This Week in Startups - Terra UST stablecoin unpegged with Bennett Tomlin + High growth tech’s runway: $COIN, $SQ, $ZM, $TWLO, $SHOP & $PTON | E1456

Episode Date: May 11, 2022

First, crypto reporter Bennett Tomlin joins to break down the the massive decline of algorithmic stablecoin Terra USD (UST) and how the Terra-Luna ecosystem works (09:00). Then we recap five tech stocks that are down at least 70% off mid-COVID peaks Coinbase, Shopify, Twilio, Zoom and Block (44:44). We briefly touch of Elon’s comments about reducing permanent bans on Twitter (1:05:48). Wrap with Peloton’s painful earnings (1:22:53). (00:00) Jason and Molly tee up today’s topics (02:54) Jason and Molly talk a little bit about bitcoin and the stock market tanking (09:00) Bennett Tomlin joins to discuss what’s going on with stable coins: LUNA, Tether, etc. (14:10) Indochino - Get $50 off any purchase of $399 or more by using code TWIST at checkout https://www.indochino.com (15:17) Can you buy 60 cents of LUNA to get a dollar worth of Terra? Are algorithmic stable coins destined to collapse? (22:09) Vanta - Get $1,000 off automating your SOC 2 at https://vanta.com/twist (23:19) Discussing LFG Reserve balance over time (31:00) Assure - To get 20% off your first Special Purpose Vehicle (SPV) visit https://Assure.co/twist (32:11) Different types of stable coins, & how much damage will the past few weeks do to the idea of algorithmic stablecoins? (44:44) Jason and Molly on the bitcoin crash and major tech stock wipeouts (50:10) Coinbase (53:20) Shopify (57:00) Twilio (1:00:40) Zoom (1:03:11) Square (Block Inc) (1:05:48) Breaking News: Elon Musk says “I guess I would” reverse Trump Twitter ban (1:22:53 )Peloton stock down 93% from pandemic high FOLLOW Bennett: https://twitter.com/bennetttomlin FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Okay, everybody, it is a big, big Tuesday. We're climbing up the mountain. This is the steepest part of the week. It's a big financial news show for you today. Just tons of data and tons of lessons, Molly. Yeah, it is a mini MBA in a podcast box is what it is. First up, we have crypto expert Bennett Tomlin to break down what in the holy blazes is going on with Terra and U.S.T. And Luna, this whole thing, and they missed the peg, something's going on.

Bennett is just an amazing expert. And we talk about these stable coins, specifically algorithmic ones, and maybe this is the end of it and maybe regulation needs to come and tighten this up. Yeah. And then we're going to do, if you've been watching Moon Night, we're going to be like, Ahmet. We're going to weigh the hearts, weigh the souls of some tech companies right now, a deep dive on five stocks that are down at least 70% off of their mid-COVID peaks.

Yeah, and we're going to talk about how much cash they have in the bank and what their revenue is. And, you know, as I said yesterday, we're bouncing along the bottom here, I believe, in terms of the crash. So let's look at some facts and let's weigh Coinbase Shopify, Twilio, Zoom, and block, formerly known as Square. And then we may get slightly derailed by some breaking news that Elon is potentially letting Trump back on the platform. So I'm just going to warn you know, spoiler alert, minor de-railing. Ma, I had to pull Molly back. She ran right to the edge. It was a pretty minor losing it by my standards, but.

Fair enough. You went right to the edge. He did put one foot over the edge. I'm always professional. I'm always professional. I'm going to bring you back, Molly. Don't jump. And finally, we wrap with some Peloton earnings, which are,

Ouch, really grim. Ouch. It's going to be a great show. Stick with us. This week in startups is brought to you by Indochino. Indochino makes custom-fitted suits, shirts, and casual wear at affordable prices. shop for your next best look or book a virtual style consultation at Indochino.com. Right now, you can get $50 off any purchase of $399 or more by using code Twist at checkout.

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Twist listeners can get 20% off their first SPV at Assure.com slash twist. That's assure.cco slash twist. That's assure.cso. Hey, everybody, welcome to the Tuesday show. This is where we try to climb the mountain, right, Molly? We are climbing the mountain. I actually said that to my kid this morning when I woke him up. I was like, turns out Tuesday is the day you got to climb the mountain. We can do this.

Get your butt out of bed. It's really like, it's the steepest pitch. Really? It's the most hopeless time of the week, especially on a week when every company is crashing. This is as I saw, I saw Keith or boy say, like, very June 2000 vibes and I got a little PTSD. I remember that time, it was just people saying, like, can it go any lower? And I was like, yeah, can. Zero. A stock can go to zero. That is the possibility. I feel like if it's going to happen, it's going to be in May. It's going to be this month or next

month. Like, it is bonkers out there. It's just never ending. Well, they say, you know, sell in May and go away on the stock market and, you know, people like to take the summer off and not think about these things. So, you know, there is some truth to people might say, you know, what, this is going to be a disaster. I'll just get out of this for now. And I'll, I'll look at it later. There'd be some wisdom to that right now, too. Like, if you can do it, just don't look at your portfolio, just barbecue instead. Like, let's just.

Well, I mean, I think if you love the companies you're in and they're printing money and they're high margin businesses or have great, and or have great management, and usually those things are aligned and they have products you love. My general feeling is I like to hold things for a decade. So when I'm looking at Robin Hood or Uber or other square on my portfolio, things that are down, I'm like, still love these companies, still love the management, you know, revenue growing. I'm going to stick with it. No one should take my advice and this is not advice, but after our conversation yesterday, like I'd buy more Uber right now. Yeah. I mean, if they're, if they're trading out one point X

times their revenue, it's pretty great. Considering we look at and are having conversations in our corporate slack as investors and saying, you know, this is trading at, this founder wants 80 times revenue. Maybe we should offer them 30 times revenue. Right. And then it's like Uber's at 1.7. And you're like, huh, how does this math work? Well, there's a lot of growth that happens.

We're talking about companies making 10K a month, 100K a year, 300K a year. You kind of give them a little credit. You can't have the company be worth, you know, 1.X. It'd be a $200,000 company enterprise value. You give them a little bit of credit. Hey, 30 times 300,000, you know, make it a 10,000. million dollar evaluation, the founders don't get wiped out. There's like a practical reason for that. Right, right. But anyway, it's different, but anyway. It's different, but it's not that different

because every company eventually gets valued on free cash flow profits. And as they say, the markets are a voting mechanism and then eventually a weighing mechanism. I don't know who exactly said that quote, but it always stuck with me. I know I heard it first from Bill Gurley and he quoted somebody else, but you know, you just want to know, like, what does this business actually do in the world? And what value does it provide to their customers? And then what is the profit? And the valuation of these companies is somehow trying to look at future profits of the company and say, the future profits of this company is why this valuation exists. If you own this business yourself, you wouldn't sell it for this dollar amount because the revenue coming in in the future

would be greater in some way, you know, maybe the next 20 years or 10 years or 30 years of revenue would be greater than the price somebody's offering you for today and then you'd still own the business after you collected those revenues in the next 20 years.

And that's how valuation somehow in a market occur. But I think our first story... Speaking of trying to determine the long-term value of something in the world... And something in the crypto space would be something that provides no intrinsic value. Exactly. So far.

But I mean, stable coins, I guess, do have some value in that. They provide a tool for people to move money around without shipping dollars and paying wire fees theoretically. So we're talking today about a project called Luna. Now, we had the founder of Luna on the pod. It's a stable coin. It's referred to as UST. Terra is what it is. Now, that is not USDT, Molly, which is tether.

That's another staple coin that's had tons of issues and legal sanctions around them. That's a different project. Right. We should actually say Terraform Labs is the maker of two coins effectively. One is called Luna. and the other is called Terra. Sorry, UST. They make a bunch of coins, right?

But there's this Terra USD coin that's a stable coin that is attached to Luna in ways that we are going to attempt to break down with a guest in a minute. But this was, this represents in many ways, like a real attempt to realize the currency part of cryptocurrency, to actually turn, create a stable coin that could be used as a low transaction cost way to move money back and forth, like actually, you know, make a digital currency that was super easy and cheap to use. Right.

And along with a broader crypto crash that we're going to talk about a little bit later in the show, the Terra and Luna project, which again, was supposed to be stable, like peg to one dollar. It's in the coin. You would always be able to get a UST for a dollar. Yeah. Has become untethered.

to use an unfortunate pun and confuse this even more from that $1 price point. Yes, they call the peg. Which they call the peg. And even briefly, I think they stopped trading. There's an exchange mechanism that happens to help ensure the stability of this price. And they stopped that mechanism because of congestion and confusion. And that is literally the sum total of what I understand, which is why we are bringing our guest to get our guest on.

Yeah, because. To help us explain this. Our guest is a, I would say, a crypto skeptic. And he writes a newsletter called the Fudd Letter. Fear Uncertainty and Doubt is what Fudd stands for. And he co-hosts the Crypto Critic Pod. So he is a critic. And he's named himself such.

His name is Bennett Tomlin. And I interact with Bennett all the time. How are you, sir? Glad to be here, Jason. I'm doing good. So you have been on this for a long time. you are skeptical of these projects. I had Doquan of Terraform Labs on the pod,

and I couldn't get an exclamation for him of how this, I guess they call these algorithmic stable coins. They're a little different than stable coins. We have USDC by Circle, which is really like a, you know, Jeremy O'Aler's company, an American company with a lot of regulation, planning on going public,

and they seem to have done, I would think we would agree it they've done the most in terms of making sure the one-to-one exists. There's a dollar in a bank account somewhere to the dollar that the token is worth. And Tether, you've been super critical of. We can get into that. But let's try to define what exactly is going on and what is Luna, because there's a staking component to this where people are getting paid 19.5% to give their Bitcoin, great

liquidity, to make lunas that supposedly equal. Yeah. Yeah. What? Yeah. These coins. Basically Bennett, what? And that's where I kind of go, who's pegging me?

Because I feel like I'm getting pegged by the time. Like, I give my coin. Like, I feel like I'm the one getting . Explain this to everybody. Okay. Did I go too far with that metaphor? Might have got a little too far. I get it.

Yeah. So, yeah, as you mentioned, there's like, what I think of is, like, the asset-backed, fiat-backed stable coins, the more reputable ones being like USDC run by circle or finance dollar or Paxos dollar which are both run by Paxos, both which have done a much better job than Tether of making sure they had adequate reserves in avoiding

the ire of the law. Then there's other asset back stable coins like Tether which have had long periods where they had insufficient assets. Then in the more like decentralized stablecoin space, you have the like over collateralized debt-based stable coins like MakerDAO, which creates the die stable coin. So there you're putting up

extra collateral to get the die out. And so it is a little bit more protected because you've got that extra buffer. Algorithmic stable coins like Luna and Terra rely on a bit of alchemy almost where... I'm sorry, the word you used was alchemy. The word I used is

alchemy, yes. Not science, not magic. That's a real technology word, Jason. Yes. I'm just looking it up at Investopedia. And so the Terra chain is a cosmos chain that you can run various smart contracts.

on, and Luna is like the base token for that, in the same way that Ether is the base token for Ethereum. However, the difference with Terra is that it has built into the protocol like this foundational algorithmic stablecoin idea, which is that if we assume, or if Luna does have value, we can use it as like a pseudo-collateral for a currency-like token, and that's Terra. And so by going through the protocol, you can always exchange about $1 worth of Luna for one Terra or one Terra for about $1 worth of Luna. And so as long as Luna remains valuable, the idea is that it can be used to collateralize the supply of Terra in circulation. And when you exchange the Luna for the Terra, the Luna is burnt, right? Ormented if you're going the other way.

if you're going the other way. Okay, so that there's always a control on the supply of Luna on either direction. Yeah, and that's, that right there is also what can lead to what's called like the algorithmic stable coin death spiral, right? It's because Terra is effectively collateralized by Luna, you can hit a point where the value of Luna

starts to fall pretty rapidly. And we saw this happen during the depagging where at one point, and I think still now, Luna ended up falling its market cap, below the market cap of circulating Terra. And so there is insufficient demand, insufficient liquidity to actually collateralize the Terra in circulation. The issue with this becomes when the people try to redeem the terror in circulation and go back

to the protocol to get more Luna, the protocol has to keep minting and selling the Luna effectively into a depressed market with a falling price. And so you end up with this dynamic where when that starts to flip, when the collateral effectively starts to lose value, it becomes increasingly challenging for the stable coin to recover. All right, everybody. Weddings are fully back in 2022, as I'm sure many of you know. And whether you're the groom in the wedding party or just a guest, you got to look great.

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Or do I need, like, whatever, you know, one point, whatever? Terra, Luna's to buy a Terra? When it crashed. Right now, because it's below peg, what you would do is buy up Terra. So like for say, I think it's 90 cents right now. So you'd spend 90 cents getting your Terra, you'd go back to the protocol and you'd swap that for a dollar worth of Luna and do the arbitrage that way. When it's above Peg, you do it in the opposite direction and exchange one dollar's worth

of Luna for one Terra, which when it's worth more than a dollar, you can then sell and make the difference there. Yeah, and so if you are confident that you would be able to sell the dollar worth of Luna you'd get for that arbitrage, then there is a reason for people to start acquiring UST on the open market

is the part of the dynamic that's assumed there. Because they want to make that arbitrage. They want that easy 10, 20, 30, whatever percent as it depegs. So who... Oh, yeah, go ahead, Maul, you guys. Why should this have worked is my question, right? So there's this idea of this algorithmic stable coin and that will

stabilize. Like, was there ultimate confidence in this arbitrage mechanism to ensure that Tara would always stay stable? Like, I'm sort of not sure why this wasn't always destined to come apart. I would argue that it was probably always destined to come apart. And I think most algorithmic stable coins are basically always destined to come apart because they rely on this kind of alchemy of convincing people that this thing that should be worth nothing is worth something. And there was even a bit of a tax of acknowledgement in like the Luna community that a lot of the things they were doing in order to grow Terra in order to scale this up were unsustainable and couldn't last, right? Such as? Like subsidizing the anchor yield, right? So,

Terraform Labs, the company behind Terra was basically giving millions and millions of dollars to the Anchor Protocol so that they could pay out a much higher rate to people who lent their Terra than the market actually demanded or wanted, right? And so because of this, a whole bunch of people were minting more and more Terra so they could take advantage of this 19 or 20% interest rate that was being offered at the anchor protocol. Did you say 20% interest rate? I did. I did. Yeah. They were offering a 20% interest rate for a while on a stable coin. Okay. Bennett, you're a finance guy. Are you aware generally of what the stock market returns on average every year?

It's less than that. Madoff did like what, 11.8% per annum over his way? When he was cheating and he was the greatest Ponzi scheme in history. And the market returns 7% in venture capitalists, you know, over, you know, many decades and lots of work in a very small, tiny market relative to other markets. You know, the best ones can return 20% year over year. So here you get 20% for loaning them your Bitcoin or you buy tariffs and you loan them into this pool and they would give you back 1.2 terras or another 0.2 tariffs for everyone you lent every year. You deposit your terra into the protocol.

You get a token that represents the terra you deposited plus the interest it accumulates well it's there. I think it's called AUST for Anchor UST. And then that represents the yield you're accumulating until you finally get that money daily, weekly, monthly, yearly. I'm not 100% sure. I'd have to look it up, but it's paid pretty regularly. It might even be paid block by block. I'm not sure.

Interesting. So it's not like you're waiting to the end of the year or quarterly. You're getting it basically in real time. So a bunch of people with money sitting around said, well, if these schmucks are going to give me a dollar 20, for every dollar I let them hold, I'll let them hold some dollars. So somebody gives them a million bucks,

they get another $200,000 at the end of the year, more than you're going to get. Yeah, I think... For many other investment. Yeah, so, like, there's... People go out on the open market and, like, might use their dollars to buy Terra, or might use their dollars to buy Luna

and then convert it to Terra. They're not giving the dollars, like, directly to Terraform Labs or anything like that. But, yeah, they go out, they get the Terra. from some other third party who owns stars. Yeah, yeah. Some other member, likely one of the large market makers

which keep those markets liquid. And so, yeah, then they're able to use that to get the yield. And so the Steelman Good Faith version of what this algorithmic stable coin was trying to do is that by doing these unsustainable things, by incentivizing this growth, they hope to get it large enough and with enough interest, use cases, and other things for it, that they would be able to stop doing the unsustainable thing.

And people would still think this thing should be worth a dollar. So you're saying that they set up a scheme by which they were promising some returns and then maybe those returns weren't happening. And so then they started to try to incentivize more people to come in and continue to buy so that they could eventually get caught up and return the returns that they had been promising all along. Okay. Because I believe I may have just described the Madoff scheme. They're generally pretty careful to not outright promise a certain level of return in official marketing materials from like Terraform Labs. But there was definitely like a subsidy to help make sure that it would continue to grow. Right.

And would get larger. I told you my actual follow question. Remember I told you Molly, though, last week that I knew a poker guy. I think I said in the last week show. Yeah. who is like, I stopped playing poker because I'm just staking a bunch of crypto and making like more money there than I would in a poker game. Right. So continue.

Well, my actual follow-up question is who are the large market makers that you referred to? What's that dynamic all about? Well, there's a bunch that trade it just because it's relatively liquid and integrated at this point. But like three errors, capital, jump, crypto and Alameda all are actively trading and making markets in Terra. And several of them were also recently part of. of the secondary sale of Luna tokens to create the Luna Foundation Guard, which is where Terraform Labs went out and bought, or were going to buy, I don't remember how far they got through it,

$10 billion worth of Bitcoin to help support the peg. So it is really important for founders to understand what stock to compliance is. Basically, I'm just going to dumb it down real quick. If you are a SaaS or a services company and you need to store customer data in the cloud, then you need to be sock two verified from a third party in order to close major customers. If you're not sock two compliant, you cannot close big deals. Okay, we got that out of the way, but here's the thing. Sock two verification is brutal.

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reserves. So they had started to build up some reserves in Bitcoin. And these were to back the stable coin and the Luna token in case it became unpegged. Am I correct? That's the intent of this. It was meant to be used to perform open market operations to defend the peg. It wasn't like, yeah, so it's not like directly, you can't directly redeem your tariff for Bitcoin. You can't directly do anything like that. It's just meant as a pool of money that these market makers in Terraform Labs can use to try to fix things when they break. Got it. And they raised over $3 billion of this at some point, or maybe it was less, but the value of Bitcoin went up.

It was supposed to end up being $10 billion when he announced it. I don't know how much they ended up actually getting to before things really started to struggle. This chart says between 2 and 3 billion was in there from January until now. And then they deployed that to, I guess, prop up the sale of Lunas and this basic run on the bank that's occurred the last couple of days. To enable buying and selling, basically, on the open market. I think it was announced that they did a, at the very least, a $1.5 billion loan of Bitcoin on $1.5 billion loan. of UST to several of these major market makers. I think that was pretty early on Sunday to help try to stabilize the peg.

And then since then there was the other large withdrawal where they moved some of their funds to a separate wallet and seemed like they were getting ready to do another deployment of capital. So yeah, they created this big pool of money and basically tell these firms go out and use this money to help get this thing back to a dollar. Got it. Okay, so where are we now? We are not at a dollar, right?

we have untethered from the peg. We were at like 90 cents when I checked it a couple hours ago. I don't know exactly what it's at right now. I think that's about right. And then what's the thing with the halted trading that happened? Binance is, oh, Binance ended up having a limit on their order books for this, where they weren't allowing any bids to be put in under 70 cents for a while. And so because of that, when the market price of this token,

fell below 70 cents, there was no bids available on Binance, and so trading effectively halted. Besides that, they also halted withdrawals for Tara and Luna, which meant people who had those tokens on Binance could not sell them because there was no bid, and they couldn't withdraw them because those were frozen. So now that the reserve is gone, Luna Foundation Guard reserves, seems to have been depleted, if another run happens, they have no way to prop this up. Am I interpreting that correctly?

I'm not sure if the reserve is entirely gone or if they just had to move part of it as part of the structuring the loan or whatever. But yes, it's not a sustainable strategy, right? Every time the peg breaks, it becomes a little bit harder to build up the confidence in faith in this thing again, convince people once more

that they should believe this thing is worth a dollar when they've just seen it not worth a dollar. And so they can use the reserves they have for now to likely bring it back up to a dollar. I think they've got enough billions of dollars to pull that off for today at least. But you're right that next time it happens, next time something like this occurs, they can't do that again, right? Because the money's gone, the money's been spent. Or even if they have enough to do it next time, what about the time after that?

And so, yeah, it's not a sustainable strategy. for them to continue to use their reserves in that way. Who is the bagholder here? Who's losing all their money? Retail investors who got into Luna pretty late. Before the ICO of Luna, there were private sales to about a dozen venture capital firms, and those were done at 18 cents and 80 cents per token,

so they're still very much in the green. I think Jump Crypto Alameda and Three Arrows Capital were the big three who participated in the Luna Foundation Guard's secondary sale, which I think they might be in the red right now because I think that sale might have been priced higher than $30. But the people most in the red right now, most getting screwed, are the retail investors who got in a little bit later. I think I'd just figure something on, Molly.

A bunch of venture capital has bought Luna for Luna tokens for 18 cents to 80 cents. Is that correct, Bennett? Yes, that's absolutely correct. So they buy these dollars or what's supposed to eventually become a dollar, right? It's supposed to peg with the actual stable. Luna is the staking token. It's the staking token. It's the base token for the chain.

And then you can burn the Luna to get Terra. Right. But it's supposed to be at a dollar eventually. Is that correct? Terra is. Luna can be at any price. Got it. Yeah.

But if you have Luna at 18 cents and you want to arbitrage it for that Terra at a dollar, you make money. No. No, no, because if you just end up having to burn like five Luna to get one terra, right? Got it. It's a literal exchange with an exchange rate. What is Luna trading at? Got it.

$30 or so right now. So they got in at 18 cents. Luna went up and at Luna peaked it like $150, right? At some point? It peaked like 115. Wow. So am I correct in thinking that the people who got in at 18 cents, whoever they are, they now are up

just try to do the math here really quick 10 times 18 cents is a buck 80 100 is $18 and if they were above 100 they were a thousand X in their investment Yes so they're up a thousand X they're still up if it's you know at 30 I mean they're still tremendously up

you know whatever 150 200 X this is extraordinary in like a year or two The ICO was in February of 2019, so the private sales were probably end of 2018, beginning of 2019, so about three years. In three years, they were up between as low as today, 150, 200 X their money and as high as a thousand times their money. Yeah. So if they sold all that to the bagholders known as retail, then they'd be sitting on billions of dollars in some cases, and then they want to keep this thing up, they'd do the, this reserve. Is that right? Part of the interesting dynamic here is that I don't think any of the major market making firms that were part of the recent secondary sale to set up the reserve were part

of the original two private sales. And so you're actually getting at part of the interesting dynamic here is that the early venture capitalist had such a massive price appreciation that I think many of them probably did at the very least downsize or de-risk their positions over the last year. And so they're probably okay and can stomach just about any drop in the Luna price. The bigger issue is for the retail investors who came in later or for the firms that participate in the more recent secondary sale. If you're an accredited investor, you need to know about special purpose vehicles. So what is an SPV? Well, it's an investment vehicle that allows up to 250 investors to invest up to $10 million by one entity on a cap table. So if you're an angel

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Okay, but back to this specific instance. And I just want to dig into what this means for trust in stable coins, which you alluded to earlier, because there are these two types, right? There are stable coins that are specifically pegged to fiat currency and others that are algorithmically pegged. Yeah. So I think there's like the subset of ones that are like, they're sometimes called bank coins, right? Like circle Paxos tether where the funds are held in financial institutions, at least for the ones that aren't tether. The funds are held in financial institutions.

and like they act kind of like a pseudo-tokenized money market fund. Then the algorithmic ones are still pegged to the dollar, but rather than having like a pool of cash and cash equivalence, which is meant to support the value, the only thing supporting the value is the arbitrage mechanism against the governance token or against whatever else. So then how much damage does this situation and these, you know, happenstances over the past few weeks

due to the idea of the algorithmic stable coin? If we assume this is just a market trying to figure itself out here, right? Yeah, I think it's plausible that this is going to do some pretty substantial damage to algorithmic stable coins as a whole. They've existed for years at this point. Dan Larimer did it with new bits back in 2016, 2017, way back. And then we've had tons of follow-ups since then. This one was a little bit unique because it got quite large. The taram market cap at one point was $18 billion.

And then that's not counting the Luna market cap, which was an additional 40 billion on top of that. So between the two, you had like a 60 billion combined market cap for this token system. And yeah, and they were sponsoring U.S. sports teams. They were purchasing $10 billion of this other asset. They were connecting more. They were trying to connect and use it for payments and all these other things that started to touch the real economy in a little way. So I think that Tara was just at the point. where they were starting to really provoke a lot of interest from regulators and stuff like that.

And now that they've gotten to the scale where they're doing that and they're actively failing, I think it's quite probable that their failure is going to bring in more regulatory attention to this class as stablecoins. Besides that, there's another kind of tricky dynamic here with the billions of dollars of Bitcoin that they purchased to support the peg. And that's that they are now in a position where the longer the system is depeg, the more they need to continue spending until they've effectively burnt through their entire reserve of Bitcoin, continuing to sell those into the market, depressing the market,

and making it more challenging for the crypto ecosystem as a whole, right? Because so an entity relatively quickly liquidating $10 billion. You're talking about contagion. Yeah. Yeah. And so there's the broader contagion from them selling Bitcoin into a falling market. There's the closer contagion with like magic internet money, which is Daniel Sesta and Omar Dahani, Sifu, created a protocol on Ethereum, which would go through the anchor lending market 10 times, re-hypothicating each time to try to get leverage on the yield they were

subsidizing. And they used this to create their own stable coin, which they called magic internet money. And so, like last night in the abracadabra box, we saw a bunch of liquidations in that protocol because there was a bunch of people who had effectively levered up their terra and were getting liquidated. And so the issue with stablecoins broadly is that by their nature in defy, where they're like this very base building block that gets integrated into a bunch of other protocols and other stuff like that. When they fail, they have the potential of taking down any protocol that's integrated them deeply.

It would just be like the dollar failing or a country's dollar failing and your 401k, your college, all these different applications, retirement, savings, all of those loans, mortgages are based on this dollar, whatever dollar it happens to be or remandb or euro. So this is the underlying operating system of many different applications and so when they fail. So when you mentioned before, there was like $60 billion between the tokens and the stable coin. I'm wondering where all that money lives now. Who got all that money? Yeah.

Or who had all that money? When you say value, was it like the imaginary kind? world's most liquid markets. Right. At no point could anyone have sold 60 billion into these markets and gotten that out of it, right? And so it's the naive calculation of taking the price of these assets and multiply it by the amount in circulation.

And so despite the fact that that was their nominal value, there was never that many actual dollars that went into the system. There were right. Elizabeth Warren was losing her mind last week over, you know, I guess fidelity was going to include Bitcoin, I guess. as a retirement thing, and then she was also on the stable coin thing early. I've always felt like maybe the United States government would like to keep their sovereignty of their currency and maybe also keep the weapons in the military, maybe also keep the land

nor does the United States. Maybe these things together would be important to the United States, the land that we live on, the money that we own in the world and we use. and the planes and the bombs and all that reserve currency. That affords us a lot of benefit, yes. But Bennett, people seem to think that governments would be like, you know what, it's fine, create your own money, compete with us. There is sometimes this, you're pointing at something which I think is quite accurate

and kind of funny, because you'll see it quite often in crypto, where simultaneously you'll have someone discussing the powerful anti-state properties of their technology. Now this stands against the power of the state and the power of the government and everything for that. And then as soon as the government takes like a glance at them, you watch them start panicking and screaming that it's unfair, that the government can't do that to them. And that contrast has always been kind of funny to me because you're saying you're going to go after the state. You're going to take this whole thing down. You're going to destroy the system.

Then the system looks at you and it's not fair. I'm worried that you were exaggerating your capabilities at the beginning. It's also very interesting because as you describe, for example, buying a massive trove of Bitcoin to use as a reserve in order to sort of prop up this system and pump liquidity into this market. And then you describe essentially selling out of the market sort of like quantitative easing or rolling back quantitative easing. And then you describe what did you call it, rehypothecation, which sounds a little bit like buying and selling collateralized assets, a little bit like the 2000. housing crash. Like it sort of all starts to feel like same story as the first story, right?

It's all just still financialization and using a deep understanding of the way that markets move to make money, which to me doesn't sound that different from what, you know, our financial institutions are doing now. It's just like a different skin. I think that there's certainly truth to that and that much of what's been successful in crypto are basically examples of financialization. And I only think that's a particularly controversial view in the cryptocurrency community. But it is ironic. Yeah, perhaps. But like foundational, like most of like the Web 3 think pieces and stuff that A16C is cranking out

daily is that it fundamentally allows you to financialize all of these different interactions and transactions. Like that's their investment thesis for this class. Is that, it allows that thing. And it doesn't have value without that. Like at some point, you can create all the pieces of paper and IOUs that you want, but until you make a bank, until you create the concept of debt, until you attach interest, until you do all of these financialization mechanisms, you can't explode the value. Yeah, yeah, is that they're trying to capture a whole bunch of what they see as value

that's not currently being captured because a whole bunch of these things aren't financialized. They think that if they can financialize them enough, people will pay something for it and they'll be able to get a cut of that. So this is all going to be regulated to all heck in the coming months, right? I mean, the fact that we're seeing this, if this thing collapses or if it just continues to be not pegged and people are losing money, all kinds of lawsuits are going to emerge. State Attorney Generals are going to start filing like New York did against Tether and sanctions and, you know, countries blocking these. but the U.S. proposed a stable coin regulation framework, the Stable Coins Trust Act, I think back in April of this year. This is all going to be regulated and this Michigan is going to be stopped. Is it not been it?

I don't know. In the United States at least. Yeah? I've been covering tether since 2017. It's 2022. It still exists. And so my, I don't like to put timelines on the U.S. government at this point because they don't move at the rate I thought they did. They've proposed several different frameworks for regulating stable coins.

Most of the ones would bring the like Fiat backed, the asset backed ones into the banking framework somehow, either under OCC's purview or under the Federal Reserve's purview. I think that those are a good start. I think that banking regulators should have purview over stablecoins because they're banks effectively. They're taking deposits and often making loans. And so I think that that's an appropriate step forward. The question then becomes, how do you effectively regulate something like an algorithmic stablecoin like Luna or Terra, right? The SEC has already subpoenaed Doquan and Terraform Labs, but largely it seems related to the MIR protocol. which was built on top of the Terra chain

and allowed you to basically create synthetic assets. So you could create a token pegged to the price of Tesla stock and then trade that. What could go wrong? Yes, yes. The SEC heard that and said that sounds like it's illegal and sent some subpoenas. I mean, I know Booky, so we'll do that for you.

If you don't like your kneecaps? Yeah, exactly. So the SEC, I think, could go after Terraform Labs. tried to claim that the original ICO was a security sale, they could try to crank down in other ways. But it is somewhat challenging to try to figure out the best way to regulate an entity like Terraform Labs. Yeah, yeah. I got a super simple suggestion. Just cap the size of these things until the regulation is clear. Like they can build to a certain scale in like a sandbox, but these things, like this whole idea too big to fail is just really scary to me. And I think the bad

builders eventually wound up being a bunch of consumers and retail investors. And like you said, Huminat Projects one at a time piecemeal like that. It's just going to, that's just like a stupid shooting where they could last forever. Bennett Tomlin, we can probably talk about this forever, but we would only get more confused. Bennett is the co-host of the Crypto Critic Pod and writes a newsletter called the FUD letter. Thank you for translating this for us today. Yeah. Thanks for your hard work.

I appreciate it. Absolutely. A good follow on Twitter, by the way. He mixes it up. Thank you. Thank you. All right. All right.

We're going to move on to more news here. All right. We have to get into stocks now. So we talk to about the Bitcoin crash. Bitcoin hit 29,000, 29,000 just the other day. Bonkers. That's over half its value in what a year? I mean, I think it peaked at 70.

And as the people who are long-term hoddlers know, you know, it's a bit of a roller coaster. So 50% pullbacks, you know, 75% pullbacks have happened. And they have been kind of the 50% ones, the 25% ones happen all the time, like every year or two. So they're kind of all in on it. I think a lot of them don't sell. They just look at it as like buy it forever. And if it happens to 10x or 100x from here, like, why would you not take that chance? I understand.

But they can track those wallets, Molly. And my understanding is 40% of people who bought Bitcoin are underwater now. So this feels like a real tipping point. And panic can ensue, which we're actually seeing a similar panic in the public markets right now. We are. Let me read you a headline from Bloomberg markets today. And I quote, the bubble portfolio is getting absolutely crushed.

Nobody mincing any words. Yeah, markets have been down for three straight days. I think like there's a little bit of a creep up today, but tech stocks in particular have had a $1.7 trillion wipeout. We went through, our producers pulled some examples of some of the precipitial. precipitous half dome-esque drops, major tech stocks that are down at least 70% from their mid-COVID peak. So we thought we might just go through some of these numbers. And, you know, just in relating to Bitcoin, wallets with balances of more than 10,000

bitcoins, according to CNBC, have been selling a lot in the past few weeks, ultra-high net worth people and, you know, institutions. So the people, it's not just the paper-handed, recent people. I think there were a lot of stock market people, institutions who were like, yeah, I'll take a flyer on Bitcoin. And now that the, you know, take a flyer days are over, they're like, yeah, I took a flyer. I'm going to either take a modest win or a modest loss now and find something else of true value. And that is going to be the theme, Molly, is where is the actual value in the economy? Totally.

And we have talked on this show before about how we, you can't help but notice that Bitcoin in particular and some crypto in general seems to move in conjunction with the market because it is in fact all the same buyers in some cases. And now I'm curious to see now that there's a drop in a resettle, whether we'll see some decoupling from that, whether it'll go back to sort of purists as opposed to institutional. But either way, what you said it perfectly, Molly, the people who are the early true believers in it, they don't sell. And they might even accumulate more because they just believe in fundamentally what this technology would do. In some cases, it's religious, it's toxic, you know, those early true believers. And then who came after them to run it from, let's call it, 20 or 30, up to 60 or 70,000

dollars per coin, those were the people who maybe don't even understand it. They haven't read the Bitcoin paper. This isn't religion for them. This was a speculative buy. They didn't want to feel like suckers who didn't get in on a Bitcoin when it was going to a million of coin. All these people were saying it's going to a million of coin. They, you know, had very bullish million dollar coin predictions. And so buying that 40, 50, 60, 70, when it's going to a million, it seems like a good idea, right? You're going to have 20 extra investment, 15 extra investment. Where can you get that in the economy?

And hey, those people got a thousand times. So 15 times seems reasonable. But at no point did people say, well, what's the underlying value here? I think the early true believers understand the underlying true value of what Bitcoin does in terms of scarcity and, you know, not being hackable, at least to date, in the core protocol. So those people are correctly called paper hands. They were speculative. And as they get wiped out, I think you're making a very much. good point. That might be when you hit the floor.

Because you're only true believers are not selling at 20, you know, or 10 or 15 or 25 or whatever, wherever Bitcoin bottoms out at. So, it's very interesting. And then the follow on argument to that is once we hit the floor, then we start to explore what the real value of Bitcoin could be. Because so far, we've probably arguably been distracted by it as an incredible store of value. So if we start to figure out what Bitcoin's real value can be now that there's room to experiment because it's not a, you know, meme stock to the moon, maybe that's when we actually unlock the potential that takes it to a million. I don't know.

I'm holding on to my teeny tiny holdings. I can tell you that. I'm a holder as well. And I think the store of value is a really great one. Just like owning some gold bullion, you know, could have some store of value or homes. And, you know, homes have utility as well. And they generate income. So it's slightly different.

But the producers did an interesting thing here. Yep. Love this. Love this. So you want to know how much cash and marketable securities, you know, basically holdings, how much cash is a company sitting on at the end of 2021 and marketable securities.

These are financial instruments that can be quickly converted into cash at a reasonable price, like treasuries or something. So just how much cash do these companies have? Maybe what is their 2021 full year revenue in 2021 full year profit loss? And the stock prices, whereas of one piece, Eastern Time on Tuesday. So if you look at a company like Coinbase, it's down 75% Molly. Yeah.

After its COVID peak of 357 share. A lot of venture capitalists on Twitter giving high fives and talking about how much they made. You know, still at 70. Hopefully they locked it in because. Well, you know, they couldn't in a lot of cases because of the lockup. Right. So they probably weren't able to take advantage of that unless they sold right before the IPO in the year before it. Anyway, Coinbase is still a great company, but their market.

cap is $16 billion. But this is where it gets interesting. So this is why I asked everybody here to tell me how much cash do these companies have? Because I remember from the dot-com era, people saying, do you know, this company has more cash than their market cap? We're not there yet. But that was the true sign that things had left any conception of reality. So what does it mean?

Well, let's just take this example. I'll walk you through it, Molly. You're going to have some questions, I'm sure, and some observations. If the market cap is around $16 billion and they got a $7.7. billion in cash. Well, if you take those two numbers from each other and 16 minus seven is obviously nine, that means the enterprise value of Coinbase is nine billion, right? Because you have six, seven billion in cash sitting. So the value of the company, what it's inherently worth, and then the amount of cash, you got to put those two things together. And you can also

separate them, right? Said another way, they could buy those seven billion dollars in shares and a stock buyback. And if they didn't escalate because they were buying them. But if they just traded that money in and had no cash on their balance sheet and they were profitable, whatever, well, they could just retire those shares, right? So you get my point here. Now, the 2020 revenue was $7.8 billion, which was $6x,000, and their income was $3.6 billion. It was a crazy year, 2021. People were still really getting into this current price to sales ratio of $2.2.2. Price to sales just means price to how much revenue they had total. So sales is, you know, another way of just saying, revenue, top line. And the Q1 earnings are going to come later today. But this is very interesting to me. Do we really think Coinbase is only worth $9 billion with that many accounts and being the category leader in crypto?

Crypto's not going away. There's a lot of value here. And we're just going to go through a couple of examples of these because I think I said yesterday on the show, we're bouncing, the ball's bouncing, and I'm calling a bottom. I'm calling a bottom as in like, there could be a little more dips from here. but there's not far to go. Yeah. Because if the enterprise value is less than the cash or, you know, it starts to become 50-50

or something like that, you're starting to look at these and saying, like, well, you're really giving them no credit for whatever product they have in the market and whatever revenue they have, et cetera. And I think that's where we're at. So net out the cash, $9 billion company with $7.8 billion in revenue last year. Forget about this year. I mean, that could go down or whatever. We'll find out.

But even if it was just the same, their enterprise value? is like 1.1 times their revenue, last year's revenue, it doesn't make any sense, right? And so that doesn't mean I'm giving you investment advice, but I do think this is my thesis of why we're bouncing along the bottom. The ball is bouncing along the bottom, maybe rolling on. Let's do Shopify. You can do it. Got it. Fundamental. So, okay, so Shopify, down 80% off its COVID peak of almost $1,700 a share in 2021. Its current market cap is $42 billion. Its cash at the end of 2021 was $7.7 billion. $2.21 revenue was $4.6 billion.

That was up 57% over 2020. Net profit in 21 was $2.9 billion. This does include, however, a $2.9 billion unrealized gain from investment. So really, Spotify was break-even here. Net adjusted net income for 2021 was $814 million up 40%. Its current price to sales ratio is 9x. So the 2021 adjusted net. income, Molly of 814 that takes out things that don't happen every quarter and that are not

part of the core business. That's what they mean by adjusted net income, right? Right. So that would take out two things. What would it take out? Well, certainly that unrealized gain from investment. Okay. And then it would also take out stock compensation because people look at the stock compensation

as not part of the core business. And that's a polarizing topic. But if you just want to understand the core business, they made some money. Yeah. But then it puts their current price to sales ratio at nine. And this is super interesting. We have a good tweet to this effect, analyzing Shopify's value saying from Dan McCormick saying Shopify at $42 billion is now worth less than Klarna at $45 billion, which is one of roughly

17 by now, pay later, absent process payments primarily on Shopify. Got it. Yes. So, yeah, the people who are building businesses, on top of Shopify being worth more. So this is the process, Molly, when you're having this panic in the market, there's different holders

and different amounts of shares that are floated. So the amount of shares available to the public to trade might be 10% in one company might be 50% in another. The others might be privately held. And so you do have smaller number of shares available here in some cases. And so the market's trying to figure out what these things are worth.

So you might have one company lose all its value, you know, last week. And then it kind of trickles down to the next. And we saw that with the fangs, right? Or the tangs, or the mangs, if we put meta as a first letter. The mangs, terrible. The amygazze? Because aren't we taking Netflix out of the fang now? Maybe, yeah, I went out, put Tesla in it.

So, tangs. Tags. Tags. Tags. If you replace Netflix with meta, you know. you give the end turns into an M, you got tams. And the A way of saying, like, it took a while for the, you know, even the mighty fangs to capitulate and for people to take some chips off the table there.

Right. And so this to me is the great unraveling. Now we're in the panic selling mode. Retail is out. Institutions are starting to pair positions. And then that means these companies are left, you know, sitting here going, does this make sense? Because I think we're at real business.

Right. You might want to buy our stock. And then the CEOs, as we talked about yesterday, and the companies might do buybacks because they think their stock is too cheap. The CEOs might start buying shares because they think it's too cheap. Insiders might buy shares. And so that will be the sign that we're going to start going on our way up in my mind. Or that could be a sign.

I don't want reticent to give financial advice. This is all my handicapping in the situation. Yeah. I mean, what we're doing now is weighing. We're weighing. We're doing some weighing. Yes. We're putting things on the scale and saying, does this make sense?

Okay, Twilio. We'll wait, Twilio. It's at $95 a share. It's down 77%. It was over 400. Now, should these companies ever have hit those peaks? No, it was the stonks crazy days where people were betting that GameStop or AMC were great bets to make.

And people were manipulating the market with gangs of people. What could go wrong, right? We all knew that this was like crazy insane behavior. Some people thought it was like fun and playful. And it showed like there were insiders who were manipulating the market. So why can't be, you know, rank and file retail investors also. get in on manipulating the market against them. Let's put that argument aside for a second and just realize that it's not a game at a certain

point. It's money. I guess you can play games of money like gamble or whatever or poker. But if we look at this as investment in people's savings and people work at these companies, take a little more serious tone here. Market cap is currently $17 billion for Quilio. They have $5 billion in cash. So these companies were very smart to raise large amounts of cash in an upmarket.

What does a smart management team do? They just take down as much cash as they can because it's cheap to do so. If you lost 80% of your value, that means every dollar you take costs five times as much now, or they were 80% off when you bought them previously. You get the idea. Raising in an up market is always a good idea. The revenue, $2.8 billion. And they're up, and they have a loss of $949 million.

They spent a billion on sales in marketing. They're currently a price to sales ratio is six times. And so, you know, they're definitely going to be in an Uber-like situation. Uber said, Darrow, we covered it yesterday, Molly, hey, let's just get super serious. If the markets need to see, you know, just cash flow coming in, we're going to just cut things we don't need. And that could include the bottom 10% of employees. It could include marketing spend. It could include office base.

It could be perks. It could be, you know, special projects, pet projects by various people in the organization. organization, we're just going to get focused. And so Twilio, pretty focused company. I could see them getting super focused. They got plenty of runway. If they have five billion and they're losing a billion a year, uh, they have five years of runway, they could probably cut that in half and have 10 years of runway and they're growing. So if they get raised prices, et cetera. Um, yeah. And, and this is one of those examples, too, where I would look at not just the business fundamentals where there's a lot of cash and they're growing and all of that is true. And most of

their spend is on marketing, they're also sitting right in the middle of where all marketing communications is going, which is to text, right? As an API that enables text-based communication in an era of Apple's privacy changes. Good point. I don't think you can discount this business at all. And I would actually look at it and say, here's an example of a company that Microsoft, Google, and Amazon Web Services should just buy immediately. Yes. I mean, if Elon can go and, you know, make a tender offer for and try to buy Twitter, like, why not go for Twilio? It's, I don't think it's going to ring antitrust alarms. There's tons of cloud computing players. In fact, there's three giant ones that we just mentioned. And Twilio would tuck perfectly in with SendGrid. I also think they have segment they bought. My lord, would that be a perfect get for Microsoft at, you know, 7.

billion now. If they give a 50% premium, 25, 30 billion, take that off the table, put it apart as Azure. And then you've got another $3 billion in Azure revenue or Google. Such an easy purchase for them. And the next one, Zoom is I mean, I would get on it. I mean, I would be super aggressive

in buying things right now. Yeah, absolutely. And this next one, Zoom, it falls into the same category, like a $26 billion market cap. My Lord, it would be an amazing purchase for Salesforce, combined with Slack. Yeah.

My God. Put those two companies together. If I was running Zoom, I would have tried to buy Slack. Put those two companies together. Yeah. Imagine you're in your Slack instance and Zoom is just integrated into it. So when you watch a Zoom, it's a Slack channel. Yeah.

I mean, for crying out loud. And it's in the same interface. And then you have persistent freaking Zoom chat. Yeah. In your Slack channels that's then searchable later. Yeah. I mean, that's like a no brainer. And Zoom is not, again, Zoom not going to zero.

Yes, it's down, 82%. Off its COVID peak, but it's also a verb now. Yes. Snap it up. Yeah, current price is still 6.6.6x. They also 5 billion in cash. And, you know, they're profitable. I got a billion in profits.

I mean, if I was Slack, if I was bending off running Slack, I would put, I don't know why, but they make the video features in Slack and the huddles part of the paid product. I would just make it free and do the 40 minute gating if you want to go past 40 minutes, which I think is the number that Zoom still uses 40 minutes. It turns you off if you're not paid. Why not go with that, like time gating as opposed to feature gating. Feature gating is when you can't use the feature unless you pay.

Time gating or consumption gating in products is when you let people experience how great it is and then annoy them a little bit like, eh, now you've got to restart your call. I mean, just throw the Slack should just go really. right after Zoom. And conversely, Zoom should launch a Slack competitor. If you know

everybody's at launch.com or at this weekend startups or at inside.com, you know they're all part of that organization. Just give them all a Slack-like interface

with channels. And just say, hey, build the channel over here and here's a chat room. I mean, you're already chatting in every Zoom. And then everybody does

the same thing on Zoom. Did somebody save the chat? Right. Somebody cut and paste the stuff we put in chat. It's like really. It's absurd. It's absurd that those are.

And the chat is, pointing out by the way, speaking of which the notice, Gerald points out Microsoft Teams does this, sort of a Slack plus Zoom workflow. Yes. Which, again, to me, is all the more reason to either, like you said, one of these two products needs

to build it in, or they need to be merged. 100%. Square, one of my favorites, down 70% at its peak. I own some square shares. Well, actually, now it's Block. And the CEO, Jack, brilliant, Blockhead. He's the head of block. It's down 70%.

of its peak, market cap 48 billion. Looks like a lot of these companies like to keep $5 billion around. He's got $5.2 billion sitting there. 2021 revenue, $17.6 billion. My lord. Up 81% up 81% year over here. Something's going right there. That might have been their forays into the cash app and the crypto.

But we'll see if what happens this year. But income 158 million in 2021. Current price of sales only 2.7x. Again, you know, if you're bargain hunting here and you're looking at these companies, just got to ask yourself, like, the Square have great leadership, check. So they have, you know, great fundamentals of the business. It seems like it checked. Great products.

Check. Customers love them. Yep. I mean, yeah. I'm worried about this one. I mean, I listen, like, 100. Oh, explain why. I'm not sure where this company is going.

It's sort of like you're doing a pivot now and I'm not sure where your pivot's going to land. Well, okay. So that's bad communications. The pivot feels philosophical and religious. I have not heard the clear articulation of the business reason for the pivot. And I don't know what the path forward is for this company. And so for me, I don't feel 100% confident that I trust the.

Okay. Yeah, they have really two major business lines here. They got the cash app, right? Yeah. That's just basically a way to bank, invest, and to send money back and forth. and that thing has been just absolutely printing money and like, you know, tons of people using it. And then you also have the merchant services, which is Square. Yep.

Which you know is like credit card processing. It's a low margin business. I mean, they're all finance, so they're all low margin business technically. But my lord has Square become just an incredible phenomenon. You ever see like the cash app where they'll give like $100,000 in Bitcoin or cash to some artist and say, hey, just hit reply with your cash app, handle, and I'll send you money. And it's, you know, like in urban communities,

and, you know, it has really made inroads that other people haven't made banking. I think Jack is a genius that way. And I think he's running the square in the cash app, Twitter handles. We'll see. We'll see. We'll see.

That's what I call him now. Now that he's all in on block. It's just a really nerdy Minecraft joke. Anyway. Breaking news. That's the one where we're like, Elon Musk said, I guess I would reverse Donald Trump's Twitter ban.

I guess I would. I don't really need to think that hard about it. I guess so, sure. I felt like it should have been time ban. I feel like banning the former president forever was a mistake because it feels too partisan. I would have just done, okay, he incited violence. People were having an investigation. I would have just done one year, two years, something.

and then say it's going to double, right? So you don't look like it's just I'm on the scale kind of stuff. I mean, honestly, my takeaway from this is like, friends, don't let yourself be gaslit. The thing you think is happening is happening. Yeah. Sorry.

Like, this is one of them where like every signal that has been sent is that this is about unbanting Trump. This is about bringing back like this sort of, you know, hard right accounts that have been, it's about, it's about appealing to a certain segment of the population online and everybody who shouts at you that that's not what it is. That's this is what it is. And it's the same with like the

precedent being set by Rovi-Wa-Way. This is just ranty time. But it's exactly the same thing with the precedent being sent by the Alito draft. Like if you think you can yell at me all you want and say that it's not going to end up at contraception or gay marriage or the right for a company to own your DNA and not you. But like what your fucking eyes are telling you is happening is what's happening. It's reasonable after watching what happened with this Roe v. Wade opinion. And again, we don't know the exact outcome of it, but it seems pretty clear. And after watching who Elon's interacting with on Twitter, and then I guess I'd probably reverse this ban. Like, I'm just saying what your eyes are telling you is the truth. Dorsey also, Jack Dorsey,

former CEO, also felt like permaband was too much. So, you know, this is not about a perma ban. This is not about the like, this is not at all about the specifics of the type of ban. Permaband just fundamentally undermines trust in Twitter as a town square where everyone can voice their opinion. Oh, that's Bloomberg. Okay, that's Elon's quote. I don't disagree with the exception of violence and bots and spam and stuff like that. The violence thing is the one that gets me. Like, I think it, if you just double it, it becomes essentially a permaban, right?

Like, say if you get a year for saying something violence or doxing somebody, you get a year. Now you dox somebody again, you get three years. You doc somebody again, you get nine years. Maybe you triple it. It just becomes super punitive. And then eventually it's like, okay. I mean, that's cool. Like, you and I can totally have that conversation.

Yeah. If you're buying Twitter to undo that one thing. He's not, I can tell you he's not buying Twitter to. Well, that's the signal that is sent here. Like, that is the signal that is sent here is that I'm buying Twitter so I can undo the Trump ban. so I can undo all of the stuff about anti-vaccine stuff so that I can undo a brand new little war on disinformation meant to try to save our democracy and many lives.

Has it always been fought the right way? Absolutely not. But is Trump literally undermining faith in our elections to this nanosecond? Yes. I mean, but see, now if you put them on a one-year-two-year ban, and I guess this will be our new story for the day is the breaking news story here,

if you do put Trump on this, you know, short leash where it's, you know, the next ban's going to be. So whatever, how long has he been off Twitter now? Is it January 6th? Then we're now a year past that. I mean, I guess. Twitter can do what it wants to company. Well, no, I know. But I like to think about the nuance of the issue.

If he comes back and he says the election was stolen and we know it wasn't and that's a dis, do you, does he get to have that opinion? Or is that, I guess this is. is it going to become the question is like undermining the election, is it illegal to do that in the United States? And if the litmus test is, it's not illegal, and I guess he would be allowed to say, I believe the election was stolen. Sure. Yeah. So that's not even arguing for a permanent ban. I'm just saying that at some point, this is all like, this is not about bots and spam and, you know, it's not about bots and spam. Like, it's about a hard right turn and I have questions about what that means for our democracy and our society?

The search for truth is going to be hard and I'm really curious what this Birdwatch product does in terms of like people's ability to vote and clarify that. So in this world with Birdwatch, if Trump were to say the election was stolen and the consensus note underneath it was Trump sued in 61 jurisdictions and lost 61 jurisdictions. And here's a link to the Wikipedia page, the Washington Post page, the Fox News story, whatever. Like, you know. Yeah. I think I think it's a good.

I think our entire society has to learn digital literacy. We have to learn critical thinking. We have to build up an immunity to these. You know, like these platforms have only existed for 15 years, really. Right. They're like, you think of Twitter. They've only existed for 10 years. Right.

I think of Twitter and my son. that's what I got on Twitter when I was on maternity leave, right? So I think of Twitter and my son as the same age. His frontal lobe is not developed. Yeah. Neither is social media. And so we are definitely figuring out how this stuff should operate. And some of that is we don't have any immunity to it as a society like information and

disinformation and propaganda at this scale. And we are 100% trying to figure out how to live with it and what the new boundary are. But when someone comes along and then just buys it on what appear to be ideological grounds, I'm not sure that's like a healthy way to build immunity. Yeah. Interesting. Yeah.

Yeah. I mean, who knows that this deal is going to even close? I'm looking at the stock market and wondering, like, is this deal going to get repriced? I wonder about that too. I also wonder about the Tesla shareholders and how pissed they are going to be. Like, you know, they've seen it. They're seeing, like, I just mean, I'm not even saying they're right or wrong. I'm just saying like, you see shareholders right now who are like,

A, you seem distracted, but B, you're selling Tesla stock to do this and on and on and on. I do wonder. Well, Tesla shares have held up, you know, I think pretty well versus the market. And he did bring in all that extra money to lower his mark. I think he cut the margin loan in half. Did I read that correctly? I think so. So, I mean, cut the margin loan down to zero if people keep wanting to invest in it.

I suppose more people will want to invest in the company. If he's running it, they'll see it as an opportunity. But, man, it feels to me like if the deal was done today, it would be 30% off at a minimum. 30%. The share price was 54. So 30% of that is roughly $15, $16. It means it would be a $40 sale today, $40 a share. Yeah.

And I wonder what Twitter is trading at today. I think I sort of $44 earlier. So I pull up the Twitter share price. See the real time. I love the real time. 47. 47, right. So this deal should really go at 40.

Is that the actual price of Twitter right now, given the market correction? It could be even 35, which it's traded down that low before. And so, you know, people did say that the price was more than fair. That's probably why the board went for it so quickly. But we'll see what happens. We're obviously going to be on that story. This market curve is really changes everything, everything. Every dynamic is now on the table, you know, private markets, public markets, crypto, everything is going to be, what's that term, Maelstrom.

Yeah, Maelstrom. It's like a Maelstrom right now. Like, everything is getting spun around in this crazy chaotic whirlpool and some people will get out of the whirlpool and other people are going to get sucked into it and drowned. God, I mean, really, it is all up in the air. It's felt up in the air in some ways, but there was like, there were chunks of it that you could kind of count on, like the stock market. market kept going up. Your 401k was okay. How's it?

You know, there was so many things that you were just like, well, at least this is fine. Yeah. And now it's like, who. Yeah. The future is 100% unwritten. Well, and you know, the Ukraine situation. We forgot about that. I'm sorry, Ukraine situation.

What, can I say the Ukraine situation as I'm referring to situation? Yes, definitely. Okay. Yeah. So I got that grammatically correct. I really want to make sure I get it grammatically correct every time and I educate the one. It's not the Ukraine, but it would be the Ukraine.

war where the Ukraine situation, because I'm referring to the word after Ukraine, but Ukraine is prejudice Ukraine. So you superimpose that on top of this. Roe v. Wade, these two things are like, you know, earth-shattering for many different people. Europeans are wondering if there's going to be like a war, a nuclear war, any kind of war on their doorstep, or there is a war on their doorstep, and then half the country here feels like they got rug pulled and lost her right from 50 years ago.

and then the stock market is crashing. Crypto is crashing. This feels pretty chaotic. And this is all coming out of a, it's all coming out of a pandemic. Good news. And then layoffs. The layoff contagion.

And now we're wandering into a market crash. So like, guys, if you're just at home ugly crying right now, I just, I see you. You know what? It's okay. It's okay to be freaking out. It's important also to look at

the fact that, whatever your personal state of affairs is, I encourage people to look at the joy and love, family, friendships, experiences they've had, and just take solace in knowing, like, there's always been wars. There's always been pandemics and sickness. There's always been market crashes and recessions. These things will always happen, and people have lost rights, and people had to protest to get them back and fight to get them back. These things are things that occur over the course of history. And it sucks to be experiencing them all at the same time.

But they do pass. And you need only look at historically the arc of rights and freedoms have, at least in this great country, resulted in more and justice. The trend, I'm saying it's perfect. No, I'm actually like feeling totally, I'm all smiling because I'm like, this is awesome. Well, and market crashes. They typically happen over two to 80, two quarters to six quarters.

We're in month, we're kind of in the third quarter of this, right? So that would argue that it's going to end sometime in the next three quarters. Yeah. And the war, all the ones that Putin has started seem to resolve themselves and trickle out and, you know, result in some border, border debates. and as tragic as it is, they have not resulted in World War III. So if you just look at those three things,

crypto is some weird thing on the side. We generally compare those to Tulavania. It's part of the transition, right? Like we're in a transitional period in history. And if you have been reading, I've been reading all of those books lately about the cycles of history, the fourth turning and the Ray Dalio book

and even just a casual student of history, understand that. it repeats it's a real time is cyclical like it horrible things happen and then good things result from those things and the best you can hope is that you and your loved ones aren't killed in that war don't lose everything in the recession right like it's interesting that we started this show with our conversation about prepping but yeah i mean it is it is a time for balance for a strict social media diet and for a lot of physical exercise to keep those endorphins high

because you know and spend some time with your family and when you go and have a beautiful dinner you make a beautiful dinner with your family tonight or you go for a hike and you take your dog out for a walk the world's going to seem pretty great and it is

go follow J-Cal and look at his kitten videos I mean the kittens are pretty great too I mean there's some freaking cute breaking news breaking news right now breakiness, not badness. I'm getting a second bulldog. So we're going to have another female bulldog. I just want to see the videos of the kitty snuggling the bulldog.

That is all I'm here for. We're not keeping those kittens. The kittens are going to. No, no, no, no. We have somebody adopted them already. What? Yes. We're going to nurse them to six weeks, but the person's taking them on the weekends.

We keep them during the week. When they get to six weeks, the girls will say goodbye. I made a deal with my daughters. Monster. I'm willing to run. If they're willing to detach and get, and find new homes, I'm willing to run,

wait for it, a literal animal rescue at this house. Oh, I will fund an animal rescue because I know kids love animals, little girls love animals. So I was like, you know what?

You guys want to run an animal rescue? I'm all here for it, but, you know, six weeks with the deer, eight weeks with the falcon, six weeks with the kittens, and then you have to find a home for them.

So we can keep them. That's good. And then you can visit them. But we're going to have the two bulldogs. That's enough for sustained. I mean, it's a lot of mouths to feed Molly. I got to get back to the world. Oh, I know.

I know. I'm out. I'm outnumbered by dogs. It's exhausting. All right. See, that was a good. That's a good. And Rachel always,

producing Rachel's a bit of a sleeper. I gave her a little pep talk today privately. I was like, you got to keep bringing these great ideas. But she spent a lot of time on the Twitter. She's doing really good on her Twitter. I'm like, well, how about the first make sure we're producing. The show here, you know, I need some of that funny on the show here. You know, it's like you hire a comedy writer and then you're like,

why are these great jokes over here? You work for the Letterman show. They should be on my monologue, not on your Twitter. So, you know, let's just focus where the paycheck comes from here a little bit. But she says she's going to use this fun for using the light phone. This is the, if you don't know the light phone, it basically doesn't allow you to doomscroll. It's just the phone and you get like your SMS and it's pretty cool actually. You got to read the whole thing she wrote.

Oh, she did? Yeah, I need to hear this. I'll be using this time to pitch the light phone, aka you got to say this. I think the yossification of the Kindle paper white. The light phone is pretty dumb. Put the light phone up here. I think that this is something very cool that I might give to my daughters, you know, like as their first phone. where they can just get like very simple, call their dad, text,

light SMS. It just looks like a really cool. I love the light phone. Yeah, it's super smart. No social media installed. I mean, this is actually exactly what kids should be getting. I wouldn't mind giving them also like an Apple watch with the LTE in it. And then they could call their dad or mom anytime.

And they could have some apps on it, some music or whatever, but not be on the open web kind of craziness. if I could have like a watch that I controlled. But yeah. But your son has a phone now, yeah, obviously. He does. He was pretty early to having a phone, I think, just because of, you know, his parents. I mean, I was like reviewing them.

Yeah. They were all over the house. He is. I got to talk to you about how to manage that. I'm like a little torn on this, yeah, because I know that there are a lot of parents who keep the phone from their kids, but I feel like my son knows how to moderate in some ways because he has had one longer. I may also be kidding myself, but, you know, it doesn't seem to be.

Some kids have them at school and like the back channel I get back of what's going on with the phones is like, I mean, the phone is definitely an ongoing nightmare. Like it's distracts him in class. He's always getting in trouble for having it out. Like, it's a whole. I think I don't know how you're allowed to bring phones to school. It feels to me like they have to be in your locker. It should not be in your classroom.

I 100% agree. But then they end up using their phones for stuff. at school. So. See, that's the BS, though. The teachers need to say. That's the BS. And the teachers need to be like, I've heard this before. Like, oh, they need a camera. It's like, yeah, get them a regular camera. Teach them how to use. That's a great thing to do. Teach them how to use a camera. Yeah. Like an actual camera with, you know, like shutter speed and everything. Like, what a great lesson. They don't need their phones to be a camera. Like, just have a camera in every classroom for $100. And his middle school, they had the June box. Like, they were like, if you have your phone out,

we take it. You get it back in June. Love that. Yeah. Sweet. June box. I think that they should have it in high school too. But I think they're also, that's like also when you need to learn some executive function. So I don't really know. Maybe seniors, you know. All right.

Let's wrap with one more story. All right, Peloton missed their earnings again. And its stock is now down 90% of the pandemic high. This is for Peloton's Q3 of fiscal 2022. I guess they're on the old non-calendar year for their quarters. Peloton stock is down 93% from the all-term. time high of $160 to $3 a share, which they hit in December 2020 during the pandemic, where everybody thought everybody would have a home gym instead of ever going to a gym again.

And now everybody's stoked to go to Olin Summit, get on planes, throw their masks in the garbage, and go to spin class again. It's whether it's accurate or not, the pandemic is over for most. Peloton's market cap is now under $4 billion for the first time since August of 28 when they raised their series. F, their private market, at a $4.1 billion post money. So of August 2018, so Peloton's market cap is now under $4 billion for the first time since August 2018 when they raised the series of F at $4.1 billion. And that is, yeah, the private. They're back to private. They're back to private. And if we do our weighing exercise like we were doing before, Peloton currently has $1.5 billion of cash and

marketable securities on hand. It's, its price to sales ratio seems to be about one. 1.1x. So they're worth 2.5 billion. So they're worth 2.5 billion. Can we buy them? Why not? I mean, we do an LBO of this. So run us through what we see on the screen here for their Q3 results.

Yeah. So Q3 revenue, $964 million. That was down 24% year over year, down 15% quarter over quarter. Subscription revenue is $370 million. That's about 38% of its total revenue versus product revenue, which is 505. $594 million or about 62%. Can I stop you there for one second? Yeah, definitely.

The subscription revenue is $370 million. If you take out the cash, they're worth $2.5 billion enterprise value, right? We talk about SaaS businesses being worth 20, 30, 40, 50 times. Even in today's depressed market, 30, 40, 50 might be what a high growth one would be. Now, this is declining. So, you know, but I think it's declining because of the reopening. It will increase again maybe next year or the year after I would back. But if they're worth $2.5 billion and they've got $370 million a year in subscription revenue, or is that per quarter?

Is that the quarter? This is a quarter. This is just $2.3. So that means they have $1.3 billion in subscription revenue. Strip for the year. That means they're training at two times or subscription revenue. That makes no sense. That makes no sense.

This is now to the point. I think I might buy some Balaton today. I know. This is bonkers. Because that makes no sense. Paid subs 2.9 million. They're worth 2.5 billion. That means each sub is worth $100.

They're increasing the subscription price. They're talking about rolling the hardware into a more expensive subscription. So they'll effectively have hardware as a service. I'm not ready to give up on this turnaround. I know I have a little crush on Barry, but still. They added subs. That's good. They lost $757 million.

So I guess that's the issue here. Okay. So now we know why there. worth so little. I see. Never mind. None of that. Well, if their cash and market were security is a $1.5 billion and they're losing $7.57 in the quarter, that means in two quarters are out of cash. Yeah. That's scary. That's the math. That is why this thing is. So they basically have to cut half the employees. So I really am getting a half-priced petal Peloton tread. Yeah, this is any minute now. Any minute now. You might not bind it from Peloton

though. Exactly. I mean, I keep looking on Cregulis. 1.5 billion. I mean, how do they raise money now? That's the problem when you get into this negative zone like this, when your expenses are so expensive. This is why we talk about runway constantly. Yeah. We talk about runway constantly in startup land because, hey, you know,

your strategy is largely determined by how much cash in runway you have in your growth and all the stuff. So this is a business that's not growing and they're losing a ton of money and they have two quarters of runway. I mean, are we really? really saying out loud that Peloton has two quarters of runway left? From this point forward. From this point forward, if this, if they stay, if nothing changes. Right. Peloton appears to be out of business in two quarters.

Well, they could get cash other ways. They could take loans, et cetera. They could do a secondary and sell more shares or they could be bought. Yeah. So it's not going away. No, I know. But they also have $1.4 billion in inventory. So they got to clear that out.

If they could clear that out, let's say they cut their net loss. I think they can cut their loss in half here. And I don't know the nature of the loss here. Oh, so now they actually just an update here. We had the wrong cash number. Well, no, the cash numbers can fluctuate based on quarter. So it's actually 800 because you've got to take the 757, I suppose, out of the $1.5 billion. Right.

So it's even worse. So this is like a very acute situation. So they have three months to get bought, liquidate that inventory at every... Raise money. At any cost or raise money. But despite the joke I made seven. minutes ago, conditions on the ground have changed and I don't think we should buy them after all.

This is, I mean, there's a reason why the stock is getting crushed. When did the earnings come out? They came out this morning or last night? And then what is the... So then I would say, show us the stock over the last five days. Because that will tell a pretty interesting story of what people think over the last five days is going on here. And if we look at the last five days, yeah.

So that means, you know, a lot of people who were, it was trading at $18, $19, maybe, 1871 is the high watermark for the last five days. And it went down to 1167's now at 13, basically, 1299. So, yeah, people are losing faith that they're going to come out of this. Yeah. This is what I was talking about earlier today, Molly, is the capitulation that can happen. Somebody might just, let's say you had put $100,000 into this during the. you know, when it was at $45 and you're looking at $30K, right? Your hundred's worth $30K.

You're thinking, I take the $30K out. I put it into Amazon and I get my $70K back, you know, whatever, the next five to 10 years. Or I put $10K into Tesla, $10K into Google, $10K into Uber, whatever. You know, there's got to be a company with better management and a better, actually, Uber would be, for me, like an interesting one. If Uber says, hey, listen, we're going to get to profitability. We got a ton of cash.

you know, we're trading at this great multiple. Maybe you just take the 30K you have here. You put it into Uber, you put it into Google. Depending on your risk, you want to have less risk. You want to have more upside. And that's a better bet, right? And so this is what is happening in the market right now, is that pure capitulation. Because somebody's looking at this thing, well, if it's at 13 and I bought it at 40,

could it go to three? It could. So my 30K could turn into, you know, whatever, 10K or 5K even. And that's the panic. So it is hard to determine assets for a company because it's not going to be very specific. But if we were to look at their balance sheet, for those of you who are in the Slack room, we'll share the link there for you. So assets, current assets, cash and cash equivalence, we know what that is, right?

It's literally cash in the bank or, you know, things like treasuries, things you can liquidate very quickly. we've got 879 of them as of basically April 1st marketable securities they don't have any marketable securities would be they owned like Google shares or something accounts receivable this is money they're owed

they say 74 million this is I guess could be people who are delinquent on their account or somebody owes them money they don't have a reseller it's not like people are reselling it so but if you were reselling your products if you were selling Pelotons on Amazon

you know Amazon might owe you money right something like that inventory will Would that be subscription payments too, like incoming subscription payments? I don't think that would be listed here because I think you get charged at the beginning of the month, not the end. But it could be people who are delinquent, right? So they, that could be that. Okay.

So, yeah, accounts receivable could also be BNPL, buy now, pay later. So if somebody was paying on a payment plan, maybe that's what that is. Prepaid expenses and other current assets is prepaid might be I paid my rent for next year. I paid for a bunch of chips. I paid for the pedals, you know, so in order to keep. the chips in stock or the screens in stock, we bought an extra 100 million worth of them because they're hard to source.

And when we got our hands on them, we bought them. So that 200 million is stuff. They prepaid for it. That expense would come next year, but it sits on the balance sheet as an asset because you don't spend it. Property and equipment, $754 million.

This would be, you know, desks, chairs, laptops, intangible assets. This can include a lot of different things like IP, I believe, would fall into intangibles, goodwill. Again, that could be things like considerations for buying something that has some

inherent values. So if they had bought I don't know, a brand that had some value, right? Sometimes people will buy a brand. They say, well, there's some goodwill for this brand. It's worth $41 million. Restricted cash would be... Look at the difference, though. By the way, just as a side note, if goodwill

is like assets that you can't monetize directly that include like brand value then you have to compare it you can't really move on without comparing it to 2021 when it was you know $210 million versus

who knows what that's out of if I'm being honest I don't know exactly what's in there I know that's a catch-all restricted cash would be like maybe you put down a letter of credit for an office space but you don't have access to it so in two years you will have access to it so that would probably be what restricted cash

means operating lease right of use assets. So they might have leased factories or office spaces, I'm thinking, but I don't know why that would be considered an asset unless they paid it in advance. So I don't know and understand what operating lease right of use assets means. And then other assets, $39 million could be catch-alls for other things. So, and if we look at Investopedia, tell us what they say. Yeah, I looked it up.

So there's a couple of interesting things about this. Goodwill really is just reputation. I mean, it's like customer loyalty, brand reputation, these non-quantifiable assets. So it is significant that it went from, you know, $200 million last year to $41 million, even though it can't be directly monetized. The other thing

that's interesting is that a lot of times companies will combine intangible assets and goodwill into the same, exactly, into the same line item, but in the case of Peloton, they didn't and they broke them out separately. That's what I kind of

nailed this because I said IP. So here it says here on Investopedia, copyrights, patents, licensing agreements and website domain name. So if you own inside.com, it's a million dollar domain name on Insights balance sheet. If Inside were to go belly up, it's doing four million in revenue, it's doing really well. I can't believe you can list. I can't believe you can assign a dollar value to reputation and loyalty. That's so fascinating. I think people can, but they don't. Yeah. I don't think that that's a common practice. When you get bought, sometimes people will put stuff into that. So if you're buying a company and it only has like 10 million in revenue and you're buying it for 100 million, you might say, well, 20 million of this is the goodwill of the brand that we're buying.

So when we actually got bought by AOL, they had put goodwill in intangible assets for a portion of what Engadget, AutoBlog, and those things were worth. They called a goodwill intangible assets on this statement I saw of how they valued us. Yeah. Because it did have a brand. That meant something to people. So if you were to buy Nike or you were to buy Star Wars, like Star Wars, like that IP, those copyrights, the Marvel characters,

like we, as we have seen, that is a real thing. There's an intrinsic value to that because people are attached to it. So really, that the difference in those two numbers is significant and also no matter what, the like, too long didn't read here,

the TLDR is like, they're in trouble. Oh, and also a great note from one of our producers, Peloton bought Pre-Corps. So I actually had nailed that. That could have been like Pre-Corps. They bought some asset and it had some value.

So everybody who's listening, just in case this part is, in the show. Nick jumped in and was like, hey, can you just like run through this on the fly? Because we're not really sure what all this means. And Jason was like, yeah, let me take a step. No problem. I picked up a couple of things along the way. There you go. Your free MBA. I've never done anything, but, you know, just ride on the backs of my investments. You know, and this tragedy has to stop. You know, it's a shame. It's a shame that you just aren't good enough to be in the mob.

Yeah, it's just, this is, you know, I'm not good enough to be in the mob and I'm just riding on my investments. I will say, I have written some investments, truth be told, I did ride that Uber investment. Pretty hard. I believe that's the intrinsic value of your brand goodwill, Jason. Well, played, Molly Wood. Well, there we are, everybody. We're now at an hour and a half show.

Thanks for tuning it to This Weekend Startups. How do you help the show? You follow Molly Wood. You follow us on the Twitter. You give us a rating. You go to YouTube.com this weekend, and you join in the fun. Every day, we laugh it up from 10 to noon-ish. and you put on,

after the subscribe button, Molly, there's a little bell there you hit the bell, you give updates. You got YouTube on your phone. You're sitting there at your desk. You're on your tread, and you want to hear the straight dope.

But you're going to get it from Molly and JCal. JMO is here for you to break this all down. Moja is high. Put on those, put on the bell. Just hit the bell. And you'll get to chat with us.

And then soon, we're going to be doing this week at Startups Live in the fall. We did the meetups experiment. That went really well. Lots of energy there. We're going to upgrade that to this week in Startups Live.

And so we're going to come to your town. And we're going to do something great with the show live and featuring startups because the show is about startups. So we're going on the road, Molly. We are. Hot damn. What's your favorite city, Maul? You got a favorite city?

Oh, my God. Copenhagen. Let's go. I do like Copenhagen. I was trying to keep a domestic for now. I'll think of some in New Orleans. Let's go to New Orleans. And we'll get the chickory coffee and some bignets.

I love New Orleans. I haven't been there in 20 years. 20 years. We will tear that place up.