayPal's of the world. And then issuers must maintain a one-to-one backing with U.S. dollar denominated assets. So that basically means that you have to have treasuries or something akin to treasuries that can maintain the pay. it does place a moratorium on algorithmic stable coins for, I think, two years as well.

So kind of the same thing that's been talked about in the House, although the House version just seems to be stuck in this political tussle between Waters and McKenry. Yeah, I mean, I don't hate the bill. It seems to make sense. I guess you could have a big issue with it if you were one of these stable coin issuers or potential stable coin issuers that wanted to not be regulated at the federal level. So, you know, let's say you're already in New York or something

and you're under DFS and you just don't want the additional regulator. I guess there would be pretty significant compliance cost to flip the switch. But that's kind of what this looks, the direction it's heading, I think. There's an interesting related piece of content, which is Nelly Leang, the Undersecretary of the Treasury, gave a speech last week, which was, I think, totally overlooked. She talks about how a lot of these payment systems need to be regulated federally and that the MTL regime is not fit for purpose. And she talks specifically about stable coins. Oh, interesting. I missed that one.

Yeah, no one saw it. it's also very aggravating because at one point she says stable coins have a lot of real world usage and like oh great did you read our paper and actually she links to the wall street journal talking about pig butchering scams so that's kind of a tough that is real world usage I suppose it's tough on for us but look there is a desire to federally regulate stable coins I think the you know the crux of it is ultimately is there a state approach and And Highardy's bill preserves that. So good for him.

In other news this week, TD Bank, they were fined $3 billion for money laundering penalties by FinCEN. The bank apparently failed to report suspicious crypto activity among just a ton of other activities. So basically they were not doing broad swath of what you're supposed to be doing from a money laundering perspective. Gigantic, gigantic fine. And guess how many people went to jail over this? Keeping in mind that CZ from Binance went to prison over something similar. So how many TD executives went to jail at? Zero.

Oh, that's interesting. Could it be that there's a double standard I play here, perhaps? Could be, could be. I mean, this is just shocking. I mean, I don't know how you have this widespread of a money laundering violation. It's so big that it's to the point It's like how was the board of directors not aware that the product wasn't doing compliance functionality? It just it almost defies logic.

Yeah, and to be clear, I'm not wishing jail time on any of these directors and executives at TD, but it does feel to me very clear that there's a double standard at play here because I don't think CZ did anything worse than this. Yeah, I think he was sort of post-affirm. TX. It was kind of probably his best bet to settle and do the four months that he did. He's out now, right? That's right. That's why crypto's up again. We talked about Bitnomial in the deal section. So they just raised $25 million from Ripple. They've also sued the SEC over the SEC's labeling of XRP as a security. So they're trying to get a bunch of products out in the XRP space. They want to list XRP as a commodity so that they can do derivatives contracts on it.

and the SEC has apparently jumped in and said, hey, we think this is a security, so CFTC can't give you the green light on the commodity side. A lot of money being spent on lawyers. Next up we have Tether, they are exploring lending opportunities in the commodity sector, so financing credit lines for commodities traders, using their large war chest.

CEO Paolo Ardoino said that these activities would not impact their core business. Pretty interesting move from Tether. Well, they just have a lot of money that they're spending on all sorts of stuff, huh? Yeah, a good problem to have. Tazos, or rather Josh Jarrett, one of the founders of Tazos, I guess one of the lesser-known founders, is suing the IRS. Is he really a founder of Tezazos? No way. Well, yeah, I thought it was really the Brightman's. So, yeah, this, you know what? This newsletter is wrong. He's a prominent baker. He's definitely not a founder. That's a bad newsletter.

To be clear, it says founder in the email that I'm reading. So I mean, everyone knows that the Brightman's founded Tezos. Yeah, we know that it's the Breitments. Anyway, a baker, Josh Jarrett, is suing the IRS arguing that staking rewards should be considered property rather than income. So, yeah, we'll see what happens. Yeah, that's kind of interesting. Um, If he is ultimately... His co-plaintiff and spouse, Jessica, are seeking a $12,000 refund. Well, so if that actually works, that would dramatically change the business model for a bunch of these service providers, I would think, right? Like, it's...

I guess, I mean, obviously you still need staking, but just the... Maybe this becomes way more compelling for people to stake, I would think. Well, his claim is that when a taxpayer... quote, when a taxpayer creates new property, whether a farmer's cropped, an author's manuscript or manufacturer's product, he is not taxed until he sells it. I think there is something about cows and calves. Like, calves are not taxed if they're produced by the cows, they already own. Right? Do you remember, is that right?

I'm going to just put my hand up and say this is outside of my circle of expertise. Clearly not that deep in agricultural tax law, but. But my understanding is that when a cow that you own has a baby cow or a calf, you're not taxed on that creature. Which makes sense, I guess, right? Why would you be? I mean, yeah, why not? So I guess Tezos is like that in their eyes.

So we'll see what the courts have to say about that. Reasoning via analogy on block chain staking is just very difficult. I don't think that anything really works. Yeah, I mean, I could go either way on this one, to be honest with you. It's sort of like a corporate action in some regards, right? But it's not like a stock split. The thing about staking is that it's not really income in the sense of like, you know, if you hold a bond, you're taking risk of default and there's some sort of economic activity being undertaken by the borrower.

right, and you're earning a yield based on the economic activity plus the risk of default, right? Yeah. With staking, it's just dilution is occurring and you're getting compensated for the dilution. Yeah, but I think you'd also argue that you're providing a valuable service on a network and you're validating the transactions. To a certain degree. I think there's a disinology there. I think it's anti-dilution. It's protection from dilution for the most part.

So to me, that doesn't feel like you are earning a yield. So I think that's actually evidence in favor of the Tays' loss plaintiffs here. Well, good luck to Josh Jarrett. Wonder how long something like this takes to play out in the courts, probably a long time. And it looks like he's being supported by CoinCenter. Did you see that Jerry Brito was leaving CoinCenter at the end of the year? Yeah, I mean, he's had a great run. Credit to him.

about 10 years. I think it's been 10 years at Coin Center. 10 full years, that's exactly right. And you'd be hard pressed to find someone who has done more for the industry than Jerry Brita. Yeah. Buy your tickets to the Coin Center annual dinner. They just went on sale.

Oh, did they really? Yeah. Okay. Where is it this year? New York. No way, is it? Yeah, yeah. I thought consensus was, isn't it always around consensus?

they've decoupled it from the conference this year they went their own way yeah I went to one in New York a few years back that Joe Wisenthal was the keynote were you at that one no I miss that one he kind of got heckled yeah

well yeah crypto people don't really like Joe very much although he's not like out on crypto he's just no he's actually great he just likes to mess with the Crypt of people, which is totally his prerogative. Here's an interesting product announcement, Securitize the tokenization platform. They announced a partnership with Zero Hash that allows qualified institutions to convert

USC into shares of BlackRock's tokenized money market fund, which is called Biddle. That's kind of interesting. I think that will work. Yeah, credit to securitize. next up Italy is raising the capital gains tax on Bitcoin specifically from 26% to a mammoth 42% starting in 2025

That's a real tough one That is a tough one for Italy Tough one Did I tell you that I just I just finished the rise and fall of the Third Reich Speaking of Italy They were very prominent They were featured in that book

The Mussolini Yeah World War II what was the culprit for the fall uh just a really bad set of people and policies i don't know if i could really summarize it what was it that caused you to read that was it was a series or is it just one book well i i feel like you never really got to world war two when you're taking u.s history it was always one of these things where you get to it in june and you don't have enough time to go through it in school. And so I found myself really trying to get deeper in World War II history.

And I had this on my shelf for a while, and I just finally got around to it. You know, I went to French school when I was a kid, so I never even learned U.S. history. Yeah, and I guess this isn't U.S. history. Only U.S. comes into play at the very end of it, I suppose. but really not the most uplifting story in the world, if we're being honest. I'm kind of glad to be done with it. I think I need to go get like a Malcolm Gladwell book after this or something. I'm reading Nate Silver's book right now.

I read that one. That was a great one. Yeah. I really enjoyed it. I'd highly recommend it, actually. It might be the favorite book that I've read all year. Nate Silver really, you know, he clearly understands the crypto industry. The crypto industry is pretty prominent in that.

book. Polymarket is just ticking up in favor of Trump every day. I look at it. It's more Trump all-time high on Polymarket. Yeah, we talked about it last week in terms of, is this just a whale account? And there's been some interesting tweets that there is, there is clearly a whale who has a few different accounts. I don't know what type of, I don't know what the motivation for this guy is. But I think it's safe to say that polymarket is not reflecting probably what is actually happening on the ground. Not to say that it's directionally wrong or anything. I just don't think that the Trump odds on polymarket reflect the true strength of the campaign. Yeah, you know, I was an efficient markets guy.

Many will know that I'm an efficient markets guy at heart. I just really believe in that. However, in more recent hours, I've spoken to whales on the polymarket contract that are clearly not purely rational on this. So I've come to decide that, in fact, it's skewed and it's not reflective of reality, much to my chagrin. What do you make of this, though? So is it just some of these whales, a handful of whales just really want to see Trump win and are willing to lose my own? on the trade? Yeah, I don't think they're just fully economically minded.

And what you really should do if you want Trump to win, if you're a crypto, let's say you're crypto guy and you want Trump to win, you should go long Harris. Then you're hedged, right? Yeah, or you could just like go vote for Trump or something. Yeah, but if Harris wins, then you're, you know, making whatever 200%, which maybe offsets your misery at the loss. But instead it looks like we have these Trump things. fans are along the Trump contract on Polly Market.

And it's not a secret, apparently, if you dig into it. So, yeah, look, I'm hereby saying that the market is a little bit out of whack. Okay. I'll admit it. Yeah, it's out of whack. The EMH is dead. Okay. Yeah, it would be nice to just kind of fast forward to the election.

So that it's not the first thing people are talking about when they come in to talk about their startup. Okay, so I do have the craziest story ever, and this came up on stage today, and it was in Matt Levin's newsletter, so I feel like I can talk about it, even though it's extremely vulgar. Okay, I haven't read Levine yet today. So have you seen this thread from this AI agent called Truth Terminal, or this Twitter account Truth Terminal? No. Oh, is this the Mark Andresen thing? Yeah. Yeah, yeah. Talk about it.

I have seen that. So Truth Terminal is a Twitter account, which is controlled by an AI bot, I guess, which was trained on two instances of Claude, I think, just talking to each other nonstop. And for some reason, Mark Andreessen got into a discussion with the bot and asked for money. Mark Andreessen sent the bot $50,000, which is kind of the start of this. nonsense. The bot, it doesn't launch a meme coin, but it learns about this meme coin called Goatzius, ticker goat. And then the bot becomes the leader of this cult around the meme coin. And now Goat is worth $300, $300 million. Anyway, at some point it was worth $300 million. So now this AI agent, and people sent the AI agent a lot of the meme coin because it was really

popularizing it. So I think it is the first AI bot millionaire. Yeah, as the time of as the time of recording the goat is worth $320 million and I think the the Twitter account AI is worth over a million dollars. So it's the first AI millionaire officially. This story is just perplexing on so many levels. The whole thing is crazy. So Mark and reason sends this thing $50,000. And then people are just kind of airdropping tokens into this wallet. So who actually gets control of the wallet? It's not like an AI agent can actually run a public private queue, right?

Like, is there a human in the loop here? Maybe it can. Why couldn't an AI agent run a, you know, a non-custodial wallet? Is that what you think is happening here? I mean, is this just like a, can an AI agent run a Metamask account? Like, that's not possible. is it? Why not?

AI can write music and create art, Matt. Why couldn't it run a crypto wallet? I mean, I guess it could run just a pure software wallet, but I just have a, maybe I sound like a technological troglodyte here, but I just have a hard time understanding how that would actually work. You got to open your mind a little, Matt.

The background you're using on Zoom right now is built by AI also. That is true. What did we use? I think it was mid-journey. Mid-journey, yeah. I guess we live in a brave new world. This is really hard one to kind of wrap your head around.

Yeah, this was actually insane. Also, I'm not going to tell you what goatsie is. Don't look it up. It's absolutely vile. It's absolutely not friendly, family-friendly. Whatever. We're just going to pretend that it's go. On to a new topic.

World Liberty, Finance. potential token sale launched. Did you follow this? Nope. I didn't. They didn't sell a lot of tokens. They sold 8... They sold 862 million tokens out of 20 billion on offer. So they sold about $15 million worth. They were aiming to sell $300 million.

So it didn't really go off the way they wanted. They should have brought on Dan Larimer. He would have been able to raise a lot more money. Yeah, that's the thing. They just didn't have the right guys around the table. I mean, the team, there actually are some real people on the team. The advisors, I don't know any of the advisors to this thing. Yeah, there's some legit advisors.

One of the technical guys is really reputable. All right, so there's another Mount Gawks story this week. What is going on with this Mount Gawks situation? So I guess they were sending money back and now it's delayed. So it's postponed on another deadline until October 2025. These are the bitcoins that will never move here. I don't understand this. This is a lot of Bitcoin.

This is 142,000 Bitcoin. I think some of them already got sent back. I don't know what's going on. This Monkawks bankruptcy is put it this way. John Ray is not running the process. Well, yeah, there are shenanigans there. I mean, it's been over 10 years. It's unbelievable.

That's just crazy. Some stable coin news. Siam commercial bank introduced a stable coin service. So international banks continue to be really out there on the stable coin space. Yeah, you know, it's a shame. Domestic banks can't do anything and foreign banks are doing a lot. So like always a tough one. They're taking our dollars.

They're tokenizing them and they're using them. You know, I learned today that European stablecoin issuers have to maintain a 3% capital ratio on top of the full reserves. Is that a mica thing? Yeah, that's a mica thing. So basically, there's never going to be Eurostable coins. So the Europeans have scored an own goal via regulation yet again. Really interesting. I didn't know that.

Yeah. I was kind of wondering why there weren't more Eurostables. I think that's the reason why. they made it extremely costly to issue a euro stable. All right, I think that's all the news for the week. Hope you get back all right from Amsterdam. Yeah, you know what? I can't wait to rip a large ice latte and is in

in the great free country of America. Okay? Yeah. And to use a stable coin too when I get there. Oh, you're going to use a stable coin. Good. Yeah. Big time.

Not bad. Yeah. Love it. All right, everyone. Have a safe and healthy weekend. and we'll see your money.