Unchained - The Chopping Block: Here’s What Was So Bad About Three Arrows Capital - Ep. 368

Starting point is 00:00:01 Hey, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day. So quick intros. First out, we've got Tom, the Defy Maven and Master of Memes. Next up, we've got Robert, Crypto Connoisseur, and Captain of Compound. Then we've got Turun, the Gigabrain, and Grand Puba at Gondlet. And joining us today, a special guest, we have Taylor Monaghan, the matriarch of Metamask, but not the CEO. Very important. Not CEO of Metamask. And then we have myself, Haseeb. I'm the head hype man at Dragonfly. The four of us regulars are early stage investors in crypto, but I want to caveat.

Starting point is 00:00:35 Nothing we say here is investment advice, legal advice, or even life advice. So we've been off for a couple weeks, and we picked a really amazing couple weeks to not be talking about the news. And so now we have just the most, just absolutely lurid backlog of stuff that we have to talk about, unfortunately. But, Tay, it's nice to, we've actually never met. It's great to meet you. And thanks for coming to hang out with us on this really depressing podcast. I'm so excited to be here on this really depressing podcast. Also, the chopping block is now known as the guillotine.

Starting point is 00:01:09 Ooh. Unfair market rebrand. We need it. I mean, this is going to be a tough show. The two weeks is a really long. Like, the past two weeks have been extremely long. Yeah. So just by way of background.

Starting point is 00:01:26 So Tay, you were the CEO and founder of My Crypto, which used to be combined with my ether wallet, you guys broke off. You ended up getting acquired by consensus, and now you're one of the masterminds behind MetaMass, but not CEO. But you're also known for being one of the loudest voices advocating for UX and security in crypto. That's how I think of you, is that very often, whenever there's something that goes horribly wrong in crypto

Starting point is 00:01:52 around security or UX, I always know that you're going to have an amazing hot take about it. What do you perceive as being your role in crypto? because that's what I perceive your role as being. Yeah, I think that that's pretty accurate. I think, like, bigger picture is sort of, like, I want to say the things that need to be said, right, regardless of what they are.

Starting point is 00:02:12 And I think that crypto needs a lot more mindfulness around UX security, like, keeping in mind that there's, like, people that are using these things with their real life money and that the things that we build have consequences. if the ecosystem were to suddenly like become mindful and intentional and make purposeful design decisions, I'd probably be talking about something else. That's very fair. Actually, just to start, what's the definition in your mind of like a mindful and purposeful design decision?

Starting point is 00:02:43 Because I feel like there's, that has changed in and of itself for the last probably two years. And do you think EIP 1559 was good or bad for you at? That gets answered second. That can't answer second. We're answering these questions in order. I think that it's actually quite a low bar, right? Like being mindful in the space only requires you to like be aware that your actions could impact other people. Like that's the bar.

Starting point is 00:03:12 That it's so low. It is so low because so many people are just running around without a care in the world. You know, I think if this industry matures, the bar might be raised like a tiny bit. And then you want to think about like how, not just like how do you prevent bad, but how do you actually ensure that you're building things that are creating equality and creating the right incentives, right? And with regards to 1559, it's turned out a lot better than I expected. I will say that. I will say that technically speaking, I was never doubting like the technical side of it. It was more like the implementation and especially like on the user facing products, specifically the wallet.

Starting point is 00:03:55 there's definitely like, I don't know, all of a sudden, all of the wallets were like, ah, we have to do this thing and we're not prepared and the documents were not the greatest. And then as I was looking around, there was so many expectations that had been set in the community that, like, for example, transactions were suddenly going to be way cheaper. Right. Like that was the perception that I was seeing a lot of. And I just like saw this potential for like a super mismatch of expectations. and then not delivering on any of them, and then everyone gets hurt or disappointed or, you know, bad things like that. So just a little reset on the hype narrative.

Starting point is 00:04:35 We've got the same thing happening now with the merge, where a lot of people seem to believe the merge is going to cause more block space or fees to go down or something. And what is it, J.P. Morgan that just issued a report that, you know, hot off the press as JPMorgan has figured out that the merge is not going to lower transaction fees. So I'm glad we have Troutfi to the rest of it. you. Thanks, guys. I mean, I think, well, look, we've got, we've got a lot of wood to shop today because there's a lot of bad stuff that's happened in the world in the last few weeks. And I think a

Starting point is 00:05:05 lot of it, unfortunately, a lot of it is less connected to UX so much as it's connected to just the financial plumbing that makes crypto tick. And a lot of that has gone wrong over the last couple weeks. And so I think that that's been the big story around, one, the massive price decline we've seen, but also this broader, just meltdown that we've seen in the crypto market. So let's, let's start from the top. So all of this started with two big precipitating events. So you guys remember, obviously, last month in early May, you had the collapse of Terra. Terra, although it kind of scared everybody, it spooked the whole market, and we saw a broader drawdown because of the collapse of Terra. Terra was pretty isolated, or at least it seemed, right? Like, nothing else really relied on

Starting point is 00:05:42 Terra. Nobody else is really using UST outside of the, you know, the small cohort of the atom sort of Cosmos community, as well as like the Terra satellites. But most everything else was basically fine. Or so we thought. So now it turns out there's a really big firm called Three Arrows Capital. Three Arrows Capital, for those of you who don't know, three rows Capital was a prop firm, meaning that it's a firm that doesn't take outside capital, or at least mostly doesn't take outside capital, mostly trades their own money. And the own money was of two guys, Suu and Kyle Davies, who were American expats, who had moved to Singapore. They used to be four X traders. They got into crypto, and they were some of the most successful crypto traders, basically in history.

Starting point is 00:06:19 They turned single digit millions into over $10 billion at the height of the market. They were big investors into Terra Luna. And of course, Tara Luna went horribly south. They lost a lot of money on that. But by all indications, they were still a fairly large and very strong firm. And they were also very aggressive investors. So they kind of took on this like tiger-like strategy that they would invest huge amounts of money into private deals, kind of talk their book, mark them up, be super aggressive.

Starting point is 00:06:45 And so it turned out that after the decline of Terra, three arrows decided that they wanted to try to make up their losses. They want to try to get back even. And the way that they were going to try to get back even is through two particular trades. The first trade was a GBTC trade, which we've talked about before on the show, which is, you know, very briefly, GBTC, Bitcoin Trust. It trades at a discount to par. If the GBT trust is converted into an ETF, basically if an ETF is approved, particularly gray scales, then this thing will, you'll be able to immediately make up the discount and get out, you know, make like 30% overnight. And so three euros was betting really big on the GVTC trade, betting that the discount was going to close.

Starting point is 00:07:27 And then second, they were also betting on the Lido S-T-Eth trade, which is one that Turun has brought up on a previous show. TLDR on that basically it's leverage staking. You take some Eth, you turn into S-T-Eth, you borrow against it, and then you just lever up and you keep putting it into S-T-Eth until you get really significant APY on your ETH. where the natural rate of interest on ether is relatively low. So they were doing both of these trades, and both of these trades unwound in a really massive way. I don't think we have time to describe exactly why they unwound, but they totally unwound.

Starting point is 00:07:57 They lost tons and tons of money, but it turns out they didn't just lose their own money. Normally, and I want to make this clear because I think a lot of people don't understand why the three-ero story is so bad. Normally, if you go make a big trade and you lose a bunch of your own money, it's fine. It's not a big deal, right?

Starting point is 00:08:12 Funds go to zero all the time. If you went to zero, somebody else made the money, people bet against each other. That's how markets work, right? But Three Arrow's was borrowing tons of money from other people. And they were also not telling their counterparties exactly how much leverage they were taking on and exactly who they were borrowing from.

Starting point is 00:08:30 And so it turned out they borrowed so much of other people's money that they lost so much money that they went into negative equity, meaning that they owed more money than they had. And that is really bad. That is way worse than going to zero. because when you go negative, that means that now your losses are on someone else's balance sheet. Somebody else is absorbing the loss that you took by gambling like crazy. And the people who are absorbing those losses are basically the crypto lenders.

Starting point is 00:08:56 Or you can sort of think of the lenders as the crypto banks. These are people who are basically involved in the act of money creation. And so some of their big lenders include BlockFi, Genesis, Voyager, Usselius also lender to three arrows? highly likely. Highly, okay, yes, highly likely. And so it turns out that a lot of the money in crypto, a lot of the lenders in crypto, were extending credit to three arrows,

Starting point is 00:09:21 and this credit was under collateralized. And so now they're massively in the hole. So when the banks lose money, this is extremely bad, because this now means that the banks need to control their risk. And the way they control their risk is because they now realize they're down a ton. They need to start recalling their loans to other people

Starting point is 00:09:35 because they don't know who else got hurt. They don't know who else is down. So they start recalling loans everywhere. a bunch of people suddenly start getting margin called. And these people are getting margin called, they might not have the cash on hand. So they need to start selling some assets in order to meet the margin call or to go repay the loan. And in this situation, you get a bunch of people selling at the same time. And not only that, but liquidity is worse because the market makers who are managing the liquidity and keeping markets liquid,

Starting point is 00:09:58 they're also getting their loans are called. They also have less money, so they can't keep markets liquid. And the end result is just a meltdown. And so that's what we saw over the last couple of weeks. we saw this massive fear around exactly how bad was three arrows in negative, how much money did the banks lose, how much of these loans are getting recalled, and how long is the selling going to take? And that's caused an absolute wreckage in the crypto markets, where at times we actually saw Bitcoin and Ether sell off more than the alt, which is extremely rare. And that's a sign,

Starting point is 00:10:26 basically, that what's happening is forced. It's not a people have lost confidence in Bitcoin and Ethereum. It's that something really bad has happened in the market, and now you have forced selling. So that's a very, very broad TLDR of what happened with three arrows. There's more to come, but I'll stop there and take your guys' reflections on the whole three arrow saga. So a couple addendums, because that was an unbelievable summary has seen. And I hope people just hit play to like get the TLDR on it. A couple clarifications as I understand them and I could be incorrect on this. So one, Three Arrows Capital was actually doing this levered GBT arbitrage trade for years.

Starting point is 00:11:06 Not to make it all back from Luna, but this is something that they were heavily engaged in for an extremely long period of time. Oftentimes using GBTC shares as collateral to borrow. This is a very longstanding trade. They previously lost a lot of money on it. I know that for a fact. It's not a new trade.

Starting point is 00:11:25 They've been doing it for years and years and years. At one point, they were contributing borrowed Bitcoin to get the GBTC shares at Possible. hoping to sell them at a premium back in the days where it was a premium. And then later, I think, trying to borrow Bitcoin to buy it at a discount. But always with the same general concept of like borrowing like Bitcoin to speculate on this vehicle and then using the shares as collateral to borrow more Bitcoin. They were like widely, you know, known to be huge borrowers with that structure.

Starting point is 00:11:55 So that's the first clarification. The second clarification is that, you know, as I understand it, you know, their primary trade to make it all back was not like, you know, staked ether, which is illiquid. It wasn't, you know, just the great scale trade. But they were just directionally, extremely long crypto. They are widely and publicly very bullish on the future of crypto prices. And I think they were caught borrowed, levered, long, a lot of L1s and just big believers in the long-term price targets that they had set. And they had such high conviction that they were willing to go all in.

Starting point is 00:12:33 in on it and they just got completely slammed and all the money they borrowed is not going to be repaid. Wow. Okay. I didn't realize that. I thought those two trades were big contributors, but if they just borrowed money and then bet on black, that's pretty. No, I mean, part of it is like GBTC had the structural change, right, where like it went from being net positive to net negative. And I think a lot of people assumed it would revert. But actually in the last year, we basically sought outflows, net outflows or GBTC as each Bitcoin ETF application failed. And I think basically three errors had moved by the time to mainly L1

Starting point is 00:13:13 speculation, but the problem is when the L1 trade died and Luna basically killed all L1s. Like there's no, there's no, you know, Solana may be the only one that has any net inflows over the last six months. And basically every L1 kind of from an institutional standpoint has died. And so they were just basically like, hey, let's go do the trades we know already that are just Bitcoin and Eath. Staked Eath is a trade you can get a bunch of leverage on. Bitcoin's a trade you can get a bunch of leverage on. The other thing that's a little bit weird is under-collateralized and really uncollateralized.

Starting point is 00:13:45 In a lot of cases, I think three hours didn't put up any collateral with some of these lenders because they're like the GBT trade is viewed as safe. And so you could basically borrow putting up no collateral, which, you know, obviously means that, like, you're assuming that the trade reverts at some point. Because they were very successful with it, with it when it was a positive redemption price. Yeah. I think it's easy to like, you know, on three euros. But like this was a very, very popular trailer.

Starting point is 00:14:16 Even like BlockFi was doing this, right? And successful. Bitcoin. Yeah, right? And so it's like a lot of these, you know, consumer lending desks were also doing kind of degen shit with consumer funds to get the. yield that they were getting. And it's like this really dangerous arms race of like who can post the highest yield, but not like who is posting the safest yield. And that's kind of what we're

Starting point is 00:14:38 seeing. Well, interestingly, this, it's a great reflection of a credit cycle. Basically, a credit cycle is when over the course of a financial cycle, credit gets easier and easier and people are comfortable taking on more and more risk because they have to in order to stay competitive. So all these crypto banks that were basically offering yield on deposited assets, all these banks were implicitly competing with each other, right? So, you know, versus Celsius, versus Block 5 versus whatever, all these earned-type products, right? Initially, they were probably doing stuff that was relatively safe

Starting point is 00:15:07 because, you know, you don't have to offer a lot of yield in order to attract a marginal deposit. But when, you know, so Celsius, which is one of the biggest crypto banks blew up. And we were actually able to track a lot of Celsius's activities on chain. We know they got blown out in the state teeth trade, but also a bunch of other stuff that they end up losing a bunch of money on. supposedly they also lost money in anchor. So Celsius is now going through a bankruptcy. So it is very,

Starting point is 00:15:34 very likely that Celsius is completely insolvent and that nobody's going to be able to save them. But the dynamic that contributed to this is that over the course of the cycle, right? So Celsius offers 8%. And let's say that, you know, this is a time of higher yields, right? Let's say that in that time, it's actually pretty safe to get 8% during DFI summer, right? But yields start to go down, and they say, okay, we should really lower your yield because safe yields have really gone down a lot. but somebody else is like, you know what, actually, I'm going to offer 9%. It's like, wait, how are you getting, how are you offering 9%? And the answer is that, well, they're moving further down the risk curve.

Starting point is 00:16:02 They're doing something a little bit crazier. And they're like, man, if we don't increase our rates, we're going to lose all of our deposits to this other guy. And so, like, to Tom's point, you get this arms race. And this arms race in almost every secular market ends up in credit getting easier and easier and easier until it breaks. And then when it breaks, a bunch of people lose money simultaneously. And that's effectively what we've seen happen is that even the lenders.

Starting point is 00:16:28 So Celsius is called, we call Celsius a lender kind of as a euphemism, right? It's not actually a lender. It's really more like a hedge fund where you give deposits to Celsius and Celsius goes and does crazy shit on chain with it, right? That's a hedge fund. That's not a lender. Now that being said, BlockFi is a real lender. BlockFi doesn't go do principal stuff on chain, but the people BlockFi is lending to

Starting point is 00:16:49 are people who are going and doing crazy shit on chain, right? So in some sense, it doesn't really matter. how many layers of remove, how many layers removed you are, the credit cycle forces you to take on more risk over time until that risk blows up on you. Small addendum, BlockFi also did principal things from their balance sheet, including the GBT trade, which they have disclosed. So they also did some hedge fund stuff themselves, but using their own balance sheet capital, which is investor capital. Oh, okay. So that's a difference. I'm looking at an article from January of 2021. Okay. These numbers are insane. So,

Starting point is 00:17:24 3AC had just increased their position on GBT to they now had 6.1%, which was 36,000 Bitcoin. But BlockFi owned 5.07% not that far behind. So did BlockFi exit the position earlier? BlockFi didn't apparently didn't chase when it went negative. They basically were mainly doing the GBTC trade while the spread was positive, but when it was negative, they effectively, stopped and then they raise money. Right. So they're fundraising, timing with the GBTC.

Starting point is 00:18:00 Like, there's a lot of correlation between fundraising events for these centralized lending companies and basically when GBTC stopped being profitable. So, GBT for the record, in the bare market, was the main way a lot of trading firms and sort of centralized entities who had took some risk stayed alive because it was almost the only risk-freeish. There's no such thing as a risk-free rate in crypto. Opportunity cost rate. It was the only opportunity cost rate that was relatively low risk at that time, partially because DCG was doing everything possible to get adopted. And it was also the only way for a lot of institutions

Starting point is 00:18:41 to buy Bitcoin that had all sorts of restrictions on like KYC, SOC, SOC, whatever, all these types of things. Whereas right now, it's like even endowments just go to Anchorage or CoinB or probably FTX soon and just go buy direct so they don't need to buy GBTC. That's also a structural problem for GBTC is that all the crypto exchanges just met all the compliance needs over time. It just took a while. But once they did, there's like no reason to buy it per se. Do you know when the shift happened from like, because they were trading in a premium, right?

Starting point is 00:19:16 And that's part of where the yield came from. And then it shifted. Was that like recently or was that like in 2021? It was like a year ago. It was like a year ago, yeah. It was a little while ago now that the... Just look at whenever Block Fies fundraise was, I remember. It was like a week after it crossed your...

Starting point is 00:19:30 So, okay, so the aftermath of all of this, right? So three arrows goes negative about, you know, something like two billion of losses that has to get absorbed by their counterparties. Now their counterparties freak out. They need to get recapitalized. Otherwise, if they don't get recapitalized, retail is going to lose massive amounts of money. And confidence in crypto is going to get really, really, really hard.

Starting point is 00:19:52 hurt. So over the weekend before last, there was basically what seemed like just Max Fear. We were seeing a lot of these liquidations taking place in real time. Markets were melting down. And there was a sense that nobody knows where the bottom is. Nobody knows how much for selling is really left in the market and how many people are dying in front of us because they basically assume that crypto, you know, Bitcoin was never going to go below 20K. And it started tumbling to 17,000 over the weekend. Enter Sandbank-Freet. So SBF, the the founder and CEO of FTX, basically stepped in Sunday before last and said,

Starting point is 00:20:28 hey, we are going to backstop the market. And by that, what he means is that all of these lenders that have absorbed massive losses on the balance sheet, he is going to step in and try to make sure that they do not have to default on customer deposits. Okay. So it's worth illustrating exactly what is going on here. So in the event of a bankruptcy,

Starting point is 00:20:48 almost always your secured creditors are senior to your unsecured creditors. What that means is that if you go bankrupt, first you have to pay back all the secured creditors. Those are the actual lenders, right? So if Block V borrowed money from somebody else, they have to pay that person back before retail gets anything. You have to pay back everybody. If your hole is really big, then there is nothing to pay back retail with.

Starting point is 00:21:10 Potentially, you could pay back your lenders 80 cents on the dollar and retail gets zero. That's really bad. That means retail would get totally destroyed depending on. the size of the hole. So Sam Bankman Free basically stepped in and said, hey, this is unacceptable. We cannot allow retail to lose all of their money in these crypto banks. So he essentially offered credit lines to BlockFi and Voyager and said, hey, if you draw down this credit line, this credit line will actually be junior to customer deposits, meaning that in a bankruptcy, customers get paid first before we get paid back for our loan. And you need to use this to keep

Starting point is 00:21:43 your operations running. And if you keep your operations running, we may decide to buy you, but if we buy you, it will essentially be for pennies on the dollar. Because your negative equity is so big, you have lost so much money, that the enterprise value of your business might not even be worth the cost to save you. So we are basically saving you effectively as a public service, and we'll decide at a later date whether we want to do it. And take on your liabilities and we negotiate with your creditors, the liabilities that you currently owe them.

Starting point is 00:22:10 So this is actually very analogous to what happened in 2008. In 2008, you might remember, you know, the banks lost tons of of money because of mortgage-backed securities that ended up going, you know, becoming really bad loans. The banks lost tons of money. And what they did was before they went to the Fed, they all went to Warren Buffett. And they called him up. He was in his bathtub. And they called up Warren and said, hey, Warren, everyone trusts you. They don't trust us. Everyone's scared of the banks, but they trust you. Will you backstop us to save the world? And Warren Buffett said, no, it doesn't sound like a good deal. And so the banks went under and they ultimately ended up calling

Starting point is 00:22:44 the Fed. Well, in Crypto, we don't have a Fed. We've got Sam. Sam. Sam, is our Fed. And Sam has basically said, yes, I am willing to backstop. He has managed to rally a bunch of other parties to come in and also try to bail out some of these companies. And so for now, it seems to be that's what's booing the market and giving people a perception that credit markets will ultimately be okay. We're not going to have a total crisis of confidence within the lenders and the crypto banks. If we manage to save these companies, I think it'll be very, very good from a regulatory perspective. But if these companies go down, it's going to be really ugly for crypto regulation, especially in the U.S. going forward. So curious what your guys' thoughts are about

Starting point is 00:23:23 SBF stepping in and trying to backstop everybody. I will use this opportunity as the DFI founder to say that DFI protocols don't have to get bailed out and were designed specifically to avoid this bullshit. Okay. And the reason why Stelzias and Voyager and BlockFi are all in this pickle is because they're opaque, they're run based on the whims of people who are not very good managers, and they do not leverage any of the inherent new technological advantages of crypto itself

Starting point is 00:24:03 to run their businesses. They're running their businesses the same exact way that Wall Street was running itself in 2007. And DFI protocols are the antidote to exactly this problem. And it's incredibly sad to see people repeat the exact same mistakes when the tools to avoid them are right there in front of their faces. And hopefully as an industry, we all learn from this experience. And everybody else can say in the future, like, aha, this is why we should actually have DFI protocols and not a business with a spreadsheet doing whatever it wants and making loans to it.

Starting point is 00:24:48 whatever it feels like without any collateral and just praying that it all works before the house of cards collapses. This is why we actually like defyp protocols that are transparent and autonomous and are not based on the whims of a incompetent manager. They just run themselves based on some open source code and you can see exactly how it works and it does what it says it's going to do. Unlike Block 5 Celsius Voyager, all these people that aren't doing what they said they're going to do, lots of mistakes intentional and unintentional there, a lot of unforced errors. Hopefully this is the catalyst and the inflection point where people like finally get it, or at least some people get it or, you know, regulators get it or power users get it.

Starting point is 00:25:34 But like this is the moment that everyone should wake up and see that all of that nonsense can be avoided with Defi. Yeah. And we, I don't know, like how many times we're going to learn this lesson, right? Because, you know, we've mentioned the 2008 financial crisis. Let's go further back and say, like, the whole reason that we have a Fed, right? Like 1907, right? That was pretty good. Like that's that exact same thing, right?

Starting point is 00:26:09 But Mount Cox was like also not that long ago where we all. all collectively realized how screwed we were if we put all of the crypto money in one single place. And we also saw that had contagion aspects, too, because it turns out that a lot of the smaller exchanges were actually storing all of their customer assets on Mount Cox. So when Mount Cox went down, there was this trickle for months of like, oh, yeah, even though you weren't on Mount Cox, you didn't realize that you were on Mount Cox because so-and-so had their funds there.

Starting point is 00:26:41 So I don't know. Like I feel like Mount Cox was not that long ago. I get that the ecosystem has grown a lot, but we need to get better at like sort of like learning the lessons in like internalizing them and then projecting them in the years to come so that newcomers entering the space don't forget these lessons. And specifically like I think that the Bitcoin community tries to do this, has tried to do this, right, around Mount Cox. Like not your keys, not your coins. Like all of these things that are very much associated with the Bitcoin crowd. The problem is they like kind of went down a angry, annoying path. Yeah, I was also about to say, let me tell you how many Bitcoin maximalists,

Starting point is 00:27:21 self-described Bitcoin maximalists would just have BlockFi logos on their podcasts. Because they got paid too. Yeah, I would argue that like 90% of them were shilling all of these centralized lenders. Like, like Hodel or not or whatever, which just blew up today, the Canadian public company that's in Singapore, that turned out to have like a ton of. sort of extreme uncollarized lending exposure. That was being, if I remember correctly,

Starting point is 00:27:47 I remember there was a time where liquid, which is block streams, weird sort of semi-centralized because it's effectively a multi-sig bridge type of thing, was shilling how you should put your liquid VTC deposits in total or not. So like, I don't know. I would say that everyone has some blood on their hands, if we're going to be very honest. A hundred percent.

Starting point is 00:28:09 And I think that like one of the things, that really got under my skin, sort of during Defi summer and the period directly after it, was the sheer number of hardcore bitcoins who would go on Twitter and chill narratives and then throw a BlockFi or a Celsius ad or even make arguments as to why these centralized providers were better than the defy stuff on this shitty chain called Ethereum, right? And like, I think that that is not the way to do it. I think you have to both like, like you can't just, you can't just chill the lessons, right? Like you have to internalize it and also externalize it, right?

Starting point is 00:28:46 So that it comes from a place of authenticity, not of like just trying to chill your narrative. Do you think that the sort of like the old school kind of Bitcoin celebrities who were dishelling kind of a lot of the centralized lenders for the last five years? Do you think they face any repercussions from this blow up? because I'm sure a lot of people who, a significant portion of people who are trying to withdraw their money from these places right now may have put it in because they saw it on like this podcast

Starting point is 00:29:16 or this type of thing. I wouldn't be surprised if that's like a huge, the biggest marketing channel for some of these lenders. Yeah, I think that for me, like the thing that I'm watching right now and kind of like very curious about is how did these players get so legitimate it so fast.

Starting point is 00:29:38 And then that legitimacy literally turned into money in some cases. Like 3A, it seems like they were borrowing money sort of based partially or fully on their reputation, right? This impression that they're like the top dogs, the best people, like they're going to get you all the returns. They cannot lose, right? That's the only reason that someone like Voyager would give them hundreds of millions of dollars, apparently completely unsecured.

Starting point is 00:30:02 You know, like those types of things. Like in order to get to that place, as far as I know, I don't know when 3AC came on your guys' radar, but like for me, they came on my radar like in the last year. Same with Doe Kwan, right? It was like September of last year when he came on my radar. The amount of growth that we saw, not just in terms of like the financial and like the numbers, but legitimacy. And then it's like this positive feedback loop, right?

Starting point is 00:30:24 Like you get money, number go up, you get more money, you get more legitimacy, number go up, right? And then it all comes crashing down. if we can sort of, I don't know, stop that loop somehow, right? Because it's a, it's a bad loop to get it in. Then we have a chance of... I'm kind of inclined to push back on the moralizing around failures like this, right? Because there's always a strong instinct to be like, I told you so. Why did you put a block five?

Starting point is 00:30:52 Why did you talk about Celsius? Obviously, I mean, one, the people who were doing this, they had no fucking clue what was going on behind the scenes. Right. So I don't think it's fair to say, like, well, those of you who, who had a Coinbase logo, you guys are okay because Coinbase is fine, but those who had Celsius, you were evil because Celsius blew up. Like, it's not really fair to place that on people who are just trying to run a media business, right?

Starting point is 00:31:11 Like, how else you're supposed to run a media business in crypto? But also, like, I don't think we should take the story from this. Like, in some sense, like, I think it's never a good solution to a systemic problem to point at individuals, right? If you point at individuals and you say, this person was wrong, this person was evil, this person was a bad manager. It's like these people were following their incentives. They were trying to do the right thing in the situation that they were in. And, you know, their investors, I mean, look, we'll see what happens in the coming months when we learn was their actual malfeasance.

Starting point is 00:31:41 But the answer might have been, like, look, yeah, if you lend to the biggest guy who has $10 billion balance sheet and they lie to you about it, what are you going to do? You know, like, yes, that's a place where you're going to lose money if someone lies to you, right? This happened in Tradfive very recently with Arkegos, the big, the big family office guy who basically just got indicted by the SEC. So it can happen anywhere. The question in my mind is more like, okay, where do we go from here and how do we make sure that these lessons are collectively burned into our brains? And in Defi, it already happened. It happened in March of 2020. Like all the Defi protocols that were around since then, they know to expect this. They're not like,

Starting point is 00:32:18 oh my God, I can't believe prices went down 30% in a day. How could that happen? They're like, oh yeah, I remember when they went down 50% in a day. And we had to survive that, right? And so that But resilience, like most of these centralized lenders have not gone through that because their books were so small at that time that they basically came of age in the cycle. And that's how credit cycles work, right? If you survive a credit cycle, it's burned into your brain. You will never forget. It doesn't matter. You don't need regulation.

Starting point is 00:32:42 You don't need people putting you on Twitter. Like, you will never forget how much money you lost and how terrible that was when you didn't take on that risk. And that's how you get great risk managers. Great risk managers come from losing lots of money. And so I kind of think the task as an industry is to make sure we all learn from this. But I don't think we're going to get there by like, you know, digging the knife in further. Like these guys are already dead. They are going to have a very unpleasant next couple of years.

Starting point is 00:33:10 I would push back on the media outlet piece, though, because I actually do think the media, the people who are broadcasting these things are like, hey, not your keys, not your coins, but BlockFi is actually totally safe, like earn 5% your, or Bitcoin. Those people deserve to be pilloried. Those people deserve to be pilloried in like whatever sense you want. Okay. If only as hypocrites. Yeah, sure. Yes. Hypocrisy is always a pleasure to call it. Another thing that of this whole story that I still am not personally, I don't understand enough is like there were also a ton of Chinese unsecured crypto lenders, some of whom who we know had issues, some of whom didn't. And I have not heard anyone actually give me,

Starting point is 00:33:54 me the whole, like, why is it only these, like, the U.S. ones that seem to have had the, like, public rugpole FTX had to white knight them shaming? Where is the equivalent for Babel? Where's the equivalent for, like, because, like, some of the crazy minor derivatives that are being sold in Asia, I think probably also blew up, but like, we just haven't, like, heard there's in the U.S. I think the reason why, yeah, I think the reason why is that they're not retail facing. The most of the big lenders in Asia are institution facing. Or like, I know, facing. So if they go under, then they're counterparties who are big whales in Asia lose money. But it's like, okay, they're big boys. They can take it. Right. It's really, if you lose retail

Starting point is 00:34:36 money, that's when the regulators come out. That's when the guns come out. That's when the industry gets marred permanently. You know, for folks like Babel and Coinflex, most of their counterparties are institutional. And so Roger Vera counts as institutional. It's high net worth. He's high net worth. He's definitely high net worth. I have, I have enjoyed the weird types of collateral Is he high net worth anymore? Is he still high net worth? Yeah, yeah, I don't know. But yeah, like I, I, you hear these stories like about people posting like random like

Starting point is 00:35:04 safes and like chunks of equity as collateral and like pledging those. And it's like not really what you sort of imagine when you're like you're thinking about, you know, crypto lending. But I mean, I guess people, people do it. I think, I do like want to like again, reemphasize that like it's amazing to me how fine defy is. I feel like they did go through this, like, this is almost a hero's journey of like March 2020, developing more robust systems and now they're more robust this time around.

Starting point is 00:35:30 And like, it really, it's like a lot of the blue chips from that time are still the ones that are around and are still the ones that are like making and not all the crazy D-Gen shit that blew up in the past year. And I think, you know, it has not totally without, you know, fault or issue. There's obviously, you know, what happened with Solend and I think, you know, Maple made alone to babble and so they might have a whole under balance sheet. But like, you know, all this stuff is transparent and audible. And we knew all this was happening and we can sort of design systems to remedy it.

Starting point is 00:35:55 It's not like, oh, you know, this thing might be insolvent. We have no idea, you know, where the liabilities are. We can sort of see in real time exactly what's happening and know how to like, you know, adjust for it. That's a great point because, you know, Maple Finance, which is an on-chain lending protocol, like they kind of have a blockfied like business model. But the gigantic yawning gap of difference between blockfi and Maple Finance is that with Maple Finance, you can see the loan book. Like, yes, as a depositor,

Starting point is 00:36:21 you get to actually see what the loan book looks like. If you want to deposit money in BlockFi, of course you can't do it. No, you have no idea what the loan book is. You have no idea what their exposure is. You just see the APII numbers. You see some marketing. And maybe folks like us who can call up

Starting point is 00:36:33 some of the higher ups at BlockFi, they might tell us what the loan book is, but they're not going to tell a random retail depositor. And so that democratization of information is such a huge difference between what DeFi offers and what CFI offers. And I think that the story that I've gotten, I mean, I've talked to like a bunch of journalists

Starting point is 00:36:52 who keep asking about this. And very often they're like, oh, isn't this like an indictment of crypto? And I'm like, no, no, no, it's an indictment of centralized finance. Right? That's what CFi stands. Centralized finance.

Starting point is 00:37:02 Centralized finance absolutely messed up. But defy, the pure play crypto stuff, all worked beautifully. And that's how it was supposed to work. I also want to point out that like, if it turns out that 3AC was basically a huge fraud, right? regulation would not have caught it, right?

Starting point is 00:37:21 Like if they were lying, if they were falsifying stuff, if they were doing that, right? Like, as we saw with archegos, like, it's almost exactly the same, regulation would not have, like, prevented that. So I think that's a really important thing that we talk about, right? It's not just that DeFi does all these great things that hopefully solve some of the systemic issues, but also that, like, we might somehow be in a position where we're the best ones to, like, regulate. right to like actually regulate ourselves and have the best outcomes somehow didn't see that coming but somehow that's the case right where the SEC and every other one of those three other agencies has failed to to

Starting point is 00:38:02 yeah failed on in every regard right totally totally and I think in a way you know Sam right now is getting a lot of shit on Twitter because people are like oh my God Sam you're like taking over the world this is so bad, you're like an evil mastermind. Effectively what Sam is doing is a kind of self-regulation for the industry. He's basically saying, like, look, we are going to step in and we're also going to set the rules about what happens in this situation. And the rules he's setting, you know, my understanding is that the credit line that they offered to Voyager, the credit line is contingent on them continuing to process withdrawals.

Starting point is 00:38:38 And if they don't process withdrawals, if they shut off retail, then the credit line shuts off, which basically says you have to keep the lights on. You have to keep the business running. You have to keep honoring retail withdrawals. If you don't, the money is, you know, the money's gone. You're not getting this money. Also, the fact that he's subordinating the loans to customer deposits basically says very clearly, look, look, if we're going to be the lender of last resort, we're going to set the rules.

Starting point is 00:39:00 And the rules are customers come first, period. Customers, retail comes first. I think that if this, if we pulled this off, or if Sam really pulls this off and the coalition that forms around him, I think the industry is going to end up looking much better off than we would otherwise. I think in the alternative, it looks really, really bad and we're in for a regulatory nightmare over the next, you know, six or 12 months. And just to point out for the last time, the difference between C-Fi and D-Fi, a D-Fi protocol like compound or makerdow, there is no ability to hold withdrawals. This isn't even a conversation point. Compound cannot

Starting point is 00:39:38 block withdrawals, period, full stop, right? This is one more difference between, you know, what users should expect from CFI, which is the rules change whenever someone feels like it, or the rules change based on a backroom deal that gets made versus code doing what it's supposed to do. Do we talk about governance? Can we do it? Yeah, you brought up Maker and now we now we have like the holy hell. All right. Who is the TLDR 30,000 foot summary?

Starting point is 00:40:09 Someone's going to have to do like a better description of Maker than what I got this morning because I am soul lost, but I was also thinking about like the banker stuff, the Soland stuff, right? Like these are pretty interesting. Should we, should we delve into it? I feel like we're, we just spent a lot of time building up how great defy is and I'm turning around and we can do that. I'm down. The dialectic is a more honest form of discourse.

Starting point is 00:40:35 We should talk about Maker Now. We should talk about Soland. Okay. I'm behind the loop on MakerDA. I was trying to catch up yesterday morning. Makers reminds me of this statement that I remember that Matt Levine used to have in like 2015 or 16 about Bridgewater which is like it's like a company where the machines go make all the money and then the people have to distract themselves with cult like rituals and like a maker has

Starting point is 00:40:59 the same thing where like the code is still working and people are using dye but like all the people who kind of care about it have to distract themselves with cult like rituals which is the current maker governance. So Timuron, maybe your best secret. to give the summary of what's going on. I don't think I am anymore because I feel like every time I go to the post, the forum post, things keep changing. And like honestly, maybe we cover Maker next week because like it actually is like a crazy situation.

Starting point is 00:41:26 But I will say there's just a lot of debate about how Maker should distribute funds. Right now there's this question of like, should Maker spend money on being more efficient versus should it like keep to this like credible neutrality aspect of like having no one sort of like manage its balance sheet. And then on the other hand, like they are apparently going to also buy a lot of treasuries, but like they're using some weird centralized third party to buy treasuries. Maker just like has too much money and too many cooks in the kitchen. And sort of this is why I'm saying there's like a lot of like infighting. And I don't totally understand all the politics involved. There's clearly some. But like the point is the protocol

Starting point is 00:42:09 just works. And like it's this thing is like a side side. show. Next week we should have our guest to be a MakerDAO community. Hasu. Hasu or Moni? We could have, we could have Rune on as well. Rune. Doesn't Rune work for you guys? That's true. Isn't Rune a venture partner at Dragonfly? He is. He is a venture partner of Dragonfly. Well, you can get your own venture partner to come on the show next week. Yeah, I think, I think like someone who's actually well steeped in the cult-like rituals.

Starting point is 00:42:38 Oh, we should get, we should get Rune plus Hasu and have to duke it out. That would be very much. Yeah, that sounds good. We could host like a presidential debate. That would be pretty sick. Get them like little podiums that they could stand on? Yeah, definitely. Let's make them presidents while they learn how to run or an organization or not run or talk about.

Starting point is 00:43:01 Nobody runs it. That's defy, right? Nobody runs organizations to Robert's point. MakerDAO is the least run organization in the world. We don't have a good enough explanation. I think a lot of people are lost as we're kind of vague. insinuating something's going wrong in MakerDAO. To be clear, MakerDAO is fine. Please nobody, you know, go run, start pulling deposits from Dye because

Starting point is 00:43:18 you think that it's in trouble. There's just some drama in the governance. It's just the maker has a lot of money to spend and they're very confused as to what the point of. Which is normal. Which to be clear is normal, right? That's what government's supposed to look like when you have big decisions to make. Right. And that's, by the way, that those conversations happen in all sorts of organizations all the time. It's just that now you have more people that are actually empowered to participate in the governance decisions, and it's going to be messy, right? Instead of happening behind closed doors, it's now going to happen on. Exactly. I actually think it's great. I don't understand why people are so up on. Well, there is some closed door thing here,

Starting point is 00:43:55 which has to do with like the older Maker Dow Maker Foundation members versus the new ones. And that's where I don't understand what's actually going on. There is some, there is, there is a freemason cloak somewhere hidden here. I don't understand. Well, it's like, even like countries, right, that have diplomats. You have to allow the diplomats to go behind closed doors, then come out and, like, read out of communicate and then the people back home decide whether they like that or not. You know, like you can't.

Starting point is 00:44:22 I don't understand it. I just, I get this feeling that there is that. No, I get it. I get it. It's very opaque. It's very opaque. Okay. Let's talk real quick about Solend, because I want to get at least one good pot shot in

Starting point is 00:44:33 against Defi kind of shitting the bed a little bit. So, Tom, do you want to give the Solent somebody? I should caveat that we are investors into Soland. Yes, I was a good call out. Yeah, so Solent, they are the largest lending money market on Solana. They encountered an issue recently, again, talking about managing a loan book and thinking about concentration risks specifically, they ended up in a point where they had a massive whale on Solent, who was borrowing 20% of all USC on Solent.

Starting point is 00:45:05 Basically, this whale had put down a bunch of Solent, borrowed a bunch of US. and they were getting to the point of liquidation because Seoul had been drying down so much. And the concern is, you know, with these on-chain money markets, liquidation happens on-chain, happens automatically. Generally, you have liquidation bots who are atomically selling some of the collateral for another asset using like an on-chain decks and then, you know, recilateralizing the system in order to secure a profit. The issue is that there just simply isn't enough on-chain liquidity.

Starting point is 00:45:39 for Seoul on Solana to effectively liquidate this position. And the concern was that, you know, if this amount of soul would be liquidated, which would have been, I think, 150 mil or so, that basically sole end would incur this huge debt and they would have to figure out some sort of restructuring. Maybe they'd go to zero or there would be some sort of issue basically would be not have enough assets in the system to pay back your creditors. And so the team had been trying to figure out, you know, what do we do about this whale that is soaking up, you know, so much of the money market.

Starting point is 00:46:06 they've been trying to, of course, everybody's pseudonymous, which is maybe one, one of the pot shots against, you know, Defi, which is you have this one address, you have no possible way to identify this person. They tried all these different ways to try to get in contact with them. There was no real way. This position was sort of slowly winding down. And so the team was trying to figure out ways to resolve this. And the solution that they initially came up with was basically to effectively raise the collateralization rate for this position. And then when the assets, when the collateral was supposed to be liquidated, allow the sole end team to liquidated OTC with the market maker. So there's more liquidity off chain. By taking over the account and transferring the assets. I was getting to that. I was getting to that. That's the centralized component. That's why it's so bad.

Starting point is 00:46:49 But yeah, they would be taking over the account and basically, you know, at their discretion selling this soul to recilateralize the system. And so not so good. I think, you know, a lot of the feedback and a lot of the criticism was basically, it was sort of like a, you know, was it like a Friday night massacre? they just like said, hey, we're going to do this thing, you know, push through this governance update. And then, you know, just sort of take it over. They sort of spun up this doubt, this vote thing.

Starting point is 00:47:15 They're like, wait, like, this isn't real governance. You can't do a governance vote in, you know, six hours. Like, this is ridiculous. And so they basically unwound it. And luckily ended up getting in contact with the whale in this span of 48 hours, who then, you know, started to wind down in their position and spread it across some other money markets. But, you know, it is, again, sort of an issue with with on-chain governance. where it's not often as decentralized as you would think. Oftentimes a team maybe still has a

Starting point is 00:47:40 multi-sig or, you know, a small number of people hold a large number of the tokens and therefore often unilaterally or, you know, amongst two or three parties basically force through changes. And so I think, you know, when a system is sort of in this infancy, it is defy in a sense, and that is transparent, on-chain, permissionless to access, but maybe not defy in the sense that you actually have decentralized governance and it's immune from, you know, the perils of man. I would say the root cause is not an issue with their governance, which, by the way, is absolutely got awful. The root issue is that if you're afraid that the protocol's not going to work,

Starting point is 00:48:17 that's the root cause. The root cause is they were afraid of their protocol being unable to handle liquidation. Earlier we talked about Black Thursday, 2020, and every single DFI protocol on Ethereum going through with the grinder and coming out stronger. Imagine if March 2020, every Ethereum protocol said, oh, shut it down, change the rules. Like, we got to like, you know, like, you know, take over to the user's accounts because we don't want to see them get liquidated

Starting point is 00:48:43 and, like, we don't trust our own systems that we built. I would say another thing is, like, the difference between Soland and other Solana lending protocols is they were probably one, the only ones that didn't have borrow caps and, you know, kind of had a slower development angle to, like, making sure things worked before they kind of like increase the amount of net leverage in the system.

Starting point is 00:49:07 So I do think like they, they at trade, everyone has to make some like growth versus risk tradeoff when starting these things. And they went on the full growth standpoint and their treasury didn't grow fast enough to account for that. So I would say like that there are some things that could have done earlier that would have maybe mitigated having such a large position over a protocol that did not have enough assets otherwise. I'm surprised they even had the ability to requisition an account from governance. Like, that's like a crazy thing to be able to change directly. It's just like they can just decide

Starting point is 00:49:43 to take over an entire account. With like no notice. Yeah, I have to like check how they're actually going to do that. But I mean, I think in practice like a lot of the, you know, development patterns that you see are like a proxy pattern, right, where it's like the implementation contract gets swapped out over time. And so it's like, you know, you could imagine a version of implementation contract that like you know, does allow some people or some things to do something. And so it's like, I'm sure you can hack it together somehow. I'm just surprised that that's even like realistically possible. Yes. And I, it's, it's super interesting because I think we do forget sometimes that like the blockchain is not actually immutable like at all, like in any way to perform. You have to

Starting point is 00:50:24 convince the majority of people to be on board, right? The majority of participants. How you define who is a participant, whether it's coin-based or influence-based or whatever it changes. I think there's going to be a lot of growing pains around this. But like, this goes all the way to the core level. Like, if we wanted to, if anyone got a majority of the ecosystem on board with any change at any layer, basically anything can be changed. I think that with the newer protocols and the ones where, like, you can really get this rapid assent of fear, that's where we're going to see these messy outcomes, right? Like, everyone's scared and like this big, looming scary thing can really easily convince, very easily convince the majority of people that, like, this is the best route.

Starting point is 00:51:10 And you're, you're so short-term focused. You're so focused on preventing this loss, preventing this thing that you're scared of that you fail to, like, take a step back and look at the long-term consequences, look at the precedents that are being set, right? Like, these, this is the law. Like, we're building a lot right now, guys. Like, this is the choices we make today. is like going to shape everything, right? And so, yeah, be mindful of that, please. I mean, the flip side of that, like, look, I can very much understand why in a moment of absolute fear,

Starting point is 00:51:43 like literally, you know, that weekend, nobody knew what was going to happen. Nobody knew where the stuff was going. Seoul drew down from $230-something to almost $20, right? And absolutely, like, mind-boggling wind down. in one of the most robust platforms that we've seen over the last year. And I can imagine like everything that you have built, everything that you've worked on, everything that you and your friends and your sacrifice and whatever.

Starting point is 00:52:09 And you see it flashing before your eyes. And you're just like, it's Friday night. Everyone else is like, you know, off crying about Bitcoin or whatever. And like our protocol is about to explode and not just lose money, not go into debt, but also take down Solana. Like their fear at that time was that the competition over trying to snipe the on-chain liquidations was going to overwhelm Solana itself and take down the network, as has previously happened, beyond just crashing the price on chain by like 30, 40%.

Starting point is 00:52:37 The best thing was my dad, because they wrote a Bloomberg article about the Solon thing, my dad messages me, it's like Solana's going to, like, steal people's assets. And so there's some detriment to naming your protocol sharing a prefix with the Layer 1, because then everyone thinks the Layer 1 is also doing. Because, like, I thought that was really funny. Because, like, I guess Bloomberg that weekend was actually writing a lot more articles than normal. And they wrote the Solund one. And it was actually really, I thought that was pretty hilarious.

Starting point is 00:53:10 That's amazing. To talk to on, what has he said, though, like, you're 100% correct. Like, it was scary. Like, it is scary still, to be frank. And that fear is 100% legitimate. And we should expect that when. When situations happen, like there's always some potential for the environment to change rapidly and for fear to strike the hearts of all the people that have power over your protocol.

Starting point is 00:53:39 And so then the question is like, how do you react in that moment? And if you're not prepared, if you've never thought about it, if you've never discussed it, if you don't have a plan in place, the answer is they're going to do whatever makes sense in that moment and not think about anything else. One of the most interesting things I think about Maker back in March 2020, money was like they had actually talked about this. They actually had a plan where if the vault, my words are going to be off, but if the vault gets screwy and under collateralize, then the maker, the MKR holders, right? MKR is sold on the market. Yeah, there's system debt. There's a debt,

Starting point is 00:54:14 debt auction. Yeah. Yeah. So like, but the most impressive thing about that was like, not necessarily like the exact technicals of it, but the fact that somebody had thought about this and planned it so that in the moment of fear, they could kind of like point to that post, right? And like that helps settle things. It also, you know, when your head is not in a clear place, it helps clarify things, right? You can rely on your past self that was thinking about long term consequences, the short term consequences, you know, in a more prudent and mindful space. Yeah. To also, you know, tying it back to the first part of the conversation, it's nice to have it codified in the smart contract that like die holders are senior to m-car holders right we don't have to have a you know one-off

Starting point is 00:54:57 negotiation and hope everyone's in a good mood like it's just like no that is how the smart contract works that's a great point yeah i wrote this tweet that the the the defy 3.0 of whatever the spare market what i'm using i'm making fun of defy 2.0 with that moniker but um it is going to be about is going to be about encoding paripasu clauses which is like a certain type of how debt settles in these protocols because i actually think That's the main thing that's missing is these kind of like edge debt settlement. Maker has one form of it, but I'm not convinced that that's like the, this next generation of protocols will have way more things like that.

Starting point is 00:55:36 So I definitely, I definitely agree though that Maker, probably the only ones who thought it through, which is why they have a system so great that they can spend all their time fighting. Well, look, at the end of the day, one of the takeaways from me is that any time that there's lots of things that go wrong, people immediately jumped to figure out whose fault it is and who behaved honorably and who behaved dishonorably. And I think there are some people who did the wrong thing and there are some people who did dumb

Starting point is 00:56:06 things. And I think there's, it's an important difference between the two. Soland did really dumb things. It seems like three arrows did really wrong things. And I think it's really, really important that we divide, we make a really thick divider between those two. And the people who did dumb things will learn. Like God, they learned.

Starting point is 00:56:24 That is one of the, that is one of those lessons that you cannot pay enough money to learn. Soland is going to figure their shit out now because the entire world has taught them this lesson in a way that I'm sure is impossible to otherwise receive. But the important thing is to make sure that people cannot do wrong. And that's one of the values of crypto and defy and smart contracts, is that you don't need to trust people to do the right thing. You trust the code is going to work. You know, to your point, Taylor, is that nothing about the blockchain. makes applications immutable. You have to decide to make them immutable.

Starting point is 00:56:58 You have to decide to write your contracts or write your code or write your applications in such a way that they cannot be changed without going through legitimate processes to change them. And that, I feel like, is going to be one of the biggest takeaways from all of this. One actual positive I learned from the Solan case

Starting point is 00:57:15 is the first time I'd ever run into Solana's Dow tooling of any form. I got to say their UX is better than most ETH things. I was actually extremely impressed by the UX of the Sala Dow Tooling. That's been the, I think the top sort of like cited reason for people like getting on board with Solana, like especially people that were like diehard and eth heads that are now have like sizable positions, right? is like that they seemingly care about the UX and the end user and like the usability of the system. I'm not 100% sold on that narrative yet.

Starting point is 00:57:57 But I do think that there's something worthwhile there. I think that Ethereum in general, I'm definitely guilty of this is like a little bit, I don't know, focus on the principles over the, over the UX details sometimes. All right. Well, we're running up on time. But, you know, it's been, I think for everybody in crypto, a pretty harrowing couple weeks. So, Tay, do you want to close this out? Give us some last words for everyone to take home about how they should feel.

Starting point is 00:58:22 Yeah. So I think that personally I've been in a very weird headspace because I'm simultaneously, like, saddened by all the loss that we're seeing and the impact that we're seeing it have on actual people and, like, sort of the seemingly like existential threats, right, that are circling around and like, when's the next you going to drop? And that is, like, coupled with. this feeling of like, oh my goodness, thank God for a bear market. And I feel like very guilty for feeling that way. But I've done this before. Like I got into the space in 2013 right before Mount Cox crashed. So like I've watched this now and been through it. I will say it's not just about like sort of like shaking out the weak hands. Like that's not what it's about. It's about truly having a moment to like catch our breath to be reflective on what worked and what didn't

Starting point is 00:59:16 work to clean up some of the tech debt or the social debt or the governance debt that we have accrued over the last couple years and to really think about what and why we're building the systems that we're building and if we're being successful at that right like it's a chance for us to be honest without sort of like the world looking on and like kind of cheering us on to fail, you know, in six months to a year, we're going to be in a very much safer environment, right, where conversations can start to happen in public without this like looming fear that you're going to be in the New York Times tomorrow. And I think that that's massively important. And I would encourage everyone who's building or thinking about building or participating in these

Starting point is 00:59:55 systems to think really carefully about why we're building the things that we're building and then be honest with yourself about like if, if we're on the right path to get there, right? Because that's the only way that we're going to course correct. That is an awesome message. Taylor, it was an absolute pleasure having you. We look forward to following all your many hot takes against both the people doing wrong things and the people occasionally doing dumb things. So for those of you who don't follow Taylor, go follow her. She's, I think, Tevano on Twitter. She's absolutely amazing. We're very lucky to have her in this bear market alongside us. I'm here for the long term.

Starting point is 01:00:33 Thanks for joining us. And thanks for tuning in, everybody. everybody awesome have a good one

Unchained - The Chopping Block: Here’s What Was So Bad About Three Arrows Capital - Ep. 368

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