On The Brink with Castle Island - Weekly Roundup 11/24/22 (SBF is at large, DCG's fate, what we are thankful for) (EP.374)

Episode Date: November 24, 2022

Matt and Nic return for a Thanksgiving episode of OTB. In this episode:  Liz Warren writes her first good letter ever? SBF is striking a defiant tone Sam's new letter to employees Is the Alameda/FTX situation really that complicated? Sam's parents bought tens of millions worth of Bahamas property The Bahamas steps in and seizes some funds Should the US annex the Bahamas? Should the US use 'extraordinary rendition' on SBF? Is this the death of meme rounds of financings? Semafor reports on SBF without disclosing that he was an investor Was FTX 'just a classic bank run'? Why don't journalists understand that the FTX situation was fraud? Where are the Bahamas prosecutors in all this? Further contagion in the crypto lending market What is to become of DCG? Could Grayscale use Reg M to do GBTC redemptions? NY Governor Kathy Hochul finally signs a moratorium on Bitcoin mining OkX launches a Proof of Reserve Who are we thankful for? 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 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 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. All right, here's Metrics Minute. Wow, Coin Metrics has been doing all these crazy investigations into FTX and Alameda. This week, they look at the strange commingled situation between FTC and Alameda. They found combined ETH and EARC20 token outflores.

from Alameda from mid-2020 through October 22 amounted to $50 billion of that money. 9 billion was redirected to FTX and 7 million went back to Alameda. ERC 20 tokens accounted for 41 billion out of the 50 billion in outflows, of which mostly it was stable coins. They found 1500 ERC 20 token transfers worth above $100,000 from FTCS tagged to addresses to Alameda tagged addresses. Basically, moral of the story is FDX funds flowed in, went to Alameda, and then Alameda did all kinds of on-chain wizardry and purchases and defy yield farming, et cetera, the funds.

So I think it's clear that if you'd been really doing this analysis, carefully you would have seen that the two entities were basically the same. That's your metrics minute. And is that since the jump, since the start, do we have a very? any idea of when that started to happen? Yeah, it appears that this has been the case for most of the exchange life cycle. Like if you looked for a single FTX cold wallet, there never really was one. The funds weren't ever really immobilized. So it appears that FTX maybe for, yeah, from the get-go was just a conduit to give automated funds to trade with. Maybe we should have a little conversation

with coin metrics about turning that insight into a product. So this never has to be a kind of. happens again. It's kind of crazy. Can you believe these guys just never had cold wallets? It's insane. Yeah. And if you remember when the coin desk expose of Alameda's reserves came out, that's when that kicked off a lot of the Onshin investigations. And I remember one of the first things people found was like, hey, we can't really identify FTX cold wallets. And in fact, there's a lot more churn here than there ought to be for an exchange. So, something's going on. But that is one of the things that I keep thinking of. The on-chain forensic firms were never really able to fund the FTX cold wallets, but it wasn't ever considered a huge

red flag. So I think from now on, if exchange wallets are not readily findable, that'll be kind of considered red flag. All right. So that was the coin metrics. Metrics Minute. Talos is also a sponsor of the show. Talos provides institutional access to digital assets, whether you're on the side or the sell side, whether you're from Tradfai or CryptoNative, you can use the Talos platform to enable the entire lifecycle of a trade so that you can trade through the API, you can do it on the GUI, and you can connect directly to prime brokers, lenders, investors, custodians, exchanges, OTC desks, all the liquidity is on Talos. They have the best leadership in the biz, so head over to talos.com. That's talos.com.

there's unconfirmed reports from the Castle Island office that were in talks with a new sponsor may well be next week we might be reading some new ads is it an offshore unlicensed derivatives venue because i don't have any interest in those i don't like those never have yeah i think we've filtered those out from eligibility can we talk about so peter mccormick has fidelity as a podcast sponsor do you see this wow i can't even get on the fidelity mobile app. I can't get I can't buy Bitcoin or Ethereum yet. It's like no one ever no one's ever heard of me over there. They're protecting you from yourself Matt they know you know now's not well let him buy the dip uh 5,000. I want to I want to buy the dip on a very safe custodian. It's just

it's incredible. So I don't know but they're they've got enough they're answering letters over there this week. They've got they've got they're busy stuff to worry about. Yeah. We'll get into that later. She wrote a good letter to Oh, Liz Warren. Yeah, so we were just saying this before the show. Liz Warren wrote her first good letter. She wrote the re-letters this week. One of them was to fidelity to tell them to knock it off with the Bitcoin stuff again,

which just come on. We disagree wholeheartedly with that. It's like, hey, in reaction to FTX, let's take the player who plays by the rules the most in the industry and just tell them to stop. That doesn't make any sense. But then she wrote this letter to Merrick Garland. basically saying go after these executives and go after Sam because they broke every law under the sun.

It's really difficult to argue with that. Yeah, no, I liked that letter that you wrote to Merrick Garland. Yeah, she's basically saying, where is the DOJ and all this? I think it's a fair question. Yeah. Where is the DOJ? Day 13 of this guy living free. It's absolutely incredible.

Apparently he's still just flouncing around the Bahamas. I heard that the homeowners association was trying to kick him out. So that's another problem he probably didn't need. But he appears to still be residing in Nassau for somewhat free man. Do you see him bumping around? Someone had him on video just waddling. He looked like the type of guy who would come in very last place in a turkey trot. So yeah, still a free man.

still talking to the press, met with Kay Rooney from CNBC recently. She talked about that meeting. So he's still taking meetings with journalists. Do you think his lawyer is just... So he already lost one lawyer, one law firm that backed out. And now he's being represented by someone, I think, who works at Stanford with the father. I'm sure the lawyer does not want him speaking to the press and doing all the things he's doing. It's really not in his best interest if you think about.

about it from what's going to keep you out of jail perspective. Yeah, it is remarkable. He, and he's also still striking a kind of defiant tone to, dare I say, delusional, perhaps, but he still seems to believe that he can raise money and get FTCS out of this mess, even though he doesn't run the company. He doesn't have a role at FTCX. He has the same relationship to FDX that I have, which is to say, none. Yeah, it's delusional.

And so he wrote that letter to the employees apologizing yesterday. And he talked about the leverage ratios just got out of whack. No mention of the fact that, hey, I know I wasn't supposed to use customer deposits and steal them off of this exchange. Not only is it illegal. It's against our terms of service. And that's not how a cryptocurrency exchange works. It's we're living in the upside down here. And then you have a bunch of, you have a bunch of these reporters that keep on reporting on this thing.

as if it's just the implosion of a hedge fund or something. No mention of the fact that this guy criminally stole what looks like to be $10 billion worth of customer deposits from, Lord knows how many creditors. It's just you can't make this stuff up. Yeah, it's baffling. One, his explanation is baffling and just obviously incomplete. And then two, equally baffling,

is that any journalist is repeating this credulously, as if what he's saying makes any sense. at all. So he says in this letter that he had 60 billion in collateral and two billion in liabilities and then over time the collateral went to very little and the liabilities swelled. If you're running a crypto exchange, you match your liabilities with corresponding assets. If someone deposits a Bitcoin, you now have a Bitcoin liability. You also have a Bitcoin. So there's ought to be no way for them to get out of whack. There should not be any way. No matter what happens to the price of Bitcoin up or down, there should always be matching. You are meant to be a full reserve institution. So there's no

interrogation by the press of how this could have happened if he was running an orthodox exchange. There's this thing that goes on in the crypto space where, especially around capital raising, where from time to time, entrepreneurs will try to make it seem like you just, don't get it. It's just, hey, it's complicated. You don't get it. You know, hand wave, hand wave. And I was talking to an LP this week and they were talking about, you know, they've had this experience with other, you know, crypto hedge funds and crypto VC funds. That's just kind of hand wavy. And I don't really get it. And I think that's the way these journalists are right now with this Alameda FTX thing. It's like, oh, it's really complicated. Explain it to me. I'm like, no,

it's not that complicated. This guy stole $10 billion worth of customer assets. You don't need to know anything about cryptocurrency to understand this. Just imagine if you had assets somewhere and they told you that they were one-to-one reserved and they just used those assets to go punt in a hedge fund that they also owned. That's about it. Yeah, that's just fraud. One of the funny lines from his letter was the loans and secondary sales were generally used to reinvest in the business and not for large amounts of personal consumption. I love how he's still trying to hold the line on that, as if it also didn't come out this week that his parents bought, what was it, $100 million worth of property? There's $121 million worth of property in the Bahamas that was being used for his parents as well as

FTX executives. And under what world fraud aside, is it a normal thing for a company to be buying a vacation home for the CEO's parents? That if you're a lawyer at Stanford, I would think that you would actually not do that. That is shocking to me. I feel like the real losers in all this are the Bahamanian real estate agents that were clipping 4% on all those transactions because has the Bahamas ever seen such an inflow? This is like 3% of the country's GDP in property sales. So the Bahamas has, so I agree with that.

And then the other thing is that the Bahamas has apparently seized some of these assets. And so it has come out. They've publicly said that they have possession of some of the FTX assets. And they are contesting the state of New York bankruptcy filing. And they want this to go through a Bahamas court. So they have customer funds in a fireblocks instance controlled by the government of the Bahamas. And why don't we just send the Navy in? I don't understand what's going on here.

Yeah. Honestly, I'm beginning to lose faith in the Bahamas ability to operate as a sovereign nation. I contest their independence and I believe the U.S. should annex them. I think at minimum this should be a U.S. territory and I'm open-minded to this being the 51st state if you can figure this bankruptcy out because this is bananas.

And it's not that far from America. So look, you know how China has these dashed lines with their South China Sea holdings? Proximity is an argument here. I think we have a claim. on the Bahamas and this is our you know Gulf of Tonkin incident and I think we should go in there

and take it. I think that's right and I'm sure that there's a lot of people in the armed forces that had FTCS accounts and would be fully on board with this. I think this is a platform to run on. Do we have any friends in politics that have a position that could maybe influence us mobilizing here and taking this country over? I mean it's not like Congress even needs to sign off on military action anymore.

We haven't officially declared war since World War II. And I was just thinking about this today. The United States has drone-struck American citizens in foreign nations that we were not at war with. So it's not like we're bound by any kind of actual rules of engagement here. The U.S. just does whatever wants. And so why is it reticent to engaging in extraordinary rendition here? literally just kidnapped the guy and then plant him on the courthouse steps and, you know, have him face justice.

He's an American. He serviced Americans. He raised from Americans. He advertised in America. This whole business is American. I think that's right. I mean, so Elizabeth Holmes, what did she get 11 years in prison this week? Which she did some really bad things.

Defraudit her investors could have put a lot of people's lives at risk. I think he's going to get more than that. I mean, this guy might end up in Guantanamo Bay, if you look at the, that 11 years is a comparison. Yeah, that's just across the water. Just shuttle him across. I think that's, I'm not saying we need him. Like, it would be great to have him do a perp walk in New York,

but we've got a place for him. They're outside cages. It's probably plenty of sunlight. Might work off some of the chubbiness. I'm going to have, I need to redact significant portions of this podcast episode. We sound bloodthirsty. Well, I guess there's a lot of FTX news. We'll cover a little bit more of it,

but I guess we're just doing podcasts, right now. I mean, we're, I had Travis on, uh, from North Island. We had a good chat about it. You went on a bunch of podcasts this week. It's just, this is exhausting, just talking about this all the time. Yeah. And it's not like we know much more than the average crypto, it's kind of market participant. So we're constantly being asked to apply on this stuff. We know just as much as anybody else, to be honest. Well, sometimes just knowing that an exchange owns a prop shop turns out to be a life-saving thing. I'll say that much.

Yeah, that was key. That was key. And it wasn't like that was a secret. I think we said this on a previous podcast. In the early decks for FTX, Alameda was emblazoned across all of those decks. It was very clear that Alameda would be effectively operating the exchange. So that conflict of interest was front and center. Yeah, well.

All right. So why don't we hop into some deals of the week here? First one up is a Node Labs. This is a decentralized energy grid for individuals and small businesses. They raised $4.2 million from Lair Hippo, Ladis, and Vayner Fund. Next up we have Zulu, which is a Latin America-focused digital assets wallet. They raise $5 million from Cadenza Ventures, NXO, CMT Digital. Also the name of a very good film, Zulu.

Zulu, I have not seen it. Is it good? It's a British classic. It has to do with kind of a last stand, these small number of British soldiers up against a large number of Zulus, as you might imagine. Oh, all right. Well, congrats to the Zulu team.

Next one up is, is this Arcon Energy or Akron Energy? I think it's Arcon Energy. A renewable is Bitcoin Miner. They raised $28 million from Blue Sky Capital. A Bitcoin miner raising money in this environment, that's 10 out of 10 difficulty. So congratulations to that company. That is life on hard mode. I honestly shocked to see a mining deal, get done right now.

Next up, the Cardano developer group input output global, I guess, formerly known as IOWHK. They have funded a 4.5 million block. blockchain research hub at my own alma mater, the University of Edinburgh. They've said previously made grants to Stanford, Carnegie Mellon. Shout out University of Edinburgh. Great place. Just not enough Cardano fans in the world. University of Edinburgh are just going to put that thing on the map.

Does it have smart contracts yet? I don't know. But it has universities. And that's maybe even better than smart contracts. Just with all this chatter about FTX, we just don't even talk about Cardado anymore. Yeah. I know. Congratulations to the University of Edinburgh.

I hope you fund some research that is extensible to other platforms as well. Next one up is Nucleo. This is a crypto privacy startup, and they've raised $4 million from Bain Capital and sixth man ventures. Next up, we have Carve, not to be confused with Curve. their decentralized identity startup. They raised $4 million at a reported $40 million valuation from Vertex and others.

Is that Vertex Pharmaceuticals? That's an interesting one. Huh. To look into that one. Next one up is Third Verse. This is a Web3 Gaming Studio. They raised $15 million from MZ Web3 Fund, Dash Ventures, and OKX.

Then we've got TROP in an FT utility startup. They raised $5.1 million from Tioga Cap. capital and others. So those are the deals of the week. Still still deals happening in this time, in this trying time with FTCS. And I guess those are the first kind of news items here.

So I don't know. Let's go down the list of FTC stuff, the stuff that happened this week. So the hacker is moving money all over the place. So you've got the Bahamas government that has some of the money. You've got at least one hacker that's a black hat and then looks like a white hat. and just moving money all over the place. Yeah, this broke, I think, after we recorded last week. So at the time, the state of the market was that we felt that the whole thing was a black hat.

Now it appears that the Bahamas have some portion of the funds and there's a black hat and there may be also white hats. So three distinct entities running around? That's what it looks like. Okay. Well, this whole thing is immensely confusing. New news breaking on this. Apparently, Sam took $300 million in secondary in that October 2021 funding round when they raised 42069.

I mean, should it have been an orange flag that they raised a meme amount of capital? If you're one of these companies that did the 4269 funding round, I don't think you should be a fiduciary of people's money. At this point, that just looks so bad that you should return the stub and make it a $420 million round. It's an insane thing to do in the next place. The meme rounds of financing is out. Let's just not do that anymore. No, just it's not even that funny. And so if he took $300 out of a $4.2069 round, I guess the first question is, was this known?

I mean, usually these things are fully disclosed. So he takes the 300, and then if you're an investor, I guess, you know, we've posited that there's questions around where he's getting the money, obviously. So he's putting $500 million into Robin Hood. He's doing these big LP stakes. He's, you know, showing a lot of personal money. So here's 300. Where else did you think he was getting the money? I don't know.

This is just, this is a weird one to me. I don't think you've, I've never seen a secondary transaction that large. as a percentage of total round. That's crazy. Yep. And as we said, they apparently bought $121 million worth of Bahamas real estate for people in the orbit. So Sam's whole persona about being this kind of stingy, humble guy, obviously false. Okay? I don't care that he was driving a Toyota Corolla around. Was it a Corolla, a Camry? I don't. don't know. Did you realize that Caroline Ellison went to Newton North High School up here in Boston? I didn't know that. And apparently Sam Tribuko went to high school up in Boston, too. And,

you know, obviously they all went to MIT. So Boston's kind of all over the story right now. And where did the Three Arrow's boys go to school? Well, Phillips, I think. Yeah, Phillips Academy, which is outside of Boston. So, yeah, there's something bad in that. Bad in the water. I mean, it's a good versus evil thing up here, right? You got the regulated guys like circle and fidelity and I'd like to think we're on the good guy side. But then you got this bad boy element and bad girl element,

just hardened criminals, like real hardened criminals in this industry that come out of Boston. Okay, well, what else on FTX? So the press continues to cover them with kid gloves, I would say. there is this outlet called semaphore, which I just found out about. They took investment from Sam Bankman-Fried, and now they're covering the story. Is that allowed? Give it back. Give it back.

It's a fraudulent conveyance. They're going to have to give it back eventually. But they're covering the story, and this reporter, what's her name? Liz Hoffman. Liz Hoffman was covering Sam's tweets or Sam's, uh, letter, rather, which was revealed in tweets, the apology, quote-unquote, to his employees. And her take was basically like, yeah, this makes sense from an asset liability perspective, classic bankrun, just paraphrasing there, but just no rigor, obviously conflicted, no integrity.

Yeah, the tweet is a shocking tweet. This, quote, this mostly makes sense to me. FTCS had a lot of collateral against not that many liby. The problem is that collateral was monopoly money and the liabilities were real money. That was not the problem. That was not the problem. The problem is he stole $10 billion worth of customer funds. Again, it's not very complicated.

This is remarkable. And she's tweeted this whole thing without disclosing the obvious conflict here. I mean, okay, fine. Report on Sam, if you must. Okay. Disclose the conflict, for God's sakes. There's like a half dozen of these little. publications that he funded that appear to have just taken the money and run.

And then you have this thing with the Walshrew Journal had one this week too, where they just had a lack of understanding around the fact that this was fraud. I don't understand. I get that crypto can be complicated. That's a problem because it's actually not that complicated. And if people are trying to make it complicated, generally they're hiding something from you and you shouldn't invest in what they're doing. But this is not complicated.

This is a classic made-off level fraud. It's end of story. I mean, there's stuff we don't know, like what ultimately happened at the funds, and that will eventually be clear in time. But, yeah, the basics of this thing are simple, is he just didn't carry out his obligations of running an exchange, which is to match customer liabilities with real assets. That's it.

Have you seen any reporting around Bahamas officials? I wonder if there was people getting, you know, fraudulent payments from FTCS to protect them in the Bahamas. I mean, yeah, he wasn't shy about this, his, you know, coziness to regulators. So I would imagine that it's not that hard to bribe a Bahamian official. But, yeah, I've seen a distinct lack of reporting on who is managing this process from the Bahamas side. I mean, do they have the institutional capacity to oversee a bankruptcy of this scope or a criminal enterprise of this scale?

Like, what are they doing over there? Have they done anything? Yeah, this is ugly. There was a bunch of other fraud stuff this week that in other weeks, other months would have been newsworthy. But two Estonian citizens were charged by prosecutors in the state of Washington over a 570. million dollar fraud of retail investors using something called hash coins and hash flare. So basically like a cloud mining, remote mining shares thing that didn't exist. And then there was an investment manager out of Ohio that defrauded investors for $10 million in a Ponzi scheme for falsely advertised Bitcoin derivatives. So I guess there's a lot of fraud being brought to light here.

Yeah, I mean, a 575 million cloud mining scam, that's enormous. That's a big one. And I hadn't heard about it until you just said it. How many bitcoins are there in the market right now? I mean, we know that there's only ever going to be 21 million bitcoins, but all these frauds, it's all these people that think they hold Bitcoin, they don't. Yeah, a lot of paper Bitcoin. I hate to validate the kind of Bitcoin Twitter conspiracies.

But, yeah, you know, they were right on this one. there were a lot of paper Bitcoin claims, not backed by real Bitcoin. I mean, what would the price of Bitcoin have been here if there wasn't just a bunch of bitcoins being made up on paper? It's just, it's a really interesting thought experiment. Yeah. I agree. I mean, this is the classic gold bug thing as well, that there's a lot of paper gold and not enough real gold. And, you know, if all the paper gold went away at the spot price gold would be higher. So there's more contagion.

So let's touch on some of these. I'll do the Singapore one first. So Equinex, which is a Singapore-based lender. They have filed for voluntary restructuring. And then, of course, the big story here is DCG and what's going to happen here. So Genesis Global Capital, the lending business, has halted with Darls last week. And that is material. Like, they're a big player.

They're the most reputable player in the space. They're sort of a nexus for many things institutional. Barry Silbert came out with a letter to his shareholders yesterday that someone got a hold of and put on Twitter. It says that they have five, DCG has 575 million of debt to Genesis that's payable in May of 2023. They have a 1.1 billion, I believe, promissory note from assuming the three arrows claims. That is due in June of 2032. And then DCG at the parent company level has a $350 million credit facility. So the most obvious kind of near-term issue here is Genesis and getting the withdrawals back up and running.

They're saying it's a duration issue. But there's three distinct groups here. So you have the $350 million creditor group at the DCG level. And then you have the Genesis creditors of which we know that Gemini is one. and there's a number of other entities. And then you have DCG itself and the investors in DCG. So it's a very complicated dance here. And these things can get really tricky when you're talking about spinning out subsidiaries

or putting subsidiaries into bankruptcy. So it's a lot to manage. We're, you know, I'm rooting for DCG. I really hope that they can figure something out here. I think they've been just completely upstanding citizens, despite all the controversy of late. I think these are good guys doing trying to do right by their customers. And so, you know, we'll root them on here.

I hope they can come to a resolution here on this Genesis issue quickly. Yeah, there's the additional weird complication of this $575 million loan that DCG took from Genesis, ostensibly for share buybacks, I think, at least in part. And maybe even buybacks of the GPDC product. Yeah, maybe. I mean, I don't think there's anything weird about it, really. I mean, it's intercompany, but it looks like it was done on a fully lit pricing basis. And so it was not like they were getting sub-market rate deal on this. And like many crypto firms, they use Genesis to fund expenditures.

I think some of that probably was GBTC buybacks, but it also could have been venture investments or investments into foundry, that type of thing. I think DCG's only raised 25 million in primary capital since it got started. So Ryan Selkis said that he feels it's likely the Genesis creditors actually roll their claim into the whole DCG entity, which could be one possible resolution here. It's, you know, it's really hard to say what happens here. I mean, we'll just caveat that we're speculating because unless you're in the room, you don't know. I mean, having gone through some of these in pre-crypto, you just don't know. I mean, it's all legal stuff at this point.

It's around, you know, is this asset impaired? Do you not have the right to do certain things unless you go through a creditor group? Or you technically breach over some covenant, something like that. So, you know, you don't really know, but I think I wouldn't be worried at all about GBT liquidating any of this crypto-Twitter fun. I think there's value at that gray scale. franchise, even if they have to sell it to someone else. Someone's going to want to buy that and clip the coupon and manage it as a closed-end trust until the ETF happens. And yeah, I could easily

see some sort of a haircut at the Genesis creditor level with like a make good into DCG equity being something that's actively on the table right now. So maybe you do a, you pick the number, 80% haircut or 80% on the dollar into Genesis, get this thing liquid again. and then you roll some of that into equity at either the TopCo level or maybe at the Genesis level. I'm sure all options are on the table. Yeah. One thing that I've been musing about is the possibility of closing the discount somewhat on GBDC, not through any explicit procedure or anything, but simply just by announcing their intent to eventually wind.

up the trust at some point in the future, say two or three years from now. Don't you think that if they committed to that, it would close a big portion of the discount overnight? All right. So I guess I'll argue both sides of this. So on one hand, you say, all right, 24 months from now, we're going to seek Reg M relief and we're going to wind down the trust. We're going to offer redemption, but we're going to do it in 24 months.

I think academically, yes, you would say that the discount would shrink and that that would bring it more in line. There's one issue with that, though, is that they've already been slapped on the wrist by the SEC for doing reg M stuff years ago. And so it's quite possible to me that they have a view that they can't do that, that they can't do a reg M on this. there's other ideas around creating a new fund and allowing allowing people that are in GBT to roll their assets into the new fund with the understanding that the new fund exists just to wind it down so that's been done on other products other closed-end vehicles before so I'm sure they're thinking about that but they're probably also just thinking that there's value there at gray scale and so you know just ride it out and you can you know you could

probably sell that or if you can keep it, then all the better. So they have retained Moellis to explore potential filing, whether that's restructuring or liquidation. But I would say I have faith in Barry overall. And that is a large franchise with many different moving parts. So I do think that they'll be able to write the ship here. Yeah, definitely, definitely rooting forum in the team over there. So I'm sure we'll have more on that next week.

So I guess down the street in New York, this was kind of overlooked. Kathy Hochle won the New York governor. She won her reelection bid. And then she finally signed into law this two-year moratorium on Bitcoin mining. Not all Bitcoin mining in New York, a specific kind of Bitcoin mining, which she'd been sitting on for months, actually. And it was thought that she was going to do what's called a pocket veto. where you just don't sign it and then eventually it expires.

And then I think now post-election, she doesn't have to represent herself as a moderate anymore. I think that's part of it. And then also the FTX drama made crypto much more toxic and she felt that she could do it. So New York has officially become the first state to really ban a certain kind of computation, basically, Bitcoin mining.

So it's a shame. I mean, I guess most Bitcoin mining companies and affiliated entities, once this was even introduced as a potential in the first place, probably ran for the hills and decided not to build business in that state. And that'll have a negative effect, I think, on the jobs picture of that state going forward. But, I mean, what she really should have done is just ban Bitcoin mining lending. That's where you really get bodied. Yeah, I mean, it's perturbing because I don't see it stopping with just Bitcoin. If you're deciding politically what kinds of things you're allowed to do with electricity that you've duly purchased, that's a weird, bad road to go down. Is this kind of computation is valid? This kind's not.

You know, I could see them, you know, extending that logic to other industries that they just don't like, which is, you know, I feel like we need something like net neutrality for power. If you're buying power, you know, shouldn't really be the government's job just to dictate what you can and can't do with it. So I do think this is something that other industries should raise an eyebrow out. It's not just strictly going to be contained in Bitcoin mining. I think that's right. So in sunnier news, more exchanges are doing proofs of reserve, which is great. So OKCoin has done one. as of today, which is Wednesday, they released a proof reserve attestation such that users of the platform can verify that they're included in the liability set.

So OKCoin also did one in 2014. So it's been eight years in the making, but they have now repeated their proof reserve attestation. So I just want to say congrats. And thank you for doing that. I hope others follow suit. But proof reserves is getting a lot of attention. A lot of people worried about how you do that liability side of it. It's not an exact science. We acknowledge that. Yeah.

And I mean, to be clear, proof reserve, that term does refer to the liability side too. It somehow became a cliche in the industry that it doesn't incorporate liabilities. When I and others talk about it, it incorporates both sides. So if someone's just attesting to their assets and calling that a proof reserve, that's wrong. Of course, you know, releasing the liabilities does leak some data, namely the distribution of user balances on the exchange, things like that. There are ways to do it in a more privacy preserving way. There's potential ways to do it behind a zero knowledge proof. You know, there's possible enhancements there.

So I don't see that much excuse for exchanges to not do it. So yeah, pretty optimistic about the procedure overall. All right. So it's Thanksgiving time. You know, another year. It's a lot to be thankful for this year. A lot to be thankful for. What are you thankful for?

Well, let me look at my notes here. Tough year for many. Not just in crypto either. I mean, technically we're in receipts. recession right now, I think. Is that right? Yeah. Well, I think we have been for a while, but we keep on changing the definition. It's just worse things keep happening to us such that we sort of forget about the recession. I am thankful for the American legal system. Okay. It hasn't really Sean Bright with this FTX fiasco, but just reflecting on the chaos in the Bahamas right now,

I'm thankful for the fact that we have corporate governance in America and a framework such that firms can operate without defrauding their customers. And if they do, there's sort of recourse and things like that. So yeah, I'm thankful for sort of like the lit regulatory apparatus we have here. It's not perfect. Certainly better than running things offshore. Yeah, it's better than anything else in the world. That's a good thing to be thankful for. I'm thankful for bounty hunters.

I think that we don't talk enough about bounty hunters. There's clearly a huge need for more of them with these crypto fugitives that are in places like Bali and Indonesia and Dubai and the Bahamas. And so I think we need to celebrate these people. It has been a low interest rate environment, and so I think it probably hasn't been the best time to be a bounty hunter.

But you don't hear enough about, bounty hunter education and just acknowledgement, general acknowledgement. So thank you to all the bounty hunters out there. I would say that's a very, very weird one, Matt, but I'll allow it. I am thankful for exchanges that have operated for a decade or so without any fault or interruption or issue. So Cracken, Jesse Powell. Yep. One of the first exchanges to do preserves, one of the first to bring it back. Always true to his core values. Brian Armstrong, Coinbase, never any real issues.

Obviously there's things here and there. But it's been a paragon of stability. Bitmex. I know Bitmex has had their issues, but they were never hacked. They were never hacked. They've always kept client assets safe. And I'm thankful for kind of OG crypto cypherpunks that have never changed. They've always been true to their values.

Eric Voorhees, for instance. Always true to his values. Of course, change is good, right? You should change a response to new events and things like that. But Eric has been a force of stability and has just been kind of a north star for a lot of folks in the crypto space. and, you know, I think if you're active in crypto for a long time, it's easy to lose your mind and just go completely crazy. And I'm thankful for those that haven't and that haven't, you know,

washed out or just left or become discouraged in a way. People that are still active in crypto after a decade plus, I'm very impressed by those people. That's a great one. I totally agree with that one. I'll sprinkle onto that one as the open source developers. So despite all the market turmoil this year, just the advancements that we've seen in some of these blockchain open source communities,

ranging from the Ethereum merge to some of the privacy stuff that's just super exciting from a zero knowledge perspective this year. There's a lot of reasons to be optimistic about what's happening at the technical level in this industry. I am thankful for the policymakers that are engaging productively with the industry and aren't just going to go for a knee-jerk reaction of ban at all or regulate it. to non-existence. I know that's probably the politically expedient thing to do is to look at the wreckage

in the cryptos space and say, well, this whole thing is horrible. Let's just do away with it. I know it's a lot harder to try and, you know, wend a better path, a delicate path, which allows for renovation, but does impose some meaningful protections, which are probably necessary. and I'm thankful for the policymakers that are having those conversations right now. That's a great one. Well, my last one similar to last year is the Castle Island team.

I'm very grateful that we've expanded the team. Sean and Ria have started to do some podcasts, so that's been great to see. And we've brought on some thoughtful people that have helped us avoid stepping in some very obvious pitfalls. So I'm extremely happy about the team that we're building out here. So thanks to the Castle Island team. yeah as i mean it's been what four and a half years of castle island now is that right that's right that's a long ass time and uh two or three years of this podcast it's uh it started as just an excuse to speak to interesting people i can say we've safely accomplished accomplished that two million downloads

too now those are not quite peter mccormack numbers which i guess explains why fidelity pass us over. But still, you know, had some good conversations on the show. We really have. So everyone, I hope you have a safe and healthy Thanksgiving. If anything crazy happens, we will break in, but otherwise enjoy the holiday and we'll see you on Monday.