Unchained - Why 3AC's Collapse Could Spell the Start of a Crypto Credit Crunch - Ep. 376

Starting point is 00:00:00 Hi, everyone. Welcome to Unchained. You're a no hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the July 22nd, 2022 episode of Unchained. Want to keep up with the biggest news plus market updates in crypto? Get the Unchinned email in your inbox every day. weekday morning. Visit Unchainedpodcast.com to subscribe. One inch is a top dex aggregator that finds the best rates across multiple networks. Why use a single decks when you can use them all? Get one inch on your phone now or swap on one inch.io. With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description. Today's guest is Adam Cochran, partner at Sinem Hain Ventures. Welcome, Adam. Hi, Laura. Thanks for having me.

Starting point is 00:01:06 Just a heads up. For people watching on the YouTube, Adam just moved and cannot locate his webpam, which is totally fine by me because it's really most important what he's going to be saying. So that's just why we are going to have his headshot here. Okay, so there has been a lot of news regarding Three Eros Capital in recent weeks and notably also this week. But before we actually get to this week's news, why don't we just give listeners a picture of what your thoughts, Adam, were on the three-day situation before some of the more recent news this week. So, for instance, in early July, when you heard the news about Three Arrow's Capitals liquidation and how they had filed it themselves, et cetera, what was your first thought? Yeah, so I think across the industry, we were really surprised to see this take place as we think of Brieharo's capital as one of these prominent operators who's a lot more experienced in this space and probably a lot more, at least we thought from the outside, risk averse.

Starting point is 00:02:03 And so it was a bit of a surprise. But then to see them request their own filing for liquidation, you know, it's not something that you see as commonly. And it begins to raise some eyebrows of why are they taking that action? Is it just the realization that they're in a bad spot and they need to liquidate and their backs are against the wall? Or are they trying to do it for putting themselves on a preferential footing in legal proceedings? It was an odd thing, especially when we put that in conjunction with the otherwise radio silence that we're seeing from them. And you mentioned in that tweet thread that there's a concept called the corporate veil and that this action might shed some light on kind of what they're trying to do in that regard. Can you explain that?

Starting point is 00:02:47 Sure. And I'll preface this with the fact I'm not a lawyer and I'm not well-versed at all on how corporate law in Singapore and the British Virgin Islands work. But there is this concept that we have called the corporate veil. And it's a legal concept that kind of divides your personal liability and your corporate liability. And says, if you're running these limited liability corporations or other corporate entities and other jurisdictions in a compliant manner, then there's a separation between you as, a person and the business as an entity itself where debtors can't come after you personally. However, there are these times when what happens, we call it piercing the corporate veil. And that's you've taken an action that kind of violates the requirements that you have as corporation

Starting point is 00:03:31 or kind of muddies the waters between you as a person and the corporation itself that can make you personally liable. And so if you didn't want to be liable for the debts that your corporation had when you were going under, you might want to make sure that you are putting yourself on the best footing with any judges or liquidators or any claim in the in the process. And so you'd want to be well-behaved in the eyes of the court, being responsible in the eyes of the court. And this gets into like very nuanced things about different jurisdictions and how they'll perceive that in the proceeding in those regions. But it may be that if you're acting responsible, maybe it's more

Starting point is 00:04:10 likely that there isn't going to be this piercing of the corporate veil. And by acting responsible, one of those potential actions could be filing for liquidation yourself. Yeah, absolutely. You could be saying, hey, we know things are bad. We're trying to work with creditors. You know, show that it's complicated claims, show that you have some of your own money possibly on the line and are taking these steps to try and rectify the situation, right? Because there's a big difference between in the views of a court, getting in over your head and getting into a messy situation where you owe a ton of money and maliciously owing a ton of money. And that can be really hard for us to parse on the outside of, were these actions malicious? Or was this, you know, a black

Starting point is 00:04:54 swan event and there was a whole bunch of contingencies? And it just looks bad from the outside. And so there's still that opportunity for you to put a good foot forward towards courts and adjudicators and things like that to show, hey, we're trying to engage. So obviously this week, there, you know, was kind of a lot of news regarding 3C with that huge document that was released. And one of the things that really had people shocked were that Suju himself listed himself as a creditor for $5 million. Kyle Davies' wife also said that she was owed $65.7 million. What do you make of, you know, what they're, you know, what they're trying to claim here? Honestly, it's really hard. This document, I read through this like thousand page

Starting point is 00:05:41 document that we saw leaked. And it actually raises a lot more questions than it gives answers and there's still a lot of unknown as to the assets. Part of the challenge here is that we see these payments to related entities. We see assets being purchased in other people's names, loans being given from the executives into the business. And the reality is that that can all actually be legitimate. Like when we're dealing with multiple feeder funds and multiple jurisdictions and complicated residency jurisdictions, there are absolute legitimate tax and legal reasons to have assets in your family members' names, to, you know, if they've made a ton of money over X number of years and the business is going through a hard time, loaning some of your personal assets back into the

Starting point is 00:06:27 business. That's all legitimate. And if that has happened, then you are entitled to make a claim. and some jurisdictions may be compelled to make a claim and have that full and honest report of the assets outstanding. So it's kind of a challenging thing to point a finger at. And I know there's been a lot of people who look at it through the lens of, you know, it's an unfair kind of clawback. But I think it's important for us to acknowledge there can be legitimacy to those claims. And it may also be another thing that makes it easier to say, hey, you know, we were damaged in this too. you know, we're willing to waive some of our claims. And it may shift some of the piercing of the corporate veil or personal liabilities or things like that and get favorable assets pulled back at an

Starting point is 00:07:13 opportune time and discount. But I think the likelihood is that there's probably fair and legitimate reasons. And it comes down to where do they get placed in the pecking order of other people who have to be paid back? And what is the pecking order? I think that's going to be challenging to discern with all these different jurisdictions that are taking place between the fact that they filed a chapter 15 bankruptcy recognition in the states. And we've got British Virgin Islands and Singapore for these different feeder entities and LPs all over the world. I think what's unfortunate is while we would want to see the retail investors who had exposure through these secondary platforms like BlockFi and Voyager and things like that repaid first is that it will probably be pretty uniform across the board.

Starting point is 00:08:01 But it was going to come down to some really nuanced legal proceeding in these specific jurisdictions that I don't think we have enough visibility or expertise on to really know how that's going to play out. And, you know, when you say that you read the full document and you talked about how there can be legitimate reasons why they might put in personal money, in general, what's your sense of kind of what all happened there? what is it that truly brought a 3AC down? I don't know. I think a lot of what we see in this document is this Luna exposure trade that they have. And obviously, that was a challenging time for anybody who had that kind of exposure, but also the broader market saw massive selldown. So if they had other asset exposure outside of that,

Starting point is 00:08:49 especially that they were using as collateral in other places, that was really going to feel a strain. I don't know if we have the full picture of their. assets. The document's last breakdown of full assets comes from 2020, and we don't really have insights into what their current holdings were. And so I think blockchain.com, in kind of their complaint in this document, points out that they believed based on the net asset value of the fund that was being reported to them at the time of this borrowing and the moves in the market, there wasn't mathematically a way for them to become so insolvent. And so I don't know if we

Starting point is 00:09:23 have the full picture of what happened behind the scenes. I think we understand. what a few of the key events like the Luna UST implosion and the broader markets sell down. We understand that these events were contributing factors, but there still seems to be a few pieces of the puzzle that may be missing. One other thing that people talked about a lot was obviously this issue of the yacht. Can you explain what happened there and explain what you think the significance is of what they were trying to do with this yacht? Honestly, I have no idea about the yacht thing other than it'll make a fantastic part when this eventually becomes a movie. There's these allegations in the document that maybe the yacht was bought with borrowed funds and was like being paraded around to show investors about how great Three Arrow's Capital is. But I don't think in the document we see any really firm proof that it was with borrowed funds.

Starting point is 00:10:20 and it kind of just makes these suggestions that it was alleged and things like that. So I don't know how much of that is legitimate and how much of it is taking on this meme story of its own. But apparently they've purchased this absolute mega yacht that would have been the largest in Singapore. And they made a massive down payment on it and is to be delivered into Italy in the next few months. And so I think that will be definitely subject to the court proceedings in seeing was that actually with Borough? funds, whose name was it in? How does that get liquidated? The discount on a massive item like that because of the limited number of buyers is always going to be challenging. I don't see BlockFi wanting to walk away with a yacht. They're going to want cash in hand. But if it was with borrowed

Starting point is 00:11:08 funds, that's absolutely a crazy and audacious move to make. Yeah, I think people were really calling out the timing there. So in a moment, we're going to talk a little more in depth. about some of the assets that are at stake here. But first, a quick word from the sponsors who make the show possible. To swap crypto, a user has to choose among hundreds of dexes on multiple networks, all offering different rates and fees. Do you want to avoid that hassle? Swap on one inch, a top dex aggregator built to get you better rates than any single decks.

Starting point is 00:11:43 Enjoy unlimited liquidity across multiple networks and top level security. Get one inch on your phone now, or swap. on 1 inch.io. Back to my conversation with Adam. You wrote up a long thread on why this liquidation could be consequential for the price of GBT, the gray scale of Bitcoin trust. What do you think will happen with GBT3A owned? And then how do you think that could affect the price?

Starting point is 00:12:11 Yeah, so this is an interesting one that in this past kind of week, we've learned more as these documents have come out, that they did post up a lot of the GBTC. ETC shares that they had as collateral with different lenders. And a lot of that was liquidated. Now, I think part of the challenge is that because this isn't on chain and it's kind of opaque, we don't know how much is still outstanding. I think in the documents there's roughly 23 million shares were liquidated by different lenders.

Starting point is 00:12:41 And we know at peak they had 38.9 million shares or so. So there's still this group of those shares that are out there and outstanding. but because it's below these reporting thresholds, we don't have an update on it. And because we're not getting reports of the assets right now, we don't know where that is, who has it, how it will be liquidated if it's already liquidated and things like that. So that could put a bit of a strain on the GBT.

Starting point is 00:13:08 And I think, as I said in this thread that I had written on Twitter, we would probably see not just the grayscale Bitcoin trust discount widen. We might actually see the market pool in towards it as market makers kind of arbitrage this opportunity, pulling that discount up a bit and pulling the spot price of Bitcoin down. I'm a little less worried about that than I was before we got this big document dump because it is a much smaller amount that could still be out there now. But in these thin liquidity markets, it could definitely still have an impact. where I think there's a broader impact is in a lot of the smaller entities where they may have had vesting tokens or in some of the private equity shares that we've seen, such as in that document, Genesis, who was really hurt by this was talking about they should get some claims on the Deribate shares and the Starkware shares that Three Arrow's Capital was holding. And what do you make of that contention? Do you agree that Genesis is right in thinking that? Well, I mean, they're owed a lot of money.

Starting point is 00:14:13 And so the kind of approach is they can accept what money can get back on liquidation or they can take in-kind assets if they're willing to take that on and if that's what the jurisdiction will allow. And I think actually if I was a lender in the situation and I knew how depressed valuations were right now, both in the liquid market and the private market markdowns, and I saw projects that I had interest in long term and I could have. absorb that liquid capital loss, I would definitely want to take the shares rather than just the raw cash back because they would probably be discounted significantly because part of this liquidation challenge is how much is a deribate share or a Starkware share worth at this point in time. And with the markets being down, I think the lenders have a good opportunity to kind of negotiate on that and probably help them recoup some of this lost investment by the future appreciation of some of those equities.

Starting point is 00:15:13 Basically acquiring them when the prices are low or when they're cheap. Exactly. What do you make of how large of a loan Genesis had made to 3AC Genesis, you know, obviously is considered probably one of the maybe more like blue chip crypto lenders, I would say. And they did have like this 80% collateral requirement. You know, what does this say in terms of their business practices or the crypto lending a space generally? Yeah, I mean, without visibility into what their lending practices are,

Starting point is 00:15:45 I don't want to make too much commentary. My hunch is that they were doing things by the book, and we kind of had this unforeseen, perfect storm of events hit this space where a lot of lenders were caught off guard, and a lot of different assets and collaterals went down in price. And I think they'll probably reexamine some of their risk approaches in the future. But I think, the broader impact here is that we're definitely going to see stricter requirements put into lending desks, especially any of that have, you know, exposure with retail assets. We're going to see these lending facilities and trading desks reexamine their entire risk model. And that's going to create a bit of a credit crunch in this industry because there is going to be less capital lent out,

Starting point is 00:16:33 higher margin requirements, higher collateral requirements, and perhaps even stricter requirements on what type of assets these entities are willing to take as collateral overall. And that's really going to shift the liquidity available in the market and the ability for new startups to get liquid cash investments and really be able to grow. And I think that secondary impact is actually a major concern point that is overlooked because it's very hard to see, let alone calculate the scale of, but I think it is non-triview. One other thing that I was curious about is that DCG digital currency group, the parent company of Genesis,

Starting point is 00:17:12 has assumed the liabilities of Genesis. And as we were discussing, also it's, you know, one of its other products is the gray scale Bitcoin Trust. So I was wondering kind of what you thought the impact of this whole thing will be on DCG as a whole when it's all said and done. It's a great question. I think at their scale and the,

Starting point is 00:17:32 success of operation that they've had, you know, obviously absorbing a loss of that size is painful, right? But I think they're in a position where they can look through it. And I think what will depend a lot is how the rest of their book looks in terms of risk. And if they can look through kind of the turbulent times in the macro environment, I think the outsized volatility to the downside that we're seeing in the crypto market, the worst is probably behind us. I think anything is going to be driven by the larger economy, and we shouldn't see any outsized volatility moves or long-tail risks to this scale again. So as long as they can look through that, I think they'll be in a good position, but it may force them to pull back on risk investment operations

Starting point is 00:18:19 or other lending operations at a time where it could be very fruitful for them, because there are major discounts on startup rounds. And so capital that is being deployed right now into seed rounds is going to pay much higher multiples in the future if this market recovers. So I think it is an opportunity cost for them, but my hunch is that absorbing that is right for them, especially when they're in this huge push with regulators to convert these products that they have in the Bitcoin trust into an ETF. They want to make sure that their gray scale trust products have the best footing, clear stability, are viewed in this blue chip manner and are kind of insulated from any further damage from mass liquidations of assets or claims or things like that.

Starting point is 00:19:05 So I think it is in their best opportunity looking forward and they'll probably be able to weather that storm quite well. One other thing I want to bring our attention to is obviously the creditors to some of the counterparties such as Voyager Digital, which, you know, for a company like that or for Celsius, that is more retail. When it comes to three, you see, obviously it's more like these industry. But I just wondered what your perception was of how V3AC bankruptcy will affect these more consumer-facing companies like Celsius and Voyager and not even just these companies, but frankly, they're customers.

Starting point is 00:19:43 I think first off, it's so devastating for the retail consumers because the people who are using these platforms are the least crypto-native, the least defy-native, the least exposure to that kind of space. And they're really just looking for an opportunity to get a leg up in. society and, you know, make a little bit of money with this investment. And so I think turning them off of the space and wiping out a lot of their savings is so damaging to the reputation of this space and to these individuals in general. I think it's a shame that the centralized lenders are looked to as safer and advertise themselves as safer than defy alternatives, which held up incredibly, incredibly well during this stress. Well, except for terrorists.

Starting point is 00:20:28 Sure. Maybe when I'm saying defy, I specifically mean some of the more robust blue chip, Ethereum-based defy apps that have been around for a while and have, you know, proper collateral mechanics and lending, you know, the compounds and the Aves and the makers, they all held up really well. People lost money, but there wasn't insolvency, right? Because everything was on chain, you knew exactly where we were at. So I think it's a shame that that happened. I think the two major impacts that we're going to see are because so many consumers got hurt at scale. Regulators around the world are going to bring down the hammer in a way that they wouldn't have before and really damage innovation and growth in this industry. We're going to get much stricter regulation because this industry has now handed them the ammunition they need to get something much more far-reaching past. The other challenge is that these centralized entities were really the only place that large pension funds were moving into for crypto. pension fund investment isn't like VC investment. They're not looking for a high risk 100x where they expect something to maybe go bust.

Starting point is 00:21:34 They want their stable late stage growth capital to do a 1x or a 2x and they only invest in mature, stable businesses. And they were convinced that this was the way to play the crypto industry was to get into these lenders. Many of them to very large late stage series C, D, and E investments. those went under. And that means these pension funds who do not have an appetite for risk because they're playing with people's retirement money, they are not going to look at this space in the same way again for years. And that really dampens the ability for this industry to get late stage growth capital for our more mature businesses. And I think that is a huge unseen challenge that we're going to have as our businesses continue to scale in this space. There's going to be a gap

Starting point is 00:22:20 between startup venture capital and going public that right now we don't have investors willing to fill because they've been scorned by this space. Yeah, I think of that pension fund in Canada. Is it Montreal or something? Yeah. Exactly. This is exactly the kind of group that will look at all these events in a very different way from, I think, a lot of crypto people. All right, well, this has been a fascinating conversation. Thank you so much for coming on Unchained. Thank you very much for having me. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Join over 10 million people using crypto.com, the easiest place to buy, earn, and spend over 150 cryptocurrencies.

Starting point is 00:23:05 Spend your crypto anywhere using the crypto.com visa card. Get up to 8% cash back instantly. Plus, 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions. Download the crypto.com app now and get $25 with the code Laura. Link in the description. Thanks for tuning in to this week's news recap. Ex-coin-based employee accused of insider trading. The U.S. Department of Justice arrested former Coinbase product manager, Ishan Wahi, along with his brother and a friend, for committing insider trading in

Starting point is 00:23:39 crypto assets. The DOJ alleges that Wahi leaked confidential coin-based information regarding which assets were scheduled to be listed on the exchange. The men are being charged with wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets, with a maximum sentence of 20 years. The SEC brought similar charges as well.

Starting point is 00:24:01 Overall, the men allegedly generated and realized roughly $1.5 million in gains, according to the DOJ. Notably, the DOJ press release referenced an April tweet from Crypto-Tweeter stalwart Kobe, but posted information about quote, an eth address that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase asset listing post about 24 hours before it was published, rolling on the floor

Starting point is 00:24:27 laughing. While he had attempted to flee the country in May, after Coinbase asked him to appear in an in-person meeting, but was stopped by law enforcement from doing so. He, along with two others, are now in custody. In the press release, U.S. attorney Damien Williams, thanked Coinbase for cooperating, and had this to say about blockchain fraud. Today's charges are a further reminder that Web3 is not a law-free zone. Our message with these charges is clear. Fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. The SEC's naming of nine crypto assets as securities without explanation sparks criticism.

Starting point is 00:25:08 What may end up being even more important than the insider trading case is that the SEC named nine coins, AMP, RL, L.DX, XY, RGT, LCX, Power, DFX, and KROM as securities in its own complaint regarding the actions of Mr. Wahi. Coinbase reported that the SEC declined to comment in response to a set of questions about whether the actions set a precedent for how the agency would identify crypto assets as securities, or whether it intended to bring enforcement actions against the issuers behind these assets, or any exchanges such as Coinbase that have listed them. However, the circuitous way in which the agency identified these tokens as securities caused a fair amount of criticism. CFTC Commissioner Caroline Pham spoke out against her fellow agency's decision via a statement, describing the SEC's move as an example of regulation by enforcement and calling for a more transparent process for digital asset rolemaking. Jake Schervinsky, head of policy in the Blockchain Association, tweeted,

Starting point is 00:26:14 The SEC alleges in today's complaint that nine digital assets are securities, but don't explain their analysis for even one. They also didn't sue the issuers or exchanges where the tokens traded, the people with resources to fight back. Or as crypto lawyer, Stephen Pally put it, how can you charge people with insider trading without charging the massive, publicly traded exchange for listing unregistered securities? After consensus lawyer Bill Hughes, hypothesis,

Starting point is 00:26:44 that the defendants may settle with the SEC, Trevinsky surmised, and then the SEC acts like they've established precedent and moves on to the next target. Yes, that would be my best guess. Immediately after the news about the complaint became public, Coinbase made its own commentary on the roundabout way in which the SEC labeled these crypto assets as securities. It released a petition, calling for the SEC

Starting point is 00:27:08 to develop a new regulatory framework for digital assets rather than continuing with arbitrary enforcement. The Ethereum merge has a date, an actual, well, tentative date. During this week's proof of stake implementers call, Ethereum core developer Tim Bako suggested that the week of September 19th is a realistic target for the merge, depending on the success of a rehearsal on the TestNet Corally, as cited in meeting notes written by Ethereum developer Ben Edgington.

Starting point is 00:27:39 On Thursday, during the all-core devs meeting, projected that the date for the merge on Gorley will hit between August 8th and 10th. Furthermore, even if the merge is kickstarted on the week of September 19th, it won't finish then, at least according to Galaxy Digital researcher Christine Kim, who reminded excited Ethereum's that the merge is actually a bundle of two hard fork upgrades, which will be scheduled roughly two weeks apart. Having a named date, however tentative, may have excited investors. For example, ETH is up 34% over the last week as a Thursday morning.

Starting point is 00:28:15 Additionally, the price of Steeth or Staked ETH, a derivative product that will unlock at some point after the merge is completed, is trading at just a 2% discount to ETH up from a roughly 3.5% discount last week, according to Coin Gecko. Tesla dumped 75% of its BTC. According to Tesla's Q2-2020 earnings report, the electric car car, company sold 75% of its Bitcoin, worth $936 million for fiat currency. Investing YouTuber Dave Lee divided the dollar value of the company's remaining Bitcoin by the value on the close of the day they had sold and came up with the number 42069 Bitcoins as the number that Tesla had remaining. Musk responded, we don't have that many Bitcoin, but it's close. During the company's earnings call,

Starting point is 00:29:07 Tesla CEO Elon Musk explained the move was not a verdict on Bitcoin. Rather, he said the sale of Bitcoin allowed Tesla to boost its cash position during COVID lockdowns in China. Musk did note that Tesla had not sold any of its doge coin. While not mentioned on the earnings call, it is notable that if Tesla had not sold its BTC, CoinDisc estimated that the company could have faced up to a $460 million impairment charge on its books due to the way Bitcoin must be accounted for. Despite the news, Bitcoin appears to be doing just fine with the asset dipping just 2.2% in the 24 hours after the earnings report came out. Celsius's bankruptcy plan, mining. At its first bankruptcy hearing, attorneys for Celsius revealed that the firm owed roughly $5 billion to over half a million creditors, with retail

Starting point is 00:30:00 investors most likely being the last to be paid out. Notably, coined Desk reports that Celsius has roughly $1.7 billion in assets as of July 14th, down from $14.6 billion at its all-time high, and about $3 billion away from being able to pay out creditors. The bankrupt lender cites losses from Terra, the overall drop-in prices in 2022, and a number of losses, including losing access to $50 million worth of ETH via a partnership with stay count, as causes of the massive hole in its balance sheet. To recoup the losses, Celsius is hoping that Celsius mining will become a cash cow, with a company asking for permission to spend $5 million to finish constructing its center in Texas.

Starting point is 00:30:46 Celsius says it already has 43,000 mining rigs and that it could be in the position to mine 10,000 BTC this year, if all goes well, which is a big if. Even if that happens, mining operations would only yield $225 million in cash, a far cry from the billions necessary to make Celsius whole. Celsius's second bankruptcy hearing will be held on August 10th. Gemini and Block 5 staff still in limbo. While the market felt a bit of a reprieve this week, crypto companies are still hurting.

Starting point is 00:31:23 TechCrunch reported that the Wengel Vos-led crypto exchange Gemini quietly let go around 7% or 68 employees this week. The news comes less than a month after the company cut temporary of its workforce, citing a crypto winter. Similarly, CryptoLender BlockFi has begun offering employees voluntary buyouts just a few weeks after cutting 20% of its staff. To Crypt reports that employees who sign up will receive 10 weeks of paid leave and health insurance. Blockchain.com also made brutal cuts this week, laying off 150 people or 25% of its team. Minecraft Bans NFTs

Starting point is 00:32:01 Mojang Studios, the firm behind Minecraft, published a statement declaring integrations of NFTs with Minecraft are generally not something we, Mojang Studios, will support or allow. Additionally, blockchain technologies writ large are not permitted to be used inside the Minecraft client or server applications, nor will any skins, persona items, or worlds be allowed to be tokenized on a blockchain. Mojang cited multiple issues with NFTs. For example, the purchase of an NFT provides the token that states the ownership of the original digital file, and yet with any digital file, that file can be copied, moved, or even deleted. Mojang also mentioned that speculation was another signal to stay away. However, the main reason for disallowing NFTs is a lack of inclusivity.

Starting point is 00:32:49 NFTs, however, can create models of scarcity and exclusion that conflict with our guidelines and the spirit of Minecraft, wrote Mojang. To ensure that Minecraft players have a safe and inclusive experience, blockchain technologies are not permitted to be integrated inside our client and server applications. The announcement seems to have surprised NFT worlds, a third-party blockchain focused on NFT Minecraft integrations, which saw its floor price fall 70% according to CoinDesk. Circle, a fully backed stablecoin. In its July 14th report, Circle, the issuer of the stablecoin USDC released its first full breakdown of USDC reserve assets as part of a commitment to increasing transparency and disclosure around USDC. Based on Circle's report, USDC is slightly over-collateralized

Starting point is 00:33:38 as of June 30th, with $55.7 billion in assets made up of 76% U.S. Treasuries and 24% cash, backing 55.4 billion USDC tokens in circulation. Notably, Circle appears to have kept its promise to move out of commercial paper into solely cash and treasuries. A week earlier, Paxos, the company custodying assets backing USDP and BUSD, provided a similar report showing full backing by treasury bills, treasury bonds, and cash. Tether, the issuer of USDT, the largest stablecoin by market capitalization, has yet to reveal a similar document since its attestation in March. Polygon starts the zero-knowledge race. Matter Labs, the team behind ZK Sync, a ZK Roll-Up solution, unveiled plans to release ZKSink 2.0,

Starting point is 00:34:32 which bills itself as ZK EVM to Mainnet 100 days from Wednesday this week. With the main net launch coming soon, ZKSync is hoping to be the first EVM-compatible ZK Roll-Up to reach the market. Ethereum scaling solution Polygon also announced the launch. of a new zero-knowledge roll-up called ZKEVM, which is still in TestNet but will go live by the end of 2022. ZK. Roll-ups have yet to hit mainstream usage in crypto, though, due to the difficulty of interacting with the Ethereum virtual machine, which no company has been able to accomplish yet. Time for FunBits! A joke turned into a 98-Eath loss. This week saw some crazy ENS news, including a sale of Sony.Eath for $72,000

Starting point is 00:35:22 and a $1 million bid for Amazon.Eath. One user who found the ENS purchasing spree and bidding more to be frivolous decided to mint a meme about it. The user, Franklin is Bored, minted the ENS name, Stop doing fake bids, it's honestly lame, my guy, dot Eith, and immediately added a 100th bid of his own to his NFT. The huge bid prompted a bot to offer Franklin 1.89Eth, which Franklin decided to take. However, before Franklin remembered to cancel his fake offer for 100th, the bot sold the NFT back to Franklin,

Starting point is 00:36:00 because his 100th offer was still live. To summarize, Guy fake bids 100th on his own domain accepts a different bid to sell it for 1.8th. new owner accepts his 100th fake vid, instantly down 98.2Eath. This up-only meme comes full circle. On this week's episode of the NIA podcast, which I believe is not investment advice podcast, guest Michael Saylor did the unexpected. He recommended my book, The Cryptopians. For context, Saylor was discussing why he was skeptical of Ethereum and used the backstory

Starting point is 00:36:40 from the Cryptopians to make the case that the Eth monetary policies and anything but cemented. Have you guys read the cryptobians? You should read the cryptopians, right? It's the entire story, right? I mean, the network was hacked within, you know, a short period of time after it was launched. And then it was hard forked. All right.

Starting point is 00:37:00 Well, I have to say, Michael, thanks for reading my book. Thanks so much for joining us today. To learn more about Adam and the 3AC liquidation, check out the show notes for this episode. Join the chopping blog live stream on YouTube next Tuesday, July 26, at 6 p.m. Eastern. Haseeb Qureshi, Robert Leshner, Tom Schmidt, and Turun Chetra will be chopping up the juiciest news in digital assets. Subscribe at YouTube.com slash c slash unchained podcast. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Matt Pilchard, Juan Aranovich, Pamu Jemdar, Shashank, and CLK transcription. Thanks for listening.

Starting point is 00:37:42 You know,

Unchained - Why 3AC's Collapse Could Spell the Start of a Crypto Credit Crunch - Ep. 376

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