The Derivative - Trend Following Crypto with Leigh Drogen of Starkiller​

Episode Date: June 30, 2022

What should we make of the recent crypto crash?  A sign this is all a scam? Or just another dip in the cycle? Gather round; you're in for an interesting chat with the Church of the Flying Spaghetti Monster Disciple on Twitter @LDrogen. A Long Island surfer turned quant turned crypto fund manager who shows us how you have to be able to hold two separate thoughts in your head to succeed in the wild world of crypto. We're hanging ten and talking Crypto with Starkiller Capital's Leigh Drogen. In this episode, Jeff and Leigh bond over their love of skiing, the inception of Starkiller, how he's doing trend-following on a portfolio of coins with dynamic yield farming. Jeff gets Leigh to dive deep on the long list of warts in crypto: shadow banking, yield swaps, yolo trades, Ponzi schemes – but also wants to know what the real opportunities are. They then talk just how you can do trend following on assets so volatile, how you even start to go about doing due diligence in this space, and how to hedge the book. Plus, Leigh's in the hot seat giving us his views for preparing for the next 10x cycle — SEND IT! Chapters: 00:00-01:44 = Intro 01:45-10:50 = Big Wave Surfing, Skiiing & Montana scenery 10:51-31:45 = The Warts of Crypto: Shadow banking, Yield Swaps, Yolo trades & Ponzi schemes 31:46-43:19 = Trading the coins: Trend following in the Volatile Crypto space 43:20-58:02 = Hedging the book, Coin rewards & farming for extra yields and liquidity 58:03-01:09:57 = Managing Risk & Stepping into the pool with a hazmat suit 01:09:58-01:16:11 = Hottest take: Preparing for the next 10x cycle Follow along with Leigh on Twitter @LDrogen and @StarkillerCap and for more information visit www.starkiller.capital Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Happy July, everyone. You made it, sort of. First half of the year, done. But with a lot of carnage in tech and bonds and crypto, heck, even cotton was down 30% this week, which is interesting enough to get a cotton specialist I know on the pod. Stay tuned for that next week. Plus, we're going to get an institutional

vol seller on soon. See how the longer term big money thinks about all this volatility. On to this episode, I mentioned the crypto sell-off, and our guest Lee Drogon of Starkiller Capital has some thoughts. What a great firm name, Starkiller. We talk about how he came up with that, how he's doing trend following on a portfolio of coins and yield farming and living his best life surfing and skiing, which I may have spent too much time talking about. Sorry, that's what I'm into. This was a fun one where we see who can hold two separate thoughts in their head at the

same time. Send it. This episode brought to you by RCM's Managed Futures Group and their newest white paper titled Your Guide to Trend Following. Our guest here today is trend following crypto. How do they do it? Why do they do it? When does it work? When doesn't it? Ping the team at RCM to dig in. Check out everything RCM does, plus that white paper at rcmalt.com. Now back to the show. Okay. I'm pumped to start talking surfing and skiing with Lee Drogon. Did I get the last name right? Drogon? Yep. Lee Drogon of Starkiller. We got to get into that name too. So welcome Lee. Thanks for having me. Yeah. So I get flack in the comments

a lot when I spend too much time talking skiing and such. So if that's you right now, listener, fast forward 20 minutes or so, because this is too good to pass up because I see your picture there and you actually told me that you train for big wave surfing what what exactly does that mean yeah so I I grew up uh on Fire Island which is a barrier island kind of about an hour and a half from New York City on Long Island surfing and uh traveled around the world to surf as a kid a bit and then went out to university of san diego uh where during the winter we get you know pretty big swell there and just a little south in mexico and uh there was actually a an elective course at uh university of san diego called uh big wave surf survival and uh it was a lot of fun that, basically taught us to survive in kind of

the biggest waves possible. And since then I've, you know, at the age of 19 kind of went on to surf, you know, bigger and bigger waves all around the world. And, uh, uh, yeah, a lot of fun. So tons of questions. I've won university of San Diego. This isn't a question. The Toreros, I think, right. All right. I used to of San Diego. This isn't a question. The Toreros, I think, right? The Toreros, yeah. All right. I used to know all the D1 basketball school mascots. It was a little party trick. So Toreros was a good one. But Fire Island, how many people surf there? It's cold as heck, right? Well, so I'll admit that I'm not much of a cold wave surfer. I'll put on a 3-2 suit. But once we get to like, you know, gloves and booties, I'm, you know, I'm not much of a cold wave surfer. Um, I'll put on a three, two suit, but once we

get to like, you know, gloves and booties, I'm, you know, I'm, I'm tapping out. Uh, so I don't really surf on the East coast during the winter, but you know, once it hits, uh, late May, June, I'll get in the water. Yeah. And there's like actual legit waves there. Yeah. There's, I'd say, you know, from, from that period until late October, when the water's still real warm on the East coast, there's probably a good, you know, two dozen surf days and probably a dozen really good surf days out there. Um, depending on how the sand is, uh, kind of structured and, uh, you know, wind and swell but yeah it gets it uh and is this you on the picture over your shoulder that's that's not me that's actually a famous uh surf uh photographer

aaron chang i believe and that's jaws that's uh that's piahi out in but i love i love the photo and i have it in my office because it because it's basically representative of the scramble when things go wrong out there. It's basically just chaos and everybody's just scratching to get over the set and not get cleaned up. And is that Jaws pre-Towin surfing? Like they're all paddling. I didn't think. No, no, that's post-Towin surfing like they're all they're all paddling i didn't think no no that's that's post that's post-towin so now you're actually kind of considered to be a bit of a wuss if you're

towing into jaws on a day when it's not wind like super windy because they can basically paddle in at any size now that's awesome uh so quick aside on my honeymoon we were in maui and i'm i grew up on east coast of florida vero beach so we would serve what we thought were waves but they were like a foot to two feet high maybe um kelly slater grew up just up the coast there in indian atlantic about my age but um so i fashioned myself as somewhat of a surfer so we're on our honeymoon and i'm like we gotta go see josh so we're literally like driving through this pineapple field and she's like what are we doing there's some burnt out cars on the side and i never found it like i couldn't see it from the shore it was getting dark we abandoned but uh i wanted to see it um and my last bit there did you watch the HBO series? I'm sure 100 Foot Wave.

I did. Yeah, it was pretty good. It was entertaining. Although I'll have to say that one of my like, or my only kind of, you know, hot take on surfing is that Nazare is not a wave. It's a swell. So it shouldn't be counted as, you know that uh that record it doesn't really

break top to bottom like jaws does it's kind of more like a rolling swell yeah that's in that whole measurement thing it's a little weird do you feel like those are accurate just from the photos i mean i'm sure they could figure it out from the photos but it's for me it's still at the maximum height of the wave the surfer is not in the dangerous part of the wave they're not kind of under the lip like you are at jaws where you may be riding a 50 foot wave at jaws and you're literally in the tube like kyle lenny and and that's that's just yeah it's a totally different thing yeah um so what's the biggest one you've ridden oh uh i was at hanalei bay in hawaii probably five or six years ago and uh it was a good you know well for hawaii they would probably say it was like a 12 foot day but for me you know

it was more like a 20 foot day on the face. And that's kind of where I tap out. Yeah. That's pretty big for a guy in Montana. So moving on, you moved to Montana and Whitefish. So I've never skied Whitefish, skied Bridger Bowl first time this year. What's it like up there? You just before we came on, it just started to be summer. Yeah.

Whitefish is amazing. You know, relatively small town, but we got the airport here just 15 minutes away flies direct back to new york la san diego wherever um great great hockey town i play a lot of hockey here there's a rink right in town and then the mountain the powder is incredible um and i'll admit i don't take as much advantage of it as I should, just because I'm a more warm water sports guy, but you know, I'll get up there a dozen times, a winter and, uh, yeah, great community. Um, just a, just a really, really fun place out West. Um, and right next to glacier, right? We are, yeah yeah we're like 25 minutes from glacier so we go

hiking there all summer and uh uh we were up there just riding bikes on going to the sun road before it opens to the cars because it's not even plowed all the way up to the pass and uh just yeah some amazing views uh it's like switzerland in america yeah my it's right up there with me gotta be a top three national park for sure yeah um and you see a lot of grizzlies we saw like six when we were there yeah we saw some bears the other day when we were up there yeah which is hard for those guys in glacier just eat berries and stuff right uh yeah i don't think they're uh fishing in the streams uh rivers yeah so that's a hell of a lot of berries i'm like how do you get how do they get that big yeah um so and your name i mentioned

real quick my we named my daughter layton so we got a leigh similar name construction there where'd that one come from yeah you know what I don't know what my parents were thinking exactly, but I guess they didn't want to know and they thought I was going to be a girl. So I was supposed to be a Leah and they just shortened it to, to Lee. I was actually playing around with that, that like kind of that site that shows how many people have your name by

year, you know, that thing was going around a couple weeks ago and i think i'm i'm one of five lees with this spelling over a decade so you know i don't know if my parents were trying to be kind of like counter trend whatever but uh it didn't catch on didn't catch on i was joke of like kids names these days our friends are screwed right if i remember back to high school or college just like john dave brian right all these normal names now the kids have to think of like hunter and all these other names um so all right if someone's

tuning back in from there we're done with our surf and ski convo i'll ask you one more surf my best favorite surf movie oh uh gotta be september sessions um sessions yeah which is uh it's basically a trip that kelly slater and friends take to indo on a boat uh i don't know uh and jack johnson is on the trip yeah i think i've seen that yeah it's actually funny. So Jack Johnson, the music that he put into that surf film ended up being half of the songs from his first album. And that kind of launched his career. So great movie, great music, great surfing. Yeah, he seems like he's got quite the life, right? Surfer, songwriter,

gets out there. He's got it the life right surfer songwriter gets out there you got dialed in yeah let's talk crypto a little bit uh and i'll preface by admitting i'm a bit of a skeptic uh sometimes professionally on purpose just to make sure we're not missing anything. But I invested for some education and fun back in 16, but less than 10,000-ish, but recently made a bet that we'll never get back above 50,000 in Bitcoin. So I'm not sure where to start. So let's start with what worries you most about everything that's gone down these past few months. We'll circle back to what gets you most excited, but let's start in the wart department. What's most troubling from an investor standpoint? Oh, so many things. Yeah, I guess I'll say-

Or just not most, but let's just go down the list. Yeah, I mean, so all of these things I put in the category of was very likely going to happen anyway, still troubling, still awful. And also you need to hold these two concepts that are kind of opposing in your mind at the same time that all of these awful things are happening and were likely to happen. And yet it likely won't matter anyway to the long-term growth of the asset class. So kind of try and hold those two things at the same time. So the awful things, let's see, we are literally going through the same shadow banking collapse as 1929, that all of our securities laws were written to avoid. And it's most kind of annoying to me, because I've

been screaming about the fact that this was going to happen for several years now. And that we have this whole thing called decentralized finance, which is great. And that relies on over collateralized loans that automatically liquidate when they become not over collateralized anymore. And that works out really well. Nothing there has really broken yet. But over the last couple of years, these kind of centralized pools of risk and lending have popped up like Celsius and Voyager. And there's a lot of them now. And they made under collateralized or sometimes non collateralized loans to funds and individuals. And of course, in a big price meltdown, all of these firms are now insolvent. And guess who really takes the brunt of it is the retail investors who basically gave

them money as a yield swap trade, right? I give you my coins or my USDC, you give me back 8% yield. And then of course, they went and gambled with the money, right? Making bad loans and whatever. Well, of course, this was going to happen eventually. And all the laws are written to avoid shadow banking, and yet we did it again. So important factor, it's not necessarily the fact that they're offering a yield. It's what they're doing with the money once they get it. No, look, I think the concept of selling a yield swap to a retail consumer is already illegal, right? You can't do that. So the SEC should have shut all of these things down from

day one. My inclination is to believe that they didn't because they kind of wanted this to blow up to say, hey, I told you so. But the thing is, they're going to use that to then go say all of crypto is whatever and we need to regulate it, whatever. But the thing is, all the DeFi stuff, which is not this, is all working perfectly fine. So we could have just stuck with DeFi, but instead these tech bros came in and said, hey, give me your coins.

I'll give you 8%. And, you know, but you have no recourse to it. There's no FDIC insurance. There's nothing. Do you think it was the tech bros came in or the finance bros, right? No, these are tech bros. No it was the tech bros came in or the finance bros? No, these are tech bros. No, these are tech bros.

The Wall Street guys, the guys who were engineers at Two Sigma and Citadel and those places, they all built DeFi things. The tech bros built centralized CeFi things and blew it up. And they thought, hey, I just created perpetual motion or something, right? So would you go so far as to call it a Ponzi in some of those schemes, right? Because they needed to pay the yield to get more investors in? Well, okay. So there's two different things going on here. There are Ponzi-ish schemes, right? And those were destined to fail. And there are some in DeFi too like that. Like Terra was basically a Ponzi-ish scheme where they were subsidizing the yield that you were getting with investor money, basically.

And what happens is when the desire for leverage decreases and there's nobody that's borrowing from the system, well, then there's no more money to pay the people who have deposits, right? And then the thing collapses, which is what happened. What's happening in these CeFi shadow banks is a little bit different. What they did was they said, okay, we're going to give you seven or 8%. And then they went out and made risky loans, whether it was in DeFi or whether it was direct lending. But the thing was, they weren't really good at making the loans. And then they blew themselves up. So that wasn't necessarily a Ponzi scheme. It was just like, they were bound to do it poorly eventually. And they eventually did. And what do you have insight into what some of those loans were? Like they're loaning? Yeah. Like what are some of the egregious examples?

I mean, one of them was was terra like a lot of the celsius stuff comes out of you know terra blowing up but there are other things like terra that they've been blown up in as well there are other lending protocols um on chain uh that uh that haven't gone well for them and then then in some cases, the yield on stable coins has just dropped to kind of two or 3%. And so now you've got a mismatch between what they're paying out and what they're getting and they try to lever it up. And what happens when you use leverage in a bear market doesn't go so well. So when you're saying they were making bad loans, it was all still in the crypto arena,

right? They were just saying, all right, we're going to pay out four and we're going to go do it over here ourselves and get eight. Yeah, because they knew that just like Terra, if they dropped the yield that you were getting, there would be a run on their bank, just like there was with Terra and they didn't want to do that. So they tried to YOLO the trade and it didn't work out very well. The traders here in Chicago back in the day called it the O'Hare spread. You'd put in the pits here, you'd put on a big trade, you'd take the cab to O'Hare, you'd call the clearing firm right before you're plane boarded. Did I make money?

Nope. You get on the plane. Did I make money? Yes. Okay. I'm coming back. All right. That's one. So it's 1929 style shadow banking. What's the next wart? Yeah. I'd say number two was this conversation around, does Web3 really have any real world use cases to it? And, you know, I think there's a lot of ways to have that discussion. But the way that I prefer to approach it is, no, there really are no real world web 3 use cases today, right? But at the same time, we're still really, really early in the development of this technology. None of these things scale technically, right? They break all the time. There's, you know, a limited number of people that are really attempting to use it for the actual utility of it versus the casino of it, right? So you have to look at it as a progression of utility, not, oh, there's nothing here today.

There will never be anything here tomorrow. What we're basically seeing is the same progression that you saw on the internet from the late 80s through the mid aughts, right? Where you go from dial up where you really can't do much of anything to DSL where you can kind't do much of anything to DSL, where you can kind of do a little bit more stuff to, you know, broadband and, you know, really good graphics

cards and memory where like you can do all the things that you can do today. You can't expect this stuff to do all of it from day one. But I think the difference between this and let's say the late 80s, very early 90s in the internet is that wasn't financialized at the time. You couldn't own TCP IP, right? And so in this world, we go through these big bubble and bust cycles that are basically hype cycles. And everybody screams, oh, well, it doesn't do anything. Well, it's because it's still really early. But yet, yeah, you can bet on it on the early internet.

So it's disappointing that we're going to have to go through another one of these troughs. But it was inevitable. But it almost speaks to the, if it's going to be the next tcp ip or whatever a protocol and you're investing in that protocol is that if that's a single token or a single is that it is that scalable enough is that legit enough to be able to be that for the whole web 3.0 right that's that's why i always got a little hung up of like almost seems like it needs to not be a singly single i'm going to reuse the word protocol again but a single what do we call that a single uh coin protocol whatever yeah level one chain um yeah i guess i think we're

still i think we're still before the um consolidation of users onto one kind of platform or chain or you know whatever you want to call it, they're still hashing this out. And the reason is because none of these things are yet scalable, but the conceptual frameworks that they've built are very obviously the future of the entire financial and technology, you know, ecosystem. That much I'm 100% sure of. I'm also pretty certain that it's likely that none of the things currently existing will win. It's likely that there will be something else that comes along as we continue to develop that is the eventual big winner that consolidates everything. And how do you think about why not just be a VC and own some of the companies, not the coins, right?

Like, so is the winner going to be the next Microsoft or Google of this space, like a company that does this? Or is it going to be a level one, what do you call it? Level one? Level one chain or, yeah. Chain. Yeah, there are two reasons um one has to do with the investable aspects of a strategy and the other one has to do with the scalability of

and size of whatever is going to win the thing that's going to win here is going to be a decentralized chain or protocol. That much is sure. It will be originally backed by a company, but then it will become something that looks more like Ethereum. It will become a protocol that is, you know, decentrally owned. The more important piece of, and I think VCs will do really well investing in picks and shovels around the ecosystem. But you're seeing one of the big problems with that strategy right now, which is because this whole asset class is so bubble and bus driven, and we can get into the thesis of why that's the case, but because it's so bubble and bus driven, the VCs end up having to take a tremendous amount of vol inside of their portfolios by not being able to manage risk in those illiquid investments. And, you know, Cliff Asness would say, in a sense, they are volatility laundering because they tell their pension fund LPs, well, give us money for 10

years and we'll come back in 10 years. Don't look at the vol during these 90% drawdowns, hence the volatility laundering name for Cliff. I think he used it with private equity, but yeah, applies there too, even more so, higher vol. Exactly. In fact, they're laundering even more volatility here than they are in PE, in a sense. are liquid enough that you can run trend following and momentum models to manage risk, get very similar beta characteristics on the way up, and then be able to extricate yourself from that beta when these bust cycles happen. And to me, I think both strategies work in the long run. But for me, I would much rather be able to manage risk than have to hold through a 90 or 95% drawdown. Or they're saying, hey, I'm going to have 20 of these. 19 of them are going to lose 95% or 99%. And the one makes whatever, 19 million percent. We're all good. Well, there's that. There's the portfolio theory of it, right? Which also is difficult to swallow if you're somebody who comes from my background.

But the other part of it is even your big winners, like if you consider something like the VCs who invested in Solana very early on, right? And their coins are locked up. They've had a massive win. But if their coins are still locked up, they've just gone through a 90% drawdown in their most massive win, right? So how many people can stomach the biggest win that they've ever had, drawing down 90% and still saying, I believe in it?

Yeah, it's hard. Well, but that's what a lot of the believers right now right if they bought back in pre-2016 okay i'm still massively up even though i'm also massively down i can be both at the same time yep you want to go into what exactly star killer does here or cover some more warts? We can come back to the warts. Yeah, we can get into it. Well, okay, so here's the other wart and it kind of leads into the core thesis that we've got, which is when we look at firms like Three Arrows Capital, which is one of, if the biggest you know liquid crypto hedge fund that just blew up 19 billion under management uh find those guys yet i don't think

so no i think there's still mia yeah unbelievable uh and i don't mean to pile on here uh but and i think again you have to hold these two things in your mind at the same time. It's very obvious that three arrows levered up in a lot of different ways, some of which were stupid, others, which were relatively intelligent, but they were using a lot of leverage. Whether it was simply a YOLO trade for them, or they didn't believe what I'm about to say, I'm not sure it matters because they were wrong anyway. I'm going to choose B, even though I don't know what you're going to say. Likely it's B. Yeah. I think there's a lot of people out there that didn't believe that this asset class would ever draw down 80 or 90% again. And I've had a lot of conversations with very smart people who were not true crypto

believers, who still thought because of the institutionalization of the asset class, that it wouldn't do that again. That maybe that drawdown would be 60% or 50% or something like that. Our core assumption from the very beginning was that you cannot have the type of growth in the asset class that crypto exhibits without the associated vol. actual underlying adoption rates, on-chain transactions, total dollars of transactions, number of wallet addresses transacting. If you look at the price path over several cycles, it very much follows the growth in those underlying fundamentals. But what happens is because none of these technologies are mature enough to handle the demand, each cycle we go through this process of maxing out the capacity, and then the flow of new people stops, and then the casino stops, and the money stops, and then we collapse, right? Our main assumption was that we would have several more cycles of 80

or 90% drawdowns between here and some eventual lowering of the growth rate once the law of large numbers really kicked in as the whole world basically had an on-chain wallet or was participating in crypto. It's very obvious that 3AC and other funds did not expect this to be a basic assumption of their investing. They obviously thought that this was a very big left tail event. It wasn't. Right. And so I'm a little- Almost mathematically so, right? Like given the volatility, you should expect this. Yeah. So I'm a little disappointed in who were supposed to be very intelligent investors for not believing in this one very basic, very mathematically driven kind of

baseline scenario. But then I could go to the other side of like, well, that's how you raise all those billions of dollars. Unless if you purposely put the blinders on and say, no, those days are done. Give us your money. It's true. Yeah. It also reminds me of people who are like, oh, well, we'll never have a Great Depression again. Right. They'll never be that type of drawdown in the equity markets.

Never say never. It's kind of what I was trying to tell our investors from the very beginning was that, look, the core assumption in our models is that this will likely happen again. And yet we don't run a long, short book. We run a long biased momentum and trend following driven book that does go to cash and can be, you know, it can be slightly net short at times, but even given the assumption of 80% drawdowns, I still don't believe that shorting is an incredibly good strategy in this market because the growth rate, the gains on just getting the upside right, so far outweigh, you know, tactically attempting to take 20 or 30% off the short side in a bear market that it's just not worth it. And I was going to say like

all these warts or narratives are blowing up. Like we didn't even talk about it as an inflation hedge seems like that's totally out the window. Oh no. Yeah. So i'll give you my really short kind of um uh political philosophy of crypto uh which is probably very different from a lot of other kind of true believers which is uh i don't believe in like the libertarian like gold bug fantasy of this stuff like this stuff is all high beta tech. That's what it is, right? I tend to believe the Fed does a pretty good job most of the time, you know, dealing with money supply. I'm not an inflation truther. Even though you're there in your bunker in Montana? Yeah. I don't think they're inflating away the value of your money or anything like that.

Bitcoin is definitely not an inflation hedge, never has been, never will be. None of this stuff is. So yeah, you got to treat it like a risk asset. It's the riskiest of risk assets. And then my question somewhere buried in there was going to say, even all these narratives were sort of debunking here, you don't care because you're systematic. So buy it up because of this reason, I don't care. Sales off because of that reason, you don't care because you're systematic. So buy it up because of this reason, I don't care. Sales off because of that reason, I don't care. So would it be fair to say you're trend following the coins? Yes. So we run basically a liquid portfolio, no more than 20 positions at any given time.

Our universe of coins today is, well, it's smaller today than it was four months ago, let's say that. But it's roughly 400 coins that have enough liquidity for us to participate in. And we mostly use trend following and momentum models to govern the beta of the portfolio. And then we use cross-sectional momentum models to govern the asset selection within that beta. And then we look at all of the on-chain fundamentals and all sorts of other kind of quantitative variables that have to do with attention and leverage and basically everything having to do with the casino. How is it going in the casino? And that works really well to keep you out of these massive bear markets and then push the gas when it's really time to make

money and the market is telling you it's time to make money. So a lot of trend follower peeps listen here. So how do you do trend following when it's that volatile? Right. So I would imagine you're going to get whipsawed like crazy if you use some of the standard techniques. So what are some of the, without giving away all the secret sauce, how do you approach that with it being so volatile? No, we kind of pride ourselves on being very AQR-like

in the fact that we're glad to share our research. None of it is super rocket science. It's just all of the research that Cliff and I and many others have done in equities over the years applied to crypto, but used in a slightly different way. And you kind of hit it, right? You need to adjust your models for the vol. And I like to say to people, crypto is just like any other market, but more so in every way. There's more vol, there's more returns, there's more fat finger shenanigans,

there's more insider trading, there's more stupid actors. It's markets, but more so. So in our strategy, because we are kind of a mid to long horizon book, we have to expand the parameters for the timeframes for some of those trend following models. So one of the very basic naive models that we build on top of is a 550 exponential moving average crossover model. Tends to work really well in crypto. But even with that, the expectation of max drawdown in the portfolio is about 30%. So you have to be willing to take a significant hit to stay in the primary trend of these bull markets if you really want these big 6%, seven, 800%, you know, kind of gain moves, you know, during these cycles. We also use more kind of don't chain channel, you know, type things. The other kind of more

interesting thing that we do is we... I always call them donkian. Is it. Tomato, tomato. Yeah. We have to kind of volume and volatility weight our moving averages as well, because whereas in equities, you're dealing with kind of five days a week, mostly, where there's not necessarily an equal amount of activity taking place. There's obviously more activity at the open and the close than in the middle of the day, but you're roughly getting the same amount of information each day, you know, as you are the next. But in crypto, because it's seven days a week and 24 hours a day, you really have to weight that moving average for the information, which does not take place equally in the market. And that's an important part of what we do. So that's interesting. I hadn't thought about that of like, yeah, what's a day? How does your model, when does it calculate?

Yeah, everybody goes off of UTC. So it's midnight UTC, which I don't know why we're still using that, but everybody still does. Got it. And then did this require big tech investment too? So you're having to crunch all this data? It's relatively easy to get. No, look, AWS is pretty cheap at this point. These aren't massive, massive, massive

data sets. They're manageable. But we do have a really good team on the research side and definitely took a while. Mostly the problem in crypto is that there really isn't great, easily off the shelf, accessible pricing data and volume data because the market is so fragmented between on-chain DEXs and off-chain CeFi exchanges. And so it took us a long time to basically be able to combine all the things that we needed for all the different markets and all the different places for all the different coins into a unified, you know, pricing feed so that we could have a reliable data set to both

back test and go forward on. And then, so 20 coins in portfolio. So you mentioned the liquidity, how liquid, what does that mean? How liquid do they have to be and how do you measure that? Yeah, we need a certain amount of dollar traded volume a day that we can actually access on the exchanges that we can trade on. And that's relative to the size of our book. And basically, we want to be able to get out of anything within about six hours without moving the market too much. So you're never going to find us being 15% of the book in a $100 million token, just never going to happen. But you may find us having a 15% or

20% position in a big L1 that's worth $, you know, a billion dollars a day in liquidity. What's an example of one of those? Solana or Ethereum or, I mean, those are, Ethereum is much bigger now, but yeah. And so who do you feel is on the other side of those trades when you're doing them? Is it retail? Is it DRW? Is it the prop shops? It's a good question. It depends on kind of what timeframes you're doing them on.

So in kind of classic trend following strategy, we pyramid up into trades. So we're not taking full positions from day one. We believe in buy high and buy higher and buy more higher and sell higher. Today, the liquidity coming from market makers is way better than it was two years ago. And Ken Griffin at Citadel is entering now. And so two years from now, the liquidity will be even better. And I will probably be trading against Ken. Or yeah, they'll probably be the counterparty to most trades that we make

in two years. But today, it's still, I would say, a handful of kind of more crypto market makers, like Wintermute and others. And then yeah, during the bull phase is definitely very price incentive retail that is throwing market orders at this thing all day. Yeah. Please take one of those. Take one of those. You just triggered me of like, if you're trying to get out of what you said you don't do, but imagine some fund trying to get out of that 15% and $100 million coin, right? And the market makers on the other side, just hands in their pockets. Oh, yeah. Which I think is some of what we've seen recently, right? That is exactly what's going on right now is they've basically turned the computers off and the liquidity in the market has

dropped by almost an order of magnitude for a lot of this long tail of stuff. And, you know, one of my kind of favorite theses about markets, and it goes back to, you know, very classic research in equities is, if more analysts cover a small cap equity, there ends up being more liquidity, and that raises the multiple and there's a feedback loop, their positive feedback loop, right? So there's a classic kind of alternative data, stat arb strategy, right? It's kind of trend following off of analyst coverage lists and things like that. In crypto, it's the same thing, right? It's when liquidity goes up, prices go up, multiples go up. When liquidity goes down, this stuff is worthless.

And how do you measure that liquidity? That's the size of the order book? Mostly just dollar volume traded per day, honestly. Yeah, you could look at the order book, but we keep it even more simple than that. And that's been going down over how long? The last three months, six months? Oh, yeah. I'd say it really started to decline in late January. And it has significantly accelerated in the last month and a half or so. Which leads me to my, we're never getting back

above 50,000 bet, right? Because what faith do you have that it's going to come back? Yeah. So this is where, again, hold two things in your mind at one time. I have 100% on dying faith that the total market cap of crypto will come back above $3 trillion for sure. No doubt about it. Will Bitcoin end up back above 50?

I would say there's a very, very high probability because I think at least for one more cycle, the correlation between everything else in Bitcoin is still going to be pretty significant. At some point, that correlation will break. Bitcoin will fade into the background and this asset class will move on without it likely. But I think we probably still have one more cycle, which probably puts Bitcoin back about 50K. But I'm saying more from the liquidity standpoint, like have a bunch of softer players got blown out that were offering liquidity and now, so it'll take a while. That's your thesis. I guess it'll take a while to build that infrastructure back up and then you can get another leg higher. Yeah, look, bear markets end in one of two ways. It either ends in an apathy phase or it ends in a kind of superior capitulation, capitulatory event.

That capitulatory event could then kind of coincide with some macroeconomic shift. The Fed could be done raising rates or something else could happen that is positive for risk assets. But yes, most of the time we do go through an apathy phase. And then it takes a while to build back up the type of institutional leverage that's needed to really set us off on another one of those runs. You do shorts, but very minimal amount of shorts. So talk about that for a minute, because a lot of classic trend followers would be rolling over in their graves

if like, oh, we don't take the short side, like curve fitting, that's no good, right? So there are times when we use shorter term mean reversion models to hedge the book. This will either happen kind of within a raging bull market where we just think things are super overcooked and we've made a ton of money and, you know, we want to hedge the book. We'll hedge the book with mostly just super liquid perpetual futures contracts on Ethereum, Bitcoin, the biggest kind of stuff. And we try and match the beta of the portfolio with that stuff. There are other times like in December and early January where the market starts to roll

over and our models are mid and long horizon momentum models start to roll over where we will hedge the book for longer periods of time. And we will believe, and this did work pretty well in kind of late November to early January, that our asset selection will outperform our hedges. And that was the case. And then during parts of a bear market where we are mostly in cash, we will take very selective event driven kind of short positions within that downtrend. And it's usually it usually coincides with some structural arbitrage that we believe we're seeing. And man, in this bear market, there have been so many of those. And we've been pretty conservative. We've made some money, but we've been pretty conservative with taking a lot of risk there. Terra was obviously one of them. There's a bunch of

others that have played out and they mostly have to do with just really poor tokenomic design. The opportunity there would be to go short those? Yeah, to go short. It basically produces massive inflationary effects within the underlying number of tokens of the project and that produces a death spiral in the price. But what's it look like to even... Do you have to borrow those to go short? What's that look like? No, we're mostly using perpetual futures contracts where we just have to pay the funding rate on on on that. And, you know, sometimes those funding rates are five, 10 percent annually. And sometimes, you know, when everybody really is pretty sure that this thing's broken. It's 200%. We don't want to stick around for a year. We're

sticking around for a week or two to really get some kind of flush. And if it was just pure data driven, does it hold up the trend models on both sides? It does, but it reduces the returns on the way up. So you're making money more consistently, obviously, but the total return is actually lower. The drawdown is also lower, but the total return is lower. The drawdown is also lower, but the total return is lower. And our point is to make as much money as we possibly can while stomaching the kind of vol that we're willing to stomach. And what we really don't want to do is be losing money while other people are making money. That's the worst thing. And your investors really hate that when that's the case.

Right. And if my mind's like, well, I want some exposure to, if Ethereum goes to 50,000, I want that exposure, but I also want to step aside when things don't look so good. And do you find most investors are like that? They want the, right? Do you get some that are just, Hey, I don't care what you're doing. I don't care if you're trading Beanie Babies. As long as you give me that absolute return, I'm happy. Or are they mostly like, no, I want exposure to crypto. That's why I'm here. Yeah. So we told our investors from day one that this vehicle was a lot more of the latter than the former, that we may in the future run a vehicle that is more market neutral, long, short, really high sharp, but that this was the vehicle that they should want for, I believe in the beta of the asset class long term. I am not willing to hodl through a 90% drawdown. And it's very unlikely that they are going to pick assets correctly themselves.

So we are the solution to that problem. And during the points in time when we step out of that beta exposure, we are farming stablecoins basically. And so we're still producing kind of, let's call it a 15 or 20% return annually on our capital during the points in time where we don't have any beta exposure in basically a market neutral way. But you're never going to find us swinging hard on the like long short side at like holding a lot of beta exposure on either side. So help me keep those two thoughts in my head.

We were poo-pooing farming before or no, just the illegitimate farming. No, look, so I think. Help me understand those two things of like, now I'm before these guys were doing weird stuff when they're trying to get yield now this is okay yield over here this is a perfect example yeah in november and december we were in the terror trade we not only owned luna but we were also collecting that 22 yield in in terror right there are times when you want to own the Ponzi schemes, right? And it doesn't matter if it's a Ponzi or if it's what we call kind of a subsidized yield, you know, company or

scheme, right? But when all of the other variables roll over that make those things risky to own, you want to get the hell out of the way of them. Right. And which we did. So what we do is even when we own a lot of beta assets, we take those beta assets and we liquidity mine and farm inside of DEXs. We are lending them out on lending protocols. And then or we're using them as collateral on lending protocols to then take out stable coins and farm the stable coins for extra yield. So we're always producing extra yield on top of the book. But this is most important when we have no beta exposure. We're still producing returns like this in a bear market. Now, the way that I explain kind of yield farming and liquidity mining to people is, yes, a lot of these protocols are unsustainable, right? They're basically giving you equity in their project for simply providing

liquidity. And most of the tokenomics for most of these projects are not sustainable. I don't want to own their governance token, right? I want to liquidate that every single day. I want to, you know, I want to, I want to grab it and liquidate it every single day for the yield, right? And move on. And a lot of those things will collapse over time. I don't really care. I made money from it, right? But you definitely don't want to own the beta of some of those uh projects it makes me think i was we're in the golden age of sports betting apps right and so you like sign up get a free 500 right like hey there's 30 of those i just got dude if you're willing to pay me to nominally participate at no risk except for hacking risk because there's on-chain hacking,

or that's really the risk. If you're willing to pay me to participate in your thing, and I don't really have to do much, I'm going to take that money all day. Yeah. But help me understand that, because I'm still thinking there's the risk that it turns into Luna and goes to zero. Yes. So the risk is, yeah, just explain how you view that risk. Yeah, so the main risk is hacking risk. And then the second risk is protocol design. So what we do is we score every protocol that we provide liquidity to or that we farm on eight different variables on a one to 10 basis.

And then we basically add up that risk score. And then we look at the yield that we should be getting. And we look at a risk adjusted yield. And then we position size into those protocols on a risk adjusted basis. And one of the main things that we have to look at is what percentage of the liquidity pool are you? You never want to be bigger than 10% because you don't want to be the liquidity of last resort in a run book, right? We have to monitor for the withdrawal

of other people's liquidity so that we're not in the run book. And then you have to really understand the tokenomics and the dynamics of the system, right? So if Terra is subsidizing the yield that they're giving out in an unsustainable way, you just have to know when it becomes unsustainable and when it's still sustainable. And there are variables that we looked at, which have to do with the size of the reserve that they had and the number of people

that were borrowing, so paying into the system. And when those things break, you just got to be ready to get the hell out of there. And would you equate it to just like a long short fund that's loaning out their long book, right? To get a little extra yield? I'd say it's a little bit more sophisticated than that because we're a little bit further out on the curve there in looking for protocols that are new, that we've read the code, we've read the audits of the code, maybe we know the founders, maybe we know that it's a fork of another protocol that we know on another chain that we think is really safe. And we are looking to capture the rewards tokens from maybe an initial three or four month launch where they're really trying to gather users. And so there's a little bit more work that goes into it than just shoving money into Aave and getting 7% or 8%.

And how do you think about the longevity of that whole ecosystem? So for early days and grab the money in these first few years or whatnot, how will you know? I mean, I guess you'll stop seeing new tokens with rewards, right? Right. So I guess we have two really big philosophical theses about DeFi, I guess you would say, right? One of them is the casino is the boot program for the real utility in the end, right? You need the casino in order to get the liquidity and the people into the system so that you can actually build real utility eventually for everybody to use in real world stuff, right?

Which is the complaint right now that Web3 doesn't actually do anything except for enable the casino. The other big thesis is that the ability to bootstrap a decentralized system with these rewards is not a bit thing in this whole system. It is the thing, right? Like it is a really important piece of why this whole thing works long-term. In a sense, you're going from Uber having to raise enormous amounts of VC money, right? to then throw out advertising to get people onto their system and fight a land grab war, to instead of raising money from the VCs, you're giving the money to your users, right? And just like venture-backed tech companies, many will fail, most will fail,

but some will attain escape velocity to the point where the system becomes liquid enough that they no longer have to give out the rewards and there's real utility in their protocol. This is something like Uniswap, right, which has become big enough that they no longer have to give out those rewards. So I think that this is not only going to be around, but this is going to be a bigger piece of how companies actually bootstrap themselves in the future. And so I think as we go forward, you're going to see more and more protocols doing this and more and more money to be grabbed. At the same time, we're going to have more competition at the far end of the spectrum for grabbing those really good rewards from other intelligent institutional investors. And so if I think of it like that, of like, OK, I'm investing in all these private companies and they're paying me to give them money, which seems weird.

But yeah, but I guess it's right. It's like, hey, I'm giving you to rent. Maybe maybe the great me to give them money which seems weird but yeah but i guess it's right it's like hey i'm giving you to rent maybe maybe the great way to rent them money yeah yeah well i'm not just giving you money i'm you're selling me a bond right i'm giving you money and you're giving me a yield um but the kicker here is you can pull it at any time um which leads me to like won't they eventually start coming up with like, Hey, you get a better yield if you keep it in there longer, or like, I don't, I don't want the money to be pulled right away. So what does that look like? That has already happened. So we call it the VE model, which actually makes no sense vote escrow, which comes from a different thing, but it's, it's still the same concept where you're giving different amounts of yield to people who have had the money in the liquidity pool for different amounts of time.

And it kind of brings me to the concept of, I think we're really, really, really early in the development of all these tokenomics systems. And we've been through a couple of different cycles now, you know, DeFi 1.0, DeFi 2.0, DeFi, we're on three now, right? Like, and it just shows how early we are in the whole thing that we're still in the very early experimentation stage of figuring out what incents the right behavior on all sides of the system to build these networks into what they should eventually be. I feel like that goes against the libertarian ethos, right? It's a special deal, right? Everyone gets it. That's the thing about crypto is they say it's this libertarian thing, but at the end of the day, it's weighted and there are philosophical views on all sides. It's nothing.

It's not one thing. It's everything. How do you feel about all the retail that got killed in Solana and all these coins? But do you feel like, is this any different than any other thing? Like, hey, I was selling GameStop into them buying it up and it's just how I do my business and they know the risks?

Yeah. I mean, I think in every single asset bubble, retail is going to behave poorly because to be really honest, I don't believe that individuals should be playing around in pools like this. They get screwed every single time and they shouldn't do it. Yet our society believes that they should have the ability to do it. Personally, I believe that they should have the ability to do it. I don't think they should, but they should have the right to do it. And it's kind of inevitable. It's just like any

other asset class where, you know, look, you wouldn't walk into an operating room and do brain surgery, right, without being a brain surgeon, nor should you be playing in a hundred vol asset, right a without being somebody who understands how to manage risk um but that's the story of markets since the beginning of time the right it's almost the same thing of like you put money into your buddy's restaurant you did all this like people just jump into risky things all the time the do you think when they so are you big on like institutions will come and it'll save the day and all this stuff? And if so, once the institutional money...

I think institutional money is usually just as dumb as retail. They just have more money. Well, we just saw that. Yeah. Yeah. So basically, will those... Even if the retail slows down, will the institutional just be a never-ending stream of... There's a question in here somewhere. Do you think the institutional money will come and just get the beta or will they do beta plus, kind of like the stuff you're doing? The institutions are definitely going to do beta plus eventually. I think we're probably on the

leading edge of that. The pure beta has been a pretty naive set, you know, up until now, there's some coming like us. Look, I think retail will be involved in every additional cycle, right? And this whole thing requires retail, it cannot be driven by institutions because it requires the actual users in the protocols, right? So for example, there is a company and a protocol that's going to be launching. I'm forgetting the name of it right now, but it's basically you buy a $500 dash cam for your car, you stick it to the car and you drive around and it maps the road and then it sends it up into the cloud, right? And you get paid in their cryptocurrency based on all the different variables of your mapping, right? That requires consumers, you know, to retail to be a

part of it, right? And so this market cannot go forward without retail and institutions will not be the driving factor in it. And as you said, institutions are just as dumb as retail, but in different ways. They tend to take too much leverage at the wrong times and they're just as dumb, but in very different ways. No offense to all our institutional investors that are listening. And what are you starting to see more interest from institutions? And what does that look like in terms of like percent you think they might get to versus what percent they are now? Yeah.

You know, in speaking with a lot of pension funds, they are going to have, and some already do, the mandate to invest 1% or 2% of their assets into crypto. Right now, what we're seeing is with most large institutions, they are comfortable with, as Cliff would say, the volatility laundered kind of way to do it, where they give VCs money for 10 years, they shut their eyes, they pretend they don't know what's going on, and the VCs come back with returns or not in 10 years, and they say, okay, great. And I understand why that's the case, right? right, they're starting to come around to liquid kind of strategies like ours, where they can see why it worked in other asset classes, and they understand why it should be ported over to this

asset class and why the risk reward is even maybe even better in this asset class for those strategies. But it's early for that, for sure. Most of the institutional money that's being allocated to vehicles like ours are more fund of funds in crypto and family offices versus really, really large pension funds. And what about the name? Where'd it come from? Starkiller. So I don't know if you remember, it was going around pretty good about seven or eight years ago, there was a paper that was written that looked at how institutional managers named their funds and the connection between those names and how much capital they raised and their returns relative to their peers.

And the basic finding of the paper, which I think is published in the Journal of Finance or one of those, was that. Use a Greek name or something. Well, no, it's funds. It was funds with warlike names tended to outperform on both of those variables. And so I'm a Star Wars nerd and I was just kind of thinking about that when we were naming the firm and yeah, so

Starkiller kind of made sense. Starkiller base, right? I like Battlestar, but that was already taken by another fund. There you go. Star Wars fan investing guide to investments. And I have on here. Bitcoin equals Jar Jar Binks.

Sorry. Sorry, I did it. I can't remember when we did that. It was 20 somewhere, 2012 or 13 with the tagline. You really expect us to take this seriously? I'll send you. I'll send you a copy of that. Talking about those family offices, talking about those fund to funds, how do they go about doing the due diligence? When you're talking about, oh, we could yield farm here, the only real risk is the exchange going bust or hack.

That's the ultimate risk. So how do they view that? How do you do the due diligence when it's not even really what you're doing is the real risk. It's the risk of what you're investing in. Yeah. I'd say most of those institutional investors, honestly, they don't fully understand the concept of yield farming and the risks. To be honest, they get it conceptually, right? But if they had to go and do it, they wouldn't know the first thing about how to. So I think they're asking all the right questions, which is what are the variables that you look at? How do you manage risk? How do you manage drawdowns? How do you manage custody risk and hacking risk and all those other things? So they're asking all the right questions.

But at the end of the day, I do get the feeling that a lot of the time they don't really actually understand where the yield comes from. It's kind of like a thing that's sitting there in the ether and we can go grab it. So great, go grab it if you can grab it without blowing up um yeah use my gambling app uh analogy now right it's like these are just all gambling apps that give you rewards for participating um but to me i even have a hard time of thinking of that with our compatriot jason buck of like well hold on like how do i assess the risk that this thing's great? We want to put money into it, but there's a non-zero chance that they're at some exchange that goes

bust. So you just do that with position sizing, but then that gets weird. Into the protocols, it's about risk-adjusted position sizing. In terms of holding coins on centralized exchanges, we hold assets on a very, very limited number of places. In fact, right now it's two. And you likely won't see it be more than three or four at any given time, because that's really all the C5 that we trust. And as you're seeing right now, and I think Sam from FTX made a comment today that there are a whole bunch more tier two and three brokerages that are insolvent that we don't know about yet, but he does. And he said, you'll see them, they're insolvent. So there's a reason why we have not held any assets on any of those other places, because the history of crypto is they mostly blow up. So Coinbase is public. If they

blow up, they're going to sell stock to raise cash and they're going to make people hold. Great. Okay, fine. FTX does things really well. But meanwhile, their stock's down 90%. So it's like, are they blowing up? Yeah. That's the scary part. So Coinbase and FTX are your two? Coinbase and FTX. And I do trust Binance for execution, but it would not actually hold my coins there. I would take them straight off and we put them on chain. Yeah. I think I'm going to name this pod, the ability to hold separate thoughts in your head. Because it's like crazy to be like, oh, I wouldn't trust any of these exchanges, but these two look okay. Here's the best one. Here's the best like hold two thoughts in your head at one time. So Tether, right? A lot of people think Tether

is insolvent. I don't know. Maybe it is, right? Honestly, I couldn't care less, but there's a trade there, right? And the trade is if you have an account at Tether and Tether is trading at 90 cents on the dollar because people get worried that maybe it's insolvent i can go take dollars lever them up in defy trade those usdc coins for tether at 90 cents and then go right back to tether and redeem them for a dollar into my bank account and make 10 right away plus the leverage with almost no risk. And so I don't care if Tether is insolvent or not, whatever. There's an ARB there that we will do if that happens again. Why doesn't that get ARB'd away? You're saying it does. It appears for a second and then it

gets ARB'd away. It appears because people panic. They say, oh, it's insolvent. Tether doesn't stop withdrawals because even if it was insolvent, it's not like 80% insolvent. Tether doesn't stop withdrawals because even if it was insolvent, it's not like 80% insolvent. Maybe it's like 5% insolvent, right? Okay. Well, that means that they're not going to stop withdrawals until you've literally redeemed 95% of their capital, and then they're going to shut it off. But if you're at the beginning of that process and we can see how much they're redeeming, well, all right, I'll take that 10%. I'll take it all day. Right. I guess that's the key here too, right? Everything's on chain. So you can monitor. This isn't like a fund with monthly liquidity where I don't know who's all put in their redemptions and how it's affecting position sizing. You can see the market cap of Tether tokens

in real time. I would say it's like we're at the Bellagio and we're going to the pool and there's like 10 turds over in the corner floating around in the pool. And they're like, no, but this corner over here is a good, right? This side of the pool is really nice and comfy. I'm like, yeah, but over there, like, don't worry about it. So that's my mental hiccup of like, if there's some contamination there, do you even want to be in the whole or just or just go into the pool with a hazmat suit which is what we do there you go

but then that's not as fun but it's not as fun you're right it's just not as fun and you got to work a lot harder to meet the girl and you know like it's it's just you got to go into the i'm gonna finish with we asked your hottest take you were given some hot take before but i didn't prep you for this but what's what's your hottest take either crypto based or new york rangers based or oh wherever you want to go sorry for your loss, by the way. Yeah. They ran out of gas. But so did Tampa against the Avs, who were the best. They deserved to win it. Oh, my hottest take.

Yeah, I'll go with there is another 10x cycle in crypto. For sure. There's another 10 X cycle in crypto, like for sure there's, there's another 10 X cycle. So personally backing up the truck and, and loading it up, or you want to do it in a,

the same in a smart way of, well, all of my personal money is in the, you know, in the asset management firm, the vehicle that we run. That's, that's my, that's a lot of my stuff. So when our

models say to go back in, I will be really heavily exposed. And that'll likely be sometime in the next either six months straight is likely, I'd say. How do you feel about that? Because I read that I admire it, but I also think it's incredibly risky to be like you're double exposed, right? So you have your livelihood based on this model and then your personal wealth based on the model. There are two things here. And one of the things that we told our investors is, and that we've done legally, is we are not taking any carry out of the vehicle for the next three years. Now, we take the mark, but we can't withdraw it. So we're right there along with all of our investors. And the other thing is, yeah, look, if you're going to run a strategic beta oriented, long bias strategy with a lot of all, I think your investors should want you to really be skin in the game there with them.

So am I 100% comfortable with having this amount of personal capital in this vehicle? No, not really. Not 100% comfortable with that. Do I think it's going to work out long term very, very well? Yes. Is it a necessary thing to show that kind of confidence to our investors also? Yes, I think so. Were the 3AC guys invested in there? I don't know the answer to that. Probably some nominal amount, but it seems like they-

I think if you think about 3AC or some of the other funds that have done supposedly really, really well over time, I think their GPs have taken a lot of money off the table. Definitely. My buddy down the road from you in Bozeman was early into crypto and got some out and bought a ranch. Small, small property, but still converting. Last question. This is from our old season one. We used to ask every guest favorite Star Wars character.

So I'll bring it back since you're a fan. Favorite Star Wars character. I'm still going, I'm still going Yoda. Uh, I think, I think the whole ethos of star Wars is wrapped up in, in him basically. Yeah. Uh, you know, there are other characters that are, you know,

that have more going on, but, but he, I think represents the story from beginning to end, like his, his philosophical kind of take on it. I love it. And in the prequels we saw him

kick some ass so that's good um awesome this has been fun lee thanks so much and uh we'll see you hopefully next time i'm up your way absolutely thanks for having me what what are we going to do you're going to take me skiing hiking all the above oh dude we were wakeboarding the other day um you know there are some pretty challenging hikes up in the park like uh siah pass or that are you know they'll exhaust you and then at the end of the day in the park you jump into one of the glacial rivers there which is super cold but it's yeah it's a lot of fun yeah what did my son and i did in Anaconda. Is that the name of the town? It's like South, um, did a 13,000 peak there. It was fun. Uh, awesome. We'll talk to you soon. Best of luck with everything.

Thanks a lot. All right. Take care. That's it for the pod. Thanks for listening. Thank you, Lee, for coming on. Thanks to our producer, Jeff Berger. Thanks to RCM for the support. If you had a good time, please go like the show and give it a rating on Apple or Spotify. It really helps us in convincing great guests like this to come on. Thanks again. See you next week. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCM Alts and visit our website to read our blog or subscribe to our newsletter at RCM Alts dot com.

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