On The Brink with Castle Island - Weekly Roundup 12/24/21 (Bitcoin ownership concentration, Jack Dorsey's web3 beef, Corporate Greed causing Inflation?) (EP.271)

Episode Date: December 24, 2021

Matt and Nic return for a festive Christmas eve roundup. In this episode:  Reevaluating our intro song Jack Dorsey's web3 beef What's on our Christmas list Is PoW inherently high-fee? We steelman the Jack Dorsey and the pro web3 arguments Is there a paradox in web3? We advance a model of tapered token issuance for web3 The downsides of token issuance to early adopters Is Liz Warren right about corporate greed causing inflation? Radioshake releases a defi token Is Bitcoin ownership too concentrated? Bitcoin is dispersing while equities are concentrating Will there be a revolt among the staffers at the SEC? Content mentioned:  Nic Carter and Lucas Nuzzi in Bitcoin Magazine, Bitcoin's Proof of Work is Well Worth its Fees Paul Vigna in WSJ, Bitcoin's 'One Percent' Controls Lion's Share of the Cryptocurrency's Wealth Sponsor notes:  Corporations and institutions can allocate cash into Circle Yield to gain crypto lending exposure and earn superior returns compared to traditional markets. It's secured, overcollateralized and built on the leading dollar digital currency. Visit circle.com/yield to book a meeting This episode is brought to you by Withum, a top 25 accounting firm with a cutting-edge Digital Currency and Blockchain Technology practice. To learn more, visit  withum.com/crypto  

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentive easing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Welcome to On the Brink. I'm Matt Walsh.

And I'm Nick Carter. With massive, massive technical difficulties today. So you have like dial up internet, it turns out, at your home. Yeah, my parents' place. You'd think in the world of remote work that everyone would have good internet, but very much not the case. Don't you find that there's like a thing where someone has bad internet and you're on a Zoom with them?

it actually makes you like angry. I mean, it's not great. It's like the Zoom medicat is to have a gigabit internet, I think. Yeah, so we're recording this, the Janky way. So we're calling each other on the phone and recording it locally. So hopefully this works. Yeah. I use Adobe Edition to record.

And I was sounding like some sort of like monster from the deep before. So I think we're going to be okay. Well, someone on our Twitter mentioned says that this is this gets the award for the most monotone podcast. And I, for one, I don't appreciate that. I mean, I think you have some vocal range. I think it's, I'm dragging the average down in terms of the monotone. Yeah, it's like, don't call me monotone, bro. I, I can see the point.

I can see the point. I'm also getting some feedback that like maybe our audio levels are too low. Yeah. So look, we're incorporating. all we're constantly learning. This is episode 271, I think, but it's never too late to make adjustments. I mean, you have to respond to the coaching. So, you know, I don't like the criticism, but we're responding to it. We're making shifts. Yeah, my internal criticism is that we should change our intro song because I've heard that song so many hundreds of times now. People love that. People

love that. People don't like it when we miss deals. I missed another deal last week. It's just getting to be, there's too many deals in this industry. Yeah, there was $35 billion deployed into crypto in 2021. 35 billion. Guys, crypto's growing faster than the internet. We're trying to cover all of it. It's like covering the internet. It turned out to be a pretty big thing. Yeah, it's huge. That's more than all other years combined. It is insane. So we can't do all the deals. we're trying to do as many as we can trying to do as many as we can we had a busy week I mean this was just a talk about a

we'll get into it but what a knife fight people on Twitter you had Jack and Mark Andreessen fighting Mark andresen block Jack yeah you think Jack could just go in his sort of admin console and unblock himself he probably has the God key

or maybe he lost the God key to Twitter when he stepped down yeah I don't think he has it anymore maybe it's nice to see Jack the Twitter user, though. Yeah, I like that he's kind of been unleashed. It's kind of refreshing. So we'll get into that. This is the Christmas episode, though.

So I guess I'd be remiss if I didn't ask you if there was like anything on your Christmas list or maybe we could do highlights of like what was the best Christmas present you ever got when you were a kid. What's on my list? What's on my list? I think I just asked for workout gear this year. You did. Is what I asked Santa for.

Yeah, like a Lulu gift card. That would pretty much satisfy me, I think. The Lulu men's pants are very comfortable. Yeah, Lulu is a very underrated men's brand. Got to admit that. Yeah, very good brand. So we were going to do a section on what is the best Christmas gift you ever received? Yeah, so I'll tell you mine.

And it was electric football. and this might be people might not actually know what this is but electric football is basically like a a cookie sheet and you'd plug it into the wall and you'd line up these football players on it and you'd run plays and it never worked they just like went everywhere it probably makes no sense to even describe this to people and it would not have existed if the internet worked but i probably i probably conservatively spent two to three hours a day the month after I got that game playing electric football. Well, what was the point of electrifying it? Well, because the guys moved.

You turned on the electricity and it was like they were running plays. And then you had to simulate throwing the football to one of them. So there was all sorts of breaks in the action where you'd throw and kick. It made act, I can't believe it was a thing. It didn't really make sense. Never worked. I don't understand how you can simulate football. an analog manner. I mean, how does the game keep track of where the ball is, for instance?

It was kind of an inferior version of tabletop hockey, which at least was interactive. And that was another, that's probably my second best gift ever, is the table top hockey. So the table top hockey is like foosball, but with hockey players, like that I understand. Yeah. The only downside of that is that you need someone to play it with, right? So if like your brother doesn't want to play, you're kind of screwed. Yeah, I had sisters, so I never had anyone to play with. I read books. I was going to say, I bet I'm surprised that you didn't just jump out and say the best gift

you ever received was a book. I have enjoyed many books. I think if I had to pick one, I would say I really enjoyed various like air, like mechanical flying devices, you know, that I received, you know, planes, gliders, like electric, wind up like mechanical birds. I was really into that kind of stuff as a kid. Those gliders were great. Those balsa wood things?

Oh, big time. Yeah. I used to manufacture those. It's a lost art. I don't know if kids these days, they're just all about TikTok. I don't know if they've ever experienced building a glider out of glue and balsa wood.

These kids out there, they're getting like Amazon gift cards and Roblox stuff. It's like, Have you ever been bored? These kids don't know how to be bored. Yeah, they're just getting NFTs and in-game items, Metaverse property. Well, you had a busy week this week.

You and Lucas from Coin Metrics wrote a piece for Bitcoin magazine around why Bitcoin's proof of work is still well worth its fees. Yeah, I don't know if this. I'm actually surprised we didn't get any pushback on this yet. But basically, it was in response to, a claim that actually FTCS had made about how proof of work blockchains was sort of inherently high fee. And that's just not really the nature of the relationship. I mean, certainly Bitcoin and Ether are the high fee blockchains. But that's not because it's proof of work. That's just

because they produce less block space. So that was, we were basically explaining where fees come from in a blockchain context. I thought that was a good piece. The other thing, the other thing, thing you did this week was sitting down with Andrews Larson. He's from U.S. Bitcoin Corp talking about how miners make decisions, talking about how they allocate capital. So nice to see Anders in the space. I feel like he was trying to figure out if he'd go full-time crypto for a couple of years. And now it's great to see him all in. Yeah, that's right. So Anders, we talked about this on the podcast, so I'm not doxing him or anything. Anders and Derek Sue were actually roommates at Wharton.

Derek obviously then went to blockchain capital and now Reverie. And Anders is now helming crypto investments at Cavalry and also is the CFO of this minor. So pretty powerful group. That Wharton class of 2018, I think Yassine was also part of that same class. So it was a really successful class of crypto entrepreneurs. There's a couple other crypto entrepreneurs that are too. just an unbelievable class. It was like the, what's it, the 1999 Miami Hurricanes football team,

which is like one of those type of classes. That reference is lost on me, but I get the gist of it. Yeah, it's like really good players. So I want to talk about this Web 3 beef, but maybe let's do the deals first. Well, let's do the deals and then, yeah, that's the big story of the week is the beef. So what started out in the Castle Island portfolio, Arcade, which is an NFT financial services companies. They'll give you a U.S. dollar loan against Bitcoin collateral.

They also have an OTC desk. Really excited about this one. So they raised $15 million from Pantera, from us, from Franklin Templeton, from BlockFi founder, Zach Prince, and from others. Really excited. Congrats to the arcade team. Love to announce Castle Island deals on the show. Next up, we have Figment, their blockchain node.

infrastructure company. They raised a hundred million in a monster series C led by is that Toma or is that Thomas? This is what I love about crypto, Toma Bravo, which is like one of the best private equity firms out there venturing into crypto. No one knows who they are in crypto. Yeah, including me. So that's just Toma. Toma Bravo. He's great. Okay. Great firm. Big Bitcoin My appearance there. So Figman was led by Toma Bravo, from I just found out about, with participation from Morgan Stanley's Counterpoint Global, Binance, Parify, Fidelity's Avon, BitStamp, and Franklin Templeton.

Figman, just an awesome company. So congrats to Lauren and team over there. That's a great raise. Next one is gear technologies. This is a smart contract platform. They're building it on top of Pocod. They raise $12 million from blockchain, three arrows, lemnoscats. and DG.

Next up we have Goloi, which is a, as you call them a developer of Bitcoin banking software, they are the startup behind the Bitcoin Beach wallet, actually, in El Salvador. They raised $3 million from Kraft Ventures, Kingsway, Trammell Venture Partners, and Balaji, Serenovasana. Congrats to Gloy. Another Miami startup. Shout out Miami. Well, that's the one I missed last week.

Oh, was it? Okay, we missed Goloi. Yeah, we miss Goloi. Our bad. Sorry, Golo. Next one up is multi-chain, which is I'm surprised that name had not been taken. That is a company the former name was AnySwap. It's a cross-chain protocol.

There is $60 million from a lot of people. Binance, Sequoia China, IDG, Three Arrows, Defiance, Circle Ventures, Tron, Hypersphere, primitive, magic ventures, and hashkey. Next up, we have actually Cracken acquired Staked, which was a non-custodial staking platform for an undisclosed sum, but apparently one of the, quote, largest crypto acquisitions to date. So congrats to the team. Yeah, I think this was a big, big deal. So congrats to the stake team.

I mean, it makes a lot of sense. Coinbase buying bison trails, Cracken here coming out and buying steak. So congrats to the stake team. Sounds like it was a great outcome. Next one is render network. This is a decentralized 3D rendering company. They raised $30 million from multi-coin, Alameda, and the Salana Foundation. And lastly, we have Momento NFT, a direct-to-fan NFT platform.

They raise $4 million from Cadenza Ventures, FTX, Anamoka, and Mark Pinkas. All right, so what do you want to get into first here? You want to talk about the Jack Dorsey beef of the week? Yeah, why not? So Jack is no longer the CEO of Twitter. He stepped down. He still runs square, though, right? So it's not like he's retired. And he has been, Twitter has been all flutter with his sort of tweets which have been interpreted as against Web 3, I guess. And in particular, he seems to be. turning his cannons at A16Z. But he certainly had some provocative tweets recently. I think probably the one that kicked it off was, quote, you don't own Web 3.

The VCs and their LPs do. It will never escape their incentives. It's ultimately a centralized entity with a different label. Know what you're getting into. Yeah. He's been going really hard after Dixon and Mark Andreessen. I mean, some salty tweets, and Drusin actually blocked him, it looks like. Yeah, you'd think that he could just go into his admin dashboard on Twitter and unblock himself.

So why don't we just stand up both sides of this argument here? I mean, I think this is actually a, whether you agree with Jack or not, he's really getting at some of the key tension here in the industry around Web 3 and who actually owns this. So why don't you take a shot at just like Steel Manning Jack's argument here? Yeah. And we were actually arguing before the show. I think you're probably more on the Andreessen side and I'm probably more on the Jack Dorsey side. Yeah, I think that's... I understand it. Yeah, but I think there's, it does feel like some people are just talking past each other here, actually.

That's possible. So maybe I'll try and steal me in his argument. I think Jack clearly believes in decentralized internet infrastructure. He's a supportive lightning. He's financing, or at least Twitter has this initiative, Blue Sky, which is meant to be for decentralized social media, which is pretty cool to see a centralized social media company working on that. And then he's trying to build a Dex, decentralized exchange for Bitcoin. So there's no question about his sort of credentials in terms of, I would say,

believing in and investing in decentralized internet infrastructure. And I don't think it's a paradox or a contradiction that he founded Twitter and Square, which are Web 2 companies, so to speak. to the extent that he is actually demonstrating praxis with Web3 or whatever, decentralized internet services. He clearly believes in that stuff. So then what I believe the crux of his critique is, is basically the claim that to the extent, you know,

Web3 services are owned by token holders and to the extent that, venture firms gain significant allocations, then it's a little bit paradoxical that you would have, you know, effectively the status quo in this new domain. Whereas if you're looking at truly user-owned infrastructure and services, you would imagine that wouldn't necessarily involve sort of like powerful internet oligarchs. And so I think maybe that's sort of the main thrust of his critique. So, all right. So I get that.

Now, I think if you were to look at the other side of the argument here, and again, it's hard to know because Jack hasn't come out and said, here's what I think and here's how this should work or I have this, this and this point of view. So it's hard to know. He's just kind of taking shots at, hey, Andreessen owns a lot of this. Look, And Dracin is the biggest fund in the industry. And there's a bunch of stuff that entrepreneurs are trying to build and they need capital to do it.

And Andreessen's there. And so I guess my first point would be, yeah, it would be great if users owned all of this. And there weren't venture funds that were going out in owning 10, 20, 30 percent of these networks. But the SEC has not made that possible. And so, you know, rewind to the ICO days. That's a Wild West security fraud. situation, I don't know how you get these tokens into people's hands without raising capital some way. And so it's just an unavoidable thing that if you're building something that has already not

been spawned into existence like Bitcoin, you know, a decentralized file storage network, if you're building a decentralized compute network, you're going to need to raise some money for it. And you're going to probably go to the venture capitalist. So I guess what would you say to that? Yeah, I agree. And I think it's probably utopian to think that you can allocate capital at scale without professional capital allocators coming in and doing it, because that's their job. And that's just the way society is organized. You have specialists. VCs are mechanisms to allocate risk capital at the early stage. I think there's two questions there, though. One, does. decentralized internet architecture entail or require a token? Like, does Web 3 mean tokenization of all protocols and applications? Does it, you know, is that inherent or is it something that

could be tokenless? And then two, to the extent that you're engaging, and this is a classic critique of crypto as well, I'd say, to the extent you're engaging in disintermediation and cutting out rent extracting intermediaries and potentially obliterating, you know, corporate margins and returning the remainder to users as a consumer surplus, is that investable? And is the fact that it's perceived as investable by, you know, large capital allocators? Does that mean that it's not as egalitarian as it is kind of described? Yeah. So there's a, All right. So there's a couple things to dive deeper on in what you just said. So do you need tokens for these things is the first? And the second is how should value accrue to some of these networks? So I think the first. Well, the second is like, is there a paradox here if we're talking about user owned services, but then saying there's necessarily, you know, corporate model, corporate wrapper around these services? Yeah, or there's just like rent extraction, not necessarily that there's a corporate wrapper, but there's a community-owned network that takes a fee that has like revenues associated to a protocol.

Yeah, so feel free to address those in turn. Yeah, so I guess, I don't know, though, like, do you need a token for it? I'd say we probably need fewer tokens than people think, but there will probably be many more tokens than exist now, if that makes sense. So like more tokens are coming, but we don't need as many as people think. And there's a lot of this infrastructure that actually would work just fine without a token where the token is actually a gating inhibitor to people using the product. Like it induces a friction that actually makes it less likely that mainstream normal people will want to use these things.

And most people actually want to denominate their life in dollars. And so my guess is that a lot of these services end up just using stable. coins and to the extent that there's a token engagement, it will all happen below the browser hood and people won't even know that there's a token, which sort of gets to your second point around how much rent can you actually extract from these things. And it's probably in some categories it's a non-zero amount of rent, but it's not sufficient that these tokens should be valuable to the extent that like Ethereum is valuable. So it's a non-zero amount, but it's not competing, to be like a smart contract platform, Android for crypto, iOS for crypto. There's a world where

many of these things work, and they just don't accrue a lot of value at the token layer. So here's my question about token enabled internet platforms whereby, you know, the grand vision I see laid out a lot is, hey, if you made all of the users of the network, shareholders in the network. Now they're actually being compensated. It's not uncompensated labor where they contribute their data and their time, et cetera, to the network. They actually get the fruits their labor. So my question is, how does it make sense to allocate a lot of tokens to users that are sort of initial early users? Because that's kind of what I've seen to date. Whereas most of the users of these networks by definition are the late adopters. So wouldn't you expect to see more experimentation

and models such that it's only a trickle of tokens actually initially? And there's not that extravagant returns from being an early adopter. And then it's a flood of tokens that actually scales with the growth of the network such that the late adopters aren't totally disempowered. Yeah. That's kind of what I would have expected. or hope to see. Because if, you know, you want people to use the network because the network has value, as opposed to merely just speculating on the value of the network.

And it's also pretty inegalitarian to the extent you can control the supply schedule to make it such that early adopters really financially benefit. So wouldn't you want to see more like reversing? tapered models of token distribution? 100%. I think that this is a space that will evolve tremendously over time. I mean, right now, the way that you get tokens in the hands of people, we're in like month nine of the experimentation of like things that are actually possible here, I feel like.

You have the yield farming just existed for the first time in 2021. And so I think people will experiment with this. I think, you know, what was that the world coin thing? Like, that's in the category of just experimenting with novel distribution events. And no one has the right answer to that, to be clear. Like, how would you actually design that? It's like future users will always be able to gamify that in some interesting way. But my guess is that someone comes up with something.

But it's very difficult to imagine an immaculate conception event like Bitcoin ever being possible again. You look at grin as a fair launch. And people tried to game that immediately. I mean, people are out there trying to, you know, mind as much as they could. So it's hard to imagine an egalitarian distribution from scratch. So it'll always be flawed. Yeah, so that's where I'd like to see experimentation. I think that might also appease some of the Web3 critics to a certain extent.

Basically a model where it's not so obvious that early extractors are sort of financially benefiting at the expense. of late adopters. And I think you can probably devise rules that support that. But I do think that drives a lot of the critique of crypto, which is like even if you're building really great products and services, there is always this like MLM type dynamic where you can financially benefit from being early, which introduces like perverse incentives, I would say into a lot of internet networks. Like you don't want your early adopters necessarily to be mercenaries and speculators.

Like it also obscures, you know, genuine traction too. Like if you are building a social network or something similar and you are, you know, distributing network equity to early contributors, you're not going to know whether your network has traction organically or whether the subsidized, the traction is subsidized. So, you know, it also makes the signal noisier, I think. I'm actually seeing like, I'm seeing people turn against, you know, liquidity mining a little bit because it, you know, is a great way to inject attention into your thing, but then it leaves you in this like tough situation where you don't know what the equilibrium is going to be

like once that incentive is withdrawn. Yeah, no, that's exactly right. I mean, the other thing, just on the increase and specific point is, like, they're not going to own 30% of these networks 10 years from now. They're investing out of 10-year funds where they need to distribute back to LPs. And so they're going, like, the Ginny coefficient will improve here. And maybe that's understood already. But it's, you know, there's sort of this portrayal here that like the big, bad VCs are just going to own 20% of the internet forever. And that's just, not the case. Yeah, I mean, maybe this is a bit of a self-interested take, but yeah, there's there's good and bad, right? So VCs by mandate have to exit their positions for the

most part, unless they do in-kind distributions to their LPs, which kind of means that they have to eventually reduce their ownership in some network or protocol. over time. I think the thing you should be afraid of, maybe, if you were worried about the, you know, in egalitarian nature of early adopters would be some sort of non-LP capital and, you know, like a solo proprietary capital entity, you know, buying a large share of some, some, you know, protocol equity and holding onto it forever. Yeah. But the other flip side to that, that VC incentive thing is they have to sell. And so, you know, that's what it accuses people of, like, quote unquote VC dumping is like by mandate, they sort of have to sell. Yeah, I mean,

you can't hold on to these things for 20 years. You can distribute them in-kind to your LPs, but, you know, it's 10-year fun life for a lot of these people. Let's take a quick break to talk about our sponsors. Now, on this show, we only really like to work with sponsors that we actually know. know and can recommend. And both sponsors today are great examples of that. So our first sponsor for this episode is with them. They're a top 25 accounting firm with a cutting edge digital technology and blockchain practice. So wherever your company is from pre-seed to IPO, they have tailored solutions just for you. They've helped some of the largest companies in the crypto industry with audit, tax, and advisory needs. And they've also helped some of our portfolio companies.

companies too. To learn more about their advisory, audit, and tax services, go to on thebrink. dot link slash with them. That's on the brink.com. Slash with them. If you manage corporate or institutional funds, you're probably looking for ways to access opportunities in crypto. You see the growth in momentum and want exposure. But a lot of institutions don't know how or aren't comfortable with the risks of Bitcoin or defy. Now there's a new investment that's built specifically to help institutions get into digital assets. Meet Circle Yield. It's a blockchain-based investment built with USDC, the leading dollar digital currency. Circle Yield is fully secured and over-collateralized with Bitcoin to protect your funds. This also makes it a great fit for crypto institutions

who want to diversify their treasuries and reduce risks while staying on-chain. You get your choice of terms from 1 to 12 months and a fixed rate that's higher than what you'll get at a bank, or in many fixed income markets. Visit circle.com slash yield to book a meeting with one of their experts. That's circle.com slash yield. The other kind of interesting thing here was, you probably didn't hear this,

but Jason Calcanus came out of the podcast last night, and he was talking about it on his This Week in Startups Roundup, and he suggested actually that the reason why Jack has such a beef with Andresen is because Indrisen was in talks to do a leverage buyout of Twitter, which I had never heard that before. for it, that would have been fascinating. Yeah, because it seems like a lot of his IRA is directed on Dresen specifically. Yeah, I mean, better them than Castle Island, to be honest with you.

So here's the good news around the, you know, the Jack Dorsey versus everyone else beef. I tweeted something that both Ballad G. Srinivasa and Jack retweeted about, Web 3, which means that they actually have common ground. How do you thread a needle like that? That's just a crazy needle to thread. I don't know. I'm impressed. I was just saying generically positive things about Web 3,

though we're sufficiently inoffensive. Yeah, so there is common ground somewhere. Well, you can unite both sides. Maybe that'll be the takeaway here is that, you know, there's a lot of people throwing rocks at each other on Twitter, but maybe you can be the mediator. So my challenge to the Web 3 combatants would be to try and define Web 3 before jumping into the hauntakes. Because I find that it's so poorly defined that people completely talk past each other.

Like when you talk about Web 3, you're talking about, you know, users using public key infrastructures to sign in to Internet services. Are you talking about users running their own servers? Are we talking about users literally owning network equity in the internet applications they use? Are we talking about Ethereum? You know, because Web3 had this big Ethereum connotation. So like what Web 3 are we talking about when we talk about Web 3? I think we should just call it what we call it, decentralized Internet architecture. Let's get that going.

And Drisans playing this Web 3. They're winning the marketing war. Yeah, that's that's just as catchy. I mean, I like the Dweb. The Dweb, yeah, you were pushing that for a while. That didn't catch on. I was trying to call DFI programmable finance. That didn't catch on.

We're not good at like that. Yeah, we're not good at that. We've tried, yeah, we tried to rebrand stable coins of crypto dollars. That didn't work. I didn't go. Yeah, it didn't go. We've a, yeah, a long history of failing to rebrand stuff. All right.

Well, that was the Jack Dorsey take. I think we got out of that alive. We'll see. Let's talk about some news this week. So Cynthia Lummis, Senator from Wyoming, definitely my favorite senator, I would say. Not because of her political affiliation, just because she's a huge supporter of the cryptocurrency industry. So there is a bunch of leaks coming out, definitely from her office, that she will introduce a bill next year. It's going to create a new regulatory body for cryptocurrency.

So Gary Gensler will not like that. that. And supposedly she wants, quote, nothing short of a full normalization for digital assets in the United States. That sounds pretty awesome to me. You absolutely love to see that. Legalize crypto. Just put it like normal, just another asset. That sounds like the most common sense thing I've ever heard and actually take it away from the SEC, which has just been bungling this thing for the past five years. Wow, I just had an idea for merch. Oh, yeah?

What do you get? What do you got? Oh, yeah, just a hat that says legalize crypto or possibly legalize Bitcoin. Or maybe legalize it and then crypto in parentheses. We'll figure it out, don't worry. We'll workshop that. I'm wearing our merch right now. I'm wearing the Bitcoin flag hat, which is of my design.

Very happy with it. I believe that's available on the store. Yeah, I got some stocking stuffers off of the store. It's very handy having your own merch store, because you can just design into existence merch that you want to wear. Yeah, I mean, you just build what you want. And some of the stuff that I want, you rudely took down. Oh, yeah, that's right.

So this bill, the Lundness bill, I believe, we'll see. I've heard whispers that it might actually have bipartisan support. And, you know, there's like some crazy thing, like 98% of bills never even, you know, get out of committee or whatever. A lot of bills, most bills, by far the overwhelming majority of bills don't become law. And so a lot of bills are just like a way for senators and representatives to sort of make their feelings known. and they sort of communicate in bill format. It's like their version of tweeting, I guess. But apparently this bill is understood to be pretty serious.

So high hopes for the Llamas bill. This is a nonpartisan podcast, and I am not affiliated with either party for the record. I've voted for both sides, so I'll just get that out of the way. Oh, big both sides guy, are you? I'm a both sides middle of the aisle guy. And I'll just say Elizabeth Warren, who's our senator, will probably not be voting for this bill.

And she came out with the tweet this week that is just so ridiculous. Giant grocery store chains force high food prices onto American families while rewarding executives and investors with lavish bonuses and stock buybacks. I'm demanding the answer for putting corporate profits over consumers and workers during the pandemic. This is like a 5% margin industry. And it has not changed over the past like 30 years. So, you know, it's a lot easier to just get out there and bang the drum against big poultry and big grocery. But, you know, the issue is the big Fed balance sheet, Elizabeth, and that's not a great soundbought, I guess.

Yeah, I posted a doctored version of the CPI chart where I rebranded it as Liz's index of corporate greed. I saw that. Basically, this is one of those weird things that you see is like when inflation picks up, people that want to obscure the underlying causes of inflation, namely enormous government spending and monetization of the debt, blame it on other stuff. And so Liz is blaming it on corporate greed. So it's just, you know, her theory is that there was all of a sudden a complete uptick in corporate greed

on a broad basis all across the economy and all sectors of the economy. And grocery stores were 2% greedy last year, but they're 8% greedy this year. Yeah. And in the 70s, they were 20% greedy. Because stop and shop really has that pricing power, right? So you can mark up bananas to 50% margin and that actually works. Like, are you kidding me? Yeah, like of all the industries to go after, like some of the most hyper-competitive ones with the thinest margins does not seem to be like feels like the wrong culprits. But anyway, so, you know, I'm projecting another 10% corporate greed next year, that's for sure, especially if this build back better bill is salvaged. Yeah, it wouldn't be, wouldn't be the craziest thing. All right, so let's move on. Here's a fun story. The Radio Shack is back.

I don't know if you remember that company, but I used to go to Radio Shack back in the day. Used to be very popular in the South Shore Plaza shopping mall. Two men that bought Radio Shack, which did go bankrupt, they're launching a D-5 project with the Radio Shack brand name. So as one does. Yeah, this is similar to sort of a Kodak coin situation where there's nothing left of the corporate entity except for the brand. And so it's now being exploited for, I guess, token issuance purposes, which is really a shame. Radio Shack was actually a treasured institution.

It was kind of the only place you could go to get extremely specific electronic parts on short notice, you know, at the mall. It was kind of an incredible thing that it lasted so long, and I miss it, frankly. I do too. It's a shame to see its corpse kind of defiled in this way. Do you remember the like the two-inch black and white TVs they had the portable TVs? Those things were incredible. Yeah, I spent many long hours at Radio Shack in my younger days.

So, yeah, to be clear, like, I'm not bullish on whatever this token is, nor do I think Radio Shack is, you know, the key to unlocking DFI or whatever. So we've been asked to opine on a certain paper that was written up in the WSJ recently. This is sort of new FUD just dropped, and it's this paper. All right, yeah, so let's get into it. But too few people own too much Bitcoin, right? Yeah, this is a classic fud. Is this even on any of the dice, like inequality?

Oh, yeah, it is. I think we have Ginny. Yeah, we got jennie on there. Yeah, so a lot of people didn't know what the Jenny panel was on the fud dice. Now you know. So basically, classic fud that Bitcoin ownership is too concentrated. So there's paper or article in WSJ named with a headline, Bitcoin's 1% control. lion's share of the cryptocurrency's wealth.

Paul Vigna wrote it. Disappointed in you, Paul. And then the paper is an N-B-E-R working paper entitled Blockchain Analysis of the Bitcoin Market, which is actually like pretty good, I would say. So I did go to the source. I did read the paper for you all. Don't worry.

Brink Nation. We got this thing covered. All right. Let's get into it. So the headline, from the headline from the article is basically, you know, summarizing the paper. They say the study found that the top 10,000 Bitcoin accounts hold 5 million Bitcoins

with an estimated 114 million people globally holding the cryptocurrency. That means approximately 0.01 of Bitcoin holders control 27% of Bitcoin in circulation. And then the rest of the article is basically complaining about that and how unequal and inequalitarian Bitcoin is. You know, those nasty Bitcoiners, they're hoarding up all of the world's wealth. Did you get into the methodology around how they address wallets? Because, you know, obviously if you just look at the Coinbase wallet, there's a lot of people behind that one address.

Yeah. So the paper is actually, I would say, reasonably diligent. about characterizing and tagging entities on Bitcoin, on the Bitcoin blockchain. And so they do acknowledge that there are a lot of omnibus wallets held by exchanges. And so they are not doing this completely naive analysis where they run the Ginny on sort of the Bitcoin UTXO set. they are taking into account the fact that while it's hold balances on behalf of people. So, you know, that's the first thing a lot of people jump to. They did at least attempt to kind of characterize entities on the blockchain for the sake of

their ownership analysis. So what's your net net on this in terms of the validity of the critique and then how to just broadly frame Bitcoin as an asset versus other types of assets? So they find that intermediaries control about five and a half million bitcoins and that individuals hold about eight and a half million bitcoins, which is sort of consistent with, I guess, My view, I think there may be underestimating the intermediated component. I think it's unlikely that these academics have access to the best characterization data. I would say only the blockchain analysis firms have really good characterization data because they build their data sets in kind of a give-to-get model. And I would say they have proprietary, very good characterization.

And so can two academics rebuild a dataset that is worth billions of dollars, you know, in the hands of chain analysis from scratch on an academic salary? Absolutely not. I believe they're using sort of open source characterization tools like Wallet Explorer. They might be doing some machine learning stuff. They kind of don't provide a ton of detail on how they tagged up all the exchanges. they might have done some machine learning stuff to say this is what exchanges are like and so we don't know what exchange this is but it's behaving like one but i mean generally speaking outside of exchange balances is bitcoin you know relatively concentrated in ownership i guess it's all relative um but yeah it's probably probably more concentrated than the ownership of say stocks

or dollars. Does this delegitimize Bitcoin? I don't think so. First of all, it's not proof of stake, so you don't get political power for owning more Bitcoin than someone else. The Bitcoin supply is becoming much more dispersed over time continually.

You can see this on the blockchain. Coinmetrics have some great data on this. You can see how many addresses control. you know, X amount of Bitcoin. You can also see more supply is constantly growing into the hands of smaller wallets and less supply is being held in larger wallets. So these things are visible on-chain. And lastly, if you look at any financial asset, you're going to find extreme concentration.

So according to the Federal Reserve, as of today, 53% of equities in the U.S. are held by the 1%. So I would say that's pretty concentrated. Yeah. So 1% of households control over half of all public equity in this country. So, you know, it's not very egalitarian with regards to the equity market. Bitcoin is newer. It's only 13 years old and sort of about five years into its financialization phase. And it's getting distributed into more and more hands. You always see older holders sell out over time and newer holders come in. So that's a naturally distributed force. So I would say all the trends are in absolutely the right direction. Is it perfect? No. But is it trending in a direction of less concentration? Absolutely.

Yeah, that was the point I was going to make is if you looked at just equities, when equities got started, it would have been probably a similar distribution. And, you know, time will improve that genie coefficient. It sounds like you think it was a well-done paper overall, though, in terms of just the rigor. I mean, it wasn't one of these, like, tether scam papers. Yeah, it's not completely idiotic. They at least made an attempt to incorporate omnibus wallets into their findings. They are not going to be able to compete with the chain analysis in terms of the quality of data. Yeah.

But they did make an attempt. All that said, I think the WSJ's take is like needlessly hysterical. And I don't really see it as a headline item. I mean, you don't see people complaining about the concentrated ownership of Tesla or whatever. Yeah. Or Apple, you know, which is a bigger stock. And I'm sure is held by fewer individuals than Bitcoin. And, you know, here's the thing on the trend.

So Bitcoin is in a dispersive trend, you know, and proof of work helps there as well because it means that new issuance has to be kind of sold off by miners. So that's great, right? Equities, on the other hand, are on a highly concentrative trend. When the Fred, and, you know, I'm using equities as a proxy for wealth because wealth inequality has been growing. In 1990, when Fred started collecting the data, the top 1% percent, controlled 40% of equity value in this country. Today, it's 53.8%. So, you know, just look at yourself

in the mirror here, you know, legacy financial system defenders, because the financial system itself, financial assets are highly, highly concentrated and getting more concentrated in the hands of the wealthy. That is the direct effect of QE, right? That's right. QE increases asset values and who owns financial assets is the rich. So I'd love to see that critique extended to all financial assets. Yeah. Well, that makes sense. Well, why don't we move on to a couple just regulatory things here? A lot, Royzman, I don't know if this is good news or not. So he's a SEC commissioner. He's on the other side of the aisle from Gary Gensler. He announced that he will step down in January, and that's ahead of when his term ends, which is 2023. He has been publicly disagreeing with Gensler for a while around things like

just the overall agenda and resource allocation. So doesn't strike me as a great thing that Gensler might get a shot to be influential around his replacement. Yeah, I think the SEC is set up such that you have three commissioners from the majority party and two from the minority, if I'm not wrong. And Royzman as a Republican means that I think you'd have to be replaced with another Republican. So unclear as to whether Gensler would be able to find a Republican that really aligns with his very interventionist agenda. But yeah, an interesting move. And what are the odds that Royzman joins a crypto startup?

I'd say pretty high. I mean, I think that's fine if Royceman wants to do it, but it's like the Jay Clayton's, and you know Gensler will join a crypto startup when he's done. It's like, these guys are just so disingenuous when they're in the seat and then they just go grab that cash when they leave. Well, the way I see it is there eventually won't be any regulators left that haven't helmed a crypto startup. So we're just slowly capturing all of them. I guess, but I don't know. It's like you're capturing them on the wrong side. right? No, no, no, it's the implied prospect of joining a crypto startup that warps their

decision-making. Look, I'm not saying it's a good thing necessarily, but that's how it works in this country. I guess. The other SEC news is Terraform Labs, which is the company behind Terra and behind Mirror. So they're founded by Doe Kwan, is the founder there. So him and the company have filed a motion basically seeking to oppose the SEC's efforts to compel them to comply with a subpoena. That was the subpoena that was actually served at the Masari conference back in New York earlier this year. And it looks like part of the motion here is that they're saying that, hey, they're not based in the U.S. and they're also saying that the SEC filed for that subpoena under like a bad process. And so they filed a civil suit.

They're protesting the motion and we'll see. But you haven't seen entrepreneurs get this aggressive necessarily against the SEC. So I'm very eager to see what happens on this case. Yeah, maybe this is going to be the foundation of an international incident between Korea and the U.S. You think so? It'd be interesting if Korea stepped up and started to defend their blockchain ecosystem from the SEC. That would be kind of an interesting outcome. Yeah.

Hey, why not? Who knows? Yeah, this is, it's kind of interesting to see the, the gulf between, you know, really aggressive statements made by the SEC and then their actual ability to alter real-world outcomes and intervene. Well, here's the thing. Historically has been lacking. Yeah, I mean, here's the thing.

The SEC needs to go out and, like, win these cases, right? So it's one thing to issue the subpoenas and to Sabreira. all of these defy entrepreneurs, but ultimately they're going to have to go win the case. And we'll see. I mean, I guess the Ripple one would be the one to watch, and they'll probably win that one, is my guess. Look, this is not an endorsement of Ripple, but I am oddly bullish on their ability to prevail. And my reasoning is that the SEC, I think I've said this before,

They're like a predator with finite resources, you know, like a leopard on the savannah. Okay. And there's only so many, or like a cheetah, maybe, like a cheetah on the savannah. And there's only so many times they can go after the antelopes, you know, because they're expending their own energy trying to hunt down their prey. And the more difficult it gets, you know, the less, the more reluctant they're going to be to go after the biggest, healthiest antelopes. Yeah, it's not a bad comparison.

And the SEC, they've lost cases before. They have lost that SEC. Capital case. Yeah. I can see them losing the ripple case. I could see them losing the ripple case. I think Ripple is going with a strategy of really trying to compare Ripple to Ethereum and saying, well, hang on, why did you give Ethereum this carve out and pointing at the ways that

Ethereum had these key points of centralization, not to make the point that they are the same. But I think that's kind of an interesting rhetorical strategy. Ripple is undertaken. Well, I guess it's also possible that the SEC ends up fighting a two-front war here. So you're fighting the war against the, you know, the VCs and the entrepreneurs who are pushing for these open networks. And then you're fighting Lomas and this new bill that is basically going to take away power from the SEC around cryptocurrency, it looks like. So it'll be a busy time over at the SEC. And, you know, maybe Royceman here.

is this comment around resource allocation or this, I don't know, it's not a quote, but maybe people at the SEC are saying, hey, we don't really agree with the way we're being managed. And maybe that's a third front of this war here for Gensler. Yeah, that is a good point that the SEC ultimately serves of the pleasure, I guess of the executive, but they still rely on Congress to set their mandate and there's limits to their power. And if Congress decides that they want to do more through legislation as opposed to interpretation, which is what the SEC does, that might put some handcuffs on them a little bit. So we'll see what Congress is willing to do, whether they're willing to stick up for the SEC and their new aggressive mandate, kind of like how the IRS has now been

empowered by Congress, or if they're seen as kind of misfiring. But how about just even, so I agree with that, but also what about just people that work there? Like a CEO of a business has absolutely no power if the people that are on the front line just don't want to do what they're directed and completely disagree with the mission. And so, you know, my sense is that there's some people over at the SEC that just see Gensler is this nakedly ambitious person that's trying to become the Treasury Secretary and he's working them to the bone around things that they don't agree with. So I think this is a multifaceted situation here. So it's a complicated puzzle here for Gensler. That's right. Will there be a revolt at the SEC?

Well, because think about it. If you're at the SEC, you're a lawyer, for instance, you know about crypto. You could go become the general counsel at any number of crypto companies and you could be making, you know, $500,000 a year. It's probably more than you're making at the SEC. So these people have extraordinarily high impact in this industry. If you know anything about the law and crypto at that Venn diagram, you'd be making a killing right now. So these people have tremendous market power in a way that they don't have in other industries

that historically the SEC has looked at. I mean, like a broker-dealer, lawyer, like whatever, there's a bunch of those, like not to take anything against them. But like that's a seat you can fill. People that actually understand defy and cryptocurrency, there's not a lot of those. Yeah, I mean, speaking from experience, my co-author on my defy paper, Linda Jang is XSEC, and now she works in the crypto industry. So that's kind of the one directional flow.

Yeah. So like why are you sitting there listening to someone who's just there making you work 80 hours a week so that you can take down some like venture-backed, start up so that your boss can end up as Treasury Secretary. You know, it's like that's the discussion I think that's going on right now. Well, Matt, I think some of these people are driven by more than money. I think certainly if you work at the SEC, your motives are not purely financial. No, they're not.

They're not. But a sense of justice around like these are people that actually some of them probably believe that what this industry is doing is positive. You know, we're talking about taking money in a self-sovereign way, giving people free speech over their money. We're talking about making people less reliant on banks and intermediaries. We're talking about people taking possession of their private keys and taking possession of their personal data. Like, there's a lot of things here that people are very ideologically aligned on or on like the positives of the cryptocurrency system. And if your job is to just go kneecap people because, hey, you cut a corner on a fundraise, like, you know, I don't.

don't think people are aligned with that. Well, this is a fiery Christmas Eve sermon right here, Matt. I mean, we're going on minute, what, 56 here. Yeah, this is one of our longest roundups. Look, it's Christmas and we're fired up. Hopefully no one at the SEC is listening to this at minute 56, but that's a hot take. So speaking of which, we are introducing a push to get some more policy folks on the podcast. So if you work on the Hill or are in Congress, you're welcome to come on the show. Let's talk about the lemmas bill. Let's talk about it. I will be doing a podcast early in the new year with a very exciting group of people that are really pushing for change. I'm just going to leave it at that. I'm going to try and bully Naraj Agarwal into coming on. He never really wants to do the

podcast. So I would love to have him on the podcast. He's too busy in his industrial kitchen. Yeah, nice kitchen. So yeah, Brink Nation harassed Nouraj and make him come on the show. All right. So I think that's a good place to leave it. I hope everyone has a safe and healthy holiday, but this was one of our longer episodes. Yeah, Merry Christmas. Happy holidays. Thank you for being with us for another year, Brink Nation. And for those last minute, Holiday presence, the merch store is open and ready to take your orders. Merch store is open. You can also just buy crypto and gift that. It's a great gift. All right, everyone. We'll see you on Monday.