Unchained - The Chopping Block: Is Coinbase’s Base ‘the Binance Smart Chain for White People’? - Ep. 463

Episode Date: March 4, 2023

In-person at ETH Denver, crypto insiders Haseeb Qureshi, Tom Schmidt, and Tarun Chitra chop it up about the latest crypto news. This week, Kyle Samani, scion of Solana, joins the show.  Show highlights:  why Coinbase decided to launch Base, a layer 2 on Ethereum and whether developers are building on it how Coinbase might make money from it whether it will be a permissioned, KYC’ed chain that requires users to reveal their identities  Kyle's opinion on the allegedly fraudulent operations of FTX, in which his firm, Multicoin Capital, was an investor how due diligence changed in the investing space after the collapse of FTX what the future of Paxos looks like now that its primary source of revenue, BUSD, was impacted why Kyle thinks the latest nearly 20-hour outage of Solana is different from previous outages what he’s excited about in Solana now how Jump, a VC firm, was able to “hack back” $150 million in previously stolen assets after a court order Hosts Haseeb Qureshi, managing partner at Dragonfly  Tarun Chitra, managing partner at Robot Ventures Tom Schmidt, general partner at Dragonfly  Guest Kyle Samani, managing partner at Multicoin Capital Disclosures Links Base Unchained:  Coinbase Launches Ethereum Layer 2 Network ‘Base’ Video Solana Unchained: Solana Attempts Two Chain Restarts After Near 20-Hour Outage FTX Unchained: FTX’s Nishad Singh Charged With Fraud After Guilty Plea Wormhole Coindesk: Oasis Exploits Its Own Wallet Software to Seize Crypto Stolen in Wormhole Hack 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. Dalek dot Eith is the ultimate pump. DFI protocols are the antidote to this problem. Hello everybody. Welcome to the Chappenblock. Every couple weeks, we get together and give the industry insider's perspective

on the crypto topics of the day. So quick intros. First we've got Tom, the DeFi Maven, a master of memes. Next we've got Turun. The gigabrain of Grand Puvod Gala. Sorry, I was about to say. Robert's intro, I just miss him so much. But we've got a wonderful guest here today.

We've got Kyle Samani, the Sion of Salana. And then you've got myself, I'm a Cee with the Head Hat Man at Dragonfly. We are early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. See chopping block that XYZ for disclosures. By the way, is Kyle our first repeat guest? I think, actually, yeah, he has a great honor of being our first repeat guest. I am honored.

This is my second time. I'm on the show. I think last time. You all were in Austin for consensus last year. Wow, the world has changed so much since that. It's gotten just basically uniformly worse. I remember at that time, actually, I saw that episode in preparation for this. And we were talking about how bad things have gotten.

And this was like summer last year. Well, this is, I think, right after Luna. That's right. Yeah, we were like, wow, this is pretty bad. It's a $60 billion asset turned to zero in 48 hours. I know, but it's like, don't you think that things are going to get better? And you were like, I actually think that it's going to get a lot better. And all these guys talking about how macro is going to be shit.

It's like they don't know what they're talking about. I'm an optimist. Well, it's a good, it's a good, it's a good characteristic. It's been kind of a crazy week. So we're all here for Eith, Denver. And most of us just got in. The conference is just kicking off now. But we've heard that there are a shitload of people here.

So I've heard, I've heard 25,000. I've heard a bunch of numbers. I don't know if anything is verified yet because, like, the main event is starting tomorrow. And so I think a lot of people are coming in. Tonight. Yeah, tonight and then tomorrow as well for Friday in the main event. You guys haven't done any. But I know to really.

I was here since Monday. I was at an XLR conference with you. And then there's a bunch of zero knowledge proof conferences. The interesting thing about going to these conferences that get so big is that the side events become their own sort of mini conferences. And there are people who only came for the side events who like came Monday through Thursday and like are leaving before the main conference. That makes sense. I mean, the main event now is more like consensus,

where it's sort of more non-developers than developers. I think it's so big now. You just kind of almost don't want to go to the main thing and just like hang out of all the side stuff. I think, yeah, the U.S. Ethereum conferences, I personally don't like that much because they're not really that technical or developer focus. There's a lot more like, I would call it pseudo-ESG propaganda.

Because there's like tons of the like regenerative, like finance type of stuff. There's tons of talks. I love those pitches. If you go look at the talks, there's tons of stuff like that and way less like, how do we use their knowledge proof in Ethereum. It's true. There's an event called Shelling Point that GipCoin is putting on. And half of the talks, I was like, I don't actually know what this talk is about.

It's so, it's just like very, I mean, not to show on anyone. I don't actually know what they're talking about there, but it's very difficult to understand. It's just like different than like the technical Ethereum conferences like DevCon or DevCon, which are really focused on like actual new stuff they're adding to the network. Completely, completely. Well, okay, so one of the big things that was in advance of ETH Denver was this big announcement by Coinbase that they are launching a new L2 called base. And so we don't have a ton of details right now, but basically the high level of base is

that it's built on the optimism stack. So it's an optimistic roll-up. They are not going to have a token. So don't go out trying to buy base token, apparently. There was. A big one called base. A token called base. But they've already got a bunch of partnerships and, you know, a bunch of plans for a big rollout.

But right now we don't have, I think it's pretty scant on details. But there was an interesting point around the monetization is that in the initial blog post, they claimed that there was going to be 20% of the fees that the protocol, I guess the coordinator accrues are going to go toward optimism. Like OP token. And public goods. public goods funding for optimism. And then they removed that and just made a, I think it's like just a generic. Some percentage.

Some percentage. Some percentage is going to go through it. The real question is like which department at Coinbase authorized writing 20% and which one authorized the removal? It's like the finance department at the end and like the recruiting department at the beginning. Very interesting. Interesting.

But so right now, I mean, a lot of people are excited about this. I don't know how to feel about it, to be honest, because I think Coinbase So far, they have a very mixed record of launching these things. And you have to assume that there's some half-heartedness in Coinbase for doing this, right? Like they're doing it. They're not going to tokenize it. They are kind of, they're doing the full core press. It reminds me a lot of what happened with the Coinbase NFT exchange, which is there's a lot of sound and fury.

And then it's kind of like, okay, well, let's see the follow-through. How are you guys feeling about base? I think it really, I feel similarly, like Coinbase gives me big clown car stuck in a gold mine vides, you know. Is that a saying? Mark Zuckerberg, who's that... Zuck described Twitter. Oh, I didn't catch this.

This is a while ago, but there are pockets of talent at Coinbase of, like, crypto people who get crypto stuff and execute well. And you see those shine through in some of their products, like Coinbase wallet is amazing. The NBC stuff is super cool. The tokenized Coinbase e-stuff, the stake-D stuff, super cool. Base seems super cool and well executed. but it's kind of in the minority, right?

Like most people are, you know, coming from big tech, fintech, like, these don't really get crypto and therefore, like, the product output is not, you know, really impressive or, like, you know, getting any real traction. Yeah, it's a difficult time, too, because Gensler is on the war path. I mean, I guess not having a token makes it. And it's not under his jurisdiction, but still. Well, I think, you know, I saw a very, maybe somewhat politically incorrect tweet about base, which was, it's

Binance Smart Chain for white people. And it's Wow. And so to get some context, Binance Smart Chain is a chain actually very similar to Coinbase in the sense of it, you know, have a smaller set of validators. You can't just like join and validate

the chain. And it's sort of where a lot of retail users in China and Asia go to first have their first experience with actually using a wallet. And it's very popular. It's like the most popular blockchain actually by transaction volume. But the interesting thing is I guess the U.S. doesn't really have

that experience. And so people are saying basically unlike Coinbase, right? Because usually they don't, like exchange tokens and exchange chains are very common thing. Right, Wobie has WobB chain. OKX is okay, whatever, whatever chain. This is just like a trope that since Binance smart chain, almost every single exchange launches on blockchain, and obviously none of them are nearly as successful as Binance Smart Chain. But Coinbase always felt very aloof from like the standard you got a global exchange playbook. And even in doing this, right, like they are kind of showing they're better

because there's no token. And in almost all these cases, there's a token, and the token is the native token of that blockchain. And there's this whole kind of like, well, it's got utility because using a layer-wise, it's not just like an exchange token anymore. Well, I think the interesting thing is the app chain on Ethereum thesis. So like, you know, if you go back the last few years, Cosmos was always the place where people were like, people will build special purpose blockchains for particular applications.

And arguably, we've seen the Ethereum roll-ups like optimism, which base is using or arbitram with Nova, start to build these like SDKs. Actually, I got yelled at from one of the optimism people for calling in SDK. I'm supposed to call it the stack. Obie stack. For building your special purpose blockchain. So one interesting. fact about this is Coinbase maybe the first of the, you know, in the last bear market, there was a lot of like private blockchain and whatever stuff. And I kind of think the, this time it's the private roll up, which will be the kind of like industrial narrative. I mean, I mean, the thing you always have to wonder whenever an existing business launches a new

business line is like, okay, like what's their motivation? How are they going to make money? Let's use the NFT exchange. As you alluded to like, well, clearly they were going to make money on transaction fees, which mapped to their existing model. Turns out NFTs in particular trade much better non-custodially than custodially for some reducing graphic reasons there. The question I wonder with base is like, your finance launch BSC, like largely because they could put a token in it and like they obviously own a bunch of the token and they could kind of feed it into the empire.

This doesn't really have a token. And so monetization is less clear. Not that there can't be some monetization lines and the obvious ones are like, you know, you could have swaps on there and you could take a, cut, you could have borrow Lenn's stuff, and like you could have basically Coinbase be an affiliate type of thing like feeding these protocols and take a cut of that stuff. If that's what they're doing, and I don't know if that's what they're doing, but that's kind of the most sensible thing. What's interesting about it is potentially a clever way to get around regulatory stuff where

the Coinbase can slowly try and move its revenue from C-Fi to defy without actually taking on the risk of running a defy thing. That's kind of my current operating theory. It's loose. Like I'm not saying this is a great theory. The sequencer generates fees too. So the sequencer fees, I think, are actually, so for OPM and Arbitrum, they're in the 20 to 50 million a year range. And you have to imagine that base will have higher. That's gas. That's gas fees? Yeah.

Okay. Yeah. People are paying for priority. But they're passing that through, right? Like, that's being paid for gas on their one. This is a profit, though, but there's an arbitrage, right? Like, you aren't paying that same amount to actually settle the proofs? They're actually, they're taking a margin?

Yeah. There's actually a really good dude. They're just taking it to their inks and paying all their employees with it? I don't know where it's going. I don't know where it's going. There's a doubt to. between what people are paying the sequencer and what they are paying to settle the proofs on chain. That's surprising.

No, no, there is clearly a business model for the sequencers. There is, there is. But, like, I would assume that they'd be subsidizing it right now. It's surprising to take the bigger margin. And sorry, if it's, if the fees are that much in excess of the data cost on L1, then presumably, then it means people are bidding up that blocks pay for ARBs and whatever else, right? Yeah, I mean, it's hard to say where that volume is coming from, right? It's like, okay, are people trying to do optimism quests?

Do they really want some O.P. punks, whatever. I don't know what the answer is going to be for base. I have talked to a few teams that actually are building on base and they're excited about it. And their main argument is that they're trying to target mass market retail people. And the coin base connectivity with base is really appealing to them, whereas super easy on and off ramp bridging, USDC. Is it defy? Is it gaming? Who are you talking to is building on base? Some consumery kind of stuff, social stuff. Some defy kind of stuff. I haven't talked to many NFT people building on it, but have people moved to base?

Or is it people? No, I mean, it's still on test net. Like it's not, no, no. I mean, are people saying like, I was going to build on polygon, but now I'm going to build on base? Or is this like, you know, blank slate? Mix of both. Some are, this is home base.

Okay. Home base. Some are, you know, it's going to be one of many deployments, which is less commitment because it's EVM. So part of a meme I've heard frequently is like, oh my God, it's going to be like better tied in the coin base and like, therefore, bring in more users. That seems to be a prevailing meme here.

The thing that I wonder is like mechanically what makes that true. Like, I'm not a super-aqadist. of coin-based wallet user, but like you go on there now and it's like you have arbitramity, you have optimism, you have ETHLWON, they have Polygon, you have Salana. Like, those are already there. And I presumably they're not going to remove those options, although that would be very interesting strategic play.

If they remove those options, let's assume. Finance move. Right. Let's assume for now they're not going to do that. So like, and like most of these things are going to be EVM copies from these other places onto base. So like, why is the experience better? Like, you know, and so that's the thing I wonder is like, there's nothing fundamental about the base stack.

Here's the other thing about base, right? So you remember in the early days of Binance smart chain, there was a lot of drama around Binance playing policemen. Well, basically, Binance would basically shut off the bridge for people who are doing rug pulls, people are doing hacks, stuff like that, right? And Binance could do that because effectively,

you know, there was like semi-centralized, you know, I don't know what you want to call it now, but it was much more centralized back then than it is today. For base, right, like right now, we don't have any kind of decentralized technology for sequencers, right? Sequencer is just some guy running a server. And that server is presumably going to be run by Coinbase, right?

Yeah. So Coinbase, there is, I can't imagine a legal theory under which their compliance team would not consider themselves liable for criminal activity taking place on base that's trying to cash out. So I have to imagine that the chain is going to have to be police in some way in the way that early Binaz smart chain was. And that might be the thing that gets them to say like, hey, let's maybe spin this out. Let's maybe like find some way to get this thing arm's length from Coinbase itself. I mean, arguably, right, all the roll-ups do want to get to a decentralized sequencer and have... Yeah, but how long is that going to take, right? I mean, optimers doesn't even have fraud proofs.

How long does it take for the SEC to understand what a roll-up? Those are the... Actually, I don't think that's the right question. No, I don't think that's the question. I mean, the question is, like, what will Cornwallers' lawyers approve, given you have, you know, billions of dollars of equity value here? And I think that's a very different question. Yeah.

Like, if there was five guys in a garage, it's like, hey, it's whatever, you take the risk, but like this is a real business with real shareholders and stuff. Coinbase keeps confusing me on the regulatory front. I mean, part of it is the listings that they choose, right? It's like, okay, this is. You mean podicol? You've never used to podicol? Some of those, some of those.

And then, you know, with like the steak teeth product, you know, they're using MED boost. And so they're basically selling off reordering rights to people and, you know, sending that profit and profiting from it. And so it's like, okay, that's kind of suspicious. I didn't really think they would actually do something like that. So I don't know where they sort of draw the line because I agree with you like or, you know, it does seem like they would be liable sort of for policing the chain.

I mean, even if they are not. That would imply it must be KYC. I mean, just like the money transmitter stuff. I mean, that's like. No, no, no. I mean, they're not going to be money transmitters because they're running. I know there are the whole. I mean, yeah.

Technically, technically if they never submit the fraud proof. They never accept the fraud proof. Yeah, yeah. Exactly. Like, there is some very weird, weird logic that can go into this. The separation of sequencing for normal transactions versus fraud proofs to bail yourself out, while those two things are effectively separated and an optimistic roll up. I didn't think about that as I made the comment originally,

but like you kind of assume they're naturally bundled. Yeah. I mean, okay, this is all a bit of theory craft. We'll have to see what happens when it actually comes out. But my guess is that when this thing comes out, here's the problem, right? like if you're mad at Binance because you got rug pulled on Binance smart chain, like the most you can do is like yell on Twitter, right? Whereas if you're mad at Coinbase because you got yell on the chat,

you can sue them. Yeah. And they are just going to get inundated with lawsuits if you start to see just like Ponzi's games and rub pulls and all sorts of stuff. And my guess is that's going to be the activation energy that gets them to try to spin the thing out. Like I don't think they'll kill it, but I do think that they were going to try to make it arm's length and say, look, we take no liability.

And the cleanest way to do that. I just have it be a separate. So do you think because the OP token exists, you know, if they needed a token incentivization for, say, multi-sequencer, that they would just use OP? Or do you think they would actually try to eventually have base? I would guess it's based on success, right? Like, if base is really working well, then I can imagine, like, optimism itself, like the optimism collective, is that what it's called, the governance group, basically deciding,

like, hey, base is no longer, it's not viable for base to be subsidized by Coinbase. So we need to step in and kind of create the economics that makes this thing long from viable. As long as we have that coin-based distribution engine, it's worth doing, right? Like this might even supersede optimism itself. What is this coin-based distribution engine? I said my point I made a couple minutes ago.

Like, if you had an honor ramps the same, like you have a list of networks to choose from, they're all the EVM, like these redeploy the contract. Like, what's different here? What's the difference with Binance Smart Chain, right? Like they find all these different ways to partner them and to co-market and to push things people under the chain. but like, you know, Binus Merchant, most people buy Ethereum.

They also, like, early confirm your transactions. They do all sorts of stuff to make the U.S. Oh, really? Yeah. BSC from the Binance interface. Oh, oh, I see. You know, they have, like, hosted wallets, which is basically the same as them custodying it. But, like, they, there is all this UX stuff that I would definitely not underweight.

Yeah, you don't have to stretch the imagination that far to think of how they can sort of add preferential treatment for it, right? Even, like, USDC, like, is not arbitram? And, like, there's, you know, some sort of things they can give this preference for or like have this sort of early confirmation kind of stuff, push it more in like Coinbase wallet. So I can see that. I can see that.

Okay. I don't know. All right. Well, so moving away from Coinbase, there was some more news this week about the late exchange FTX. So we learned recently that Nashad, who was one of the, what was he, VP of Eng? Yeah. VP of Engage at FTX.

He just got charged and he pleaded guilty. He pleaded guilty six counts, including wire fraud, commodities and securities fraud, money laundering unlawful political donations. There was one interesting tidbit. So at this point, basically the entire inner circle of Sam has pleaded guilty to something or other. And the interesting thing that we saw in the, I think it was the SEC complaint against Ashad was that.

So there's a lot of stuff of like, oh, you should have known that the thing was fraudulent and that Alameda, blah, blah, blah. We kind of know the story. But the one really interesting element was that apparently in 2021, FTX had a revenue goal of hitting a billion dollars. and they were supposedly $50 million short of that revenue goal. And so Sam instructed Neshad to transfer money from Alameda to FTS and book it as revenue. And so they sort of backported some accounting instructions and kind of fed that to their auditor

to make them think that they had hit this revenue number of a billion dollars or whatever it was. Which to me is actually a very surprisingly like a smoking gun. Yeah, they knew it all along. Like there wasn't just like a moment of desperation. it was like, okay, this was like very willful from even 2021 before any of the market started. But to be fair, that does seem just like very vanilla accounting fraud relative to some of the other. It does. That just sounds like a normal accounting fraud case that you would just think.

It's kind of hardening to be like, oh yeah, anybody can understand what they did. There's not a complicated explanation. Well, yeah, because the other one is like the trapdoor thing for borrowing is like way more complicated. This is just like, hey, we just sent 50 million bucks. Yeah, yeah. It's nice to have a simple story. about accounting fraud every once in a while in crypto. Obviously, you were in the outer circle of FTX.

What's your take seeing all of the charges that are now being brought to FTX and everything we're learning about how the inner circle of FTX was operating? Yes, multi-coin was an investor in both FTX US and FTX.com. I can't say a lot. I don't really know anything more than the all we. We get information in the press, same as everyone else. It's just sad and frustrating. I mean, mostly.

Like, at this point, it's pretty clear. Like, it was a fraudulent scheme. When exactly the fraud started, unclear. It seems to be the beginning or close to the beginning. But I'm not sure I have definitive proof to make that claim. But certainly stuff like this makes it seem like it was earlier rather than later. Like, I just want people to get their money back and be made as whole as possible. Oh, yeah.

Actually, well, Galois, who I guess we didn't mention that. No, we didn't. So, Galois. He was also on the show. show, Kevin Joe, he was infamous, actually. We brought him on right after terror collapse because he was one of the few people who was kind of very publicly. He was actively short. He was actively short terror and he was sort of calling out the impending failure of Terra. He had, you know, he was an active trader, I think market neutral strategy and he had something like half of his fund on FTCS. And so he

recently ended up liquidating his fund. Very unfortunate to see because he was well regarded as being a very early and active fund manager in crypto. So, you know, it's been, it's been a really rough year for a lot of fund managers because, of course, everybody assumed that FTX was above board, regardless of whatever misgivings you might have had about Sam or a strategy or Solana or whatever. A lot of good people got hit from what happened with FDX. Yeah, it's just really sad.

I know a few other funds. I won't name them because I'm not sure they're publicly said they're shutting down. But yeah, I know a few other funds that unfortunately have gotten hit bad too. I think, I mean, there's obviously been like a lot of articles written about, you know, changing, you know, due diligence practices and investment practices at VCs in FTX and everyone's sort of reevaluating themselves. I guess like at Multi-coin, how do you guys think about what's next, I guess in terms of investing in CFI, investing in early-stage companies? Like, how are you guys sort of thinking about lessons? Yeah, we have changed a lot of our operational processes around collateral management on exchanges. to tighten that up just so that if anything does happen again in the future we'll hopefully have less collateral there.

In terms of underwriting, it's tricky. I mean, we've obviously gone back and re-looked at all of our own underwriting stuff and as best we can tell everything we were shown as of what we had in, I think, August of 21. So maybe July of 21, something like that. And as best we can tell everything we looked at was accurate as of the time.

But again, who knows what we're going to find out still in the future. the most interesting thing we actually were very concerned about was the Alameda relationship, obviously. And actually they were very forthcoming in the data room. They presented this without even asking Alameda's percentage of volume over time. And for the first like 15, 16 months, it was a flat line at 49%. Because they were basically one half of every trade was Alameda. And then starting around like, I don't know, mid-2020 or something, that started to decrease very, very gently.

And by, you know, mid to late 2021, it was like 7% or 6% or something like that. And we were like, okay, how do we vet this? And we concluded the best way to vet it was to call all the other market makers, ask them, hey, what percentage of volume do you believe you represent? So we called like seven rate market makers. They gave us what their rough estimations were. And we were like, okay, this actually matches up against the chart Alameda is showing. And that to us was like one of the best indications of, okay, everything we're looking at makes sense.

that was the thing to look at. I don't think at that time Alameda had large loans from FTX in fact it may not have had any loans from FTX at that time. But that admittedly obviously came up later. But that was the big thing we looked at. And so, you know, affiliated party transactions,

it's, I mean, you never wanted, it's never good. We passed an FTT seed round because of the affiliation, like, explicitly back in April 2019. And so it's weird how these things come about. But like, you know, some things like you can do all the deed you want. And then if business practice is changed after the fact, like, what do you do?

Yeah. Yeah, I think since the collapse of FTX, like diligence standards across the industry have gone up and just the expectations among entrepreneurs what to expect when receiving investment change. So, you know, before FTX, I mean, especially before the summer when, you know, when three arrows collapsed in the market really started taking a turn. It was very common that around would just be like, hey, this is my data room, which is like a deck and then like, you know, kind of chicken scratch balance sheet.

And then it's like, yeah, in or out, you know, you got two days, and I've already got a term sheet, and I've got 20 other term sheets lined up. And now it's a very, very different environment. And thankfully, that means, one, rounds are slower than more meticulous and more thoughtful. And it also means that entrepreneurs understand, hey, there's a diligence process that needs to take place, especially when you're writing a meaningful check, especially post-seed. Right. So, I mean, there was actually, I remember right after FTX, Sequoia, which wrote, like,

I think they wrote like 300 million into FTX. they had this, there was this article that quoted them saying that we are going to start demanding audits for our seed investments. Big four audits for a seed investments. Yeah, exactly. And I was like, okay, that is a little bit of an overreaction.

Won't that just like burn through their runway? Yeah. The Sequoia's runway? No, no, no, no. The company doesn't. No, no, I think the Sequoia would pay for it. There's no way they would demand that a seat stage company pay for a big more audit.

The article was quite ambiguous about that. That was why I was like, I didn't know who's actually paying in that. I can't. I don't actually cash. It's not the problem is the entrepreneur's time. I mean, and five, 10 person companies, like the CEO, in these CEOs, none of them know how to go through a big four audit. Like so that's right. That's right. What is that audit? You know, there's just like four dudes and like some money. Yeah. We have to depreciate the

laptop every second. Yeah. So I think there was, you know, especially after FDX, there was this sort of moment of overreaction. And obviously Sequoia took a big hit from, you know, reputationally. This was like, you know, one of their biggest kind of face losing moments was, was the collapse of FtX. Well, the other thing is. Growth investments have also collapsed partially. I mean, FTCX is more like the cherry on top, but there was already this kind of like tech growth stage investment, SaaS investment, stuff like that had already like really decayed through 2022. And like I think FTX was kind of like the pin of like there's no growth investing right now basically. Yeah. Other than sort of like vulture kind of activist type of stuff. So it's interesting to see that. I mean, I'm actually more curious what the vulture and activist. this landscape in crypto it looked like, because I actually feel like it's going to be

really growing this year. And there's going to be all sorts of interesting, weird MNA transactions that, you know, one would never have thought would have existed six months ago. How do you do MNA with tokens? There was a few attempts of this. There was the Faye Rari. There was a couple of others. I don't even recall. As far as I can tell, none of them have really worked. There was new Cypher Keep, I believe, was another one. That one is easier, though, because what they did was they, because they're both separate chains, they just merge their node clients and then merge the validation. I think it's much, well, no, no, it's much easier than the merging two DAOs

because the two DAOs have to, like, vote on the, like, economic substance changes, which are, like, much more contentious versus, versus, like, the node software upgrades actually more, like, you just pick a conversion price and then you accept one chain. I wrote a blockpost in 20, there was a meme about, like, crypto emin in 2017. I remember this love post. This is right

as we started multi-coin and I was like dude without drag along rights like I don't know how you do Evan A

and like I haven't read that post in four years but like I think directionally I got most of it right like it seems very difficult for token teams now for non-token teams that definitely was going to be

some M&A but like for token teams that I'm skeptical I think they just I think the teams give up and go home they what what appears to be

is as long as you don't do it what appears to be the the norm is as long as you don't act in bad faith, but like, hey, the thing's not working and you give up and go home, then you can go home and then launch a new thing and like things seem to generally be okay. I'm not saying that's not legal advice or financial advice, but like, that's been my observation of crypto. Well, the interesting thing is actually in the Galois case, the sort of like third tier, fourth tier investment bank, BTIG was apparently the one that's

like handling the claims. And so I think there's actually this interesting. interesting thing of like, you know, investment banks that are not like too close to the Fed, like they're kind of like the fifth tier, not very good. They seem to be really, really active in some of the CFI stuff right now. And so that's where I think, I'm not necessarily thinking protocol M&A is going to happen, but it does feel like, you know, there's going to be a lot of stuff like that. I think there's still a lot of blood left to bleed for some of the companies that are not viable anymore. Because the reality is people raised so much money last year. And in, in 2021 as well. So I think for a lot of these companies that their revenues have collapsed,

but they still have enough runway to keep going for like six months, maybe 12 months. I mean, the craziest version of this is Paxos, right? Because most of their revenue came from BUSD, right? And now that's gone. It's not gone. No, no, no, it's not gone. They can't mint more, but they don't have to force redeem everything. Ah, that's true. That's true. So the New York trade, uh, NYDFS. But they only made money on create redeem fees, right? Not they have the float. Yeah. They're making money on the flow. Yeah. They make money on the flow. Yeah. They make on the floor. So like I think it's shrunk like 30%. It's like 20%. 20%? 20% or 30%. But it's still a big pile of money. But what do you do if you're Paxos? Like half of what Paxos

was actually doing earlier was doing stable coins for like the PayPal Revolut, whatever, right? Yeah. And they've all wandered away. They've all gone, right? And so it's interesting that they actually have like this huge amount of cash, but like it's very unclear what to do. And I guarantee you there will be some activism over that. I mean, look, BUSD was like 90% of the revenue. And with that collapsing, I mean, they've indicated, so we still don't have any indication of what the lawsuit is that the SEC has filed against Paxos for BUSD. The leak is that it's a security and that's why they're suing that. We don't actually know. But once we see that case, I mean, Paxos has already said in the press that they're going to fight, which no surprise. It's like the whole business. So of course, they're going to fight. But the NYDFS did not say shut down BUSD. They just said stop minting it until you fix this other stuff, which I guess, like, I don't know what the other stuff is because all of the claims about Binance funding accounting was like a year ago or something. So this is all retroactive that people are finding that, hey, this thing was not backed at certain points. But maybe it's like there's certain protections we want you to put into place or like certain, you know,

well, I just could imagine that there's activist investors who are like Paxos should actually just return the capital from their stream and then go out of business. I think they still make good revenue though, just with like the float for sure, for sure. but this looks like one of these classic kind of like in public market active activist investment type of place where like there's no growth in the company but they have a ton of assets on the balance sheet

and investors try to go break it up or get it to sell and to me they seem to be the most interesting like game theory for these like P.E. people I know it's on a fun topic but for some reason I like I had a dream about it the other day you had a dream about Paxos

about about about like this breaking up. I thought you dream about D.K. Yeah, I would assume that you dream about, but not about, not about, you know, sometimes you got to, you got the schedule. Okay, okay, got it. So you don't, you don't dream in math papers. You dream in, like, P.E. takeovers.

Got it. Okay. Interesting. Everyone's the real. The real Taroon. That's, yeah, yeah. I see. But I'm just saying, like, things like that.

Yeah. I'm really expecting to see some, some crazy stuff. Okay. Well, let's, let's go back to your bread and butter. Let's talk about Salana. So, um, a mainstay on the show. We, we love doing shows around Solana. downtime. We actually did not plan this, but it just so happened that Solano went down.

The Salon had a 20-hour outage. They claimed that they still do not know the root cause of the outage, but it was around the time of a protocol upgrade. Anatoly wrote a blog post saying that they were going to have some renewed engineering practices around upgrades and better testing and having some kind of a red team to investigate the stability of protocol upgrades and stuff like that. But there was just a lot of people kind of shouting and being mad that Salon was down. Kyle, you're obviously the closest to Solana. What's your take on the latest bout of Salana downtime? It's definitely frustrating.

I mean, things seem to have been going very well and just like it feels like an unforced error that was probably due to the one-and-four upgrade. So I think that's the primary source of frustration as it felt like an unforced error. You know, Solana Labs, since the beginning, it's been like very clear, like ship fast, move as quickly as possible. ship an MVP that like I mean what they shipped in March 2020 was like barely functional at all and like they've known there's just been huge amounts of memory leaks and like consistent stuff and contentist of I mean they've known like they've had a huge laundry list of stuff to work through and it seems like they basically worked their way through that that core list um and so like you know intertler put out a blog post I think a day or two ago saying hey like we've worked through our laundry

list like we believe the core system is stable for this point forward we need to like reprioritize engineering efforts around stability as opposed to speed. I don't know if that claim is valid or not. Time will tell. But, you know, like it seems like to have been a moment in time to shift how you think about resource values in the ecosystem. The values clearly were one thing before. And I think these, I think this was kind of like the demarcation point for those

values changing. So hopefully that's a sign of the thing's system maturing and things getting better, but obviously TBD with any weird technical stuff. You never know. So what's your read on the vibe in Solaneland? Because, you know, after FTX, there was kind of this trough of disillusionment, price collapsed, and then it rebounded really dramatically in January. And now it's sitting at like $23, $24.

So it's sitting actually higher than it was when FTCS collapsed. What's your sense of like the community, the spirit, like, how's it feeling internally? I was never really worried that like in the wake of the FTCX collapse that. I know a lot of people were like fudding pretty hard and pretty concerned. I was never worried about that. Today, I think there's a I think there's a real galvanizing moment FTX for the community and so those people

continue to build and operate. I think this is mostly just like I think the actually primary impact of this recent outage is less on the community more on Solana Labs around engineering and release processes. And I had always made some public commitments change. I think those will continue to evolve. So I'm fairly optimistic there.

In terms of like everything else, I think nothing else is really changed in the last 48 hours. If you were wanting to build some sort of high performance decks thing, like relative to a week ago, I don't think that the environment of your options of where to build has really changed in a meaningful way. And so I think those people will do what they're doing. And for most people building apps, I think that their values and what they're looking for in a chain, like, the systems are different. Evm versus Salon is different enough that, like, I don't think the calculus is really changing for most people. So I actually, I would actually

disagree a little bit. So there's a lot of sort of Solana devs, like long time salonadeves, I think that this incident fragmented, and you could see the sentiment shift where there were certain developers who were really like, you know, we need to, you know, because the Solana Foundation had a little bit of a gaffe

and said the following statement, which then got caused the schism, which is like, Solana prioritizes safety over liveliness, and Ethereum prioritizes liveliness over safety, which is sort of an untrue statement. But you could see a lot of developers, galvanized by this statement. You can definitely see the people who were working on the Dexes, like the, like Phoenix and Open Book and stuff. They took, and like Gito, who's doing M.EV stuff, they took a lot of

the brunt of having to restart things on the app layer. And you could definitely see they were quite angry compared to say like the NFT side of Solana, which is like we didn't really care. Which I thought that was interesting. There's clearly this developer schism, at least in sentiment of reaction to this. I mean, if you're just measuring by developer weight, there's a lot more developers on the defy side than on the NFT side, but there are a lot more users on the NFT side than on the DFI side. Right?

So I could see that on Solana, I can imagine that a lot of developers are pissed, but a lot of the activity on Salana driving day-to-day is more NFTs gaming, which are just less dev-heavy than the defy stuff. Yeah. I just would say, like, it definitely seems different than the prior outages where there was a lot more unison of like, hey, we're just going to fix it and like, rah, rah, tomorrow's a new day.

This time seemed like very, you know, qualitatively different, distinct. I mean, there was, there was some pretty objective sloppiness in the rollout, right? So from one, from 13 to 14, there was like, I think 300 PRs or something, whereas all the prior ones that was max, like 25 PRs. So like it was an order of magnitude, just more changes in terms of just like, the files being changed or whatever. And so I think that's A. And I think that was just like unforced error.

like they should have just staged that in smaller increments. And then B, you know, like the days leading up to the upgrade, Anatoly was like, everyone please upgrade, and a couple people were like, I don't know if I want to upgrade. And like, obviously with hindsight, like you look like an idiot. So I think there's a lot of those fact patterns there. But like this was definitely an unforced error. I think that's like the core of the problems or the core of the frustration. The stuff that happened a year ago was just like, hey, the system had bugs in it and like

the bugs got exposed. and it fell over. This fell just like clearly an unforced error and that's frustrating. So what are you excited about in Salonaland

for the next like you know, let's say 12 months? Yeah, I'll type on touch on two things. One I'll touch on is HiveMapper which if you follow me on Twitter

I've been tweeting a lot about recently. Hive Mapper is a new business model for gathering data to build a map. So the idea is Google has the Google

Street View cars that drive around you've probably seen those those things are about half a million dollars. and Google has, I don't know, 500 of them, a thousand, I don't know how many they have, but it's obviously some fixed number. The idea with HiveMapper has put a dash cam in your dashboard of your car and you drive around. Then as you drive around, you can collect images and upload them and build a map that way. There are, Hive Mappers started shipping their dash cams to consumers right around November 1st.

It was right around breakpoint was when they did it. So it's been four months, three months since they launched. And there's about 10,000 total contributors who have contributed to the, hive map map they are as of i checked a day or two ago they were doing 30,000 unique kilometers per day um which for a sense of scale there's about 60 million road kilometers in the world so 30,000 and one day is five basis points of the entire world which like is shockingly high um given this thing is three months old um so like that that thing i feel like is taking off and working um and so i'm super excited about a hive mapper all that stuff's on chain the honey

tokens the nfts representing each hexagon or whatever how they do the mapping that stuff's all flying around on chain and is pretty exciting. The other one I'll highlight is helium, which is migrating the salon on March 27th. Helium today, there's two major parts to it. There's the IOT network, which is now kind of ramping up demand.

That thing's growing 30-ish percent month over month, although from a low base. And then there are 5G stuff, which today basically there's no demand, but I think we'll turn on shortly with helium mobile. I'm just excited about this vision of like, telecoms are one of those hated companies in the world. Their capital structure is terrible.

Their NPS scores are terrible. It'll take a long time for helium to be competitive in terms of coverage with the telecom. That's not even a question. But like it's one of the biggest visions in the world and they seem to have sparked the, like in the same way you have the crazy libertarians and cryptographers get into Bitcoin in the early days. Like I think there's a sufficient mass of people who like buy into this vision of like, let's take a swing at telecoms and see if we can architect the network in a different way. And I think that critical mass is pretty large.

And so I'm optimistic we can get there. And Helium Mobile can be the first kind of flagship on the demand side to get us there. So those are the two things that I'm excited about. They have nothing to do with speculation. They're fairly removed from the rest of crypto markets, which has positives and negatives to it. But like those two things in my mind are fairly acyclical demand drivers. There's both very tied to real world activity and also both being, you know, two applications that really take advantage of the scale of Solana and the price point. Yeah, exactly, right. I mean, HiveMapper today,

roughly 10,000 people per day are hitting the chain in various ways. And with helium, it should be a few hundred thousand per day on the day of the migration. And both of those numbers can easily 10x respectively by the end of the year. That's great. Okay, well, there's one last story I want to get to, which is a bit more crypto-native. So there was a hollow blue about, so there's an application called Oasis, which spun out of MakerDAO a little while back. And They have a wallet that you can use to interact with defy and do like recursive borrowing or whatever. They used to be a Dex. They used to be a decks back in the day.

And then they sort of became this broader, you know, kind of tool chain. So if you recall, so rewinding way back, if you recall last year, wormhole, the bridge got hacked for $350 million, I believe. And the wormhole attacker, so, you know, jump kind of made a whole hole, kind of filled back in the hole that was missing. But there was a long investigation trying to figure out, okay, where did the hack funds go? And it turned out about 150 million of the funds were in an Oasis contract. If you do it in ETH terms, it was basically all of the ETH. Okay. So all of the, all of the ETH.

It's 120,000 ETH is the headline number. All of the ETH had fallen into the hands of a single contract owned by Oasis. And so Jump, you know, sort of looking into the code of how this thing worked and they realize that like, hey, there's some kind of, you know, admin function. And it turns out if you craft a message in just so, you know, so perfect way, with the help of the admin key, you can actually basically like hot fix a way

to take the money out of the contract. But you have to get the collaboration from the admin key. And so Jump approached, or a subsidiary of Jump, whatever, approached OASIS. And they were like, hey, we found this thing. I thought this is the guy.

Well, no, no, no. We found this thing. We know this is the guy. Can you do this? And Jump. And then OASIS was like, oh, we tried it. We can confirm that it works,

but we're not willing to do this. Can you get a. court order to make us do it. Right. And so they went to a high court in England and the high court was like, yeah, make them do it. And then they made them do it. And then OASIS basically conspired with Jump to, you know, contort to hack the hackers, to hack back and take the money out.

And then Oasis was like, now that we found this exploit, we're going to patch it to make sure that this can't happen again. So a very, very interesting reverse hack that has caused a lot of conversations. Obviously, it's great that some of the money has gotten back and obviously jump. I'm glad that they're being made whole in the hackers being losing some money. But very, very interesting precedent of collaborating with an admin key to force somebody to hack their own contract to amend some kind of violation. What are you guys' thoughts on this situation? The only thing I have to say is I've never seen a Chris Bleck tweet with as much as much in terms of like interaction.

You know, now that it shows you the number of people are at. Chris Bleck is a online defy consensual. Gatsfly. I think you would appreciate that. Yeah, yeah. Well, he already dislikes the show, apparently, based on some tweets. I don't think he dislikes the show. I think he has a complicated relationship with the show.

I think that's a weird for it. It is, I mean, this is always kind of the meme, right? Like, defy as a decentralized because there's a multi-sig that controls, you know, governance upgrades, blah, blah, blah. And obviously some teams have on-chain, you know, token voting and stuff like that. But I feel like you very, very, very rarely see a multi-sig without a time lock, which is how most of these other protocols do it, right? It's a, okay, sure, it's a multi-sig that controls governance, but there's a 48-hour delay when new upgrades get deployed.

So if you don't like it, you know, you can move your funds out. Yeah, exactly. This didn't have a time lock, apparently. And so they just made the change and like then it was live. And so kind of ridiculous. I was talking about our general counsel about this. And I like the way he framed it. But there's been a fun theory, longstanding meme in crypto of code is law.

And it turns out law is law and code is not law. And I've come to a trap. That sounds like a good bumper sticker. Law is law. Law is law. It's a hard one to penetrate, but you know when someone honks at you. One-Eth is one-eath, right? Yeah.

Yeah, yeah, yeah, exactly. Law is law. Wow, law is law. Okay. Well, I guess that's a good a note as any to end it on. Law is law. I feel like we learned something. Any big plans this week at Denver?

anything you're excited about? I think there's an interesting thing where, you know, in the same way that currently the AI, anyone who just appends. companes.a to their name will suddenly get a $100 million seed round a little bit like, you know, Solana projects in 2021. There's a tiny version of that in ZK land where there's a lot of people who are like, who are like, I'm just adding ZK, zero knowledge proofs or MPC.

and like trying to like bolster their valuation. So I'm more interested in seeing all of the marketing shifts for me personally. That's like people who are doing something else and all of a sudden that like they had sort of like this change. I haven't seen too many AI things yet, thankfully.

But you know. I've seen a number of them. I think the hype cycle is yours either ZK or AI and especially you know, some kind of LLM generative something something and kind of trying to force crypto and token into that somehow. Yeah. I'm seeing a lot of that.

I really want to just like take some of these pitches and then put them into chat, GPT and be like, make an analogous pitch and see how close to this. Have you all seen any things that pitch themselves as AI things that are other than like tap in the latent GPU resources that like that you think crypto maps into them well and that crypto is not just being forced into them for the sake of it? I think the only thing I haven't really looked too deeply in this. And I think it's probably bullshit is like people are pitching. I just made this way you're alluding to basically doing like decentralized

training. So it's like, centralized training does not work. Yeah. As a disclosure, that is, I think, the only AI investment

that I have is a decentralized training thing. I think the more interesting thing about it is a lot of them are adapting fraud proofs from layer twos where you challenge the,

and this goes back to like the old Trubit ideas. Yeah, yeah. But like people have actually are basically taking the layer two code for doing that stuff and actually using it to generate proofs so that like if I'm running a GP

you, how do I know you're not just giving me random numbers? I'm actually giving you real trained weights. And they have these like challenge systems for that. So that stuff I actually think is going to be kind of interesting. It may not end up being useful for decentralized training. But the idea that fraud proofs can be used for other things is like something cool to see. It is interesting. I mean, okay, I think we should do a show on crypto and AI at some point.

I think that's probably a good idea because there's so much being talked about right now. And I feel like this is a fruitful area for conversation. I know that we have to go because Terun has speaking engagement. So he's always either early or he's sorry, he's always either late or he has to leave early. So in the spirit of Trun, I guess let's wrap up. Thank you, everybody. Another episode of The Chopping Block. We'll be back next week.

Thanks for being a repeat cast. Great. Thanks for being here. Great to be here. That's a good part about not being alive. Thanks for having us. Thanks for having us. All right.

See everyone. Bye, everyone.