On The Brink with Castle Island - Weekly Roundup 12/30/22 (Avi Eisenberg arrest, weather affects the hashrate, our predictions for 2023) (EP.384)

Episode Date: December 30, 2022

Nic and Matt return for another week of news and deals. In this episode:  Galaxy acquires the Helios miner facility from Argo Consolidating in the miner space  A new bad boy bursts onto the scene  Avraham Eisenberg is arrested in Puerto Rico  Should it be illegal to exploit defi contracts, even if you reach an agreement with the DAO? Craig Wright's case against Peter McCormack SBF is slated to enter a plea  What's the deal with IEX and FTX? Nic's Michael Lewis conspiracy The FTX blockfolio acquisition was mostly financed with FTT The cold snap causes Bitcoin hashrate to decline around 40% in a week  Exchanges are unbundling custody and order matching  Our predictions for 2023 Sponsor notes: Talos powers institutional access to the entire digital assets ecosystem via a single-point of entry. Connect directly to your preferred prime brokers, lenders, investors, custodians, exchanges, OTC desks and more, or meet them on Talos. Get started at Talos.com Subscribe to the Coin Metrics State of the Network newsletter  

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

And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. This week's Metrics Minute is all about visualizations. Coin Metrics wrote about their top crypto data visualizations from state of the network this year. The top three fan favorite charts are the Venn diagram of addresses that qualified for multiple Ethereum, the daily net-eath issuance on proof of work versus proof of stake Ethereum. mining data after the collapse of Terra Luna. My personal favorite chart of theirs from this year was the time-based analysis showing when USDC and USDT were being spent, which allowed them to ascertain where by time zone

clients of these stable coins were. Super fascinating insight, which told us a lot about the relative usage of USDC versus USDT and the geographic differences there. The substack is in the show notes if you want to check it out. That's your metrics minute. This episode is also brought to you by Talos. Talos powers institutional access to the digital asset markets, whether you're on the buy side or the sell side, whether you're in TradFi or a crypto-native firm, connect to the Talos platform to enable the full life cycle of trading via a single point of entry. They have an integrated platform that supports an API interface or a

web-based GUI. All members of the crypto ecosystem connect through Talos. That includes prime brokers, lenders, investors, custodians, exchanges, OTC desks, and more. They have the best leadership team in the biz. Head over to talos.com. That's www.t.t.com. Well, last episode of the year right here. Yeah, we're still here. Congratulations on making it through 2022. too. Did you know that we've been doing this podcast for three years? Is it really three years? Wow. Well, you definitely knew that because you've been doing it. I've been here. I've been here. Every week. So yeah, we started it in 2019, I think. You wanted no part of it when we started. I was against it. I'm still against it. This, I'm doing all this against my will.

It's just a it is a mounting liability every week. You just got to keep up around. It's like Alameda's liabilities. It just grows and grows and grows. But the numbers go up and up and up. Every year the numbers get better. That's true. Our numbers are, well, actually, frankly, they're plateauing, dare I say.

Really? I thought we were on the up trend. I thought that was the one number that went up this year. All right. Our listenership. Well, let me see. Let me see. Don't give away the stats, but.

Okay, I'll just directionally speaking. Yeah, our numbers have actually been flat since January. I mean, it's at a permanently high plateau. But if you consider that the numbers correlate with the price of Bitcoin on a very high correlation, very high R squared, that's pretty good because, you know, against the backdrop of waning interest. trust the Brink Nation has remained strong. That's the thing, right? We are correlated to the price of these assets, but even in Q2, when the prices were coming

down, our numbers were going up, right? They're strong. I think the bad boy section has really just been a boon for the podcast. The state of the state of the union is strong, for sure. And we have a new bad boy this week, so I'm excited to talk about that. Oh, really? Okay. Oh, is it Abraham?

It is Abraham. Yeah. He might be my favorite bad boy ever. Turns out he's a real guy. I thought for the longest time, there's no one dumb enough to actually do this all under their real name, but he did. Yeah, I kind of like him.

I don't know. To the extent you can have warm feelings for a market manipulator, alleged. Well, let's do some deals. There weren't a lot of deals because people don't announce deals between Christmas and the New Year, unless they're M&A events or non-MNA events, I guess. So the first one is VALD, which is one of these crypto lenders based in Singapore that was hit by three arrows. They were looking at being acquired by NXO.

That deal is apparently off. What is Nexos deal? So they just like kick the tires on everything and just don't actually buy anything? I don't get it. They got eyes that are too big for their stomach. So, VALD is not being acquired by NXO. I don't know what you do now, but not a lot of crypto lenders left. So our second and final deal of the week, is that really it, is Argo.

The Bitcoin mining company, they will avoid bankruptcy by selling off their Helios mining facility to the team at Galaxy Digital and also getting a $35 million loan, secured against equipment. Congrats to Galaxy for pulling that off and I guess Argo for staving off bankruptcy. So I guess Galaxy now is a vertically integrated Bitcoin mining play here. It looks like they won't have to use

third-party hosting facilities after this. It's interesting all the lenders are getting, they're taking the back door and becoming proprietary miners themselves as the companies they went to gradually go bust, and then they come to own the miners. So Galaxy Foundry in Nidig are set up here to be some of the largest players

potentially in the Bitcoin mining space. Correct. Yeah. I think I said this last week, but there will be concentration in miners. Some of these lenders here are going to get very big, I project. Not the original intent of the lenders to go out and become Bikers. coin miners it wasn't I don't think it was an intentional loan to own strategy but that was right

happened that's how it worked out so that's it on deals okay are we just rolling the music right away just right away cue up the bad boys section okay so what the people want Bad boys, 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? We've got a new bad boy. So before we do FtX, which is just a ton of, you know,

ton of bad boys, bad girls, bad people all around FtX, just a parade of horrible people. But why don't we first do the newest bad boy? It's nice to have some new blood in the bad boy club. His name is Avi Eisenberg. He's, of course, the man that no one wants anywhere near their project because he's a very talented market manipulator in Oracle exploiter. He's been charged and arrested in Puerto Rico. He's one of these people that moved to Puerto Rico for the taxes, I guess.

But there's a deposition signed by FBI Special Agent Brandon Raz, which alleges that Eisenberg willfully and knowingly manipulated the sale of a commodity, namely the futures contract. tracks on mango markets with that exploit that we talked about a couple months ago, I guess. So he is behind bars right now. Welcome to the bad boys club. Turns out you're not allowed to manipulate markets like that, even though they're technically unregulated markets, I suppose. I'm totally bittersweet about this one, Matt. Why?

Because first of all, Abraham was doing something kind of useful, which was like very aggressively penetrated. penetration testing that's a real phrase penetration testing defy protocols so he was battle testing them yeah but you're not i mean you can't you can't exploit the the markets like that it's the only reason he was able to do that is because he was he was manipulating the spot markets for these things think about it like this matt if you grow a plant in a glass dome

and that plant never feels a breeze, never feels a gust of wind. It will be sickly and weak. It won't be robust. Now if you grow it in a windy plane, it'll grow strong. Do we want our D5 protocols to be these limp plants that are unable to support their own weight? Or do we want them to be stiff and turgid and able to weather any kind of hurricane. Well, I think we have laws for a reason. So Citadel's not able to go out there and exploit market data feeds by putting in fake orders

and doing the things that Abraham was doing. So I'd be in the camp of these things are illegal in other markets. Why should they be legal in the crypto markets? I agree that you should not break laws or an agreement. I just, I am, you know, I think there does need I think it's kind of risky and you build up this fragility if these systems aren't tested. And, you know, there could be a chilling effect here where all kinds of maybe not exploits,

but sort of ways to challenge these protocols, people are discouraged from doing that. And then they get very big and they're possibly brittle later on. So just from an adaptive perspective, I do wonder about it. but yeah I mean it's it he was very transparent about being the orchestrator of this quote highly profitable trading trading strategy the interesting thing is that he gave some of the money back so he like struck a deal with the Dow to the extent that can be done but apparently in the US criminal justice system I'm not sure if this is criminal or civil but apparently

if you kind of defraud someone and then give them some of them money back and like represent that it's a deal with them that's still not good enough apparently you can't just say hey we're all good

because they gave you some money back right yeah that's not how it works you don't steal someone's purse and then give them a hundred bucks back and keep $5,000 yourself and then you guys are cool yeah so it didn't work

not how that works I I think thought Abraham was an interesting character though because he was so transparent about it he completely owned up to what it wasn't just mango I mean he was doing all kinds of crazy nonsense out there uh so you know ripped to a real one he was entertaining at least we'll miss his voice on crypto twitter but frankly given the track record of all these other bad boys he'll probably be back on crypto Twitter posting away you know i think you think he will be yeah he'll be back it's the most alluring place ever.

You know, Sam will probably be back here at a minute. Yeah, I'm waiting for Sam to pop back on the scene. This Avi guy, though, he's been playing slippery games for a long time. He actually sued, I think it's the state in New York. I'd have to double check the state, but he took a case to the New York, I think is the New York Supreme Court about falling and tripping on ice. He's a very litigious person, it looks like. But he didn't strike me as like the biggest like respecter of laws and justice.

So it is kind of odd that that was his prior career. You just got to wash people out of this industry. We're never going to have a real industry if people like this guy, people like Sam Trubuco, people like Romnik Aurora, people like the Three Arrows people, people like Machinsky. You just got to get rid of these people. You can't have a real industry with all these charlatans. Craig Wright is still. kicking. I had the misfortune of reading a tweet by him today.

What's going on with him? We didn't talk about that. Yeah, so why don't we talk about that? Speaking of bad boys. So he kind of won but didn't really win his case against Peter McCormack. So basically the judge hated everything to do with Craig Wright, but Peter McCormack gave up, I think, on the fact defense. And so then in the end, sort of anomaly speaking, Peter lost the case, but then the damages were not, no punitive damages were rewarded. It was $1, I think, of damages. But then did Peter have to cover some of Craig's legal defense? So Craig's whole strategy was to run up the tab deliberately to raise the stakes and make it really tough in the case that, you know, his adversary would have to pay his legal fees.

I don't believe Peter is on the hook for all the legal fees. it appears that there's maybe a smaller amount than he might have to pay, but that's still unclear whether he will actually have to pay that. Anyway, I wouldn't characterize it at all as a win for Craig Wright, but it's just remarkable that he's still here. I don't know how you get rid of that guy. It seems like he has an infinite shelf life to just continue to be a troll.

One thing that I was reflecting on with the Abraham episode was non-crypto people like to attack crypto people by saying you guys believe in code is law, but then when things go wrong, you want to use the resources of the criminal justice system to fix it and go after crypto criminals and things like that. And I guess they kind of have a point. Like you have to be consistent. You can't just say, well, we don't need laws, smart contracts, will enforce everything. but then try and get help from the criminal justice system.

So I think the move is just to acknowledge that code is not law and law is law in the first place. That would be my advice. Sage advice. All right, let's move on to some other bad boys, FTX news. It's FTX news all the time over here. first up, SBF is expected to enter a plea next week in a New York court. So that is on the third, it looks like, of January. My immediate take was this will be a not guilty plea, but you think this will be a guilty plea.

Yeah, a little bit of tension here among the hosts. My prediction is that it's guilty. I don't see why. Yeah, I think it's guilty for sure. So I'm of the view that he enters not guilty, and then he negotiates here for a while. And then he eventually enters a guilty plea. I don't think he'll go to trial. But what leverage does he have, really?

I don't think he has much. I mean, unless he has something on someone very powerful in politics or something like that, I don't think he has a ton of leverage. Even then. Even then. I mean, even that, and the guy stole $10 billion. And he has two people that have already flipped on him,

including his co-founder and then Caroline Ellison, who were saying this thing was a fraud from the very beginning. So he's dead to rights on this. He's absolutely going to jail. It's just a matter of, I don't think you can work out a deal that quickly. He's only been at his parents' house for a couple days now. What do you think he's up to? Do you think that he had a nice Christmas break?

Like, what do you think the Bankman Freeds did over there? Do you think they did presents? Well, he's, yeah, I think he, well, yeah, his parents are like living in a house that is probably subsidized. by him anyway, right? So I'm sure the addition and the pool were with customer funds. I'm sure they had a great time. My guess is that he was on his computer the whole time. He was definitely on his computer at that lounge. I think it was at LaGuardia, where he took off and people were snapping pictures of him. So I bet he was on the computer. I mean, there were some Alameda

wallets that moved last night. I don't know if you saw that. Speaking of which, did you know that Uber copter is back? Oh, it is? For the New York airport. So it's like 200 bucks for. from JFK to LaGuardia to fly to Manhattan. That's like almost as much as an Uber costs if it's busy. Yeah, that's pretty cheap. I've never been in a helicopter. So, I mean, I don't think they have the best safety track record. But if the choice is a 90-minute drive from JFK to Manhattan

or a 10-minute helicopter, and you get really sick views of the Statue of Liberty on the way there. Oh, I would do that. It's a no brainer. I mean, if Uber wants to sponsor this podcast, it would be great to be able to take that. Yeah. When I go to New York, it's brutal. You spend an hour doing the airport thing, but then you have another hour to the city.

It's awful. It's the worst airport city in America, in my opinion. Shout out Boston. Boston is the best airport city. I mean, it's right there. Yeah, Boston's really, you know, good airport. The other thing about, like, the Amtrak is not good these days either. You have these assigned seats now on the asylum.

Really? It's just, yeah, it's getting worse and it's slow. Why can't they go faster on the train? But flying doesn't work either, but we can't default to trains. We never build high-speed rail. So what's it even a solution? I don't know, we need to build some of those high-speed rails. How did we get to talking about this?

I don't know, but either way, yeah, I'm really excited to take the Uber copter. Maybe that's more of like a bull market thing, actually. Maybe I'll take the subway. Yeah. You can do that, right? Yeah, it's like $2. Yeah, you can take the subway from LaGuardia. Yeah.

Okay. Oh, LaGuardia, yeah, it is a nice airport, though. The refresh they did was really exceptional. I'm so happy with that. It is. It is really good. All right. More FTX news.

So they have asked, FTC's new leadership has asked a bankruptcy court to rule over the true ownership of these Robin Hood shares. So Robin Hood shares, it's 56 million of them. they were of course it's customer money so sam took out a loan from alameda which took out a loan from ftx customers um and he went out and bought these robin hood chairs i still we should talk at some point around theories on what the end game here was for robin hood my personal view is that he wanted to either acquire robin hood or he wanted to strike a deal with that ftx access product where ftx would custody the robin hood assets and he would just steal more customer funds i think that's

what was going on there. But it looks like he used them as collateral for the Alameda loan from BlockFi. So Alameda had a big loan from BlockFi, and it was collateralized. They had a perfected security interest in these Robin Hood shares. So technically speaking, BlockFi owns them, I think. But, of course, this will be litigated, and we'll see where this shakes out. speaking of weird partnerships, I keep thinking about this IEX, FDX thing, and it's just blowing my mind. It's crazy.

IEX is not a public company. They're private. I don't think they really could have been worth much more than $500 million. The investment they made was $270 million. And it was initially described as a 10 to 20% stake. So they like massively overpaid for what it was. with an option to buy. What I realized last night was the joint IEX, FTC meetings that they had with the SEC

trying to get a safe harbor to basically turn IEX into a front end for FTX onshore in the U.S. Those meetings occurred before they'd struck this partnership, before they made the investment. I'm just, I'm amazed that the SEC granted an audience with FTX regarding, before there was even a formal deal. Yeah, that's interesting. I mean, the other interesting thing is Berkowitz here. So it looks like, so Dan Berkowitz, who is with the CFTC and then left the CFTC last year to go over to the SEC. I think that happened actually. And I think it was September of 2021.

And he was involved in a bunch of meetings with IEX and FTX. And he has announced that he's leaving. So I wonder if that. has anything to do with FTX. Yeah, he sent, there's some of emails of his that came out recently between him and FTX, and they seemed pretty friendly. I mean, the whole thing's weird. Even after FTX collapsed, IEX kept meeting with the SEC,

and they later rubished the FTX stake and implied that it was minimal and, you know, gave them no governance or oversight. it was a stake, it was a large stake with an option to buy. It was basically the precursor to an acquisition. But in the bankruptcy papers that actually says that it was an acquisition, so that part is described as controlling, right, a controlling stake. I mean, if you inject 270 and to exchange the size of IEX, that's practically an acquisition.

The whole thing's insane. And then there's the Michael Lewis thing. All right, people don't like my Michael Lewis. conspiracies, but I'm a full-blown conspiracist on the topic of Michael Lewis. Well, what's your theory? So, he's the connection.

Picture me like with a cork board and a picture of him and Sam and the SEC and Brad Katsyama and, you know, yarn all stitched between them. I mean, he wrote

this this book, Flash Boys, published 2014, super ludicrously positive towards Katziyama and IEX. I mean, it was like, in my opinion, the puff piece. Most people that I know in HFT don't like the book. And then he starts doing the same thing. I looked at the timeline.

He started shadowing Sam in May, April, May, June timeline. They said six months ago in November. And he was embedded with him. He went to the Super Bowl. He was flown. He was at his house a couple days ago, by the way. He went to his house, you know, post-disgracing. He went to visit him at home.

He was flew out to the Bahamas. I mean, come on. Like, the guy was embedded. He's a journalist. He's a financial journalist. How does he not realize something's up? What's going on? How did he get introduced?

How did this whole thing gets, you know? I think he was, I think there's a non-nefarious answer to this. I think Katsuyama introduced him. I don't think that that's a controversial thing. I'm sure they were working on a deal and Katsuyama is saying, hey, this guy's the greatest entrepreneur in the crypto space and introduced him and Michael Lewis wanted to write a book. So I think there's a pretty simple answer to that.

I don't think Michael Lewis knows how, like, Cold Wallace work. So I wouldn't expect him to know the level of detail that like Romnik Aurora, the head of product ought to know how like the actual product works. So if you're shadowing, if you're shadowing Sam Beckman-Fried for six months during, during effectively the insolvency, the collapse, the chaos of FTX pre-collapse, how do you not know that something's amiss? Like, do you not notice that he seems stressed out, that he's, like, doing more stimulants than usual?

Like, come on. Well, I'm sure. I'm sure he's, I'm sure it had to have been a clown show. I mean, if he was sitting in on any of these investor meetings that the SEC and CFTC and DOJ have brought charges on where they're blatantly just lying about the status of, their company. So it's like Romnik and Sam just out there making up the numbers. I'm sure if he was in any of those who alarm bells would have been going off. And I mean now from a journalistic perspective, is he going to say he knew all along? And if so, because he's either a terrible journalist or

a liar. I mean, like, I don't know. I don't know that if he was embedded and he didn't know a thing about it, then he's like the world's blindest journalist. Like, come on. I don't know. It depends on the access, I think. I mean, if he's just sitting in, you know, he gets an hour here and there and he's interviewing him, I don't know. I don't think that this is the type of thing where he had access to the customer list or looking at the margin accounts. I could very easily see a world where he did not know. The timing is remarkable. It reminds me, have you read that book Into Thin Air by John Crackhour? Yeah. So it's remarkable because John, Cracker is a great journalist, goes on Everest expedition,

just so happens to be the deadliest one in history up until that point. And he's a part of it. He's going out on the rescue missions, trying to save people and stuff. This is like that. It is. Lewis lucked into the biggest financial scandal of the decade. He's going to make a zillion dollars on this book and subsequent movie. All right.

Well, you know, maybe my conspiracies aren't true, but I'm just asking questions. Well, just, you know, you and you and Emmer will be poking around on this IEX deal as well. I can't wait to find out. Yeah, can't wait for those hearings. Well, he's got a new judge. So I don't know if you saw this part. So Ronnie Abrams recused herself. She was, she had to recuse herself because Davis Polk, which is her husband, works at Davis Polk. They previously advised FTX. By the way, can we get the list of people that advised IEX or FTX? Like, who worked on this IEX deal? It wasn't. It wasn't, trust me, I've dealt with Romnik Aurora.

He's not smart enough to structure some of these deals. And so they had to have some hardcore investment bankers in there doing some of these deals. I want to know who structured the IEX deal. I want to know who structured the BlockFi deal. Let's get to the bottom of all this. Talk about people that should have known something was a miss. But anyways, he's got a new judge in this case. It's Judge Lewis Kaplan.

And I don't know anything about Lewis Kaplan, but I actually. went in a I watched Screlli's interview with Laura Shen which was really good and Schrelly's point of view was that Kaplan's actually a really good draw for Sam

in terms of sentencing this might be a good good pick Schrelly's been providing invaluable commentary lately I mean that was actually yeah that was a really good episode certainly made me not want to go to jail it doesn't sound pleasant

Well, there's like 10 items of news on FTX for some reason. The blockfolio acquisition was paid. 94% of the box for acquisition was paid for with FTT tokens. So they just printed up like a fake currency out of nowhere and then use it to buy real things. That's incredible. That's the greatest deal of all time. But yeah, I think this deal probably was great for whoever was able to cash out. I think Pantaro was the big money behind here.

You could, I mean, FTT tokens were worth a lot of money at one point. They were way up from 2020 to, you know, 2022. If they hung on to it. I'm sure this ended up being a good deal for the venture investors. Remarkable. And the DOJ is investigating the hack that occurred contemporaneous with the FTX collapse. A lot of unanswered questions there, too. well why is that one so hard to figure out i mean

gary wang has already turned state's witness it's got to be a pretty finite list of people that had access to be able to move the money i think we already know that it was nashad gary and sam so i but it honestly could have been that the security team all quit this is why the fact that it was a unsupervised collapse like it wasn't just locked down from day one is such a tragedy because it could well be that the security team quit and just, you know, put down the drawbridge and let anybody walk in. And so then some hackers were opportunistic there.

Maybe. I don't know. I'm dying to know what's going on with some of the other, you know, chirping birds over there in FTX leadership. Who has turned themselves in? Who's cooperating? I think we'll find out pretty soon who's going to be on the list of cooperating witnesses where they have a pre-range deal versus who they're just going to go after. I don't think everyone should get to cooperate. I think at most two people should get to cooperate. Not everyone can be the witness.

Some people have to be punished for this stuff. Come on. Well, all this stuff that Ellison went on the record for, so she admitted that she knew that it was a scam from the outset and that she acted, she was directed to do things that she knew were illegal and that Alameda was always just, you know, the main event, basically, and that they were borrowing money from the jump with FTX.

So if you have her admitting to that crime already, then why do you need Trubuco to come in and say, yeah, I agree. Like, yeah, where's Chibuco? And she was first, I mean, as far as we know, as far as what's publicly disclosed, she was the first. So where's Chibuco, you know? Is he still happy? Remember that threat he did about how happy he was?

Is he still happy? Yeah, these sanctimonious people, it's like acting like you built a great empire and you just got to go relax and it's been hard work. It's like, dude, you didn't build anything. You're stealing money from people from the jump. You have no credibility as an entrepreneur executive. Yeah, they have no laurels to rest on.

Like, were the made-off people this full of themselves? Were they as self-contented as the Alameda people were? They certainly weren't on. Twitter. So if they were, I think they were quieter. The Twitter thing makes it ten times worse. I mean, the thread where Tribuko leaves and talks about how he wants to sit on his boat and be happy, it's like enraging to read in hindsight. Yeah, because you know that he knew that he was stealing money from the very beginning, that nothing they built was real there. No part of FTX or Alameda was real. There were no, there were no,

there were no accomplishments. No one will go on to great things in this industry because no one will want to employ you, even if you cut a deal. So there's nothing you can point to and say this was a great accomplishment. We did great work. So no, you stole customer deposits from the outside.

They didn't compete on a level playing field with other exchanges. They didn't validly win market share. They were cheating from day one. They were cheating. So there's nothing to be proud of. There's nothing to be. proud of. All right. So interesting piece of news, as all of our U.S. listeners will be aware,

it was very cold this week. Still is. I have a hat on right now. It's freezing out there. I'm somewhere warm. You probably guess where. But I did experience the cold. I was actually in the D.C. area and the temperature dropped 52 degrees in the space of 24 hours. It was incredible. I've never seen anything like that. It was exceptionally cold. I think Buffalo is still. still like in a state of anarchy. Yeah, yeah, huge storm up there. A lot of people died actually. Mm-hmm.

They need some like snowmobile cop patrol or something. They're like ski troops to sort that place out. Interesting side effect of the cold. A bunch of miners unplug their machines as power prices became very expensive in Texas. I guess there was kind of an energy scare. event, Bitcoin hash rate declined by 40% in a week. That's unbelievable. That's a lot. I mean, that's an interesting data point showing how much larger percentage of Bitcoin hash rate is US based. It's probably not just the Texas miners there. That's a crazy figure. It also shows

the Bitcoin miners are pretty benign when it comes to grid scarcity events. I mean, they were actually off. So I'm really encouraged by that. Like, that's another, attack on Bitcoin miners that is now null and void, basically saying that during times of crisis, they're competing with households. They're doing the opposite. They're giving that power back. So it didn't really affect Bitcoin much. I mean, blocks were a little bit slower for a while, but pretty remarkable to see. Yeah, it's a good data point for the Bitcoin mining industry there. In other news, bullish, which is the crypto exchange that was formed out of the ashes of the block one company. So this is the company that are,

originally raised, I think it was $4 billion via an ICO to build EOS, the blockchain that, I don't know, is that still a thing? Well, they built it. I don't think they used all the money to build it. Does it work? Does EOS work? I don't know. Was EOS even on like any exchanges?

I think it's still going. I think EOS is still running. EOS was Solana before Solana. Yeah. So anyways, all the money, I guess, was, you know, they built a blockchain that, may or may not still be around and then they started an exchange which is around but the exchange is not going public so they called off their SPAC deal SPACs just aren't a thing i mean spacks are down worse than a crypto i feel like um so block one has this like endowment now though so the all

the conclusion of all that the EOS thing was just um a like early milestone in the block one story now they're just a gigantic endowment and they have a lot of funds to do whatever they want with it. And they already settled with the SEC, right? This was the one that I think Brian Klein represented them. So they hired like, you know, a great attorney and somehow came to a pretty good settlement with the SEC over their SEO. That's a, we should do a chapter on, or, you know, a series on ICO projects that haven't settled yet with the SEC. I, I'm, I laughed to myself when I think about, Let's say in 10, 20 years time, Block 1 is like some kind of conglomerate with many interests and many different types of things. I mean, they own a lot of Bitcoin, I think.

And people just don't even remember that they were created to launch EOS. They're just known as like a large crypto holding company. I remember when we were raising our first fund. There was a guy that I was talking to. And he was working with a well-known crypto person. And he was so adamant that EOS was going to flip in Bitcoin. It was his number one highest conviction thing is that EOS was going to be the number one crypto asset.

People were hookline and sinker on that project at the time. I mean, there's $4 billion raised for it. Yeah. The year-long ICO. I think my critique of EOS was that they didn't freeze the funds coming in from the ICO, so they could have done this recycling thing where they got the client deposits and then they redeployed those deposits in the own ICO driving up their insider share of ownership to very high levels. In the end, it wasn't like anything as sophisticated as that

did them in. It was just like a cumbersome blockchain that people didn't want to use. Yeah, it just didn't really work. In other news, Gemini, which is of course the exchange started by the Winklewurst Twins, they're being sued by a group of customers of Gemini Earn, which is the interest-bearing account product that was powered by Genesis, which is, of course, kind of on hold here. So they've obviously halted withdrawals at Genesis, which impacts Gemini, which has about $900 million on the platform. There's clearly negotiations happening between the entities around some sort of a package deal here. And it's unclear to me what the forcing function is of a Gemini pre-packaged bankruptcy or reorg or sale or M&A event type of thing.

but maybe this is actually a forcing function. So Gemini is at the table. They've hired Hulahan, Loki, but now they're being sued by their customers. So these customers clearly want Gemini to do something. And maybe this forces them to, you know, I don't know, force the lending desk into a bankruptcy or something.

Every day that goes by, Coinbase must be thanking their lucky stars that they were blocked from creating their lend product by the SEC, huh? Yeah, I guess. but Coinbase stock is just getting smoked right now. So that's also true. I mean, I guess they're not bankrupt, so it could be worse.

There's no lending firms have made it through this. It's just incredible. It's just an extinction level of that. You still have like Nexo, right? Nexo, yeah, Nexo. Nexo made it. No, no, no. I'm not giving them credit for that.

I don't know. I need to see a, does NexA, actually, I think they do proof or reserve, but it doesn't really make a ton of sense with their business model. Interesting. You mentioned proof of reserves. Interesting. I am rolling out a proof reserve evaluation rubric in the coming days, assuming I get clearance.

And it evaluates all the recent proofs of reserve. So there's some surprising winners on there, some exchanges that really rolled out some great proofs of reserve and some not so good ones. Yeah, Nexo does have one with Arminino, but it basically doesn't. It's not very transparent. All right.

So Hidden Road, which is one of our portfolio companies, prime brokerage business, they've secured a registration as a digital asset firm in the UK under the FCA. So now they are able to offer products and spot and derivatives in FX and digital assets. First of its kind over there. So congrats to the Hidden Road team. I think we'll be hearing a lot more about market structure in the upcoming year and the right way to engage with exchanges. and things like that.

Yeah, I think it's the great unbundling of exchange competencies. So I think we will be splitting up custody and order matching, for sure. Yeah, it needs to happen. It's not there yet as an industry, but we clearly need to have a bifurcation. I don't think there's a reason why exchanges should have any assets. I think that this should be fully a tri-party situation where you have a custodian that actually specializes in just holding the keys

and the exchange facilitates trading and extends credit. Because I just think it's too dangerous. But it's a vestige of the way the crypto industry came up, which was that there was always a competitive advantage in listing more assets. And the dedicated, bespoke custodians historically weren't that aggressive in adding new assets. So exchanges had to deal. DIY it and they didn't want that dependency on the external party. But now I think the rate of kind of novel asset creation is going down. And so, and I think the custodians are pretty good

at Broadway support. So I don't see the need for exchanges to home brew their own custody anymore. Yeah. And if you think this is going to be an institutional type of an industry, these institutions just want no part of custody assets on exchange. Yeah. Maybe that can be your prediction for next year. Yeah. Well, I don't know. I don't know if it'll be fully baked in the next year, but I clearly will predict that two years from now, the market structure of this industry will be such that the leading exchanges, custody, zero assets. Okay, good one. I wrote down some predictions as well. Okay. Let's hit me with one. I've got a couple more. All right. First one, Fiat back stable coins currently account for 17.5% of total. crypto market cap. My prediction is that that will grow to 25 to 30% even if, even if crypto valuations

recover. I still think stable coins will continue to grow their their dominance. And what do you see as the number one catalyst for that growth? Honestly, just the convenience of using stables as a collateral type in smart contracts. It just doesn't make that much sense to incur additional FX risk if your smart contract has a non-zero duration. Why would you layer that on top, you know, of the other risks there? So, yeah, it's just better to have things that are stable. I don't know. I know that's not a very crypto-native thing to say.

All right. I like it. All right. I've got a prediction. I believe that in the next year, five plus FDX executives will plead guilty and go to jail. Oh, I had one related to that as well. So my prediction is actually very testable and specific. Is mine not?

I said five plus. Yeah, there's more numbers in my prediction. So I think Sam will plead guilty and he will face 30 to 4. four years. And then I think Caroline faces five to ten. And then I think Sam Chabuco gets more than Caroline. So those are my predictions. I think that's a pretty safe one. So do you think that only what, four people go to jail then? What's your? No, I think there's others. It's just those are the only ones that I have strong feelings on. Okay. But there's there ought to be dozens. I mean, there's just no way that the secret was kept within like three to four people. There's just no

way. Of course not. I mean, and just look at some of the things that they're being charged with. So defrauding investors, there's a lot of people involved in that. Yeah. My next prediction, I know is your turn, but I'm just going to go, I think Gensler is forced out of the role as SEC commissioner in the next year. You think it's just, you know, maybe they just give them treasury, you know? Maybe they do. That would seem like failing upwards, but I think it might well be a consequence of the likely subpoenas and hearings that will be focusing on the SEC's behavior of the last two years. So the House Financial Services Committee has flipped red,

and so you're going to have Emmer and McKenry with subpoena power, and so your view is that they're going to find something in this FTX IEX deal? Is that where you think there might be some ugliness? There may be skeletons in the closet there. I think there's a lot of possible avenues here. But yeah, I think there's emerging scandals there for sure. Okay. All right.

Well, I have one somewhat related to the SEC. I predict that in 2023, we finally get clarity on who regulates the spot market for crypto assets. It might be a tall task, but I think we will get an act of Congress that either gives it to the CFTC or the SEC and gives those agencies a certain amount of time to bring the industry into compliance. And, you know, the other thing is I think a lot of people in this industry would like to see the CFTC get that role. And it's purely because the SEC has been so openly hostile and it has

been just frankly a very bad faith actor across a number of dimensions. So everyone kind of wants the CFTC. But I think it's going to be, you know, tough either way for a lot of companies that aren't playing by institutional caliber rules. I think even if you get the CFTC, you're obviously going to have to have a compliance program. You're going to have to have to, to do things in a fully transparent way for the regulators. And I think it'll be a lot of work for a number of companies in this industry to get into compliance. But I think we'll get that clarity this year, this upcoming year. Yeah, that was actually.

I had a very similar prediction. I think that's probably the number one legislative priority as it pertains to crypto. And I do think there will be dedicated crypto legislation this year. My last one, proof reserves. I predicted in 2020, I think that 2021 would be the year of proof reserves. That was false. It was 2022, but only because of FTFX. So it wasn't for a good reason.

I think that we will see zero knowledge liability proofs finally deployed. And I think there will actually be state and or federal legislation asking exchanges to do proof reserves. So watch out. All right. I knew you were going to have a proof or reserve one. My last one is on the back of that clarity at the spot market level, and it's a little bit of a cliche because a lot of people have this prediction. But I think real world assets are going to be a big thing once you get that clarity. And specifically, I think the idea of real world securities in the form of real estate represented on chain

will be a very big breakout use case for defy and for CFI. So the ability to have a real estate backed stable coin of some sort, not that it would be pegged to a dollar, but pegged to a basket of real estate holdings, that you could use that in the context of defy and take out a loan against it and move it around on chain natively as a bearer instrument. I think that ends up being a big use case. I think it's a stretch to say it would be fully integrated with the legacy financial system in one year. but I think you'll have clear rules of the road. And we're going to talk a lot more about it over the upcoming year. We've actually made an investment in the category that we haven't announced yet. So my perspective is informed by the progress I'm seeing.

So well, these are all very specific and testable. So we're going to have to remember to actually revisit them in the air of time if this podcast is still going. We will. And we'll just delete the episode if it doesn't work out. Yeah. Yeah, yeah. Okay, that's all mine. I don't have anymore.

Actually, I have one last one. Okay. We'll be hearing a lot more about the Crystal Lagoon in the upcoming year. Oh, Crystal Lagoon. That sounds like a Disney theme park ride. Crystal Lagoon. It's a great place to buy property with Tether. Hmm.

That sounds nice. Sounds really appetizing the Crystal Lagoon. Sounds nice. And if you're working on like a bankruptcy and you see that there's some assets out maybe in the Crystal Lagoon that ought to belong to bankruptcy estate. I think you might learn a lot about the Crystal Lagoon and you might get active in the blockchain forensics side of the world. Curious.

Curious. Okay. I like it. On that quixotic note, we will end. Well, happy holidays. Happy New Year. We will see you in 2023 and a big thank you to all the listeners. Yeah.

Shout up Brink Nation. We're actually another prediction. We're going to roll out our digital trinkets in 2023. Oh, yeah. That's in progress, right? That's happening? They're almost done. I look, took a long time, but there's just a shortage of good talent out there to make

trinkets. Okay. All right. Well, I'm excited about that. All right, everyone, have a safe and healthy new year and we will see you in January.