On The Brink with Castle Island - Weekly Roundup 11/03/23 (SEC v Paypal, WSJ bounty update, SAB121 drama) (EP.469)

Episode Date: November 3, 2023

Matt and Nic return for another week of news and deals. In this episode: What happened to mimblewimble Where Nic's bounty program stands What's the deal with Binance's proof of reserve? The SEC takes down Safemoon Hester Pierce criticizes the SEC's approach to LBRY Did the SEC violate the administrative procedures act by issuing SAB121? The SEC comes from Paypal How will MSTR fare post Bitcoin ETF? Did Do Kwon commit fraud or did he really believe in UST? We would like to buy the FTX tungsten cube Sponsor notes: Coin Metrics STATE OF THE NETWORK — Unpacking the Forces Behind the Market Rally In Coin Metrics State of the Network Issue 231, we focus on both spot and derivatives markets to explore forces driving the recent market rally

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. 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. Today's Metrics Minute is all about Bitcoin. Bitcoin is up 113% year-to-date. Wow. Not a bear market. It's not a bear market.

You know a lot of people reached out to me. They're like, Nick, I heard you said that it's officially a bull market. And I said no. Matt said that. I said that. I'm not responsible for that statement. Yeah. So that's you.

Put your seat belts on. On your conscience bit. So Bitcoin's up a lot this year. We obviously hit 35K. That level hasn't been seen since May 2022. On October 16th, a false ETF report sent Bitcoin 10% higher within minutes. We'll see what happens when we get the real ETF.

Bitcoin's outperforming major assets and indices. like the NASDAQ, S&B 500 and gold, which gained 22, 8, and 9% this year, respectively. As of November 1st, Solana is up 284% this year. Bitcoin's market cap dominance reached 61%. That's the highest since April 2021. ETHBTC has been selling off like crazy, as I'm sure you're aware. Bitcoin spot volumes reached 8.6 billion, while futures volumes are 50%. billion. Bitcoin OI has also increased to 13 billion as of October 25th. Anyway, basically,

things are looking good. That's your metrics minute. Well, it's not just that the price is going up because of this Bitcoin ETF. It's that these governments cannot help themselves. Do you see Bank of Japan, the BOJ came out with liquidity intervention China two weeks ago? Can't be long until the US really ratches it up. These governments can't stop printing money. Yeah. I saw, some funny tweets about Japan, like, so they're going to spend whatever it is, $100 billion to stop inflation? It's like... To get inflation down. It's like, do you think we're stupid?

Someone tweeted, Japan announces that they are going to drop 100 gallons of kerosene to stop a forest fire. Yeah. It's like, how's that work? It's like, what do you think is going to happen? So I don't really understand macro stuff, to be honest with you, but my macro friends, my friends at fall macro, were very excited yesterday. So I'm going to do with the Fed is not going to issue As much long-dated debt and it would be more short-dated Look, I don't know what any of that stuff means

I just know that they like it And if they are happy, I'm happy You know, what we should have done as a country Is that 100-year bond? That would have been the move. Just kick all this stuff down the road Drucken Miller talked about this this week Instead, we reduce the maturity of our debt

And now it's all due So we're going to have to deal with that I mean, is there a scorecard for any of this stuff? I mean, if you were in a corporation and you were the treasurer or the CFO and you're in charge of that decision and you didn't refinance, you'd be fired immediately. And furthermore, let's talk about the SEC. If you were a line operator of a business and you just wasted all of the money of that business on enforcement actions that later got turned over by the court, so basically that we're not constitutional. Would you keep your job? That's what democracy is for, right? Just vote harder next time, Matt. Vote harder next time. I guess. I didn't vote for Gary Gensler.

He didn't run for office. And he might be running for office in Maryland for the Senate seat, for all we know. But I never had the chance to vote for that guy. Well, yeah, more to come on the SEC and their strange attitude to enforcement actions later in this episode. There's an interesting one. Very interesting. Well, we're doing this podcast across the pond. I am in Switzerland. I've been just on an expedition, just meeting with local founders and allocators and all sorts of blockchain people in different jurisdictions the past few months. What brings you to Switzerland? I'm over here for the L1 Digital Summit. Really great event. L1D has really turned it on the past few years. They just actually hired a few. PhD cryptographers. So I was up very late last night talking, you would have love this.

We were talking about mimble, Wimble. We were talking about confidential transactions, some of the old Bitcoin Talk Forum stuff, some of the G Maxwell stuff went really, I could have, I could have stayed up all night last night talking about privacy. It was great. Yeah, good old Mimble Wimble, man. You know, I really believed in that once upon a time. That was such an interesting project. I actually thought that the Grin wallet itself was kind of, kind of cool. It had like that opt-in handshake thing. It was the worst wallet software I've ever dealt with in my life. Yeah, but there are no, I mean, well, that's because it just kind of stopped connecting to the blockchain, which is another thing.

Well, no, because making a transaction was like impossibly difficult. It's like a many-step process to make a transaction. It was. I mean, it wasn't worse than Monero. Manero was also tough. In hindsight, I'm not that shocked that Grin didn't make it because it, you UX really was quite challenging. But I thought there was something there that could have been built upon. It was just that the community kind of gave up on the project. I used to really believe in privacy coins.

I was a privacy coin guy. You were. You actually, when I first met you, you were a Monaro maximalist. I was obsessed. Yeah, I thought Bitcoin was garbage because it was all about Monaro. Yeah, this was way back in the day. Yeah. Minero is a, you know, that was quite a project.

Christmas, 2017. was it Christmas for 2017 we got the sweaters Yeah you got a Manera sweater yeah I wore a Manera sweater Yeah you did yeah I think I just did with BTC I think there was a light coin sweater There was a light coin and an Ethereum sweater Yeah

simpler days back then But I will say all of this travel Is part of the reason I'm so bold up I mean there is so much building happening right now It's crazy in different pockets of the industry I sat in on some sessions today Talked to a number of entrepreneurs building in the decentralized science space. Do you up to speed on this?

D-SI? I mean, I like the Vita Dow. I think that one's interesting. We talked about that. We talked about molecule was here. They were super interesting. There is so much energy here. Seth from Groma did a really good presentation.

Tons of energy. Everyone's kind of wondering what's going on in the U.S. And the only thing I could say is we'll figure it out eventually. Yeah, I don't know what to tell you. nothing good. No, there is good stuff. I'm actually on the other side of it now. I think the fact that you have a court system in the United States is actually a great feature.

The courts are really doing right by us. I love the judiciary. That part of the government is great. Yeah. Yeah, we like them. Well, it was an incredibly busy podcast week. So I went out for a walk this morning. I listened to you on the chopping block.

I actually listened to the chopping block every week. I thought that was good at the time. Yeah. Yeah. We recorded that very late. I think we recorded at 11 p.m. That's why I sounded a little discombobulated. So you went deep on the Wall Street Journal report.

Actually, I guess let's just talk about that. So the Wall Street, why don't you tee up kind of the bounty program and where that stands? Well, did we talk about it last week? I don't know if we've fully talked about the bounties. Well, I have updates on that anyway. So initially I wanted to do 15,000 in bounties. So $21, $500 bounties, right? Now it's $50,000.

So this thing is spiraled out of control. I've already paid out 30 bounties. Some great submissions. I'm so impressed. I remember back in 2018, there were like half a dozen guys doing chain analysis stuff. And now there's tens of thousands of people that are adept at using using.

using, you know, most of the bounties I'm seeing people are using Arkham and Flipside, Big query. So, yeah, a lot of Flipside usage, actually. Yeah, FlipSides, actually, I think they had eight of their top 10 dashboards right now are relative to your bounty. Yeah, so there's a few parallel bounties going on, which is complicated. So Arkham has their own parallel one on their own platform. but overall there's over $50,000 worth of bounties available, which is crazy. I've received over 100 submissions.

I mean, it's so much. And we're actually converging on some sort of sense of truth, which is really cool. So we're kind of getting to the bottom of it, not completely. Like if you wanted to ask me specifically how much in Tether or crypto generally did Hamas raise, I can't tell you the exact number because of the wallet clusters released by the Israeli intelligence. We don't know specifically which ones are Hamas. Well, we have basically demonstrated, and if you look at the bounties that I've paid out, you look on my Twitter, you'll see I've been announcing them.

We have demonstrated that the elliptic numbers were too high, just naively based on their aggregation methodology. So that we kind of know for sure. So I have written everything. up in a report. I did a little report and just summarizing where we are, what all the chain analysis companies had to say about it, what the data says, giving some context. So I will be publishing that in the next few days. So if you don't want to sift through all of the bounty awardees for my contest and you just want to know generally what the answer is, I will be able to

tell you that. I'm looking forward to that. So what is your take on? And maybe we should try to get some people to do a bounty on this. How did Hamas actually convert into local fiat currency? That's what I want to know. There's not an exchange in Gaza here. There may be. So the three of the sanction entities across the Israeli intelligence address seizure notices, three of them were actually exchanges themselves, like money transmitters.

basically money currency changers. So in theory, they could have been doing that. But we don't really know. In fact, no one at this point has actually proven that Hamas was able to buy any weapons or anything, for that matter, with crypto. The only main claim here is there are wallets thought to be associated with Hamas and those wallets have had flows. But nobody has gone the last mile and demonstrated that that was actually used to finance their operations at all. So the claim being made is actually pretty minimal. And we don't yet have evidence that this is actually a meaningful part of their operations. It doesn't appear that it is.

In fact, they just have many ways of funding themselves. The main one is just getting money from Iran through the banking sector, right? Directly. I mean, they had a bank account with Barclays. getting physical cash. They own real estate property. They have business interests. They, you know, they have a multitude of ways that they fund themselves. From everything that I can tell, it seems like they are actually on the down swing in terms of their crypto interest. So Hamas had a crypto dalliance from 2019 to 2023, April 2020. And in April, after the Israeli

seizures, after Tether and Binance seized Hamas funds, they said don't use it anymore. So it's a weird time to become super scandalized about it because first of all, it's been part of the public record. Second of all, it seems like their interest in crypto has actually dimmed over the last year,

not accelerated. So clearly there's an ulterior motive with everybody making a ton of noise about this. Yeah, from what I can tell, it seems like they're actually less interested in using crypto than they were because basically, the intelligence agencies got good at identifying them, at tracking their donors, and at literally

seizing the funds because they were using finance and tether. And both those entities work with law enforcement. So that's kind of the status quo here. So it's, it's great to see what the bounty programs, these bounty hunters are up to. So looking forward to publishing. Do you think you'll have it out by the next week's podcast? Yeah, I should do. And, you know, it's actually not yet. I think you'll see maybe some op-eds in WSJ, probably not written by me. I don't think they're ever going to let me write an op-ed now, which is a shame because they were my target publication where I wanted to get a column back in the day, and now they're never going to publish me because I cyber-bullied the journalists. But you'll see op-eds on this, and maybe, if we're

lucky, we'll see signatories of the letter retract their signatures. That's, so keep an eye for that. That needs to happen. So aside from that, we had, what, three podcasts this week? That might be our busiest podcast week ever. What's going on? I mean, I think it's just the bull market. So you sat down with Seth, pre a batch of Groma to talk about on-chain real estate. Really fun episode with Seth. That's our first foray into the world of on-chain assets that are securities. So Seth was formerly the founder of Level Up. His new business is called Groma. based here in Boston. So really excited about what Seth is doing in the REIT space.

So that was a fun episode. We did that in person in our podcast studio, which we barely ever use. Oh, really? Yeah. So was this the inaugural Siv podcast studio episode? Well, you and I have done a few there in the past,

but this was the first time I had a guest in and we actually did it professionally. You also sat down with Brandon Mulvahill of crossover markets. A lot of good content coming out for market structure. nerds. So Brandon Maldahill is the CEO of crossover markets. They are a digital asset ECN. And this is a whole new paradigm for how institutions are going to want to trade crypto assets. You know, you don't want to trade on a venue that has custody of your coins. You just want to have the custody and the trading bifurcated. So went real deep on market structure there. So I had a lot of fun with that

one. And then lastly, you sat down with Hong Fang of OKX to discuss proof of reserves. That's your favorite topic. Yeah, I mean, I don't know how many people are going to be interested in another proof reserve episode, but I actually think OKX has done a lot on the proof reserve front. I'm actually very impressed because when they started, well, so they did a proof reserve back in 2014 after Cox. A little guy by the name of CZ did the psychology. CZ did the proof reserve. CZ did the proof reserve because he worked at OKCoin back in the day. People don't know that. And then they didn't do one for another nine years, eight years. And then after FTX, everyone started doing PR. And they have now done 12 monthly in a row, which I'm happy with. And they also changed it. They do ZK liabilities,

which is pretty interesting. And actually, I gave them a lot of feedback and they incorporated it, which is just the best thing ever. I mean, how good is it when an exchange actually listens to you? And so I'm really happy with their PR. And Hong Feng is, delightful. So check that one out if you like PR. I have more PR content. I can't be stopped. It does just make you, so, you know, everywhere I travel these days, people ask me about finance. And I don't know anything about what's going to happen with finance. But the one thing that I do know is that there's a lot of assets that are on chain in their possession, which is more than you could say about FTX. And it really, it really makes you wish that as an industry,

we're a lot more vigilant around wallet addresses and proving reserves when Sam was running. his whole scam. Yeah, I do think about that all the time because if you remember when the Alameda balance sheet came out, people started looking at the FTCS wallets and they found some weird stuff. They're like, huh, these flows that keep going directly to Alameda, like there's way too much churn. This doesn't make sense. We can't find the reserves. But we needed that catalyst to start to look into that. What it should be is proof reserve is normalized across the whole industry. and if there are exchanges that don't do it, they're immediately considered orange flags. And then people look into them.

That's how it should be. We're actually not that far away from that. I think you'll see other exchanges turning POR on. And then the ones that don't do it will be suspicious just by their very nature. So I think we're actually getting there. Seems like we're trending well on that front. But yeah, I guess we know what Binance has. assets, we don't know enough about the margin situation over there. We don't know if they have

liabilities that are off-changed. So there's just a lot you don't know. Yeah, I mean, PR, people are very critical of PR. Look, I've heard every PR criticism under the sun, but it is true. Pure is not sufficient if you don't have assurances of bankruptcy remoteness or assets held, you know, distinctly for customers, FBO accounts. It's not sufficient if you don't have a firm legal regime in which to interact with the exchange. I mean, nobody knows where finance is even really based or domiciled. And so you need those sort of contractual preconditions before. And you also need to know that the operating capital is not being commingled with client capital. So because those things aren't really present in the case of finance,

you still can't consider it a particularly credible PR. However, they are attesting on chain to having like $50, $60 billion worth of client assets. So that's certainly something. Yeah, that's something. All right. Well, why don't we hop over to some deals of the week? These deals are powered by Masari Enterprise. So, man, this is a really good platform.

So we actually got a demo this week. So it kind of been freewheeling it. Very impressive. So surfacing a bunch of deals that we otherwise would not have gotten. get some longer tail deals here. I actually didn't put them all in the newsletter this week because they even get the super small ones, which are just like angel backed. So check that out. First one up is top-aware, top-usware. This is a company building ZK technology. They raised five million from evolution equity partners, triatonomic capital and K2 access fund.

Then you've modulus, a company building at the intersection of AI and blockchains. They raise 6.3 million from variant in 1KX. Then we have Anamoka brands. This is the Web 3 Studio. They have announced an investment from Neum, which is a Saudi Arabia-backed accelerator. So Neum is the name of the city that they're building. Oh, is that the dream city? Neum is the...

Like the Saudi Arabian net new city? I guess it's the name for the whole urban area, which I guess includes a tech accelerator. But am I wrong in saying that's the one that has the line? Yeah, the line is part of Neum. Do you know about the line? I do, I do. So that's all man-made, right?

Well, it doesn't exist yet, but it's meant to be a linear city that's like a hundred miles long. I mean, you've seen the renderings for the line. I have. Do you think they'll have a train? I guess. I mean, I don't think linearity makes sense for a city, dare I say. I think cities should be circles or squares. I mean, I'm partial to Boston.

I think they should just be a hodgepodge of one ways that are impossible to navigate. Yeah, Boston is the worst shape for a city that I could even possibly conceive of. Well, how did the line? So anyway, they've invested in Annamoka. Next up, we have Surf Protocol. They're a Dex Protocol. They raised 3 million from OP crypto and C2 Ventures. Then we have Access Protocol.

It's a Web3 login-based platform. They raised $1.2 million from SORA, CMS, DV chain, and Double Peak. Then we have Trips, a Web3 IP protection platform. There is 2.5 mil from Shima, Animal Capital, and Blizzard Avalanche Fund. So those are the deals. Another busy deal week, huh? So are we going to start with Safe Moon? Safe Moon.

Let's do it. So SEC has charged, and I guess the DOJ is also charged and arrested at least one of these guys, the founders of Safe Moon. I couldn't tell you what it was other than it was this crypto Ponzi scheme thing that I first heard about through Barstool of all places. Yeah, I mean, Dave Portno officially endorsed it. Dave Portno officially endorsed Safe Moon. Not the best look, but I guess, you know, we all make mistakes. So Safe Moon turns out the whole thing was big. fraud. I mean, I could have told you that by the name of the company. It's not a very serious

situation. And I don't think there's anything to say on this one other than there's a lot more of these to clean up. So all you'd have to do if you're the SEC is go on ICO bench.com and ICO drops.com and just, you know, filter by how much money some of these things raised. Take a look at the teams. A lot of frauds in that ICO era. Yeah. I mean, I just, I remember distinctly when this is in 2021 or early 22 when Dave Portnoy did a video on Twitter where he had all the baseball caps of all the major coins. And then he put on a safe moon baseball cap. But it wasn't safe and it, well, it did actually go to the moon for a short period of time, but certainly wasn't safe. Yeah, I guess it was a fraudulent Ponzi scheme the whole time. But, you know, this is actually

when, you know, we bash on the SEC a lot. But this is, uh, good job by the SEC. Yeah, they got this one right. Yeah, they got this one right. Like I said, there's a lot of other stuff to spend your resources on in this industry. We'll get to where they are spending their resources, but there's others like this. Let's just put it that way. So also staying with the SEC, Hester Purse put out a statement on the library case,

basically dissenting with the outcome there. Yeah, this was quite good, actually. as a statement. I actually tweeted that I thought every member of Congress should read this. So library was this New Hampshire-based project, and we actually know these guys. They used to hang out in the Boston ecosystem a lot. And, you know, there's one of these, like, file sharing type of sites. I actually had it downloaded on my computer for a while, and I was using it.

And, you know, so it was a real product. They did not do an ICO, although they – so I guess they had a – pre-mine and they sold some of the tokens. There was some mechanism that they actually sold it, but it wasn't like released to the public. And they didn't raise that much money. So it was kind of an interesting one that the SEC went after. It was, you know, real product.

They at least made attempts to comply with the securities law. This Hester Purse kind of dissent, statement, whatever you want to call it, had some really good lines. I'll just read my favorite one. The application of the securities law to token projects is not clear, despite the commission's continuous protestations to the contrary. There's no path for a company like Library to come in and register its functional token offering. The time and resources we expended on this case could have been devoted to building a workable regulatory framework

that companies like Library could have followed. I could not have said that any better myself. Yeah, Library was a kind of unique case where the product was operational, I think even before the token. was issued. It was, yeah. I mean, there was a real actual purpose to the network. And they were just railroaded by the SEC. The SEC forced the entire company to shut down.

I mean, basically destroyed this perfectly functional project. Yeah, these guys got run over. Yeah, I mean, that's one of the great travesties and a very well-meaning and serious team as well. yeah that was a real shame but like I said everyone should go out and read that statement from hester purse so in other news and this is if you have the sab 121 bingo card going for this episode you can activate it right now because that's the free space yeah this is really this is heating up here so sab 121 as anyone who's ever listened to this podcast will know this is that staff accounting bulletin 121 that the SEC put out in april of 2020

And it said if you're a bank in the United States or a publicly traded company that holds crypto on behalf of customers, you need to count those assets as assets on your own balance sheet, which doesn't work for banks because banks can charge 35, 45 basis points to custody, Bitcoin, eth, other types of digital assets. But if you have to hold a 500 basis point capital charge against it as if it were your own asset, you could never run a custody business. We would not have custodians in the United States if this was the law for other types of assets. assets. So the government accountability office, the GAO, they released their analysis on this Sab 121. And some of the key takeaways, shout out to Cody Carbone at the DC Chamber, some of the key takeaways here. So the SEC failed to comply with the law, the Congressional Review Act. So the CRA states that under agency rules, unless they're exception, they must be submitted to both the House of Representatives as well as the Senate and to the controller general.

So the SEC never did that. So they basically just pushed through this rule with just no comments. So what happens now is a little bit unclear. So Congress has a chance to review and disapprove of laws issued by federal agencies over a 60-day period. And if there's a resolution of a disproval, then that law just goes away. So theoretically, within the next 60 days, Congress could take this up and just by a simple majority, make this thing go away. Now, I don't know what the likelihood of Congress passing anything in the next 60 days actually is. Obviously, there's a lot of things going on in the world. There's

Ukraine and Israel funding, and there's going to be arguments around all sorts of different laws. But I guess the other path is this really opens up the grounds for Bank of New York Mellon to sue the SEC, in my opinion, under the Administrative Procedures Act. And if we have any listeners at Bank of New York Mellon, that is actually what I suggest you do, because this is a blatantly unconstitutional law that the SEC has just decided needs to exist. And who knows, it was probably Elizabeth Warren who told the SEC to do this for all we know. But it is commercially harming the U.S. banks in a very material way. And so you're seeing all sorts of other custodians emerge on a global scale. Obviously, there are some custodians in the U.S. that aren't federally

chartered banks or publicly traded companies that are less impacted by this because they don't have to take the capital charge that a BNY Mellon or one of these systemically important banks would have to do. But if you're a bank of New York Mellon or if you're State Street here, someone just shot your legs out from underneath you as it relates to your custody efforts. You know, you hired all these people to build this great product and you can't release it. So the answer very clearly, in my opinion, is Administrative Procedures Act lawsuit. So to dumb it down, the SEC can't just spirit new laws into existence, as far as I understand. And if it's a particularly material rule change, which this seems to have been,

they need to run that by Congress. Is that correct? Yeah. So in the United States, we have something called a constitution. And that tells you how laws actually have to get introduced. And it turns out the SEC is not responsible for making up their own laws just because they hate a particular industry and putting them into effect. It's actually Congress that is supposed to draft the laws,

and the SEC is supposed to execute upon that. And so punish people like Safe Moon when they break those laws. But it turns out that the SEC under Gary Gensler is of the opinion that they should not just be in the executive branch, they should actually be in the legislative branch, and they should just make up all of those laws as well. This is all coming back to me. It's like, you remember that video that we watched, social studies class.

How a bill becomes law. I think SEC needs to review that video. They need to brush up on this. Well, there's clearly people at the SEC that know this. You know, we have dissents on all of these things, like the Bitcoin ETF proposal, for instance, that has historically been denied. But it turns out when you sue the SEC under the Administrative Procedures Act, you usually win because it's usually, if it relates to crypto, the SEC is actually,

actually breaking the law. So Grayscale gave a great template for that and suing the SEC under the APA over their denial of the Grayscale spot Bitcoin ETF proposal. And my prediction on what happens there is that the SEC will capitulate and approve a number of Bitcoin spot ETFs. So what needs to happen now is the U.S. bank lobby, who has historically not been a big ally to crypto, but, you know, they like making money and you can make money on custody and crypto. So they get involved here. Let's get an APA lawsuit and let's just get this thing rolling. Yeah, I mean, people think that banks are sort of the enemies of crypto, which I always found a little strange because there's a lot of banks that want to do crypto stuff, whether it's custodying, working with stable coins. There's

appetite out there and they're being stymied, whether it's by the Fed, whether it's by this kind of informal guidance they get from the financial regulators or by these contrive rules like Sab 121. just let the banks do crypto if they want. I mean, if your effort was to make these capital markets safer for U.S. consumers, you would think that in a post-FTX world, having the Bank of New York Mellon or State Street entering this arena and offering these products and services to their customers would be a really sensible step in that direction. Unfortunately, what you've seen, and we can dovetail this into PayPal, is the SEC just be incredibly hostile to the industry, for really no good reason other than Elizabeth Warren is against it.

And you just start to push capital offshore. So it's going to be the offshore exchanges, the offshore custodians, and the offshore stable coin issuers that actually absorb the capital in the absence of Bank of New York Mellon and State Street and PayPal being able to compete on a level playing field. And so it came out this week that and PayPal filed a public disclosure on this, that they have been subpoenaed by the SEC in relation to their stable coin. So listeners of the pod will also remember that PayPal was about to launch their stable coin. The Binance NYDFS thing happened, and there was a strong rumor that it was the SEC that told PayPal to halt.

And so they halted for about two months, and then they actually launched it. And now it seems like the SEC is not happy about that. And so SEC is giving PayPal a hard time. So this is absolutely preposterous. Like I know it's trendy to hate on the SEC, but this. This is absurd. This is a tokenized dollar that is not interest bearing. There's no return associated with it.

PayPal holds dollars and they issue a tokenized liability that you can transact with on the public blockchain. That's what a stable coin is. By the way, that's what a PayPal dollar also is like a regular PayPal dollar. It is. They hold fiat assets and then you can transact basically a tokenized liability. on their proprietary database. So the only difference is not a public blockchain.

Why is the SEC taking an interest in this? It's not a security under Howie or Reeves. There's no world in which it's security. This isn't their ages. It's not their mandate. It's completely outside of scope. They have no business here. I'd love to see what the complaint is

because it's completely inappropriate to harass PayPal over this. Well, I really hope that PayPal digs in their heels here because it genuinely is, it's a travesty that they're being targeted in this way. It's outright harassment. And again, back to my point earlier, if we could just have a rundown of the resources that are being spent in this way by the SEC, it would be staggering. We're talking about hundreds of millions of dollars of man hours and law firm hours that are going into just harassing Bank of New York Mellon, harassing PayPal, you know, harassing really the

the folks that are trying to do this the right way. And you know, you're not seeing that in other countries. So, you know, UK, maybe this is a good dovetail into what's going on in the UK, is that we're actually getting guidance in a lot of these jurisdictions. Yeah. So it came out this week that the UK has released guidance for crypto asset regulation, including stable coins. They're not the first ones to do that. Of course, it's nice to see them join the rest of the pack. Kind of mixed reception. I'd say a lot of people were really happy about it. But then I think the on the ground reports in the UK are still that it's a very intensely bureaucratic place to operate, especially as a crypto firm.

But either way, I'm pretty encouraging to see them come out with these explicit rules. Do you see that micro strategy bought more Bitcoin in October? So I think there's, Tether is also now buying Bitcoin, but there was debate about this. I saw some takes that they'd bought 6,000 Bitcoin. And then some folks who said they sold Bitcoin. But either way, the sort of existing cohort keep buying. What do you think happens to micro strategy stock? I guess not investment advice, never financial advice.

But it's kind of an interesting question on what would happen to a stock that is basically just a proxy for Bitcoin if you get a more pure product in the form of a Bitcoin ETF. The obvious pair trade is long, GBDC short micro strategy. Not investment advice. Yeah, micro strategy was trading in a premium to the Bitcoin sold because it was a proxy for a Bitcoin public instrument. GBDC obviously to discount, significant discount for a long time. And as you expect the ETF, you expect the prices of those to converge. So that's your pair trade.

I mean, I think sailors play here should actually be to start leaning into operating businesses. Yeah. If you're so bullish on the Lightning Network, why don't you? you build out a ton of infrastructure for lightning. I had this debate with him some time ago. And he chastised me for not just buying Bitcoin instead of investing Bitcoin businesses. But yeah, I mean, the micro-strategy trade

made sense when there was no ETF, but that world is not going to be the world of the future. So he does need to start a thing about next steps here. So I read a great article in the Wall Street Journal this past week. Really? Yeah, it was about Doquan. Oh, yeah? I mean, look, I actually like the journal. I just think they, I mean, frankly, their correction was, I'm glad they did the correction. And I think they employ some, some irritating journalists. But what did it say? It was just kind of a in-depth look at what he's been up to post-collapse. I guess he hopped over to Serbia pretty quickly, it sounds like. And he was living over there and trying to get out of there. He actually incorporated a business in Serbia. So I think he was.

he was under the impression that he was going to not face any repercussions for this. And this one's a really interesting one, because I actually think that Doquan was completely convinced in his own mind that Terra was going to work. And so I find him to be a somewhat more sympathetic figure than an SBF or a 3AC kind of clown show operation in that I think he had convinced himself that it was going to work. now I think he took a bunch of actions after the collapse that probably are going to be what actually gets him in the most trouble around the use of corporate proceeds. Yeah, I mean, I think he committed fraud in that he just blatantly lied all the time.

About the chai thing, you mean? Not just that. I mean, he lied about a lot of the different features of the terror system. But I can see why he would think, okay, it's in service as this noble goal. And maybe we're going to be a little bit loose with the truth. and then eventually it'll be fully decentralized and it'll work. And it's like what we always talk about, the fine line between scammer and visionary.

And it's like quantum mechanics a little bit. Like you don't know what state it's in until after. As in for an entrepreneur, they could be both a scammer and a visionary at the same time. And you don't know which one it is until they succeed or fail. And then once they've succeeded or failed, you go back and you say, yeah, he was a scammer all along, or he was a visionary all along. So I really, I kind of think that's probably the case here. I think he was very naive and

frankly idiotic about like central banking history and believing that this system could work. And I think he got the parameters horribly wrong. But yeah, I know I actually buy your, your take here that he really thought it would work. So he's sitting in jail in Montenegro. Sam is sitting in MDC. As of the time we're recording this, I believe they've just sent the case to the jury. So from my understanding, from reading Inner City Press,

which is such a good account, one of the jurors has a personal obligation tomorrow. I think they're going to a birthday party or something. And so if they don't come to a decision tonight, Thursday night, then it's a three-day weekend. So any over-under on how long it's going to take the SBF verdict here?

I think it'll take them about 12 hours of deliberating so I think we'll get a verdict on Monday unless they cancel the birthday party which they should do. No birthday party is important enough. I think that

I think it'll be Monday as well. I think that there's no chance that you can just figure this out in four hours because I don't think you're supposed to talk about the case if you're a juror during the case. And so there's probably going to be a bunch of just sitting down being like, can you believe how crazy this guy is and why are his parents not on the stand? There's going to be a lot for these guys to talk about, I think, and girls to talk about.

So I think they'll probably just kick it around for a little while and then probably come back guilty on Monday, is my guess. Yeah. And from what I have read, he didn't cover himself in glory. And frankly, I think even his own side. put up a pretty weak case and sort of gave up towards the end. So he also didn't show any real contrition. I mean, he was defiant.

He just went with the I did not recall defense towards the end. I guess the contrition, the contrition, I guess, would come at sentencing if it ever comes. But yeah, look, he could have always said like, yeah, look, I know I screwed up and I'm sorry. And yeah, I didn't mean for it to be this way. That could have been his defense. That could have been it. it's telling that there was zero witnesses in his defense. Yeah, didn't a couple witnesses actually pull out?

There was, yeah, I don't know. There was some late pullouts at the end, but I mean, there was no one that worked at Alameda or FTX that would testify in Sam's defense. So it's very clear that he's guilty. I mean, what are the chances that he is found not guilty? I think there's a 3% chance of a hung jury with one juror that has some weird kind of hang up and refuses to go along with her.

I mean, there's always a chance of a hung jury, always. That would be nightmarish. Yeah. To relive this all over again? Well, yeah, does that mean you have another trial? Oh, yeah, of course. Yeah, they didn't even offer. I don't think they offered him a plea deal.

So, yeah, you'd go another trial. I mean, it would cost the taxpayers a lot of money. It would certainly cost. Sam's parents a lot of money, but I guess they don't have to worry about that because that was all customer money that they're financing the lawsuit with. The thing that gets me about it is nobody really seems to care that much anymore on crypto Twitter. I mean, we've all kind of collectively decided to move on. I mean, pending justice being served. But the sort of like no-cointers and the press and the sort of crypto-critic class are obsessed with the trial. They're obsessed. And the journalists are getting there at two in the morning to get the good seats.

they're going off and writing article after article about it. It's like their content bonanza. Meanwhile, the rest of us are completely over it. I don't know. I'm enjoying the content, if I'm being honest. This inner city press guy is putting out some great content. The fact that Michael Lewis was in the courtroom, so I tweeted out about this.

One of the Blockworks podcast Forward Guidance talked about it and said that Michael Lewis was in the defense section. So like the Friends and Family section, then Larshin clarified that it was actually the like friends of the lawyer section. So it still could have been like Sam and his parents that had just gotten him a seat. And I am deeply troubled by that. This guy wrote an entire book about how Sam was this wonderkin and just, oh yeah, by the way, he also got arrested at the end.

And this guy is still like on terms with SBF, obviously. He's sitting like two rows behind him. It's insane. I heard a different explanation. which is there isn't a lot of capacity in the courtroom and most people are going to the overflow room. And so it may just have been a capacity thing where he wasn't able to get in general admission. So he had to go VIP, basically. Well, I'd love for someone to explain this to me because my understanding is that, yeah, he's VIP,

but he's VIP because the defense attorneys or the family allowed him to sit in the row because those are reserved rows. And so it's, yeah, what you're saying is right, but you have to be invited in. So if he had written the real story about FDX that this guy was a scammer who was on speed for the last three years, I don't think he would have actually been invited into that section. So my only point is that he wrote a terrible book. I thought the book was okay. I mean, it was kind of entertaining. You know, not great, but it was okay.

Well, it was entertaining. It was a story. it wasn't the it wasn't what actually happened it wasn't the story you wanted him to write well it wasn't what actually happened i mean he wasn't talking about how sam was like defrauding people from the jump which all came out in the trial and is all corroborated so he didn't get any of the good parts of the story there was the cube i respect that there was yeah no there's a tungsten cube that that was redeeming for sure i mean i you know i'm still potentially interested in in being involved in a consortial that buys that cube from John.

I'd like to acquire the cube. I think that's a key asset for the FTX creditors. It's a very key asset. Good value out of that thing. I actually, I did a little maintenance. I still have my tungsten cube NFT. Me too. Yeah, I thought I lost it though.

You can redeem it. You can still redeem it for a real actual tungsten cube. Okay, we might need to get on the horn. Yeah. Midwest tungsten probably not having a great year. I've heard that they're still taking commissions for custom tuxan orders. I think there might be some in flight even. It's starting to become that time of year.

Yeah, no, I actually think their sales are going to heat up here shortly. I do too. Yeah, Midwest tungsten. Man, I wonder who invested in them. It would have been very funny if a Dow had bought them or something. Or FTX, actually. Or FTX. Midwest tungsten.

I wonder if any crypto investors made overtures to them. They probably got some. Yeah, I'm surprised we didn't. We had them on the podcast. We did. I thought it was a great episode. Yeah, that was a good one. That was a good one.

I was talking about that one last week, actually. That was one of our most fun episodes. I think we should do industrial episode, like how it's made way more often. Well, I still haven't had the guys from Dust Identity on the podcast. That will be a good. Industrial. material science. Yeah.

Material science stuff. They make invisible bar codes, put them on the back of high value objects. Yeah, we got to make that happen. So we have an announcement to make. If you've listened this long, you've won the opportunity to listen to our announcement,

which is a week from today, exactly. At this exact time, approximately, we are going to be doing a live podcast recording, our second ever live podcast recording, with Galaxy Brains, Alex Thorne of Galaxy Brains,

at PubKee in New York. I'm psyched about this. This means we get to have Bimnet Abibi on our podcast. And Bimnet, yeah. So I think Umi, Alex, and Bimnet is the proposed lineup, yes? That's what we're doing. So, yeah, get over to Pub Key. I would get there early.

And it's not the biggest bar in the world. It's, you might want to, it might be like a line. It's going to be like the FTX courtroom. in terms of how busy it is. Yeah. Camping out. If Michael Lewis shows up, I'm sorry,

there's no preferential seating. Yeah, you can sit down the road. GA. Yeah. So yeah, we're doing live podcast. There might be some live rapping,

live wrapped intro. I would, yeah, I've heard that. Yeah. There's, I believe there's, it can be a musical element.

There's a request for a piano to be brought in. Is that in motion? I think I, the responsibility is falling on my shoulders. so I think I need to do the musical accompaniment to Alex's rap. So is they expect to just like wheel a Steinway into the bar? How's that going to work?

I'm actually very musically talented. So this is something people don't know about me. But yeah, we'll get a portable keyboard. A portable keyboard? Okay. I'll come up with the beat for Alex to wrap over. It'll be great. All right.

I'm looking forward to it. I think that'll be fun. Yeah, so Pubkey in New York. just, I don't know, get there early. Get there the night before. So yeah, come see us a week from today. OTB live. All right, I think that's it for the week.

Everyone have a safe and healthy weekend, not a safe moon weekend. That's out. Have a safe and healthy weekend. We will see you on Monday.