On The Brink with Castle Island - Weekly roundup 11/10/23 (ETF chatter, FTX 2.0 again, Euro stables) (EP.472)

Episode Date: November 10, 2023

Matt and Nic return for another episode of news and deals. In this episode:  WSJ bounty updates Will Euro stablecoins take off? SBI and Standard Chartered start a crypto infrastructure fund SEC opens talks with Grayscale over the GBTC conversion Kraken is exploring the creation of an L2 SEC staff can't own crypto FTX 2.0 prospects CME OI flippens Binance Nouriel Roubini is launching a token Sponsor notes:  Coin Metrics STATE OF THE NETWORK — Ethereum Staking through the Lens of Lido  In Coin Metrics State of the Network Issue 232, we dive into Lido—the largest player within the staking economy—and understand the state of its liquid staking token (stETH), governance token (LDO) and underlying node-operator composition.

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 Conjecturee easy. 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's the Metrics Minute. Today's Metrics Minute, we're looking into Lido's prominence in Ethereum staking. As of today, 28 million eith, or about $40 billion, which is 23% of the ETH supply, have been staked on the beacon chain. The growth has decelerated. So, ETH staking APR has declined from about 5.5% during the merge to about 3.8% in November. Of course, there's an inverse relationship between the number of validators and the APR there. Lido's staking pool comprises $8.9 million, $16.8 billion that accounts for a 32% share of all ETH stake. This has raised concerns about Lido's

market share. Of course, LIDO itself is not a single entity, but it's composed of 38 node operators created by the Lido Dow. So that does maybe alleviate some of those concerns. STEath has achieved substantial network effects, however, and it's kind of the primary ETH staking derivative. But questions remain over the centrality of Lido and the ETH staking ecosystem. That is your metrics minute. So people are going to be upset that we are not in their podcast feed first thing on a Friday morning. We're recording this at 11 a.m. on Friday. Yeah, it's a rare occasion.

Normally we're very good about it. I feel like people's routines are centered around on the brink. Their Friday morning routine. It is. So last night we had a live podcast recording, but we wanted to make sure that we got an episode out this week. I think that one is not going to come out until Tuesday, maybe Wednesday, next week, but we did it live with the Galaxy Brains crew. Yeah, so that'll be an off-cycle episode, and quite different, I think, from our usual fair.

But yeah, I expect that one midweek next week. That was, we had a special guest. We had two special guests. We had an impromptu special guest. Thank God for Phineas. That edit is going to be really hard. It was loud in there. Am I going to edit it?

No, I think, no, no, Phineas from Galaxy's editing. Did you mean Phineas? The world famous Phineas. Yeah. So I can't edit that one. That one's beyond my capabilities. They said there's not multi-track too, so that's going to be a tricky edit. It was a raucous crowd in Pubkey last night.

It was our second ever live on the Brink podcast recording. We did one. Boston Blackchain Week when there was a monsoon happening outside. That's right. And this is our second. And there was just a lot of crowd noise with Pubkey. Great venue. Oh, awesome venue.

And it's great to do those live events when the market is just on a tear. So it was a good day to have a podcast. A lot of people came out. A lot of people felt wealthier yesterday. I think they sold out the bar. It was crazy. Yeah, the vibes were extremely high last night. Thank you to everyone.

all members of Brink Nation who attended. It was a smashing success. I would say with this possible sole exception of our musical prelude, which was, let's say, less than fully successful. I think he'll be able to clean that up in the edit. So if I'm Alex, I rerecord that. It was a little too loud in there. Yeah, so Alex and I decided last minute to do a musical

I would do the keyboard part for his rap and he would do the rap, but we didn't rehearse it. And I had also forgotten the chords, but I think I remembered them at the last minute. And we also couldn't hear ourselves. So I'm not sure we were fully synced up on that. Yeah. Some really good questions from the audience.

Yeah. David Hoffman was there, bankless. Yeah. A lot of podcasts were represented. in that room that night. That's what we do in this industry. We do podcasts. Yeah, that's kind of the main export.

But yeah, that was awesome. So expect that one on Tuesday or Wednesday. So a bunch of Castle Island content this week. You were on Bloomberg talking about the SBF conviction. Yeah, you know, what's funny is, so when you go on Bloomberg, they ask you, typically in the morning, they'd be like, do you want to do TV today? You say yes. Then they're like, okay, well, will you send me the talking points? Like, okay, thought maybe you might have some questions in mind, but that's actually not how it works.

They ask you to, you the guest to send them the talking points. It always happens this way. I send the talking points. And then they don't adhere to the talking points. Just ask you left field questions. Keeping you on your toes. Yeah. So the anchors take the talking points. that you meticulously compiled, and they ignore them. And then they ask you stuff that you haven't prepared for. It's great. So that's exactly what happened.

They asked you about Sequoia investing in FTX, hot seat. Yeah, that was actually the one thing I didn't want to talk about. It's like, yeah, let me take this opportunity to bash Sequoia. Why? Yeah, thanks so much. Yeah, I love to publicly trash my fellow VCs. You know, there's no way that could come back to bite me. so crazy yeah that was funny um rhea sat down with devon walsh of the uniswap foundation talking about the

priorities of that uh organization so i thought that was a great episode and you sat down with adam guren of hunting hill another good episode as well former professional soccer player kind of talked about i don't know the problem is i don't know anything yeah he played professional soccer in the MLS after what college i don't know if you said it i wouldn't even know you weren't big attention for that part the only the only team i know is the new england revolution i don't know if they're good or not i've been i've been to quite a few into miami games at this point um who's on that team the sputorship messy is he on that team yeah messy plays so expatio sponsored them he came and then that sponsorship they just absolutely hit the jackpot on the sponsorship oh yeah

soccer like i've always said it's sport of the future and it always will be the mLS is not the best league in the world i'll concede that i've been doing um youth soccer you that's a that is like going to a comedy show just watching four-year-old around kicking a ball it's that's a good time is that our best athletes go to other sports. Oh, yeah. I mean, if you told us that we had to win the World Cup in 10 years, I think we could do it because you just say basketball's over in the U.S., everyone has to play soccer. Can you imagine Tyrie Khill if he was a soccer player?

Oh, yeah, or LeBron. Like, yeah, we would just dominate. Yeah. Like, come on. Like, it wouldn't even be a contest. So I think the U.S. is the best in the world at soccer. it's just that we choose not to compete. We have the human capital.

We have the talent. Yeah, I'm not worried about it. So the last piece of Kass Island content, you have published your initial analysis here on the blockchain forensics bounty program, getting to the ground truth of what actually happened with this alleged Hamas funding. Yeah, so I paid out 40K of the bounties.

So we've paid them all out. I've also reserved 10K for a future bounty, which I'll be doing with the Joker Dow. And that will be on a different yet adjacent topic, possibly related to FTX's political fundraising. Oh, hey-oh. Yeah, I think there's more citizen journalism to be done here. And I'm not done with the bounties.

We have new bounties. Interesting. So what do you, trying to find out about the political contributions. What I want to know is where the funds went, what pools of money, what candidates, what members of Congress,

et cetera, and what the status of those funds is. Have they been repaid? If not, why not? So that's what I think the next bounty is going to be about. All right. So maybe this is a new model for citizen journalism.

I don't know. I like it. All right, stay safe out there. When you start to mess with the politicians, I start to get worried. Yeah, I was actually accosted by a Wall Street Journal journalist at a conference in D.C. This week. So what did he say? He wasn't happy.

He wasn't happy. Didn't like that I had unleashed a torrent of followers on his colleagues. Well, when your team is losing, it's hard to be held. happy. I'm sure he's just not happy with taking the L. Yeah, I mean, I don't know if we should be thinking of it like it's a sports match or something. We should be thinking about it like we have a combined allegiance to the truth. And we're all sort of collectively trying to find the truth. But the fact is the Wall Street Journal did dig in their heels initially.

And then they, you know, then they relented. So I give them credit for that. Like they could have just said, no, we're not listening to the crypto bros. We're not updating our story. We stand by reporting. To their credit, they did update it. Yeah, it was good they updated. Of course, the Warren letter is still outstanding. That's an atrocity.

That has been not updated. I don't think anyone's going to take their name off of that. TBD. Stay tuned. All right, so why don't we hop into some deals of the week? First one up is Ritual. This is a company building a decentralized platform for AI. They raised $25 million from archetype, accomplice, and robot ventures. Then you have Do, D-U-E, London-based payments company. There is $3.3 million from semantic, fabric, and

Block Tower. Then you have Stabler. This is a Stabler. This is a European-denominated stable-coin company. They raised $3.5 million from Maven 11, Theta Capital, Deribit, and others. You know what's incredible is non-dollar stable coins haven't even cracked 1% of stable coin supply. Yeah, I kind of think that they're going to catch a bid, though. I mean, I think at scale, there's no reason to believe that the total percentage wouldn't look very similar to just traditional FX markets. That would imply, yeah, I think the dollar is 80% of all FX transaction.

But remember, it adds up to 200 because you have a currency on each lag of the trade. So the dollar is obviously very dominant in FX, but I think it's 60% of global trade is invoice in dollars. So that's the kind of level. But with stable coins, it's massively dollarized. It's way more. Yeah. Part of it is also just how tether started, though, right? Like that's why the number is what it is.

Yeah, and it's new. There is a euro tether. But I think Micah is going to cause a change because the Europeans are deemphasizing foreign stablecoins. There are now, I think, volume limits in terms of how much non-Euro stablecoin volume can be processed in the EU. Interesting. So I do think that will cause EU stables to gain market share. So far we haven't seen it. Not to take us too far off topic, but you and I, before we started recording, we're talking about this charging.

that Coinbase had in their 8K this week, 83% of the G20 in major financial hubs have either passed comprehensive national crypto legislation or have crypto regulations in place already. That's a crazy number. So they have this world map, and it's most of the world other than the U.S. has passed crypto legislation.

And yep, not us. Not the U.S. You don't normally think a U.S. is a laggard. in financial regulation. And we have more financial regulators than any other nation on the planet. It's crazy.

We are hamstrung here. Next up is Pimlico, a company focused on account abstraction. They raised 4.3 million from A16 Z crypto. Then we have Cresco, a D5 protocol. There raised 1.8 million from Electric in Zero Age Ventures. Then you have Lama, a company focused on Streamlining smart contract access management, they raise 6 million from founders fund and electric capital.

Then we have a new crypto fund. Lightspeed faction has raised $285 million for their latest fund. Then next up, we have Stacker Labs and Ethereum Scaling project. There is $5.5 million from archetype, A6 and Z, Leminist Cap, and Scalar. Then we have a company called The Citadel, a gaming company. They raised $3.3 million from 1KX, Shima Capital, hashed, Macchbox, DA. and ready player Dow. Then we have MoFlex, a Web3 telecommunications project.

There is 3.1 million from Hashgraph. I just put that one in there to get a kick out of it. I don't know what that. What's Web3 telecommunications? I don't know. I think this is a joke. Oh, okay. Next one up is AgroToken.

They raised a strategic round from Visa. Okay, so we covered some. news on our podcast yesterday. So we will try not to retread that ground. But there is, there actually are plenty of news items this week. Yeah. So we kind of talked about the Bitcoin ETF in the live update. And so we're not going to rehash what we think there. But things seem to be moving in the right direction. Gray scale is talking to the SEC. You'll hear more from a guest expert actually in the live podcast. Probably the number one global expert. I dare I say on ETFs.

So that was a good one. But why don't we talk about just some of these banks getting more active in the space? It's of course not the U.S. banks, but Standard Chartered and SBI have announced a partnership to create a $100 million venture fund to invest in crypto infrastructure startups. These two banks have been incredibly active over the past few years. And it seems like they've identified that there are these categories that kind of have to exist in order for the bank to really push their products forward.

really interesting development there, I think. That's a pretty good-sized fund to go out and just king make in a few categories here. Super cool. And this is, this investment fund is established in the UAE. I think very telling that it's standard chartered SBI, of course, Japanese bank. They're doing it in the UAE. So it kind of shows where the market is right now. They're focusing on market infrastructure, risk and compliance, defy, and tokenization. Of course, you just don't see this from U.S. banks. They're effectively prohibited from doing this kind of thing. It's disappointing, of course, that it doesn't happen here, but nevertheless, pretty exciting to see. These licenses are really starting to fly off the shelf in Dubai, UAE region, huh? Yeah. I mean, a lot of firms looking at that

VAR license in Dubai, I think you'll see. see a lot of news around that in the coming months. So the noise around the ETF continues to get louder. Obviously, markets are rallying. It looks like we are entering a period where a spot Bitcoin ETF approval is possible, if not likely, between now and January 10 as far as I understand. also ETH spot ETFs, the period of potential beyond the horizon too. Heath catching a bit on that news. Yeah, so there's a few new spot ETF proposals on the Ethereum side. BlackRock has filed a 19B4 for spot Ethereum products.

So I'd expect now that they have done it, you'll see others jump into this fray. I think there's three or four that are already on track. And as you point out, we're sort of in this interesting window now, where the comment period on the Black Rock Bitcoin ETF is up, so you can no longer comment. By the way, there are some terrible comments on there. Some guy wrote a multiple page comment

on how Bitcoin is just fundamentally going to break at some point. Just crazy. But what motivates someone to spend their time doing that? I have no idea. It's just absolutely crazy. I mean, you have some pretty negative, you know, Bitcoin's a scam type of post. People just spend their time in interesting ways, I suppose.

You have, of course, the better markets guys got to post in around how we should not have spot Bitcoin ETF products in the United States. These guys at better markets, crazy. Yeah. So apparently the CoinDesk is now reporting that the SEC has actually initialized those talks with gray scale regarding the conversion, which I suppose would. was inevitable. I mean, they have to do that. Yeah, I mean, that's what happens when you lose the case. And the judge tells you you have to consider it. You go and you consider it. So I don't know, that's kind of not news to me. It's just the SEC reacting to a direct order. Sure, not voluntarily. Also in news, Cracken is reportedly looking to follow Coinbase's lead in launching their own

L2, currently unclear what architecture they're going to use for that. I wouldn't be surprised if you saw other major exchanges do that on the heels of Coinbase's smashing success, dare I say, with base. Yeah, why not? I mean, just adding another revenue lever to the business and just really transforming the business away from a pure financial services firm into something that, I don't know, maybe it looks a little bit broader, kind of a tech platform with a visa-like functionality with that sequence or revenue. Just really interesting developments.

I think we'll see more and more of this. Obviously, you have some of the foreign exchanges already have L-2s. Yeah. Yeah, I mean, Binance has had finance smart chain. They have an L-1. Yeah, but I think Bibit has an L-2. Yeah, I think virtually every exchange can do that.

I mean, if you think about it, exchanges themselves, are like, kind of like proprietary L2s. Yeah. If you think of, and the difference here just being that they would be hosting those on a, on a public database. So it makes a lot of sense.

I still think the bridging is the user experience around bridging on these L2s is a house of horrors. I've had some harrowing experiences. It's so bad. It's like, all right, take this asset, you know, move it over here. Oh, you need a native gas token of a bridge. you got to go get that. It's so bad.

And you just send your money into a black hole and just hope that it comes out on the other side. It's pure. It's terrifying. I mean, we talked about this last night, but I don't know how the SEC doesn't allow their employees to hold crypto, which is just crazy to me. Because how are you going to learn how all these things work? I mean, you have these complicated networks that are popping up, and the SEC apparently doesn't even allow, people that work there to put $100 into these things and test them out, see how they work.

It's just crazy. But yeah, you get into these bridging things, which are kind of the most cutting-edge developments in the industry, and it's a dumpster fire right now. It's really hard to use. Yeah, what's the analogy? It's like if the transport minister, whatever the title is, wasn't allowed to use train, like right on trains.

Yeah, yeah. It would be like if the NTSB wasn't allowed to, like, drive a car. SEC employees can hold equities. They can hold index funds, certainly. Apparently, it's all federal regulators that touch or regulate crypto cannot hold crypto, which unsurprisingly limits their access to talent. Very, very unfortunate, unfortunate development there. All right, I did want to get your take on what's going to happen here with FTX.

I've been ebbing and flowing on this topic around if there's actually value here. I think there is obviously value in the customer list. And I don't think there's any value in the tech because it had a backdoor in it and didn't actually work as advertised. But it seems like bullish, which is the crypto exchange run by former Nizzi president, Tom Barley. They're in the bidding here. It looks like you also have proof group in the bidding. And you also have Mike Kagni, his company. company is in the bidding so figure uh so interesting developments here it seems like you're going to

get a transaction here at some point and it'll be one of those three participants it seems yeah f tt caught a bit on this news which was a little bit baffling i don't know if ftt itself is going to be involved in the spin out or relaunch i have maybe a slightly different perspective from me on this. I think the FTX technology was okay. It's just that they put a colossal backdoor in the auto-de-leveraging and a big exception. It seems like the risk management tools worked as intended. It's just that they had a big carve-out for Alameda and the risk management. I don't know if that cross-collateralization really worked. I mean, you remember the big mobile coin issue too. I just, I don't know. I don't think that the tech over there was bulletproof. I'd be

really surprised if Gary Wang was on par with like someone at CME in terms of building a core trading engine. Yeah, CME actually, speaking of CME, they flippant finance in terms of open interest on their futures product, I believe as of yesterday. Market structures evolving here. You got a lot of institutions coming in here, and they're going to be wanting to trade on places like the CME. Actually, TALOS announced an integration this week with CME to provide crypto derivatives access to all their customers, which are meaningful in the TALOS case. Like a lot of institutions already use TALOS, and so now they can connect to the CME. Yeah, nice development there. And I think if you do want a proxy for real institutional adoption,

The CME is a good variable to track there. That's where you go if you don't want to touch the spot markets as a regulated U.S. entity. So it's super cool to see that thing taking off. Noriel Rubini is launching a token enabled by AIML climate technology and blockchain. Oh my God. Is that a joke? He's one of us now. this guy has been the number one naysayer in crypto and now he's doing a get rich quick pump scheme is that what that that is i just can't wait for nassim taleb to and peter zahan to come around and launch their own tokens

you know you know it's like tokens come for everyone yeah they really do it's particularly these college professors that are just you know they have this attitude that there's no way bitcoin could work it doesn't work in theory. It does work in practice. And they think they're smarter than the crypto bros. And so they say, well, look, I can design something that's better than Bitcoin because it's backed by AI, machine learning, and climate technology. And it's on a blockchain. So it's a better currency. Yeah. So we'll be following Noriel's progress here. You should have him on the pod. I don't really want to talk to him. But you should have him on the pod to talk about that. I'll book him for 2025.

Yeah, we'll book him for the next cycle. Noriel has predicted 10 of the last one recessions. Yeah, but that one, you know, he really nailed that one call. He did, he did get that one call. All right, so this was a quick episode, but you'll get a longer episode in a couple days here once we turn around the edit, or once Galaxy turns around the edit. So quick little rip, sorry that it came out late. couldn't get a recording done on Wednesday.

Yeah, don't begrudge us on the short episode because you're getting double roundups. So we'll be back on Tuesday or Wednesday with another roundup. All right, everyone, have a safe and healthy weekend. We'll see you next week.