The Breakdown - Why the First US Crypto Bank Is a Big Deal

Episode Date: September 19, 2020

On this edition of The Breakdown weekly recap, NLW looks at: DEXetition – Uniswap’s battle with SushiSwap heats up as the former dropped the UNI governance token in what some likened to a crypto stimulus check  The Fed has no clothes – After another FOMC meeting of “nothing new,” the mirage of Federal Reserve omnipotence is fading TikTok and WeChat banned from U.S. app stores – Is it just a negotiating technique? Whatever the case, people are not happy Kraken becomes a bank – What it means now that Kraken has been approved for a Wyoming Special Purpose Depository Institution charter

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDes. What's going on, guys? It is Saturday, September 19th, and that means it's time for the weekly recap. Let's kick off this week with a look at some vicious Dex edition. Uniswap made big headlines this week when they surprise announced the launch of their governance token Uni and air dropped an absolute crap ton of it all over the crypto markets. Basically, any eth address that had been used on Uniswap got 400 Uni.

Now, there were a few different narratives around this, and I want to dig into them. One of the narratives was, hey, look, the good guys won. This stems from the idea that sushi swap, which was the fork of Uniswap, that had seen so much press, so much buzz, so much hype, so much liquidity, only to have its founder potentially exit scam before finally giving back what he took. Anyways, this good guy narrative, good guy's win narrative, was from the idea that sushi swap represented the bad part of crypto in some way, that this forking and shiny object and incentive creation that rips things out of the long-term community builder hands is a really bad thing and crypto should be against that.

I've shared my feelings basically I think it's just brutal competition, but even in that context, you have to admire that Uniswap was able to completely shift the narrative back to them. So that good guy, bad guy language may not be something that I particularly focus on, but I do think that we're still learning what challenges forks face. And it's clearly not quite as simple as just forking away and rejiggering the incentives to allow people to gain more in the short term. Another way to put it is, we're seemingly seeing the risk of short-termism is that people come short-term, but then they leave short-term. In other words, you can't fork community. That's one narrative. A second narrative is around the idea that the one downside, or at least a downside of this,

is that Wales won a lot more than others. Jacob Franik, one of the co-founders of coin metrics, tweeted out, There's a dark side to the uni AirDrop. Wales hugely profited. Every scam that was L-Ping their own coin hugely profited. The four-year vesting schedule is really a two-year vesting schedule, which looks like a front-loaded NHL contract. Claim on fees unclear, though expected.

Lots of positive, too, but important to douse some reality over the euphoria. Another narrative has to do with Ethereum itself. Sue from Three Arrow's Capital tweeted, I know markets are up and whatnot, but Ethereum usability is absolutely atrocious today. And lastly, a final narrative around this that I saw was Preston Burns, don't do this. He published an op-ed in Coin Desk called

Stop Ficking Around with Public Token AirDrops in the United States. Now, to me, the right narrative, although I guess Preston's narrative might also be the right narrative if we're being honest with ourselves. But the right narrative, I think, or at least the one that I'd like to see more of, is the idea of brutal capitalist competition. I keep saying this when it comes to Defi as part of these crazy games is seeing what it looks like when markets are completely unfettered, when capital can move instantaneously, when people don't have deep allegiances, or maybe they do in some cases, and maybe that's the lesson. The point is you're seeing millions and millions of dollars

shift radically overnight, back and forth. And that is the crazy competition that this is really about. We are seeing this battle happen in a hyper-accelerated fashion in real time. And that's fascinating to watch. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com. Crypto.com offers one of the most cost-efficient ways to purchase crypto out there, as they've just waived the 3.5% credit card fee for all crypto purchases. What's more? With crypto.com's MCO Visa card, you can get up to 10% back on things like food and grocery shopping. When you buy gift cards with the crypto.com app, you can get up to 20% back.

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Next up, let's shift to the other side of the economic spectrum and go all the way to the top of the traditional markets with the Fed. The Fed had their most recent FOMC meeting, and really the way that I would sum up most people's reaction is, look, the emperor has no clothes. The Fed has announced that they plan that interest rates will be staying at zero until at least 2023, and frankly, they also said a bunch of other stuff, like they don't have the tools to fight inequality, and inequality wasn't on them, basically things we've heard over and over and over again, and that is, in fact, the point. If you listen to my interview with Rao Paul on Thursday, you'll hear him say basically that, of course the Fed said nothing new, of course the Fed said nothing interesting. They have nothing interesting to do. Monetary policy is finished. And the interesting thing about the Fed is that although

traditional financial media follows it like baseball, follows it like the most intense sports, there's a growing recognition of the Jeff Snyder-style position that, in fact, there's simply not much there. This idea of a massive influx of money is a flood myth. It's not real. It's a mirage. And in fact, the Fed's chief tool, is convincing us that they are all powerful, not being all powerful. It's hard to really sort out whether this is just a FinTwit perspective or whether it's a larger shift in the Overton window on what people think about the Fed in markets, but it's certainly something that I'm going to be watching. Speaking of Emperors, let's talk TikTok.

Breaking news on Friday was that the Trump administration has said that as of Sunday night, it will ban TikTok and WeChat from the U.S. app stores on Google and iPhones. It will also ban certain types of transactions around TikTok. It won't, however, immediately stop U.S. companies from using WeChat in China. Now, there's a full ban of TikTok planned by November 12th if they're unable to come to terms around some deal, and so TikTok will continue functioning, at least for U.S. users, while WeChat users in the U.S. will likely have it much worse, and the app might basically be non-functional starting Sunday night. It's hard from where I sit to tell how much of this is a

negotiating tactic. To some extent, I have to say, I would be pleased if this was a rejection of what we were seeing as a potential Oracle deal that was really just Oracle hosting TikTok's data in the cloud, which didn't really solve any of these issues. That would have made this whole thing even more of a farce than perhaps it is. Either way, whether this is a negotiating tactic or just the sort of errant whims of someone who's trying to make this a political issue, they're going to be some seriously pissed off people. There are 50 million U.S. users of TikTok. Of course, the reality is that most of them aren't a voting age, but still, that's a big block of people to be very upset about their favorite app being gone. On top of that, and even more pertinent, are the folks who have global

business owners that they run from the U.S. Ryan Gorman, who's a former journalist and now runs a PR firm, said, I use WeChat a lot for work and I can't possibly be the only one in this position. Blocking it could cause irreparable harm to my ability to work with clients and counterparties in China. This, of course, is exactly the point in some ways. The first step for those who want a new Cold War is to create the conditions in which a new Cold War can actually happen, which is the disentangling of commerce between private U.S. and private Chinese

markets. That may not be the intention of this, but it's certainly a byproduct of it. Last up, let's talk about why the first U.S. Crypto Bank is a really big deal. So first, what happened? Cracken, the San Francisco-based exchange OG that has been at this forever, got the first ever special purpose depository institution license in Wyoming. The Wyoming governor tweeted out, Today Wyoming became the first state to approve a banking charter for digital assets.

This will allow those using digital assets like cryptocurrency to access reliable financial services, protect consumers, and allow businesses a safe way to hold digital assets. Cracken General Counsel Marco Santori wrote it like this. He said, A crypto-focused bank would permit an efficient, transparent, and responsible nexus between the traditional financial system and the crypto ecosystem. So basically what we're seeing is a blending of these two worlds and an easier permeable barrier between them via this new institution. In that same thread, Santori wrote about what

Cracken can now actually offer, including digital asset custody, checking and savings accounts, wire transfers, trust accounts, online and mobile banking UIs, debit cards, account management services, deposit verifications, and of course little chained up pens. Why is this significant? I mean, really what it comes down to is a playing field being leveled. There are lots of people in and around the Bitcoin and crypto industry who want a bank that understands them, who wants a bank that doesn't shut down their cards for interacting with everyday businesses that we would interact with in this industry. Some of these services also open up a whole new world of investors who have issues coming into the space. Things like digital asset custody is a huge issue.

And don't finally underestimate just how essential it is for companies in this crypto space to have access to banking services by people who actually understand what companies in this space need. Even in regular technology, there's a reason that Silicon Valley Bank is so disproportionately popular with startups who are in tech. They're used to the sort of interactions, transactions, engagements that those companies have. So imagine that in an even more difficult, more complex area like crypto, and imagine regular banks trying to do it. It's just very, very difficult. What's more, if you need proof of just how essential a robust banking sector is to a crypto scene and how much not having access to that can hurt a crypto scene, just look at India. In 2018, the Reserve Bank

of India created a block and a ban for banks in that country to provide crypto-executive. exchanges and other crypto businesses with banking services, and basically the industry ceased to exist. That was only reversed earlier this year, and the industry has exploded because people can just actually get banking services now. I think that this is a big deal. It's an important step for this sector, and I'm excited to see Crack and take this on. CEO Jesse Powell tweeted out, you can't make this stuff up. This timeline is beyond twisted. I certainly didn't see a banking license in the cards when we set out on this mission nine years ago. We have come full circle, crypto. Looking forward to banking you all and banning the accounts of sketchy fiatlers. And if that

isn't a perfect way to end this Saturday weekly recap, I don't know what it is. Thanks for listening, guys. I appreciate you hanging out. I hope you're having a great weekend. And until tomorrow, be safe and take care of each other. Peace.