On The Brink with Castle Island - Weekly Roundup 10/21/22 (Aptos launch, crypto vigilantes, FTX's regulatory draft) (EP.363)

Episode Date: October 21, 2022

Matt and Nic return for news and deals of the week. In this episode:  Why USDC is suffering redemptions but not USDT Some new 3AC shenanigans are unearthed The SEC and CFTC are investigating 3AC Details from the Voyager bankruptcy filing Avraham Eisenburg is crypto's hottest new villain Is the Mango exploit against the law? Is there a vigilante group out to get Do Kwon? SBF is criticized for his regulatory draft proposal The Texas securities regulators are investigating FTX FTX shareholders at odds with FTT holders? Aptos' controversial launch Have we forgotten how to do a fair launch? How Ethereum's merge put pressure on Bitcoin miners Reuters' Binance investigation Unstoppable domains deprecates over 100k .coin domains Is Bitcoin finally decorrelating from risk assets? 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 Concentuteeasing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Welcome to On the 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. For today's Metrics Minute. The total stable coin market cap is north of $135 billion. It's certainly fallen in 2022. Tether is the dominant player on centralized exchanges, while USDC is the main collateral type.

on decentralized exchanges and defy in general. Because of its popular name defy die has a higher velocity than all other stable coins. Tether's supply has stabilized around 67 billion after 18 billion in redemptions. Meanwhile, the supply of USCC has fallen from its high of 48 billion, early this year to around 40 billion. There's actually interesting reasons why that's the case. I think we talked about it on here before. my hypothesis is that USDC holders are more onshore, and hence they can more easily cycle those USDC back into dollars and put them in treasuries, things like that, take advantage of the yield, whereas USDT holders probably can't do that.

Anyway, that's your metrics minute. This episode is also brought to you by Talos. If you don't know who Talos is and you're trading in the crypto asset space, you need to find out. TALOS powers institutional access to all digital assets. So if you're on the buy side, the sell side, if you're in Tradfai or CryptoNative, you can use the TALOS platform to enable end-to-end digital asset trading. So you can do that on the GUI. You can also do that through API.

And it will allow you to connect to prime brokers, lenders, investors, custodians, exchanges, OTC desks. Everyone is on TALOS. They have the best leadership team in the biz. And that's why some of the largest names in crypto are placing trades through TALO. head over to tallos.com to learn more always good i kind of kind of botched that a little bit i just riff on these tell i'll fix it in post i'll fix it in fix it in post i stumbled a little bit there but it's okay they would the listeners will never know that it's the beauty of editing um well it's a busy busy week kind of and actually i guess let's just start with the um the bad boys are back let's cue the music

roll it All right you're going to do, what you're going to do when they come for you. Bad boys, bad boys. What you're going to do? What you're going to do when they come for you? All right. So long awaited, you know, we get some updates here. So it seems like the Three Arrow's Manhunt is intensifying here.

There was a report this week that both the SEC and the CFTC are investigating three arrows capital and they're widespread many frauds. Alleged. Alleged. frauds? Well, I think we first have firsthand knowledge that it's a fraud. So I don't know if you can. Do you think they'll find anything? What if they look into it? They're like, oh, yeah, no, this is, this is fine. Oh, lying on statements, totally legit. You know, just overtly telling people you're a prop trap while you're raising LP dollars, totally legit. Just soliciting U.S. investors when you're

unregulated, totally legit. Stealing, you know, billions of dollars. Totally. Totally legit. In any event, this will be a career case for whoever gets the ability to hunt them down from either the CFTC or the SEC. You probably have to battle if you're one of these agencies for who wants to, like who wants the case, right? Shouldn't it be DOJ though? I mean, it seems like you would expect the criminal arm to go after it immediately. Yeah. Yeah, I would be shocked if it's not DOJ. I think it would be, you know, you could see, but you can see this from a lot of different. lenses. I'm sure they broke securities laws. I'm sure they broke commodities laws. I'm sure they broke criminal laws. So, you know, there's not much they didn't do. So that'll be an interesting one to keep an eye on. The other interesting tangentially related the Riaro's news was in this

Voyager filing. Did you see, did you read this 170 page bankruptcy filing out of the state of New York this week? I did not read it. I was busy. What's in it? It seems like you read it, though. There's some crazy stuff in this Voyager bankruptcy filing. So I did not know much, but I mean, I was aware of Voyager while they were growing, but that was a very poorly run business is to say the least. Not shocked. I'm not shocked by that. That was an absolute clown car of a management team up there. So just some snippets here. So one is kind of crazy here. So on December 31st, 2021, Voyager held $5.88 billion worth of crypto assets on their platform. At the time, they had $2.7 billion loaned out to various counterparties on the lending program. The largest

individual counterparty was Alameda research, quote, a crypto hedge fund founded by FTX CEO Sam Bankman Fried, which had borrowed approximately $1.6 billion and represented 61% of Voyager's loan book. These loans were made largely on an unsecured basis in exchange for market-based returns that in Voyager's judgment corresponded with acceptable risk. They had $5.8 billion in crypto on their platform, and they had 61% of those loaned out uncollateralized to Alameda. WTF is that. That is an absolute joke. I mean, Alameda wasn't just barring from them either.

They were barring all over the place. Alameda, I think, must be the largest borrower in the whole ecosystem, probably still are. I mean, they were a huge borrower on block five, blockchain.com, Genesis. You know, they're huge. And so, you know, I'm not making a, who knows how Alameda operates on the inside. I have no reason to believe that's, you know, not a good counterparty, but to have that percentage of your loan book on loan with no collateral to all to one counterparty is just insane if your voyage right.

Yeah, it just blows on the mind how now that we're looking under the hood of all of these lenders and just the absolute cobwebs we're finding inside. It's a complete joke. So the interesting thing is that on December 31st, 2021, 3A. was not a borrower. There's a few more interesting things here. So in February of 2022, the Voyager team started talking to three arrows and starting to do some diligence. So they had a call with Kyle Davies and this other guy, last name is Lowe, at Three Arrows.

During the call, Voyager team asked questions about Three AC's business model and financial position, and they ascertain from Mr. Davies that, number one, three AC managed only its founder's assets, wrong. Number two, was involved in limited higher risk venture capital projects, wrong, and that these involved modest sums. Number three, that they were largely engaged in arbitrage trading, and they were Delta neutral. Completely inaccurate. Number four, they had limits on their own borrowing up to 1x nav. Completely wrong.

Number five, they did not have any positions larger than 1 to 3% of the circulating supply of any alt coin. That's also wrong. So five just completely, you know, fraudulent representations there. So in response to request for greater financial transparency, Mr. Davies explained that three arrows only provided summary now statements to its lenders and it needed to treat all lenders with the same regard. When pressed, Mr. Davies and Lowe explained that 3AC had previously had a bad experience with the counterparty who'd been given detailed financial information about 3AC. According to 3AC, the counterparty had mimicked its trading strategy based on the holdings of information disclosed in those documents to 3AC's detriment. given its commercial sensitivity 3A could only provide the net total asset amount. And that's when they just provided those one sentence, Kyle Davies,

hey, I have a zillion dollars in a bank. A question here is, who in their right mind would have been trying to mimic what these guys' trading strategy was? They weren't Delta Neutral. These guys were going Yolo Long, GBTC trade and Luna. It's like, who in their right mind would underwrite this thing? It must have been really convincing when he said that. Like, yeah, we lost money one time because we provided more detailed diligence information to our lenders.

So, you know, we just can't tell you anything. Is there a follow-up question there? If you're Voyager, it's like, which lender is trying to do these type of trades? What are you talking about? This is not, that's not an actual response. So I'm sure that there's going to be some subpoenas flying to these people at Voyager that were taking these calls because it's materially misrepresenting the 3AC position. The kind of last thing here that's interesting is on, it says on June 13, 2022, this is like right when things started to melt down. Someone from Voyager held a Zoom conference with Mr. Lowe, who's the 3AC associate.

Mr. Lowe informed him that 3A had no exposure to Celsius. But on the next day, the 14th, Mr. Lowe sent a text message to this Voyager person asking for a call ASAP after Voyager had already done a press release that day. the Voyager person called Mr. Lowe, who advised him that Voyager should recall all their loans to 3AC because he was concerned that the founders of 3AC were not responding to request for information for Mr. Lowe and other employees. So, you know, this guy, Mr. Lowe here seems to be the one with a conscience over at 3AC. And my guess is that he started to see that this whole thing was a Fugazi mess and actually tried to tip off Voyager and save them a bit. it didn't work, but this will be the first guy that the authorities reach out to and try to figure out what the hell happened here and when this thing tipped into a huge Ponzi. Even though it's only been a few months, doesn't this all seem like a distant memory?

Yeah, it feels like it was years ago. The May to June events, especially because we've been trading sideways for, I think it just came out today that Bitcoin is less volatile than the S&P 500 over the last month. So it all seemed so long ago, even though we're literally talking about June of this year. You know, this is going to have wide-ranging effects for years to come on the crypto space, just a total black eye, this three-arros situation, this Luna situation. But even the little stuff, like D&O insurance is going to be impossible for crypto startups to get coming out of this. Because look at the exposure on something like Voyager.

You had management team approving these just absolutely insane loans. at crazy LTVs. So I don't know, we'll be feeling the byproduct for years and years to come. Yeah, the other interesting thing, kind of related to that is a lot of, there was a piece in the news recently about how crypto investment firms

are not taking board seats for a lot of these protocols and tokens. I did notice that. I think that that is directly related to DNO insurance. Tokenized projects, it makes it a lot harder to get D&O insurance. if you're a fund. I guess they'll probably come a time where people realize the boards matter, though,

and they do have a purpose. So governing, governing corporate bodies, yeah. You know, like solving principal agent problems. So I don't know if voting with their tokens is really a substitute for a board role. I don't think so. So that was the three AC bad boys. We had to get that out of the way early because it was just burning a. But there have been a number of other bad boys.

There's some new challengers for the title of Crypto Bad Boy. I mean, my vote goes to Abraham Eisenberg, which you thought this wasn't a real person. Off camera guys. There's no way. There's no way that's real. I was asking me like, okay, well, so what's that a pseudonym for? Like, what's his real name? I'm like, no, that's just, that's his name.

that's his government name i'm surprised that he's like taking down defy protocols using his government name this guy so look i'm i'm a new follower of this man um his bio is applied game theorist um he apparently exploited uh mango markets i think we can say that because he made a whole thread where he admitted to it he gave some of the money back i don't think all of it I mean, it was a big exploit. It was like, what, a nine-figure exploit? And I guess Mango voted to decree him a white hat and give him a bounty or something like that. But yeah, he wrote this whole thread where he said,

I was involved with a team that operated a highly profitable trading strategy last week. Yeah, I mean, yeah, he's going to make the code his law argument. I mean, this is going to be. That's just. old-fashioned market manipulation. How many times the lawyers need to tweet, code is not law, law is law? I mean, it's just it doesn't matter

if someone once said some overzealous crypt enthusiast once said code is law. It just isn't law. If you do something that's permissible in code that's against the law, it's still against the law. It doesn't matter that the code permitted it. Yeah, code is code, really.

Code's code. So he was then, now Abraham has been I'm kind of obsessed with a tweet this tweet so I'm not going to lie he had this recent one where he first of all he's posting markets where there's

markets I guess on some prediction market site called manifold with market titles like will he spend six months in jail before on the end of 2030 he appears to be trading on markets pertaining to himself which is kind of interesting I don't know if that

should you be allowed to trade on markets about events happening to you. He's also now releasing apparent attacks on AVE. He's not attacking Avae. He just tweeted about a hypothetical attack on Aveh. This is just like a new villain, basically, in crypto. What is the dollar amount here that he actually got out of this? It's like about $50 million, I think, that he actually kept? Or they voted to give him? I mean, it's a significant him out. This is an incredible heist for this guy. And he just kind of fessed up to it. Yeah. So I guess he repaid eight million worth of tokens. The mango community voted to let him keep 47 million while returning the other 67 million. That sort of appears to be the plan. Yeah,

he's betting on whether or not he will be charged with a crime by the end of 2023. just breathtaking kind of gumption, I guess. This is obviously unethical. I think it's going to be a really interesting case, though. If you tried to go after him on the grounds of like a market manipulation, I think he'd be falling back on like, what is the definition of these assets? And it's not clear that the CFTC oversees like the defy space.

In fact, no one does at the moment. So I just think this will be a, maybe someone will go after him on this from a regulatory perspective, but it's not a slam dunk in my opinion. I think it is, but I don't think anyone will because he came to an agreement with them. It's like you, kind of like you steal someone's wallet and you're like, all right, well, actually, what if I give you half of the money back and you agree to say that it was a bug bounty?

So that's what happened. I don't know. You like, you corner the nickel market and you do something that manipulates that market. I think you're going to have a problem. Did they try and give the money back? No. Did the Hunt brothers go to everyone. that held silver and offer them their money back?

No. So at this case, it's all good because he came to some deal with the Mango community. I don't know if it's all good, but hey, Abraham, stay away from us. So we're going to be following his career closely. New third bad boy of the week, a certain Doquan. So there are updates there. We have to mention it because we dived right into it. Do Kwan

Yeah, I mean Do Kwan He can't tell the truth That guy Yeah, so he did A whole podcast of Laura Shin Where he just lied

Through his teeth The entire time I'm not going to Numerate it But it's just I'm amazed That he's still doing podcasts

It's like Do your industry reputation is shattered You're not going to fix it By appearing on podcasts You're on the run From the authorities

You don't need to work on your shattered reputation. Turn yourself in, bro. Why is he doing this? What's the point? Does he think that the governments of the world are just going to forget? That was the cringiest podcast interview I've listened to in quite a long time.

Every single thing that Larishin asked him, he seemed to be lying about. Yeah, so he's denying really all wrongdoing. He says he's not on the run. He says that there isn't a red notice out for him, that he hasn't heard anything about. that. But of course he's in hiding. So now there's apparently like vigilante groups that are trying to find him. Have you seen this? Yeah. So this is this is not I mean this is not great. So there's a group called the UST restitution group, which is an association of 4,400 crypto investors that are pooling together funds to try to track down Doquan. And it looks like, so there's a quote here

from the guy who runs it, his last name's Kang. I want to recruit other people to join the search, said Kang. There's a 50-50 chance of getting him in Dubai. So they're on the way to Dubai, this bounty hunting crew, to try to get Doquan, which is like, that's pretty dangerous stuff. You can't condone that, but you can say, look, if you're in Dubai, there's two other guys, you know, take a look for the, take a look for two other guys over there.

I mean, look, it's the press that's calling them a vigilante group we don't know what they intend to do their vigilantes if they intend to like you know summarily execute him but we don't know that it could be benign they may just want to find what are they going to turn him upside down and hope a bunch of Luna falls out what are you going to do with the guy he's not like you turn him in you turn him into the authorities I don't know I mean why don't you let the authorities handle that they are not handling it they're clearly not handling it he appears to be apparently in Dubai it's like go over there you know You know, you're going to find the three arrows boys.

But like, what are you going to do when you find them? You're going to unwind the GBT trade? It's like, what's done is done. Yeah, I mean, I think it's fine to pull resources to locate the guy. There's a difference between that and sending a death squad after him. I don't haven't seen any evidence that that's occurring. I mean, if you really want to find this guy, you put out a white paper for a no collateral stable coin, he'll show up.

He'll engage. Tell him we're having a D-Gen meetup to talk about basis cash too. The guy will be there. But the weird thing that I understand is there's an article in the FT saying this guy, King, Heung-Suk, is going to Dubai where he believes Doquan is hiding. And he says in the article, quote, finding him can be easier than I thought. But why would you warn him ahead of time if you thought you knew where he was? It's not the most sophisticated bounty hunt.

situation I've ever seen him. It's not dog the bounty hunt. It's it's a much less sophisticated bounty hunt. So yeah, I mean this interpol thing I thought they were sort of a formidable organization. They don't really seem to have their act together to be honest. I've never been to Dubai. It doesn't sound like a great place. You just have these rogue people hanging around there. Like is this just where criminals go to get away? Yeah, what if the UST restitution group finds the Sioux boys instead. Is that... Yeah, they're gonna find...

They might find those guys. There's a chance. I mean... Is that an acceptable substitute? Has the U.S. government considered going down the top 10 fugitive list and just going to Dubai and seeing who's there? Seems like that's where everyone goes.

I mean, the problem with going to Dubai is then as a fugitive, you have to live in Dubai, which is a soulless place. Like air conditioning. I mean, you should be fine. I just, it doesn't feel like very cultural. I feel like there was not a lot of enrichment there. It's definitely, definitely better than Leavenworth.

So what was their quote, I can't find it in an interview with Laura Shen, where Doquan said this has taken years off of my life in terms of stress. Yeah, it's like, oh, sorry, yeah. Dude, you know what takes years off your life? Federal prison, Doe. Come on. Oh, my gosh.

Unbelievable. Well, it was a busy podcast week. So you had Blake King on again. is his second appearance on the pod, talked about mining. And then you went on the scoop with Frank Chaparra, the Box podcast, which I'm a regular listener of. So that was a good appearance. Yeah, I'd never done an episode with Frank Chaparro ever,

even though we've known him for five years. Am I crazy? You did bring up how he got the scoop on us leaving Fidelity before we were actually out the door. Yeah. We got off to a bad start with Frank on that one. that was a blip in our relationship, but we're pals now. So yeah, that was our very, that was all the introduction. We haven't even started the podcast. Well, deals are still happening in the space. It's, uh, Jerome Powell might be trying to nuke the economy, but the early stage crypto deals are

alive and well. That's true. First one up is Celestia. This is a new modular blockchain platform. They raised 55 million from Bain Capital crypto, polychain, and a number of others. Then we have Web3 builders, a crypto cybersecurity startup. They raised $7 million from Road Capital, OpenC, and G20. Next one up is our friends over at BlockTower. They have raised $150 million for a new crypto-focused venture fund. Congrats to the BlockTower team. Fellow Miami Fund. Shout out Block Tower. Next up we have Shardium, which is a layer one blockchain. Because, you know, we just didn't have enough layer one blockchains. The world needs more. There's a correct number of L1 blockchains and that number is in the thousands.

So just multi-chains, let's go. You know, we'll get there. We'll get there. Devere is 18.2 million at a one hundred ninety-nine, a modest $199 million dollar valuation from Spartan group, Big Brain Holdings and Jane Street. I kind of like that holding it below 200 million. You know, we're going to be 199. I kind of like that.

Next one up is chain safe. This is a Web 3 infrastructure company. They raised 18.7 million from Round 13, NGC, Hachkey, Fermion, and others. And next up, we have Yolo Yolo. Is that, are we being trolled by our intern again? That's not a thing, is it? Tell me that's not a real name. All right.

The name of the business is Yolo. What? This is what we get for not writing our own newsletter, Matt. I mean, he might have been drinking last night. No, this is a real one. Well, maybe unless someone's tricked coin desk, that is the real name. Yolo Yolo. That's a name.

That's not a good one, but it's a name. And, okay, here's an additional twist in the story. One of the investors in this round is also called Yolo investments. No relation. No way. No relation. Really? Just a coincidence.

All right. Well, congrats. I'm looking forward to, you know, you only live once times two. Yeah, you only lives once twice. So they are a Web3 fashion and lifestyle platform. There is three and a half million from Parify, Avalanche Ventures, GenBlock Capital, and YOLO investments. YOLO investments.

This is great. Oh, man. What a name? So, next. What's the premise of you? I just, look, we got to talk about it a little bit more because the name's so crazy. The premise is that, oh, that's interesting. People spend a lot of money on the ape NFTs, quote.

And during this winter, prices drop a lot. We're trying to help them generate revenue from merchandise. Hey, you know what? I like it. I like it, actually. And they were successful, and they got us to talk about their company for several minutes on this podcast. So I guess the idea is to, hmm, so they have partnerships with the charging. like the iPhone charging brand Anchor, the Frisbee Maker, Europa, and the cooler brand Yeti.

So I guess they're making NFT merch. Not bad. I actually like that a lot. I like that. I had a meeting today with my meeting counterpart, had a mutant ape iPhone cover. Oh, really? Yeah. So there's like, NFT merch is a big, like there's demand.

physicalizing NFTs? Physicalizing NFTs is a huge market, an unbelievably large market. And we're about to see a lot of startups in that space. I'm more interested in the integrated merch, which has an actual chip in it that links to the NFT, as opposed to just merch that has the image of the NFTs on it, though. Well, what if you, instead of a chip, it's an invisible barcode made of diamond dust. That sounds promising. Someone should do that.

Tease that a little bit. Oh, yeah. If you get invisible barcode on your thing, there's a lot of cool stuff going on there. All right. Next one up is Fabric Systems. This is a Bitcoin mining hardware company. Those are, those still exist. They raise 13 million from TerraWolf, Metaplanet, and blockchain.com.

Wow. That's remarkable. I didn't know. People were still starting Bitcoin mining. companies like hardware manufacturing i think there's going to be a lot of bitcoin like mining paperweights that's what they are really so i have one behind me we don't do a video version of this podcast but i think this is like an s4 or something yeah a lot of these bitcoin mining units are or paper that's not profitable at today's hash price that's for sure um ego death capital strange name for a fund i'll admit

That is a Bitcoin focused venture firm. They are raising a $30 million fund, which they're in the process of doing. Next one is Mercury. This is a fan experience company in the NFT space. They raise $7.5 million from multi-coin North Island Ventures, Crosslink, and Brevin Howard. And lastly, we have Edge Capital, a defy hedge fund. They raised $66.8 million across two funds. So I guess it was a little bit of a light news week other than the Three Arrow stuff.

SBF got a bunch of criticism for his takes this week on the regulatory landscape. You want to talk about that? Yeah, I mean, look, crypto Twitter comes for us all. It doesn't matter how well-loved you are. It doesn't matter how many beanbags you take naps in and how many times you appear in Congress with your shoes untied. Crypto Twitter will turn on you. I know is SBF's turn this week?

Probably the first time I think I've seen sentiment turn against Sam and FTX in a real way. So I guess the cliff notes is he put forward some regulatory suggestions, a framework, so to speak, which the act of doing that I'm quite supportive of. I think we need to see more of the industry just coming out and saying, here's how we ought to be thinking about the regulatory landscape. I guess the bulk of the criticism was this perception that he's closing the door on defy and wants to do things that benefit FTX at the expense of decentralized finance. Am I getting that right? Yeah. So they put out something entitled Possible Digital Asset Industry Standards, which is basically a draft. So really work in progress.

And yeah, people didn't like it. So he suggested that most DFI projects should not just be treated as mere software, but as the similar as the counterparts or crypto versions of these little. legacy entities like broker-dealer's FCMs, and that probably KYC should be involved. So, you know, that's, I would say, a minority view within the crypto space that D5 platforms, which are basically, you know, in most cases pretty autonomous, smart contracts, should be subject to a lot of the same requirements that the heavily regulated legacy marketplaces are. People don't like that. A lot of people were really upset about his,

the part of their suggestions on stable coins. He was sort of endorsed fiat back stable coins. And then really kind of omitted any sort of crypto backed ones, which I would say that's sort of in line with the sort of predominant view in Washington. He talked about incorporating OFAC blacklists into virtually all sort of all crypto transactions, which was another thing people really didn't like. There was actually, you know, some creative stuff in here, especially about recourse from hacks and then sort of disclosure standards. He said, of course, you know, FTX always considers the how we test. and they do a Howie analysis for every security they list, which I guess we have to take them with their word, but I also have a hard time believing that because if that were true, they just wouldn't list as many things as they do.

I think it was good and bad in here. I think basically crypto-Twitter realized that Sam's interests sometimes diverge from the interests of the sort of industry large. I mean, they must. It's a heterogeneous industry. but yeah, I mean, this was a pro-regulatory document. And Sam's argument was, well, if we, the industry don't come to the table and advocate for ourselves, we're going to get a much worse outcome. So you better propose something. And, yeah, his set of proposals were probably more pro-regulatory than maybe your average crypto-ernercist.

Yeah, I think that's a fair treatment. There's other FTX news this week in the regulatory front. So the state of Texas is looking into FTX around unregistered securities. So it looks like FTX US had the ability to lend on the platform going through FTX, it sounded like. And so the interest-bearing nature of that, you know, that looks like what BlockFi dealt with. And so the state of Texas is investigating. and we all know what happens with these state AGs. Once one grabs on, they all see the money and they hop on.

So this will inevitably turn into 35 states by, you know, this time next month is my guess. Yeah, it's like with cockroaches or something. There's never just one, right? Look, I didn't mean to compare the state to 20 journals to insects, but they travel in flocks. Once there's one, they all follow us. suit. We've seen this. I mean, FTX, man, these guys are making some serious, like, waves here. So,

they've got this Texas thing going on. They've got the CFTC direct to retail idea that they're trying to get through. The CME in response to that applied for an FCM to go direct as well. So they're shaking up that market. They've got this offshore

thing with this FTT token. They also own Alameda. I mean, this thing is moving in a zillion different directions. What are you willing to bet that the price of acceptability in Washington is deprecating the FTT token. So here's my question about the FTT token. Like, what is it? $7 billion in network value?

Can you deprecate it? I mean, you certainly can't if you have to. Well, let's just say theoretically that Alameda takes out or has taken out U.S. dollar loans against FTT collateral or something like that. and all of a sudden FTT is worthless. Or there's some like regulatory action against FTT

that's an unregistered security and it tanks. Does that have a huge impact on Alameda? Does that impact their ability to operate? And then Alameda is a huge market maker on FTC. I don't know. This thing is so intertwined it feels like. It would be a really bad outcome, I think, if FTT had to go away.

So it's $3 billion roughly current supply and yeah, $7.8 billion fully diluted. The thing is, it's like FTT is, you know, more security-like, I would say, than most crypto tokens. I mean, it's a rev share token. Sam periodically posted a tweet where he shows how much FTT the exchange is buying based on the rev share, buy and burn mechanic. I don't know. I think it's a prime candidate for the shareholders in FTT. FTCX slash Alameda to eventually raise eyebrows at why there is a continual outflow of funds

that's not going back into the company's retained earnings or anything. It's just being siphoned off to token holders, a global token holder base. They don't even know who they are to an uncertain end. Who's on the FTX board? I mean, they don't have none of those investors in the various venture rounds actually join the board. So I don't even know what the board is to do something like that. I don't know that that's even possible, to be honest with you. I think there's going to be a lot of these token versus shareholders conflicts,

and the shareholder is going to wonder why there's a parallel cap table that's a dead cap table in that it's not providing any value, right? Yeah. And it's just siphoning out revenue from the company. And in that case, it's the shareholders that win, I think. I think that's probably right. I mean, another thing that's just so glaring, getting off of the FTX thing for a second,

is some of these token unlocks that are happening right now in terms of early investors rolling off vesting schedules, we just have no visibility into that as an industry. And so AXI Infinity apparently has a big unlock coming up, Coin Desk or an article about it, but nowhere can you go and find Ryan Edgar-style report on, and I know Masari is like heading in this direction. I think that would be great if they can get this.

level of disclosure from some of these projects. But you ought to be able to find out that Andresen is rolling off X many tokens on this day at this block height. And you just can't get any of that stuff. Yeah. And when when people talk about disclosure, that's what it means. And the problem is that no one wants to disclose that stuff. Because if a project were to disclose, hey, our vesting for our seed investors was 24 months and it ends tomorrow. You know, presumably that would have adverse effects. And generally speaking, like, there's a degree of the desire to conceal the vesting and the entry points for the seed and early investors from the sort of general public that are buying these things. So that's kind of the price of, you know, respectability is being able to disclose these things.

But I think there's a real resistance in the industry to do that. It's going to make the industry a lot larger if you actually get some of these disclosures because then you'll actually have pools of capital that feel comfortable opening up and letting people invest in cryptocurrency projects. Right now, it's largely a venture game. Yeah, and it feels like a rigged game if you're not active on the sort of pre-seed stage. And, you know, I think the Aptus launch this week was a good example that we actually forgot to put that in our newsletter for some reason.

We got to put that in the newsletter. Yeah, I mean, you know, heavily, heavily criticized for their launch, which is par for the course for any project which launches into the middle of a brutal bear market. But there was no community distribution. See, most of the coins were just allocated to, you know, the foundation, the firm, the team, the backers with no real. drop mechanic or anything. It's kind of funny. I saw a tweet like, hey, um, you know,

is there a better way to launch and like, how does a proof of stake token launch to the public? Like, we haven't figured that out yet. And I was just thinking to myself, like, Satoshi solved this in 2008. How to do a fair launch is you let people trade a valuable, good electricity for the token. and it's effectively a continuous auction. And now in 2022, it seems that we've forgotten how to do these kinds of launches. Well, I think the best launch is like you scan and you get this big machine and you scan a bunch of eyeballs. Yeah, that's also one way. And, uh, or what's the proof of stake in time or whatever, the Shia one?

That, that was a doubt. Proof of E waste is what she is. But, you know, it's just remarkable that, We all knew how to do a fair launch of a new monetary good, but we have for some reason collectively forgotten that or chosen to forget that. And now you have these launches like Optus, which are, you know, almost the entire supply, basically the whole supply is just arbitrarily granted to various protocol elites. I mean, it's just all, and I'm sure they'll, you know, give some of the quote unquote community,

but it's all just very, it's completely arbitrary. and it's like yeah and it's a it's a function of not having a safe harbor i mean if there's a if there's a different way to get tokens um sold into retail i think they would have got proof of work is a way to do it i refuse to accept like the idea that there's no way to do it proof work is the way to do it if you know if you find proof of work distaste will find but you know do a gp uxed launch and do what eath did uh you know a short-term proof of work launch and then move away from it. I think that would be an interesting model to do a GPU launch.

Yeah. Got to get those gamers angry at the industry again. They should be placated. What people don't know is there's been a GPU apocalypse with all these farms selling their gear. Actually, another interesting point is people are wondering why the Bitcoin hash rate skyrocketed recently, even though the hash prices at all-time lows. It's because a lot of these Ethereum mining farms sold the GPUs.

got in cheap ASICs that were sitting on the sidelines and just began mining Bitcoin as a way to monetize their PPAs and their infrastructure, which already existed. Is that what you think? You don't think China turned back on some production? Conjunction of things. I think also some of the Chinese miners are back online. Also, it's a little bit cooler in places like Texas. So you can get higher up times for the miners that are there. But yeah, the big leg up, I think, was definitely related to, eth miners repurposing some of their facilities. Yeah, that's interesting.

It's, yeah, 12% increase. You know, that's going to kill these marginal Bitcoin miners that are just struggling right now, huge debt loads, not mining profitably. Then you compound it with a 12% increase in difficulty. That's tough. Yeah, some of the minor, the public miners are weeks away from bankruptcy right now. I think some of the mining lending companies are probably weeks away from bankruptcy. too. Yeah, I would say of all the challenged sectors in the crypto space, that's the most

challenged. And it's kind of wild that the merge happened and just twisted the knife because that will be the final thing, which puts some of these miners out of business completely. It's a tough game. Did you read this big article about Binance from Reuters? Someone over at Reuters really is sticking it to Binance and they get a ton of information. There must be an internal leak of some sort disgruntled former employee. Yeah, there must be. This is well-orchestrated and super-long article with a lot of research. And CZ put out a retort to this as well.

Basically, I mean, there's not a ton of unique things in this article. It just talks about their ongoing back and forth with regulatory bodies in the U.S., the U.S., the U.K., how they bounce around. Yeah, it's, I mean, positioned as a special investigation from Reuters. Headline is how Binance CEO Nades plotted to dodge regulators in U.S. and UK. I mean, it's not a secret that Binance has been basically doing this from day one, is being as nimble as they can and trying to avoid regulation as much as possible. Certainly not a secret, but yeah, hell of a treatment from Reuters. In other news, personnel moves, by the way, this is just,

spend the year of personnel moves. Unbelievable. I just saw as we're taping this, the head of risk at Genesis just resigned. And he'd only been in the role for three months. Yeah, you don't see that a lot. J.P. Morgan has appointed a former Celsius executive as a crypto regulatory policy head. I am sure this is a great guy, but it's going to be tough to have these headlines as you know, former Celsius executive following you around. I think I'd probably try to tick that off my resume. One interesting piece of news this week

was this is actually, we did a podcast with them back in the day. Unstoppable domains deprecated the dot coin domains, which was over 100,000 domains on their platform. So,

hold on. So these guys are just selling like dot coin and they didn't have they didn't have the ability to sell it they were just selling yeah they didn't have the right to sell dot coin so not that they sort of were cavalier about it they just weren't aware that there was a collision and that i guess another company had already bought the rights to dot coin it feels like you should be able to google that and find out if anyone owns it before you start selling it doesn't it yeah so apparently emmercoin registered dot coin in 2014 and was the rightful proprietor of dot coin. Unstoppable domains then sold

116,000 dot coin domains turn them off. So you still own the NFT as the holder. You just can't do anything with it. Emmer coin. Man, what is that? Yeah. So the, this would be the part where you make a joke about stopable domains, but we won't stoop that low. Well, I don't know. I guess good for them for stopping because that ends up being a disaster. If you're trying to receive money at a particular domain, I mean, that's like having the wrong routing details on a checking account or something like that. Yeah, it's a mess. The thing is, it's not a really great outcome for the holders. they're giving them three times back their store credit. So for what they paid initially.

Better than nothing. Yeah, you get an unstoppable domain store credit back. So busy, yeah, busy on the macro front as well. Liz Trust has gone. That was quick. Yeah, she's out. Bank of England's probably printing again. We're doing swap lines with Switzerland here.

B.O.J printing. Europe is in free fall. You know you want to do it, Jerome. German's industrial sector has vanished. Pivot gets closer. Pivot gets over closer. I think they need to pause or pivot here. Could be, could get exciting.

Could get exciting. Yeah, Bitcoin's been range bound. Bitcoin is just hanging in like an absolute champ at 19K here in the face of just a worst ever macroeconomic backdrop for it. The NASDAQ is at levels that. The last time the NASDAQ was at these levels, Bitcoin was like $8,000. Yeah, actually, you know, there's a bit of a decorrelation, dare I say. Now, I'm a little nervous to say it because last time Bitcoin was lost all volatility,

it was totally range bound after a big drawdown. That's when it was in the $6,000 range. And then it puked down to $3,000 of the final capitulation, remember? Oh, yeah. I mean, and to be clear, there's other bad stuff that could happen in this market. So if we puke, I'm not going to be shocked. This does feel like that, but at the same time, impressive resilience in the face of a very bad macro situation. And a lot of people still billing stuff too. So it doesn't seem like there's any shortage of infrastructure companies that are about to be on the scene with custody and trading and stuff like that.

So all feels pretty good, except for the Bitcoin mining space and except for some of the lenders. Yeah, and keep an eye on those Bitcoin miners because they still. have a lot of coins. Those coins are getting good. They don't have to sell. We keep going like this. I think those coins will be puked. They'll find their way onto the market. So just stand ready to buy them. Just get those, get those orders ready. Talos.com. That's right. That was a freebie. Talos.com. Hang those limit orders. Hit all the exchanges at once. So I think that's it for the week. You might have a new owner down there in the D.C. football team, whatever you guys are called these days. Seems like that guy is like, I haven't been following it too closely, but it seems like his time might be coming to an end.

I mean, I would say that I was thinking of putting together a consortium, but I don't really want to own that asset. It's decaying franchise. Well, I think there's some benefit there because it's a historic franchise. It's got a great fan base. They haven't been good for a long time, but they could get a new stadium down there. and that thing could be worth a ton of money. We haven't been good in my entire lifetime. They last won a Super Bowl in 1991 before I was born.

I think I actually have the, or I had the We-Ds box of that 91 season. I don't think I have it anymore. Yeah, I mean, we've been bad for 30 years. It's a tortured fan base, really. It is a large fan base. I mean, the NFC East teams, they get those primetime slots. Well, yeah, you got a couple states there that all root for the same team.

It's like New England where you have multiple states pulling for you. But it's just terribly mismanaged. Not a great stadium. We're going to be real. And now we've been stripped of our identity. Racist, though it may have been. That's all we had. Wow.

Yeah. What do we have now? You can't fight that fight. But you're going to get this guy. This guy's going to get kicked out for all the bad things that he seems to have done. and this consolation price is going to be selling this franchise for like $7 billion or something. So it's a pretty good walk away. Yeah, no, it's worth way more than it should.

But that's the scarcity of NFL teams. They ain't making any more of them. I don't think so. I don't think they are. Meanwhile, we're just sitting up here. We got the best situation going with this Zappi guy. We got an old, old-fashioned QB controversy about to be happening up here. We got this fourth rounder that's just lightened it.

up. Great coaching is what it is. Just terrific coaching. Love a good QB controversy. And the defense is just awesome. The defense is great. So that was your football section. So that's it for the week. All right, everyone, have a safe and healthy weekend. We will see you on Monday.