The Truth Behind Alameda and FTX | Roundup

Transcript

before we jump into the app quick reminder that nothing on bell curve is financial advice everything is just a meme hope you guys enjoy when people are like why didn't Sam just walk away from Alameda and let it die I think it's because a you couldn't separate the finances like we'll get into that like the Enron guys basically like this is the worst instance of of financial mismanagement I've seen my whole career and that guy went through Enron so we couldn't sep Sam knew he couldn't separate the finances in time but also it seems like these businesses kind of fed on each other like Alameda might have only been a profitable trading shop because of the relationship with FTX FTX might have only had the volumes and

Justified the valuation because Alameda was trading on it I don't think you could just rip one out I think when you rip one out they both fail all right everyone this episode is brought to you by our friends at Avalanche they're the layer one blockchain that is fast stable and scalable you're going to be hearing all about them later in the show for now let's get into it all right everyone welcome back to another Roundup on bell curve you're joined by Michael's one and two Yano and Vance Phelps it's been a week it's been a week it's been a week yeah what are we um feels like Vance I love the pullover pullover we got rugged by Vance we got around 30

seconds oh yes that's amazing that's amazing all right for those of you following along we have time to make the antenna but I there's no radio waves getting through this all right bro I'm gonna you know I'm just gonna tee you up Vance um just just take it because you know I gotta give you credit on all this Alameda stuff you were loud and early uh you know calling a lot of these guys out and calling calling [ __ ] on this um there was a there was a big I mean there are two things that I want to continue to deconstruct on this whole ongoing FTX Alameda Saga I love I love to just get everyone's take basically on the call about like what really went on on Alameda like how did we wind up with

this 15 billion dollar hole and again I just want to like there are some facts that we're going to be talking about and then we're going to kind of wade into the realm of speculation on like just how this all might have happened um and I think a lot of it was based on kind of this myth that got built up uh you know project like how kind of projecting Alamedas these like arbitrageurs printing money smartest guys in the room couldn't be wrong and I think that's starting to like kind of Come Undone so uh either Michael or Vance maybe Vance because you got the tinfoil hat uh literally on on your head and you're protected from the radio waves can you give us a breakdown of like how did these guys like talk about Alameda in the beginning what was it really like when they were soliciting

funds like what's your take on on how this all sort of Unwound I mean how how it built up was in in our position probably right from the start you know and Sam even admitted it in that last fox interview he gave where FTX didn't have a separate bank account how I made it everything just got wired to Alameda and so you know like the idea that you know they created this back door because this problem happened last summer and this is only something that's been going on for three months I think it's a very charitable interpretation of the situation I think the base case is that it was extending back much further potentially to the start of of kind of both entities being co-mingled um but you know you can spend 15 billion pretty quickly you know you support the

price of a few tokens you know that's a few billion you have all these celebrity endorsements all these advertisements you know that's another billion you're buying properties on the island you know you're buying houses 200 million of property um these things go pretty quickly and I think the base case is probably this was you know rotten from the start uh and like you'd have to convince me that this only came about because of blue and three arrows it just doesn't seem to be the case and so we're where did the money go probably into a mixture of bad trades supporting native tokens of Solana that they use for collateral and just outright embezzlement or you know spending on FTX stuff I actually don't think that it's necessarily the um well I think the Smoking Gun here I

actually think FCS probably had its own bank account and the way that Sam was talking about it he was more referring to like the early days of FTX when you had commingling of like FTF spinning out of Alameda so like maybe a slight benefit of the doubt there because you can't you can't have you know an exchange that doesn't have its own bank account in the first place but I think the The Smoking Gun for Sam frankly is what the Wall Street Journal reported last weekend where it became clear that there was actually a back door into the accounting system you know a bespoke system uh Software System that allowed for Alameda or FTX to lend assets to counterparties without actually changing the financials that would get around

auditor controls would get around would not let anybody else at FDA essentially know this the fact that that was created in the first place I mean if people have gotten charged with with pretty terrible crimes for much less um and so the the creation of that uh to knowingly defraud um you know either your counterparties your your investors or you know customers in this case um I think it's ultimately that will be the Smoking Gun here um um let's kind of take this back to to the beginning here there's a great um sort of breakdown uh as is classic in crypto by someone named milky eggs milky eggs gave us the goods here uh but you know there's a piece and we'll link to

it in the show notes called what happened at Alameda this this is basically uh you know this was put together in response to the New York Times piece that frankly we should talk about uh you know which is definitely a pretty charitable treatment to someone that's in Sam's position I would say but basically they kind of tried to piece together kind of the history of Alameda and how things might have gone wrong so there are some kind of facts that are laid out in the beginning and then you know we kind of wade into the speculation as everyone tries to like fit a narrative on just like how this could have gone so badly right um and I I think what's worth maybe talking about is at least like my perception of Alameda pre two weeks ago was that they were kind of these like

Arbitrage or smartest guys in the room and you I think you can Trace back that perception to these interviews that Sam would give that probably many of you in the space Have Heard which is oh yeah we made our money initially by closing down the kimchi premium right or the premium that existed in between Bitcoin the trade on U.S Thomas held exchanges versus Asian domiciled exchanges they it looks like they didn't get the the South Korean one but there was a premium in between Japanese uh Bitcoin exchanges like bitflyer Etc and like coinbase and you know he kind of told this story in a way that made it seem like they made a whole bunch of money closing down those spreads and they sort of let you assume that that's what they were doing to continue to make their

money but obviously that isn't really what happened right and like going through this what what it it kind of uh you know lays out this narrative or a potential thought process for what might have happened where maybe initially they were doing that and they made some money by doing that but then it posits that whatever Edge they had in the beginning started to get crowded out as more Capital more sophisticated Capital kind of came into the space and once they weren't able to make as much money just making markets uh and providing you know uh liquidity they started to basically just punt on Longs and they reference a couple of like they reference a couple of tweets from like that I remember actually from

Trabuco uh you know a couple years ago when he was basically describing the strategy of being long Doge whenever Elon would tweet and and I was kind of like yeah he did do that but I did do that and I don't know I wanted to get your guys take because I kind of think it comes full circle with this podcast and bell curve because there's like the guy on the left of the bell curve and then there's the guy on the right and I would pause it to you that maybe the guy on the right doesn't exist and it's been a bunch of left Builder guys I think that's the right take I think

that's the right take the Milky eggs um by the way great great Blog name got it gotta put milk in the eggs yeah um make some fluffy I got it much fluffier um I I think that's the right take my like I it does seem like Alameda basically started as a bunch of like people from Jane Street and like a bunch of traders who thought that they could make some money they made some money maybe 5 10 15 million on an Arbitrage play they built a successful Market making firm I mean the numbers were there like I remember seeing the bitmex leaderboard they were consistently at the top of the bitmex leaderboard like it's not like they weren't making money but at the end of the day a market making firm can only scale as large as like a market neutral firm can only scale as large as the industry scales

right and so I think what ended up happening is they had this successful Market making firm um in like 2018 2019 making a bunch of money then the market turns covet happens March 2020 Market starts to go long when you are a market neutral firm and you see all your these like people who you think are dumber than you making a boatload of money well then you start just taking these just punting on these like levered long plays and I think that's where that's like the first thing that I think we're we're [ __ ] really started to hit the fan is when they moved from a market neutral firm to it to just this like d-gen levered long retail portfolio I mean yeah

it is just like there is a there's a scale difference where if you're a market making firm and you're actually Market neutral making markets going off and finding Arbitrage spreads that only scales to a certain extent to the point where you're not able to you know pun a million dollars through those trades maybe you were able to do that with ten thousand or a hundred thousand but like the second you increase by an order of magnitude scale which their balance sheet obviously did your you know absolute return Market neutral trading strategies just don't work at the same level and so you can't continue that that path I think there is an element here of just like them getting caught up in themselves getting too big to be able to continue with the strategy that they started with in 2018 and in 2020 you had defy summer and why not just go off and

yield farm with uh you know balance sheet of stable coins um so it's kind of no surprise that like they shifted strategies but you know there is an element of like they just weren't able to continue their strategy because they had too much Capital can you address actually that exact like I've heard I think I've heard you guys say this but you were also pretty early in like D5 and yield farms and you can actually go back and listen to some of the SPF interviews where he was like best way to think of us is we provide liquidity we close down spreads like in exchanges and different Regulatory jurisdictions and then in weirder spaces like defy right like how they you know the implication being we basically farmed and then dumped like and took billions of dollars out of these yield Farms like you guys

were kind of there like how possible was that really to do in size uh well impossible you could have a couple things break your way and have like and make like nine figures on on something but like pretty much impossible I think what would be worth doing is just going over like what do quantitative firms like Alameda do as like a set of strategies and and like what is their capacity and what's the potential payoff so Arbitrage you know pretty small that's like a small firm's game like jump is not really doing that stuff like the most sophisticated ones like they tend to do things called signals trading which we'll get into but like the pure Arbitrage like you know it's trading on Exchange X and it's different price in exchange y That's both a very small ARB

and it's also like been mostly taken out since all of these more specific sophisticated firms have come in so like that's not really something that we see firms do and it always seems suspicious that SBF had this like theoretical arm which made all of his money like those facts never tied so that's like one strategy people run like arbitraging the next one is just vanilla Market making what is what is market making like uh conceptually so the mechanical uh transaction that happens is you know a token project or you know somebody else wants to get their asset Market made they will give the market makers Alameda you know jump whatever alone of these tokens for free with an option for them to buy these tokens at a very cheap price so if it moves against them they can

collateralize and hedge it out but if it goes up in value they can buy it and seek some profit from it so that's like the second thing that they'll do one quick note on that so the it's also important to note the different order types in order uh and exchange types that you're talking about a centralized limit order book is the only way that you can actually be a traditional Market maker because what you're effectively doing is you're setting bids beneath wherever the market clearing price is and you're setting ask orders above and basically what you're trying to do is provide this spread where you're trying to enable more liquidity by being a constant provider of orders that go into the centralized limit order book but as we know with amms or constant uh constant function Market making

concept you just can't do that right the the function itself is what determines the market clearing price and so it's very different and it can only work on centralized exchanges and this is kind of the whole pitch that you had with alimeter plus FTX is that FTX had the deepest liquidity because Alameda was the traditional Market maker behind FTX making all of these esoteric markets in a centralized way so just one point of clarification so so Arbitrage not that profitable small Market making profitable but it's like a very manual business this isn't like you know you're gonna blow somebody's lights out with like how intellectually stimulating this is it's like it's mostly a transactional relationship and you set the bids and

asks within a range and that's how you make markets it's not actually that hard but it's not that profitable either unless you hit like a token that goes up a thousand X you redeem the option you make a ton of money whatever so the third stuff that we see people do is signals Trading this is the most difficult thing to do it's the most profitable thing to do you can make a billion dollars doing this if you have the right team it only takes you know five or ten people um but like basically nobody in this industry can do it we've seen a couple of people successful but not over a long period of time but like that's like the super Quant side of the world and like I don't think Alameda was actually doing that like I don't think that was one of the strategies that they had it was more

like you know Market making kind of like dumb money trying to make money on that yield farming and then just going long stuff like Alameda was never researching much it was always like a very manual trading operation in our view that like wasn't that sophisticated yeah now I wanna like start to we kind of started to get into this but or Michael you mentioned this like the value prop of like the relationship between FTX and Alameda because I think that's really important and people are like why didn't he just bail on Alameda right and save FTX and I actually have a theory about that but I want to get your guys take as well so exchanges when they're getting started have this thing called the cold start problem right which is is basically the value of the exchange is you need to have deep liquidity so you

get that spread that you guys were talking about can be as thin as possible so that people want to trade more liquidity begets thinner uh spreads so like liquidity begets liquidity and that's how you're supposed to get started the problem is like how do you get it in the beginning so Alameda had this uh you know they they sort of raised Capital they raise like debt Capital actually this is now getting passed around as well like allegedly right they're raising at 15 return no risk which is itself kind of like a junior move right it did raise some red flags back in the day I think um but whatever however they they did it they successfully raised basically debt capital and they started trading basically what like punching way above their weight class in terms of trading

liquidity um but it seems like Sam kind of had other plans and either because he wanted to and saw more opportunity or because he thought he needed to he basically saw put in exchange a derivatives exchange and this accomplished two things one it allows him to solve the cold start problem on the exchange side of things because boom he had a built-in Market maker that was already punching above its weight class from day one and B it provided a way for Alameda The Firm to extract profits because what has come what everyone has basically long suspected and is now now been officially confirmed is that Alameda had both Priority Access to and they could trade in front of other people that were trading on the exchange but they also

were the liquidation agent for the exchange and this is I think a really important thing to point out so when derivative exchanges uh when margin positions are liquidated right um someone has to sell that off so it's a PO in when Market times are good it's a really good way to make profits right because you basically take the collateral sell it you get some small percentage of that it should be really easy but when the market is moving very fast it's much harder to Warehouse risk right so like if you take that collateral and then you own it and suddenly you own the risk you can't flip it in time to basically make the small spread that you were allowed as a market maker before so this is all setting up for like what might have happened here uh and it looks

like looks like these guys basically got in trouble around Luna like three air the collapse of three arrows and Luna same time as everyone else and it looks like there was like a whole bunch of things that happened all at the same time which is when three arrows blew out there was an enormous amount of liquidations that happened on FTX The Exchange so a big profit making machine for Alameda in good times when they get to liquidate that collateral and sell it and keep some of the profits they got screwed on because it looks like they didn't have as good of Technology as they kind of advertised they basically had to Warehouse a bunch of bad debt and then they took an enormous L on that at the same time all the loans that they had given out to centralize the

centralized lenders were getting called in um and so that kind of explains why they went in and bailed out all of these lenders which had loans that were collateralized with ftt um so my like when people are like why didn't Sam just walk away from Alameda and let it die I think it's because a you couldn't separate the finances like we'll get into that like the Enron guy is basically like this is the worst instance of of financial mismanagement I've seen my whole career and that guy went through Enron so he couldn't accept Sam knew he couldn't separate the finances in time but also it seems like these businesses kind of fed on each other like Alameda might have only been a profitable

trading shop because of the relationship with FTX FTX might have only had the volumes and Justified the valuation because Alameda was trading on it I don't think you could just rip one out I think when you rip one out they both to fail I think that's I think that second one is the more important one so I think if you looked at actually ftx's clients you they only got the retail clients at the very end of FTX like they don't so it really FTX was this exchange with a very small amount of clients um and like if you look at if you actually look at their trading volume someone printed I forget some Anon account it was like 40 or 50 of their volume uh Alameda was just was one side of the trade so basically what FTX was doing they would quote these uh there

sometimes they would price off Market even by a fraction of a basis point that would Dr that drove institutions to to then go use FTX uh because even like very small bips they could pick that off all day so institutions would go use FTX now FTX would show these large institutional volumes they could use those volumes to secure credit lines and feed benefits and exchanges which could then allow them to price differently than others so now FTX basically had the ability to present these super high value uh super high volumes so if you actually look at it in that light FTX was just this like loss making Prop Shop uh that wrote off losses as a way to drive volumes which then they could go take to Sequoia and to all

these other VCS and the VCS would mistakenly see those as like acquisition cost of customers um and and they painted this pretty picture of like it was essentially that FTX was like a prop shop trying to secure the valuation of a of a large fintech company so the actual thing is so it's definitely that I think it actually goes a lot deeper than that which is the the Crux of this whole thing comes down to ftt and SRM yeah and the the the reason why uh it comes down to that is because ftt which you know is one of the major balance sheet items that was rumored to be on the Alameda balance sheet in in June 20 uh June of this year um remember ftt is propped up by 25 of

the weekly profits of FTX right and so 25 goes to ftt burn which increases the value of ftt but also enables this um and you know we we looked at serum uh we we also looked at ftet bit way back in the day passed on both for a number of reasons CRM was a lot kind of sketchier um but you know basically they had this model where it was a seven year distribution which is probably about twice as long as we would see from any other protocol token um they also had insiders owning 40 of it which meant and it was not very very well described as to like who was owning it how it was going to be owned but imagine you have this really really low

flow token that you just created out of thin air where you own 40 of it and every you have this machine that enables you to hyperinflate the value of this asset what you can then do is you can then go say I have all this locked ftt I'm going to post it as collateral so that we can borrow dollars against that and we can borrow billions of assets against that propped up asset you know strong assets being borrowed against inflated assets and I think that's kind of where this whole like multi-billion dollar balance sheet came from in the first place like that that is where this whole thing got started I I think FTX was a mechanism of propping

this whole thing up but it was definitely the ftt token and then more recently the SRM token in the same mechanism that really I think are the the driving force is behind all of this the other thing that you know like we knew but probably the VCS who who didn't uh who did this deal didn't know is that binance is the price Discovery venue for basically everything that we do and like when you buy on binance you see FTX like slowly get armed up and it's basically just mirroring the liquidity on binance with a bunch of stale positions facilitated by Alameda and so it just kind of furthers the idea that you know this was actually just like a prop shop trying to get a technology company evaluation um and and like you know my takeaway from all the bankruptcy firing filings

and stuff is saying am rarely had a good directional sense of like what the state of his finances were which implies that everything was so co-mingled and so just jumbled and like run by the seat of their pants that you know if you if you think that the market you know if you think that you have a plus or minus 10 understanding of your finances uh but then the market goes down 90 and so do your assets like that plus or minus 10 becomes the entire value of your customers collateral liabilities and so at the end of the day like the fact that they didn't have an account they literally had no accounting department is insane to me like you need to know where all and we know where all of our dollars are at any

given time we can move them between places we know the exact state of our finances like that's how a professional runs an organization this is just like pure energy hour this is this is what it comes down to this is another subject that I think you know is worth discussing everyone is talking about oh well like he was getting really close to the regulators and and like you know they didn't do anything to protect us actually I think that they did because they prevented fth.com from entering the U.S customer base you know that was that was never going to be a viable option to get you know millions and millions of U.S people onto this platform you have FTS us and you know the bankruptcy proceedings will will determine what happens there it is siled away from both ftfs.com Alameda and all the other Acquisitions so you would

assume that there's higher chances of FTS customers getting their deposits back but I I think you know this is just a failure this is not a failure of regulators I I think it's actually potentially a a sign that you know there was some smoke and and they assumed that there was fire the the other question that I wanted to pose to this broader Group which I've been kind of like rattling around in my head over the last week um looking at trying to get into the mental state of where Sam was at any point in time which which asset between FTX and Alameda do you think he personally valued more Alameda 100 I agree not even I and I think the reason why is like it's really hard to

even like in a simple sentence describe what he was doing it was kind of like what Jason was saying it was like a prop shop that was like sucking in VC money via this inflated valuation that was also sucking in dollar denominated debt via a [ __ ] token and the way he laundered it was through Alameda that's why it was so necessary because the way he took all the money out and spent it the laundering mechanism was Alameda and that's why it was the most important thing to him precisely I think FTX was a mechanism and sort of a necessary to have but I think Alameda was his bang yeah exactly and the loans from FTX to Alameda to paper crane which he owns paper

like oh it's it's just crazy how could you I just do not believe that like the you're in you're working FTX what like you're just like moving stuff around like hot and cold wall it's like you don't notice coins are missing you're working at Alameda you you just keep taking big L's on trades like you just keep getting refilled with more money like I I don't believe that you know only three or four people knew about this maybe three or four people only facilitated the fraud but like mathematically uh if I wake up and there's a hundred million more in our trading accounts I'm wondering where it came from all right everyone quick break from this episode to talk about our show sponsors Avalanche many of you know Avalanche as the fast reliable and scalable layer one uh the folks at Avalanche have a really great message

for those of you who are in the crypto industry right now which is bear markets are for building so while a bunch of our friends over in C5 are kind of going through these struggles and travails the folks at Avalanche basically put their heads down and are shipping products that Builders want the latest solution elastic subnets right and just to expand on that Avalanche is consistently upgrading all of their platforms right so on the platform side you've got elastic subnets you've got new VMS on the infrastructure side of things you've got core which Mike I just uh I know you used that the other day sure yeah exactly exactly uh so they're upgrading the infrastructure side with core and Enclave the chain has had like no downtime super customizable for devs uh yeah if you're a builder avax.network uh avax.network great place to be but do

Yano and I as well so you definitely go check them out but click the link at the bottom of this episode click the link oh it's not going to get any credit come on yeah give us the credit exactly so yeah big thanks to Avalanche um yeah I mean you just had a great experience with them the other day on the user side of things so go check them out guys thank us later let's get back to the show all right I have a I just I wanted to flag this like we gotta eventually talk about this Vox article that he gave but like for those of you who haven't seen this we'll link it again in the show notes but for God only knows what reason Sam gave a super weird DM interview to a reporter at Fox who ter credit did a great job

covering this and he said some pretty outlandish stuff like everyone basically had their own oh my God I can't believe he saw this actually Advanced I think I saw you tweet out about this at first I was like is this like I couldn't it took me like a full hour to even believe that it was real but this this is what to me was like the aha moment so this is like so I'm just I'm reading the the part from the reporter here so there was no point of like quote let's lend out customer deposits quote just various financial instruments that ended up adding up to that and you didn't see how they add up to that Sam yeah like oh FTX doesn't have a bank account I guess people can just wire money to Alameda to get money on FTX dot dot dot three years later dot

dot dot oh [ __ ] it looks like people wired 8 billion to Alameda and that oh God we basically forgot about the stub that corresponded to that so it was never delivered to FTX I was kind of just looking at that being like dude did you just admit that the funds never even made it to FTX I mean this I I know everyone had their own little thing to pull up point out from that but this to me was The Smoking Gun I mean at the very least that's wire fraud but did you guys not think that also like I thought this was such an odd thing to admit um the the big thing is that like the the words on this page this is Sam's tone this is how Sam actually thinks within his own head like all the other like effective altruism like er we're

gonna do it's like no like you're actually this guy this is how you talk when the doors are closed and this is who you actually are and that to me was you know obviously one of the things that stood out but you know Tim's saying [ __ ] Regulators him saying uh you know like the whole ethics thing was just a front you know him actually admitting to these crimes like he's clearly in a very frantic State you know our sources say that he's still in the Bahamas but just pacing around the apartment that he has and he's like freaking the other residents out and the building is like trying to get him to stop pacing like that's where he is right now um and I think it's just like it's very conclusive that crimes are committed here and if he doesn't get held accountable I I don't really know what

to believe at that point that's why I have the pinfall Hat on yeah we're gonna get to the next one guys yeah how is he not in jail how dude how has like I can't be the only one thinking this right like where are the announcements the most recent account is that at least the Manhattan District Attorney's office is preparing criminal charges you know we'll see right but if that goes through I mean that would happen over the next couple of days also like now it becomes abundantly clear that there was um not just like errors of omission or you know he he forgot about certain things or like oh he got over his keys let's let's portray him in the same way that the New York Times did in that puff piece article that they wrote how stupid

must you feel as the writer for the New York Times I mean this just makes you and the entire publication look like you don't do any diligence and you have a complete slant and you have a vested interest in portraying facts in a certain way but when you see this storyline come out and and the The Narrative now that this is the real Sam and this is how he actually thinks and this is what he's literally saying to another reporter this is the real one and and this is the one who had malice an intent I I don't get how he's not in jail right now you look at Bernie Madoff the the day the feds found out that he had used client funds to cover fund obligations that guy was in handcuffs the the same day

I think he turned himself in I think there's there's a lot of so it's not like Sam's on the Run we know where the guy lives I can tell you right now on a map where he is totally totally I actually had a conversation with our with uh you know people who are in the know about this it is actually hard to get somebody even if they are there is an extradition process and policy for that country even if like that is going on like this is a you know this is not a U.S company um even though they filed for banks received Port protection in Delaware like there is some process to it all um versus Like Bernie Madoff who is you know a few blocks down the street from the from the District Attorney's office um so I I think there is something to it

but but I think the days of Sam being free are numbered one of my uh friends dads bumped into him at the grocery store in Albany in the Bahamas I think two days ago he's just like you know buying some food because he's hungry she's eating while he's jacked up on all those amphetamines I am yeah it turns out he doesn't have Parkinson either you know who would have thought like you know he's just wearing [ __ ] patches that give you you know just I have I have a um I want to point something out about the New York Times article which just really surprised me so I mean look so I want to share actually Austin always had a great tweet about this that I thought kind of summed it all up uh pretty nicely but basically this is you

know he's got a New York Times coverage of coinbase after they had layoffs to FTX defrauding customers going bankrupt disappearing with 10 billion dollars worth of other people's money this is a lot of media um you know media is unbiased and reports the facts but they interject their editorial opinion in their parentheticals and the context that they choose to give in a particular story so look at coinbase Rose to prominence as one of the first major cryptocurrency companies a gateway to the chaotic world of digital assets for amateur investors but as it is grown from Plucky startup to publicly traded company its status as an industry leader has been threatened by a series of missteps at a steep decline in the crypto markets over the next six months

here's another one but as coinbase grew projects started to feel overstaffed and the decision-making process slowed amid layers of bureaucracy according to five people familiar with the company longtime employees were considered are concerned that new hires felt rudderless one person said and joked that you could tell the length of someone's tenure at coinbase by the number of times the new recruits came asking them for help even the Super Bowl ad didn't really come together as the game approached coinbase hadn't settled on an idea employees discussed the possibility of selling back the air time all right what are they really talking about here like remove this language these are minor uh mess-ups that every company goes through right but the impression that you have when you read this is like wow this is a a tangled organization right that that phrasing is very important that is

growing pains for any company of that size any cup literally any company now listen to the way listen to the parenthetical listen to the way this reporter contextualized this even as he kept hiring down Mr bankman freed built an ambitious philanthropic or operation invested in dozens of other crypto companies bought stock in the trading firm Robin Hood donated to political campaigns gave media interviews and offered Elon Musk billions of dollars to help Finance the mogul's Twitter takeover Mr Bank freed said he wished he'd quote we'd bitten off a little less the Ventress staff was probably not really worth it given the risk the attention that it took he said referring to his investments in other companies perhaps Mr bankman Freed's most ambitious aim was to shape crypto regulation in Washington where he testified to Congress and met with

regulators what is the impression that you get from those words that that reporter chose to use it it is uh it's more about your politics less about what actually happened if if the fraud had never Unwound espe and and like it's very key to understand this all of these people were rooting for SPF to win you know a global well-educated you know effective altruism very liberal you know like he was the he was like patient zero for okay who's gonna be the next guy to like you know beat the beat the drum for the neoliberal uh bandwagon and you know like it just didn't work and they're having a hard time letting go and I think that you know many people have told them that there's a chance that you know it might not be over but like guys you know it's it's in chapter 11 right

now like Sam is like oh we're raising money raising money for what I just don't get it even even this morning even this morning after all this has come out the Washington Post came out with an article saying Sam was like on track to save the world from another pandemic this morning I'm like yeah I mean I don't get it I'm so confused as co-founders of a news organization what do you think how do you view the dichotomy of reporting how do you view the perspective and you know the choice of uh inclusion of opinion into this I think it's actually the media background that makes me think this is even weirder than other people are saying because

they're sourcing you're supposed to dual Source things right it's very odd that even in like a puff piece interview about someone that you wouldn't get someone else to interject commentary on that thing right so the the choice of word to not even include the allegations is a very odd Choice from an editorial perspective to not include another voice that would provide a contrary opinion is almost like that's like that's like bare minimum stuff uh so I I would just say I find I found it extremely odd and I actually think our media background makes me think it's even weirder than most people are

they're just like oh it's weird that they covered it nicely I think it was like irresponsible journalism let me ask you guys this what did you make of Vox coming out with that puff piece and then that other reporter just like screenshotting her DMS and being like no this guy's actually you know a really bad guy because it felt like that was like infighting almost that's not necessarily how I interpreted it I I think there's a look I I actually really believe in media I like deeply believe in it I think it can be I think there are bad examples of it but you know there's a whole conversation here to be had around like citizen journalism that I'm like relatively skeptical of I think good journalism is is really great and needed um they're very if you've ever talked to

reporters like the good ones are super concerned with like getting it right almost to an annoying degree right they're like very nitpicky about the facts it's good because someone has to be right it's good to be like very forward but looking and very optimistic but you kind of need someone to be like hey guys like can we do like some basic fact checks and that's what media is supposed to do uh there was a little piece at the bottom which I really appreciated of that Vox article which was like we checked with Sam in the morning hey did we have a conversation last night or did you get hacked to which he responded no that was literally me and I thought I don't know I I kind of thought Vox killed it on that I I didn't necessarily get that sense of inviting I think it was frankly if you hadn't

included the screenshots it would have been unbelievable I don't think anyone would have believed it I saw the screenshots and myself and I have a pretty low opinion of the guy at this point but like I still couldn't believe that he would do that interview like I think they needed to include the screenshots otherwise it it just boggled the Mind frankly um I didn't know what to make that that's what that's that's how I took it I don't know you know if you have any other opinions sir yeah um very weird so I guess it's an unfolding situation um I you know a lot of this stuff is like you know I think I'm I'm very curious to see what happens when more facts come to light

um I think all of us have like a vested interest in the space I would love to see Justice Done in in whatever form that takes so um I I want to unless you guys have any closing thoughts on this I have a closing thought on the media side of things I'm not gonna like compare you know I I think it's a really bright light for like a bright week two weeks for crypto media in general like you had a lot of things getting basically uncovered by like all right so first I'll have a lot of stuff they're like on-chain sleuths that literally looked at the blockchain and uncovered crimes it's amazing then that stuff would go to Citizen journalists on like Twitter citizen journalism is interesting because like you can aggregate all this news and like it happens really quickly

the problem with that though is um there's like half of it as rumor and half of it is true or probably like 90 is rumor 10 is true that's that's the problem with all the Twitter citizen journals and that's where like that's one of the areas where like crypto media block works but also other Publications right all this kicked off yeah yeah murdered it coindust did an amazing job huge shout out to Ian Allison like one of the best journalists in crypto um like this all started with the analysis piece I think it was just a the whole spectrum of media starting with like the data side and like the on-chain stuff to the to the Twitter journalists and then even after the fact after a new story had broken like podcasts honestly like like a lot of blockworks shows and

Laura shin and bankless like did an amazing job of of bringing folks on to actually explain the situation and I just I got really excited about like the impact that someone like blockworks makes on the industry and just like the impact that media and all the people like I feel like we came together as an industry to to like figure out the facts here and a lot of this [ __ ] wouldn't wouldn't have happened if it was wasn't for thousands of people un like working kind of around the clock so I totally agree with that yeah I mean this is this is I think by far the biggest story in business this entire year by far Yeah by far and then sorry the other side of this is then mainstream media just completely botched it and I

was like oh completely botched it like like is any of the reporting about anything true like if they're covering Wars half around halfway around the world like what are the chances that the information they're reporting is factual like it makes me question my everything I mean it does it is uh it's damning in a lot of ways I agree um I I don't I don't know I don't have a good response because like yeah it's been really disheartening to watch how this has been covered in like the mean that's why people have such it's interesting actually I was on a call with um like a fashion executive weirdly yesterday and uh they were talking about how the meat uh sorry pre-tell what uh

what uh context around that or it's a really boring story is one of those calls that Mike you always say I'm wasting my time by taking all these random ass calls but I just like taking them because I like meeting people um totally and had nothing to do with Krypton I probably was wasting time taking it but uh interesting guy interesting guy but he was talking about media like the media and uh journalism behind fashion he's like every he's like New York Times CNN they all get it wrong but there's these like B2B trade Publications that get it right and it makes me think that that exists in every single industry he's like the only uh media publication I trust is like the business of fashion I think it's called went to the website Cool company sounds like they're crushing it he's like when the New York Times writes about like a

deal in the fashion space they just literally get the facts wrong and then blow right past it so I don't know I'm long on like Niche like more like trade Publications and like industry pubs like who Could That reference like that you know who Could That Be referencing this has been a 10 minutes it's been a heavy show up all right we got to move past the Blockbuster I wanna I wanna move on to uh the Genesis story because that was the other uh implosion that sort of happened this weekend this week that was yesterday um yeah the backstory of Genesis for those who don't like genesis started as a uh was the first OTC Bitcoin desk in 2013 Barry Silver started them they're now crypto's largest lending desk uh

their numbers were massive like if you look at their a snapshot of their numbers a year ago 50 billion in loan originations 12 and a half billion in active loans 30 billion in spot volume traded 20 billion in derivatives traded uh and then basically three arrows happened and they started to blow up so Genesis was the biggest creditor to three arrows they lent them like two and a half billion dollars uh Genesis filed like a 1.2 billion dollar claim dcg stepped in assumed the claim that left Genesis with no outstanding liabilities tied to three arrows people like okay it's all good then things continue to unravel uh Genesis got hit super hard by Babel Finance Babel Finance is kind of like a block buy um I think in in Asia um so that's that was in June then in

August they laid off 20 of the team Michael Morrow resigned or got asked to leave I don't I don't really know the deal there basically everyone I know Genesis at that point in time in August uh started to basically leave why the downfall So Yesterday Genesis announced that they were stopping withdrawals why that's so important is because they're basically the yield product for every C5 platform and how that works is um you essentially give your like let's take Gemini so Gemini Gemini's earned product is powered by Genesis so what happens is you give your you give your crypto to Gemini Gemini gives your cryptogenesis Genesis lends your crypto to a fund who thinks that they can make money using your money the fund borrows from Genesis at like I'm gonna make up

numbers here 10 Genesis passes on some of that yield to Gemini let's say eight percent and then Gemini gives you six percent so voila now you have yield this this whole system only works if the counterparties that Genesis lent to can actually repay their borrow if Genesis can't actually get their crypto back they can't give the crypto back to gemini or to any other crypto C5 platform which means the C5 platform can't give you the user your crypto back um so that's that's one side of why it's really bad and the other side is just like if you are kind of a retail user you probably and you want to earn yield you give it to like block fire or Gemini and you get like five or six percent if you're an institution or just a crypto whale like a family office and you want

to earn yield you can kind of skip the block by like the app process and just give it to Genesis so a lot of family offices and crypto whales that I know they basically just give their money to to Genesis and earn X percentage on it so the reason that Genesis halting withdrawals is so bad is they sit at the direct Center of crypto's capital markets right the custody funds they help institutions are kneeled and they are the yield product for C5 platforms so that's why it's bad that they're halting with trolls let me let me explain how we think or I think that they got into trouble it starts with gbtc um so gbt gbtc is a product that is created by grayscale Genesis is a company that is

also under the dc8g umbrella with grayscale what that means for Genesis is that they are a an affiliate trust party what that means mechanically is that if I am an affiliate trust party and I have gbtc on my balance sheet I can't go into the open market and sell it and so you know that's an issue and and the bigger issue is that they were taking gbtc as collateral and so the the r blue Works something like this suzu and Kyle roll up uh with uh with uh gbtc that they've created they give it to Genesis they take dollars against it they buy BTC they create gbtc they give more gbtc to Genesis you know they do it over and over and over again and then they're super levered right and if things go

badly Genesis can't sell that collateral and so like that's the core issue and like our understanding of three arrows was like they were Traders they would like punch like medium-sized tickets whatever but there was that one uh day where they announced that they had like you know seven percent of the gbtc trust and that was like the okay [ __ ] like three arrows has arrived like they're actually way bigger than anybody thought but nobody knew how they got there I was going to jump in to point something out about an interview that three arrows gave a little while ago after all this came in Bloomberg and what they're doubling down on which was the only mistake that they made was that that they couldn't have accounted for is that they didn't know other people would follow them into the trade which is like the the funniest thing

ever because obviously obviously man Finance is like it's replete it's like it's like one of the primary risks that you should be concerned with is a trade getting overcrowded and I actually forgot about this until you just reminded me they gave an interview with the block stating how big their position was they [ __ ] told everyone that like they lever this up right and and Genesis now has collateral that they literally cannot sell which is like you know the cardinal sin of Landing like never take anything that's collateral that you literally cannot have a liquid market for it because if the markets blow up then you're stuck with the collateral and then you're just taking directional risk and hoping that it goes back off or trying to offload it to a different party that might make a market for you so like that's the situation where I

think they found themselves in right when Luna blew up especially because you know the Thrills got liquidated whatever you know the game's over for them but at the end of the day they're just sitting with a bunch of this gbdc collateral wondering what to do with it and there's this you know potential mismatch in their assets and liabilities as well and so that's when it got I think to a point where you know they realized that they needed to potentially raise money and and Barry put in I think it was like a a 400 million dollar like you know note into them to kind of re-recollateralize the company um and now they've you know they lost 100 another 175 in their derivatives business and FTX they lost another like 10 or something in their lending business and and now the Wall Street Journal is just reporting like I don't

know if this just came out but they're trying to raise an emergency loan of one billion dollars by Monday and so you think about the process of okay like you know what are what are you offering and what are what are they getting in return are you selling you know a chunk of Genesis Equity so that people can put money in which will then go right back out the door to reclateralize customers and enable withdrawals like that doesn't seem like a very good business decision if I'm giving you cash to wind the business down so like maybe that's not it what about gbtc they have a lot of that on their balance sheet well they can't exactly sell it you know there's no there's no liquid markets they need to go find somebody who's willing to take it off their hands and wait six months

to potentially sell it because that's the rules of the trust so like this is what happens when you take bad collateral and you're running a lending book um and I think you know if you think about their major counterparties it was the funds running this gbtc Loop that was a very big trade and then miners you know like what's up with Foundation that big Miner that they you know financed and did all that stuff with like details are starting to emerge of like what may or may not be on their balance sheet and who they may be exposed to I really hope that they find a buyer but you just need you need to raise collateral very quickly um or else you need to like the definition of insolvency is not having enough assets to meet your liabilities the liabilities are very short-term customer withdrawals if you do not have

the assets for that you either need to reclateralize the business or file for restructuring yeah um the other thing I would say too is like another you know connection there is you can go back like this is like what we started to sniff around on initially if you Google like genesis yield partnership all these part all these articles would pop up and uh like another one that they had was luno lunos also it's an exchange it's in the family of dcg companies guess who provides the yield on that Exchange Genesis it's like and the other thing I'm not looking good for the dcg family right now dude tough year for Barry he he also plowed I saw also also Foundry right I I don't know how foundry's doing but Bitcoin mining is yeah yeah that was

the miner he also plowed I'm pretty sure I'm not sure if you listed this fans but about an aggregate I gotta check my numbers here but I think it's like 750 million in BuyBacks of gbtc as well if you remember all those enormous BuyBacks that uh that Barry announced like dude I I mean it's well over a billion dollars he's personally injected into these portcos um that he's so so like there is kind of like this interesting strategic question of what you do at this point um just like you know if I'm Barry this is how I think about it I have two businesses I have Genesis and I have uh gbtc um if I want to re-coateralize Genesis I probably make the trust eligible for Redemption which means that I can then

have actual BTC which I can sell and reclateralize Genesis what that means that you wind down gbtc a business that prints cash is on its potential path to you know an ETF and they're currently in litigation with the SEC as to like whether to make that ETF like you know instantiated immediately or or whatever and so like gbtc is is probably the bigger of the two potential businesses certainly the bigger Cash Cow and could get to bigger scale and so I don't see him winding down the gbtc trust I think it's just kind of like what do you do with Genesis and my hope is that a combination of asset sales and like selling loans is enough to at least get this to a point where customers can withdraw and then just wind it down but you know this is like a I wouldn't call

it like a pillar of crypto lending it's definitely an important you know Capital markets desk specifically the derivative side and I don't know if that continues on but I mean we're just hoping that people get made whole at this point and we don't want it to be in like a year you know and at 75 cents on the dollar because that's not a good solution for anybody the the other thing lastly I don't know what happens but like my instinct is like what happens if crypto markets drop another 20 percent like are you selling client collateral to like you know manage the whole are you just leaving everything in whatever it's dominated in and just being like you know the bankruptcy or restructuring people can take this and and work with it like that's that's the part that's less clear to me that has more risk

because like if you're just indiscriminately selling large amounts of assets that has an impact yeah well said I am it's been a tough year a lot a lot of people that looked pretty Invincible about a year ago um are coming under just an enormous amount of strain uh and getting blown out and uh you know Barry Barry silbert was definitely not someone that I thought seemed vulnerable because he had these you know it's this array because you mentioned the two companies fence he's got events he's got uh you know uh uh Genesis and uh grayscale but he's also got coindesk right he's got his media arm he's got Foundry his mining plays got luno his exchange it looked like this impenetrable array of cash flow

generating companies but honestly looked like the weak Link in the chain was Genesis um and I guess well and I guess actually grayscale as well um but it sounds like you know we there are a couple reports out you can you can see for yourself uh you know there's it seems like there's a bidding war going on around genesis's loan book it looks like he might end up raising that Capital maybe not at the terms that he would ultimately want um who who do you think ends up buying them Mike and I were just talking about like everyone who was big enough is now either dead or like smaller or does not reflect us regulation or can't right in the U.S regulation like easy is not

buying Genesis um I also doubt that CC's buying Voyager just feels like the regulatory stuff is just too complex but I think we're looking at like a Trad Phi rescue package unfortunately so too um because look like you know if we bail each other out that's one thing if people get liquidated that's another but like if we're asking for help from Trap fight that just looks super embarrassing in my opinion uh I mean this is centralized I I think if we're if if you're backstopping like okay if you're backstopping a bunch of loans with like a Goldman JP Morgan Credit Suisse type program maybe not CS actually um but if you're if you're backstopping it there I think that that actually lends credibility I don't think it necessarily is a stain um and frankly like what they're going

to look at is just like these this is a longboard I'm buying it at 80 85 cents on the dollar expecting that I'll be able to recruit you know half the loans or three quarters of the loans whatever whatever the math ends up being like they will get a pretty solid return on this and I think that's how anybody would evaluate it maybe it's also just like hedge funds that want to step in and help so I it'll be interesting to see I mean Monday is coming up rapidly quickly yeah um what do you guys think you know just in general like the one angle that we haven't really touched on is uh is policy the policy implications of all the especially can I have one can I ask one more question just based on the Genesis thing what happens if they don't get it done a deal done by Monday who

like who else is impacted here I mean definition of insolvency is not enough assets to meet your liabilities if that is the case I think you are compelled to file for some sort of restructuring um in terms of what happens from there like if you have assets if you have you know uh if you're lending out Bitcoin on Genesis like you either and you don't have access to it anymore like you need to either recreate that position or recreate a hedge or recreate whatever you have going on but my sense is that once people had their [ __ ] locked up it was kind of like they did whatever they needed to do within the first 24 hours like that that's certainly like you know our plan if that ever happens to us is

like you know figured out quickly um I doubt people are waiting around to see if they like just like open up withdrawals because I don't think that's on the table at this point I mean actually I can maybe share like first of all I want to shout out blockchain Association like I just think the I mean they occasionally get shouted out on Twitter coin Center blockchain Association these guys are literally putting the entire industry on their backs in a place where it matters an enormous amount where like look I don't necessarily wanna it's it's not always the most rewarding right uh thing to be like kind of in the thick of it politically but like someone has to represent the interest of crypto and those guys do a really good job um so I actually we host a bunch of events uh like I went down to their

event this week as one of the best events I've ever attended it was phenomenal um like really solid content great array of people speaking well organized uh you know the mood on the ground was kind of more optimistic than I would have thought um and you know there are a couple of different perspectives obviously there's some short-term Fallout that's going to happen here and there's some questioning just in terms of yeah I mean some of the I think public policy makers that align themselves as being pro-crypto it's anyone's guess right if they end up changing their mind or not but largely the dccpa uh bill was kind of seen as Sam's bill so oddly enough him blowing up and being kind of toxic and Untouchable in Washington might have

actually helped preclude that bill from getting passed um you know I would keep in mind the brain of a five-year-old I I'm not I'm not an expert on these are just what I picked up basically from the discussions uh so I don't think we're out of the woods yet but basically you know the midterms didn't actually shake out horribly from a crypto perspective it doesn't look like tccpa is going to get passed there are alternative bills that are more friendly to the industry it wasn't all Doom and Gloom is what I will what I'll definitely say so I I believe that too I like I think that we are in a much more positive place than we were a month ago from a regulatory standpoint which seems bizarre but it is the case there's a lot of externalities from Sam blowing up one

of which being everyone's gonna be super on the nose about who's putting What legislation into what and why what are the differences between C5 and D5 everyone knows now that C5 is the one that runs away with your money um like there's a lot of positive things coming out of this I just think it's going to take you know the new Congress just a little time to get it's it's arms wrapped around it at some point we're going to get legislation and I think it's you know it's it's tending in a more positive potential way I would often say that that's going to happen in 2023 with like 75 80 chance side note we should do a little predictions episode at some point for 2023. that'd be a good idea you know I think we think you gotta do it you got to bring the tinfall Hat because I want

some outlandish predictions all right I didn't have enough time to make an antenna but I'll have it for the next one um all right can we actually like maybe even I would love to get your guys thought I've started to see a couple Christmas who I love uh great guy um he started to call out what I've kind of also started like maybe quietly semi-optimistically start to think which is this is like record negative sentiment right I mean even if you've been in crypto for a while it's I mean the way people are talking it's like pretty glum and bad out there but prices have not reacted frankly horrendously um and when you start to see like sentiment not line up with price action

you're kind of like are we doing okay so ask yourself a question take your your understanding of price over the last nine months and just run the tape of everything that's happened in 2022 and ask yourself with like intellectual honesty where do you predict Bitcoin and eighth would be right now having seen Luna three arrows Celsius and now FTX Sam Alameda blow up I mean I I would have said with pretty high likelihood probably underneath three or four hundred dollars free and and probably like underneath 10K for Bitcoin um like no no questions asked right I mean the the strength of the industry and seeing where the market is right now

I think to Mike to your point like it it is a testament to the things that are working and the things that are not working are getting you know figured out and blown up but the things that are working I think are are going to be so much stronger for it and I I kind of tend to agree with Chris I mean it feels sentiment is so bad that usually that means that we're starting to get to a point of turnaround what do you think eath bottoms at the cycle let me do the compliance Folks at framework uh a favor here none of this should be continued investment uh advice either um I don't even know if you guys can touch

that uh [Laughter] um yeah I don't know I mean I I've I'm not also small I'm just gonna sound like we're feeling positive we're feeling positive yeah I kind of think so too yeah I just read a Jason Troy thread that said we're going to be in a 10-year bear Market um I think that's absurd that's actually I don't know if you guys I honestly think it's engaging farming like love Jason but like you know I see what you're doing I um I saw this got lost amid the noise of everything Citron research uh shorted eth I don't know if you guys saw that and I kind of love

seeing that I was like all right like it's all these things like you know people are talking about depressions in the macro world people are talking about 10-year bear markets all the big short sellers are going short when it's already 90 down like he's getting worse might be like this for a year around yeah well let's let me phrase the question another way markets are based on expectation right they're not based on necessarily what's happening what could happen that would like blow all of this news out of the water what is the bad news left outside that would like really surprise to the downside or or let me put it phrase it another way is the

market more sensitive to downside surprises or upside surprises at this stage upside and and the market is driven by two things one is expectations for looking but current it's also influenced by the current which is positioning like what do you what do people expect to happen with Great Depression how are people positioned extremely short or not in crypto or lost interest and so like anything that moves that dial is going to be really positive and like the expectations changing will change positioning in the current day and I don't know the time to be bearish was a year ago like if you're a bearish a year ago nobody wanted to talk to you everyone thought you were dumb turned out you were brilliant everyone wants to be bearish at the bottom super bullish

at the top it's just like human psychology in nature you need to lean against the wind at some point or else you're just going to be running with the herd the entire time which is like generally not that good of a strategy funny to hear you say such wise things with that tin foil hat on your head that's how he's able to say such wise things yeah because the radio waves aren't getting in there yeah he's not he's not getting hit by the way yeah exactly I've got a can we actually just do we talked about this a little bit but uh if there's one thing that I hope we can influence can we just put out look there are certain people in this space that got blown out before uh SBF and they're trying to like mount a comeback because it seems like the logic is oh

yeah we like did criminal stuff and like defrauded people but it was way less than ultimately this enormous uh criminal fraudulent activity so like is it was it really that bad like give us a second shot and I just don't look we're not going to progress as an industry if we keep looking up to these people um it's just I just really don't think that look there's a Redemption Arc as a human for these people I don't believe you should like punish someone and Like There's No Redemption but there's no not in this industry not with our money it's I I just I reject it this is amazing back in the Pharmaceuticals business anymore yeah yeah yeah he's just on he's just on up on me so so I I

yeah so I I do I I totally agree with you people who have defrauded others uh who have done things that are shitty like we should not let back into the industry I like I also don't like uh like comment or retweet or like that stuff out of respect for and there are victims uh and like you know people in my DMs who they stole from saying you know like I'm thinking about logging off from Twitter for my mental health because like I can't I just can't stand to see them go through this potential Redemption Arc like that's who I'm trying to keep in mind when I see Stu like tweeting like kind of funny stuff and I'm like I I just can't do it um and so there's there's that we should not let those people kind of back in there is also like a power ranking of villains from

this season um SPF is number one I think I would I would probably put you know three hours of Luna tide for number two but there is a gap um there's a million creditors to FTX they sold 10 billion dollars um like that's a very serious problem I don't know what the exact three arrows Delta or whole is but um you know like there is uh Sam is the worst that's basically my point you know it is I thought that was really well said it's yeah there are people that lost um life savings man they lost life savings they lost uh four years of work and uh grinding and profits and like I don't know people in this industry work super hard you know like a lot of people work weekends and took big risks and to have all that

You Know Jack from you not even necessarily like the a lot of people that got hit hardest is if you had an investment strategy which required you to have Capital stored on multiple exchanges you know and maybe you just kind of didn't like it but like a lot of the systematic trading guys the market neutral that got smoked um and it wasn't even necessarily a huge fault if there's just like they had to do that for their particular strategy so it's uh I think that's the thing to keep in mind right like as as a uh as an exercise it would be very I went back and listened to some early uh I don't mean to I actually love up only as a show like a huge fan of it but I did go back and listen to some up only podcasts from like the beginning of

2021 everyone should do that not even necessarily up only just like some crypto podcasts like listen to what people were saying in 2021 take a mental note of how differently you think about it now versus how differently you were thinking about it when that was going on and just remember that because it was like helpful for me to be like wow I was listening to this and taking it seriously at the time and uh you just have to prefer wealth remember that a reasonably sized house yeah one reasonably sized out yeah it's just a couple liquidations up only yeah yeah like the super cycle yeah um do you guys have a a quick sentiment

check on I mean uh just what's going on in like outside of crypto and like web2 I have a couple friends at I I have one friend who spoke to me who works at a it's called a very large very successful kind of web 2 platform and she was like it is all hands on deck first of all there was a big riff that hasn't necessarily been announced yet everyone was told they have to be in an office uh within three days they had to do pitches in front of some at most 100 people they got live critiqued they were like we have quiet quitters this is not happening anymore I was like I mean I and like we you know since we've talked about this last I think an Amazon announced they were letting 10

000 people go everyone's missing their earnings I mean can you guys give us like an update on web 2 Lynn and what's going on over there or what's up you think it's Bleak for crypto oh man it's bleed for them uh it's pretty brutal right now I think most of the people that I know who you know across Dropbox and snap the ones that you know the places that I worked but then also just a ton of friends who've moved on to other you know large technology platforms as you said um it's it's like not only is it just gonna be like a difficult place to work for the for the next couple of years um it's the I think the biggest thing is everybody's gotten so used to the cushy lifestyle that you rip that away and

it's like you literally took away all their toys and and it's that about face uh and change that most people are still trying to deal with I have a couple of friends who are like this is great this is awesome this is what we need to have and so I think that like tried and true are gonna actually really enjoy it but there's just so many people who have been riding high and like underneath the radar um that it's just not going to be uh Pleasant for a lot of people but I think ultimately this is a good thing the the other interesting fact um you know I don't know which podcast but I was listening to a podcast recently about how like oh like you know all the tech layoffs it's really going to affect the economy like no there there's a Fed Board of uh board Observer

or whoever they are who said if every single person who works at a major internet publishing content broadcast or search engine was to get laid off tomorrow every single one of them 100 riff it would affect unemployment rate by adding 30 basis points to the unemployment it's like this is like a microcosm of the economy from an economic perspective uh from an employment perspective but obviously a huge Revenue generator for for the rest of the economy so I I think this is going to be a great interesting experiment in you know how lean can you run these businesses how profitable can they get they're like the the vibe that I get is consistent with Michael but it's like there are no Tailwinds for these businesses that they haven't

already capitalized on like we are riding the biggest Tailwind in crypto into the biggest market and we haven't even begun to capture that and so like you know we have this idea of like yeah we [ __ ] up in 2021 sorry we had to liquidate everyone in 2022 but like we paid for our sins we're going you know to the Moon eventually like there is like a lot of faith there's a lot of reason there's a lot of you know optimism in the industry for for good rationale web 2 it's like you know the products are the products like we probably hit our terminal growth rate you know Netflix has been stuck at like 100 million us customers it's gone down like over the past three years like there is that there's there's not like the teleportation into like a new Total addressable Market that's going to save

them um and so yeah it's more of like a management business now of like how lean can you run them and so just to double click into that point there's actually two really really important components number one is this is what happens with all major industries throughout capitalism you get to a point where you grow to sort of your Max Capacity and then you ultimately end up having operational I I provide operational efficiency to continue to scale because you need to get highly profitable and and so like that you know growth into deep value is a natural progression the other element here which I think is really important which will be really interesting to see the growth of all of these Tech platforms if you look at every single one of them maybe maybe absent Apple every single one of

and actually well you could argue Netflix but that's you know a different type of acquisition strategy every single one of these businesses every single one of these platforms has grown through acquisition strategy over the last 20 years you know you've got YouTube You've Got Instagram um you've got all the major new platforms that are providing these businesses with growth we're not things that were created inside the four walls well what has been signaled at least to the broader uh economy is that acquisition strategy is not going to be something that is going to be supported by Regulators going forward and so that off the table really actually hurts them even more because it's not like you can just go and say oh I'm going to go off and like buy this new app buy this New Concept buy this new thing you really have to sit there and build it

yourselves and that I think is going to be really really hard for a bunch of you know complacent Tech workers that have been riding high for the last 20 years and I don't think they're going to be able to do the hard work to be able to get there and so I think the only thing you know that you can possibly do a corporate strategy perspective at this point is operational excellence to get to profitability and then cash flow businesses I I think it's very interesting to see as an experiment what's going to happen Elon just fired half of Twitter so like let's see what happens right I mean you know on the one hand uh maybe you know maybe it'll Crash and Burn and it's a lot more difficult than he thought or maybe this thing just starts spewing cash because there was an

enormous amount of wasted human capital they didn't really need on the platform and honestly the way maybe the one thing that I would I would tweak and actually I'm agreeing with you Vance on your point there's no New Market they can teleport into but maybe that industry has just reached the next phase of its life cycle from like growth into harvesting the assets that they've built there are a lot of great assets in the tech industry and now it's time for them to just start spitting off cash flow and maybe some of those things end up getting more commoditized but I don't think it necessarily means their share price has to you know get smoked I mean I I think they're just real progression yeah it's just the natural progression I think um so all right guys I think that's about all

the time we have I think we did this we did this Justice um yeah this was this was a good one I appreciate it man Vance on the tinfoil yeah [Laughter] also yeah like pretty well constructed yeah yeah yeah my my girlfriend helped me out you know no big deal uh just trying to stay safe you know I'm not gonna fly on the wall for that like babe I need a tinfoil hat for my podcast that I'm recording you're just like oh God uh all right fellas this was a fun one

uh we'll see you here next week cheers guys foreign [Music]