Unchained - The Chopping Block: Was Crypto Just Debanked? - Ep. 468

Episode Date: March 16, 2023

Welcome to “The Chopping Block” – where crypto insiders Haseeb Qureshi, Robert Leshner, Tom Schmidt, and Tarun Chitra chop it up about the latest news. This week: Silicon Valley Bank went belly up and knocked USDC off its peg with it. For good measure, Signature Bank was taken over by regulators. After a hellish weekend, what did we learn? Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights:  what happened with Silicon Valley Bank  why USDC depegged and reached a low of 88 cents how Maker responded to the depegging of USDC whether DeFi responded flawlessly to the chaotic events how Haseeb’s VC fund, Dragonfly, was ensnared in SVB’s collapse what Tarun thinks made Elizabeth Warren change her tune on SVB whether Signature Bank was shut down because of its crypto-related activities why bonds are not marked to market by banks which company is going to issue the euro-dollar stablecoin how BTC has been outperforming the NASDAQ since the FTX collapse how Euler Finance got hacked for almost $200 million whether flash loans should be banned  the rules around crypto and finance in the Middle East why DeFi is a fundamental innovation that’s better than many financial systems across the world Hosts Haseeb Qureshi, managing partner at Dragonfly  Tarun Chitra, managing partner at Robot Ventures Robert Leshner, founder of Compound  Tom Schmidt, general partner at Dragonfly  Disclosures Links Unchained: The Fall of SVB: What Happened and How It Affects Crypto Was Signature Bank Actually Insolvent? Euler Finance Loses $197 Million in Flash Loan Exploit MakerDAO to Reinforce DAI Peg With Parameter Changes Circle to Bring On New Banking Partner for USDC Minting, Redemption Coinbase Says It Holds $240 Million in Cash at Signature Bank Regulators Close Signature Bank Following SVB Collapse Silvergate to Wind Down Operations in ‘Voluntary Liquidation’ Learn more about your ad choices. Visit megaphone.fm/adchoices

Not a dividend. It's a tale of two-quan. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. D5.Eat is the ultimate pump. DFI protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective

on the crypto topics of the day. Today, first out, we've got Tom, the Defy Maven and Master of Nimes. Next, we've got Robert, the Cryptoconosuer, and Captain of Compound. Then we've got Tarun, the Gigabrain, and Grand Puba at Contlet. And then you've got myself, I'm a Seab, the Head Hype Man at Dragonfly. All four of us 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. Please see ChoppingBlock.X,X, Z for more disclosures. Okay, so holy shit, it has been an insane week.

I have gotten so little sleep over the last, like, 72 hours. So we're recording this on, I guess, this is Tuesday morning U.S. time. I'm actually in the Middle East right now, so it's Tuesday night for me. But we've just gone through one of the most intense periods of kind of both macro generally, especially for those of us who are in the U.S. and are dependent on the U.S. banking system, but also for crypto, a whole lot of craziness has happened over the weekend. So let's kind of start from the top and just recap, for those of you who are asleep at the wheel or who don't really follow what's going on in crypto.

The big story was the collapse of Silicon Valley Bank. So I'm not going to reiterate everything that's happened. There's been a thousand explainers on Silicon Valley Bank. But just the very, very short version, Silicon Valley Bank is a big bank that, it's not a big bank. It's like a mid-sized bank. It's like the 16th, 15th biggest bank in the U.S. But they bank a huge number of the startups that come out of Silicon Valley.

Something like 50% of all startups and 50% of all companies at IPO that are in the technology sector bank with Silicon Valley Bank. So Silicon Valley Bank ended up having a run on the bank on Thursday. Such that the bank was taken over on Friday morning by FDIC. FDIC is basically one of the regulators of banks. And they basically said, look, you are now insolvent. The government is taking over the bank and we are going to run this thing going forward. This freaked out a huge number of people who are in the technology sector who realized they no longer had access to their money. And the assumption was to be that by Monday morning, either one, the bank was going to be purchased, two, the bank was going to be basically wound down, or three, that there was going to be some kind of Fed backstop

or FDIC backstopping the bank so that everyone's going to make their money, everyone's going to get their money back, but nobody knew what was going to happen. And at the time, there didn't seem to be, at least on, you know, Friday, Saturday, not a lot of signaling from the Fed, from Treasury, or from the president, that anything was going to happen, that this wasn't going to be just another bank wind down. Now, Silicon Valley Bank is the second largest bank failure in American history. It was a massive bank with over $200 billion in deposits. And the fact that they were involved in banking so many companies

made them somewhat unique because over 90% of all of the deposits at SVB at Silicon Valley Bank were uninsured, meaning that FDIC, which normally ensures $250,000 of all bank deposits, would basically insure almost nothing that would come out of SVB. And so if everybody at SVB was basically just like, hey, we're going to sell the bank, we'll see what we get back. The bank obviously had a lot of losses in their portfolio. Whatever we get on the bank is what you're going to get back.

And so a huge number of startups, many of which are in the crypto sector, bank with SVB, and basically no longer had access to their money, didn't know if they were going to make payroll, Didn't know if they were going to have their runway or their bankroll basically cut in half or even less than that. But it's not just startups. It's also big companies that happen to have a lot of money with SVB. So for one, Circle. So Circle is the company that does USC, which is one of the largest stable coins in circulation.

USC, it turns out, one of the seven banks that they used was SVB. and SVB, I think they announced on Saturday that SVB held $3.3 billion of Circle Deposits. And when people realized that USC, USD, part of the UCC reserves were held in SVB, all hell broke loose, and all of a sudden, USC depegged dramatically. It drove all the way down to 88 cents over the weekend as people were massive panic selling, trying to get out of USD, moving into tether, moving into Bitcoin, in ether, and it caused a huge amount of mayhem in on-chain activity, which we'll get into

shortly. So just very quickly, just to end the saga on Monday, basically on Sunday evening, the FDIC, Treasury, and the Fed made a joint statement saying, hey, this is unacceptable. We are going to make sure that all Silicon Valley Bank depositors are made whole. They also shut down signature bank, which is another transactional bank in crypto, which one of the other banks besides Silvergate that banked a lot of crypto companies. That was put into receivership on Sunday night. But they basically said, look, we're going to provide extra liquidity backstop for all banks, make sure the banking sector in the U.S. is going to be okay,

especially for mid-size and regional banks, which were the primary place where people were worried about their deposits. And that caused USC to eventually repag and regain some confidence, but not after having, it caused enormous amount of thrash over the weekend. and also raising expectations for the Fed cutting interest rates sooner than otherwise expected. And so now the expectation for interest rates is much lower than what it was because we've seen you raise interest rates too much. Guess what? Things break.

And in this case, it was Silicon Valley Bank and a lot of the mid-sized banks in the U.S. that broke. So that's a very, very quick summary of the high level of what happened over the weekend. I want to dive into what happened with the U.S.DC. When U.S.C. deepagged, a huge amount of stuff broke. We saw a huge amount of dye being minted, a huge amount of all the stable coins that were using USC on the back end, such as MakerDAO and Frax, had huge issues, and they themselves depeged

pretty dramatically over the weekend. What were you guys seeing in just all the mayhem that was being caused on defy from USC losing the peg and going down to 88 cents? Well, I think there's a lot less that went wild in defy than went wild on exchanges and globally. So in comparison, the impact on defy, I think, was actually. quite subtle and muted compared to the impact on the rest of the world. The total amount of volume on exchanges, both centralized exchanges and decentralized exchanges, trading USD coin went through the roof, whether that was, you know, on centralized exchanges

or, you know, curves plus units. Volumes across the board were just wild because there's never been such a volatile moment for USD coin, period, full stop. Tether historically has tepeg a few cents a couple times. But because there was so many questions about the redeemability of USD coin, whether or not on Monday people are going to be able to redeem it, to what potential losses it was exposed to, you know, with $3.3 billion of USD coins reserves at Silicon Valley Bank, the combination of fears about irredeemability plus, you know, solvency, plus uncertainty around how U.S. DeQuint could be redeemed, whether it would be first come, first serve, and if there was losses, you know, the last ones out would eat it, or whether, you know, there would be something that would be proportioned across all users. All this uncertainty led to the price of it going far below any possible losses. You know, 88 cents, if you do the math, assumes more than the assets at Silicon Valley Bank are vaporized. It assumes, you know, roughly five,

billion of their reserves are missing. And the reaction was just crazy. So, you know, I saw the biggest impact of this just being, you know, frenetic trading of U.S.D. coin. I mean, I feel bad for everybody that sold at 88 cents or, you know, around that range. But it was driven by a very rational fear. It was, I don't know if I'm going to get anything out of this, you know, whether I'm a U.S. resident and I'm not going to be able to redeem it or whatever. Just I want to get out what I can right now, right this second, and worry about the rest later. And so the exchanges were the number one, you know, I think like focal point of the impact of this deep peg event.

In defy, you saw, you know, as we've started to talk about, you know, a number of systems have to react to an asset that was generally stable, becoming unstable. Most of defy is set up on the expectation that assets are volatile and are designed around that accordingly. But, you know, I think the biggest. impact actually comes from MakerDow where, you know, roughly like at this point, two-thirds of the dye supply comes from U.S. De-D-coin. So everyone's been talking about how U.S.D-coin deep-pegged.

D-de-de-de-de-equed equally. D-I and U.S.D-coin were trading almost one-to-one the entire massive depeg event because there was these flows where there's an arbitrage where you could take U.S. Decoin, put it into die, mint more dye, and then sell that die for anything. more than the UST coin was worth. And so during this depegament, the biggest, you know, defy impact had to have been on Maker Now. Um, you know, I don't know who individual addresses are, but people on Twitter were saying that Justin Sun minted like a billion dollars worth of dye or something like that, you know, but all of the spare capacity in the peg stability module

to create dye using UST coin was tapped out. And emergency proposals were very quickly created to change the way that dye is created in response to the Deep Hagopin. And so, you know, MakerDAO had massive event. You know, exchanges like Uniswav and Curve were completely unaffected. Platforms like Compound took proactive steps. USD coin was temporarily disabled for new users. Existing users could continue to use it, but as a preventative step, new users were no longer able to supply USD coin.

Avey, I believe, was it arbitram or optimism? One of the markets they basically like completely turned off. And, you know, all of these different systems had to account for this just like out of left field, radical devaluation in what everyone considered a stable coin and how it would impact their systems. But frankly, I didn't see anything truly break in defy. You know, the most important thing in my mind is that even with this black swan of all. Black Swans, U.S.D. Coin, which everyone thought was stable, depegging massively in an incredibly short amount of time, 12% in minutes and hours. Everything stood up pretty well. I didn't see any knock-on effects of the system failing as a result of U.S.D. coin depeging. So pretty impressive

performance all around. It's important to understand the mechanism here, because just because Circle did not have access to $3 billion of deposits, in and of itself should not have made USD coin DPEG. Right? So if you remember, what was it? It was like two, three years ago that Tether had this crypto capital event

where like crypto capital was some like payment processor or something in Europe that like stole their money or whatever. And they were, you know, I don't know, there was under some investigation. There was some weirdness, right? And they lost a bunch of money. And Tether didn't actually, you know, Tether DPEG for a little while,

but it was like fine after that. And the reason why is that the thing that keeps USC stable is not having reserves. The thing that keeps U.S. STC Sable is the arbitrage. And the thing that actually caused the depeg was not that Circle like didn't have money was lost, SVB,

blah, blah, blah, whatever. The reason why it depeged is that Coinbase decided to pause all conversion of USC over the weekend. Now, the reason I suspect, and I don't know if they publicly have explained what exactly happened, but the reason why I suspect this took place was not because SVB was used to redeem USC on weekends,

but rather because there was so much demand for people to pull them money out, that the only transactional network that still could support withdrawals, and this brings us to the other story about the two banks that basically have gone down in the last week, the two banks that had 24-7 settlement for digital asset customers were Silvergate, which had a 24-7 network called Sen, where you could basically settle with other people who are using Silvergate any time of the day, 24-7, just on their own ledger, right? These are not 24-7, wires, because wires don't clear 24-7, but you could just trade, you know, sort of swap balances on their ledger

the other one was signature. And Signature had a system called Cignet, or I guess still does, a system called Cignet, which allows you to trade 24-7 as well. And so Silvergate was obviously shut down last week, which we talked about in the previous show with Arthur Hayes. And so with Silvergate down,

it's only Cignaut that's left. And I have to assume that what happened was that they had so many redemption requests on Friday when seeing all the craziness going on with Silicon Valley Bank that people were just trying to redeem, redeem, redeem, redeem, redeme, Redeme, UCC. And probably, you know, if they also had $3 billion

on signature, that $3 billion was probably completely burned through by the weekend. And so by Saturday, they're like, we have no more money left on Signet. We can't actually redeem anybody on Signet. You have to wait until Monday until we can wire you money

on one of the other banks on which we still have cash. And so because of the loss of Silvergate, that is actually what probably indirectly caused this inability for them to redeem people and cause the UCC to depeg, not actually. obviously Silicon Valley Bank triggered everyone's fear, but it was the inability to redeem because the vast majority of, you can see actually through the weekend is that the

queued up redemptions for Circle actually were enough to be to be redeemed by all of their cash reserves. Yeah, I think it's pretty spot on. I mean, in total, $3 billion USDC was redeemed, I think, from Friday through Sunday. And so it's exactly what you said, like the credit redeem, Ard Loop is broken. And so everyone's looking for something else to flee to. you can't flee to USDA, and so they're just going to all these other different assets, going to tether, things like that.

Yeah, I mean, I wouldn't say defy actually was completely scot-free. There were certainly a couple incidents. There are a couple things to note here. The first thing to note is native USDC doesn't exist on all chains. So some chain's main form of USDC is synthetic USDC, and the synthetic and native U.S.C and synthetic U.S.C and synthetic U.S.DC. quite a bit, which is in part, don't worry, I didn't sleep all weekend

because I was spending all this time trying to like, and we were spending a lot of time. Why did Bridge UCC not DPEG equivalently with Real UCC? I mean, I think people just lost confidence in the, like liquidators weren't liquidating Bridged U.S.D.C. on some

lending protocols. Because basically like, Avalanche was the main one where we saw a lot of this type of stuff where people were like, instead of liquidating whole positions, they were liquidating like very tiny chunks repeatedly because no one wanted to take large size risk in the synthetic because there wasn't as much liquidity for going between the two. Like people pulled all their LP, like the LP shares were drained in a lot of different pools. So the liquidity, so, you know, this is why we spent, I've spent all weekend. We, you know, our team was really focused on

understanding which protocols were really sensitive to all these LPs who are pulling all their USC liquidity and bridged USC liquidity from other chains. So Avalanche, Arbitrum, optimism obviously had these kind of like flight liquidity flight that sort of eventually came back by Monday morning. But there were definitely were things, you know, Ethereum main net, you know, that is the gold standard. Very few people pulled, right? Curve did $10 billion of volume or whatever. But off Ethereum mainnet, things were very, very wild in a way that I think reminded me a little bit of the Solana, the FTX day when like everything was depegging. No one wanted to hold any of

the synthetics. And it turned out they were right then because after FTX, it turned out that like a lot of synthetics were actually supposedly custodied by FTC, like the Solana-Rapped BTC, and then it turned out they didn't exist. And so I think the market also had this huge getting spooked of the wrapped in synthetic versions,

and you just saw liquidity vanish much faster off Ethereum than on Ethereum. So there were definitely like these second-order effects that caused risk on some of these other chains to like really grow way faster than it did on Ethereum.

Ethereum LPs actually were extremely profitable, but liquidity providers on other chains, it was a very kind of harrowing weekend, let's say. I'm sure someone took some, there are some addresses that you can see that took some extreme losses that had some of the protocols had paused or done other things they might not have.

So I guess I would say it's a tale of two cities. Ethereum was very safe, but like everywhere else, was like much more of a dog-eat-dog liquidity-free like you know, pogrom.

I don't know how else to describe it. It was violent. It was violent. Like the men pools were violent off Ethereum. It sounds like pandemonium. I mean, we also saw during that time was the incredible amount of on-chain

activity of people just trying to run for the hills and get rid of their USC. A lot of people just wanted to take their USCC. A lot of people want to just take USDC off Ethereum and move it to Ethereum Mainnet. You saw the bridge transactions all going one direction. That's another thing that was interesting. So a lot of the liquidity that was on these other chains, everyone just wanted to go. Everyone wanted to go back to Ethereum.

Yeah. And that caused this kind of panic on some of these other chains. Right. And probably apparently quite a lot. Yeah. Yeah. It was a pretty popular MED transaction that was floating. around where someone one thing was trying to swap like a few mill USDC to USDT through like Khyber

or one of the sort of longtail aggregators. And they fucked up one of the parameters in the swap like the slippage or whatever. And they ended up losing almost all of their money because like they got you sort of dust USDT in return. So people were kind of panicking and like just trying to market sell USDC. And then obviously when liquidity is drying up, these are going up. That's kind of what you get. Yeah. Like in the Kaibir case in particular, there was like one particular pool that was routed through that only had $2 of liquidity. And so the user took like a hundred, almost 100% slippage, which is, which is exactly what like effectively like stuff like that. I think some of the aggregators indexing wasn't working correctly. And it was way worse off Ethereum

Mainnet. And so there was a ton of stuff that went wrong off Ethereum. mainnet. So I wouldn't call this, I wouldn't give this an A plus. Let's put that. Yeah, but I suppose the closer to Ethereum mainnet, the more it was just like good old fashion panicking. And just tons and tons of money. Like, like think about curve LPs. Curve LPs made out, I think their nominal amount earned was like 10 to 12 percent per day while you were, while it was depegged and it came back. So yeah. That's how much you made. Just holding from the bottom two. No, no, no, this is on top of that, right?

I'm saying they did, they did the curve LPs did really well. But off Ethereum is not the same story. Right, right. That makes sense. Yeah, I mean, so for us, you know, our experience of this whole drama was especially intense because Dragonfly, we actually banked with SVB. and so on Thursday, so, you know, zooming back from DFI back to the normal world, on Thursday, so actually we had two banks.

Our first bank was Silvergate and our second bank was SVB. And so on Monday we're like, oh shit, Silvergate's going under. We should pull our money out. We pulled our money out successfully from Silvergate, put it all into SBB. And we're like, okay, few. Okay, SBB is like a real, you know, super legit bank. Like everything will be fine. And then Thursday we start seeing this news that like, oh, SBB, there's like all these rumors about,

oh there's this phone call and the guy like kind of sound panicked and he didn't seem really great and people are saying like oh pull your money out of SVB and I'm like oh that's crazy it's you know Silicon Valley Bank like what could possibly happen and then as we see the stock starting to tank we're like oh shit maybe we should take our money out and so we start withdrawing all of our money on Thursday trying to wire it out and there was there was actually we didn't have any other bank set up because we just gotten off of Silvergate basically on Monday So trying to get the money into another bank, like we just wasn't enough time to actually onboard anywhere.

So we decided to pull all our money into Coinbase. And the idea was that we're going to pull our money into Coinbase. Coinbase uses a combination of banks like Silvergate, JPMorgan, Cross River. And once we get our money into Coinbase, you know, Coinbase isn't exactly a bank, but we could then convert it into USC and then use that to continue our operations. And so we were literally getting debanked as a venture fund. And our solution was literally to use stable coins

because we had no other realistic option to get back banks and to be able to fund ourselves. But then although we queued up the wires on Thursday, Friday the bank was put into receivership and the wires hadn't been processed yet. So we were basically in the same position as circle, which is that we had queued up wires

before the bank was taken over, but the wires weren't processed. So the whole weekend, I got like, you know, two hours of sleep a night. It was one of the most intense weekends of my life. I was just trying to figure out, are we going to get our money back as a fund? And so we were like, we didn't know we were going to make payroll. We didn't know if we had lost LP money. It was a really fucking intense weekend.

So, you know, I think, look, either way, it was quite likely that something was going to happen. Either one, the Fed was going to bail things out or that there was going to be a buyer or that, you know, or that they were going to honor wires that took place before the bank was put into receivership, which apparently is common, although it's not guaranteed. But either way, I mean, we were just kind of staring down the barrel of a gun the whole weekend. So seeing all that, also seeing USDC, you know, depegging and seeing all these things in defy, just like, you know, all these assets drawing down. It was one of these moments for me that I was just like, Jesus Christ, how much do we have to take it to be in this industry? Yeah, you know that meme where it's like, it's like someone who's like, yeah, I've been trading two years in crypto.

It hasn't aged to me at all. And then it's like a picture of a really old person. I feel like that after this weekend. I do too. I have to tell you I do too. This felt even more different to me than other market calamities in the past where, you know, shit is going crazy because this isn't just like people's fund money. This isn't just like someone's portfolio going up and down.

Like SVB deposits and USC, like these are funds that companies are using for operating expenses for payroll. And so over the weekend, I just have people asking me, hey, what's happening with the coin that's like, hey, like, this is the money that I'm using to run my startup. Like, what should I do with my corporate treasury? Do you have any banking suggestions? Should I, like, put it all into ether because USC is going to zero. It was like, it felt a lot more existential than I think some of the other market events. Yeah. I mean, the interesting thing that I observed was crypto people were obviously the most vocal on the internet about this thing because, you know, crypto people never give up a chance.

to be like, ha-ha, the normal financial system sucks, right? But which, you know, whatever, it's just, I don't feel like anyone should, no one deserves a victory lap here. It's like everyone lost, if we're being honest. But the interesting thing I would say is like the people who in my mind were most affected, and this maybe gets to some of the political, observed political changes over the weekend, were definitely like biotech companies because SVB is actually very famous

for doing biotech operational expense operational capital funding and a lot of biotech companies not only kept their money at SVB but the conditions for SB to give them loans was basically like oh you have to keep all your corporate treasury there then we'll give you these loans and they were sort of like double-dipped

and a lot of those people would have defaulted this Monday morning had this not happened. And that would have been much bigger than the tech stuff. I get the New York Times wants to just be like, oh, these tech pros got like a free bailout or whatever. But there's a lot of other industries,

especially, I think once Elizabeth Warren realized that SVB bought Boston Private, which is like one of the biggest credit sort of local banks in the New England area that services biotech companies, for instance, she suddenly changed her tune about like, oh, like, yeah, kill this bank, kill this bank to like, oh, actually my constituents need to be saved as well. I thought that was like, that was one of the funnier things I saw this weekend.

And that's why I think this like this like continuing narrative that, oh, it's like we saved the tech pros thing is like not realistically true. The problem is Silicon Valley Bank has the worst fucking name of any bank in history. I was like, if only they were named like, it's like, oh, if only only. only were named, you know, the Greater Bank of California, the bailout would have come like Friday evening, you know, but instead it's like the whole weekend. I think people underestimate how many other industries they serve, like between wineries and biotech and stuff like. And like, I just found the, the way people were talking about it and using it to bully pulpit their political thing a little bit wild and like just misguided, like not not actually looking at like the numbers.

It was finally on Saturday that Silicon Valley figured out how to message. Because I feel like it was Saturday that I started seeing all these like threads of like, you know, I'm a I'm a founder, like a young woman. I started my first startup. I finally got funded. I've got 12 people working on this new like, you know, better way to do logistics. And now none of us are going to make payroll. And, you know, these people have kids and they have this and they have that.

And it's like, oh, okay, yeah, now you finally grounded this in stories that people give a shit about rather than, you know. So, I mean, look, I obviously, I was very nervous. I'm a VC who gives a shit about me. Like, you know, people, people are not going to, people, you're not going to resonate with like, okay, crypto startups and tech startups have a bunch of money there and, you know, okay, they have less money now, whatever, screw them. Look, also the VCs on Twitter were obscenely embarrassing. Like, that was just like, that is true.

The David Sachs and Calcanus thing, I feel like is like just a quite embarrassing. You're kidding on our sister podcast? I would just say it was just quite embarrassing to read some of that stuff. It shows how tone deaf people are. It did remind me a lot of 2008, not in the good ways. And in spite the fact that it was like a much more reasonable crisis than what was written. So I really hope that they learned some lessons. You can tell that they're eating some humble pie right now.

But we'll see how long that lasts. Yeah. Yeah, I mean, at the end of the day, like obviously at the center of this were, you know, a lot of startups. And we, we chat with a lot of folks in our portfolio who are very exposed if, if SDD were to go down. So it's great that things normalized. Now, the other thing is that, you know, sort of, again, looking back over the week, so we lost Silvergate earlier in the week. Signature was taken over on Sunday. And with signature, signature is the interesting one because there's now a lot of, uh,

rumor and innuendo going around that signature was kind of a hatchet job, is that actually signature was maybe potentially fine, that signature actually had enough liquidity to be able to meet all the redemptions that were coming in over the weekend. Signature was one of the banks that was under pressure earlier in the week in their stock price along with First Republic and a few others. But signature, according to Barney Frank, who was actually one of the co-authors of the Dodd-Frank Act, he was on the board of signature. And Barney Frank said in an interview that when the Department of Financial Services came in and took over the bank, they were initially not planning to take over the bank.

They initially were like, we're kind of watching, but we think the things are okay. We're going to go ahead and let you guys keep operating. And then midday, they sort of changed their mind and decided, never mind, guess what, we're taking it over. We don't trust you anymore. And so Barney Frank insinuated that he thinks the reason why signature was shut down was to punish them for their crypto activity. And because signature was so associated with crypto, even though, if you recall, a couple months, I think it was a couple months ago,

signature announced that they were going to be basically offboarding some of their crypto clients to reduce the concentration of crypto deposits in the bank. So now it was reduced to something like 20% or less of their deposits were coming from crypto. So the majority of it was non-crypto, which obviously crypto is a volatile depository base. And so, you know, Barney's claim is that,

hey, I think that they were coming after us because we're crypto. The New York Department of Financial Services denied this. They said no. The reason why we took it over is that we lost confidence in leadership. And their claim, I think it seems a little bit of he said, she said thing right now. They claim that we were asking them for real-time data. They stopped providing it.

We didn't have confidence that they actually had enough visibility into their own kind of withdrawal queue that was building up over the weekend. And that was why we decided to take over the bank just because, like, we just weren't sure that they actually were properly running it. Can we point out that it's a little. little bit ironic to say that a bank didn't give you real-time information about their withdrawal queue when a blockchain is literally designed to be a denial of service-resistant way for you to get a queue of withdrawals. Just want to point that out. There's an irony to that statement, you know,

from the DFS. Every single DFI protocol, you have radical transparency in any observer could look in real-time to see the health in the state. That is right. Well, apparently, that was not true its signature, according to Department of Financial Services. We'll see what plays out because almost certainly there are going to be lawsuits over this one because, you know, signature had pretty positive equity on Friday when markets closed. And I think the, if it is true, that signature was fine and they were put into receivership anyway, you know, illegitimately, obviously, you know, now people are going to get, and also, I should say that the, in the joint statement by Fed, FDIC, and Treasury,

They also said that signature deposit is going to be made whole, implying that signature was also a failed bank. If, in fact, signature was fine, and they would be able to continue operating as a going concern, there's probably going to be lawsuits and all hell to raise about this. But now I think that the seeds of the conspiracy have been sown. I think crypto is now convinced that the banking regulators are coming after crypto banks. Do you guys think this is right?

Do you think that this is overblown? What's your read on the signature situation? Here's my view in a non-conspiratorial sense. The three banks closest to crypto are no longer in existence, and no other banks, regardless of the health of their balance sheet or systems, have gone under. And I think the root cause of all of these banks going under was they all bought bonds at the wrong time. You know, all of them really had market losses, which they didn't have.

have to account for. And I think most likely every single bank is in one way or another in the same position where interest rates were low. They littered up the assets inside their balance sheet with long bonds and they bathed in them and took a horrible loss. It's just that these crypto banks are the ones that were forced to account for those assets through the withdrawal possibility. Most other banks are probably equally as insolvent or suffering from negative equity. They're just not forced to account for it. And, you know, I think, you know, from a non-conspiratory sense, you know, I think it was easy for regulators to just say like, hey, you banks are going to have to be placed in receivership because you're insolvent, whereas they could do that with any bank

today, for the most part. They could do that, maybe not with J.P. Morgan, but they could with probably any other regional bank or any other mid-sized bank in America. It's just that they chose, you know, especially in the case of signature bank, to target. institutions that they felt like targeting. And I will say, to be fair, we did talk about this on last week's episode, about the idea that like the accounting standards for not even just the bonds that they bought, but also the agency mortgage back securities and stuff, how those get marked is like a dark art. And somehow like the regulatory bodies have never just been like, hey, you just have

to say what the price would be if you had to sell it right now. and we've never been able to agree on that since 2008 because the U.S. government doesn't want people dumping its bonds. And I think we're just in this very weird limbo where regulators never want to force mark to market, which is never going to incentivize banks to actually do it, except banks that have heavy transaction volume flow, e.g. blanks that service speculative trading,

which will always have this kind of like in front of. one thing that Arthur claimed on the last show, which was actually incorrect, which we all learned this over the weekend that Arthur claimed. He claimed, but by the way, he was mostly right about almost everything he said, but there's one thing he got wrong,

which is he said that banks hide their market-to-market losses in their hold to maturity portfolios, right? So when they buy bonds and they basically say, I'm going to hold this until, you know, if it's a 10-year bond, I'm going to hold it for all 10 years, that, you know, they basically do these, his claim was that they do these tricks,

like hide it on their books. Banks actually report, all of this stuff. Like if you go read the 10K for, or the 10K, what is it called? Whatever the, I don't know what the fucking form is called.

Whatever these things are called, these quarterly disclosures from banks, they actually list all of the market to market unrealized losses from their hold of maturity portfolio. Now, they don't list it in the overall equity of the bank, right, because they haven't realized the loss.

And so that's their earnings. Their earnings don't reflect. Their earnings don't reflect it. Yeah, their earnings are reflected. But it is basically like, you know, you add two numbers together

and you have the market. market losses, right? It's all reported there. So it's not a secret. But I will say the following, which is that ETF rebalancing rules and portfolio rules generally usually just are like, hey, I have a dividend. This is how much I'm going to rebalance. They're not like, hey, we're going to actually look at the unrealized earnings and construct our portfolio of like the KBW ETF or KBW index from that. And so there's actually this weird thing where people are forced buying without ever accounting for these losses. And that, forced buying comes from the passive investment vehicles that just have to buy these stocks.

So there's also this very weird, it's a very tangled web where like the accounting is there, but it's not really like realized in some sense, like that financial instruments don't ever price it in. And that part I always personally have found a bit sad. Right. No, that's true. That's true. But that should get arbed away, right? Like people should ultimately, like, if they actually understand the true value of the asset relative to, like, the force buying, like, markets should figure all that shit out. Can you explain Dogecoin to me? That's going to be the next show is going to be.

I explained Dogecoin to Turin while we're both on huge amounts of acid. You know, I got to say that. That will be on a number one episode if we do that. The, the number one thing I learned in recent weeks that I never understood. there was this there's a dog coin which is extremely popular in crypto called pause enu p a w s i n u and i always was just like okay like there's a million of these enu coins every time there's a hack like for instance like the oiler hacks we'll talk about literally 30 seconds later there was an oiler hack enu coin made um i don't understand exactly why the shiby anew new thing but paus enu is

very special because it's uniswap backwards which i only i only realized which is like And that's actually why it's market cap so high. Yeah. That's why the market cap is because it's an anagram of uniswap. That's why the market cap so high. Yeah, you're right. You know, is, you know, that's correct. I had to keep it to validate it.

Yeah, it's, it's one of these. So anyway, my point is these markets aren't efficient. That is the one that actually sounds efficient is that, yeah, univiswap and reverse should be worth a lot. Okay, wow. Okay. I don't know how to transition from that, but I think... Well, we talked about the oiler hacky, you know.

Should we talk about the oiler hack? Okay. Well, the one thing that before we, before we end this saga of crypto banking, I mean, it's definitely, the story is not over. With the death of signature and the death of Silvergate, it's very clear, regardless of whether you believe the story that there's a sort of Operation choke point 2.0 thing happening. It is true that crypto has gotten significantly debanked over this week.

we should see, especially with the death of signature and Cignaut, you know, transactional banking in crypto, basically meaning of this 24-7 settlement stuff has taken a huge hit. We no longer have a 24-7 settlement system for crypto. I would guess that probably something will pop up fairly soon that will, you know, step in to try to replace them. Well, Cross River. That's right. So Cross River is the one that seems to be,

that Circle is going to start using as their transactional system, I think. Coinbase also uses them. There's also JPMorgan, B&Rlemon that also banked Coinbase in Circle, respectively. But a lot of banks may respond to this by saying, like, wow, the bank graveyard is full of people who touch crypto. Maybe I should be more careful by touching this stuff. And so my guess would be that startups are going to have a much tougher time getting banked by a lot of the big players after what we've seen over the last week. there are a few banks that are crypto-friendly, like series, like Mercury, these sort of neo-banks that are much smaller and more nimble.

But a lot of, and there's also, you know, B-CB group and, you know, a number of other players in Europe that are quite crypto-friendly. But I think the banking story is going to be, we're going to feel the reverberations of that for a while, especially when it comes to crypto companies, you know, being able to on-ramp and off-ramp effectively. What's your guys' view on this? So I have a claim that, you know, in the same way. that stable coins are a little bit like Euro dollars,

even though obviously because their accounts are held at these banks, they are held locally. But they are a little bit like Eurodollars and that their dollars sort of held on chain if we view on chain as like the foreign bank that people are trading. I've never understood one thing, which is like, when will it actually make sense for foreign banks to be custodying the dollars that back stable coins?

Like, Tether does that, right? But we have no clue where they are. imagine like a version of Circle where Circle opens Eurodollar accounts at, you know, Credit Suisse or something else. Maybe I should pick someone more solvent at BCB or something like that. And they store the dollars there. You wire to Europe. I mean, obviously still connect to Swift. And they just charge you a higher create redeem fee because like obviously the cost for the European banker hire. I'm surprised we haven't seen that. You know, like somehow we focused on making euro stable coins, but why not just make the U.S. dollar stable coin custody outside the U.S.

that might actually just like avoid some of these issues? I don't know how much it would solve these issues. I mean, if anything, I think right now, for U.S. for U.S. U.S. U.S. U.S. U.S. U.S. U.S. U.S. U.S. U.S. commercial banks is because so much of the role of U.S.C. was to basically be as different as possible from Tether. Like, if you were just using kind of Eurodollar banks, like it's kind of like, okay, is this really that much better than Tether? Like, how would I know? Whereas the fact that they use B&Y Mellon and, you know,

all these like very kind of stalwart banks is part of what makes them, one, more trustworthy, and that's kind of their branding, is that they're more trustworthy stablecoin, but then also second, to the extent that they want to be the beneficiary of domestic stablecoin regulation, it's by being above board and, you know, being very squarely within the U.S. regulatory purview. I think that's pretty essential to their strategy.

and it seems wise to me, at least for now. I'm just saying someone else could do it. You know, like Paxos now actually has a very good reason to go do this because they just lost. I mean, there's still quite a bit of BOSD, but my point is the growth story might not be there, right? Someone will do the Eurodollar stable coin. I just don't know who it's going to be. I mean, it's Tether, right? Tether is already crushing it.

Tether is doing it. I think like all of the new regulation, I think like it was at the E. EU today released like the smart contract regulation that close like all smart contract developers have to include pauses in their transactions. What? Stuff like that. To both of your points actually, you know, it's like in, in, you know, these kind of times there's obviously like a flight to safety and flight to quality.

And, you know, normally it would be a flight to USC and then it would be like a flight to USD. In reality, like, Tether was actually trading above a dollar, you know, doing a lot of this people trying to get out of the USDC. And so it's clearly the demand for this like offshore dollar stable coinish thing. Maybe you could be a little bit more polished, but like, you know, I would argue that's probably like the most sort of senior safe thing in the market based on sort of what they're, had the market's pricing it. Yeah, that makes sense. Okay.

Well, we'll see what happens. I mean, the one, sort of the last element of the story was that after we saw the bailout and an enormous amount of instability take place on Monday, you know, a bunch of runs on regional banks, a lot of, a lot of worry about smaller banks having their having, having. massive deposit flight to the large banks. You saw basically the kind of the embers of a banking crisis taking place in the U.S., a lot of fear about is this going to spread like wildfire to all the regional banks. And now the expectations for interest rates is that they're basically going to turn a corner before the end of the year. And interest rates are, I think right now the curve is pricing.

They don't even hit 5% before rates start getting cut. So we're now looking at rate cuts before the end of the year, if the market is right. And if that, the other thing that you saw is you saw equity markets rally, and you saw crypto absolutely rip. So Bitcoin was up like something like 18% in a single day, which is one of the best days we've had in quite a while. And crypto is still up today. Crypto Bitcoin is up at 26K at the time of us recording the show.

And I think a lot of this is in response to interest rates. Interest rates, I think, is what's striving most of it for crypto. Crypto massively outperformed the S&P or the NASDA. And actually now, I just, you know, it's funny because I was just talking to some investors here in the Middle East. And, you know, a lot of them are like, oh, you know, since FTX, things are really bad. And I don't know if like this is investable anymore. And I was like, okay, hold on. I got to show you something.

I pulled up Trading View. And I charted Bitcoin versus the NASDAQ since the day before FTX collapsed. And actually, in that time, the NASDAQ is up about like, I think it's like 6%. And Bitcoin is up 18% since before FTX collapsed. So actually, Bitcoin has outperformed the NASDAQ in that time, despite what you might read in the headlines, despite what's been going on globally in large part because Bitcoin and crypto generally is so responsive to interest rates. And I think the change in expectation of interest rates, despite the fact the interest rates are higher now than they were at the time of FTX, crypto is just done, you know, just rallied massively over the last 48 hours. So anyway, we don't have that much time left, so I want to make sure that we cover the story about oil or finance. So Euler Finance, by the way, not Euler.

It's pronounced Euler, but it's spelled like Euler. So if you hear me say Euler, just imagine it's spelled Euler in your head. So Euler finance is a, it's basically like a, you know, on-chain lending protocol. It's got some fancy, you know, tips and tricks and cool stuff it does. That's a little bit different and kind of more Nouveau than compound in Avey. So Euler was hacked over the weekend. And let me see if I can explain this hack because I sort of read it. very, very briefly, Tarun, please correct me if I'm wrong.

But basically, the way that this hack worked was that somebody, basically they borrowed a bunch of a certain asset using a flash loan. And after borrowing a bunch of that asset, they then, there's a function in the contract that allows you to donate the asset, like donate an asset to the contract for some reason, like basically just say like, hey, I just want to give you this because I love you and you're great. And so they donated a bunch of the asset. And for whatever reason, this donate function did not check that this would not put you underwater and basically in default on your loan.

And so they basically did this force themselves to become in default on the loan. And Euler does this fancy thing where if somebody is like really, really deeply in default, it gives a really big incentive for you to liquidate them. Because the idea is that if somebody's a little bit in default, you only need a little incentive to liquidate them. So, you know, a lot of protocols, like the old school way to do this was that you just have a fixed percentage. So, you know, if you're, if you're, if you're, if you get liquidated, it's like 5% flat. It doesn't matter. If you're like one iota in default, five percent, screw you. That too bad.

You got liquidated. Whereas oiler does this like kind of floating thing. The more in default you are, the bigger the, the reward is. And so they put their own account into massive amounts of default using this bug in the donation function. And then they took another account and liquidated themselves, got this massive reward and made money from the protocol. Is that, uh, a, uh, a fair understanding of how this exploit work to run? Yep.

Okay. That's a good description. Yeah. So the donation thing, my understanding is it's sort of like a dust collection feature. Like there are a lot of, on Maker, there are a lot of CDPs that are heavily underwater that nobody is liquidating and just sort of a crew. And this sort of lets you sweep all that, you know, basically into the protocol. I see.

I see. Okay. That's why that's there. So there was $183 million stolen, which is a big hack, but I mean, I don't know. We're also PTSD. at this point, that it's hard for anything to register. This donation thing was also something that showed up in

in Avey when like sushi and ex-sushi diverged. And so like there's sort of, there's actually no way of sort of preventing it for some annoying technical reasons. So they just happen to have an explicit function, but you could have just sent the money to the wallet that the pool

is in. So it's, it's It's not, it's not, it's not, the function makes it sound like, oh, it's like a built-in feature that made it, but do this, but there's a way to do it without explicitly calling it. So just wanted to point that out. But I think like one of the issues and, and, you know, I think, you know, while obviously most of the, the panic and fear and pandemonium of the last few days was people talking about SVB, the second pandemonium, I guess you saw on Twitter was a lot of people like flash loans are the devil and bad and. there's sort of this trade-off, like, how could we, how could, you know, can we just ban them? And I think crypto is this type of thing that's a one-way function, like a hash function. Like, once you've unlocked something existing and people find productive uses for it, even if there's bad uses, people are not going to stop using it, right? Like, the code exists. People know how to use it.

I mean, people have been trying to ban, you know, flash phone, just sort of making these, like, moral arguments against them, basically since they were inventive. And obviously the market is the market that people with want them. They're extremely useful in many different scenarios just for making things more efficient. But some protocols do try to basically ban flash loans by preventing smart contracts from using the protocol. Right. You have to have an EOA to open a position or to trade or whatever.

But with the rise of account abstraction and 437, you know, more and more people are going to be using a smart contract wallet. And so I bet those are going to have to get rolled back. And the protocols I thought they were safe from flash loans are now going to be exposed and going to have to figure out some way to think part of their protocols going forward. Yeah. So I'm right now, this reminds me a lot of people who talk about like when their market crashes, talk about banning short selling.

It's kind of the same like sort of the same instinct that like, oh, if we just like stop this one thing that happens sometimes when bad things happen, that the bad things will stop happening. And ultimately, even if you ban flash loans, there are people who have enough money to go do this attack. There aren't a ton, but one way or another, you'll find a way, if you have an exploit, you'll find a way to actually exploit it.

And so, it's funny because right now, I'm in the Middle East, I haven't spent much time here before, and it's a weird place to be learning about all this stuff, because the Middle East has its own version of crypto and its own version of all these different concepts that are kind

filtered through Sharia law in a lot of these places. And I was learning about this, about like Sharia compliant, DFI, Sharia compliant. So it turns out, like, one of the rules in Sharia that I'm coming to understand is that interest is not allowed. You can't pay interest on anything, right?

And so if you want to do, now, of course, like, that doesn't mean there's no finance in Islamic countries. There obviously is, but they find ways to sort of mutate or, like, kind of you grab this thing, put it over here and do something. You call it some other name, which I'm like, oh, that's like what DFI does. Like that's, like, you like tokenizes one part of it and you give it a new name. And then it's like, oh, it's, it's a defy innovation. And, go ahead, turn.

You know, in 2019, when I first heard about pool together, which is an old school defy protocol that some of you may remember, it's a no-loss lottery. Like, you put in money, the protocol then takes the pool and puts it into compound, takes the interest, and then gives it away as a lottery winning to whoever deposited. The Islamic bonds are the same way. They basically don't pay interest uniformly to all capital providers. They do it as a lottery, and the lottery is not used. userists in in and by depending on which particular imam you're asking uh there obviously some that

are like this is all usurists get out of here but there's some who will be like no no no no lottery is fine it's fairer than distributing it uh evenly because then it's not you're not really then you're then you're just charging for a service as an individual instead of uh pooling together capital to oppress the single borrower uh so there's sort of uh there's a lot of very funny stuff i i highly recommend reading about it more because yeah, in the deep bare market last time, another piece of trivia

is Virgil Griffith, who was arrested for helping North Korea learn how to run Ethereum nodes was famous for going to I think it was Saudi Arabia, maybe it was the UAE, and getting the government to

make Ethereum Halal in some weird way. Like, like, it was like a totally, like, it's, like, ETH staking was not viewed as a userist endeavor. And so I think Ethereum for stake in Al-GAR. I learned about this. Yeah. I was talking to somebody over dinner who's like an expert on, like,

the rules around Sharia, Halal, Haram for, for proof of work. And so apparently, proof of work is halal, meaning that it's allowed because you are, because you are, you are being paid for work. So actually fiat money, apparently is haram, because fiat money, you just, like, make it out of thin air. It's not made of anything valuable. So nobody worked to create fiat money.

And that means that technically it's haram. Now, no country is actually like that hardcore to actually ban fiat money, but technically, like, imams will say, like, yes, technically, this is haram. You shouldn't be using it, but whatever. You know, we've got to live in the world. And so in, there are countries actually

where they ban short selling, because short selling is haram, but so they find, some other way to like do short selling, but vanilla short selling is, is not okay because of the interest that you're paying to the borrower, or that you're paying to the lender. But so there's a, there's a huge project in the Middle East that I'd never heard of until I came out here called Islamic Coin. And Islamic Coin, they raised something like $400 million. And the whole idea behind Islamic Coin is that it is a Sharia compliant Ethereum form. And it's even no, no, no. I think, I

I think, I thought, but it is running as a tendermint chain. It's closer to Evmos or. Oh, wait, you know about this. Yeah, yeah, yeah, okay, okay. Yeah, yeah. Yeah, okay. Very, very, very famous fundraise, uh, partially because I think that, uh, the one coin woman is somehow hidden in the shadow of this thing.

Apparently, it's like all Russians who are, who are running it. And the whole idea, the way it was explained to me is that, uh, how, so, like, how do you make a blockchain toria compliant? Like, what does that even mean? And she's like, well, well, you know, the thing is like, you don't know what people are doing on the blockchain. So there's a committee of, like there's a committee of sort of validators who are like, you know, basically like imams, I guess.

And they approve every smart contract that gets deployed onto the chain to check whether it's Sharia compliant. And only Sharia compliant contracts can be deployed. And then you can interact with those as you, as you see fit. That's, as far as I understand, that's the core idea of Islamic coin. So it just goes to show that. The world of blockchain is a very, very big place. And I had no idea how much money there was chasing this stuff, but it's pretty massive.

Anyway, that is totally irrelevant to oil or finance, but I guess the reason why it was connected was like banning flash loans, which I guess, because the reason why that came to me is that flash loans are flash loans. So only DIYDX slash loans are Sharia compliant. But the other ones are not because you're paying. You put that on the website. They didn't put that on the website. I'll see if I can get Antonio to put that on D-YDX. It makes sense, though, you know, all this innovation because it's like Huala networks, you know, where they do like the peer-to-peer payments.

That was really the world's first sharded blockchain. And so, you know, it's out of that you have all this innovation. It is true, although Huala, unfortunately, in the U.S., I would not say that around a TSA employee, just as a note for those who are often harassed at airport checkouts. security. Yeah, yeah. Okay, so let's bring this conversation to a close. We've been through a lot.

It's been a really harrowing week. What do you guys think? Hey, we're making jokes now. Come on. I know, I know. Look, things are okay now. Prices are up. U.S.D.C is back.

You know, we're back in business. But I think the moment of introspection, I think, for the industry, particularly is probably most around USC. probably for the industry on the whole, the biggest kind of, you know, a reality check about how much crypto is intertwined with traditional finance and how dependent we are still on the banks. And, you know, the Bitcoin blockchain, the very first Genesis block has inscribed into it, Chancellor on the brink of bailout for the, it was a chancellor on the second brink of bailout for the banks. It was literally when a bank was getting bailed out that Bitcoin was created.

And once again, we have a bank getting bailed out, but this, bank instead of being the genesis moment of crypto is actually showing the cracks in the thing that we've built. And so how do you guys reflect on, you know, the lessons for crypto looking forward for how we get stronger from what happened over the last week? Well, I definitely think this is one of the great reminders for people about like why crypto even should exist. So many sophisticated, well-intentioned people over the weekend had no idea. if their money was going to be there come Monday. And that's mostly what Bitcoin and crypto assets were designed to prevent, which was this like uncertainty due to someone else having the control

and not you as the user or the market participant. And I think it's a really loud reminder. The second thing that I think is vindicated and reaffirmed coming out of this weekend is, you know, all of these banks were being shut down because of opakness and uncertainty about their balance sheet and inability to trust management and all of these things. And we were sort of joking earlier in the show when we said like, oh, but DFI fixes this, but it does, right? A DFI protocol would have been able to present to regulators the radical transparency of knowing exactly what the, you know, health of the market was or the withdrawal queue or whatever it is, right? And it really does prevent a lot of the same sort of issues that we're at the heart of these bank failures. And so

I see this as just a nice reminder in wake up. for everyone building in this space that we're headed in the right direction, even, you know, if moment to moment, you know, it doesn't feel like that. Yeah, I mean, there was also a lot of sort of hand-wringing over the weekend around, oh, you know, this is why we should have never, you know, use USTC and, you know, makers going down the wrong path and having so much U.S.TC exposure, everyone should use, you know, Rye or use liquid. It's like, yeah, there's a reason why people don't, you know, use these things.

There's a number of different, you know, protocol flaws, scale flaws, et cetera. but I'm hoping that some of that energy is funneled towards more effort around building, you know, decentralized staple coins or more diversified stable coins or maybe even a true proper, you know, Eurodollar staple coin or something like that. I think it's not, I think, very productive to sort of like flash loan sort of moralize around what you think people should do and instead ideally, you direct that efforts into more research and more building and, you know, making the making your vision a reality. Is that a new term recording flash loan moralizing?

Yeah, yeah. Well, there are... Wait, wait, wait, wait. It should just be flash moralizing because this used a flash loan and a flash mint. Because, you know... Okay.

We should just keep the flash. Thank you for clarifying that. I think the... Yeah, I think my take is like, you know, I've never had all these people who hate crypto call me over the weekend and be like, man, I really hate the banks. And I'm like, man, do I have a product for you?

But like, it was like, it was actually funny. All these people who like the November 12th were just like texting me like ha ha, fuck you like this crypto sucks like AI is way better, blah blah. Like people like that. I will say a lot of them ate some

humble pie this weekend. Which, you know, I'm not trying to have the shot in Freud. I'm just trying to say like, you know, you can't you can't just like immediately dump on crypto and then like suddenly be like, oh no, like what could ever solve the problem of solving DOS attacks?

against bank withdrawals. I find that funny. But on the, I think the long-term thing is like stuff like the oiler stuff, I think is, you know, I think,

yeah, to Tom's point, there's a lot more like research into the types of mechanisms to build that we need to do. And a lot of that boils down to like some new technologies that a lot of people on the edge in this industry are working on, that, you know,

haven't made it to usage. But like those things, I think in the next two to three, to three years, once they're live and in production should really help mitigate a lot of these kind of issues over time. I think things like the oil mishap are unfortunate, but they actually provide us a lot of really good lessons. And we have a lot of new technological tools that people have invested in and are getting to production scale that I think will be very useful for making sure that users can't do this to themselves. And also that these protocols are able to add in new

complex features without kind of introducing a larger attack surface area. Yeah, I think the events of the last weekend, you know, crypto has this sometimes overused trope of banking the unbanked. And much to our chagrin, we found ourselves, we found ourselves unbanked over the weekend. And it's a very, it's a very strange feeling to have money, but not actually be able to access the money, not be able to do anything with the money. And the idea that, you know, for us, you know, a pretty, you know, a regulated financial firm, that our best option was to try to get the money into crypto as fast as we could. I think it's telling of like where we're at right now with respect to the evolution of both, you know, the traditional financial

system and of cryptocurrencies. The reality is right now the two systems need each other, the two systems interplay with each other. And this is also often how I think about when people ask me, like, hey, do you think that DFI is going to be, you know, you think that DFI is going to like eat everything in finance? Like personally, I don't think so. I think that the two are going to sit side by side with each other. But a lot of what DFI is fundamentally good for right now today is that DFI is sort of like a floor. It's a floor of financial connectivity and usability that's always there.

It's always there everywhere in the world 24-7. And if your local banking system or your local financial system, which has a lot of things that DFI can't do, right, It has credit. It knows who you are. It has, you know, all this sort of, this rich history that doesn't necessarily translate easily into a blockchain setting. But there are times when, like, the normal financial system is, like, way up here. And defy is like here.

It's like this solid thing that is accessible always everywhere at all times. And sometimes your financial system is going to just fucking, you know, drive into the ground and be totally unusable. And when that's there, you can always default back to defy. It's like this sort of, it's this default that's always undergirding you. as competition, but also as a fallback. And I think that that's true in a lot of places around the world where you see a lot of Defi adoption.

Today, it's because Defi is here. And when Defi is here and you've got a terrible financial system, defy is actually better than what you've got. Or even if you're in the first world and you've got a failing financial system, yet, defy is now better than what you've got. And as Defi gets better and better, that floor is just gonna rise.

It's just gonna rise and rise and rise every single year that we start building more and more stuff. But in the interim, defy is better as the sum of parts. It's better with centralized stable coins, with real world assets, with all these off-chain, you know, identity primitives that are being built. It's going to get richer. It's going to get more robust over time. But we're not there yet, you know.

And I think things like oil or finance show us that there's going to be failures along the way and there's going to be, you know, learning moments. But ultimately, it's, I think, vindication, not that we won, not that, okay, hey, this shows that this guy is better than that guy, but it shows that all this stuff is important. All this stuff is really important. Like, Tradfinites to get better, definease to get better,

but both parts of this equation are important to what we should have as a human civilization going forward. And if it's that clear within America, then it's certainly true for the entire world. So, all right, I guess I'll leave things there. The real question is, is the Sharia floor different than the non-Sheria floor?

and I leave that for us to discover. The Sharia floor is that you leave your shoes at the door. You don't wear your shoes inside. That's the Sharia floor. So anyway, we'll go ahead and wrap it up there. Thank you, everybody. I know it's been a crazy week, and I hope we helped you understand a little better what was going on.

Until next time, see you, everybody.