Grayscale ETF Triumph, Uniswap case dismissal, and 10 Brian Armstrong Ideas | Roundup

Transcript

[Music] all right we're back we got the Roundup we got the round of Santa you're uh Cycle City today huh I am I love cycling uh so I'm doing some training and high altitude and uh living the life man when you see me smile like this is for two reasons one obviously crypto two cycling or running just two minutes yeah I can tell you got that Rider's High going right now but there's a lot of like Sheen and Legally Blonde it's like endorphins make you happy like I'm the kind of person that if if I'm not doing exercise on The Daily I mean I do rest once a week um but it's uh it's you know I go crazy I don't do it yeah it's so much out of it how many how many miles are you

cycling or kilometers I should say for you European um today I cycle 130k um I'm in the Dolomite so did a lot of climbing yesterday I did 105k so 130 is that that's uh what 70 miles 80 miles that's like 75 miles yeah give or take so 70 between 60s 70 80 miles each day now not every day is like really long but when I'm here I'm not here for many days but just the the amount of cycling it's like the most beautiful mountain range in the world and I've been to like no I've been with Himalayas I've been to uh mountain ranges everywhere really South America North America every continent I've visited and climb mountains I think the dolomites are the most

underrated even more beautiful in the Alps uh just incredible scenery that's gorgeous man if anyone ever gets a chance to come up here you know you easy access and it is unreal love it well if you've been uh paying attention to a little big week for Bitcoin huh very big week uh I mean there's a lot to cover in this episode of course the ETF approval seems closer and closer uh particularly given the ruling with grayscale we'll talk about that um related on the regulatory side I mean crypto just keeps winning there's a second big um you know the uniswell Paradigm kind of dismissal class action where they're

trying to be pinned on on trading of these like quote-unquote you know [ __ ] coins but uh the court dismissed that so that's a big win we'll talk about that as well um we won't delve too much into that because we're having a regulatory bot next week so we'll save a lot of meat for more uh credentialized and competent people to comment on this stuff but we'll touch on it and then of course uh related to coinbase I mean you were the one that brought this to my attention there's a great um you know Brian Armstrong has been more vocal these days and I think that out uh kind of a request of hey things I want to be seen built and so we'll comment a lot on that I think that'll be the substance of the episode does that sound good to you yeah

that's great yeah yeah let's talk about grayscale first so uh let me let me just tee this up maybe a little bit so actually the first so this um what is it yesterday on Wednesday the uh grayscale won a big thing one a big thing in the courts against the SEC related to their um uh to their ETP uh ETF um and the I think just before getting into like what that ruling means and what actually happened just to tee this up a little bit for I mean since I've been in crypto people have been basically applying for Bitcoin ETFs and I think the first one was the Winklevoss twins actually back in 20 remember when that was 2013 or 2014 I want to say I think it was 10 years early yeah I think about 10 years ago uh it's been more

than 10 years since the Winklevoss twins applied for the first Bitcoin ETF and since then there have been a number of firms you know Arc uh Vanek uh you know bitwise um grayscale many many times and uh when we started to realize that like this actually could go move forward and there actually could be a black rock ETF uh or a Bitcoin ETF is when the June BlackRock ETF filing right because June BlackRock has filed for you know 550 600 ETFs and I think they've only lost one of those so that was kind of the signal to the market and we talked about this back in the June June Roundup that that was kind of the signal that they they knew something was coming right they

knew something was going to happen so uh what happened in this grayscale case is that um uh let me just kind of tee this up there are two folks with great threads as always Jake travinsky who's going to join us next week and then uh uh Marissa from blockchain Association so I'm just going to read some of Marissa's thread and kind of quote from this so to set the stage grayscale was not the first like we just talked about to seek approval of a spot Bitcoin ATP several others have um the SEC has denied all of them but importantly and this will become important later they have approved two Bitcoin futures um evidence demonstrates that there's a 99.9 correlation between spot and Futures market prices so for this denial uh of a Bitcoin ETF to be proper right

because they've approved the Futures but they haven't approved the spot the SEC must have a reasonable and coherent explanation for the inconsistent results for why they're approving Bitcoin Futures but uh etps but not Bitcoin spot um otherwise they acted arbitrarily right and and opinionated which this is not supposed to be you know an opinion supposed to go off the law and so in denying these proposals the SEC found the products were quote not designed to prevent fraudulent and manipulative acts and practices so what does that actually mean what it means is that they're saying that the size of the market was insufficient to prevent fraud so they're saying the market is not big enough to prevent fraud in the market so to remedy

this the SEC required a surveillance sharing agreement with a related and regulated market of significant size and according to the SEC every spot Bitcoin ETP proposal so far has failed to satisfy this significant Market test so uh that is kind of what the the uh the court was looking for the court was looking for whether the SEC coherently and reasonably explained why it treated spot and Futures ETP approvals differently um that is what they lost they found that I think there were two kind of attack vectors in the courts here if I was uh if I'm the grayscale lawyers I think the two attack vectors they were going after were one uh the SEC never explained why grayscale owning Bitcoin

rather than Bitcoin Futures impacted cme's ability to detect fraud uh it claimed there was a difference but the SEC kind of failed to back that up they claimed it and then when challenged they couldn't back that up and then graciel provided evidence that fraud in the spot Market would present identical problems in the spot in the future ETP right so if there's fraud in one market because there's this 99.9 correlation there's gonna be fraud in both markets and uh the SEC baseball again they didn't really dispute that they basically just said that the correlation analysis uh had insufficient evidence without planning it though and that's not enough for the court so the court agreed with grayscale here um they said the sec's Unexplained discounting of the relationship between the two markets so the spot in the

Futures markets fall short of the standard for reasoned decision making so that's the first attack Vector second attack Vector uh the SEC failed to explain how the proposed ETP would be the predominant influence on the price of Bitcoin Futures traded on the CME uh so the sec's attempt to kind of connect the value of grayscale's assets to impacting the price on CME was unreasonable and again the court found that despite uh grayscale's demonstration to the contrary if the SEC thought grayscale would be the predominant influence on the CMEs Market the SEC kind of failed to sufficiently explain that conclusion so bottom line I know it's kind of a long tangent here the SEC uh the court found that the SEC

failed to treat like cases uh the two cases alike it concluded that CME was a large Futures mark Market is as it approved the Futures ETP but then failed to explain why the reasoning does not apply to grayscale and in the absence of a coherent explanation this unlikely regulator unlike regulatory treatment of like products is unlawful so boom grayscale wins would love to hear your I mean we've been at this for a decade would love to hear just like yeah what you kind of felt in this moment here well I actually want to ask you first which is and I'm cheating here um where where can the path for an ETF approval be further derailed right because I think a lot of people would

have looked at this and said clear Runway it's imminent the crypto prices of course reacted very positively on this news uh and then have dipped some but um certainly Bitcoin was up I think up to seven percent uh almost immediately like in a few hours and then and then other assets kind of rallied accordingly um but Bitcoin was leading the chart so the question for you is what else at this point can be a roadblock for the approval of an ETF um yeah good question so um so moving forward here the ball the ball's in the sec's court right and a lot of it depends on whether or not Gary Gary gansler wants to fight or fold

um so the decision whether to appeal uh this is my non-legal brain here working this is just my understanding the decision of whether to appeal or not to to appeal they have 45 days to make that decision if they appeal um so if Gary says look I don't agree with the courts here I'm going to appeal uh the order will be stayed until a decision is made on that appeal however in that time there are several other Bitcoin ETFs that they have to make just uh that are going to be filed right Arc and bitwise and BlackRock and folks like that and actually I think Arc is the first one that's going to come come due so Arc filed back in I think it was May maybe April or May um you have 240 days if you're the SEC to make a call on that so what is 240

days after that I think that's like January right I think they have a deadline of January 2024. uh so that's that's one thing is like they could they could appeal that's they could fight this the other thing is that they could actually not fight this but come up with new rationale uh new rationale to get grayscale to which would then cause you know grayscale to see them again and we'd go down this path so so they can't use the argument of hey this is not a market of sufficient size to prevent manipulation can't use that but they could try to find something new and then we'd go down this path again grayscale would fight them again now there's a third there's a third thing which is um I think they could they could actually probably resend the Futures ETP but I don't but I don't see them doing that

um yeah yeah I mean uh it will certainly be interesting and so basically what you're saying because a lot of commentators said hey you know we could have an ETF relatively soon everyone comment said that there's another one that said like you were saying just now which is most likely Q4 q1 um but uh you know the market is a discounted mechanism and they also assume that it's an ETF and uh we'll get approved within the next you know weeks to six months if you will um but yeah it does sound like it's uh you know the SEC can can draw this out uh you know they certainly have done that in the Ripple case right they they've said that uh they're gonna

appeal it I believe um and so um yeah that would be interesting to see the the thing that I also looked at was and we've talked about in this pod was the the discount of grayscale um products compressed pretty dramatically you know this is gbtc in particular which is the Bitcoin trust um the discount at one point reached you know this is like Peak through arrows um bankruptcy um and blow up because they were involved heavily in that carry trade I mean the discount on this went all the way to like 50 or so 47 uh and now it's traded you know I think there's still a

discount discount's like 17 or so 15 um so I'm looking at that and that's that's fairly interesting that that is compressed but it's still not a pair you know you could argue that these closed-in kind of mutual funds still never traded par but there's still a very big if you're like a our hedge fund out there I'm sure you're looking at this and you know there's still a fair amount of room here between 17 15 I think people just have I think people have PTSD nine people have just gotten crushed on that trade for so many years that uh it's the Widow trade exactly stainlessly called there's there's two very famous trades in quick one the kimchi trade which is like you know the the discount in Korea uh and then this Widow trade which is claimed

the lives of many yeah um okay and so where are you standing here are you optimistic in the range of outcomes how do you think this shakes out uh cautiously optimistic I would say I think they're uh for the first so if if BlackRock had not filed I think BlackRock people can't sleep on that and you know that filing back in June is super important I think if BlackRock wasn't here uh Gary goes to the mats and he and he fights this I think now though there is political pressure on the SEC to approve this spot Bitcoin ETF and this is no longer just about grayscale it is about all of tradpy and I think I think this was Jake travinsky who put this really well all of Trad five is now ready for a Bitcoin ETF um and if you actually look at um

uh BlackRock like BlackRock being in the game now they don't file and not get this thing passed through and if you think about uh Larry Fink right who runs BlackRock his influence on DC right can think about it he was considered for treasury secretary in 2016. uh he I mean I feel like half the testimonies of like Finance CEOs are fink right testifying about covid-19 relief about financial regulation about economic issues I mean the FED literally hired Blackrock in 2020 to purchase billions of bonds and securities to stable stabilize the markets during the pandemic like they literally called on BlackRock to do that um and right he serves on the New York Federal Reserve board

um and I've seen like you've seen him be able to pressure he pressured like he's pressured the biggest companies in the world and I think he's pressured some of the biggest uh geopolitical leaders in the world as well um yeah whether that's on yeah she's ESG stuff or lobbying efforts or uh you know when he I remember last year he pressured Exxon Mobil to invest more in clean energy through all the shareholder votes that they have and which yeah so I think you can't underestimate that yeah I'm in your Camp too I mean I think like the decision for ETF does not compute in my investment process although I think it is very important for the legitimacy of the industry and and I think we've already in some

capacity won as you said because because BlackRock is in the game and I think that alone to me is more perhaps even more important than the approval or not um I think the approval will come at some point I'm not playing the game of timing I just think that this asset class moments like those where you see a participant like BlackRock come in the game is is a win already for the industry so I'm not waiting or playing whether or speculating whether it's going to happen in a week or six months time or a year I certainly think like you that it can be a more drawn out process and so I

kind of in a range of probabilities I think that that might be the case yeah um here's why it might be actually even fast here would be like if I was being so I said cautiously optimistic if I was being really optimistic so when people talk about the 240-day approval for for ETFs it's actually not a 240-day approval it's a 240-day process that's split into four stages so there's a 45-day initial review window which then they can approve or not approve usually what happens though is they extend it to a second 45 day initial review window which can then be extended again to a 90-day period which is called the order instituting instituting proceedings which can then be extended to a final

60-day period after which the SEC must publish its decision so if I'm being as optimistic as humanly possible I mean you can approve these things quicker than 240 days you don't have to wait for that so and I just pulled up there's a I mentioned Arc there's Arc bitwise the Invesco Galaxy Bitcoin trust I shares Bitcoin trust van EK Bitcoin trust Wisdom Tree Bitcoin trust the wise origin Bitcoin trust which is Fidelity and uh the valkyrie Bitcoin fund so those are all set to if you extend the 240-day window out those are all uh Arc is January 2024. the rest of them are March 2024 so look by the end of q1 we could have you know eight eight to what

is it eight to nine ET Bitcoin ETFs in the market yeah now importantly Europe already has these is my understanding Canada has one or two of these I believe yeah but who cares about Canada no no what I'm trying to say is these already exist outside right and I think Jacoby Asset Management in Holland or something that's right and so that my point is there has been historic like if you study history like the gold and I've said it before the gold ETF approval there's a time where the U.S resisted that and then it got approved in Europe and then it came to the U.S and so I I think again we're following the same pattern here history is rhyming I guess like a listener might be wondering like what's the point of all that are we

talking about the ETF and you know beyond and I think there's a good segue into the second piece of regulatory action the uniswap thing which is you always got to wonder there has been I think at this point more harm done by not approving an ETF than there has been presumably any claims you can think of what the harm would be of having a crypto ETF and I'll tell you why grayscale again this this idea of a discount I mean that's a huge amount of losses for people right whether it's it's on paper or not but it is trap liquidity and this discount has been has been very impactful for people that have invested

um whereas an ETF wouldn't wouldn't have that issue and so I think that's that's the thing that if I'm some of the more vocal members of Congress here that have continued to say along these cases I think the common denominator has been it is up to Congress to come up with rules because regulatory by enforcement and the lack of clarity has been very cost prohibitively costly for crypto startups like it is it is stifled Innovation but more importantly it has harmed the consumer right you could argue like what's the harm of like an airdrop like there's so many but Financial inclusion has been impacted on a number of dimensions and particularly like the the amount of like you could argue the coinbase

stock being you know hit pretty hard after the SEC sued then but most of the just the discount itself and these Grace code products is is I think the one of the things that if I'm a member of Congress I'd be pointing to that and say it is it is fundamentally important that we have an ETF because otherwise you have these things that are harming the consumer and everything in financial regulation and you tell me if you think otherwise should be centered on creating fair and efficient markets primarily fair and act and like including like Financial inclusion and I think at this point I mean the evidence is just so clear that uh by not having an ETF there is a lot of harm being done so that's the thing that I think is a

good segue into the second piece of regulatory action that we highlighted unless you want to talk about I actually have one more thing I mean yeah go ahead well this is something that we talked all right so ETFs let's think about what this could do to the market right I need to and you can I think you you brought up gold in Europe and then the US and I think that's an apt comparison and you know if you you and I like you and we are not impacted by an ETF necessarily because we can buy Bitcoin you know in self-custody or keep it on coinbase or something like that but if you're a large institution there are like five reasons an ETF like really impacts you right you you or maybe four main ones like enhanced liquidity a lot of Institutions let's say you're trying to

deploy two billion dollars into into Bitcoin it's very tough to do that you have to like get an OTC you have to get like a crypto native OTC desk and implement it like that uh the ETF is going to bring enhanced liquidity it's going to reduce the need for physical Holdings so even though you and I are comfortable holding Bitcoin and self-custody uh in the same way that people didn't want to hold gold physically uh people don't want to hold Bitcoin they don't want to deal with that and so I think it reduces the need for the physical Holdings it does increase price transparency uh and price discovery which institutions want and then uh the potential from manipulate manipulation in the market uh this just increases the size of the market and it bring and brings like more regulatory scrutiny to the Bitcoin markets which

then I think draws more institutions in as they are less scared to to allocate to that so my question on the back of all of that is um I remember one point we were talking you had very little maybe no Bitcoin exposure uh I think a couple of months ago you started actually and again not Financial advice I'd we don't you know not Financial advice all that stuff like I think you started buying Bitcoin again for the first time earlier this year what is your current like thinking around your personal exposure to bitcoin especially relative to to ethereum I haven't changed the allocation since back then I do have some exposure obviously uh it is meaningfully less than other crypto assets I mean my

strategy is primarily in the private markets is investing in early State startups but I do have core Holdings liquid Holdings um I do think that so I haven't like changed I haven't added to the position um but I do think that I mean it's an interesting it's an interesting setup and I want to go back to the kind of things you listed out just now when you think about what this does we had a another podcast that is coming out um where we were talking about the impact that it will have on large crypto funds that basically track the index and have a you know if you're a billion plus fund a lot of that is you know held in

in a lot of the majors in order to deploy that size and so you know historically the industry is allocate the investors have allocated to the industry by investing in in Venture funds hedge funds and and grayscale products right having an ETF has I think an impact You could argue on large-scale funds um also has an impact on grayscale if it doesn't convert to an ETF because the fees are very very high I mean it's charging like a one percent fee or so whereas an ETF charges basis points I mean like an order magnitude less um and so you know into the idea of price Discovery and liquidity like if there's

any inefficiency in how the ETF is traded you can there is going to be plenty of people arbing the physical versus ETF like like that that's gonna happen and so it just creates tighter tighter markets um if you're this is not tax advice but I think the a lot of folks invest even crypto natives historically have allocated to grayscale products through like a tax advantage account like a Roth Ria or an Ria which is when you think about the ETF I mean that also becomes a possibility here which is you know it's it's fairly advantageous now you should go talk to your lawyer you know your accountant and

whatnot but having an ETF is very kind of you know just more possibilities of getting access and exposure to particularly Bitcoin in this case um and have some sort of you know you know have a number of strategies at your ability you know options Market you know you could borrow against that you could do it on a cost-effective manner right and so I think uh one of the things that is going to be interesting is how coinbase microstrategy or just huge number of Bitcoin Holdings like how all these different things that have been proxies for getting access to crypto

uh change as a result of of just a pure ETF approval and access do you do you think they get do you think they are helped because it expands the market or do you think they get hurt because uh they've you know coinbase is acting as a proxy for someone who wants to go long Bitcoin but doesn't really want to you know maybe buy the underlying uh it's an interesting question I mean the other one I didn't mention is minors and I think miners probably get hit the hardest because mining has just been a terrible business like you you can you would rather own just I mean I in my opinion every Miner that I've looked at for a long time I

just never get my arms around why it would outperform the underlying and I think similar Dynamic happens in the other market oil and gas market like exploration and Drilling and exploration is very tough business you'd rather own like oil I guess or uranium expiration like you know I mean like it's the the mining aspect of it miners I think have a struggle challenge business um and so maybe a lot of the capital flow that has invested in those transitions to just the ETF um to track the underlying performance to your Bitcoin versus an operator in this in the system microstrategy is a bit different if you want have some

sort of um inclination to and believe that and give any credit to like their Data Business uh and I think they mentioned that they want to make a big play and you know blockchains are data rich and they they historically like pivoted from and there were one like microstrategy over the years like even the 90s like has been very much like a Data Business and like creating and servicing insights and processing like unstruct your data and whatnot and it wasn't being a mobile and like reinvented its business and like but and now it's saying the same for crypto like it's going to like come up with a product that you know is processing all this crypto like all this blockchain data and like surface insights so if you have any credit without it yeah I guess but

um yeah I mean I don't I don't know I mean it's also leverage writing they have like huge amount of borrowings um to purchase these Bitcoins so so I don't know I mean the maybe a question for you as you are in the U.S like where would you would you in in the realm of possibilities by the way they're not Mewtwo exclusive if you had a hundred dollars to invest from scratch and you could and the options are going by in Bitcoin and storing it yourself your wallet buying the ETF or some of these other options coinbase microstrategy miners gbtc like how would you allocate that

100 for me personally I'm just buying I'm buying I'm buying Bitcoin in coinbase probably like those are my two I'm buying Bitcoin and coinbase I because I think something like gbtc I I don't I'm not I'm not a Trader I don't wanna when I think about like the ARB that is a trade like that is someone thinking about the trading strategy there and I don't I don't have the mental bandwidth I don't want to be a Trader it's like I want to buy something and forget about it for 10 years and I want to just like I that is how I invest I don't I probably leave money on the table but I don't like the mental bandwidth of trying to think through different trades I like just and I like having 99 of my mental bandwidth go towards building block works so the little bit of mental

bandwidth I spend on investing I like buying things that I want to hold for 10 years and right now that is Bitcoin and coinbase um yeah and the thing I'm thinking about the ETF well uh I mean why buy the ETF when you could buy the the underlying wow actually I mean that's okay I'm curious gold yeah you could buy a new Roth I mean like that that's what I'm saying that you're in the US and so I think you can't do that with physical Bitcoin can you no but you can't put that much in a Roth IRA anyways I think it's blah blah I'm saying but but you can yeah I guess okay Roth all right yeah I guess you would max out your allocation there and then

that's a good question definitely not minors I'm not buying mine um uh no yeah but so it's interesting because I think the most dangerous thing in crypto from an allocating perspective is like thinking that this time will be different right and if you look at all the last Cycles um you know Bitcoin leads right Bitcoin leads flow that Capital flows into eth that excess capital and eth flows into in 2017 is icos uh in 2020 it was D5 uh 2021 it was nfts um and uh and then and then that keeps pushing out on the risk Spectrum until until the until the Cycles is over and if you look at what's going to happen next year right bitcoin's body TFS Bitcoin having a presidential election

right that could very well lead into like if the the number one way is for the way for the Dems to stay in power you turn the money printer back on um I know they don't have direct control over that obviously but you know it seems like those kind of different parties of the US political system are kind of converging it does feel like sometimes so I mean like I don't know tough to be bearish Bitcoin right now yeah no I'm certainly not bearish Bitcoin I think there's a lot of positive developments yeah um one of the things that you know just as an aside you know it's we had uh money from Stacks here on the pond and talking about ordinals and whatnot I mean I saw a note out there that were no activities just got like cratered um and so a lot of hype just has gone

away I don't know I think it would be interesting to have someone uh in the pod just follow up on that point that I know uh what's his name um URI has been very vocal around the lack of like the the lack of like Innovation amongst core Bitcoin developers and like uh historic I mean historically there's been a resistance to kind of out innovate uh and just being critical of other experiments like ethereum and everything else um pornos felt like it was sort of a sea change in terms of uh maybe an inflection point of saying okay well let's let's capitalize on this

let's innovate let's create kind of like two smart contracts you know whatever it is to create like D5 thriving ecosystem in Bitcoin I mean it is probably will be in the foreseeable future just the largest the largest um corn I mean the largest uh digital asset and so there's a lot there that you can do and so anyways I'm I'd just be really curious to to keep track on the I I haven't I just saw that or no it's like just like went to zero again yeah hey everyone we'll get back to Empire in just a minute but before we do that I want to let you know that we have permissionless coming up permissionless is Big conference that block works and

Bank lists put on together it is the biggest the best D5 conference in crypto this year it is in Austin Texas September 11th through 13th if you've been in crypto for a while you know that bear Market conferences are the best kind of conferences we have a phenomenal lineup of speakers a lot of the guests that you hear on Empire are both going to be speaking there you will have the opportunity to meet them there and a lot of the topics that we cover on Empire ZK attack roll ups account abstraction Mev app chain thesis a lot of that kind of stuff that will all be discussed at permissionless this year so because you are a listener of Empire you get a special discount that's right Santi and

I negotiated with our marketing team you get 30 off if you go to blockworks.com forward slash permissionless Empire 30 is going to get you 30 off your ticket today when I'm recording this that's about 300 off your ticket so type in Empire 30 when buying your permissionless ticket you get about 300 bucks off click the link at the bottom of this episode it's in the show notes do it quickly because prices go up all the time and if you are going to permissionless hit me up let me know shoot me a DM on Twitter I would love to meet up with you there all right let's talk about one more win in the courts which was uniswap and then we can move on to the coin uh Brian's kind of like 10 things that he would invest in so if you remember back in uh

uh there was this original complaint last year uh that alleged that uniswap um I think it's uniswap and their founder Hayden Adams and Andreessen Horowitz and Paradigm were responsible for rampant fraud on uniswap and they pushed unit swap to register uh with the financial industry regulatory Authority uh plaintiffs also alleged that uniswap offered and sold unregistered Securities it would have been really bad if they won this they uh the court just concluded that um this is that I think they basically just lost the the uniswap just won this basically um and I think the court said that even

though they see merits in the defendant's Counterpoint uh that this case is more like an effort to hold a developer of a self-driving car liable for a third party's use of the car to commit a traffic violation or to rob a bank which is basically saying that uh the unit spot protocol is primarily lawful has primarily lawful use and that protocol devs are not liable when others misuse it um which is actually really interesting as you know we were talking about this last week or the week before with uh um who's the guy who just went to jail Roman right um yeah the tornado yeah with tornado so I think the trend in the courts is kind of turning here and it's really positive for hopefully this ends up applying to

tornado and um yeah I think it's been like a fear that there'd be like a bad legal interpretation of what protocols really are and it's I don't know it's motivating for for Builders to see this uh to see them get this one absolutely yeah you know we said time time again you have to believe that the courts will fairly interpret the law and the intent of uh you know the law and and and so and peel back a lot of the kind of the bullying that has happened and overreach arguably so it's very positive uh as an aside there was a nft project that was slapped by like promising you know as a deems of security and um this is uh forget the name of the

project but uh you know I I think that there's uh one I mean I think a few of the nft groups I'm on or if it's you know panicking over it but if you look clearly at the complaint and like the I think it's the SEC document I mean it was a fair amount of very aggressive language from these promoters of nfts and developers if you will so this is an important just point that I want to make which is yeah we're seeing a lot of positive developments in the courts but I think because we don't have Clarity like like rules in place one if you're a hopefully if you're a developer you you have some optimism

here but still consult with lawyer and there's still like I think at this point there's been precedent particularly coming out of the Ico phase where there's like certain things that a lawyer would tell you very clearly hey this is not something you should be doing these are kind of the as as we know it and based on President these are kind of the things that the path that you could follow here reasonably and and hopefully you were on the right side right as many other projects including unislab right so anyways it's important to to make the distinction that there is still fraud happening there's still obviously a lot of Nefarious activity out there but through rulemaking

you kind of are more able to focus on going after people that are you know um committing fraud and violating the law but you don't have these laws in place and so anyway so just want to make that point because you know for maybe a skeptic listening say oh you crypto Bulls you know you think that the game's over like no there's still a lot of fraud as there is in any industry right in any Market but I think your ability to to to enforce and to protect consumers increases dramatically when you actually have clear rules and and so that's what we're trying that's what we're excited

here because we haven't had Clarity in the last since day one yeah foreign let's talk about uh non-regulation so this week a couple days ago Brian Armstrong founder and CEO of coinbase shared uh the 10 things that he's most excited about in crypto and adding a bit of context saying look if I was uh I'm running coinbase so I can't go build these things and coinbase is big but we're not you know we got to stay focused we can't go build all these separate things so if I was starting over today and I wanted to go build and found something in crypto here's what I would go build today I'm going to read off the 10 things that uh kind of his crypto wish list things that he would go build one a flat coin we'll talk about all these in a sec one a flat coin so

this coin that tracks the price of CPI two on-chain reputation system three on-chain ads uh you weren't on this but we just recorded an episode with Antonio spindle um help build Facebook's ad Marketplace uh really interesting on-chain ad conversation for on-chain Capital formation five a job or a task Marketplace kind of like a you know five or upwork or something like that on chain six privacy for L2 7 P2P exchange fully on chain eight more on-chain games nine tokenizing real world assets 10 tools for Network States I'm curious when you read through this and you watched this kind of presentation what were the kind of uh either end of the spectrum the most exciting no-brainer if

it was the right founder I'd back that in a heartbeat and then the flip side of like oh yeah I know it's Brian Armstrong but like that that one I don't I don't know about that one tools for nation states is interesting aggressive though like I read bologies nation states like yeah I get his point um I don't spend too much time on that but that felt like a stretch um and and so it reminds me like Dow tooling Solutions which that's what I thought of doubtful I was like all right I don't want to focus on that it's just like the things that I get most excited about and I spoke with Jesse from from base in the coinbase team about this is having Unchained reputation is I think it's a lowest hanging fruit I

think we have at this point particularly if you deploy through base like coinbase has over 100 million users like they have data on all of them and they've done their checks they could very easily issue you an nft it says you're a registered user you know you you've passed kycaml which you could argue not efficient whatever but at least it's it's that it's not a bot it's not and so it's a real human being and so I think that's the I mean if I'm coinbase like they should just deploy it themselves there's uh an interesting project backed by like I think they invested in it with variant leading called oh what's the name of it like Sesame or something

which is basically like an nft that attests to like real worldness and human liveliness if you will uh but reputation score is hugely important I think it's gonna happen sooner than later I want to say privacy as a second but as someone that has been around for a while like privacy is that cult like it's like zero knowledge proofs it's it's it is a Holy Grail right he did say something in the up in the in the uh video that I actually don't agree with he said um privacy should be opt in not like not opt out meaning

you should designate which things you want private and not and I think there are that just doesn't work because if everyone by default is not private the people that are doing and electing to be private raises suspicion and this happened with um shielding like zcat uh for for forever had this like opt-in not OP out and very few transactions were actually shielded meaning private my understanding is if you had done that you would have gotten a call from the government almost like you would have gone like inspected and I know a few funds that did this

um and then that I think then Z cash went through and did an upgrade of doing all transit for context cache as a privacy preserve like a privacy first coin like layer one if you will um but once they did an upgrade every transaction was by default private and I think that's what you need to have um in order for you know the system to to actually work but uh on the scale of how like being practical like how is that that gonna happen I mean I know zero there's been a lot of work and progress in zero knowledge proofs but I think we're still a ways away from from having um from having like true privacy on

chain um so so those two important I think are would be huge the implications going back to reputation um can't be like understated because that would increase efficiency and defy that would allow for think of um permission default environment where you're still settling on an L1 like ethereum right and you still have that guarantee but you know who your counterparty is you can you can go and talk to a lot of large financial institutions and they would most likely get more comfortable of interacting on

chain the Visas the jpmorgans of the world to use something like ethereum and use a an amm like uniswap but an implementation or a lending a money market like Ave or compound where you know everyone where everyone's a verified user and has some sort of reputation score I.E credit score plus right now mind you that that I think is where D5 is really going that's what I'm really excited about I just backed in L2 that is very focused on this um because I think this is the path forward to getting a lot of like the traditional system on chain yeah so those are the the main two the third one that I just want to touch on and I want

to hand it over to you is is marketing and I've said it before just today actually there was a a company that was backed by Kindred Ventures and there was a lot Gail and a bunch of other folks like back that I think it raised 4.3 million to uh I think presumably like focus on this segment of the market which is um as more and more non-speculative pure use cases emerge Like Jesse from base was talking about like you know having like an open table on chain where on base for a once which I think is the point where you as soon as you go to restaurants you check in you get an nft um and like there's some sort of reward system in place and you can pay with a stable coin so a lot of these things

start clicking right um that very easily lends itself to marketing and a whole ad Network behind it um and referral programs uh right which I think some crypto native projects and D5 have done this like urine for instance has referral programs like a wild like Argent if Argent funnels money to a you're involved there's a the smart contract to text that and so there's a commission paid out based on the fee all of that is going to be a massive massive industry particularly when you think about the challenges of cookies in web 2 which have basically in some jurisdictions like Europe have like been heavily impacted uh not only that but

it's like blockchains are transparent if you don't have privacy and if you have if you issue an nft to someone when they walk into your store they go to your restaurant they fly whatever um and the nft just commemorates that activity well all of a sudden you have access to all that information in the wallet and if you're a brand like your ability to Target and Stitch together maybe web through data or web3 data is is a huge advantage and any marketer that is looking at this and appreciates that I think just jumps out of his seat and

says wow this is the this is the next this is what the next wave of marketing looks like right and I don't know those were the things that um I was mostly excited about um I think all of them made sense but these three were again the reputation privacy and and marketing like a marketing like a ad network if you will the marketing and reputation practically speaking can be deployed and I think can work like today reputation like privacy is something that we've been working on as an industry for a long time and so it will come I think it's just gonna farther on the Spectrum yeah

what do you think I agree with you I liked all these ideas honestly I thought they were all pretty good um there were I could I have like I wrote I tried to force myself to write down one pushback for every single one so I can go through okay it's interesting but um but just to start with the ones that I liked I so on-chain ads are a no-brainer basically web one we had cpms web 2 we moved to CPC cost per click right so initially web one you pay for the Impressions Web Two you pay for for the clicks right web three and this is as someone who's a lot of our Revenue comes from advertising um it's nearly impossible to do this in the traditional kind of software stack that that you know web2 has right now and that were built on top of is going

from CPM to CPC all the way to CPA which is you only pay someone when they buy something or take an action on change so just for listeners cost per action calls for Action exactly so we've gone from cost per Milli which is Advanced way of saying a thousand two costs per click which is like how Facebook and Instagram work to in in crypto you can go to CPA and what's even cooler about that is it's not just uh paying out the person at the bottom of that stack you pay out along the entire stack so let me give you an example like um you know so the advertiser of this this episode um uh the like let's say an Advertiser for this episode and uh we we drive you you

hear the advertisement and uh you're like oh that sounds really interesting you go to Google right you go to Google you type in that that advertiser's name you then submit a form on their page we as block Works don't get credit for that they have no idea that we sent you because they went to Google and clicked on that but if a lot of that is happening on chain um not the podcast obviously podcasts aren't Unchained right now but like if that kind of action like you go here then you go here then you go here and that's all on chain that is uh you could basically pay out all series of the of the funnel there so I think that's pretty cool um I actually think the job task on this point like it increases dramatically increases transparency marketing there's

a famous saying right is marketing works is just no no you just don't know it's working on you yeah yeah like this is a glass half pool or not like it's like in understanding the funnel behavior and user behavior is impossible so brands have oh oh you're talking about half my advertising spend is wasted the trouble yeah exactly I just don't know which one yeah yeah and then the problem is that yeah yeah exactly so like even in the in the problem is even worse right if you if you go to Amazon they don't share the data with you and so a lot of that transparency of the funnel and how users find you and how they interact with your

brand and I mean and the conversion of that is in in the checkout of that like everything in the funnel from Discovery to checkout will be dramatically like see dramatic improvements because of crypto um and and not just paying through stable coins but but even farther up the funnel just to discovering the trackability of that with tools like nfts is is just can be huge yeah so I I like my bet on crypto has always been that the world's becoming more Global and more digital and crypto is the easiest bet on that like if you if you try to like take out all the kind of anti-in institution things and kind of

the the libertarian in me like if you're making a simple bet and you're explaining it to a simple person the world's getting more Global and more digital this is a bet on that and I think some of Brian's things really hit on that like the job task Marketplace for crypto there are like a Fiverr but you know yeah the stable coins layered in and and again everything but everything ties into reputation I mean uh yes I do yeah I do that has to come later though that's not uh you need people doing things on chain first then you can build a reputation system you can't build a reputation system if so you have to pull people out well you you can Port you you can Port web 2 data and through like of course you you'd have to

I'm just embarrassed on things that rely on that rely on like that's why like real world assets is like man I hope it works but like you're relying on a on a non-digital thing um so I'm I don't love like hey we need to build credit scores on chain like let's go pull in from Credit Karma um so it's a network like that but yeah I think they're you you kick-started that way and then and then the percentage and weight in the in the algorithm to predict credit worthiness or some other some other measure of reputation the percentage of on-chain activity can be very quickly the dominant the dominant weight in in the model but I

wouldn't be dismissive of porting web 2 Data into the mix now places like the US have a lot like have yeah better systems and data feeds than other places just don't have it right where you have informal economy like in India well it's it's challenged yeah but um but it's not impossible I mean when you say like there's a startup for instance that started lending out um started you know creating a like a micro micro loans like a Grammy Bank in Africa and they were using like smart smartphone activity if you're charging your phone the type of apps that you have if you're paying your mobile uh consumption in time like those sort of things

are arguably better predictors of credit worthiness than like Experian like your typical credit score but anyways on the side the the just a like last point on this one the like job task Marketplace if I told you that there was a market that was growing 71 year over year it's completely Global um and it's uh the buyer on the other side is not consumers it's it's businesses like I think that's exciting to anyone and that's that's the freelance job market today so like for that Fiverr like what's wrong with Fiverr have you ever used Fiverr yeah oh I I've tried five five or five or sucks I actually use I use upwork sometimes um sorry yeah upward fighter like I use

upwork for like weird miscellaneous I mean I actually don't really use it anymore I use it for um oh now like uh claude.ai has taken that um and I use that instead of upwork but I don't know the like freelance Marketplace the freelance just industry is growing and Market is growing so so so fast um and most of these platforms are not that good whether that's like a crypto thing or web 2 thing maybe it's just it's really tough to build one of those marketplaces let me ask you a question like if you're if you're the upper management listening to this what could you do and maybe it's just accepting stable coins like what else what else would you layer on in terms of

crypto nativeness that upwork is missing is what I'm trying to understand I think the payments yeah I see your point the payments is just huge right because there's always a cut The Interchange fee like the the commissions like the the processing the settlement all of that back end is hugely inefficient you could just use a stable coin and pay with usdc usdt whatever you know I think that's that's something that that should be done yeah and then particularly for the talent that lives in places where it's difficult to have a bank account or it's difficult to

you know have a local banking Network like all that stuff just poof like you don't need it reputation is important the verification of that and the quality of the work I mean I think there's always look there's bots in crypto and so I think proving proof of humanity proof of work are important Concepts in crypto that we've had to deal with I think the proof of work aspect is is there for machines but not so much necessarily for humans like daos have struggled a bit in in like grading the reputation of contributors um you can look at Bitcoin and say okay this is an interesting grants program

a lot of the same res a lot of the grants are doled out to the same recipients that you know over time have produced like quality work and so there's there's some data there that is useful and interesting um you always have the issue when it comes to reputation around like there is this Dynamic of when you read reviews a lot of them are dissatisfied customers that take the the take the time and effort to actually write a review so it's skewed on the negative and it's that's a problem with some sort of when you look at reviews a lot of the activity on Twitter too is negative skewed negative like it's just very vocal minority that expresses

dissatisfaction and anger and all those range of emotions particularly in Bear markets but yeah the the it's challenging like I think as as we think about like non-speculative use cases like like these I think I always wonder like why hasn't it been possible in web 2 could you introduce certain things in a web 2 business model or do you have to totally reinvent it from scratch and this is not just for job markets it's really for everything um and and I think it's an interesting exercise to go through like Banks You could argue they don't have to blow up right they could just use on chain

to do settlement which is huge like or to do process like to expand their market and reduce overhead from compliance and operations and streamline all of that that's a huge material impact that I think their ability that then allows them to cover more Market extend more loans to whatnot but I think that the lynchman there is reputation yeah and the problem is probably going to have the biggest impact honestly the one out of all of these that would have the biggest impact is the flat coin I just think it's right like do you know how many you know how much money has gone into this trying to do it and like what what and I think the challenge here is

so flatcoin is one that tracks inflation accurately right yeah purchasing power inflation yeah I mean first off how do you get that economic data into how well the calculations CPI yeah CPA has a completely broken metric so like are you tracking CPI no you can't track CPI because that doesn't accurately track uh you know you track the price of Costco hot dog soda combo or pizza because that's total.com it's a dollar fifty now it's not a dollar anymore have you read the quote Jim Senegal the Costco co-founder you know what he once told the company's

current CEO Craig jelinek if you raise the effing hot dog I will kill you figure it out and then another quote I think a journalist asked him when is uh what is the price of the hot dog gonna go gonna increase in price past 150. he goes well I'm dead so [Laughter] right well okay the the Big Mac index yeah no I know what you're saying but uh it's telling you obviously there's an apple fourth which uh I looked at I just never invested it it was just sort of it's just hard yeah there's just been a lot of yeah a lot of these right you have to track real real world inflation but then it's like well where's real world inflation coming from and then it's like do you create one of these for every country or do you are you just doing it off the US dollar

because like in flip inflation against what you know yeah no certainly I mean there's like deflation in China there's 300 employees 600 inflation in certain places um so yeah it is it is challenged um I do agree with you it is kind of this unsolved Holy Grail and crypto privacy and having a stable coin that is not tied with piad is is I think the most time but perhaps two of the most ambitious things that we can work on on a truly digitally native like global system the one that feels the most

accomplishable why is a um why is it P2P exchange a fully Unchained P2P Exchange so hard I'm sure it's very hard from an engineering perspective you know it's probably the incentives are broken for that because if you want to go build and exchange the market the Market's not going to reward you for it um I mean okay an amm what's an amm an automatic Market maker like uniswap or a money market like avian compound now I think it's not strictly peer-to-peer because you don't

necessarily know the period you're trading against the pool so it's an aggregation but I would say that to me is maybe that's where we land because matching like what was that company that went public um that did loans like peer-to-peer loans uh what was the name of it I don't know based in San Francisco got a buddy of mine that ended up leaving game you want to go work there um but like Prosper with Prosper didn't go public I think you had prosper and then another company and at some point in that assembly line of matching and independent borrower

like they acted as an intermediary to dish out those those loans initially they started purely peer-to-peer but over time they morphed into something like what is now a pool which is they would they would as soon as they got scale they pre they package all of those loans and then they sold it off to a hedge fund in a low like interest rate environment that model was fabulous for hedge fund to capture meaningful yield um the problem was adverse election and the people that were using it really you couldn't get a typical loan so then they they're much riskier people and so anyways the scale of peer-to-peer marketplaces is always hard I would say I'm content with the hybrid model if you

will uh what I consider to be uh a good balance way of these marketplaces which is an amm and a money market that you see in defy on chain like that to me is a huge novelty and and I think it's great I mean I I don't like what else would you want to see in the pure like a P2P exchange like what what activity in the economy would would uh suddenly jump uh 10x because you had an on-chain P2P exchange I just don't see it like you know I mean like what what would it be it's I mean it's probably something that

you can't see it's probably an emerging and less developed markets right true yeah I guess I guess um the thing about that that we haven't touched on a lot is just real world assets which is in some ways a P2P Exchange um if you're not trading like an nft like a digital thing it's a physical thing and that's a real world asset and so you don't have a reputation score who's going to be the Oracle who's going to enforce that these are all questions that I have which is when you think about marketplaces for stuff like an eBay yeah or an Amazon like I mean it's tough right because you have real

world like Adams meet bits it's complicated like with with real world assets right I mean I think with real world assets most people are excited about you know having institution a trade with institution be on chain or institution a say a company has a huge amount of accounts receivable they want to put that on the blockchain and then you know someone syndicates that someone sells out like that feels more doable than a a a a Craigslist sort of Amazon Marketplace on chain like uh I don't see it maybe Amazon and all these web again

I'm saying most of these marketplaces would be a benefited in the amount of activity less fraud faster checkout if you have stablecoins if they allowed Sable coins yeah which by the way is sable coins are the best example of real world assets that we have right yeah exactly I mean they're they're regulated there's a dollar sits in a bank account like a usdc like paxos whatever um it's gonna happen it's already happening and I think um the web 2 brands that all of them have chit have have struggled with denying certain customers

from certain places the credit cards uh get rejected for simple reasons like because the credit card is in a country that I don't know it's whatever Nigeria or whatever doesn't mean that all of the transactions are fraudulent it's just and there there have been attempts from stripe and shopifying all these players to reduce the the false what is the false positives um and do faster checkout and which is a huge problem so anyways um churn right if you're a SAS Company software company or or a news whatever type of subscription that is happening I can't like their amount of uh renewals

that don't happen because that underlying customer changes payment information and doesn't it's just like like it's so obvious that when you have a smart contract an account abstraction like all that is billions of dollars that have that have just or left on the table it's the lowest hanging fruit payments is an area that when you first come to crypto at least for me was like it was only Bitcoin and to say wow this could be a really interesting medium of exchange and then you realize no you know what I don't want to spend my Bitcoin you know I'm playing poker nights and yeah remember all the e-commerce

attempts back in 2018 failed because people no one wants to spend their Bitcoin and then no one wants to spend their eating so Bitcoin is not money because it's not a meaning of exchange it's not a very good one I think yeah but same contact yeah yeah man good pod I have a final round interview in one minute so oh wow you're hiring a lot right sales and Engineers sales people and engineers get at us slide through the DMs is this for the research product whole company we got we're hiring at uh we're having one engineer for the editorial site and then a bunch of folks on the uh for the research governance and uh other thing we're launching in two weeks

at permissionless yeah and then uh we got it we're hiring for sales across the board so very nice I just say one thing ivory become a subscriber again of YouTube premium I think they didn't allow it I don't know huge game changer same like I love it I'm now consuming so many videos like I was driving for like eight hours or seven hours I just played pretty much every interview from like Bill Ackman Seth clarman like Howard marks so it's just like and then constantly it was just amazing it's looking at it's huge I mean education is going to be YouTube is the best university in the world it is crazy uh YouTube premium is a good good investment what 10 15 bucks you can

download it too for planes yes exactly anyways that that was I've been hooked hooked on YouTube premium now I'll make streaming all day so that's my generalized thing that I video or book nice anything anything noteworthy on your side um no no I've been like I've been focused on permission I've been watching Hard Knocks the football [ __ ] I've been like needing to turn my bra I've been working too much and uh trying to turn my brain off at the end of the day so I've been watching Hard Knocks not bad yeah all right folks hopefully we didn't give you brain pain in this episode

um leave a comment I am reading them uh the more people commentedly absolutely not that I'm YouTube premium of course you know that I'm going to be reading them drop us a comment if you want us to talk about particular thing or not otherwise we're gonna kick off the next episode the next Roundup we're gonna read some of the we're gonna read some of the best comments absolutely yeah that's a good idea all right folks thanks for tuning in have a great rest of the week weekend we'll see here next week before the last one before the big big day permissionless let's go see you guys next week let's go [Music] foreign [Music]