On The Brink with Castle Island - Weekly Roundup 12/01/22 (Is SBF playing the media, more Bad Boys, Binance's Proof of Reserve) (EP.377)

Episode Date: December 1, 2022

Matt and Nic are back for another week of news and deals. In this episode:  Tether collapse scenarios The wrapped Bitcoin issue Ria and others are named Forbes 30 under 30 Sam is still not in jail Sam's hidden media strategy How Sam could be positioning himself for the case Was FTX really a case of negligence or was it fraud? Sam is muddying the waters Sam Trubucco is our bad boy of the week Should the US really annex the Bahamas? Members of CT are running around Nassau looking for Sam Should the US be pressuring the Bahamas for more action here? Beto returns his FTX donation The CFTC met with FTX 10 times The SEC's culpability in the FTX scandal The Farmington Bank acquisition scandal Did Sam Trubucco and Caroline really not know about the malfeasance? SBF is throwing his former colleagues under the bus Kyle Davies' embarassing attempted comeback What's the fate of the charity boxing match? Casa rolls out support for Ethereum Binance rolls out a Proof of Reserve - but it has issues Content mentioned:  NYMAG, Interview with SBF 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 to Britain's ailing economy with a new round of Concentuteease. You've printed 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 Mike Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. Today's Metrics Minute. The transaction value of stable coins is near an all-time high of $25 billion a day. Stable coins not in a bare market. Since November 8th, the tether supply has decreased by about $4 billion from $67 billion to $63 billion. And USDA has experienced a slight uptick in free float supply from 37 billion to 40 billion since November 8th.

The price of wrapped Bitcoin has deviated from underlying Bitcoin, but it has begun to recover. It's currently still below its Bitcoin reference rate. That's your metrics minute. That stable coin volume, it's one way flow probably, right? Off exchange into bank accounts? Yeah. I mean, I don't even know what's going on. I was looking at this data.

I was in Coin Metrics, state of the network, excellent newsletter. It is remarkable. Staplecoin transaction value has just grown and grown and grown. I looked at Bitcoin in Ethereum. Bitcoin transaction values back at 2020 levels. So it's come way down. So stablecoins definitely continue to validate themselves as like an actual medium of exchange. Yeah, people hopping right into dollars, that's for sure.

Interesting that tether supply has come down a bit to. I had this thesis that tether holders like couldn't. redeem their tethers because if you think about the kind of person that's a tether holder, it's also the kind of person that probably doesn't have good access to the U.S. financial system or has impediments to doing that. But some of them are now redeeming, reflecting the negative carry of holding a stable coin. Yeah, I think certainly some of those holders will not be able to get out because they just don't have an alternative.

but, you know, if you have an alternative in USC, now you're probably seeing some people rotate from tether into other stables. Have we discussed my tether collapse scenario hypothesis? No. Should we do that now? Man, yeah, this is going to be a great one for the fudsters. So I think tether could fail not due to not having reserves, but just because the U.S. government basically harasses them. into submission and eventually gets whoever the custodian is holding the treasuries to freeze them

and stop redemptions and then I think what happens there is um it starts to trade a discount but not a horrific one like maybe 20 cents on the dollar so let's say it trades in 80 cents and um tether holders that can't exit because they can't redeem so so you might imagine there might be some sort of orderly wind down process where, you know, you just redeem your tethers for the underlying, and that's it. A lot of people wouldn't be able to pass the KYC to redeem in that situation, right? Sure. Because they don't want to necessarily docks themselves to the U.S. government, or they just can't, you know, accept, you know, a treasury or whatever. And so they voluntarily accept a haircut to get out of tether. And then some arbitrageeure, a Western fund, buys up all

those claims at 80 cents on the dollar or whatever. And then they end up being able to perform that redemption. I don't think that's necessarily far-fetched. I mean, if you think the U.S. government enforces on tether, I think that's actually probably the default of how that would get wound down. So, yeah, I don't think that's a tinfoil hat conspiracy. No, no, it's not. Well, I don't think it is. I definitely one of the scenarios I think is actually likeliest here is the U.S. government eventually gets fed up with there being this massive crypto euro dollar system, which is just out there, which is unlike the onshore stable coins is much less regulated. I mean, it's not like the onshore ones or even that regulated.

And they're like, well, we, you know, we're going more for capital controls these days. We have to stop these stable coins. And they eventually identify who the underlying custodian bank is. Well, I think everyone kind of knows already. it's just a matter of, are they going to put the screws to those banks, the couple banks there? And I think in a period of financial repression, that becomes more likely, like capital controls, credit controls, you know, stopping international capital flows. That all becomes more likely. So I do think the government has a motive if they want to carefully, tightly manage the economy and stop these outflows. The Chinese government has a motive, too, frankly.

Yeah, I think China would have more of a motivation even just all the leakage is coming from China. Yeah, yeah, exactly. Anyway, so that's my tether. You could say I'm a tether truther of a sort. I think they have the collateral, but I also think it could be forcibly wound down. Send us some tether fud dice, tether. Yeah, what was they made, we talked about this, right? They stole our fud dice.

They stole the idea. Yeah. Where the dice? I don't know. It's unacceptable. Well, this episode is also brought to you by Talos. Talos powers institutional access to digital assets, whether you're on the buy side or you're on the sell side, whether you're in Tradify or a crypto-native firm.

You can use the Talos platform to enable the entire life cycle of your trading experience. You can trade on the API or on the web-based GUI and all members of the ecosystem are connected on Talos, whether that be prime brokers, lenders, investors, custodians, exchanges, OTC desks, and more. They have the best leadership team in the biz, so head over to, Talos.com. That's t-al-os.com to learn more. So a big Castle Island content week. Yeah, we had a big week. So we had Mike Belchion earlier in the week from Bitgo,

talked about the unfolding FTX fraud, talked about MPC custody, talked about market structure. So always good to chat with Mike. You did not bring up the wrapped Bitcoin issue. That was an oversight, I would say. I did not ask about the rap Bitcoin issue. Would you classify that as an issue at this point? I mean, yes. Absolutely. You know, it's an issue.

The key became stale. Like a bunch of the signers, you know, lost access to their keys. And so where do we stand now? It's like eight signatories on that. It used to be 15. Look, we're good, but we lost a few good ones and it's tight now. We can't afford to lose that many more. signers. Well, weren't a couple of them like FTX fraudsters. They were good to get rid of some of those guys.

Yeah, but you know, like you don't want to run it too close. You know, you don't want to be in a nine out of nine situation. Definitely don't want to do that. But in any event, it was good to have Mike on one of the good guys. Also sat down with Mahesh Ramakrishna from Escape Velocity. Talked about decentralized wireless, which is one of the more fascinating emerging areas. Very interested in that category. That's right. So busy week for you. Also in SIV News, RIA, our fellow colleague and SIV occasional co-host, is Forbes 30 under 30. Huge news for Ria.

Some high quality people on that list this year. So really exciting to see Ria. A couple Castle Island portfolio founders in there as well. That's right. Chris Maurice from Yellow Card. Congrats to Chris. So yeah, you know, some people make fun of the Forbes 79030. It's one of those things that you sort of publicly claim that you would never want,

that you're kind of above it in a way. But then when you get it, it's actually really great. Yeah, I bet. I never got it. It's cringe and base at the same time. I was on the record saying I would not have accepted it, but I didn't have to face that because I was never selected. They just never gave it to you.

Yeah. And then I aged out. I'm officially 30. So it's all very depressing. Your 40 under 40 time will come, though I'm sure. The other thing, over 30, your hangover is get immensely worse. Oh, is that right? It's like a light switch.

Did you not experience this? Yeah, I did experience that. I think there's also a factor of when you have children, you just something in your body goes and you just can't hang anymore. It's just like 1030 hits. like, I think I'm going to bed. I would say you can still hang. Thank you.

Yeah. I can turn it up, but it's kind of like I'm an off the bench guy. I don't think you're going to see like a full season out of me anymore. It's spurts. Speaking of sports analogies, have you been watching the World Cup? I know you're a noted soccer skeptic, but have you been watching the tournament? I have not. Sean was, you know, we were in the office.

We had it on. Sean was going crazy when that goal scored, but I was not, I was, I think I was probably at my desk writing something angry about what I'm seeing in the market. The U.S. made it through to the next round. It's all very exciting. So what happens now? Yeah, so the U.S. qualified behind England in the group. Both of my countries made it. Very proud, dual citizen here, both my teams. And the U.S. will play the Netherlands this Saturday. So that'll be a very stern test for them.

They could win, but they're certainly the underdogs. Well, I'll be rooting for the U.S. for sure. But I don't think I've ever watched a full soccer game for being honest. Well, I am rooting for England. I signed up for FanDuel, and they gave me a free bet. Okay. So then I put it all in England, winning. They're very generous with the free bet.

That seems like an FTCS business model. I don't know how that can possibly work. I think it is. Yeah. But then it turns out you can't use Fanduel in Florida. I was in Maryland at the time. And so now I can't get on the app. So if I win,

I don't even know if I get credited. They just take that. It's like a customer deposit on FTX. That just belongs to them now. Straight to Alameda. Yeah, they have a side. Proprietary.

Side betting operation. Yeah. And that's, yeah, don't even worry about it. You opted into it probably. They've accumulated an extremely large margin position, which they feel has a moderate level of risk.

Yeah. I think that's I think that's right. Well, some deals got done this week. Should we head into the deal section? Still deals. Yeah. First one up is X-DOW. This is a startup that helps Dow scale.

They have raised $2.3 million at reported $50 million valuation from Panani, Pannoni, DWF Labs, grizzly capital, and others. Can we let's make a note to check that we're not being punked on that one. Yeah, next step we have Kieln, an Ethereum, Staking is a service business. I like all the, you know, the metaphors for staking being like baking and like pottery and hardening.

I like that. It's nice and tangible. They have raised $17 million from Illuminate Consensus, GSR and Cracken. Next one up is a Jirah. This is a Cameroon based crypto platform. They raised $8 million from Anthemis and Dragonfly Capital. Then we've got Game 7, Dow focus on blockchain gaming. they announce a $100 million grant program to fund up-and-coming blockchain-enabled games.

I would say we're still waiting for the first good blockchain game. When you announce a $100 million grant program, does that mean that you have a $100 million grant program, or does that mean that you announce that you want to do a $100 million grant program? It appears that they have the money. They're a gaming-focused Dow. I don't know where Oh my God Yeah

So they have a 500 million Committed from other DAOs The BitDAO And the blockchain game platform Forte So You know The Fed's got to raise rates

Fed's got to raise rates We don't do this Scratching Scratching my head over here Scratching this recursive DAW is Donating to each other I don't know man

I don't know I don't know. I don't know. Next one up is Roboto Robato games. This is a Web3 gaming studio. They raised $15 million from Andreessen Horowitz, Anna Mocha, and Gumi Cryptos, among others. Then we got Keyrock, a crypto market-making firm.

There is $72 million from Ripple and six Fintech Ventures. Still firms being raised. Market-making firms. That's kind of an interesting category right now. A lot of market-making firms got dinged, obviously, by the FDX having deposits on that platform. I think the liquidity landscape has changed a lot. So it probably are some great opportunities if you're a crypto-market-making firm out there. Yeah, I bet.

I mean, got to imagine there's a gap in the market, not just Alameda out of business, but some of their peers as well. Next one up is Anamoka. They are launching a $2 billion fund to invest in Metaverse business. And did they raise this yet? The same question as earlier. So they have a $2 billion war chest over there? I mean, that's gargantuan. So it says they plan to set up a fund

worth as much as $2 billion. That's a lot. Next one up is Frankie One. This is an identity management and fraud platform. They raised $15.4 million from Greycroft, finance, Krakken, and others. some chunky raises this week. Lastly, we have Fleek

a Web 3 developer platform. There is 25 million from Polly Chain, North Island, distributed global, and Coinbase. What you're going to do? What you're going to do when they come for you? Bad boys, bad boys. What you're going to do? What you're going to do when they come for you?

All right. So it's just like every time we talk about FGX, I think, it's just consider this to be like the bad boys section, right? I don't even know where to start to this. day. Yeah, we need a running. I mean, at this point, it's just all bad boys. Just everyone associated with FDX is such an odious creature right now, and Sam is just the top of the list. So I guess the first update is this guy is not in jail yet, has not been arrested. Again, Bernie Madoff was in jail the next day when that came up. He doesn't even think he's going to jail. That's the best part. So where do you want to start here?

He doesn't think he did crime. He did an interview with Andrew Russ. Sorkin. Is it Aaron Ross Sorkin? Andrew Ross Sorkin. He was pretty evasive, lied through his teeth. I have some issues with that. He did one with George Stephanopoulos that was on Good Morning America today. We're recording this on a Thursday. I thought Stephanopoulos was more hard hitting, but SBF lied and evaded throughout that. Let's just talk about the media strategy here first, I guess. What would you make of these two interviews? Yeah, he's actually been giving interviews out like candy. the question is like Sam's not dumb, right? Like we know he's a smart person.

So what's the explanation here, right? So do you want me take a chunk at that, take a pass at that, or you have a theory? Of course I've got a theory. So one explanation is he's actually lost 100 points of IQ and he's lonely and he's talking to journalists, right? And he's off the reservation. He's not listening to his lawyers. I don't believe that theory, Matt. You can probably tell him on my tone.

I don't believe that. Two, he's trying to achieve something with his press tour, right? He does have a crisis management, comms firm. He's got incredible illegal connections, both of his parents and lawyers. He has the resources to hire and marshal the best law firms in the world. So my explanation is he's positioning himself for a future case. He understands that this case will be played out in the court of public opinion as much. as in the court court. It's not like those normal cases where none of the jurors know about the

case going in. This will be one of those high profile cases. It's a political now, right? So if you can get members of Congress, politicians, and the general public to believe your side even before the first, you know, grand jury is assembled and before the first affidavit is signed and before the first deposition, you're already ahead. So what's he doing? Well, he's trying to position it was just negligence as opposed to criminal fraud. And I think that's what his whole press tour is all about is getting softball or semi-softball interviews from journalists that don't understand crypto, they don't understand FTX very well and laying out his side with these journalistic counterparts that don't know enough to push back

or to ask him the right, tough question. So I think that's really his strategy and I actually think it's working. I completely agree. It's very clear that he has a crisis management firm that has taken the view that you can do a few things right now. One is try to be as sympathetic as you can. So try to just put this up to, hey, I was overwhelmed. I'm humbled. That whole nine yards.

Two is muddy the water as much as you possibly can over the fact that you commingled these assets. Because there are other companies in the crypto space where they had a business model that was prone to bank runs, where you were allowed to co-mingle assets, where you were effectively running a lending desk. And so Sam is out there not directly answering these questions around did you commingle assets? Did you move exchange assets, which under the terms of service were not to be commingled? Did you move those over to Alameda, which is a hedge fund that you control? He's trying to muddy the water and just say that this is bank run. He's trying to muddy the water on a very narrow product that they had on FTX, which was an earn product where you had the ability to earn yield, but you would give up possession of the asset.

So he's clearly trying to do that. And I think the other thing, and we'll get into the people side of this with Trubuco and Caroline Ellison later, is he's very clearly trying to throw them onto the bus. So if you're Caroline Ellison or you're Sam Trebucco and you think that you have any shot of staying out of prison, if you saw those interviews last night and this morning and you aren't immediately turning state's witness, then you're just getting really horrifically bad legal advice. Sam Bankman Fried is trying to put you behind bars. and that's going to be his defense. Completely. I thought the best interview actually was a written interview that Sam conducted with Jen Weechner.

I don't exactly know how to pronounce her name of the NYMAG, which has had the best coverage on this. I actually, I subscribed to that last night, that magazine, the print and digital version, just because they've had such unbelievably good crypto coverage. Yeah, not just because they talk to us. You know, we like them because their coverage is actually good. So talk a little bit more about this interview.

So Jen knows enough about crypto to ask actual good questions. See, the problem I had with Sorkin interview was he would ask quote-unquote tough questions, but he would never follow up on them. And he would just accept Sam's answers. So he'd ask him about, well, did you commingo client funds? And Sam would say some sort of red herring nonsense like, oh, well, actually, that's not exactly how it worked. Like, this is a margin exchange. What happened was Alameda developed in negative equity position.

and we didn't account for it properly, and then the negative equity overwhelmed, the positive assets on the balance sheet. So he gives these like winding roundabout answers, doesn't answer the question directly. The problem is Sorkin doesn't know the subject matter well enough. He doesn't even know what a margin exchange is, really. I mean, he was asking questions like it was a spot exchange.

Yeah, he was out of his depth. So I thought Jen, Jen, you know, pressed him much more directly and asked him, you know, much more specific questions also about Caroline. So we'll put that in the show notes. But it seems to me the strategy right now is to deny that really he even knew what was going on in Alameda, which is preposterous, you know, 90% of that company. And he spoke many times about his oversight of Alameda. to imply that it was Trebucko and Caroline that mismanaged Alameda's risk book, to imply that it was just a series of accounting errors and just the fact that they, you know,

let the risk position grow too much, to deny that they deliberately commingled client funds. Effectively, it's the same thing if you give a, you know, you know, sister counterparty on the exchange, a closely affiliated entity, if you let them accrue a massive negative balance on the exchange without liquidating them. That's effectively the same thing as, you know, stealing client funds, right? Of course. I think it's literally identical. But, you know, none of the journalists know enough to press on that.

And Sam is also trying to, yeah, just make himself like sympathetic and do his apology tour. And, yeah, unfortunately, I think it is actually fairly effective right now. I hope that we get some better journalists that can press them more directly on it. Hopefully we do. I mean, it's puzzling that we haven't really zoned in on them. It's just puzzling that we haven't. I mean, we talked about an amphibious raid of the Bahamas on last week's podcast, and I actually had someone reach out to me, and I'm going to actually have lunch with this person,

not necessarily to talk about amphibious raids. Are they a Navy SEAL? Formerly, I don't want to give too much information, but formerly in the realm of people that know a lot about amphibious raids. It's also a very knowledgeable crypto person. So we're going to have launch. It's ostensibly to talk about crypto stuff and to just catch up. But if you don't think I'm going to be asking about how amphibious raids of foreign island countries work, then you're crazy.

So there's already members of crypto Twitter that are running around the Bahamas looking for Sam. So that's, look, I'll admit it. I actually contributed to Gabel Haynes' fundraiser. Is he there? Is he down there? He raised 10 grand. which seems like, to be honest, a suspiciously large amount of money to buy a flight and a hotel to the Bahamas.

So he went to Nassau. Bitboy, I think, went. Yeah, that guy's having a moment, huh? They're not exactly the kind of people you might expect to take down Sam. But this is kind of what happens. I mean, it's funny, but it's also not that funny. This is what happens when the government is derelict in their duty. There's a vacuum here.

I don't, to be clear, I don't want a private citizen to go on an animal. amphibious raid of the Bahamas. I think it makes all the sense in the world for the United States government to say, this guy is still walking free. He defrauded thousands of Americans and he has a bunch of money that he siphoned off to the Bahamian government illegally. So why don't we just go grab that money? I think we've fought foreign wars over a lot less than this. Yeah. I mean, this is less provocation than the Gulf of Tonkin. Like the U.S. government has a habit. I'm not saying that they should be consistently, you know, illegitimate in their operations, but they do have a habit of employing, they certainly have the ability to, you know, manipulate foreign governments

into certain judicial outcomes, right? So Julian Assange clearly prosecuted at the behest of the U.S. government by their foreign proxies, the tornado cash developer undoubtedly the U.S. government pressured the Netherlands into their insane treatment of him. I mean, like, it's not like the U.S. always follows the absolute strict, rigid letter of the law. Like, they have the ability to influence outcomes here for good or for ill. The fact that the Bahamas is just operating on their own basis, apparently, you know, completely free of encumbrances and is completely mismanaging. This does speak to the fact that the U.S. government has done nothing so far.

They could easily have applied pressure to the Bahamas. to make this process more orderly or to begin extradition, anything like that. They haven't. So I think that is a significant failure. Yeah, I don't know what's taking so long. A couple other FTX nuggets. So Beda O'Rourke, Texas Democrat, apparently got a $1 million donation, returned it. Returned it, actually, I think, before the bankruptcy filing.

So good for him. The Senate Leadership Fund, which is affiliated with Mitch McConnell, Republican Senate Leader, they received a million dollar donation. We're just going to have so many more of these stories. around how many political donations were. The Texas State Securities Board, they think that Sam is going to go and testify on February 2nd. Looks like he has a summons.

That was about an investigation that was well before this whole fraud thing came up. So Lord knows if he's going to be able to do that. Sam also doesn't know what happened to his $100 million Twitter stake. It's like he lost it, like his car keys or something. Like just how many. you can't make this stuff up. Yeah, some other interesting regulatory stuff. CFTC chairman was testifying in front of the Senate today about FTX,

admitted that they had met with FTX 10 times. Of course, they were very closely engaged, certainly more so than the SEC, not implying anything sinister there, but FTX and Sam were clearly known to U.S. regulators. And I resent this new narrative coming out of Gensler, and publications that are close to him that he's been leaking information to, that Congress was trying to stop Gensler's investigation into FTCS.

There was none. There clearly was nothing going on. Everyone was in the dark about this. The SEC's role in this was to force U.S. clients overseas into the arms of FTCs by inhibiting the ability of onshore exchanges to operate properly. That's the SEC's role in all this. The other thing that's going to be interesting here on the SEC, so I don't know at what cadence you're supposed to release your meeting notes

with who you spoke with, but the SEC chairman has not released under the Freedom of Information Act has not released his daily schedule since it looks like Q2, like sometime over the summer. And Charlie Gasparino, who's now, I guess, over at Fox Business, reported that IEX and FTX had this pact. So FTX was an investor in IEX and that they were apparently meeting with the SEC around getting a regulated venue in the United States.

What's going on there? I mean, I don't think Brad Katsuyama does a lot of interviews, but it would be nice to hear from him. It would be nice to actually see the meeting docket for the past six months and figure out what was going on. But there's a lot that stinks about this. I mean, F-Chakes was trying to buy their way into responsibility through any avenue they could. There was this bank acquisition, which is insane.

The Farmington, did we talk about that last week? Did we even mention that? So I went on this, like, long rant on this guy, Romnik Aurora, who had, who's the head of product. He was the head of Corp Dev and he was the head of investor relations. And my point was that in those three roles, you should have known what was going on. So if you're the head of product, you should know how the product works and that there's no cold wallace. you should know about negative margin positions on the exchange. As the head of Corp Dev, you should know that these lenders that you're, you know,

quote unquote, bailing out, you're doing it because Alameda has huge loans with them. As the head of IR, you should, you know, be representing that you know why Sam is able to pay $500 million to Sequoia, Altimeter, and multi-coin. So the whole point of that was that you should have known these things. But then you have this, apparently he led this Farmington bank thing, which the company had less than $10 million in deposits and they put $11 million into it for like a 9% stake.

It's just... And then immediately injected client deposits started washing money through the bank. The San Francisco Fed signed off on this deal. They went from like $5 million in deposits to $84 million immediately. It's...

How is that not a criminal... How is that not a criminal offense? I mean, the worst part for me is this is an offshore Bahamadian an unregulated entity buying their way into the Federal Reserve system through this bank, the SF Fed signed off on it. So apparently you can do it if you're Sam Bankman-Fried. You can just get a bank charter. Meanwhile, custodia, formerly known as Avanti, the Kansas City Fed has been sitting on their master account application, which they did through the most legal,

rigorous onshore process imaginable, literally with this special purpose legislation written in Wyoming, the Kansas City Fed's been sitting on that application for two years unconstitutionally. Crazy. What's going on here? So if you're Sam, you can just flout the law and if you play by the rules, you get crushed. Well, Matt, last week your bad boy segment was oddly popular. I have to give you some credit for that. This week we have a new bad boy.

We haven't even talked about Three Arrow's Boys, I guess maybe we can get to them later. This is another boat owner. So this is another boat owner. So which one is this? Sam Trubuko. So let's talk a little bit about a nomination for Bad Boy of the Week for Sam Trubuco, who's apparently from Boston, went to Roxbury Latin, just immediately rockets up the list of very well-known Roxbury Latin alumni. So congratulations to RL on this one. Sam Trubuco, whether or not you're guilty or not, it might be a good time to just come out and say,

hey, I'm cooperating with the government. I can't talk or else this is going to get pretty ugly. So he was the co-CEO of Alameda research. What we're starting to find out, so he left, obviously, over the summer, which is when a lot of bad things were happening. So my questions are pretty basic. I think they're questions that anyone should really be able to answer. I'm sure the federal government will have a lot of these same questions.

So my first question is that as the co-head of Alameda research, did you know that you were structurally able to run negative equity balances? And did you think that that was legal? That's question number one. I would think that you'd be able to answer that, right? And be exempt from liquidation on the exchange. Right. And so that's the second one, is that you were running these negative equity balances. You were exempt from liquidation.

where did you think the money was coming from, Sam? So you're running this, you're running negative equity. You post a $3.7 billion loss for tax purposes at Alameda research. How much venture capital did you raise at Alameda? Certainly it was nowhere near $3.7 billion. I don't even think it was more than $20 million. And so you're running negative equity. What did you actually think was going on?

And when did you know that customer deposits were being moved into your margin account the exchange. That's a pretty simple answer. I would imagine that's a pretty simple answer is that I knew about it and I decided to leave. And what's more is Sam is now disclaiming all knowledge and responsibility. Let's say that's true. Certainly isn't. Someone new. Someone new. Someone new. You look at your P&L. You're the first thing you do. You're the co-head of Alameda. You post a $3.7 billion loss. Where do you think the money's coming from? And Sam, Bankman-Fried, is saying he didn't know. So who knew? Obviously, everyone knew. The next thing is that there's a billion dollars of personal loans taken out by Sam Bankman-Fried during the time that

Trubuko was running this thing with Caroline Ellison. But you just posted a $3.7 billion loss. Did you think that that was a normal thing, that the owner of the business was taking out a billion dollars against it? Where did you actually think this money was coming from? I mean, not to mention $1.2 billion investment into Genesis digital assets. $1.2 billion in which SBF took the board seat. So don't say that you weren't involved in it, right? Sam Bankman-Fried wasn't involved in it. It just doesn't stand up. So the other thing that would be great to get Trubukos view on is the coin metrics report around Q2 and the movement of FTT tokens when Trubuco was still there. And so this massive bailout that you can see on the blockchain, what's

the deal there. So there's just a lot of smoke on this thing. And it's very clear that, and we didn't even talk about all the stories. So the Wall Street Journal has a story around Alameda over the life of its, you know, terrible time on earth here as a going concert business was front running all the FTX listing. So just market manipulation. The lowest possible ethics that you could ever imagine for the leadership that was running that. So I think, you know, it's very, valid for the industry to ask Sam Trubuko for a little bit of an answer. And if you can't answer Sam,

then I'd probably be satisfied with, I am cooperating with the federal government of the United States to try to make depositors whole here. And I can't say anymore, but I'm cooperating with the federal government. That would be the appropriate response right now out of Sam Trubuco, because you're going down

on this one way or the other. Sam Bankruptry is going to put you under a bus. Yeah, it is remarkable that the general lack of scrutiny of the other top executive, Sam's lieutenants. It was clearly a small group of people that are running this organization, very little in the way of actual genuine legal or audit personnel, you know, compliance officers that apparently didn't exist. So it was just a tight cabal of these people. The fact that they're all running it, running Alameda, running FTCS, of course you acknowledge of this. it's not just a Sam Bankman-Fried story.

It's about the others, too. You can't run a scam like this with one person. And, you know, Sam Bankman-Freed is going to play this. It was just two people, and it was the people that were running Alameda, Tribuco and Caroline Ellison. And you can't do a scam of this magnitude with those two people either. So there's a wide net here, and we're going to find out who's in it. Yeah, what a week.

Elsewhere in Bad Boys didn't even want to address this. Kyle Davies, a pair of things. to have he's grousing about something or other. I think he's rebranded himself, Bitcoin Maximilist. They can have him, you know. Kyle Davies, just shut the hell up. No one wants to hear from you, Kyle.

Why does he want to debate me? What, like debate what, bro? Like the length of your prison sentence, like the taste of prison food, there's nothing to debate. Kyle, let's talk about the fact that you solicited U.S. investors onshore with your deribit offering. Let's talk about your Warbler Capital deal where you took all the kids money

for a sub fund that you raised from U.S. investors with false marketing. Let's talk about the fact that you lied to all your lenders. Or let's just not talk about this guy ever again because this guy just doesn't deserve to be covered. And the fact that we're even engaging with this clown on this attempted redemption tour is just too bad. Yeah, I mean, word is that he's out there

trying to get forbearance from his creditors and offering them upside and, you know, his future endeavors. It's like, there's not a lot of upside to offer there. There's only downside. So it doesn't seem like any of them are taking the bait. It does seem like that's why him and Sue came back. They're trying to raise a new fund for some nonsense. Don't think they're going to be successful in that. I mean, who would give money to these guys? That's just the most insane thing. And unless these guys magically discovered a way to travel to distant planets and they have a patent on it. I don't think it's worth even talking about it. Yeah. So pretty embarrassing. I was encouraged by crypto Twitter just roundly rejecting his

idiotic overtures. I mean, the guy's in a non-extradition country. It's coming. We'll do the conversation in the Southern District of New York. We'll do a podcast there for sure. And it will probably be, I will be speaking into a telephone and you'll be limited to about 20 minutes. That's how that podcast is going to work. you did have a tweet that you wanted to do some like charity boxing match i think that's that's beneath you you can't let this guy this guy's going to be having enough boxing matches in his future when he's in a federal penitentiary i don't think he needs you to put him in a body bag um yeah that was an ill-advised tweet um but yeah no it's a sincere offer i mean it's the first thing you know maybe it'll be a start

in terms of if he wins you can take the purse and try and pay back his creditors it's going to be long road for him. So yeah, that was a sincere offer. I would, I can make weight at 155. I know people made fun of me for that. To be clear, I walk around to 170, but I think I can make weight at 155. That's pretty good. So, you know, that's how it works. You, you know, you cut weight. I'm not, I don't walk around at 155. Kyle Davies doesn't strike me as the person. He's, he's never been punched in the face and you can really tell by his personality. He, he's like a private school kid who, never got punched in the face. Neither of I.

I've never been punched in the face. I don't, it doesn't sound pleasant. But I would do it for the sake of his creditors. You know, they need, they need a little hand here. So anyway. Yeah, I thought it was a good idea. It was directionally correct. But let's just stop.

Let's just talk about Kyle Davies. So we're not debating him. There's nothing to debate. There is the boxing thing. It has to happen on U.S. soil. And that's that. All right. So in other news,

so this, was expected. So BlockFi has filed for Chapter 11 bankruptcy protection. They had a loan out to Alameda. No surprise. Alameda did not pay it. So it looks like it was a quick process there to make that filing after they could not pull down on the credit facility. So this one will be argued. The one thing that is kind of interesting about this filing is it looks like BlockFi has a perfected security interest against the Robin Hood shares, which are in an entity that is owned. by Sam Bankman-Frid that I don't I can't find it in a bankruptcy filing it's called emergent fidelity where he pledged those shares to to BlockFi basically on that Alameda

loan so I don't know who knows how this is going to play out because I think they they wouldn't give BlockFie the shares and so BlockFie had to file bankruptcy right could have been avoided if they had the shares and they were able to liquidate that'll just be fought in court I don't know I don't know how that's going to work. Obviously, Sam bought those shares fraudulently. It's like customer money at FTCS. They bought the Robin Hood chairs, but technically BlockFi should own them. Yeah, I guess they're senior. But yeah, I mean, it's just so perverse. Thinking back to bailouts, quote-unquote bailouts, that was all being done with client funds. Those weren't bailouts. They were themselves in need of a bailout. Yeah, no, it's crazy. I mean, and Block FI still has this

claim against three arrows. So the whole thing is, It's just so circular. Yeah. Next up, CASA supporting Ethereum for self-custody. Of course, Casa, the most popular and widely used Bitcoin multi-sig tool provider. Now moving to Ethereum, the Maxis didn't like it. People think you forced them into it, but it's, this was part of it. Yeah, I was on me.

I'm the puppeteer behind the scenes. I make the business decisions from my portfolio companies. But yeah, I mean, frankly, it was just a good idea. Like, Ethereum is worth over 50% of what Bitcoin is worth. There's a huge demand for it. And not to mention stable coins, zero C20s. They all need these multi-sig cost city tools. I think the broader thing is just that CASA wants to be a key management company.

They have since the beginning. I mean, back before Nick was even running it, just it's, I remember the idea was to sick care of keys. Yeah, Nick Newman. Nick Newman, the guy who runs it, not Nick Carter. But yeah, I think our original investment memo for that says something along the fact that, you know, your identity on the internet could be secured by public, private key cryptography, and you want to keep that really safe. And so the fundamental building blocks of that is self-custody. So great to see CASA expanding. And I think that was, you know, if you want to learn more, head over to keys.casa. Yeah, that was the original memo, actually. Interestingly, Binance jumped into the fray with their proof of reserves at a station.

Controversial one, Jesse Powell didn't like it. I have some sympathy for that. I have now, I'm releasing soon a rubric to grade the quality of proofs of reserve. And Binance's one doesn't pass muster. I hate to tell, you know, I hate to say it. They don't pass muster. There's nothing that I found that's sort of horribly wrong with it. It's just not very complete.

There's no auditor involved. It was only for the Bitcoin assets. It's hard to validate all the liabilities, not even sure that's possible. It obviously needs to be done on an ongoing basis. There's just holes in it. So for the gold standard, I would look at crackens or bitmaxes, different approaches there. But those are the two that I would say are really setting the bar very high. Yeah, some form of proof of, you know, solvency here is going to be required if you want to be in exchange.

I mean, there's just a bunch of these guys on the fringe. I'm not talking about finance, but a bunch of these fringe players, crypto lenders that are still out there with these crazy high yields. And I'm just like, guys, let's just clean it up while we can. Yep. Speaking of finance as well, they have apparently raised a billion dollars to invest. in there, I don't know what this, what's the fund called? Like the recovery fund or something? Recovery fund, yeah.

Did you watch this bankless episode with Senator Patumi yet? It just came out this morning. No. Wow, that's a good get for them. Yeah, it was awesome. It was, yeah, I listened to it on my way to work today. It was, I mean, that guy just knows a lot about cryptocurrency and public blockchains and his take on the FTX fiasco and how.

how that was handled and what could have been done to prevent it was just exceptional. I think it's too bad that he's leaving. Yeah, Pat Toome, it's definitely one of the most crypto-sharp folks in Congress. We are losing a good one. But we're gaining some new members of Congress that know about crypto. Looks like there's a bill here from Congressman Emmer to outlaw CBDCs at a retail level. That's a good idea. Yeah, hopefully we will soon have Emmer on the show, TBD on that to discuss the bill.

There's a whole payload of legislation which the Republican House could introduce. I don't know what its prospects would be, but yeah, Emma is certainly on the ball, in my mind, the number one crypto advocate in the House. All right, so I think that's it for the week. I mean, we should probably get this episode out on Thursday night now that I'm. I think of it. Just the pace is going so fast here. That's okay. Yeah,

no, it's cool. I'm not busy or anything. What else are you doing? Yeah, it's only Art Basel in Miami. You know, it's only Art Basel.

Art Basel. Crypto people still go to Art Basel? Yeah, I mean, it's about as busy as last year. They're still doing the NFTs. Like the NFTs, like the NFT people took it over again.

I'll say this about this market that we're in right now. My block clock stopped working today. I saw that. There's no, lending market whatsoever. Credit does not exist in this system. You have people that are really smart selling all their Bitcoin. If this isn't what a bottom feels like, I don't know what a bottom feels like. I know far too many people that completely rage quit the industry in the last couple of months. I hate to say it. You really, you just hate to see it, you know, selling the dip.

Just tough. If you just get away from your computer for 24 to 48 hours, sometimes not that I've done that anytime recently, but that's what I'd recommend to people who are pressing the panic button right now because ultimately we're talking about a Bernie Madoff level fraudster here. Nothing is different about the thesis for why public blockchains are interesting. So take a deep breath, go outside over the weekend, get some fresh air, think about the bad boys of crypto touch grass the problem is that we do need to successfully

purge them or we need some recriminations for fraudsters i will be very depressed if that does not occur that's why i'm on tilt right now with these bad boys episodes i'm not an actual crazy person i don't actually want to invade the hounds although i think that would be wait that wasn't sincere i was no i was into it i don't personally want to. I want my government to do it. But I'm not going down there with a pitchfork. But I do agree. We need to get these people out of the industry. That's the only way that we come out of this better is just get these fraudsters the F out of our industry. Yeah. If it doesn't happen, I am going to quit and do AI full time. But, you know, God willing, we actually bring these people to justice. I feel like

we're helping, you know. We're doing our bit. I think that's right. All right, everyone, have a safe and healthy weekend, and we will see you on Monday.