Why Binance Acquired FTX | Breaking News

Transcript

this episode is brought to you by Avalanche the layer one that is blazingly fast low cost and eco-friendly you'll hear more about Avalanche later in the show [Music] maybe I'm the anomaly okay boys framework hiring we're looking for interns all right okay great together all right all right court or court is in order court is in session today we are kicking this off we have Vance Michael Michael and Santiago and we are talking about Creator royalties the biggest thing going on in crypto no

I'm just kidding I'm going to fgx in finance obviously uh brought a bunch of smart fellas to the table today um here's what I want to do I want to I want to really quickly go through just like a brief history of Alameda and FTX uh and they are kind of a legend relationship and then I want to go through a timeline of events and then I want to spend the bulk of this conversation guys just talking about like the most important things that you guys are paying attention to uh the contagion the risk in the system I want to hear how obviously Vance and Michael I don't know how much you guys can talk about the fund and framework and just how you guys are like thinking about things right now Santi um if you're still with us I think you just dropped but uh just to hear how you're

positioned right now it sounded like Sante you didn't sleep much last night I was messaging you and it was probably around two or three or four in the morning last night for you so um like a baby I just woke up and I had a very bad feeling about how things were going but uh and here we are what time's on your own because I was messaging you it seemed like it's like 4am but but can't tell me we've lost track yeah yeah last week last night was like the the third non-sleep night this year got to bed at like 10 30. it was pretty good I mean we also don't have any funds

on FTX so like I think that was probably most of it I do have some funds on FTX just a little and but I did sleep like a baby I woke up I don't know you did have funds on FDX no I did I did were you able to get those ones off FDX auntie no no they're still requested I tweeted in the morning requested and and as soon as I felt like okay it's gonna be 24 hours and as soon as I like I woke up at three in the morning which was like the six hour mark and I was like still requested um and and I didn't catch the the trick to like withdraw like in smaller increments and I was talking to you uh Jason well all this was going down I just had my Spidey senses went off and I

was like yeah this if I wake up and I don't get that nice confirmation email then then there's yeah you sound the alarm and uh the more I talk to a few people in the morning when I woke up uh I'm the East uh East Coast um I sort of had a feeling that uh things were not going to be as great as as most people thought they were Santi texted me and said uh hey are you having trouble pulling stuff off FTX I said I don't have anything on FTX but we have some employees who have stuff on FTX they're pulling stuff off Santi goes is it size I say Santi our size is not your size my friend listen like to be fair uh yeah it was most concerning while all

this was going down is that they never tweeted you know like obviously Sam came out with his thread like the infamous thread that you don't want to see right funds are safe no like once you see that like it's like okay deja vu all over again we've seen this movie play out before uh but you know it's Sam so we'll you know it's not like do Quan like steady Lads um but still like it was it was a little bit like uh pretty concerning and then yeah as soon as uh it was like really bad how they manage it like it was like I guess the lawyers took over cons which is never a good thing uh but they never kind of alerted every private Channel I was talking to was like guys are you having uh trouble withdrawing funds and they're like no no we're doing it I'm

like how much and it's like 5K 10K 20K and you look on chain and then anything above 50k was not clearing and I was like yep no this is not good let's give a little rundown all right so for folks we're gonna publish this on on Empire and bell curve so if you're listening uh right now we're recording this on a live stream on YouTube but just a quick like 60 second tldr uh for those who don't know about FTX and uh and Alameda Sam right Sam was at Jane Street left in 2017 uh did kind of a big Arbitrage play I think it was in Japan then starts Alameda which quickly becomes like this huge very successful trading firm one of the largest uh market-making firms in all of crypto in 2019 they're looking for a better exchange at least this is the story they

go launch FTX in April of 2019 from the get-go I'd say like pretty unclear how those two firms are connected the trading firm that Sam started he then put this guy Sam Trabuco in place Sam left a couple months ago uh put this woman Carol if you hear the name Carolyn uh or Caroline he put Caroline in place uh once Sam left um but it's been pretty unclear like how those two firms are connected binance a lot of people don't realize this wasn't early investor in FTX uh so what ends up happening is FTX grows uh pretty rapidly they end up becoming the second or third largest Exchange in crypto SPF is on the cover of Fortune the title is like the next Warren Buffett uh binance um sold its stake and actually agreed to two billion dollars of the buyout in ftt

which is well we'll get to that later about why that's important so then binance is basically holding this big uh multi-billion dollar ftt bag which is ftt's token that they use for trading fees so anyways what happens this a lot of this actually kicked off with a coindesk story so um on November 2nd six days ago uh coindesk published an article called divisions in Stan bakeman's Freed's crypto Empire blur on his trading Titans so pretty damn long uh Title Here alliteration over there basically basically the story uh is written by this guy Ian Allison over at coindesk said uh just looked into the Assets in the balance sheet of FTX and Alameda and I think this is an important place to kick off so maybe Vance or Michael can I ask one of you guys to just like give a

summary of what what that coindesk article showed and like what what that kind of sparked in the market so what it showed which was it felt like kind of like a coordinated campaign of some sort um you know just because like all of these things were coming out at the same time was was a picture of alameda's balance sheet and it was only a partial snapshot and it was old so you know you couldn't really tell what was going on um at the same time the rough Contours were were pretty visible and and scary they had like most of their they had 10 of Solana like we've done a lot of venture deals we've never seen anybody own 10 of a base layer that was crazy um you know most of their assets were an

ftt it turns out they controlled most of the float um you know they had like serum they had all these things that were like down a lot and you know the more I looked at the charts of like you know since the summer blow up till now like there are these very obvious levels ftt at 22 and salon at 30 which were being like very clearly like defended for some reason and I think what we're realizing now is that those assets were pledged as uh collateral for loans you know of which potentially blew up you know they also borrowed customer funds you know potentially we'll see um but it wasn't good I would say would be the overall um synopsis of it and it came after the dccpa you know him getting kind of like bashed by everyone in the industry then it was like this balance sheet stuff

and this was like a surprise to most people and I do want to make two things clear number one like feel awful for everyone who you know is potentially stuck losing money things like that um I think the second thing is you know the sense of surprise to me is is a little bit uh surprising um like let me give you a hypothetical scenario let me let's imagine a world where Brian Armstrong ran his own prop fund it traded most of the volume on coinbase Exchange um you know he was the biggest investor in The Tokens The Pump the hardest during 2021 through this entity um and he also borrowed customer funds like people would be immediately like red flags red flags red flags whatever

um but for some reason the Tom Brady the effect of altruism like the fluffy profiles in these magazines like that kind of like made everyone docile and made you know it wasn't a threat um but it turns out it was and and that's kind of where we are now I think I mean we talked about this on bell curve last week but it was I thought it was pretty shocking when that I know it's a partial document or whatever but I mean I think we talked about I kind of assumed with Alameda based on where the market was like if you looked at their balance sheet it was going to be mostly cash maybe some Bitcoin and some eth basically and there's pretty safe trading going on so I think the whole Market kind of collectively looked at that and you know there were a lot of question marks um

around like is this really the best way to have 14 billion dollars allocated and then the next big shoe to drop uh that I think a lot of people thought was pretty funky was uh Caroline basically calling out that 22 dollar Target and maybe you guys are smarter than me maybe other participants in the market were smarter than me but I think a lot of people interpreted that as saying uh you know if you wanted to if you actually thought ftt if you wanted to accumulate know more of it you would have just let it dump and then buy it on the dip but the reason why you set out a price Target like that it's almost like Central Banking want to run right you tell the market what you want the price to be then you back up the truck to support that price level because there's a

reason for that um and I think that's when the market started to kind of smell weakness I mean it reminds me of uh I think it was Zero Hedge you know the Twitter Zero Hedge was tweeting out literally the the three arrows liquidation price on like June 22nd or something like that this year you know one of the other sleepless nights this year at that moment it was like okay this is gonna happen it's at that point there's just too much interest there's too many people involved I mean the other thing to keep in mind here is this is a slow-moving train wreck this is probably known for weeks you know the the fact that it was moving against them the fact that the the balance sheet came out is probably Testament to the fact that this was something that was going to happen

and it just happened a lot faster because the balance sheet came out and because of that the 22 price point like all this stuff is is not you know just happening in a vacuum it's happening because of a reason so I you know it's unfortunate to see I think the other the other advance and I were talking about this morning was you know this is this is another stain on the track record of C5 but D5 is doing fine and you know this is another reason why transparent Finance you know open permissionless uh or open finance is you know valuable because you can actually see the flows you know we're talking about you know whether or not you're seeing the withdrawals actually get processed you're you're talking about whether where the assets are who's re-hypothecating them if you actually have a track record that lives on chain

and everybody can see that it's a huge advantage in the in the world of you know unregulated Finance you know centralized let me take us back into the timeline here because I want to make sure that we've got this entire timeline out so actually before Caroline tweeted out the 22 let me take us to so the coindust story dropped on on November 2nd when someone like that publishes something just like a look behind media it's not like FTX didn't know that was coming uh coindesk is a is it is a good good uh good media brand they gave FTX heads up so like they they must I'm sure they told FTX that this was going to drop so Caroline the real question is how coin just got it how coindust got it that's the well let's get into that that's a real question that's the real

one and how pissed is Barry that they released it because now there's a negative impact on Genesis but that's the real one uh a few notes so Caroline Caroline tweeted this out this is these all these tweets there are four big tweets from November 6th so first off Caroline who's the CEO or co-ceo of Alameda tweets a few notes on the balance sheet that has been circulating recently one that specific balance sheet is for a subset of our corporate entities we have over 10 billion dollars of assets that aren't reflected there the balance sheet breaks out a few of our biggest long positions et cetera et cetera uh given the tightening in the crypto credit space we've returned most of our loans right now so she says we've returned most of our loans right now about an hour after that CZ tweets out the big tweet that kicked a lot of this

off as part of binance's exit from FTX Equity last year binance received roughly 2.1 billion dollars in busd and ftt due to recent Revelations that have came to light we have decided to liquidate any remaining ftt on our books we're going to try to do this in a way that minimizes market impact due to market conditions and limited liquidity we expect this to take a few months so basically this is easy time what's the time on that this was this was 11 A.M on a on a 11 A.M on a Sunday on a Sunday so by the way minimizing you don't announce this on a Sunday because it's the least liquidity so CZ this is CZ basically saying I'm about to dump like two billion dollars of FDT he's doing it on

a Sunday morning um now he says he's like I want to do this in a way that minimizes the market impact so then that's when Caroline responds hey CZ if you're looking to minimize the market impact on your ftt sales Alameda will happily buy it all from you today at 22. then that's when CZ uh tweets again liquidating our ftt is just post-exit risk management learnings from Luna we gave support before but we won't pretend to make love after a divorce we're not against anyone but we won't support people who Lobby against other industry players behind their backs so now he's taken a jab right he's taking a jab at FTX and this is when to me I was like oh okay this is his moment he's been waiting for this for years he's going for the drug dealer here that was my take when he sent that

out I'm curious Santi uh I don't know if you have a when you saw these tweets on on Sunday I'm curious what you what you thought about this when I was running marathon and then I came back I came back in New York and like I was pretty tired I'm looking at this oh my god oh [ __ ] I think I'm gonna go to bed and I'm like no no every time you try to go back to crypto Market just pulls you back in anyways I look at this and I'm like yeah well uh I immediately ping a few folks I'm like hey how how credible is this uh and then I I um uh the first one was like my immediate reaction was like well first of all FTX has acquired a bunch of other folks like what's going to be the contagion of this

thing actually goes down particularly Genesis and a few other folks um and I'm thinking I mean you know you look at the price of ftt and what you guys were saying before is like okay are they getting margin called uh and if they are then this can spy a lot of control very quickly and so um yeah the the tweet from Caroline was pretty telling um and you're just kind of waiting uh to break that 22 level and and if it did and it did I think what it was like you know like 18 hours ago and that's where I think things really kind of kicked into high gear um so yeah I mean I think uh it's uh for me it was uh I I I unfortunately had a small amount of funds on FTX I try to

withdraw um you know some decent size I guess um yesterday uh night and then I was talking to you Jason about it and it sounds like some withdrawals were being processed but not some and uh as soon as I woke up this morning and saw that you know I was still processing that's where I I started to get uh some really bad uh kind of Spidey senses so yeah a question now and the question now really is like we saw so much contagion from three hours arguably it's still going on now the question the two things that are on my mind are okay well who's next Genesis like like basically FDX absorbs so much from the contagion or we thought

it did from the prior contagion which was Luna and then three arrows um and then but that's now being put back front and center um and then you have to question what's gonna happen with Genesis and block fi and some other folks out there basically any lender in crypto most lenders in crypto have exposure and so I think what you're seeing now this massive sell-off because like and Jason maybe you want to come to this next which is there was as soon as like the announcement was made by Sam and and CeCe about the acquisition of FTX um you know the market kind of did a bit of a relief rally and then it dumped really really hard and I think what you're seeing now is the early signs of

just a massive run where people are being margin called and liquidated and it's gonna get pretty ugly I think I want to go to the contagion right so we were just on November 6th which was a Sunday it's really important to talk about the tweets on the seventh because there's one line from one Sam tweet that I think is going to be a key a key point so that was all that was all on Sunday so then on Monday by the way we're recording this at like 4 pm Eastern on Tuesday Sam tweets out Monday morning said a competitor is trying to go after us with false rumors uh fpx is fine assets are fine then he says FDX is enough to cover all client Holdings then this is the key line so we don't invest any client asset not even in treasuries we've been processing all withdrawals

and will continue to be we're heavily regulated even when that slows us down we have Gap audits we have over a billion dollars in excess cash we have a long history of safeguarding client assets blah blah blah blah blah um and then he ends it with I'd love it it's easy if we could work together for this ecosystem CZ um then tweets out a little later he's like I was out with friends yesterday when the topic of whale alerts came up following our principles I decided to be transparent little did I know it was going to be the camel that broke the straw that broke the camel's back and then actually I think the most interesting tweet of yesterday was when I saw this tweet from Arthur Hayes last night it was a uh he said when you can lend money to the US government at close

to five percent for one year a lot of other Investments cease to make sense the crypto credit Carnage will claim more victims bear Stearns equals Luna three arrows in Celsius who's going to be Lehman and when I saw that I was like daddy Arthur knows some something's coming uh and that's what that's when I think things really started so that that led into the selling of yeah that was all like I just lay that up because like that's the timeline pre-market absolutely nothing I want to ask you a question guys because one thing that I noticed from the the the latest thread from Sam was around this idea that FTX us is fine it seems like they are fully backed one-to-one he's he has a line there that says you know

assets you know customer funds are back one-to-one we are processing withdrawals now that to me feels like like a minor footnote in the prior statement which probably they're so important you know it's like okay your processing withdrawals and now he's probably gonna try to like say well I really meant to say that you know customer funds and I was referring to specifically about FTX us not the broader FTX because it sounds to me like there is there obviously is a liquidity crunch they are not processing and withdrawals and a lot of FTX non-us it sounds like they were using funds or you know because they can't process all these withdrawals or maybe it's like a mismatch of assets and liabilities and

they have assets everywhere with a bunch of lenders and hot and cold storage but they can't move them around as easily and they can't process withdrawal so I'm curious to get your guys's take on that because yeah it begs the question if you have to say that your assets are backed One to One customer deposits are at one one what assets are not backed one to one and if you have to say that for fds us why is that not the case for fts.com it almost feels like he's saying that he's admitting that like not right us FTX is not Fact one to one exactly um there was I think one of the things that accelerated this too there was like uh the the silence is deafening type effect where a lot of people began looking right uh kind of the on-chained slew so

like whereas ftx's cold wallet right uh because like you can kind of point to that for finance or coinbase Etc and everyone was kind of like well where is the where is the FTX uh you know Cold Storage wallet that that all these funds are supposedly held in and no one could kind of find it and there would start to be like this this din right growing about hey they could like very easily just stop all this Market chatter and protect their position if they just pointed to this wallet and the fact that they weren't doing that um I think probably increased the pressure on them and probably increase the the speed of the withdrawals I think that also probably led to speculation right this is not a confirmed thing but the what people are speculating on right now is was FTX essentially lending out right we're either customer

deposits or something like being used to generate yield basically on that platform uh if that was the case you know there's total speculation but that would be an enormous violation I mean this this kind of reminds me of what was going on at the end of June and July of last of this year wow feels like a year ago um but when everybody was like oh wait and reason just raised four and a half billion you've got billions in in the coffers like where's the bid gonna come from you know so someone's going to come in at a thousand dollar each and someone's gonna buy up all that eth it didn't really happen because it wasn't really a bid and and it's kind of the same thing with a cold wallet for FTX it's like well wait no they've got a Cobalt somewhere I know you know oh

sorry I was in my left pocket and on my right pocket you know and and I think you know it's just not going to get there the other thing that happened that you know it's been talked about on Twitter at least but unsubstantiated um was that FTS was out trying to raise Capital yesterday and and today and to the tune of five to six billion in dollars which is a pretty huge hole when the last Equity valuation that you had was what 28 and a half billion you know like 25 of your company you're trying to trying to fill that hole and whether or not that's true you know we don't know but if that is the case then you know this should get a lot deeper than we think should we talk a little bit about the relationship between um the different entities here like

there's FTX there's FTX us and then there's Alameda which is it's kind of front and center to all this whole mess I think which is uh the relationship between FTX and Alameda has always felt a bit contentious uh particularly one is a trading arm and you know even though like they it has been put into question in terms of the conflict of interest if you're investing in particular you know Venture deals and then Alameda is making a market on those and yeah uh so maybe if we can just cover that I think would be important and then um you know what's going to happen in Alameda in this case uh given the binance acquisition if it goes through then can you or answer Michael can you guys take that because you guys trade

you guys trade against Alameda or and or with Alameda I would have to assume not with not with I mean like generally when you're trading crypto you're trading against like four or five big Market making firms it's not like you know we seek them out and go to trade against them who is Alameda jump win or mute tell me to jump went to mute uh like full thing like like a few others um but yeah it depends on the market but yeah yeah it depends on the market um and sorry what was the question Yano just like can you how do you like how before this obviously they said that FTX and Alameda were very separate but like how have you as this like sophisticated crypto investor thought about the relationship between FTX and Alameda yeah I mean there was never any

confirmed proof but like Michael and I's installation was that uh Alameda has been around for probably like four years since like 2018 and and they used to be smaller um and like you know there was around the moment that FTX launched they got a lot bigger and you know like I'm I'm not like a rocket scientist but um it seemed like you know they were getting some source of external funds that was not available to the rest of the market makers the rest of the market makers just were not growing at that same clip and like I think there has been some The Narrative was that like it was like some freak gamma trade or like some freak you know defy farm that just like netted them a few you know billion dollars but you know like we did really well during defy summer like we weren't

pulling like billions of dollars out of these yield Farms like that just doesn't seem possible um and so like we knew that something was wrong and also the way that their margin lending was set up was such that you know you could put stable coins on there you could like flip your lending switch to on and like there would just be like this instantaneous borrow like someone was borrowing these assets it was very clear um and you know it just seemed like the most logical point that it would be Alameda um and so like it was something somewhat of like an Open Secret like we didn't really have any like you know information or anything like that to confirm what we thought was happening but we just didn't put funds on FTX we didn't you know buy into any of the ecosystem coins um we just kind of like

stayed away um and yeah so like my theory is basically uh the combination of like it was the whole setup was you know the Alameda balance sheet got released um and it felt like they were gonna survive that the dccpa stuff got released and it felt like that they were going to survive that and it even felt like they were going to survive uh CZ Market selling 500 million dollars of ftt like Caroline told him that they could take him out of that you know at 22 no reason to not believe that I think what really hurt them was when the bank run started that to me was like the kind of the death blow uh because you know that put stress on Alameda and like you know Alameda would have to like they

were funding uh ftt FTX deposits and withdrawals with the like Alameda hot wallets from kucoin like Alameda wallets that we knew of and once that started to happen it was like you know game over um in my mind but I really hope what didn't happen was that he tried to rescue Alameda to save FTX that's like I think I think that's kind of the question like who got into trouble first who needed rescuing did he rescue you Alameda with customer funds did he rescue FTX with Alameda funds like that I feel like is going to be the Crux of you know if and when this goes to court what people talk about did you guys look at the because well I think if you look at

um you know them trying to defend ftt if they're being margin called whoever it is if Alameda is being margin called or or FTX is being margin called because my understanding is that you know a lot of lenders have exposure and they were using FTX as collateral to fund their operations and so as soon as you start getting Margin Call to different levels you're wondering well how are they how are they feeling that collateral um and where is that coming from I hope it's not using customer funds uh but if they do did end up doing that as a kind of measure of Last Resort then that's where it gets pretty bad but again I I don't I don't know if that's true or not but I hope it's not I think the other the other thing to

point out just as well about like kind of tracing alameda's history as well um again a lot of this is kind of here say but if you hear the way that's described right usually from Sam it's like oh we started out as this like very small operation and it was kind of like at this time they were taking advantage of the kimchi premium There Was You Know Bitcoin and that was traded in the US was very different in Japan or other exchanges and like kind of made money doing like old-fashioned Arbitrage and that's how we got our start like um but definitely by the end Alameda was not necessarily seen uh like that they definitely they were very large sophisticated fund that was now it's clear taking out size risk but there were a couple like there's even a difference between taking outside risks and maybe the allegation was engaging in

some like sort of pump and dump type activity right there were like a couple a couple assets that you can look up on on Twitter um uh you know I don't want to sling any mud or I mean I don't know obviously some pretty unethical stuff was going on but uh I mean you you can look there you can look at you know Google Alameda on Twitter and some of these threads will come up there have been a couple people that are putting together uh but you know I think it's been sort of known for a little while that some of the the trading and the activity they've engaged in like hasn't been 100 on the up and up and I think that's also why probably people are more willing to jump on this when they sense weakness than than otherwise they would have been

um but I think it's important to point out that you know Alameda is a very different entity now than it was you know when it started out or began like so the the kimchi premium like origin story like I have no idea if that's right or not but like when I hear pieces of information like that I'm kind of doing like three things number one I'm like okay you made all your money from the kimchi premium cool that's interesting like it shows that you're talented I'm trying to read into like you know what might be between the lines like these guys are super aggressive like they're internationally based like they're willing to do anything to you know make money the third thing I'm thinking about is like why am I hearing this information about it yeah like do they want me to think something do I believe

this to be true what are the chances that you can pull out like you know as much money as Alameda had from this like kimchi premium trade very low and so like even that was kind of like a little suspect like we knew people who did the kimchi premium trade maybe they made a million bucks you know maybe a couple million like it wasn't that big of a money maker so I mean it just kind of was like another red flag honestly with the balance sheet you know in coindesk like when that came out I was reading it you know literally I was trying to interpret any second order effect but I was also thinking like why am I reading this and I think that's why it was like you know cz's about to put the hammer down so you think that Disney leaked this to coindesk

who knows like stories like that don't end up in places like that by accident it's not like some like person just like decided to you know give them this because they felt like it one day there were some sort of yeah go forward you gotta Wonder um one of the things that CZ said that's pretty interesting is you know we've we've supported this it sounds like you know he knew that this was going on for a long time as an investor in FTX you have insight into how this is managed and operated and you do dividends on that and I think binance is pretty thorough dividends on on what they you know in the things that they invest in so I got to believe that he knew about this you've got to wonder how

many has it been years and then he just chose this moment because you know you just get triggered by um you know some of the lobbying um efforts that uh Sam over the years has gone fairly involved in politics and and very vocal about regulation and it was throwing mod on binance at teams and that triggered CZ and then you know you set in motion and you choose the right timing and things are always to your point man so I agree it's very coordinated you look at three arrows and Luna I mean a lot of this stuff is coordinated uh and so um yeah you got to wonder like who else knew about this um and how long has it been going on and you just choose a perfect storm to you know

you know uh shoot the I have a feeling that I think CZ will go down as one of the best entrepreneurs of the last 100 years or you know ever maybe like he's I think he's an incredible entrepreneur um I have a feeling that CZ saw FTX is like this big investment and you know maybe a friend three years ago or four years ago when they're when they were starting off uh but once once ft I mean FTX started to become competitive to binance and I have a feeling that CZ over the last 18 months or maybe even just since the bear Market we're one we're exactly one year into the spare Market I have a feeling that someone who's as cut throat and ruthless is easy is saying okay at some point in this bear Market I'm going for

the drug dealer at some point I'm I'm trying to take FTX out he has more insight into what FTX is doing than pretty much anyone else out you know out other than folks who actually work at FTX and I think through this I don't know who leaked this article uh this the info to coin desk but I think CZ just saw this as an opportunity to go for the jugular and here's what he was able to expose he was able to expose a bunch of things like and all is just this perfect storm one I think he exposed or this all maybe not CZ this all exposed that Alameda and FTX were way more closely really related and working more closely together than anyone realized I think it revealed that like ftt was probably propped up as collateral right because you can use ftt as collateral inside of

FTX I think it revealed that Alameda was more directionally in the hole than people realized like I think when people look at Alameda they see this huge trading firm that makes a boatload of money maybe I mean their their portfolio look like a retail Trader's portfolio like it wasn't this amazing portfolio uh and then the fourth is that which is the most important thing is that it's very possible that FTX was operating on this fractional Reserve model lending customer deposits back to Alameda which is by far the most important of the of those four but those are like my four takeaways as I think about what this is kind of exposed 100 agree the other thing that I was going to touch on when Vance was talking about the kimchi premium is let's just diagnose what that trade actually is what that means is that you're buying

spot coins spot Bitcoin on one exchange and because there was lack of liquidity and lack of ability to get into the South Korean market you literally had to have your own bank account you had to be kyc'd with the South Korean exchange you had to be able to get that to be able to trade Bitcoin in the South Korean exchange which is trading at sometimes like 14 higher rates so it's not like the most sophisticated trade it's like buying and selling at the same time and you're just moving money from one account to the other at a premium of 14 whether or not they were able to extract the billions that they'd you know allude to being able to do is one thing but to to your point on the balance sheet you know it does look like a retail Traders trade because the kimchi premium was

also a retail Traders trade it's not that sophisticated uh you know can you kind of take us through the the end of the timeline here and where we're at uh and I'd love to guys get yourself contagion too or go ahead yeah yeah yeah I mean where we're at now is so uh ftt started dumping last night um what was happening is that uh uh Alameda was start basically ftt started falling late last night Alameda started selling Seoul to keep I think I mean I mean I think this was what was happening Alameda was started selling Solana to keep ftt above 22. eventually I don't know what happened maybe they ran out of Seoul or something but basically just that 22 dollar like it's not a peg but like proverbial Peg broke uh and and FDT just started completely

tanking meanwhile CZ was probably dumping FDT as well Market starts really dumping ftt uh there starts to be and then while that's happening there starts to be obviously fear and ftt people more and more people start selling ftt as that's happening there starts to be a bank run on FTX saying well [ __ ] if there's if FTX is uh kind of propped up by this ftt as well then um I got to get my money out of FTX and so that like that just kicked off this huge spur of withdrawals and what's uh what's ftt right now 550 550. I'm 76 today so um today yeah yeah exactly today so um Vance what's uh Vance I'll throw this

to you what's your as you sit here 5 p.m on Tuesday what's the biggest thing when you when you're thinking about just like second order impact the contagion of this there's a bunch of directions we can go uh impact on folks like the block buys and voyagers and Genesis there's the impact on the regulatory side of the world there's the impact on just like does this prolong the bear Market what's what's top of mind for you right now um so I think you know top of mind is like Michael and I have spent the past you know however long since the top basically like just like looking at all of the data for all the protocols seeing who's doing well seeing who's who's not doing well where the traction is like in an event like this you know what we

should potentially buy so you know that's kind of the first thing that we're thinking through is like you know we're not like running for the hills we're just like buying more you know high quality or at least we think high quality crypto assets um so that's the first thing um the second thing is uh you know like when the Luna and three Arrow stuff happened in the summer there was kind of this period where you know like we weren't sure if like the monster was dead or just like hiding in the closet and everyone was just like waiting for like the coast to be clear and that was like a palpable feeling of like and I think like the most uh you know like contagion and like you know is the coast clear like those types of words and and you know my lawyer just

texted me uh none of this is financial advice uh you know if you are going to buy crypto refer to your lawyer or broker or whoever does that um Fireworks lawyer despises us at this point we have the best lawyer of all time but unfortunately he's uh he's a stickler but um yeah so like you know things I'm thinking about when is the contagion you know the coast is clear Vibe going to be done and I think that largely depends on the speed at which the steel comes together and that's probably also something we should discuss at a certain point um my sense is that it either closes in the next like 12 to 24 hours or it doesn't at all um and really only crypto native

investors can move this quickly they're the only people in the world who can get donuts done in wire funds in 24 hours like I think that is why probably a lot of the other people just didn't go for this deal like you'd have to imagine it's easy as the absolute last person that SBF would want to engage with um so like you know that's something I'm thinking about when does it kind of end when is that sense of like is the coast of clear gone because I think that weighs on the space from a sentiment perspective um I'm thinking about a lot of people who have eight nine figures stuck in FTX and what they do um because they're like technically creditors and I I think like my guess is that ever since the summer crypto credit has been super tight like you know uh

Genesis you know whole new team whole new underwriting standard voyager's done block five's done uh the Asian lenders are really dinged up from Bad Bitcoin miner alone so like there wasn't really any like credit to borrow you know at least from like our perspective so I'm wondering if it's like more of the traditional financial institutions who've been lending to them and that's something I think about um then the last thing I think about is basically policy and and what the narrative is for hey you know that guy that was like you know in Washington aggressively talking to you and like telling that he's you know going to be the future of the industry and he's got all the regulations and stuff figured out like turns out he's insolvent they totally blew up like yep we know that midterms are today we know that he was there last

week are bad but I think like the narrative here is that um Jesus he was texting me sorry the narrative here is basically C5 blew up again you guys should regulate that defy has no problems it's actually done really well today nothing's broken ethereum's about to be deflationary um so like let's craft language around that and I think like the political Dynamics have also changed in Washington such that you know Sam is a huge Democratic liberal donor um when Republicans take over like you know if they take over tonight um it's going to be a very different conversation whereas if the opposite had happened like if the Democrats were like forced to deal with SPF and on the

regulations and all that stuff like I just don't know how constructive that would be it feels like the Republicans kind of just can kind of say like he did that you know that C5 let's regulate that there's more of a carve out generally they're more favorable to our D5 position as well so you know I think people are freaking out but I'm actually pretty positive um for that coast is clear feeling to be gone could we get uh so I want to dig into a whole bunch of those but can we get a sense of like magnitude here um just maybe in comparison even to like three arrows and Celsius and Voyager going boss I mean this is way bigger no I would say smaller as well this is way

smaller I was way way smaller oh really absolutely I was thinking bigger yeah no the the the largest loser in all of this is the equity holder of FTX because you know that and what I'm assuming that customer deposits are actually probably going to be able to be resolved it's just going to take time and maybe it'll be some haircut frankly if there isn't if there is a haircut that's going to be you know a major major stain but I think it actually is probably something that's just taking a long time to process but I do think that you know the the people that put in at 28 billion and and you know now it's going to be sold for pennies on the dollar like that's a tough stain but that's gonna be contained to a certain small set of investors that were able to buy into

that ftt holders obviously those are going to be the ones but it seems like Alameda had like 90 of the float there anyways like this actually I think it's pretty contained pretty quickly the the bigger part was block five Voyager Celsius those were retail customers and and once again this is assuming that retail is going to be fine and that people who have deposits are gonna be fine what which is an assumption but it's at least not a loan book it's an exchange and so I think this actually is a little bit easier than than those all right folks this episode is brought to you by our friends at Avalanche and Ava labs they have just dropped a new crypto wallet called core you're going to be hearing a lot about it over the coming months you can now be one of the first

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thinking about all the exposure of major bar like lenders in the space the Genesis of the world and what's going to happen to them um and and obviously that has implications like I guess the question is what happens to customer funds at blockfi those would not be impacted [Music] assuming that those would not be impacted right and customer funds of Genesis you know if Genesis is one of the larger lenders to Alameda and let's assume that the the liabilities surpass the assets at this point um you know I I think you know Barry silbert and and dcg probably going to be able to figure out a way to plug that

hole um but it is something once again that's contained it's not going to be customer deposits that are that are in the void I have a um just to just to draw um just to draw a clean parallel in terms of numbers [Music] um I'm just trying to find the amount of Bitcoin that Doe had but so what I remember of the Luna and three hour stuff was he sold like 80 000 or something Bitcoin and when it was like at 30k or you know like 22 25k um and he sold it within like 48 hours and you know then uh Celsius blew up after that

and then after that like the big scary candle in June was when all of the um all the centralized OTC desks tried to clear their books on the same weekend like Michael we were in New York it was it was that Saturday uh it was always remember that No Sleep No Sleep Number Two that this year really no joke so I thought like the Chinese were like attacking us or something like I thought we were like at War and like I was like Googling news to see what was actually going on but like that was the most amount of selling that I'd ever seen in like a short amount of time period like ever like I don't think it's possible to reproduce that level of selling just with the level of Leverage in the system right now

and like it depends on who their creditors are you know if it's Genesis and they lent them you know some money like uh they're not going to turn around and sell like a few yards of crypto that's just like it's only gonna make the situation worse I really don't think this is going to be quite as bad but you know yeah it just depends the lenders are done I don't know they're probably just completely toast yeah I think uh the game theory here is do you think the the acquisition does go through one of the things that's been interesting is how BNB has performed um since all this happened uh it's you know holding up fairly well it's down five percent but if you start looking at you know it's probably the best performing coin

um since you know over the last five days um and if you're a CZ I guess you know to I think the biggest the thing that scares me the most if this acquisition doesn't go through then I think naturally users will be affected um and you know they may not be made whole and if that's the case then I think that has a much bigger implication of the industry from a regulatory perspective and again anytime customers lose funds it is probably the biggest setback that we can have as an industry um and and hopefully the acquisition goes through because if it does and you know withdrawals are at some point resuming it restores a lot of confidence and I think from a regulatory

perspective I think it'll be the most positive thing and also from just Finance market share like you know I think you know if you're Finance at this point you're you're thinking about second third order effects and you know I think they can stand to it to really just continue to win a lot of market share um just through the acquisition and also just by being the preferred kind of Exchange in the in the market so so keep in mind one more thing you know when when Sam went out and bought block five the major component of that deal at least and I I actually do truly believe that you know he means well it may it may just be the case that he got over his knees a bit but when they bought block by the major component of that was

whether or not they were going to keep customer deposits whole I do truly believe like that once again this is probably the last place that Sam wanted to sell FDX to and it probably was the only place that would be able to guarantee that you were able to have customer deposits whole I I do truly believe that he wants to make sure that that holds true uh you're right though Santiago if that doesn't hold then we have a bigger issue but I think that this is the solution to having that be true I'm like 50 50 if this goes through so on on on the bear case for it not going through uh number one they had tiger they had soft make they had tamasic like the most deep pocketed funds in the

world look at this and say no ostensibly right because they went to they went to binance um and like CZ you know if he really hates this guy and he has like this personal animus you know for him like this is the kill shot you drag out the liquidity crunch you reneg on the deal last minute you know that's that's it um so that's like the bear case the bull case is that people know kind of who started this like it was easy and if he's in regulatory hot water you know anywhere like people are just gonna you know be like hey like you know losing a bunch of customer deposits after you promise to backstop them like that's not going to engender you to anybody and I don't think he actually loses that much that money comes to his platform he they traded on binance he gets the fees it's

very lucrative um he'll make more than what he put in you know and and 10 times that probably how much do you think the acquisition happens for what's the purchase price here I don't even know if it's a purchase price thing I think it's like a how much customer deposits do you need to backstop thing like it's like the people at fgx ostensibly hate being run by BNB so you're not really buying the employees or the human capital um binance has probably better regulatory standing in most countries like you're not buying any licenses either um Finance is probably better Finance Finance does not have better regulatory spending than yeah

definitely does no sure but it's not okay like cool we're buying this thing that's going to be all shiny and clean up our reputation like you're buying into Funk exchange they're buying customer deposits and that LTV of that is much higher than whatever the purchase price it's gonna probably be a taste of his own medicine which is how he structured the block by deal [Music] and that's what he's going to say he's like hey I'm just it's your playbook so I'm just it's like you you didn't know how to go out by the bank like a just like a trust a community bank or something small like that you literally can buy them for like a million a million and a half dollars the problem is you take on the liabilities that the banker also has so you have to be able to backstop that as well and all

the losses and all the other like correct everything I think that's a that's a very bearish you know like probably doesn't get done you know in in your bear case I guess what we haven't touched on what happens on there's a couple of entities right there's FTX FTX us which is being segregated but the silent the elephant in the room is Alameda okay well like what happens there that's the liability part that's the lot like that's the biggest risk piece of all this and I don't have enough Insight CC probably does if if there's anyone at this point that has as good of insight as anyone as easy of how the the interconnectedness if any between uh Alameda and FTX and how you disentangle that if possible and that's I think the only thing that

could really derail this this deal over the next to your point I don't know how many days but as you do diligence and you understand that that's the only thing that I I think could meaningfully derail this uh yeah unfortunately yeah big question like um last year's SPF was worth like 34 35 billion um you know he pledged to put in five or like uh like maybe up to like 15 billion in the Twitter deal like something insane like my understanding was that he had like a few billion like sitting in his bank account and he could just roll with that whenever and you know like the 500 million dollar ftt sale was like the death shot like the numbers or at least

like the order of magnitude of the numbers just like are not matching up like it just like yeah it just doesn't make any sense to me how you could lose all of your customer deposits and not be able to do withdrawals yeah did any back out from like a billion dollar um commitment to the Democratic like some like candidate of sorts or the next presidential election he said he was gonna like do a billion he's like no no I'm just kidding I think that was more he just realized he was on the losing side like you know just like Democratic midterm [ __ ] but like where where is the where like what am I missing like is there

like how how is that a material in a hole where he needs to sell the exchange once again this is three arrows all over again you would have thought that they had more capital or or go you know like everybody is everybody is swimming without any pants on right now and when the time goes out no pants party naked swimmers what happens the only thing when I was just going back to this idea of how big this is this impact will be relative to the other kind of you know three arrows and Luna the only thing that I'm also thinking about is there are a lot of ecosystem funds around like like that have been funded by FTA sort of like tied to the hip to FTX again Michael I do agree with your

assessment it is putting aside the whole withdrawal situation and like user funds in FTX assuming that they're protected hopefully they are for my own sanity as well um Bobby fine Jens you know um I'll continue to do Empire I guess I'll be here wait wait wait you didn't uh anyways um but I'm just I'm thinking about um it does feel like a lot of investors and funds are probably going to have to force sell they're going to get redemptions and that obviously has I'm thinking of the this impact may not it

may not be like as acutely felt as perhaps three arrows but it will be very drawn out like I think when when three arrows and Luna happened I thought like the bottom of the market was going to be a billion and I said okay like it feels to me like that's going to hold up fairly well and you've been kind of hovering around that and then I Revisited my thesis and I said no just given the magnitude of consumer like of loss of confidence in the system because a lot of consumers and Retail got hurt and the policy implications of that I said well we could probably go like lower like another 20 25 percent I'm thinking now you're at 900 ish how low can you go like as a as a as an industry and and all the funds that are going to

have to liquidate for sell that's going to take a few months maybe a couple seconds I don't think so at all like that like we had the come to Jesus talks with like some other funds in like the summer fall you know like that was the death blow this is just like you're literally just beating up a dead body on the ground yeah maybe the framework that I have for this is like you know how if you're gonna do cuts at a company if you're gonna do riffs you better just do it once and better do it deep because if you got to go back twice then No One's Gonna know if you're actually on uh like solid footing or not and people are going to be worried about their jobs

that kind of feels like this to me because there was kind of like all these implosions right and there's this kind of idea I mean this is crypto so it's never 100 on solid footing right but we thought okay maybe there was going to be like you know minor minor selling like for Bitcoin or something like that maybe we get like one more uh you know scary candle but that's gonna be it this I think this is scary at least for me or a little spooky because it's like Alameda you know regardless of your opinion of them they sit at the heart of crypto markets right it's hard to get more uh connected right than than Alameda as a firm so it's just it's just concerning man and frankly it was concerning you know before they blew up that it was like

that this was the level of risk that they were taking in a market like this um that kind of just makes you think what is everyone else doing I actually feel kind of a sense of I don't want to get like emotional about it but you know my emotions are uh a little spooked but I mean it'll be fine but also just a little frustration it's like what were you thinking dude what were you thinking this and this is it makes it you know yeah that's what it is when you're you feel you're smart and you're glorified you believe it and you start believing it more as people start glorifying you and you got you know the crypto markets always come to Humble you and it is just shocking how people don't understand guys all you need to do is there's this idea of Lindy effect the longer you

survive the stronger like the more comfortable you know who looks pretty good right now Santi coinbase coinbase is like if I'm playing baseball like yeah like like but that's a good point like actually shout out to certain exchanges have always made proof of reserves a lot of the U.S exchanges historically have been fairly like like untouched and unscathed at all this coinbase cracking both of them to my not certainly Kraken has like does proof like on chain proof of reserves binance is moving to this model too like that's I think the biggest positive now in all of this obviously D5 Michael and Vance your point I truly believe this I think it is important as an industry to really you know make the distinction for for especially policy makers you know C5 and

D5 are not the same thing and it is just underscores the importance of transparent open finance no one ever knew and and I guess like it will look really dumb in five years like guys what the hell were you thinking they were not very forthcoming with their proof of reserves they never gave us the wallet info like I mean I think like you can almost hear a congressman like Grill drilling like Sam's like why didn't you ever publish this stuff when other exchanges like Kraken have been doing this forever I think as an industry really needed like self-police I've been seeing it in the podcast over and over the biggest risk of this industry self-sabotage right and it's incredible how dumb how much dumb [ __ ] continues to happen in this space

I I so I totally agree with that I would say the the one the one that uh we have the tools we are literally in the process of making all this stuff happen it's just that it hasn't been pronounced yet you know this is this is like a Vestige from 2017-2018 era when you had FTX plus Alameda and it just took five years for it to blow up you know and and so I think you know who's the biggest loser well obviously FTX shareholders once again I think customer funds will probably be okay if this deal goes through and then Alameda you know and that what like two or three shareholders like this this isn't going to be like a massive drawn out blown up blow up yeah I don't think so either I mean it is dumb as you know just super

dumb that people do this but it can it can get to feel like video game money very easily um and once you get to that point you should probably take some size off you know go go have a glass of water maybe dial Down The Leverage a little bit take a walk around the grass needs more water I want to move us into the next part of the conversation talking about uh actually Solana for a second like soul soul has so when Tara Luna blew up like that killed a whole ecosystem uh Seoul has basically just been valued at having this Perpetual bitter uh in in FTX and Alameda now that that goes away I'm just curious like what happens to the sole ecosystem and defy on soul and all these

Soul game gaming projects what do you guys think there's good builders on Seoul vegeto guys the Solon guys the you know some of the D5 teams are pretty good um games they're probably getting like you know 20 25 of all the games that we see just because they have like a super strong Labs presence in BD team and stuff like that this is all kind of like a function of your token price and how much people respect you uh so it's like backwards looking in some degree like you build up respect and confidence um but you know what happened today doesn't help them um and they're gonna need to find kind of like a new leader or a new Vibe or just like a new center of gravity for that ecosystem because you know the sad

part is that you know if Alameda FTX goes down whatever you know they own 10 of the salon supply um and the investors that they had in that round were a bunch of like Trad fire investors and like if you think they're gonna hold like if I have another another thing to tell you um I don't know it just feels like that's going to be a pretty depressing place to be for at least the near term but like Solana and and that ecosystem I do think has value but it's just gonna have to work through this like massive overhang of Supply like why do Michael and I you know like ethereum one of the reasons is it's been up 100x and it's been down 99 like three or four times um anyone who is going to sell has sold we have an idea of who the ecosystem is

we know what the movement looks like um you just are not able to have that level of confidence with these other ecosystems right now so just to hit on this point and double click into it one of the things that we evaluate when we're talking about new Investments especially you know talking about a base layer type investment for instance in Solana or any other asset like that is who holds it and what's the best thing what's the unlock schedule and how much is left and you know to advance his point just to double click in you know eth is done unlocking right and and so that is a huge huge advantage that you have as a base layer because you don't have this overhang of 10 sitting over you constantly potentially as a cell it's just a huge component and I I mean that that frankly could be the unwinding

that we're talking about like what's the what's the other shoe to drop that could be it so so I mean two things one good and one probably not as good uh number one eth is about to go deflationary so you know like the the promise of this technology is real and it manifests at scale in the data number two I don't know if you've seen the Silver Gate price today uh the the stock it's down almost 20 percent yeah so like I mean that that is a little concerning like I don't know if there's anything behind it maybe it's just like the only stock that these hedge funds can short it's correlated to crypto but um just because they do a lot of business in crypto but yeah certainly not confidence inspiring well they

recently had a management checkup as well right is Alan still there or no see you I don't know Alan yeah yeah neither do I but no I think it was last week that they they changed a few of their executive team um obviously a lot of things are you know fairly obvious in hindsight but um I think the the you started to get some again some Spidey senses you know fans Michael we've been around like we've seen these things play over and over and I think you just developed an instinct in crypto of like uh you know you always assume the worst uh and if there's any probability of like [ __ ] going down you just you want to be there the first one out and and and not take risks

um and then I guess like now you look back and you say well Sam Trabuco right who was at the the co-ceo of Alameda left um Michael say the thing you want to say a few months ago what did he know right and then and then who else left it was the head of FTX us right the president of fds one left to go spend more time with family and one left to pursue happiness so uh it's a pretty good reasons anyways look I'm a correlation causation I'm not I'm not like implying things I don't know this stuff but like you know you almost have to think uh at some point did this guy just make a lot of money and wanted to check out and be like you know go fishing for for a year

um or or was there or what we mentioned earlier in the Pod you know it feels to me like there are certain people in the industry that knew how precarious the situation was and then you just were kind of waiting and then maybe it was just took you know another one billionaire to piss off another billionaire to say hey you know what I've had enough of this crap so it feels like this will happen literally all of a sudden you know like we wake up this morning and boom it's dead it's possible that this is late in comparison to how everybody else was thinking about it who had inside information and that everybody else was thinking okay this is going to happen maybe over the summer maybe in the fall the fact that it's happening right now you know it took a tweet it took something it's possible

that there that this has been happening you know so to say for a long time yeah yeah I mean these things just don't happen in isolation right exactly you don't take down a giant like this just by a tweet or just by you know like like selling 500 million on ftt that doesn't do it folks yeah yeah it's just the nail in the coffin guys how much do you think like this feel if if binance was seen in a good light by Regulators this feels like game set match for binance I'm like Finance is just they're gonna win uh but I think the maybe counter argument to that is that they've they're viewed and pretty they're kind of like this regulatory Pariah uh like to I think now after this they own 70 of the spot Market 70 of the derivatives Market they

recently launched options busd is going to take off now uh is maybe you could argue this is bearish for proof of stake decentralization right this kind of push uh puts more pressure on like liquid staking derivatives actually exchanges that are the largest stakers we just had two of the largest exchanges merge feels pretty obvious that um finance will probably release their own liquid staking product feels pretty obvious that busd usage will Skyrocket is this like is does it just feel like game set match for binance right here yeah a long way to go they have a long way to go I mean I kind of view the ecosystems as like coinbase ethereum and then binance um

I do think CZ you know becomes probably the richest person in the world um him and Elon probably end up like tied at some point uh uh but yeah I mean it's just like a strategic Master stroke like the perfectly placed kill shot at the exact right time with the exact right lovers um you just like do not want to [ __ ] with CZ and I just like do not see anybody else really like throwing their hat in the ring to do that so I think like the participants said in the long term you know competitive set of crypto has like narrowed um it's coinbase it's finance and it's eth so so totally agree let me pose a

different perspective not not totally uh you know there's sort of two things happening at the same time now it's just binance and coinbase and eth yes but really binance and coinbase in terms of spot what the biggest size of prize that has yet to happen is derivatives and true like actual transactions uh with all the different types of products in the US that is the that is the final shoe that has yet to hit uh I think it's going to be coinbase if I was to pull put my bets on something because I don't know if Finance can be regulated at this point like it's kind of too far gone in a lot of ways just the the jurisdiction Hopscotch that they've been playing the launch of BNB kind of everything they've been doing it feels like they're moving the direction of like anti-regulation

but you know if coinbase can get there there is a chance that coinbase and and the Resurgence Arc of coinbase and Brian would be like he would be my best bet to potentially in like five years time actually give it a go with binance um how much um just touching on on one thing here in terms of of sentiment and Industry perception one of the things that is important to understand is you know FTX has been very visible in in the US and you know you have uh you know I've seen a bunch of sponsorships and uh you know Sam's presence um even though assuming again consumer deposits are not affected and those are restored

how much does this set us back um at least in the U.S you know Michael Vance you guys are both all of you guys here are are in the in that market I'm curious how much do you think that this matters um does FTX ever recover as a brand name um or do people just kind of it never bounces back and you just you you think of binance U.S going forward again yeah it's never happened never will exactly totally totally just works like it's it's uh yeah I mean I think the exchange

literally gets renamed and it becomes like a block five style this company doesn't exist anymore like it's it's over on the policy side I don't think it's that bad it's gonna take some explaining and we're gonna have to like go to DC and you know hopefully the midterms go our way um but the nice part about having these like you can point to it things is you're basically like yeah but that was that was that guy here's and here's why and like here's the other part like the big problem with DC has been you know a few of them have been like see like SP or C5 and D5 being conflated is the same thing and that was a story that was told by someone who was in C5 who wanted to regulate defy out of existence and who

wanted all the regulations just to be basically around this like C5 concept now it's like that C5 concept like look how far that got you like here's this other thing and here's these new rules so I don't think it's that negative but we look super dumb right now that's the problem like we have no we have credibility um but we just need to build it back up um I don't know if we talked about this uh on last week's Roundup but I don't know if you guys watched also like the Eric Voorhees versus SPF uh type debate um so we're uh Shameless self plug but we're moving Das to DC uh moving forward and so we've been like talking to a whole bunch of regulators and stuff there and my surprise you to know like they all watch that debate um and they saw something super

different uh then I think what a lot of people in crypto saw frankly like to a letter If you're sort of crypto and crypto native you're like wow Eric did you see that thing about Ave in the email comparison like why really boxed them into a corner and Sam seems like he was on the defensive and you know to summarize the other view of how that debate went it's wow that guy was super idealistic not realistic at all wow you really just don't want to get into a debate with SPF so I think it's a little bit of a question mark in terms of how the DC apparatus is going to react to this because Sam's basically been For Better or Worse the one who's engaging with that um that set of stakeholders so I don't know I could see it kind of going one of

two ways which is you know they're like wow this guy was this guy was bad even the guy that we thought was good was bad and this whole industry just sucks we just don't like this or they could look at it like SPF is kind of a a martyr it got took down by this like the one good regulated guy got took down by a unregulated exchange and I don't think they think Super favorably about let's be serious FTX was unregulated as well and you know sure they had Gap audits but they were an unregulated exchange that did not provide access to U.S customers the the thing that I would say about what at least you know our limited experience in DC which is actually at this point kind of substantial what we have seen works is a

very logic based argument where you have this and then that and if you provide you know a reason for doing something then it it definitely falls on ears that are willing to listen to it if you have an idealistic perspective you know we need to be you know this new industry we need to provide you know Financial inclusion we need to do this or that that never really plays in DC and so when you have that air red versus SPF argument you ultimately have a conversation where yes it's like pie in the sky wouldn't it be amazing if you know that type of stuff which probably resonates with all of us and resonates with entrepreneurs and resonates with the industry but it's not something that resonates with DC people it is the logic based discussions that ultimately have you know the the teeth to be able to get

something done so it is a loss I would say for the industry given that you know we took our we took our DC White Knight off the table but you know given that be that as it may I think we do have to now live in the direction of okay what's the logic for D5 what's the logic for this or that and use this as another example where D5 wins and C5 is you know it has to be regulated like I think uh again driesen you know like now super serious like sending policy people to the hill like Paradigm you know form their policy Council and announce it last night like the the whole DC CPA stuff is comparable to the infrastructure bill I forget what that was last November or something or maybe RDS 2021 right that's when we all got super mad and super pissed and like how

could they do this to us and the dccpa is like a similar Catalyst but legislation is now like right around the corner it's not like us trying to fight some random inclusion into an Omnibus Bill it's like us coming together to draft the legislation which is going to be the future of this industry um and I think like you know taking like a thousand foot perspective is that all this stuff sucks that legislation was the only thing that matters not having SBF in the room probably a positive on on balance having Andreessen Paradigm whoever else they're fighting for defy that's super awesome I think that's spot on Vance I I it's sort of feel like Sam was you know for better for us had too a lot of influence

um and I you know we both here believe in the power of defy and you know he had a clear interest in in vilifying D5 to some extent and because it it you know he sees a C5 guy and you know he has an interest in CFI and it's not just him for a matter of fact I've heard from other folks and policy makers that you know exchanges whether they don't understand or pretend they don't understand D5 but they they actually sling mod ad D5 because you know it it um threatens their business model and so I think now that you know we have more space to own the conversation uh from funds like you mentioned and other folks that you know are invested in D5 because

you believe in the power of divine you believe that it actually you know is the right thing and and I think maybe this is a positive where we get to reclaim the conversation and and now it's a group of entities that perhaps the most important thing now is to be very coordinated to really control the narrative across the different organizations uh and lobbying groups that are doing good work it's just a matter of just really just making sure that the message is very clear yep yeah you know you just nailed it yeah so Arthur Hayes tweeted out said FTX equals Lehman that wasn't the bottom SPX hit 666 in March of 2009 therefore 17.5 BTC is at risk how about Dem puts

now what what's your thought on this Michael [Music] yeah but he's a good but he's a good writer so uh he's a good blogger though I love a good blogger he's like 10 pages congrats I'm sorry but I'm not reading all that um I don't really care what Arthur says um I mean like I'm just scrolling through Twitter as as uh as I you know talk but it seems like the hole is 2 billion three billion it's not six I don't think I don't know why he's trying to raise six that he's just like absurd um if it's two or three that feels more manageable

um well like you can calculate the revenue that FTX has on a yearly basis by backing out of of what they burn um and the revenue is probably like a billion to a billion two or something like that probably lower now probably like 500 million to a billion but like if you can keep this thing going which is going to be very difficult now that everyone's withdrawn like you can you can pay that back but I don't know it also feels like all the confidence has been lost at this point Michael what do you think um so I only read the first half of the tweet in the two seconds before I said anything um but FTX equals Lehman I think is accurate the rest of it is not I I don't think that there's contagion I don't

think there's a major Fallout we're not like waiting for March 20th I think he's insinuating tether he's tether fighting in here if I have to read before he announced he announced put options last night I mean he clearly let's talk about talking in our book you know yeah no no yeah okay here's a hypothetical you guys if Tara and and and at Celsius hadn't happened um you know three arrows hadn't happened would you have seen this Bank Run on FTX over the last 48 hours yes you think so the magnitude I mean it would have been the exact same thing as

Celsius and three arrows and that whole thing in June I think the difference though the difference though is that you would have Hadith at probably I don't know 2500 so it'd be a very different story because the wealth effect of the rest of the industry would be larger so I don't think it would be as disastrous but this just yeah you know yeah again I I think a lot of this is is you know when you're running freshman reserve and you have the equity underpinning the confidence and value then you know it's it's at a point where like FTX at one point was you know the in many in in a lot of people's minds was like the star of the industry and the gold standard if you will and now of course

because these two things have happened everyone is on edge and and and these things can happen and I what my point is I think a lot of people are now not taking any chances and as soon as you felt that this was remotely similar to Celsius or you know three-hour situation you just everyone was like I'm not taking any chances and So that obviously put a lot of strain on FDX so um back to the conversation who else is next and who else is in it in a in a very delicate position that's the only thing that's keeping me up I do agree with you two billion three billion six billion I think is certainly Matt like

it's manageable I think like at this point maybe you're like what you said earlier which is probably fairly accurate which is like you're shooting a dead body twice now like everyone's like pretty in a bad state so like how bad can it go uh but still I mean I think there are some other players out there that might be in a delicate position I mean to be honest who's left Genesis does Genesis make it through all this guys they got to rename it or something like benesus or some some something else definitely don't put Advanced Insurance they gotta do that big Rebrand change it from Genesis to Genesis change the name I feel like the B is a

much more pleasing sounds he's a great investor he's not a marketing guy yeah that's how you know he's a good investor that's the meme Lord I know that's the mean Lord I don't know I think they're just I like those guys but they're I don't know if they were on the wrong end of this again it's it's kind of like that's three strikes in just three months guys I'm just gonna say it like everyone believed that three hours were the smartest guys and then you look at their book and you're like it's a retail it looked like a retail book you're looking at alameda's book and it looks like a retail book I I mean you can't make this movie up it's like everybody is like everybody's like oh kimchi premium kimchi premium is like buying and selling spot I mean like I'll tell

you a story when I first met Sam he was in Hong Kong and he hadn't even started uh FTX and then six months later you want to build FDX which is pretty impressive uh nonetheless um I think like in many ways like after my meeting I said okay this guy's fairly smart he's come from Jane Street and I was wondering it's like I'm not like that sophisticated I'm like Smooth brain but like someone like that if you're like an algo Trader like I'm left wondering like why isn't his entire desk just leaving Jane Street and doing what he described as fairly simple strategies to like make a killing you know traffic is pretty armed out even 14 is like you're like the best performing hedge fund in the

street you come to crypto and you you are you know you it's a fairly inefficient Market still um but yeah I think like to some extent yeah you know anyway I will say trading is hard especially in these markets so I give them some benefit to that but there's just a lot of you know at certain points in time a lot of easy ways to make money and it seems like they took the easy easy pass at the times when they had them I don't know what they were doing in the meantime it could be highly sophisticated it could be interesting but I do know for a fact that it is very very hard to trade these markets yeah like we we did not come from Jane Street we are uh you know smart but not super super smart uh and like when I

looked at the Alameda balance sheet I was like expecting to be like t-bills and like exotic commodity exposure and it's like oh [ __ ] they're holding a lot of maps that's when I knew when the maps exposure was meaningful it was it was uh yeah um we can start to kind of wind down here love to maybe just get like closing thoughts uh from each of you like take it in whatever Direction you want like either like a maybe an angle that we haven't discussed that you think people might be widely missing like winners and losers outside of the obvious winner being you know CZ and the loser being SPF like just like Curious any um or even just like closing thoughts uh just

on this whole hold the box I have one um I think that I I have two actually one is um anytime you see someone who's just like feels like a hero of an industry uh like Michael Saylor was this like dokwan like suzu now Sam like it just happens time and time again like we we tend to it's not just crypto by the way like Industries tend to worship people uh especially people who rise really really quickly um and it's just like a cautionary tale over and over again um whenever you see people going you know Front Page News whenever you see people on the cover of magazines like uh there's usually there some sometimes people fly too close to the Sun um and it's just like it's a very again sailor

dokon like suzu we keep seeing it so it's just a cautionary tale that's that's the first thing the second thing is um I know a lot of found so the reason I thought this was bigger news than like Tara Luna all the all those blow-ups is um obviously people got like retail got killed on that and there were some funds that we know that got killed on that but like if you were in the you were either kind of like in the Terra ecosystem or you weren't in the Terry ecosystem uh a lot of people touch FTX in one way or another and um I know a lot of funds who use FTX and I know a lot of actually startups unfortunately who have put their customer funds who have put like their usdc for example they raised in usdc they raised like 8 million a series a

and they've got like six million left and they just hold it on like an FTX institutional account and this is a real [ __ ] bummer if if what happens here if FTX and Alameda getting offside kill a bunch of great entrepreneurs and startups in the same way that uh Sue and Kyle uh killed a bunch of great startups because of their like because they told startups they would give them eight percent on their treasury so I just I feel for all the I got message by like three different Founders today who are in that situation I just feel for those folks so that's my take uh I was gonna say basically the exact same two things which is uh just get reminded of Icarus every single time and time again in crypto and you know you don't ever want to be so out there in bombastic that you

can basically like what's gonna happen with all of the FTX media you know all of those Billboards all of those you know posters everywhere like that that's gonna feel tough and and I think you just got to be careful about being too fast too soon um so that was number one and number two is I think a lot of this analysis A lot of the conversation that we've had is highly dependent on what happens to customer funds basically all of the analysis goes out the window if we're talking about a loss in customer funds so that that I think is really going to be the the like the next big thing to figure out yep um but like yeah I mean it sucks uh we'll

be back it's not gonna be forever you know we're just in like temporary like you know PR jail and when we're obviously gonna help you know break ourselves out of that um Echo everything Yano and Michael said uh yeah I mean the other stuff that comes to mind like the startups to your point like Aptos um and like the really big like really aggressive base layer Investments they made um like those are all subject to you know the courts deciding what to do with them auctions for selling uh I would just you know be careful around the assets that are still part of their collateral base because those eventually will have some sort of you know

uh just fight over them I guess but yeah you know regrettable we're gonna be fine um Life Goes On yeah I would definitely agree with everything that's been said here um you know every time you feel like it can't get any worse uh well it has felt like it continues to be but you know in many ways it is it is clearing up I think the most important point one of the most important points it was said here I think it was you Vance or or Michael this is from a legacy era of like 2017 where D5 didn't exist and you know you're seeing the collapse of all of that and in many ways you know you have to go through this process of really just you know things that crypto is a very efficient market

and I think it exposes things over time because and there are people that are seeing on chain stuff and you're able to you know exploit it I mean it's a very adversarial environment and I say that in a good way in the sense that you know a lot of these things that shouldn't exist are seizing to exist much faster than I would have ever thought and you know the positive of all that again hope it sucks that customer funds are lost that's the worst thing and I think that should always be the number one priority um and you should never play with customer funds you know especially in an industry that's super volatile you know it doesn't matter if you can move collateral fairly quickly you know just don't play with leverage kids not in this industry because what you

want to do at this point is surviving and you know it doesn't it doesn't pay to take that kind of risk um you know it sucks to be right on it sucks that you're right on the thesis but wrong in the execution and the worst thing that you can do I've learned this the hard way March 2020 you know is just playing with leverage uh you know it's uh you know it doesn't allow you to have a clear mind just think about how this industry is going to be and be a builder like honestly just you know there's a lot of things that I think the takeaway there's a lot of opportunities to get involved in crypto you know there's going to be a huge undertaking on controlling the narrative and you know we need better people that are you know not just Engineers but there's a big

opportunity uh for people to step up and and help the industry because there's clear gaps right in in Communications legal accounting like basically every function that you know it's not just Engineers so this is a good opportunity you know we'll we'll come out of this stronger uh but um yeah uh hopefully we consume customer funds are protected and honored yeah Mike anyone slots sorry one before Mike goes Genesis just tweeted that they have no exposure to uh so that's good less than a one percent chance or no percent chance

that's what people are saying today uh I have a I had a I had a thought actually just listening to you Santiago there there was a um Jason you might remember we Jason and I when we were like pre-blockworks really being anything we were sitting in this I think we even had our full-time jobs we were sitting in this room with this guy who was potentially going to help us or do something and give us a bunch of advice but one thing I do remember actually we were scheming like how are we going to be different from coindesk or the other media Outlets that exist and he said this thing is like maybe you guys just need to survive and stick it out and honestly that ended up being some of the best advice anyone has ever given us uh when it comes to business in general and

this is just a marathon it's not a Sprint and I will say maybe to do one concrete thing I've never really you know when you're looking at the exchange landscape I've always liked Kraken but I've never really understood necessarily I was like where do they play in the ecosystem maybe they just like survived man and they just you know they kind of stuck it out they built this great brand they did the proof of reserves things before other people did it hugely beneficial I think to the ones that kind of stuck it out and Kraken basically put themselves in the group that stuck it out and they'll be big beneficiaries that's a great Point great Point awesome well thanks everyone thanks everyone for tuning in uh if you missed the beginning of this conversation you can listen to it on Empire and bell curve feeds just find in

Spotify and apple and we will see you guys on the other side [Music] a lot of this [Music]