Unchained - The Chopping Block: Are VCs Bad for Crypto? - Ep. 481

Episode Date: April 15, 2023

Welcome to “The Chopping Block” – where crypto insiders Haseeb Qureshi, Tom Schmidt, and Robert Leshner chop it up about the latest news. In this episode, they’re joined by Unchained’s Laura Shin to debate FTX revival rumors, what the U.S. Treasury got wrong about DeFi, and whether VCs are antithetical to crypto’s core principles. Show highlights:  how much ETH is getting unstaked and deposited after Shapella the market reaction following the successful implementation of the upgrade whether FTX could reopen after its massive collapse why Robert thinks rebooting the exchange is a “terrible” idea whether FTX could do the same thing as Bitfinex and issue a debt token for creditors how the U.S. government misunderstands decentralized finance, in stark contrast with regulators from other parts of the world whether DeFi front-ends should be subject to the Bank Secrecy Act whether VCs go against the principles of crypto the difference between democratizing finance and democratizing fundraising Hosts Haseeb Qureshi, managing partner at Dragonfly  Robert Leshner, founder of Compound  Tom Schmidt, general partner at Dragonfly Guest Laura Shin, author, and CEO of Unchained Disclosures Links Shapella: Previous coverage of Unchained on the upgrade: Shapella in the Rearview: After Major Upgrade, What’s Next for Ethereum? Ethereum's Shapella Upgrade - What to Expect? How Will ETH React to Ethereum’s Shanghai Upgrade? Unchained:  Staked Ethereum Withdrawals Enabled As Shanghai Upgrade Goes Live Ethereum Surges Past $2,000 Post-Shanghai, $2 Billion Staked Withdrawals Pending Nansen: The Shanghai Upgrade Dashboard CoinDesk: What’s Next After the Ethereum Shanghai Upgrade Known as Shapella FTX: Unchained: FTX Could Reopen Crypto Exchange, Recovers $7.3 Billion in Assets Treasury Report: Unchained: Poor DeFi Cybersecurity Presents Risks for National Security, Says U.S. Treasury Learn more about your ad choices. Visit megaphone.fm/adchoices

Not a dividend. It's a tale of two Kwan. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. D5.Eat is the ultimate pump. DFIPOTOC protocols are the antidote to this problem. Hello, everybody.

Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's respective on the crypto topics of the day. So first up, we've got Tom, the DFI Maven and Master of Mebes. Next, we've got Robert, Cryptoconisour, and Captain of Compound. Today we've got Laura, the CEO of the show, and you've got myself, I'm Haseeb, I'm the head hype man at Dragonfly.

So we're early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see choppingblock. That XYZ for more disclosures. So happy Shapela, everybody. Ethereum is now unstakeable.

Everyone, I know we've all been waiting for the day that you can finally unstake your ether and panic sell out on the market. So the whole, the internet, crypto Twitter has been alight with waiting to see what happens with, once Chappellella allows unstaking. So just to catch you up, if you're not aware,

Ethereum, when they did the merge and they transitioned to proof a stake, staking was only one way. You can only stake your ether, you can't unstake it, until a second upgrade called Shanghai, which is involved in this combination of upgrades, Shanghai and Capella,

which is very lovingly called Chappellella, was finally set to be released, which was, as of the time, we're recording just a day and a half ago. So Chappellea is the first moment that all this ether, about $35 billion of ether at current prices could be unstaked. And people were arguing with each other on the show.

We've kind of debated back and forth. You know, how much is going to get unstaked? Does this mean that, like, everybody who's staked is going to pull their money out and panic sell their ether on the market? There was a lot of worries about what this is going to do to the ether price. Well, Chappellea has come and gone, although the staking is not instantaneous. There's sort of a queue. You have to kind of wait in an orderly line to make sure that you can actually unstake and

then go do whatever you want to do with your ether. overall, what we've seen now that Chappellea is live is that there's about $1.8 billion worth of ether out of the $35 billion that is huge for withdrawals. That's in dollar terms. The unlocks are kind of staged over, you know, like 12-hour periods, roughly. Most of the unlocks initially are coming from Cracken. And it's expected that this is probably from its U.S. clients because, of course, Cracken had to shut down their staking business.

So a little bit over a third of their total eat-staked is getting pulled out. from the staked ether. Now, it's not clear when the state ether comes out, is it just going to go directly to people and maybe they'll restake it? Or maybe it's going to get sold in the market because people want to, you know, tax loss, harvest or they just want to sell or they just don't want their ether anymore. But there's also been new deposits. So about 110,000 eith that was unstaked and about 80,000 in new eith that was staked. And this maybe is expected because now your opportunity cost for staking is lower because you're not stuck. So before, if you decided to stake, that was a big decision because you had to wait until eventually you could pull your ether back out. Now you stake, you unsake whenever you want. There's much less opportunity cost. So Tom, walk us through the dashboard that you just pulled up here. Yeah, this is a great dash from Nansen, sort of walking through a lot of details around eith staking. But this one right here sort of in the bottom is probably the most interesting, basically looking at deposits and withdrawals and sort of netting out, you know, how much eath is actually coming out or being staked.

And what you see is there's sort of these two sides in the debate around Chappellella. Is this going to be bullish? Is this going to be bearish? Obviously partially bearish because people can now withdraw their ETH and sell it on the market. And as you sort of said, a majority of that is coming from Cracken after being forced to, you know, shut down their Eats staking business. As we can sort of see down here, there 63% of on stakes are coming from Cracken. But you also see a lot of people now depositing their Eith and staking it because now they know that they can withdraw. It's sort of been derrised.

So it's a lot more attractive actually do that. It's not a hotel, California anymore. You can check out if you want. And so I think overall, you know, hey, short of some structural selling, you know, it sort of completes the proof of state transition for Ethereum. And so either price on the back of this, a lot of people were worried like, oh, my God, is the ether price going to collapse? You know, there's just going to be a wave of selling.

And we've actually seen the opposite. Ether actually hit $2,000, which was a, you know, a milestone that we haven't seen in quite a while. And even Bitcoin surged to $30K, probably not due to Chappelle. per se, but we basically hit numbers that we didn't see until when three arrows collapsed. And of course, when three arrows collapsed, you know, interest rates were at like, what, 1%? And now interest rates are at 5, and Bitcoin and Ether are kind of back full swing. So it's been a very, very interesting event. One thing that I feel like it confirms for me

is that nobody knows what they're talking about. Like anybody who claims like, I know what as soon as unstaking happens, Ether price is going to collapse or either price is going to No one knows. No one has any idea. That's the lesson for me. I don't know what you guys took away from seeing what happened with Chappelle. Well, I thought the best thing that come out of it were all of the really high quality memes of Dave Chappelle in Shanghai. I've not been on Twitter in the last like 48 hours, so I did not see that. Oh, there was some great content. I said somebody tweet, evidence that Ethereum is not a centralized entity. They did not

capitalize on the fact that you could do something with Chappellella and Dave Chappelle. And maybe that was before you saw the memes or something. I don't know. But yeah, I thought that was funny. One other thing that I wanted to say was like, I find it ridiculous that a lot of people were spelling doom and gloom for when this upgrade happened. Because, I mean, there are so many of these like ghost chains where like, do you remember when, what was it? Ethereum Classic was 51% attacked and like the price really didn't budge very much. Like, I just feel like people are busy. They're doing their other things.

Like, they're not thinking that hard about like, oh, I need to move my assets right now or whatever. And, like, the diehard people in Ethereum are the ones who staked, you know, starting in, like, December 2020 or whatever, or, you know, even in just the last few years. So, like, the vast majority of them, yeah, they're not going to be, like, super motivated to suddenly, like, withdraw their Eath. So I thought it was, like, super overblown. Yeah, it reminds me a little bit of sort of, like, the constant shadow of, like, oh, the Mount Goths, you. you know, creditors distribution and all these people are going to get Bitcoin and they're going to sell it. Plus tokens.

It's plus tokens. Yeah. Yeah. And it turns out what the news came out recently that like a lot of the Bitcoin that the U.S. government sees from the Silk Road shutdown has been sold in the past three months. And like it's like several billion dollars. Like no one noticed.

And so it's just like, you know, people create these sort of narratives in their head and they want to, I think, just get engagement. But in reality, like the price has a lot of other factors that go into it. Yeah. The reality is that, you know, Chappelleau was also one of those things that was very foreseeable. And this is a perennial debate, and I'm sure if we're going to incense a lot of people if I say this, but like, Bitcoin halings are basically the same thing. Everyone knows Bitcoin is going to have. They know exactly when it's going to have. There's no uncertainty. And people can

sort of argue themselves like, well, but the news coverage comes in. And so their flow effects, because people are buying more, because, you know, the news is covering it. And you could argue the same thing for Chappellella one way or another. But the reality is that, generally speaking, when these things are very foreseeable in advance, which obviously Chappelle a date was not set for quite a while, but when it finally was set, I think at that point, it's pretty easy to say markets understand what's going to happen and it's fairly, like obviously you don't know exactly what's going to happen in terms of exactly what's going to unstake or exactly what's going to get sold, but you've got pretty good bounds on it. And so although the either price

moved up, it didn't move up a ton, it didn't move down a ton. It mostly kind of, you know, the broader market lifted and ether lifted alongside with it, which I think is usually the good base case for any of these foreseeable events that are going to affect supply dynamics. I interviewed somebody who said that they also thought that the community was kind of like underestimating how much commotion might happen at that time. Like there might be certain things that are unforeseen that would happen and blah, blah, blah. And I was kind of like, really? I was like, I feel like all this stuff gets tested almost like to death before they execute. And yeah, like nothing has really happened.

So, you know, I think they were overestimating that. I mean, it's always possible when you're doing a live protocol upgrade. for something to go wrong, right? Always possible. And testing on a test net, like there just aren't nearly as many eyeballs and as many people trying to break something as they're going to be when it's on Maynet.

That said, it has been like, what, like, you know, seven, eight months since the merge. So, you know, there was a lot of time to test this. You know, this was not rushed. In fact, they explicitly waited this long to make sure that every single nook and cranny of this code base was tested to perfection. Now, you know, never say never.

you never know what might be broken. And somebody who figured out that there was a vulnerability could wait until Maynet because doing some attack on test net obviously is not particularly lucrative unless it's on Gurley, in which case it might be very lucrative.

But in reality, there's always a small percent chance something goes wrong. And so you could argue that, well, if the price before the event was X, then the price after the event, if it goes well, should be X plus something.

I think that's a reasonable argument to make for something like this in particular, not so for the happening and not so for other things that are completely, you know, just basically zero risk. Right. Well, the price did go up. The price did go up. Yeah, but weirdly, after the merge,

the price they think went down originally, right? Yeah. The merger is a weird one. I still haven't gotten over a while. Everybody was selling that, I think. I think everybody was selling that one. I think they'd all bought in advance and then they wanted to do the buy the room

or sell the news thing. But like too many people did it. or wait, that's not exactly too many, but you know what I'm saying. The price was higher than when they bought, so. Yeah. It does feel like the merge was so ecstatic. Like I was so excited about the merge.

It really felt like a special thing for the industry. Chappellea, I never, I don't know, personally, I mean, we're not trade, we're not day trading ether or something. So it never really felt like that important of a milestone. And so I was a little bit annoyed with how much people talked about it. because I'm just like, just wait a month and then it'll equilibrate and then everything will be fine. But, you know, I guess traders love talking about things like this because it's something to trade. Not that we've been in want of volatility.

I obviously, things have been very volatile regardless of something like Chappellella. Yeah. In general, I feel like there are a lot of people in crypto that are like a little bit too obsessed with prices. And they, they overreact. It tends to be, by the way, I think like, you know, emotional men. Like my old hairdresser one day, he was like, oh my God, like I lost thousands and dollars in trading XRP last night. And I was like, what the effort you doing?

And he was like out at dinner and something happened and he saw his phone and he just like panic sold. And then he was like, oh, I shouldn't have done that. So, you know, it happens. Emotional men. Joking about the men thing. Joking about the men thing. You are not, first of all, you're not joking about the men thing.

That's definitely correct. Because the studies show that, yes, men are. more emotional about finances, but anyway. Is that true? Men are more emotional about finances? I think that men do more financial stuff. Like they trade more and they dabble in more crazy stuff. But do you think women are less emotional about finances than men?

Or like women somehow, they have better returns or something because they're, I forget what it is. I think that's just because they trade less. I think they just do, they just more buy and hold. Right. Exactly. Whereas like the guys, they're like, oh my God, this happened. I have to buy or sell.

And, you know, so that's what I'm saying. I feel that. Some of it is like the illusion of agency, right? You feel like you can do something. And I think as a dude, you are, obviously massive sweeping generalizations, but whatever. It's our podcast. Exactly. We can generalize what we want.

I think as a dude, you're more likely to feel like, hey, one, I'm probably right. I probably know where this price is going. And I should trade on it while I'm at a dinner party. I feel like all those things feel very stereotypically male to me. I don't know, Robert, what's your take? male versus female trading behavior? I think everyone's just bad at trading in general, myself included. So I don't think it's based on gender. I just think it's based on being a human. I think robots will eventually demonstrate that the humans are just dumb.

It's a very diplomatic answer. Tom, come on, you got to actually weigh in. You can't do like a you can't pull a robber and say, oh, it's all humans. I think it was also show men generally take more risk, have more risk-taking behaviors. And so, you know, you're going to ride a motorcycle, and you're going to try to day trade crypto. It's just part of the, it comes with the hormones. And so I think, you know, it's a broader, a broader topic. Blame it on the hormones. It's always the hormones.

Anytime a trade goes against me, I'm like, oh, this damn hormones. Okay, so let's move on to other news. So Chappella, it's all done. You can unsake your either now. Go have out of kids. Other news, so in the FTX, the story that keeps on giving, FTCX, there were some more, I guess, reports filed with the court in the FTCS restructuring.

And they're now proposing John Ray, who's leading the bankruptcy proceedings, or whatnot proceedings, the whatever bankruptcy guy, the CEO of FDX. He is proposing now that they reboot the exchange. And so this has been floated in the ether for a while. People have been talking about, hey, you know, I kind of really liked FDX software. It was pretty good. Maybe the guy who was running it was kind of a dick, but everything else was great. And so now it seems like the restructuring team is really seriously considering running the exchange back up. And presumably part of, if you want to actually get a recovery and sell off the rights to run FTX,

I presume they wouldn't run it themselves. They'd probably sell it to somebody else and give them the software and the license and then use that to help aid the recovery for depositors. In order to get somebody to be willing to bid for it, you've got to build some hype. And so this is kind of what they're doing. They're kind of putting the word out there, getting people excited on Twitter of like, oh, my God, FTCX 2.0. It is in many ways the most crypto DGYN thing I can imagine is getting excited about the biggest fraud exchange ever in history making a comeback. So it's kind of beautiful in a way, but also, well, I guess it's just beautiful. What are you guys' thoughts about FTX coming back? So I think the plan's a terrible plan, frankly. And I'm not a creditor, but I'm going to speak with like a creditor hat on. you know, if I were a creditor, I would not want them spending any money and or time trying to

actually reboot the exchange that could go towards returning money to their creditors. The reason being is that the exchange most likely will not be an independently profitable exchange. And there's only two possible outcomes. It's profitable and it generates assets for the creditors or it's unprofitable. and it just further erodes the assets of the creditors. And for so many different reasons, I don't think that FTX has any innate advantage in its reboot

over all of the other exchanges in the world and will be a profitable exchange. And so if I were a creditor, I would look at this plan and say, like, this is a bad use of capital and focus, when they should just be focused on getting all of the assets back they can, not spending them, not hiring engineers, not building and launching new things, and just trying to return as much as possible to the creditors. But did you see that Zane Tackett, the former director

of institutional sales who used to work at BitFinex, also suggested that they do something similar to the BFX token that Bitfinex did after its hack? What do you think of that idea? If people want to invest in a new exchange, they should be given. the choice to invest in a new exchange and it should be a new venture and it probably is best off as a new standalone business that gets spun up from the ground up. And so, you know, I think it's a bad plan. You know, I don't see any advantage that FTX would have over all of the other exchanges that weren't horrific dumpster fires that destroyed tens of billions of dollars of assets and trust. So I don't think it should live.

Yeah, I see a lot of love for FTX or what it used to be on Twitter. And I think a lot of that is stemming from a few things, right? Like, one is they're super aggressive to list new products. So like pretty much any random new coin, they would like list a new perk for. Two is they had cross-marging built in on day one, which to an extent also kind of caused their demise. But, you know, it is a pretty killer app if you can do it well. And now obviously a lot of other exchanges are looking at ways to add sort of global cross- margining or expand their cross margining. So it's clear there's like market demand for it.

But three was kind of just like the UI. Like people just liked how clean and and simple it was. But I do kind of find it strange that I don't know about the quality of the code base or like overall engineering for FTX, but I would find it kind of strange if FTX itself were like an extremely well engineered machine. And yet, you know, in this debtor's report that John Ray, who's running the bankruptcy put out, a lot was actually detailing all the poor custody practices and accounting practices that were going on at FTX and Alameda, just like, it's a lot of kind of stuff that we've heard before, but just more very acute examples of like,

oh, we found $600 million in this private key that was randomly labeled in plain text and just on somebody's computer. And I think it's like Sam himself was saying, you know, Alameda is honorable, just come up with some numbers for the financial report. So it would be weird to me that like the people who can't do basic accounting and have these very poor custody practices can also build, you know, a world class exchange. I mean, look, from the front end, like, the product was good, right? Obviously, it was a good product.

It got people to, especially professional traders, were fans of the product. Maybe I just don't know the details, but I didn't realize that they were contemplating, actually running it from within the company, like the current company, as opposed to just packaging it up as a basket of IP, the software, the branding, the copyrights, and just shipping it off to somebody else after getting everyone excited. That feels to me like a much better plan than, literally running the exchange from within the shell that they currently have and are trying to get the best recovery for creditors, because obviously that would take, like, when would

you actually liquidate the assets to give to the creditors? And also, like, what a terrible idea. Like, you definitely don't want John Ray running a, like, a retail crypto exchange. So I can't imagine that's what they're actually contemplating. But if they are, that is bananas. I don't think that's a good idea. There is a rumor that there is an engineering team somewhere that is actively looking into basically booting up FTX again. I don't know if it's within this current entity or a new entity, but as part of the restructuring process. Well, wait, so I want to separate out a couple things because I can't remember. I think it was Haseeb. You were sort of like conflating the security practices

with like the trading UX. But I feel like those can be separated. Like I feel like if the trading UX is good, all you need is like someone to do, you know, real like crypto exchange security in the back on the back end to like make it worthwhile like like if the front end is good um because the security practice is like like that's a totally doable thing like a bunch of crypto exchanges do that and it's like kind of well known how you do it you know so like that that's such a basic core function like I don't I don't think there's no bells and whistles with that right it's just like doing what everybody already knows so when you say like oh you know I I don't know why they would do that I'm a little bit like, oh, but if the interface is good, like, that really is, you know, the whole other part

over and run the security is like such basic stuff. Like, that's not hard. So I feel like it could be very worthwhile. To be like that was Tom, not me. See, I just like to be in opposition with you. That's it. Yeah, we need some controversy on the pot. Okay, we'll get there. We'll get there. Don't worry, Laura. The UI is actually, I mean, people credit, and obviously there's a layout component to it, but they actually just use the Google material UI basic components. So like Google has this, you know, material UI framework that is sort of like the standard template you would use to build an Android app or like a website. And they just pick up all those components and use it. And it's like using bootstrap in like

2010. So there actually is not a lot of ever that went into into the UI. I think it's kind of more the engine and the back end of the matching engine that like is kind of the meat of an exchange. Oh, right. Sorry. That's what I meant. You know me. I'm not like a tech person, but that's what I meant, the trading engine. Yeah, I mean, look, ultimately, I think if they're not running the exchange themselves, which for now, let's give them the benefit of the doubt that they're going to package it all up and sell it to somebody who's actually willing to run the exchange, I don't actually think it's all worth that much. You know, like the whole for customer deposits is in the billions. And this thing is not worth one billion, right? It's not worth maybe even half a billion.

I don't know if it'd be worth 100 million, maybe something on that ballpark, which is just not a big number, right? They're finding like 300 million under the couch cushions in some of these, you know, some of these love sacks in the Bahamas. So I don't think that this is actually that big of a deal for creditors if they can get the exchange back up and running just because I don't think the enterprise value is really there in just some software that like is half working and half a dumpster fire of like, you know, back doors and accounting weasels.

And then just a good UI, right? The meat of an exchange is like, how do you attract retail customers, you know, building trust with your customer base, like going to market in different countries, getting licenses. They don't have any of that anymore. So they would really be starting from zero. And of course, like, it's funny. FTCS has brand awareness, but it is all negative. So, you know, like you start over, I don't know, like GTX obviously, or what was originally GTX became OPNX. They kind of, you know, face planted when they came out.

I think they did like $12 on day one, despite the fact they had a lot of attention. A lot of people were paying attention to what was happening there, but that didn't necessarily make them want to trade. So I think the same thing may well be true of FTX. A lot of people know the FTX name, but that doesn't mean they're going to go deposit money, start providing liquidity, start buying their favorite crypto asset on that exchange. You know, it takes more than that. It's difficult to attract retail and to keep them playing.

So one question for you, like leaving aside the kind of brand value issues with FTX, what did you think of that? the idea that Zane Tackett floated around doing some kind of token similar to BFX. Because like, so you, because like the idea there is then, you know, you make enough in trading fees over time that eventually they could be, creditors could be made hold. So if I'm understanding correctly, the idea is that you basically get like a debt token and that token corresponds to your, you know, residual balance at FTCs at the time of the bankruptcy, but they're like not actually worth a dollar per claim.

Right. With the BFX, with the BFX token, I think it was like you could either get equity in Bitfinex or you could get like some percent. Like it was like, I forget what, so let's say it's like 70 percent or something initially. You could either get immediate liquidity or you could do the longer term thing of either holding the token or you could trade it for equity in Bitfinex. And so there was like a marketplace and people could like, you know, buy and sell these tokens. And then over time, the value of the token eventually went up. So instead of being 70 cents on the dollar, it was like $1. And so then people, if they just held, they could eventually be made whole.

So the problem, well, a few things. Well, first problem is that the vast majority of creditors of FTCs are not accredited. So they can't actually convert into equity on the cap table. So only a small number of investors would be actually eligible to get the equity, right? But, you know, Bitfinx obviously was kind of wild west. But they could get that token. Right. So they could get the token.

I think in that case, like the token, like the token. I mean, I'd have to understand the details, but like that token sounds kind of security-like. It also, I think, at the point at which you're only really giving people just like, here's a token. And as we, like, what is the token convertible into if you can't convert into equity? You just trade it in there on the market, on their exchanges. Well, there has to be convertible to something. Otherwise, it's just like some meme token. Oh.

Yeah, I don't remember the details. Sorry. This is from 2016. Yeah. Yeah. I think it's like as they recover the assets, they pay back out all the token holders and they hope to eventually pay back out a dollar

to all the token holders, right? Which basically is a debt token. Oh, yeah, yeah. So it's a debt token. I think you're right. Yeah, yeah. So if it's a debt token, like one, you know, super security. And then two, that basically is what,

is basically what Robert's describing is like they run the exchange. They hope to make enough money from running the exchange, hiring all the engineers, you're spending all the marketing money, doing all the other stuff, which is spending down people's recovery, right? A lot of people are like, look, I want to get off the ride. I don't want, you know, FTCS round two.

I just wanted to get my money back. So a lot of people will say, like, look, just give me whatever you got under the couch cushions. I will take that home and, like, go play at another casino. I don't want to play at this casino anymore. And I think those creditors, I think they'd be pretty resoundingly against the proposition that, like, hey, come play on FTX, get a debt token,

and maybe we'll make it back, or maybe we won't. Yeah, you're probably right. But of course, I still see people on Twitter who are behind this idea. And I've talked to a few of them. There are people out there who love this idea. Understandably, because it's worked before. Right. I mean, the people who did Bitfinex way back in the day, they were made whole.

And so I think crypto, this is one thing that actually SBF said to me a long time ago, that the weird thing about crypto relative to any other asset class is that everybody in crypto is naturally bullish all the time. There's always bullish. And it's kind of weird. No other asset classes like that. But everybody in crypto, you're only here because you're bullish. Nobody is just like bearish and hangs around and talks on Discord all day about crypto.

So everybody's like kind of optimistic in some sense. And I think that's why they tend to skew in that direction. I would say, though, that in the last year, there are certain prominent critics that have just come to the fore. And their thing is to be a critic like Molly White, Dan Olson. I had him on my show, James Block, the dirty bubble media guy. Jacob Silverman maybe a little bit. I think so. Yeah, Jacob Silverman.

Those are the four that come to mind. I don't actually know any of them. I've heard one of those names, but I forget which one it is. Probably Molly White. She's the one she does Web 3 is going great or something like that. That's right. That's right. That's the one.

And then there's always, you know, Nuryl Rubini and these guys who like come out of the woodwork every time something breaks and they're like, oh, I told you guys all along. I just heard a podcast from Nassim Nicholas, a lab where he was dunking on, dunked on Bitcoin. And so he's, he's kind of gone full circle. So it's, you know, I think it's not a cycle until you get celebrities talking about how terrible crypto is.

Anyway, anyway, okay. Next up in news, so there was a report released by Treasury doing an assessment of the risks in defy. Now, this is normally non-news because, I don't know, like there's always kind of White House reports on some kind of random

minutia in crypto. But this one was a bit surprising in, one, how much time and coverage they spent on Defi particularly, which is obviously a very, you know, relatively small part of the crypto market today, but also the way in which they were somewhat shrill in claiming that Defi was delinquent in, you know, some of the obligations that Defi has under the Bank Secrecy Act

and, you know, the requirements of AML and so on. Robert, as the resident Defi founder, what was your take looking through the Treasury report on Defi? Well, I haven't really gone through it in full yet. done a very quick skim. So anything I say here is going to be, you know, the highest bullet points. You know, my take was that I think they were using defy as an extremely broad umbrella term to really mean any decentralized or like distributed system that's not controlled by, you know, one, you know, very clear business. I really think they're using defy not in the way most of us

in the industry would use the phrase defy, frankly. You know, I think in their minds, defy primarily is tornado cash. and things like tornado cash that are actually tools to very, like, you know, simply like facilitate, you know, both privacy and money laundering. And so, you know, I don't think that the language and verbiage that was used in report is the way a lot of people in our industry think about it. The second thing that really, you know, stood out to me from the report was that they tried to take a holistic view.

It made very clear in one part of it that the actual problem space, is smaller than the problem space of money laundering using traditional money. And that was a nice silver lining to see that we're actually trying to put it within scope. And so, you know, if I had the reverse engineer of the report, I think they, you know, looked at a list of how many hacks were there where money went to North Korea and how many tornado cash, you know, experiences were there where money went to North Korea. And they said, oh my God, there was $4 billion. dollars like of dirty money that went through defy this is a problem and it's a problem because

you know it's greater than zero and it's a new technology and ideally you want to see zero dollars going towards you know evil you know actors in the world and so you know i think there's a lot of improvements that will occur over time both on the educational front people understanding that Defi is an extremely broad term when you're really thinking about things like major hacks and major tools like tornado cache is not necessarily the right lens to like talk about the entire ecosystem. So we'll see where this goes. You know, it's one report and hopefully it sets off a better conversation.

Yeah, it was quite disappointing because, you know, one of one of the obvious questions that they were asking was, okay, when is somebody actually required to be in compliance? They never really totally answered that question, but they showed some of the boundaries of that question, which made you realize that they actually don't understand some very basic things about blockchains. So, you know, one of the obvious things, like if I send you money, you and I are not bound by the Bank Secrecy Act. Bank Secrecy Act is this law that basically says that if you're a bank or a financial institution, that you're required to basically surveil your customers and make suspicious activity reports and stuff like that. Okay. So, um,

obviously if you are Coinbase, you have to do that because Coinbase is a financial institution. If you're a normal bank, you have to do that as well. The question is, does Uniswap have to do that? Do other things in crypto have to do that? Obviously, the crypto industry takes the view that, well, Uniswap doesn't have an operator. Uniswap is non-custodial. Uniswap itself is completely automated. So Uniswap is just software.

Just software lives on the blockchain. And therefore, it is basically just code that's standing in between a peer-to-peer transaction. And in a true peer-to-peer transaction, you know, the, the, um, the report stated very clearly, if I just send you money, neither of us are financial institutions. We have no obligations to report anything to the government, like blah,

okay, yes, duh, obviously. If I give you dollar bills and I see you on the street, I have no obligation to report something to FinCenter or something like that, right? Now, where they kind of went off the rails is they said,

that is true unless there's a smart contract. If you use a smart contract, then now this is an intermediated activity and therefore, you know, you're potentially under the purview of the Bank Secrecy Act. which, like, maybe if you think what a smart contract is, is like an exchange, like an on-chain exchange, that's what a smart contract is.

But, of course, smart contracts do everything under the sun. Smart contract is the most generic possible description of anything. Smart contract could be a multi-sig. It could be just like a literal ERC20 transfer. Like, that's a smart contract. Like, everything encrypted is smart contract. And NFT is a smart contract. Many wallets.

Many wallets are smart contracts. Exactly. Exactly. Half the wallets in crypto are smart contracts. And so if you are claiming that anything that's a smart contract is not a peer-to-peer transaction, it's just like you don't understand what smart contracts are. So it's very disappointing to see this coming from Treasury, which is supposed to be responsible for regulating all this stuff, not understand a very, very basic component of how this stuff

needs to get regulated. And, you know, we, so a lot of our team right now is in Hong Kong. There's a big crypto conference going on there right now. We talked on the last show about how Hong Kong is opening up their doors and inviting a lot people in. And it's striking when you look at regulators around the world, the different level of sophistication about how crypto works and how it ought to be regulated, the U.S. is really the odd one out in really not understanding the difference between a decentralized and a centralized product or even something as basic as what is a smart contract and how does it change your

obligations as an actor when it comes to something like the BSA. Yeah, I think, you know, this sort of goes back to this whole idea of like regulating VASPs, which would be, uh, you know, sort of the front ends or, you know, the Unoswop.org versus Unosop the protocol, which is naturally sort of the kind of the only point that would possibly make sense. But I think that the downside is like, you know, with a tornado sanction, tornado's still processing several million dollars a day. And so you see even without, you know, a UI, like, you can't just like sanction a contract and expect people not to use it.

And so it's like there isn't really like a clean answer here. But I think, you know, obviously the answer that's not in the realm of possibilities, I think is like regulating a smart contract, which is just, it doesn't make any sense. Yeah, there's also the national question of like, okay, let's say FinCEN or Treasury decides that, you know, let's say Uniswap, it needs to start filing, you know, suspicious activity reports or whatever it is that they're going to claim that Uniswap needs to do. Who's supposed to do it? Like Uniswap lives on the blockchain.

It is code that cannot be retracted or, you know, unless the self-destruct op code is called, there is no way to make it go away. Like that code will always live there. So who's supposed to do it? Who is the responsible party? And like this is the hard question, right? You can, you know, thump your chest and say, oh, there are all these hacks. North Korea uses tornado cash, blah, blah, blah, blah.

Okay, yes, we all understand that. Like, the hard problem is, what do you do about it? And it seems like this question was not really seriously grappled with in this document, which is why I feel disappointed that, you know, after all this time and after all this stuff and all this stuff that I think the whole industry needs to learn from what is the right way to approach regulating this stuff? Because it's very clear, Defi needs some regulations, and there needs to be some degree of consumer protection. But this does not seem like a very useful approach in thinking what the right answer is for a resilient industry. Well, so the way it works for, like a lot of these dexes is that there is a centralized actor that controls the more popular interfaces, right?

Like there are people who could, they could interact with the smart contract directly, but then you have centralized entities that will, you know, kind of, yeah, operate these more usable front ends, user-friendly front-ins. And so I feel like didn't we see a proposal at some point where it was kind of saying, like, that those people who manage those front-ins will be these intermediaries and will be required. That was the SBF proposal. Remember when SBF and Eric Vorhees got in a big fight? That was the SBF take.

SB. Oh, okay. That was SBF. So, I mean, who knows? We might see that resurface. Like, do you remember when we had this argument at the in-person recording in Brooklyn where I was telling you guys that, like, oftentimes I feel like the crypto community, they get really kind of up in arms because they all view something as being one way. But then you all get surprised when you find out, oh, the regulators don't view it that way. And you're like mad and blah, blah, blah. And it's like this thing with Gary Gensler where, you know, when he first was selected to be SEC chair, people are like, oh, he knows blockchain great for us. And you guys, he has a completely different opinion on how all this stuff should be regulated from you. And it's not that he does not understand the technology. He has taught courses at MIT about blockchain technology.

He gets it. He just doesn't agree with you about what it is or how it should be regulated, blah, blah, blah. And so like, you know, here we are. Like you're talking about this report and you're sort of like saying like, how can they do this? how can they do that? And I'm just going to suggest again, they might understand it and have just a completely different opinion. I mean, I understand the point.

I think that's implausible in this case of what I'm talking about because it's just a very basic point of like a smart contract can be anything. Everything. New Jersey 20 is a smart contract, right? So like me transferring you tokens. Yeah, maybe their language isn't great, but maybe someday they'll make it more specific. and the end outcome will be that, you know, maybe it will be like what SPF was proposed.

But these things matter. My point is that these things matter. Like, it's important to get the details right because you can't regulate an industry if you don't understand the details because all these things are about details. Right. I know. But I'm just saying, like, we might end up in a place where, yes, even when you're transacting quote-unquote peer to peer, if you are using a decks that has an interface that is managed by a centralized entity, then that entity might be the one that's implementing all these BSA controls and stuff down the line. Yeah, I think those front ends, these are virtual asset service providers in this scenario, are like really the only logical choke point for enforcing these kinds of regulations.

My point with the tornado example is like, I don't think that's particularly effective. Like we can debate the merits of, you know, regulating the uniswap that already interface. and people wanting to, you know, KY, or having a KYC to use it. But, like, it doesn't actually get that, get you that much coverage. People are still going to use these protocols, even if you shut down, you know, the popular front end. So I don't know, I just, it feels like there's some misunderstanding there to, to seeps point. Yeah. I mean, look, it's, Laura, to your point, that is a, that is a coherent answer.

You can give the answer that Sam gave, which is that you should regulate the front ends and the front ends should be responsible for blah, blah, blah, financial activities. And then presumably like, okay, well, how do they pay for that? well, the front ends have to charge an extra fee on top of the protocol. And so this becomes like a whole financial services business, right? And that's one plausible way that you could argue, okay, this is the way it should be regulated in the U.S. Well, what are people going to do? They're going to say, well, I don't want to pay that fee.

Why am I paying for like some organization to like file suspicious activity reports? I'd rather just go on, you know, IPFS and go use uniswap directly. And so like, did you actually solve the problem? Did you effectively regulate the industry? Does you actually create more, better norms? Did you actually protect investors? Or are you misunderstanding the problem? and I think this stuff matters

because the U.S. is not the only country that's regulating crypto. Like, crypto is a global phenomenon. And if you regulate it badly here, then what happens is that people are going to go overseas and they're not going to stop targeting U.S. customers because it's crypto, right? People are just going to do whatever they're going to do.

And so a lot of countries realize pretty quickly, you cannot just pretend that the rest of the world doesn't exist. Like, if you're outside the U.S., you definitely don't get to pretend that. We're the only country that gets to do that. And when it comes to crypto, this is the one place where even, the U.S. can't pretend that we're the only country in the world. And as a result, I think you have to think seriously about these problems. Now, look, Laura, to your point, deciding that the front ends

should regulate crypto is a plausible answer. I don't happen to agree with it, but it is a plausible answer. It's at least coherent. What they stated is not even coherent. You cannot create a regulatory regime around all smart contracts invalidate the peer-to-peer nature of a transaction. Like, you start there and you just end up in, you know, just crazy town. So, which is fine, like they'll eventually figure that out, but okay, well, don't release a report that's like, you know, telling us about the risk of Diva if you can't get to a very basic answer like that. Yeah, and I'm not trying to defend what they're saying in the report. I'm not trying to say I think they're right or anything. I'm just trying to say that, like, you seem so convinced that you're right, but they might have

a different view and be very convinced that they're right. That's all I'm trying to say. Like, I don't have an opinion necessarily in what they wrote so much is just like. Okay, what is your opinion, Laura. What is the way you think that these things ought to be regulated? Oh my God. Jeez. That's a tough question. Like specifically this BSA type stuff? Yes. Like the Sam Eric Voorhe's debate, where do you fall? What do you think should be done? Oh my God. That's such a tough question. Let me just, so I'm just going to just talk my thoughts through. Amazing. Let's do it. So basically, so I understand why they're concerned about the problem because My ancestry is not only Korean, but actually I have ancestors from North Korea.

And I think it's like terrible, you know, that that country has been under this dictatorship for forever. I think, you know, the Kim regime is evil, blah, blah, blah, all this stuff. So definitely big problem, right? You know, obviously, like, I think it is a little crazy to impose BSA type regulations for these like peer-to-peer technologies like that. that just it doesn't seem especially like like bitcoin was meant to be this electronic cash and I mean essentially that's what a lot of these assets are right so um so yeah so how do you how do you deal with that conundrum I mean so a couple of things so first you know when you when you were like oh I think people are just going to find their way around the fees and they're going to you know

go interact on IPFS no I don't I don't agree with that like most Most people, like for me, when I'm trying to transact with crypto, it is like a confusing experience. I'm just like, oh my God, like I'm totally going to lose money any second. And I have done that in the past. This is like a hard thing for everyday people to do. And people generally are kind of lazy. And like if there's a better interface, like most people are not tech savvy.

Let's put it. Most people are not like developers. They're not, you know, they're people where they want an app that is like easy for them to, you know, just use. And then if it's easy, they're just going to use it. So I actually agree, maybe with the government or whatever that, like, if they go after the front ends, then, like, that will capture most of the activity. You know, is that something they should do? Is that, you know, yeah, I don't know if I really have so much of an opinion on that. Because, I mean, I might have more of an opinion if I were actually, like, an expert on BSA or whatever. I am not.

you know what's going to happen is like there's going to be more news that breaks on this i'm going to have to interview like however many people to understand the issues and then i might have an opinion but at this at this point in time i don't what's the point of having a podcast if you can't spit off uninformed opinions that's what that's what that's what that's what the show is all about yeah this is the chopping block where we chop up ideas into little fractions of ideas and then we boil them until they no longer resemble yeah so maybe this is the difference between a man and a woman. Like, I would actually want to be informed before I have an opinion. You guys are like, oh, just even if you don't know anything, just take a stand. And I'm like, wait, but I don't have

enough information. Like, I'm not an expert. So, Laura, to be clear, you are an expert. Okay, relative to the average person or even the average listener of this show. Wait, on the Bank Secrecy Act. Relative to the person who's listening to the show, you know way more about the Bank Secrecy Act than somebody who's listening to a Crypto Podcast. I know. Because you know who listens to the show. It's a lot of like regulators, tech people, finance people, like they, well, okay, maybe not the tech people, but the finance people and the regulator, they know that stuff way, way better than I do. Some people do, but most people don't know almost anything. We need to get a guest on the show who is an expert in this stuff. That's going to be a very

exciting episode. We do a whole episode of the Bank Secrecy Act starring regulators. Very exciting. Yeah, all time. All right. All right. I, all right. I, I know. Exactly. That's the point in which we want to exit the show. We'll just like drive down the viewership until Laura fires us. Okay. So, all right. So let me shift gears a little bit. So we decided that we wanted to have a discussion today. A little bit left field. We don't normally do this. We usually just like chat about the news. But there was something that came up the other day. I have a bunch of people who claimed that Dragonfly was selling a bunch of Lido tokens. And then I piped up on Twitter and I was like, that's not us. You know, that's a different fund. And there was this big debate that was kind of going on around this about whether VCs are good or bad for crypto. And I thought this might be an interesting venue for us to have this conversation, even though we are VC, so obviously we're going to have a view. But I want to kind of, I think it's an interesting conversation.

It's one that we don't really entertain on crypto podcasts very often unless it's like people who don't really know almost anything about venture or venture capital. It's like, you know, kind of people who just sort of see this stuff from afar, read news articles. they're like, oh, VCs are bad, they all dump tokens, whatever. I think this is an interesting place for us to really try to be intellectually fair and explore the pros and cons of what good and what bad VCs do. And I think there's also a distinction to be made between good VCs and bad VCs, because I think there are, there's a distribution of behavior among VCs as well.

So I want to start that conversation with Laura, because you are not a VC, and you're probably the most independent perspective on this question. what do you think on the pros and cons of VCs in crypto? Do you think they're good for crypto? Do you think they'd be better if there were no VCs? What's your take? Okay. I'm completely not prepared to give an opinion on this.

So again, I'm just going to have to walk through my thoughts here. Just be very masculine about it. Just start spouting off. All right. All right. So a couple of things. So I think it probably depends on the VC. Like there are certain people who, you know, I know,

dig really deep into the technology. They're actually trying to build something. They've thought a lot about, you know, what are the best like tokenomics? Like, how do you involve the community? What's the best kinds of technology? Like, what are the kinds of situations that will only draw speculators and result in more like, you know, a bubble type situation? And then there are others that, you know, they are more of the style to not respect lockups and to try to dump for. soon and just take their get their liquidity ASAP and not support the project long term,

I think some of the activities of FTX maybe would have fallen in that category. So, you know, there's a range. And this is why, like, if I'm going to interview VCs, then I will, you know, try to figure out, like, okay, so who are the ones that are more thoughtful about this or that? Or, like, who are the ones that, you know, like, yeah, just are more respected or, or yeah, have really contributed in some way. But one thing I will say is like there definitely is attention when you're trying to build this kind of technology to having VCs involved in such a way where, yeah, they're going

to get like really wealthy and all their wealthy investors will get even more wealthy. And so that's sort of antithetical to what crypto is supposed to be about. And so in that regard, I think that's why we continually see. this basically literally the same exact argument over and over again with different terms. It's like, you know, the fair launch tokens versus the VC coins. And then I forget what the next iteration was, but it had a different terminology and like just it keeps coming up. And so I feel like probably what's going to happen is there's just going to be this sort of continual push pull. But I do think that, you know, even now like when I talk to different

token projects, like they, they recognize that if they get some. certain VCs on their cap table, that that is a marker of, like, quality. And so they're kind of seeking that out, you know, like, yeah, just, like, you, like, you'll see even certain ones that, you know, they'll seek out certain investors for strategic reasons. And so in that regard, like, you know, I know for me as a reporter, like back when I used to do the Forbes FinTech 50 list and stuff like that, you know, when I looked at different startups, and so I understand startups are different from protocols or decentralized projects, but they're similar in the sense that you can look at the VC list and then sort of make judgments based on that. And so, you know, in that regard,

like I feel like maybe it can help people make decisions when it comes to investing in projects. You know, obviously Sequoia and FTX that is like the one big sort of exception that maybe proves the rule. I don't know, but it definitely, you know, that's a big issue. And then the fact that like a lot of people, I think, thought that having FTCS ventures as an investor was for them, like a boon. And yeah, now like a bunch of people have been screwed. So basically, yeah, I don't know if I have just one opinion on it. I think there's like pros and cons.

So it's interesting the way you lay that out because I think you're very right in pointing out. There are multiple roles that VCs play. One of, I mean, one obvious thing is they give you money, they give money to startups, right? And that's kind of the obvious thing. but they do a bunch of other stuff, right? They help you, you know, they might actually provide some value directly. But another thing they do, which you pointed out, is like they are markers of status, legitimacy, competence, technological, prowess, whatever. It's kind of like what college you go to, right?

It's like, okay, are you learning anything at Harvard? Maybe, maybe not. Maybe you're just meeting people. But you're definitely getting a stamp on your forehead that other people are going to use to make inferences about you. Are you trying to say dragonfly is Harvard? I did not name any particular funds. And so it's very clear the world uses VCs that way, and VCs want to be perceived that way. Like, everyone wants to be, I'm the Harvard, I'm the Yale, I'm the this, I'm to that.

But, you know, if I take the other side of that, right? So these are the functions that I think VCs basically serve. They give you money, they help you, and they stamp your forehead. Now, the other side, I want to kind of steal man the anti-VC position. Because I think for some, imagine somebody who is here. who is very anti-VC. I think what they would say is that, look, I understand why startups might want money

and why they might want money from firms that do this professionally and maybe you're better at giving people money than other people. But the whole point of crypto is that we want this stuff to be widely owned and widely shared, and we don't want any groups

of preferential insight, access, or perspective on these technologies than anybody else. They're supposed to be democratizing. And venture capital, is intrinsically opposed to that part of crypto. And so even if you created a great decentralized blockchain that could run super fast, it was 10 times,

you know, it could run twice as far and jump twice as high as Solana, even if you built that, if it was 100% owned by VCs, it would be worthless because that's not what makes blockchains valuable. What makes blockchain valuable is broad ownership. That, I think, would be the principal argument,

even if you ignore the, like, good VCs or bad VCs, these guys dump, these guys don't, ignore all of that. I think somebody who's a sort of VC minimalist would say vCs in general are antithetical to the principles behind crypto. What would your guy's response be to that argument? Well, I'd like to go all the way back to Bitcoin. I think this is a lot of the argument against VCs in crypto is that Bitcoin didn't have any VCs, period, full stop. Now, is it the same for other chains or other L1s or other like, things trying to be currencies, there's a whole spectrum of activity.

But Bitcoin didn't have any VCs. So to a lot of like OG crypto thinkers, they say, well, no one needs VCs because the biggest, baddest thing on the face of the earth didn't have venture investors. And it didn't require capital to build out a team to bring it to life. I mean, great job Bitcoin. Like kudos, right? It's fantastic. you know, but Bitcoin really started off almost as a one or two person endeavor.

And it grew over time and it built up, you know, community. But like almost to the point of going live, it was kind of like a solo-ish effort, which is one of the most remarkable and incredible things about it. And so I think a lot of people say, well, if Bitcoin can do it, you can do it. Like you don't need more than like one developer, right? Like, if Bitcoin is capable of becoming a, you know, half a trillion dollar asset, anything is. And I don't think that's necessarily true, right? When you look at pretty much any project in human history, it generally requires a lot of people and teamwork and collaboration.

And in general, that requires capital. There's very few people that will work towards a goal for free. It's exceedingly rare. It's possible if you're Satoshi, you know, it made a lot of sense to not take a paycheck for, you know, the two years. that went into building Bitcoin. That's really not how most things come to life. And so, you know, I just see in the context of almost everything requires this like underwriting or, you know, support of capital early on.

And Bitcoin is the once in a lifetime, probably fluke, that is the exception to the role. And I don't think anything will succeed to that degree of success with that. absence of venture. I think it's probably the most successful bootstrapped system in the history of the world. I can't think of anything of that market cap and magnitude that wasn't financed along the way. I don't think there's any comparable company or economic system on the face of the planet and all of human history. And so, you know, I just think it's the ultimate outlier that, you know, steel man's, oh, this is why you don't need VC. I was going to say, the exact same thing. And I feel like this is the exact argument that people like Jack Dorsey and

Corey Clipsden, like this is their argument and like that meme of, um, you know, the faucet and then like the kind of fat cat person who's like getting most of the water and then like the little peon is like just getting the little drips. Like I feel like that's kind of, you know, where all that, it's those people that have this view. Um, but one other thing that I was going to add and I, well, they're the fat cats of Bitcoin. They just had, you know, drinking from the faucet just from a different, approach. It's just less direct. Yeah, yeah, but, you know, like I, I feel like there, like Jack Dorsey and Coplepton definitely were not in on the ground floor of Bitcoin, you know, yeah. So, but I was curious what you guys thought about Ethereum. Do you guys feel like Ethereum? Because they didn't have like

traditional VCs. It was like Anthony DiOrio and Joe Lubin and then like random people who were involved early in Bitcoin that were sort of funny it along the way. But they didn't, you know, there was no like Antreason or anybody. evolved in that. I was curious for your thoughts on whether that counted as well. There were no famous VCs, but there were definitely VCs that financed Ethereum early on. There were some very famous folks in China who backed Vitalik back when nobody else was willing to finance him, sort of pre-ICO. So it took a lot of work to get Ethereum to the place where they could actually do the ICO. When I worked in my book, nobody, like, are you talking about Fembusci?

Because they stepped in after Ethereum had launched in. Oh, is that right? Yeah, they stepped in after the network had launched and they actually got um so basically what happened is like the the foundation was completely like but they were so low on one way that they were writing blog posts about how they might have to shut down within a few months and um right out and like there was also this debate about whether or not they should release the eth to early contributors because some people were arguing if you do that then the price is going to go down but vatolic was like we gave them our word that we would do this so he did it and then yes the price like the price like like went way, way, way down.

And then they were, they kept writing these blog posts being like, yeah, we might have to shut down by like Christmas in September. They did a deal with Fembushi and we get the terms of the deal. But basically, I think they sold the Eath for like roughly a dollarish or something or so I don't remember. All I know is that like Fembusci very quickly made their money. Like they recouped their investment within like like a month or two. but that gave the Ethereum Foundation enough runway to like at least get through that winter. And then what ended up happening was that because of excitement about the Dow, the price of ether started to finally pick up a little bit.

And then, yeah, then they had like two years of runway. Then it was like three. And then but it was happening really fast. And then with the Dow, like the price of ether was going way up. And so then they were like in the clear. So that's my point, though, is that... Yeah, but FNBushi didn't do that. Yes, the invested post-the-platform, but ultimately these guys needed financing because, yeah, they got the thing out, but like the liquidity wasn't there, the buying demand wasn't there.

They had more worth to do. There was still more stuff to do to make Ethereum what we think of today as Ethereum. Okay, okay. So you would count, but all right. And Vatag was also a TL follow, so inadvertently, you know, sort of funded through VCs in a way. Yeah, it was like $100,000. He was getting like $4,000 a month. Yeah, yeah, yeah. But it's, you know, hey, it counts. I think, I mean, to your point, Lord, though, like, I do think there's a lot of memes about VCs. A, people misunderstanding the difference between a venture capitalist and a venture fund and, like, a hedge fund and people getting, you know, incensed about lockups and stuff like that. But yeah, I mean, the other thing that people get pissed about is like, oh, why did this VC get to buy at this price? I should be able to buy at this price. A, you know, there's, it's part of it is often an access story. It's like, there's, there's,

there's a lot of adverse selection in projects that do a crowd sale, even not in crypto. It's because they could not, you know, find VCs to back them. And obviously, oftentimes, like, the allocation in those rounds is extremely tight anyway. So you have to show that you can add value and there's justification in adding value in order to actually get the allocation. But the other thing, as we've sort of been talking about, it's like a regulatory issue, right? Like, if you're taking in crowd funds for something that is arguably a security, like, you can't really do that anymore.

And so it's not quite as clean cut as I think people want to make it out to be, although it would be nice to sort of have some laxer crowdfunding rules. Yeah, that's a very good point. Like in the ICO days, it was the case that retail and VCs got to participate at the same time. And now it's largely a legal question of whether or not you are allowed to do that because definitely when something is not even launched and you're selling a token, it's definitely definitely a security. So, you know, you can you can have a plausible argument that it's not a security once it's actually a work. product, but before it's a working product, it's definitely a security. And so doing a crowd sale of that, now we have enough legal precedent to say, yep, that's security. You're not allowed to do that. And so that's part of the reason why, Tom, as you said, you know, VCs get to invest because of, you know,

credit investor laws is that only credit investors get to invest. But I think it is, it's more than just that. Like people, clearly, I think, Tom, you, you, you, you, you hit the nail in the head is that this is one of the things that pisses people off the most. is that why do VCs get a better price than me, even when it comes to buying something that is even on the open market, like a big VC fund goes and negotiates like a big block sale at a discount with a lockup, and it's like, why don't I get to do that too? I'll also hold your token for three years or whatever.

Why don't I get a three-year discount? What do you think is the answer to that? Or is there a compelling answer to that? Why is it that people do this and they don't just allow retail to buy, even like a Dow that's selling tokens to a VC, why wouldn't they allow retail to participate in the same deal? Yeah, I don't know. I mean, obviously I'm also a VC at Dragonfly.

So I feel like I have, you know, one particular answer, which is like, yeah, it's an, it's an access question. Like, teams can pick and choose their investors depending on sort of market conditions. And so they, there's more demand than there is supply. And so they can find VCs who are going to do all the things you said, add value, signal, you know, have this sort of long lockup, et cetera. And so it's like, you know, most retail investors are not. going to be able to do those things. They don't have a network. They don't have experience. They can't actually help the team do the thing that they're trying to do, which is why you do

this, which is again, going back to my point around like, like, the stuff that you see see that does do crowd sales or does do crowdfunding. It's like, you know, oftentimes those are, like, you having access as like a random person off the street is often a bad sign because it means all the people who do this professionally and underwrite stuff professionally are passing on this. I guess part of it, too, is that if you, I think it's, when a VC commits that I'm going to hold your token for X many years. It's very easy to enforce that because it's one person and they're big and they have like a reputation to protect.

And so all the tokens are in one place so you can monitor them. Whereas if you say, okay, we're going to get 5,000 people to like buy this token and all these 5,000 people, you better do this and you better not do that and blah, blah, blah, like those 5,000 people, some of them might follow their word. A lot of them probably wouldn't. A lot of them will like find some way to, unless it's actually enforced on chain, a lot of them I'm going to weasel out of it. And the reality is that if you're a random person,

you don't have that much reputation to protect. And it's very difficult for a project to go after some individual, you know, random address that dumps their token. And so it's the same reason why, I guess, in IPOs, you know, people will go and sell to institutional investors at different prices than what the IPO ends up clearing at, because they would rather have a TRO price that is, you know,

one entity that they know is a long-term holder that is much easier to manage on their cap table than 10,000 random investors who are maybe going to sue them if the price goes down and they did something they didn't like and they're going to file a lawsuit for some securities violation because you didn't do enough

environmental protection or something. Ultimately, if somebody doesn't hold your token, they can't come out of you. And I think that's definitely another part of it, especially as in the bear market, people have become a lot more litigious in the crypto world. And I can tell that

that definitely has a bearing because VCs don't sue token assures, but ordinary investors definitely do. Yeah, I mean, in a way, like, what you're saying is, like, I feel like I'm hearing two things. Like, when Tom was saying that if an everyday person is buying, like, that's a bad sign, that, you know, this is what was happening in 2017 and into 2018. And, yeah, I guess, like, most of those ICO projects are not very successful.

But at that time, the thought was like, oh, this is the democratization of finance. And this is, you know, the first time in history that everyday people have been able to get in on the ground floor at this in this way, blah, blah, blah. So now you're saying like that's a bad idea. I mean, to be clear, we did that. We democratize finance. Now you can buy any token basically with very low fees just using a mobile phone, using uniswap or using whatever. That's the democratization of finance. democratizing of fundraising is very different. When you democratize fundraising, what you get is you get adverse selection, like Thomas saying, is you get the best opportunities are taken up by the best investors and the worst opportunities are given to everyone. It's like, look, if you leave food out on the street, it's probably not very good food, right? The best food is going to be served in like a five-star restaurant to somebody who's going to pay a lot of money for it. Restaurants are zero of stars, actually. I'm still in favor of obviously having, you know, what we have now versus sort of the very very

arcane accredited investor laws that, that, you know, we usually have to comply with. But, yeah, I mean, it's just a matter of sort of the downsides that come with having an open system. Yeah. Well, Hester Purst is in favor of changing the accredited investor laws. So it's more around like knowledge rather than just straight up income or net worth, which could be a good idea. But probably Gensler is not for that. Well, for now, we're up on time. So we've got to go ahead and wrap the show. Laura, do you want to give us the last word on our VCs, good or bad for crypto?

I'm going to have to go with a neutral party. I'm going to have to go with a diplomatic answer and just say, it depends. It depends. Okay. Depends on the VC. All right. Well, that's it for this week. Appreciate you all listening.

We'll be back next week. Bye, everyone. See all.