State of the Crypto Markets | Livestream

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A quick shout out to today's sponsor, Katana. We'll hear more from Katana later in today's episode. Nothing said on Xerox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio, Ryan, and our guests may hold positions in the company's funds or projects discussed. >> What's up, guys? Welcome back to another live stream of Xerx Research. Today I'm losing a lot of money. I assume Danny's losing some money. And I assume James is gonna lie and say he hasn't lost any money. But in reality, he's >> I didn't lose money. I made I made a lot money. I got short last night, 11

[clears throat] p.m. >> No, he shorted exactly before everything went down. Holy [ __ ] My go How are we all feeling, Danny? How are you doing? Let's start with you and then I'll ask James about his thoughts. >> Um, I feel fine. I'm going to say Tiky Faders are in disbelief right now. They they actually thought they thought he was a mid-curve. They thought once again that he was being mid-Curve shorting 1 million size on ETH, but he was actually correct the whole time. Uh I'm not short anything. I don't know. My exposure to the market right now is Bitcoin. I'm not I'm not too upset about it. So, I'm feeling pretty cozy, >> dude. My [ __ ] goat. Look at this guy.

>> He chatted. >> Pull him up. Let's see it >> while we all [laughter] shut it. >> [ __ ] over. [laughter] >> [ __ ] over. He chatted and he [ __ ] made it. >> The Tik Tocking disbelief right now. They can't move. >> He's He's actually He's done it right. He's completed the transition from like second cycle midcurve to third cycle right right curve. >> Yeah. Yeah. I like Diky for what it's worth. And also like I think the only place where I can think of like where he like explicit I feel like him losing money was always a meme though like he was long fartcoin while it was it went like 6x or something like he caught it late but he caught it and wrote it.

>> By the way 6x here being late is also in itself a little ridiculous. But um yeah before before we before we glaze Diky too much I want to give a huge shout out to James Kristoff for joining the stream today. James, how are you doing? >> Thank you, Bakio. I'm doing pretty well, actually. I'm uh positioned pretty similarly to Danny, actually. Um I just am really not doing anything besides holding Bitcoin and farming some stuff. So, days like this are more just entertainment for me. But, hope everyone's doing okay. >> I hope so, too. The issue with being a bear or like not being upset when the market goes down tremendously is that people think you're the worst [ __ ] human in the world. Um just because you're like oh like you know like

because I mean you're very actively like if you see he just he did an evil laugh and have to mute himself. Um but like if the market goes down to like 35 if hype goes down to like 35 James is like oh yeah I'm going to buy some here versus like I'm like James I'm going to [ __ ] kill you. Hype went down 40%. >> Yeah. I think the key is like never put yourself in the position where it's extremely painful to see the price going down. That's a very good uristic US. >> Yeah, I think that's a good point. Another thing here is like we also just dumped like 23 days ago. We had a like that was horrible and I think everybody bid saw a bunch of liquidations said oh this is [ __ ] free money now. Like well it was worse than co crash.

This is actually some of the stuff that would happen like if you remember when um like those real real quick like programmatic liquidations back in 2021 and then you you'd pretty much get that reflexive retracement like when the books filled back up like you know 60%. And then we would just trend and bleed right back downwards. Like that's to me it looks almost identical to that. Like I'm I'm not I mean I didn't actually get shorts. I didn't make money in this. I'm not not trying to say that I saw it coming, but like it is it is not that crazy to to to see this price action. I think >> yeah, I think I would agree with that.

Like may maybe just like a general expectation here is and I think you saw some of it the day of 1010, but obviously that's way too early to take the position, but to see like those prices get maybe touched again for Bitcoin and and alts even like not not necessarily like the bottom of those candles that we saw like you know Adam going to 01 on on Binance. not not not quite those prices, but you know, sort of like the normalized kind of low prices that we saw on things like I don't know. I just think the market sees that it it runs up really quick pretty reflexively. And like James said, it's like if you got long on basically like a free money entry, um you're going to close that out and like cap cap your risk on it. And you know, it's

unsurprising that we would, you know, in a short term kind of like see some of those prices again. Yeah, except for me who did not like I longed the 1010. I was like, "Yeah, this is [ __ ] free money and I didn't sell." >> And I don't think it's a really different story than like it's still probably like a >> I don't know what percentage you'd want to attribute it to, but I think it's still like a debt a dominated narrative and that dominated flows. Um, so like you know, we were we were talking in chat with Dan Smith like it's not that crazy to to see this price action after the kind of horrific um MNAV behavior and then lack of ATM issuance.

>> Yeah, I um I think I faded that very early on. Like I I never bought at that and then I was always like not very interested in them. I still don't get why like I think Daniel Smith is interested in them from like a like the same reason some people are really into Legos or trains if that makes sense. I think he's just I think he's just like I'm really interested in that. >> That's a feature not a bug. >> Yeah, it's a feature. Yeah, that's a feature of Daniel Smith, right? Like that's that's my goat. But it's also like I don't find them interesting at all. I felt I felt like they they fulfilled their purpose

like one time with Ethereum and really only two of them did it that well, right? It was a bit minor and what's the other one? The one that Luben's in >> this bet and then this one EBM and then then Eill which is the one that just sold some >> E. Yeah, Ezilla. I don't know about [laughter] I don't know about that. >> Like you you really only had to know about three of them for like maybe two and a half weeks and then that was all of the that knowledge that you needed versus I feel like ETFs are no still.

>> Yeah. No, I mean it's a totally different market than the ETFs, right? I wouldn't even That's not even remotely the same thing. You know, one's a real buyer, one's not. Well, but if you're if if you're saying flows are what matters, then it's like I would say that flows don't matter at all. Except cells, that's when you get to get angry. >> Well, no. I mean, I think they matter. Like I think they they were they were what put us over the top, right, of like past that trending level where we were kind of stalling out for a while. I think it's I mean I don't know how you could argue that they that Tom Lee wasn't responsible for ETH's push to all-time highs, right? Like that seems truly obvious to ascribe that to him.

Yeah, he did a really good job as well. >> Yeah, I feel like I don't know my views on DATs early were pretty similar, Bach, but coming with the lens of like okay, I mean these are like you can gamble on them if you want. Um, and you just have to decide to stop gambling when the the market is like kind of aware enough of what's happening. Um, so I don't know that I think there was I had some short like short-term interest to just like trade some of those announcements and maybe get some quick upside, but absolutely zero interest to ever like hold any of those because I I think we all knew and we've been talking about them for months now. It's so old. It's so well understood I think at this

point. If you if you don't know what's happening, then you're you're not like looking hard enough, but pretty obvious that like those were never designed to be positive outcomes for like retail buyers. Danny What is >> um do we what is a positive outcome for retail buyers? Like that's are not ETFs are Wait, did you guys read the um what's his last name? Is it Visser? It's like the Bitcoin's IPO piece. I thought it was Coke, but like it was also interesting Coke. Did you guys take a look at it?

>> I read I read Giver blacklined it and said it wasn't professional, which was huge this morning as I woke up, but I didn't I didn't get around to actually looking at it. I just saw the comments that it was like >> what was the topic? Yeah, I don't really follow his stuff to be honest. >> It's like the the the main argument is Bitcoin never had an IPO and it's going through its like pseudo IPO now. basically all of the old like holders of Bitcoin, cipher punk people, um like long-term crypto and Bitcoin believers from whatever like the people like the actual the people we would refer to as like the ancient Chinese whales and whatnot are now selling Bitcoin quite heavily while these institutional buyers are stepping

in um be it mainly through ETFs. So, that's a question I've always had. Like, it's a very common thing when people say like, "It's Chinese whales selling." Do do people that say that actually have insight onto the flows of like who's selling or is it just one of those things that sounds really good? >> Like, it makes sense, but I just don't know how actually true it is. >> I I do think that it logic like there is clearly a lot of sell pressure coming in and while there's like positive ETF flows.

So, in my mind, it makes sense that it's these long-term holders of Bitcoin who may be think that the Bitcoin and crypto narrative is now being co-opted by bankers and >> yeah, >> institutional funds, stratfi, whatever we like to say. Um, >> I haven't seen the flows. I would need to check. But we did have that like period where we saw a lot of these wallets wake up wake up and sell. Do you remember? And then like everybody stopped talking about them. We talked we exclusively talked about it for three weeks and then nobody else ever mentioned them again. So maybe it's just a continuation of that >> which to me makes sense.

>> Yeah, I've seen some some charts and data thrown around. I haven't looked that close to really understand if there's like anything meaningful happening here or if you just have like it's it it's not interesting I guess or it wouldn't seem that meaningful if you know folks that have billions of dollars in Bitcoin would sell a little bit every time it you know takes another big leg up. Um, so I don't know if there's anything meaning because I think you could observe probably the same trend in 2017 and 2021 and and now today.

>> Y >> um, so it's hard to say whether like how much that that means anything or if it's just oh, you know, Bitcoin's up another multiX in a few years, time to cash them out into other things. Yeah. And I think like also just like the slop thought leader pieces are just a little less interesting at this point. Like it just it doesn't tell you anything. It's it's just I don't know. I don't think it's really worth anyone's time to be honest. Doesn't tell you any new information. >> Yeah, I would agree. I I think the I don't know. I didn't I didn't read this guy's article. Maybe I will just so I'm more informed afterwards. But this is really [ __ ] long and he [laughter] definitely ran some thoughts through the the LLMs. Uh I guess the the big

takeaway I would have is like the ETF flows for BTC have been really strong. I I don't think that it's as quite as like broadly accepted of an asset as people think or would like it to be quite yet. But I don't know. I think adoption meaningfully is like much greater than it's ever been. like I don't know consistently these things are being brought up on national television and you know to to boomers as like other options in their 401ks that they can you know buy the Bitcoin IBIT ETF and uh allocate to. Uh I I still think you probably have maybe like a more

cryptoware class who is deciding like hey I'm going to allocate some of my retirement funds to this thing. But uh the the trend is is still positive in my opinion just where kind of like broad acceptance or like this notion that you might put a couple percent into Bitcoin has become I think much more common. >> Yeah. I think a lot of people that's why we're very upset. Sorry about you. just real quick just upset that there's no there's not a lot of asymmetry left in the asset class on the top assets, right? Like it's just it's just not there and it's never going to be there again. I think it's better if people like come to terms with that and they'll stop leverage trading on 300x on Aster, but like the BTC is not going to pull another 300% in in four months, right,

absent something, you know, horrific happening or very good happening. But yeah. >> Yeah. Um, I'm curious how like the issue with what we just mentioned, Danny, is well, Jay, first of all, completely agree with you. Um, unless we have like a very significant pullback which >> I don't know what it could come from. I want to say exchange blow up, but I think that's just because the last time it happened, it was an exchange blow up. So, I actually don't know what >> I can give you an extremely extremely probable one. You can almost guarantee.

No, just the S&P going down 10%. >> Yeah, people like >> Yeah, like like so if I'm looking if I'm pulling up a chart now, like we have literally gone just from from the April bottom, the S&P like in a legitimate straight freaking line is up 38%. >> Yeah. Um Okay, so that's a good one. Um, I'm like kind of wondering what percent of these like ETF flow is actually people who because there's definitely a class of people out there, right, who have had Bitcoin exposure since the 2021, 2022, but who want to use the ETFs as maybe a

more taxefficient way to get exposure to Bitcoin. Um, and like I wonder what percent of flow is people who already held Bitcoin offchain. um not onchain and are now like like Felix is pretty um vocal about or like explicit about this is that he only holds >> BTC. >> I agree. I personally any any BTC that I sell and reby is only in IBIT. It's just cheaper more efficient. >> Yeah. I wonder how like what percent of people is like James and Felix and stuff who are like getting exposure for this these ETF products as opposed to the like the ideal scenario which is the entire world has to buy 1% each

everybody has to put like 1% of their portfolio into Bitcoin right does that make sense like I wonder if the flows just aren't there yet and they probably won't be there for another some time >> yeah I wells I will say that I buy IBIT. I think it's probably my preferred vehicle over buying actual onchain BTC now for some of the reasons you mentioned. I mean, I have, you know, retirement accounts that are tax advantaged, so I can buy it in there and I can't buy, you know, regular onchain BTC in there. Uh, but yeah, I would agree it's in that general trend. It could still be early if there's an expectation that something like BTC or like a crypto allocation becomes like a a standard kind of like allocation

portion of a portfolio. I don't I don't think you have any like meaningful portion of like the world's money that's that's like saying that they're uh you know deciding to allocate 5 10% of their portfolio to Bitcoin and like you know consistently allocating it in month over month like we see with you know just buying the spy or buying the Q's for example but that's that's significant upside if you think that that's coming. So >> it just might not be a 7x in two years you know. Yeah, James would be really upset if crypto went up.

>> Terrible. >> Don't forget that. All right. Should we do tokenized funds? This is actually the main pitch that we gave to you. Yeah. When we >> Let's talk about it. Uh maybe just to lead it in. Last week we had u Kyle on uh to talk about what they're doing with tokenizing funds and private credit and some different things uh on chain. Um James, you're in the trad space. Um it I mean talking with Kyle I think it was pretty interesting. They're sort of exploring like a relatively kind of underexplored market at least on the sort of tokenizing funds piece of things. Um curious what thoughts you had there like what value maybe just basically what bringing funds onchain does in the first place. Yeah, it was

like I've always kind of not been super excited about onchain equities just because I think like the existing process is actually pretty good for trading equities offchain. Um, now funds on the other hand, I think the existing process is really really antiquated and like super actual. Um, very heavy on paper and documentation and tons of other middlemen. Um like if you think of think of the simple process for like you Danny to subscribe to a hedge fund you need to fill out paper subscription doc send it to an administrator who sends it to the fund and then you get a contract note back from the administrator. It's it's a very very antiquated process and you get a you get a mark mailed to you once a month from the administrator. You have no real oversight in a day-to-day basis as to what's going on. Um so

there's a couple different things. First just from a pure operational perspective of subscribing to funds and and keeping track of your assets. super super beneficial I think just a oneclick subscribe one click redeem and your USDC goes back to your um wallet address I think is like a huge unlock and then two this one's a little I think further out there but to the extent that you have tokenized funds and to the extent you actually have funds that are trading on chain you get a huge ability to actually like open up the books of what the fund is actually trading um and that does a couple of things one it's a huge unlock for you as an LP so you actually know what your manager is doing um as opposed to, you know, the kind of opacity that we see in a lot of vaults. Now in DeFi,

it's like, yeah, we're delta neutral, but what are you actually doing? We've got no idea. Um and then two, it makes for a really, really, really, really robust borrow lend market for funds, right? So imagine you have Danny's invested in Picacio's fund. You tokenize that those equity interests and then you put that into like an a type pool and you borrow 30 40% against it. Like I think that's a that's a huge business in Tradfi and it would be, you know, a massive massive unlock here. So, I actually am genuinely excited about it. I think it's very cool and I've been talking to some people to try to get some exposure to it. >> But one thing I don't, and James, you would understand this better than me, I I don't understand how the the regulation behind all like cuz one of the things with Kaio was,

oh, we might make it like permissionless and like without KYC. And to me that seems like it wouldn't work because you don't really like what if something goes wrong. >> Yeah. That that I'm less clear on because like you you 100% have to KYC your investors and funds, right? Even if you're, you know, a Cayman fund with very limited um oversight by regulators, you still you still need to do that. Um but I don't know how I don't know how that works. The specific product that they mentioned they might be rolling out in the next six to 12 months was taking, you know, let's say they have a bunch of tokenized funds on chain now from various providers. Taking like a bunch of those and rolling them into like a

basket and wrapping that under, you know, a particular token or like a vehicle that you can then invest in. >> That product specifically that he said, you know, could potentially be retail. >> So maybe maybe what they're doing is a similar thing as to like what people are doing. um for like private company equity where you're just wrapping a feeder in between it. So basically you you as the end manager, you're the investor that faces like Open AI or something and then you you resell that exposure through another vehicle. That might that might be what they're doing. Um which is fine, but like I'm most interested in actually being a direct investor in the fund and being able to like tokenize that. M I guess I'm curious like so you mentioned the advantage here of you know more insight into maybe what's happening with the

fund also simplicity of just like interacting with it putting dollars in you know maybe less paper paperwork I is some of that like rag arb you think or do you think just the fact of being required to put them on blockchains in which you can like see some of these things whether it's you know via the smart contract or just like you can actively see the balance of what the fund holds and what it's trading kind of like results in that like there's still there still be upfront like effort you'd have to do KYC and all these other things but then once you're in the system you get way more visual clarity. >> Yeah, I think it's the latter. I don't think it's a regarb question. So where where I think you see regarb now are like these what I'll call stable dollars like not even Athena. There's like way

way crazier stuff on chain now, but you're basically just giving a couple hundred million dollars to a team and they're, you know, trading delta neutral and they give you a, you know, a stable coin as as um as a reference of of your equity. Like that's regard right there. What I what I would love to see is like I actually can subscribe to Picacio's fully formed hedge fund in the real world, but he just puts it on chain and and allows me to, you know, reference my ownership on chain, subscribe on chain, redeem on chain, um, and then borrow on chain. I think that's like that's the huge unlock >> and this also means a lot of I guess like things are going to move onchain as well like assets.

>> Yeah, I I think I and I I genuinely do think like this like I cannot explain how painful the process is for like interacting with with funds and subscriptions and transferring stuff in the real world like this is genuinely something that I think um is improved by a million fold by putting it on chain. >> Wow. This is actually really really surprising to me how positive you're being. >> We're very happy with this. This is the first time I've heard games not be cynical about a blockchain product. >> Oh, there's people bullish. >> Yeah, I met a couple people at D too that are I won't name the exact names.

Um but yeah, like there's there's people doing very very interesting stuff on this and tokenizing pretty pretty cool traditional instruments um and putting them on chain which is very very cool. Well, what do you think about, maybe this is slightly tangentially related, but Canton Network has been getting some press and maybe I just flagged out. >> I actually think Canon is pretty cool. Um, I I'll be totally honest. I don't I don't quite know the connection between the token and what the actual product is. I'll be be totally honest, but like from what I've read, like what they're doing with syndicated bank loans um and like data reporting and basically aggregating all of those flows is is pretty interesting to me. Like I like in

in terms of it's it's all like the operational nitty-gritty stuff that's really painful on the back end for um bank loans and and other types of traditional bank issued credit. Um so from what I've seen there, I think it's pretty cool. I've got no opinion on like what the price is. I don't even know what the current valuation is, but um I would not be surprised to see banks actually adopt it. >> I don't really know what kind of thumb does. >> Fair. Yeah, I think it's in a similar bucket for me as well. I think seeing people talk about it's getting brought up in the chat saying that the node operators are making a ton of money, but I I couldn't really >> I know they hit a 42x on on Tether equity. [snorts]

That's um >> I don't know. >> Oh, yeah. That's right. That's right. Because they invested um when was that a few years ago? 2023 maybe. >> Yeah, that's a good deal. >> I wouldn't mind some tether equity, but [snorts] >> actually this I asked this question to Ryan. Um it was floating around on Twitter, but if you So, there's three companies. Um, Tether, OpenAI SpaceX. Each F500 built private valuation. Which one would you build?

>> Definitely not Tether. I don't know. I don't know between the other two, but not Tether. >> That's a tough one, honestly. >> Why not Tether? that >> I mean it's I would have I have a hard time in investing in anything at that valuation that's not like a technology company or at least something that's building something new. Um, Tether's great. I love it. But like elephant in the room, a lot of it um is tied to connections that that company has made with the current administration, right? So, I don't know. That's not something I would want to bet on long term, >> I guess.

>> Yeah. And maybe to James point and maybe the how I would go about it and I would agree. I don't know if I could have a if I'd have a clear answer between like OpenAI or SpaceX, but just thinking about potential growth prospects like I don't know. I think I can make up a magical number about a uh space company being worth trillions and trillions of dollars for whatever reason, mining resources in the in the galaxy or something like that. And and AI, I think we're sort of like yet to see what the true like kind of future technological value of that is, but I don't know. But we can look at finance businesses and it's like even if Tether was worth all of the top banks and finance companies in the world like you know your your

upside is like kind of capped by reality versus businesses that are sort of like kind of magical and could be worth anything almost. >> I got to jump to my real job guys but I appreciate having me on today. Talk to you guys soon. >> Thanks so much James. Always love to have you on. He took me out. [laughter] >> Um, >> do you have Do you have a counter to that though? Do you have a thought on the Tether SpaceX? >> I agree with you. I think the issue here is like I can very clearly see how Tether makes money [laughter] and how Paula just got really upset. I can

clearly see how Tether makes money and therefore I can clearly see how you can value Tether. And then there's like growth like the entire world is on USDT rails you know it's difficult but like with Chad GPT with open AAI and SpaceX first of all I don't think open I don't think SpaceX even knows how to get money like and I think open AI has like three to four ideas and I think you can clearly see that currently they're leaning towards like advertising or at least that's like the general um rule boomer that because they're doing like all these personalized chats, they're going to be able to like recommend more personalized advertisements do. So, you

can see that that's how they want to make money, but also you don't know if that's what they're going to pick. Like, we you don't know how OpenAI's commercialization is going to go at all. So, it's much easier to say to SpaceX, which is like you don't know how the [ __ ] they're going to make money. They have a billion options just because nobody knows. um easily assigned like say yeah 500 bill is fine even though technically um like Tether has probably a more clear plan on how to commercialize their product because it's very obvious but like there's also risk that that actually is yield goes down um like interest rates go down how does it how does it make money um a lot of stable

products are not returning interest rate >> um like they're returning the yield Right? So, how's it going to make money if it has to compete with the others, etc. etc. Um, frag like fragmentation across stable coins. Um, a lot of these banks, I presume, are going to try and issue their own stable coin products. Um, how does it compete in that scenario versus SpaceX? I I can't name a single SpaceX competitor. Can't even I can't name a single SpaceX competitor. I guess like NASA.

Um, >> no, [snorts] I think I think they work they work together. NASA contracts SpaceX to do >> to use their rockets. >> They haven't been like I'm sure they have >> a government relationship there. >> A [ __ ] idiot. He doesn't know anything about space. I'm like, "Yeah, I don't." But also like OpenAI, it has competitors, but has two competitors like Grock and Claude, Anthropic and X. Is there any other that's serious? >> You don't think Google Gemini? >> Do you use Gemini?

>> I've used it. I've used their video model. It was pretty good. >> Their like nano banana was also pretty good. But like daytoday you're like, I have a question. What do you ask >> uh JBT? But I think here's the thing is like >> but like also >> Yeah. And they >> the thing that I was going to say is like the the upside is that there's so many other products operated by Google that like I'm going to use their product. So if they integrate their LLM into the product experience like I don't have to go and ask stretch like they'll you know seamlessly integrate it in a way that I'm using their model is kind

of my thought process there. Um but either way I think I guess what I would say maybe about this whole topic is like I think there's a real risk that none of these companies go public in the next long period of time such that it becomes kind of like a you know which would you have rather invested in and then um >> you never even got your you never even got your your public exit opportunity >> although we are seeing rumors that openai may be targeting you know going public 2027 at like a $1 trillion valuation So maybe you get a free 2x at 500 billion.

>> I um I was watching this there's this podcast called Cheeky Pints. Do you know it? It's with the stripe at a stripe. >> Did an episode of Dan Sundime Sundime Sundime? I don't know. He's American. Um he's at D1 and his thing and he he's like I think he's a public markets investor like a large portion. And his thing was like if I was a company I just wouldn't go public. makes no sense. Um, you have to deal with annoying people. It's a lot of work. Um, Stripe has obviously not gone public, so I can imagine not a lot of them will go public. I think that's fine.

Um because we are going to bring equity per which [snorts] lets you longer with equity. [laughter] I don't know if that's the reason that it's fine. >> Public markets are so weird. Like I obviously I'm not a traditional financial investor. Um if you've listened to this plot for more than three episodes, I think you would know this, but I have a lot of thoughts about this. And the primary one is that retail is more and more involved in public markets, but also the good companies aren't going public anymore. So, it's like a really weird case where, and I talked about this before as well, where we were like, oh, like crypto is just

it's going to get more institutional. It's going to get more like less volatile. And then it's like, well, Trafi stocks are just getting [ __ ] sillier and sillier. Like the markets, I don't know. To me, it seems like they don't make sense. I don't have a massive like decades of experience under my belt or anything, but um I don't know. not a very easy topic to talk about for us, but >> yeah, I guess I mean I don't have a ton of data to back this up, but you know, I think people would love to invest in some of these companies that are private. Like just anecdotally, I think that's pretty clear. You know, you have probably plenty of people that would be interested. I mean, you see the valuations that these these AI companies are raising in privates, right? Like OpenAI and SpaceX and uh Anthropic doing

insane valuations and raising billions. Um there's there's clearly like retail demand. Like maybe an interesting result of like fewer of these like most well-known, most like maybe well-loved even like company names staying private is that like if if the retail investor is kind of locked out of those, then you know they'll go and there's like fewer names for them to go and like be excited about. And so then they end up all just like piling into kind of the few that are left. Um, and maybe that's why you end up with stuff like Tesla and uh what's the other one? Palanteer just like, you know, trading to just whatever valuation because there's so much I don't know so much of this like excited capital and

there's only a few places where they can out kind of like outlet that. But >> hard to say. Um, before we jump to anything else, unless you had one more thing to say. >> No, no, no. where you >> I want to give a quick shout out to our sponsor for today's stream, Katana. This episode sponsored by Katana. Katana is an L2 built for DeFi and is pioneering the ecosystem category of productive TVL, believing that change should be graded on how efficiently assets are put to work in DeFi rather than just total value locked. From now until the end of November, users that bridge to Katana can earn boosted yield from CAT incentive campaigns, added vault bridge yield, and other chain revenue. Follow the link in today's show notes to get started.

Thank you so much, Katana. >> No, that's the one I don't There we go. Um, it's tough to talk about things very intensely while the market goes down 10 15% because I all I can think about is the market. Like, well, let's talk about the market. What are your thoughts here? Are there um I don't I I just shared my thoughts with a friend of mine named Riley. I don't know if [laughter] anyone knows Riley, my friend. Here here's maybe the question I would pose is like >> I mean I think this is something that's been talked about and we see this sentiment all over the stream.

>> You didn't let me finish it. It sounded like I said my friend Riley and >> well and I told him I think we're going to go up because rate cuts and because of the ETFs. Like I'm a strong believer that BTC is just gonna >> keep going up and then I'm only in two other coins which is like meaningfully hype and pump. So I think they're also going to continue going up. But this isn't but I'd said this to him and he said this is a horrible thesis. We should probably sell. So I don't know. And he's a really good like he's historically been pretty correct. So >> are you um I know you mentioned to me that that you bought stocks for the first time ever

like a couple of weeks ago. I guess maybe what I want to ask is like are you are you just are you fully allocated to the market? Like have you just been you just been in and riding since like this whole year or where you at? >> Like have you changed positioning or anything? I added I was overall I think I was like 70% long before October 10 and then market went down quite as significantly and I was like [ __ ] it like I think we'll we'll go more >> and then allocated more which I know but I took some off um last week just cuz I was like this doesn't feel great um in

terms of not anything significant But I did take off some um risk just cuz not a very like I didn't think it through for too long. I was just like I I should probably like I don't think it makes a lot of I I wrote about this um few weeks ago for the newsletter and like it's been tremendous for my because like historically I've always been very very riskone. Um unless I'm like we're going to like like I've been like black or white, right? Does that make sense? like I'm either like fully in or I'm like, "Yeah, [ __ ] I don't know. I don't care."

>> Um, and >> the issue with that is that you're always kind of like on edge >> because you're like, "Oh, like what if the market bumps?" If the market goes up 10% while you're fully out, you have to chase. And then if the market goes down 10% while you're fully exposed, you're kind of struggling. Um, so I wrote about this in the newsletter as well, but it makes sense to like keep some money always in cash just because there's always like these opportunities that pop up like XPL was a big one. Um, the pre-eposit vaults. Um, pump another big one like doing the onchain sale.

Um, Mega E, let's see how it works out now because I think it got went down a bit. still like these types of opportunities and if you have cash you don't have to think about like feel like you want to reduce the amount of decisions that you have to make where it's like okay I'm like let's say in my case BTC hype pump um but I want to buy mega so I have to decide which one am I sell BTC high or pop um in what proportions and then you have to make another decision of like okay how much am I putting into mega versus like if you can only reduce that to one decision which is how much am I putting to mega? I feel like it's a lot easier. Does that make sense? I feel like this is kind of a stupid reasoning,

but when I wrote this piece for the newsletter, to me it made a lot of sense. Like objectively, you want cash at all times anyway. >> I think what you're saying makes sense about um not being like spread thin across like a a trillion assets because I think there are people that >> that do this constantly. Yeah. I mean, I did this. It's I think it was a another one of these like artifacts from the 2021 market where it was like literally spray and prey and like, you know, you'd see a different coin every single day go up 10x and so like you just wanted to like >> kind of be in a bunch of different opportunities in case one of them hit so you could sell into it.

>> Um or ride it back up and down like maybe a lot of us did. Um, but I agree with you and I think more so now like the market is really favoring just there's a lot of dispersion. I mean everybody harps on this point now but it's like there are kind of like few fewer and fewer winners and like most of the things that come out um don't they they don't have buyers or they don't have users or they don't have any meaningful traction. Um, but the tokens are still like anchored to old expectations around valuation. And so then you're just you're set up with like, you know, these long periods of disappointment, I guess, what I would say from a price price perspective. Um,

a lot of assets and not, you know, not quite so many good assets is maybe the way to frame it. So >> like I think your the style that you're presenting kind of like fits with how the market looks and that very few things are doing well on on any like mid to longer term basis. >> Yeah. And you Yeah, definitely. Definitely. It also like you don't have to sell to cover stuff like Kobe talks about this um his my favorite up only episode which is like the Kobe one. He talks about how he always kind of had a job or he always like had some cash so he never had like a lot of people from his era when let's say 2017 had to sell to cover stuff

right like you have to sell to cover rent you have to sell to fix your car you have some bad accident happening you have to sell to cover that um whereas if you have cash on the side you don't ever have to sell and you know you're never put in a tough position so I feel like cash is cash is I don't have enough. >> Yeah. I mean, I think that's just like a that's like a broader lesson about markets. Like I I don't I feel like if you're um if you're one of those people who stops working to like trade full-time or something and and you haven't, you know, maybe necessarily quite made it, whatever that means in your position, you know, you can afford your expenses for the next like two years out or something along those

lines, then you're just you're taking on a ton of risk from like a life standpoint of like maybe you need to just be >> levered up in every perspective in terms of you know, you've got risk on and if you like, you know, get zeroed out then you can't pay a rent. That's like just that's a terrible position to put yourself in. So, I definitely agree with you there. Like I don't know this is something that um >> it's also basic knowledge, right? It's like oh like yeah >> obviously, >> this is actually one of the things that Santi Santi talks about over on Empire that I think is one of the like really really really positive things that he he he talks about is um when you you know, let's say you have some upside in your

portfolio, like take those opportunities to if it's pay down your, you know, pay off your car or pay off your home or, you know, put more cash away or invest in something that gives you fixed income that covers your expenses, things along those lines, right? Like basically setting that that stop gap. There's a movie, I forget the name of that movie with um with Marky Mark in it about uh sort of like the gambler uh and and the basically the the feedback is like yeah, you know, you got uh two million in the bank, that's your that's your [ __ ] you. Anybody, you know, employer says he wants you to do this, [ __ ] you. you know, market market goes down, [ __ ] you. You get asked to do something, [ __ ] you. Like, that's your

that's your throne that you can sit upon and you're, you know, you're chilling. Um, >> yeah. Now, we just have to put 2 mill in the bank and also have liquid investments. >> Super easy. So, that being said, guys, Marky Mark is also like, well, I think you're saying Mark Wahberg. >> I just I don't know. That's That's the name that uh I always that I always think of that first like before his full name comes to mind. So >> I I'm going to have to go find find that movie.

>> Yeah. >> Um >> go ahead. >> We have like we don't have that much but I guess we should talk about this balance of exploit. What did you um did you take a look at it? No, only a little bit, but saw that like over nine figs was drained from I think it was V2, the V2 >> contracts on like multiple chains. >> Yeah, I mean the bar chain I I don't know how much context you have or like all of the listeners have butchain essentially has um enshrined applications that work with proof of liquidity. Um, one of these enshrined applications is the bear chain decks which is called the beex and I think that one's based on balancer v2. So

they're like their entire decks um that makes their proof of liquidity work was um I think exploited and then or like potentially could have been exploited um and they had to like make a discord announcement reach out to validators to halt the chain. So all of the validators that turned their nodes off so that the the chain would would stop processing blocks such that um somebody couldn't exploit it and bridge off. Um it's very intense but like yeah I think overnight figs um balancer is kind of a like there's like kind of two sides. So I I don't mean this with like any disrespect

to balancer but like in my mind balancer is not a very like primary decks anymore. Right. Well, first of all, like most um interactions like buying and selling tokens is now through aggregators or through bots or through terminals or whatever. Like it's just completely abstracted away. Like I can't remember the last time I I used the unis swap front end or the balancer front end um or like any dex front end I would say. I think the last one I used was hypers swap um which I probably didn't even have to. I could have just used an aggregator but I didn't for some reason anyway.

But like balancer still does not do a lot of volume compared to the other um exchanges but it's also quite scary because it's a very oldstanding protocol and anytime one of these like I guess OG pro like if curve got like I I don't use curve. Do you use curve? No. the front end especially. >> Um maybe some of your swaps get routed through it at sometimes um especially if you're doing stable coin step but like if curve got exploited I would be nervous because it's such an old protocol that you just kind of assume like oh it's been battle tested it's existed for so long surely they can't hack it and then they end up hacking it.

Um I saw some takes like Leftis who is a old Ethereum guy. Um he has this app called Rothkkey which is um for taxes. Anyway, like he's just kind of a vocal voice in Ethereum. He was talking about this and like how institutions will now be more nervous about DeFi. Don't know if that makes a lot of sense because I don't know how many institutions were lping on balancer um or like they're using beefy like yield aggregator stuff but um also it's still quite scary first of all like bounces was a unique and good product back in the day maybe not as

popular now but like like if a v2 got exploited I would be [ __ ] nervous like if unisoft v2 got or unisoft v2 got exploited Maybe like crypto would put in like a 40% capital. But what do you think >> is do you do you think it would matter if like an old a instance got exploited? I mean like maybe it matters but I almost feel like this I have not thought about this that hard but almost similar to like um OSS for like computers for example like Windows stops supporting like you know I think they stopped supporting Windows 10 this year. You're like official support for Windows 10 bug fixes and whatnot. So

you should be like upgrading to Windows 11 I guess per their wreck. I almost feel like some of these like old protocols we might need to be thinking about them in that way. Like almost all of the capital that TVL is on a v3, right? Like 36 billion or something is on a v3 and then there's maybe like what a couple hundred million that's just like in V1 and V2 might not like that might be largely wallets that just like have never have not logged in >> since 2021. Like [laughter] a good chunk of that might just be wallets that haven't been touched since then. So, while I admit that there's like some risk there, um, unfortunately, like I don't know, I think I think we need to

>> yeah, >> probably think about some of these things more in terms of like, okay, that's that's old hasn't been upgraded to like the latest standards. There's there's maybe risk factors that like kind of we've solved for since that time. Um, we probably need to be like migrating away from those things. If there's just like old capital sitting in there that's like going to get it get, you know, is prone to like that that risk factor, then like uh I mean this that's kind of the risk you take on by participating in DeFi and like choosing to deposit your money into some of these contracts. >> Yeah.

>> Unfortunately. >> Yeah, it is kind of I guess [clears throat] interesting because if like Vista like Windows Vista had a massive security issue, I wouldn't be like, "Oh, Windows is [ __ ] cooked." like they they but I guess in crypto it's like the older something is you're like the more trustworthy it is. Um especially if it's like an older OG protocol that's not like a random fork. Um you're like wow like these guys are like this code should have stood the test of time, right? If it hasn't been exploited so far, it probably shouldn't have to be exploited.

>> Yeah. I think maybe the downside of that is that if um if it's something that's basically old and largely unsupported, then it kind of loses the like value of the protocol or maybe the broader chain or community from like wanting to backs stop it if something were to go wrong. So like in this case like to take down IV3 would be to like annihilate Ethereum B5. Take down IV1 would be like a drop in the bucket. It'd be like oh man you should have pulled your money out of there sooner because it's old.

>> I don't know. This stuff is really difficult to think about because >> it's tough though. Like I don't envy actual crypto engineers and smart contract developers and stuff because it's just so much money so much money in these contracts that people are constantly like there's entire country's economies who run on exploiting these and not just North Korea like there's multiple of them. Um and your like entire goal is to essentially prevent that from happening.

I don't I don't be them at all. But >> yeah, and it I guess this industry like we're not quite at the point yet either where you know I think like tiny bits and pieces have been played around with with like insurance of deposits and different things like that and kind of having some kind of like backstopping mechanism to to these sorts of things and like you know notifications and triggers when like odd withdrawals from pools or something along those lines happens. But, you know, we're not at the level where like, you know, when you use a bank in the US, you know, an x amount x x amount of money for you is is basically backs stop by the government.

Um, DeFi itself and like crypto is like a ways away from having that sort of opportunity. But even like you know insurance for customer deposits like just from an outside provider is probably something that like still maybe needs to be explored a bit a bit deeper. >> Do you remember Y2K finance? >> Yeah, >> just generically. So Y2K was um the thing is I don't know the the trady term for this. I'm going to say it was like risk insurance in that if a stable like you could bet

you and I are on different sides of the market. You bet that USDC is fine. I bet that USDC is not fine. And they'll give you the specific market. So they will say USD is fine if it stays above 0.995 over the next month. USDC is not fine if it goes below 0.995 over the next month. And if it like it's based on oracle prices and if that oracle price hits for like a sustained amount of time I think it's like 15 minutes or something whatever it is I can't remember. Um then I get paid out and like whatever money you deposit I earn. Um and vice versa.

So it's like it's actually kind of a cool way of hedging risk. But the thing is that it's very difficult to find people who would take the opposite of um some of these things like the things that you would want to make money on. Um like I would always vote probably fine for some things, but you also don't want to take on that much risk because it doesn't make any sense. It's like it's never going to pay enough APY um for you to like imagine having to pay out a USDC dbag pain in the ass um versus like I feel like you always would want to take on um like some form of insurance. I don't I

don't know how they would match that, but it would be very interesting to develop something like that. I think a lot of the times we say like prediction markets are a great way to hedge. Really don't see it. Like they're very illquid in their current form. the markets are very fragmented. It it would have to be like a completely new style of like market um that is being developed and like I don't know who would make those markets. It's just like a whole pain in the ass like how would you even hedge your balance and exploit through um prediction markets. It's it's very difficult to do. Um versus like I think something like that actually is there would you would have to figure out a way to like you would have to figure out a way that

only like a percent of like let's say you want to allocate you have let's say you have a portfolio makeup and 5% of it you want to allocate it into yield generating assets. you would have to put a percent of that 5% into this vault and then like always earn on it so that it's never a pain in the ass for you but I can always get the liquidity I want to hedge. It's a very difficult thing but um long story short this is like this would have been the kind of a good opportunity for them like if they would have been able to do stuff like this as well like everybody would have always betted that balancer was going to be okay but LPS would have been able to hedge the risk and would have been paid out now. Um I just remember it being a

big thing. I think they died out but it was a cool protocol. One comes back. >> Yeah. I mean maybe one of the difficult things about this market too, you have a lot of onchain participants who are willing to like basically be underpaid for the risks they take. So like we see capital like shove into vaults for you know 10% yield on like a new thing. Um, and I think we understand that like maybe they're not they're not really like accurately always pricing the risk on that opportunity and and maybe 10% like way way underpays them for what for what they're actually doing.

Um, so it probably doesn't help this dynamic where like it might be hard to kind of fill that like when you have so many participants who are like sort of willing to take on risk at lower cost. It it it might be hard to have like a broader business of like you know selling insurance to protocols when they have users who are willing to just like take a gamble and and lose money if something bad happens. Because what I find interesting is like we have, you know, we have a lot of have had a lot of big hacks historically, but like, you know, you give it a month and then people are like, "Well, I found the newest 20% yield opportunity. Time to put my life savings in there."

>> And we and we run it back inevitably. So, >> it's like the the market the market's not really like incentivized to even seek that out. >> This is um something interesting River always says, shout out River. Um, like every once in a while there'll be like a new the the same opportunity that you talked about which is like 20 25% yield on some new exotic form of like yield farming or leverage or whatever financial engineering some guy in France has [ __ ] up. Um, and rivers are always like I just get that by looping pts or yts. So why the [ __ ] would I ever do this? And like I think that like 20 25% is it's like at a very awkward stage,

right? Like of yield. It's not quite high enough that it's like oh level where it's like you put little bit of money in and you're like what if it just like keeps going up forever and it's like not safe enough that you're like yeah I can allocate significantly into at least for me. I know there's people who are like oh like 20% yeah I'm putting a billion dollars into this bad boy. Um but for me it just never made any sense. I don't know. like you can probably make that on like buying a token and you can make multiples of that just by being exposed to tokens.

So what's the point of like >> Yeah, I think I think I almost think the alpha here is in like kind of being um faster to these things than the rest of the market. There are definitely people who are making a living uh moving their capital around into these different pools like early on in their lifespan when the the yield isn't diluted by everyone who jumps in and sees you know 30% on a new on a brand new you know stable farm or what have you. Um, but no, if you get in early and you and you capture some bips on your on your stack and then and then go to the next one, like I I think people are definitely doing this this to some, you know, consistency and and and earning on it

and not like remaining exposed with a large, you know, portion of their funds and just like sitting in these different types of products because I think that's how you end up in like, oh yeah, I'm just going to chill in this like usual USD0 plus pool and then [snorts] when when the asset when the bond inevitably deps because it's not a stable coin. Um, then I get [ __ ] So >> yeah, >> there's there's definitely like it's it's it's interesting there's almost like a a rotational like narrative thing on the yield side as well as like on the kind of meme token narrative side too because I think a similar sort of strategy is like you see I see this a little bit from like smaller accounts

that do like um liquidity pool strategies for like hot hot token pairs. So like, you know, buy into tokens and then like LP them to earn the yield on the trading volume, but like kind of selectively sell like kind of strategically sell out of them as like the hype and the narrative kind of dies down and it's sort of like a way to profit on them without having without having like pure exposure to like a memecoin for example. >> Yeah. Um, but I I think like doing those types of strategies, it's it's just it's far more involved and takes more, you know, understanding of what you're actually doing than just like, oh yeah, I'm gonna I'm going to put my portfolio in this 12%, you know, APY stable coin farm just because it's free money. Like it's come on, it's it's not free money.

>> No, it doesn't. Yeah, I know what you mean. Those were like pretty popular during the memecoin thing where if like you >> Yeah. >> you accidentally ended up with too much of the supply of a token and it went up. Yeah, [ __ ] it. I guess I'll try to use the Radium front end for like three hours. [ __ ] [ __ ] create a liquidity pool. Um, yeah. I think I think that's a good place to end it. Danny, do we have do we have another word? >> Before we do anything else, I want to give one last shout out to our sponsor, Katana. Katana is an L2 built for DeFi and is pioneering the ecosystem category of productive TVL. In just two months, Katana has surpassed 500 million of TVL with over 90% of that TVL being

productive in ecosystem apps like Sushi and Morpho. From now to the end of November, users that bridge to Katana can earn boosted yield from CAT incentive campaigns, added vault bridge yield, and other chain revenue. Follow the link in today's show notes to get started. Thank you to Katana Halloween themes kind of kind of late. We should have done that on Friday. >> Yeah, I didn't realize our friend from Kyo If only I had a only I had a good producer to help me out with stuff. But >> they've got some fun little like spooky some little spooky backgrounds.

>> Uh, >> say something funny, B. Anything funny? >> But how did you do that? Can you put it up again? He knows what I'm doing. [laughter] >> Like this? >> Not that. >> No, he had a rolling banner. >> How did he do it? Oh, what was the banner? [laughter] [snorts] >> All right. Um, guys, thank you so much for listening to us chat for an hour. Um, make sure to check out everything in the show notes. Make sure to subscribe to Zerx Research newsletter and we'll see you on Friday at 11:00 a.m. Eastern. Um, we're going to be

chatting with the CMT Digital guys, um, Arian and Matt. I think we're going to do a bit more of a serious conversation. Although, they did send some stuff over that was very, very research heavy. And this really means that I have to actually study up Wednesday, Thursday to get to get enough knowledge for the conversation. But I'm pumped. >> I think it's going to be a good good conversation when you ask, "Do you guys have anything you want to talk about?" And then they list 15 things in one message. It's like, okay, I think there's plenty to talk about. So yeah, it should be Friday. It should be good.

>> You know, I said there's like Dan Smith's really into Legos and cranes. Like he's really like Matt and Arian are really into making money and research the way that people are really into Legos and trains. Okay. >> Yeah, these guys love DeFi. >> Perfect. All right. >> Awesome. Peace, >> chat. We'll see you Friday.