Why Crypto Funds Shut Down | Weekly Roundup

Transcript

this episode is brought to you by bitmex the og crypto exchange that is back and better than ever you'll hear more about bitmex later in the show it makes more sense for a manager to close the fund liquidate all the assets then raise another fund purchase the same assets at a bargain price in a few weeks or months time and actually profit from the revival the crypto market technically on paper if you put put it on an excel it makes sense you lose your reputation though and that's probably why folks don't end up doing this [Music] all right all right all right we are releasing this on july 1st it is july 4th weekend if you're tuning in you got the dedication you're not out barbecuing you're listening to santi leak some alpha so uh

we're glad to have you here for another episode of empire santi welcome back my friend we're making some sauce what's up guys uh it's good to be back there's been a lot that's happening uh in the space and so we're excited to cover as much as that as possible so yeah yeah uh santi what are you doing for the fourth all right do they celebrate the fourth out wherever you live these days no i do not live in the us anymore but uh uh it's it yeah i guess no i i i don't celebrate the fourth other than will you do anything french well yeah yeah yeah for like this weekend look i'm not in the us anymore but i i still owe a lot of i think america is dear and dear to my heart because i think it embodies it's still on a relative basis

i think the best place in the world where anyone has a fair shot at making it and so that set of cultures and values i very much believe in and so yeah i love america so uh i thought you were gonna say you're like i owe a lot to america i thought you're gonna say i owe a lot of taxes in america so i still celebrate the fall no no i i paid a lot of taxes back in the day you know ten years in the us and so no yeah happy fourth everyone happy fourth happy fourth awesome all right so uh big episode today um here's the agenda for today and per usual uh we'll probably divulge into a bunch of random topics but agenda for today market update talk about just what happened this week getting into some of the big news stories second we'll jump

into an update on voyager and three arrows i think santi might have some thoughts there coin flex i want to talk about the unfolding situation with coin flex and uh og roger vare uh then we'll get into some contagion that's happening in the bitcoin markets and specifically with bitcoin miners uh arthur hayes put out a piece a couple weeks ago about potential doom and gloom on july 4th weekend we are at july 4th weekend so we'll share some of those thoughts um i really want santi to explain high water marks to me um i'm trying to wrap my i think i understand them pretty well but i want to make sure i fully understand them and i want to make sure you guys all understand them because i think they're very important in today's bear market uh c5 versus d5 d5 is probably where i'm spending the

most of my time personally right now and so i want to get into some thoughts there and then just quick news uh and then i think santi has a book recommendation for us so big episode santi anything i'm missing there no no i think that's really good let's get into it all right let's get into it so bitcoin is down seven percent week over week eth is down eight percent bitcoin uh at the time of this recording which is midday on thursday bitcoins down to a little above nineteen thousand eath is down to a little above one thousand both down seven and eight percent respectively on the week uh some of the big l ones solana is down fourteen percent seems like there's a fat bid at thirty dollars for solana it's been tough to break through that uh polka dots down twelve percent avalanche

is down ten percent um this past week another crazy week right three arrows uh looks like they're formally filing for bankruptcy we'll talk about that in a second uh coinflex is issuing a new token offering 20 apy to cover some bad debts from roger ver more on that later uh contagion risk is still looming like we mentioned before who is next we've got july 4th weekend coming lack of a bid probably coming on july 4th uh we have now seen more than 1 billion in bridge hacks this year michael saylor purchased more bitcoin this wednesday after already being down a billion on prior purchases sec yesterday denied graced grayscale spot bitcoin etf grayscale responded by suing the sec shout out grayscale um i think

everyone in the industry is rooting for them to uh to do well there gary gensler reaffirmed that bitcoin is a commodity uh but also stated that many other crypto financial assets have the key attributes of a security not a good statement to make we'll keep an eye on that uh coinbase had two negative things come from wall street uh i think it was goldman downgraded them to a cell and moody's downgraded the debt uh not great for coinbase which has already been hammered on the year uh solana released a working fee market i mean a phone a phone solana released a phone and uh crypto twitter is getting hot over governance decisions bitcoin maximalism good friend of the pod nick carter shout out nick is being attacked by the bitcoin community for liking

something aside from bitcoin which uh shout out nick who's done a lot for the space so man how are we still feeling santi how we feeling are you still feeling last week you were excited and the week before you were feeling good how are we feeling today it's a lot of bad news right there yeah look i mean i think like we tend to like focus on negative news during this during a bear market i mean that's just a sentiment that's what we gravitate to and the media is is really good at feeding that i mean i hope that like during the course of the next couple weeks and so like we just provide a balanced take there's certainly a lot of negativity you know there's there's been a lot of stuff that has come out to light particularly the three hour situation is really

underwhelming in the sense of like we could have done i mean it's it's just you love wondering like it seems like everyone and their mother had exposure to three arrows and including a lot of d5 protocols um that uh you know parked part of their treasury to get some yield and you know i hope like in many ways like i understand the criticism for this space like i think i was looking at i was thinking about this yesterday it has it feels like a system-wide impact uh you talk about contagion the three hours is having um across the space landing desks um you know consumer apps like voyagers of the world block flies of the world um exchanges

so a lot of people are getting hit i'm like this could have been avoided like it is like a mal gox event except for like i sympathize like back in the day like in mount gox like there wasn't a lot of venues to trade bitcoin and so naturally you kind of went to malcox and a lot of people got impacted because of that but in today's world like you didn't have to give your money to three hours you didn't like you know like the the singapore i think banking authority just issued a statement reprimanding three arrows for not like failing to disclose that they met they were managing more than 250 million like come on guys apparently the investigation has been going on for a little under a year but it's like these guys have been really vocal and flashing around the idea that they had billions of dollars under

management it's like you cut it's a good it's a little too little too late you know what i mean and and this is it's it's disappointing because we can do better you know i mean i've talked in prior episodes that the biggest risk that i've seen in this industry is just self-sabotage and in many ways like this is it i mean like it's just it's a little bit embarrassing not not a little actually it is full stop embarrassing and so you could blame three hours all day long but at the end of the day like it's really like the due diligence officers in these companies in these protocols that should have exercised more scrutiny candidly i i am the short of it is i'm i'm feeling excited about a number of things um it's also a moment to like reflect and

you know before this episode i was telling you like i love walking and i've been walking a lot yeah i um i went on a trip when i was 22 or 23 to israel and i met this rabbi and his name was rabbi shua and the sh and rabbishua told me he said that he was actually giving my best friend some relationship advice right because my buddy my buddy was in this like kind of relationship there was some ups and downs and he and he told my friend he said look the the the thing that you love about someone is often the things that thing that you don't like about them and the thing that goes wrong and so the thing that you really don't like about your my buddy's girlfriend at the time is also the thing that you really like about your girlfriend and it's kind of two sides of

the same coin and that's always stuck with me for the last decade i think about that a lot when it comes to people and situations and and things that block works and things in my personal life and i think what we're seeing now is two sides of the same coin and the reason i bring that story up is right now one bankless always uses this line it's like we're speed running the financial history or speed running finance i forget the actual way that they say it um and oftentimes we look at that as like a pro right we look at the fact that hayden adams is and rob rob leshner and stani like they don't come from they didn't work at goldman for 20 years and that's why these systems are so amazing um and a lot of folks in crypto like there i'm a history major right mike is

a classics major we didn't come from this ingrained financial system the downside of that is sometimes we're forced to repeat some of the learnings uh that maybe folks in traditional capital markets have learned and so yeah what's happening right now is just uh the cause of just about every banking financial crisis in history it you you borrow short-term money and then you lend and you lock up funds over the long term right if you think about september 2008 every single investment bank who borrowed in the wholesale short-term debt markets and went you know net long uh took a government bailout or was bought by a commercial bank or went out of business and the crypto flavor of this today is that uh firms that borrowed short-term money at high rates from

retail holders locked it up long-term into three arrows and they are paying the penalty right now so one of the things that i've changed my mind recently on is the idea that we can do under collateralized loans in d5 um i think it's going to given everything that's going on the biggest one of the major criticisms with d5 is that it's not very capital efficient relatively traditional financial system where you have re-hypothesion and the idea that a bank takes one dollar and then lends out nine um and so in d5 obviously the systems are over collateralized and in many ways as you said you know it is nice to know that uh particularly everything that's going on and folks that we're not you know exercising good you know good risk management and we're lending out

under uncollateralized are are taking a big hit and and i think uh i've been excited about the idea of bringing more capital efficiency to d5 but i think my you need a lot of things to happen obviously you know reputation and some sort of enforcement uh but the credit has been throughout history you're a history major the only way credit has been enforced throughout history is violence or the perceived of violence meaning the government can come down and there's like enforceability that doesn't exist in d5 right there's nobody and so um i think it's just going to take a long time to get there and that doesn't mean the d5 is kind of dead or you know it just means that there are other interesting innovations happening in d5 like minimizing counterparty risk that

there be reasons why you don't necessarily care about getting under collateralized loans just it allows you to get have access and use some of the assets that you have on chain and make them productive like i think that use case is pretty pretty cool um but it just means that it comes at a you know at a trade-off um but yeah it's uh the coin flick situation is pretty interesting like they were lending um i mean there was a lot of exposure i think roger deposited a lot of bch and and then historically he had been a good counterparty they say because he was like refilling collateral and you know but this is just a reminder like it's not so much that like you trust your counterpart is like the

if you assume that this asset class is highly volatile then you should be prepared to like you should stress test your systems the same way some the same way that like banks get regulated in our stress test stress tested i think you should assume like what happens if the value of this collateral drops 80 90 can it be easily liquidated um how are we going to manage that and and i think that's where a lot of folks were caught off guard and just because you're in this environment about only i guess yeah so here's here's what happened with coinflex for folks who uh hopefully stayed off crypto twitter this week because i think it's uh healthy for the emotional state to put that put their twitter down and do what santi doesn't go on a walk coin flex is a uh is an exchange right

they're trading in derivatives exchange they suspended all user withdrawals last thursday about a week ago due to quote extreme market conditions and quote continued uncertainty involving a counterparty so everyone's thinking all right maybe the counterparty's three arrows right on monday coinflex so five days ago monday uh coinflex announced plans to raise funds by issuing a new token that will offer a 20 annual return the token as they put it related to an outstanding debt owed by a quote certain high net worth individual so then it becomes okay it's not three arrows who's this high net worth individual coin flex ceo mark lam announced the company would be issuing a new token offering a 20 yield and if the full amount of 47 million is raised

which it seemed like the high net worth individual owed then all coinflex users would be able to withdraw their funds in full so basically there's this strange individual we don't know who it is uh coinflex is missing 47 million because of that individual they they i guess owe the company money and then uh they're going to raise issue a token with a 20 yield to get that money back now the interesting thing comes out on tuesday the high net worth individual is none other than roger vere right ceo of trading platform uh and walletproviderbitcoin.com but more well-known for creating bitcoin cash and forking the bitcoin network creating bitcoin cash changing the block size uh back in the kind of block wars of 2017 which i'd really encourage folks to learn about if they uh don't remember

that period it turns out roger ver according to coinflex owes the exchange 47 million um and coinflex said they have a written contract with him obligating him to personally guarantee any negative equity on his coinflex account and top up margin regularly it turns out he's a big customer of coin flex uh he denies that the debt pertains to him uh coinflex says the debt is 100 related to him uh so just a nasty situation for both parties yeah you i think that um it will be interesting what kind of legal precedent happens out of all these kind of restructurings and defaults was three arrows and an affiliate um obviously coinflex voyager

what kind of kind of legal precedent is set as a result of that you know there's obviously contracts in place and so i guess you could sue the person and there's recourse and you but again it would be interesting how the actual court of law and whatever jurisdiction you these these contracts are said to be settled or disputed um whether it's delaware or bvi or singapore or whatever uh how the court interprets that um and and i would be pretty um yeah it's gonna be pretty interesting i think to see that yeah i've known i've known mark for years so i don't want to talk too negatively on coins this is mark i'm the ceo of coinflip mark liam yeah exactly mark i've known mark for years since maybe 2017 or 2018. um

he's a great guy i will just say i'm like i don't love the uh 47 million in debt you issue a token with 20 yield to like to to backfill the 47 million it's just uh it's like i don't know it feels like you gave a 47 million uncollateralized loan to someone who can't pay it back to fund so then they don't give it back so then customers can't withdraw so to fund other customers withdrawals they turn the debt into a token sell it to people and offer 20 apy on it feels very degen uh for a company to do in the heart of a bear market uh yeah exactly uh i mean it's it's it's like a i would i would characterize this as like a distressed bond of sorts um yeah and and of course in traditional markets this is

a common practice like bankruptcy there's a lot of hedge funds and vulture funds that specialize in distress in distress and they like to buy bonds pennies on the dollar and restructure and have some sort of say in the company and and then end up you wipe up the existing equity and then you know it could be it could be a pretty lucrative strategy i would say is highly sophisticated i do question this mechanism and if users truly kind of understand what's going on um and so uh yeah i i again 20 you you have to then believe that like i think they're they're saying if coinflix survives and you know is generating all these trading fees and proceeds from that will be diverted to paying

people that owned this token and but again yeah you should sort of like yeah uh you this is a big assumption that coinflex survives uh which i'm not sure of uh there's an interesting tweet about uh related to this which is someone had mentioned uh i think it was sam actually spf the founder ceo i guess of alameda and ftx that said i think he's one that has perhaps the most amount of insight into the health and contagion that is going on in the space just because he's contemplating perhaps buying block fi after giving them a 250 million line of credit um the voyager and a few other parties i think he's taking a look at and he mentioned like a lot of these exchanges in

particular are insolvent they just kind of don't know this yet uh or are you know i don't know like i don't know if i believe that like someone in the exchange like doesn't know they're insolvent i think is pretty clear but at least i think it was more so i think people don't realize and he was kind of intimating at this that the level of uh contagion is not is not fully understood yet uh and so to me that's that's pretty alarming if you have money with counterparties um it's interesting he's called out exchanges by the way because when i think about what's going on it's just like a lending well and that feels maybe like an aggressive like he probably wants to scoop up some assets on the cheap it feels like when i look at let's let's run through who's been affected you have

celsius uh block vibe genesis had to i think sell or hedge all their liquid collateral on hand um and they the losses were netted against the balance sheet you have nexo uh which claims no exposure to three hours but like there's some stuff coming out about next right now uh finblocks which is a crypto yield platform they with their withdrawal limit of uh i think they moved it to like 500 bucks a day or 1500 bucks a month which is basically the same as we're blocking withdrawals babel finance uh had a three billion dollar loan book they suspended withdrawals um voyager right they had a massive uh exposure to three arrows they stopped they put their withdrawal limit at ten thousand dollars a day uh and now coinflex right so coinflex is an exchange voyager is a broker the rest

are london borrow platforms um yeah so it's interesting that sam called out the exchanges not just the land yeah platforms yeah i mean it remind me remind you a lot of exchanges allow margin and so like leveraged positions and so that might might be it um i think one of the things that is is pretty interesting is you know you're sort of wondering okay this solidifies the thesis for defy but the problem is a lot of users don't you know don't feel comfortable managing their own keys and interacting and being a self-custodian and and so it's it's uh that is the the issue right which is i i'm very much a believer in d5 i don't have a lot of exposure to counterparties because i i

feel comfortable kind of operating in in a world where i'm in control of of my assets um and minimize counterparty risk but um it it puts into question like what are the i was thinking about this year days like what are the things that sure d5 is great but in reality what what is going to happen like in the next cycle like where what what needs to happen for users to really use this and and how do we create systems that prevent this sort of stuff i think human behavior and greed always gets to some of us um systemically um and and these things continue to happen not just in crypto just in general right um right but i'm curious like is deep ever going to get the number of

users that like the user that is using coin flex the user that is using you know uh voyager or celsius you know there was like warning signs or celsius for a number of times but people just kept their money there and um unfortunately no i think that's the big question right like d like aven compound could not have misallocated assets and hid losses like celsius did right uh asset management protocols on d5 like enzyme couldn't have lied about aum and asset coverage like three hours did maker and die right couldn't wouldn't have failed due to humans inadequately defending a peg like like luna did and there and ust did right so the d5 is showing actually really really strong

right now uh but at the end of the day i think it was logan jostremski posted this thing shout out logan um if you look at the total users uniswap opens uh unisoft ave maker chain link 0x protocol curve ens and dydx combined have less than eight million users across all of those protocols so the i i love that question that you're saying is like how do we bring users into d5 and how do we make it really user friendly i think it has something to do with like holding your own keys and being spooked of holding your own keys and like i don't know i don't want to hold several million bucks on like a meta mask that doesn't sound right yeah yeah that doesn't sound fun yeah i think the my view is that at some point um most

users would still come from a user aggregator whether it's existing financial institutions like most of the financial apps you have on your phone the uber bullish case here is that they start using crypto rails to to do the settlement and to be more efficient as the world becomes more competitive a bank might be more compelled to use d5 rails assuming there's sufficient regulatory certainty and clarity to settle stuff to do it faster better and cheaper to minimize compliance and overhead costs which are increasingly eating into margins the user might not even kind of realize the the the closing loop there is you have to there needs to be somehow a mechanism where the user is still in control and can audit and can verify without necessarily

having to manage the complexity of the security piece which is hard but but yeah that's it's like everything at some point there needs to be ownership and accountability of especially when you're dealing with your money um and most people kind of don't want to think about that and it's stressful yeah i here's here's pre all of this stuff ex like uh imploding on itself all of c5 and floating on itself here was my thesis i thought that defy would sit in the background users would never actually interact with d5 i really thought that i thought cf i was going to sit on top of defy and see if i would basically be the rails and the way that you got money out of the traditional capital market system

into c5 and see if i would give you exposure to d5 i don't like that i think i was wrong and i don't like that system anymore because when you have c5 sitting in the middle or your money's jp morgan and they're using uh crypto rails for something you're still relying on these like centralized entities that have a lot of heat like humans uh are greedy right and humans have um make mistakes and uh um although to be fair look at the end of the day i think the the the challenges that i've observed in crypt over the years is that we become too idealistic without being pragmatic and it's never like a binary it's always asymptotic meaning is it i think the

question that we need to ask ourselves is is not whether it's perfectly decentralized or perfectly secure or perfectly transparent is it is it an improvement meaningful enough for a user to perceive the value whether it's 10x threshold faster better cheaper however you want to think about it right and the idea is i do believe like even in that scenario where the bank is is kind of operating on chain like the increased transparency at least on a system level um you know kind of acts as a deterrent for people to to act maliciously to do things and get away with it um i think like i think the global financial crisis a big part of that was

you didn't understand the level of exposure to a lot of financial institutions um the lehman bear stearns bank of america aig the list goes on and on and on i think what's interesting about d5 good and bad is there's not a lot of trans privacy and so you can very quickly you know people are piecing together this analysis and forensics of like all the wallets of celsius um man you can't do that in traditional financial systems yeah like i know i know sometimes that could be problematic because when you're bidding for instance like constitution doubt against ken griffin like ken knew that constitution down how x amount of dollars he just needed to bid a little bit more than that but nonetheless like

if if all these assets real world assets depositors deposit basics all the exposure in the financial system is brought on chain and of course you need some level of privacy here then you at least have like better transparency into the workings of the economy and the financial system that you currently don't have and that may sound too idealistic i i hope that we move there i think if if if we're somehow you wave a magic wand and you and you and and enter into a system like that then then i think it's harder for peop bad actors to get away with stuff it's harder to abscond and do money laundering and do all kinds of stuff um and i think that's why regulators

would be excited and interested in this technology like especially in places like india where you have massive shadow economies where you don't have the ability to even understand your gdp because all of this stuff happens through cash and you know why wouldn't you want to have all economic activity be represented and mapped in a digital context with a digital footprint that is immutable does i know that may sound crazy and we're getting i have a prediction no no i have a prediction for you actually and i want your i want long or short yes or no uh one of the things that takes off in the next bull market is highly scalable evm compatible privacy-enabled l ones

yeah i think that those will be um who just launched this jill carlson shout out to joe carlson they um are launching something called espresso uh which is like a highly scalable evm compatible probably it fits all three of those things and like whether or not that works or not i don't know but like i know jill she's incredibly brilliant her team is incredible incredibly brilliant some of the smartest minds right now are working on uh zk's and privacy-enabled l ones which i think becomes really really really important in the next bull market yeah um shout out to tor from enigma who has a secret network um he uh was critical in one post that i it was he said look the problem is

if people really valued this like they would already be moving to my network uh like secret network which allows some pro like default privacy um and i said well maybe like one i think like we're still in a state of the world where like we are the users in crypto are perhaps currently today are very different than the users that are going to come in five years and we'll be here in five years like we're just beta testers and so in many ways it's it's a it poses a challenge for existing builders because if you go out and you ask people what they want a lot of times you're not going to get perhaps kind of the answer that may be correct and building a product tailored for for mass adoption um which brings me to like the idea of

trying to understand the rationale of the solana team to launch a mobile phone android but mobile phone of their own and i think it requires that level of thinking to me isn't more interesting because it requires stepping out a little bit of the current user base and saying well let's instead of designing systems where our current users and discord want let's zoom out and say okay what actually in five years time let's build for that user and okay we're well capitalized in order to build towards that but i think that's the that's a level of thinking that is interesting now for builders out there because in this current environment i think you want to be building for for that type of user whether it's institutional or non-institutional

um [Music] and and so it's uh it's a little bit of trying to play a game of what are they going to value without necessarily understanding what they want today because they're not going to tell you they're not here agree but privacy and security is a big piece i would agree agreed i'm pulling us back to the agenda or we will not cover a single thing that i said we were going to cover and people will be mad sanji people will be mad on wednesday on monday voyager uh just a quick update on voyager and three arrows on monday voyager officially issued a notice of default to three arrows uh on wednesday david canelos at blockworks reported that three arrows had been ordered into liquidation by a british virgin islands bvi court uh partners from global consulting firm teneo restructuring i don't know today are restructuring maybe

they're huge uh it sounds like they do restructuring we're said to be managing three errors is insolvency threats is headquartered in singapore um as a lot of people know but they are incorporated in the british virgin islands so we will um block works is covering this really closely uh following this really closely covering the news on a day-to-day basis so we will keep you guys posted there empire is brought to you by bitmex with the launch of their spot exchange bitmex is running an insane promo right now we wanted to give you the inside scoop here's the deal for the next two months users who trade 250 worth of crypto on bitmex's spot exchange will be entered into their million dollar giveaway prizes range from thousands of dollars all the way up to 500

000 that's right trade 250 bucks on bit max for a chance to personally win 500 000 beyond the million dollar giveaway new users can also get up to 200 bmx bmex that's bit max's new token coming soon just by creating an account and going through kyc and trading so you can actually get bitmex tokens just by creating an account and trading the more you trade the higher your chances of winning what are you waiting for go to bitmex.com today sign up for an account bitmex.com you'll talk bitcoin mining i think there's uh i think there's mentioned that in the prior episode so

let's definitely uh cover that yeah so uh let me give an update on kind of bitcoin mining um ryan swanson is a block works analyst uh an analyst on the research team and he's been really really helpful to break this stuff down so if you guys don't follow ryan swanson go check them out uh usually here's what happens uh price goes down bitcoin price goes down miner go miners go offline difficulty adjusts now though uh what's different from 20 the 2018 2019 bear is the amount of credit in the bitcoin mining system a there are lenders like block fi and blockchain.com and dcg uh with their with foundry mining and uh a bunch of other folks in genesis as well right now they have access to credit and now

they're publicly traded companies uh so they have even more access to credit so again usually price goes down miners go offline difficulty adjusts new equilibrium found miners go back online now though because they have access to credit they can operate at a really really significant loss so price goes down miners don't go offline difficulty stays where it was miners start losing money faster and faster and faster than they otherwise would be um the lending business uses asics as collateral right so if you lend to a big a big miner um a they're going to take your bitcoin if you can't pay back the debts but if you can't pay back with bitcoin they're going to take your a6 however lenders right now don't want to repo the the a6 because

you'd flood the market with a bunch of asics which would drive the price of asics down and you'd sell them for pennies on the dollar so um yeah historically the depreciation curve of these machines is pretty high in some other folks like i never like got really comfortable investing in minors or operating one of my own like it was like unless you were like mining in 2010 like industrial grade mining is is for very very small sophisticated players and i just don't think that that's where historically i think you'd much better just buying the underlying spot and like you would outperform yes mining operations yeah now the the trick there of course is like rising energy prices is has caught a lot of these folks off guard very very quickly uh combined with falling prices you know

bitcoin's now down six seven percent today it's below 20 yet again and um so of course that all of that is uh it puts further stress in in the operations of these miners and and you know them being potentially in technical default with these loans right because the collapse is just not there i think the one uh the we were talking about this beforehand i was like i think like russia and like the pipelines and like rising energy costs are going to be a big impact on this i was thinking about it as you were just saying that i'm pretty sure how it works and we'll have to bring some bitcoin miners on this is that um the miners typically have long-term energy contracts so they actually maybe aren't as susceptible to price spikes so i think i might have been wrong when we were

talking pre-recording um i think the primary factors that go into the profit profitability of a miner are basically power yeah power prices and capex um and cap x is the cost of the mining rig and the market is dominated really by two large chinese players right micro bt and bit main um and they just basically just have a duopoly and that grants them this like gives them this really strong pricing power so even when prices are going down they maybe don't they aren't as price sensitive to the market yeah although to be fair even though yes you're hedging that you have long-term energy like contracts in place like look what's happening in the uk now like they're they're contemplating shutting down um sending natural gas to europe in the summer because they're already

anticipating rise like shortage during the winter and so they want to stockpile more natural gas and so i think what you're seeing now not to get too much in a macro and geopolitical stuff is a lot of countries are now very much focused on safeguarding resources internally um and make sure that they have enough and and in like near shoring and of course like covet in the war in ukraine is just highlighted like this globalization trend is is being pulled back as countries realize look we need to secure access to resources internally and and make sure that we reign in inflation and a big part of that is you know like bringing back and and making sure that you know you have the ability to access a lot of the stuff to contain inflation and so

in many ways as i as i say this i'm like why i think you the only probably sector in the economy that's going to like really grow and one of the things that i would be looking at is like the manufacturing index like domestic manufacturing index for a lot of these countries um might might uh if you're a player there there might be opportunities there because the governments might extend contracts to you because they are so so have been so reliant on global supply chains that are now being put into question and fragile because of the whole geopolitical situation and also just economically like it's not very viable anymore yeah i have two friends who operate big or i think they're ones like svp of ops and one is ceo of these big bitcoin miners um two publicly traded bitcoin miners and

it is an incredibly hard business to run uh because you have to pre you have to think not six to 12 months out but you have to think much further out and like one example of this is um even though demand has really waned for bitcoin recently miners are continuing to add machines to their fleets uh which you can see by the kind of the growth of the global hash rate the disconnect between the price and the hash rate stems from this like 12 to 18 month delivery lag for uh bit mains s 9s s19s i forget what the current model is a few years ago but yeah s19 i think it's s 19. for the bitcoin s bit main s19 so there's this 12 to 18 month delivery right uh lag so a lot of the hash rate coming online today was ordered like 18 months ago during the

period when like bitcoin was hitting all-time highs at 65 000 however like let's say you actually get these s19s electricity costs are rising bitcoin's price is dropping dramatically uh miners are struggling to make their interest payments uh you have these struggling miners now who received their pre-ordered rigs that they ordered at bitcoin all-time highs they don't even want to turn these things on because they'd operated a loss uh it's a real so what ends up happening is like the miners have to start selling off bitcoin on the balance sheet to meet the debt obligations this pushes bitcoin down farther which puts even more financial strain on the mining industry yeah so this like that's an excellent point which is why i've like this is a part of the bigger

discussion of the the distinction between proof of work and proof of stake but i felt that look these two systems when you compare them the biggest challenge that i see with proof of work is the idea that you constantly have an operator there that has that is constantly selling to recoup and to recoup cap x and also make a profit and that selling pressure can be can be it varies right but in this current environment just further exacerbates the downtrend and proof of stake is you don't have that pressure right because it's it's effectively capital owners are the ones that are staking and earning um some some you know some proof-of-stake yield um but it it's very different i think one

is an owner and the other one is is not so much an owner meaning he's just there to profit um as quickly as possible whereas if you own the underlying you're you're not as sensitive or eager to sell necessarily and so it has felt to me that like proof of stake when i first heard about it was just a more sustainable model from a security budget perspective but also from an alignment of owners and operators of the network that are operators meaning you know you're providing security through validation and it just felt to me that proof of stake from that perspective was much more sustainable model than proof of work um but but that's like a topic for like three hours you know what we're gonna i'll

i'll bring we'll have a bitcoin mining episode let's i'll bring up my two buddies on on the show um i think what ends up happening is like similar to ftx and c5 right now this is going to lead to just a huge consolidation where the investors and miners with healthy balance sheets end up swallowing the really highly leveraged uh bitcoin miners and yeah and let me ask you a question then one of the biggest criticism about previous steak is a concentration you know there's big whales out there and and and it's just like like a feudal system of sorts where like you know owners of theorems fairly you know it gets concentrated but like is that any different from miners like the controlled hash rate like what is it like two the top three miners control like if they collude they could theoretically attack the network like

they have greater than 51 hash rate um in this environment like i don't know we should probably monitor this and track this like the concentration of hash rate among the larger players probably goes up because those are the guys that survive right the small guys are really the ones that get squeezed they're not as sophisticated they're having heads as well they don't have as much access to loans and and capital providers and they're in a more precarious situation financially and so if those guys go away there's just a greater concentration among the among the pools among the big players like uh so it's just something to monitor and keep keep um keep tabs on very much so yeah i mean what's the con i think the um

who owns the biggest pool right now i think it's foundry i think dcg is mining arm foundry owns like maybe 20 market share amp pool and f2 pool have like 15 market share and then i think you've got a couple of folks down at like 10 which is uh binance pool i think binance actually has like a 10 mining pool and poulin has like 10 or 11. so anyways i'm not the best person to talk about this we will bring some folks on here's my prediction my far out prediction is that uh just like you're seeing uh goldman come in city come in and try to scoop up these assets on the cheap uh like the c5 assets like celsius and folks like that this is the first time they've really made a massive push from a large balance

sheet acquisition point of view this could be the first time you ever see traditional uh oil and gas companies and big energy companies come into bitcoin mining through uh uh scooping up some of these bitcoin miners for pennies on the dollar it's not likely but that would be an interesting thing to see play out so i'm looking at just back the mining pool stats foundry and pool f2pool in and binance if you combine all those five you they basically have sixty percent of all the hash rate and the top three by the way 49.

yeah and it's been and it's been this like it's foundry and pool and f2 pool collectively they have roughly 50 of the hash rate out there um now that number probably goes much higher assuming that the all their tail end of folks that are kind of insignificant go away keep in mind though like concentration may seem like a threat to the decent uh may seem like a threat to bitcoin mining however mining pools don't control the network and don't have a lot of don't have a lot of clout in this sense because any miner can just quickly change pools right if there's any hint of foul play such as like if someone starts like censoring bitcoin transactions you can really quickly just change no fair point like i'm not trying to fight here like i'm not saying like

the network's gonna be attacked tomorrow it has been like this for a while there are reasons why to your point that and a number of other reasons why it doesn't get like you have kind of comfort and validity that it's not going to get attacked so this is this is by no means a plot it's just it's just not ideal that you have this situation but there's always it's just important for folks to appreciate that is all i'm trying to say yeah yeah i agree um all right let's get into uh the man the myth arthur hayes by the way do you know do you know arthur can we bring him on this podcast we probably can uh if he's listening we'd love to have you yeah so yeah we'll reach out uh floaters and july 4th weekend predictions from arthur hayes arthur

published an article on june 16th called floaters where he talked about the contagion in the crypto markets and the doom of many existing crypto funds he returned he refers to the market crash contagion victims as floaters uh you have to read the article to figure out why they're called floaters it is not pretty is a little hint and so far the article has been uh right on target he predicts arthur predicts this final showdown between panic sellers and a bidless market to happen on the upcoming july 4th weekend so again he wrote this two or three weeks ago uh we are now at the july fourth weekend um and here's kind of i think there are like three or four reasons why right by by today when we're recording this the fed will have enacted this big rate hike

is what he says and sure enough they did that july 4th falls on a monday and is a federal banking holiday this is as he says the perfect setup for yet another mega crypto dump there are three ingredients to this dump a risk assets will again rediscover their dislike for tightening usd liquidity condition sponsored by the fed b crypto funds must raise fiat to satisfy redemption requirements by continuing to sell any liquid asset liquid crypto asset we are definitely starting to see this across some of the tier one and tier two funds you can see them on chain selling uh liquid crypto assets for cash to satisfy redemptions and three even during this time no fiat can be deployed until tuesday july 5th because all the banks are shut down because of

the holiday so uh he calls it the perfect setup for a mega crypto dump i'm curious to get your take on this yeah well weekends weekends have historically been tons of low volume like thinly and a lot of volatility um so uh yeah i would exacerbate by the long weekend i think uh q2 numbers are gonna start showing up right i think like uh when is it that we technically i mean q2 numbers come out and i think you'll be in a technical recession uh which you know i think people already know but when you see the when you see the headlights right when the headlines come out yeah exactly it always sinks in here's when when do funds have to start sending um so like let's say you're an investor like a pantera or a peripheral or a

framework like any of these like big crypto funds like when do they actually send their statements to investors is it a week after the month it's a great question it really depends because um a lot of times you know government investor number funds and some take at least a couple weeks after the month closed to report you got to imagine it might be uh they might be uh pushing that deadline out a little longer this year i don't know if that's the case but um but their fund administrators take time to like reconcile and issue fund statements um around redemptions it also varies um it's definitely like some funds have just a notice period which say that like a quarter say that you want to redeem

um you put your notice when you get your statement in february um now you might not be able to do that as easily you might have to wait three months six months to get to get your money um it just depends on how these funds are structured a lot of them do have flexibility to to do like only some somewhere quarterly some are annual some are uh semi-annual redemptions i'm not sure i think like more more funds in crypto because of volatility and historically what we've seen in the space try to build in as much buffer to have time to to sell these positions in an orderly manner if if there are redemptions wait so explain this to me like what what actually like when we hear about so so solution hypothetically someone called it your investment

investor your investor in fund a you want your money because whatever you want to take money out um you got your statement you got your say that you got your may statement you just got it actually probably where you got it a few weeks you say hey you know what i want to de-risk i want my money back you call them and say put in a redemption notice and you probably are not in most cases are not going to get that money you have to kind of wait probably i would say at least a quarter um and that and so you know that puts you in august september time frame

and if you're ahead of the fund right like let's say when you're a periphery someone calls you up they're like santi i need to de-risk i want i want i have 10 million bucks in your fund i want to take 5 million out does that turn into a sales call and that's like look jason i get you want to de-risk like keep your money with us and it turns into walking them through the markets calming them down a little bit you get on the phone um like a so is that kind of is that kind of how those usually go and then b let's say i'm like i don't care santi i still want to pull my money do you basically say you you have to you have to give the money back based on whatever the the agreement says on like semi semi-annual or annual

well i'm not going to speak on on paraphi's account or anything general statement yeah yeah um it also depends um some fonts have the ability to exercise what is called uh a gate meaning and you saw this a lot in the global financial crisis with a lot of fun scott like in traditional markets the redemption is much faster like you can redeem in a month and get your money back sometimes they have two interesting provisions that end up becoming more important and lp's kind of learned this the hard way in the global financial crisis is sometimes when a lot of investors try to redeem their money all at once the fund manager has the ability to pause redemptions what is known as a gate meaning

for them to like prevent this situation where they need a for sell if they don't want to sell and so that is of course very friendly for the manager because in an environment like today you could imagine a lot of investors if they have the ability to redeem which many may not because some of these funds have multiple year lock-ups one year lockup two three-year lock-ups for the hedge funds right if you're a venture fund it's a closed-end fund you can't take your money out until after 10 years or so so it's for the liquid funds out there that that may may block the redemption notice and say guys we're not going to give your money back it's super volatile we feel that you know we're going to exercise this provision that protects us from from

actually legally being you know required to give you your money back uh until we feel that it's good market conditions um now that that may be contested and can be get ugly but for the most part let's just assume that most funds in crypto don't have this gate because sophisticated institutional players don't like it then yes you you have to honor the redemption notice and give them the money uh whenever that is june july august september october november december so i think that's brings us back to what we're i've been looking at over the last uh you know the first episode where this started in may like i said look there are some funds that are probably going to blow up and you said are they going to blow up because

they just blew up like you know they they took a lot of leverage or are they going to blow up or just and i s because i closed shop because of the high water mark and i said both and so we've seen some like three hours blew up because they were taking a whole lot of leverage they made lost a lot of money on a couple of trades gbtcr luna and so they try to make that back and of course the market turned in a very nasty way and so you blow up because of that so that's been that and then the other it which i think is why i'm cautious on the liquid side of things is at this point which is there's going to be a lot of redemptions um i think and redemption is cause for selling yes yeah unless of course you

raise like yeah i mean it's uh it is for selling yeah yeah can you let's cover high water mark to make sure everyone understands high water marks can you give your what what is the high water mark yeah mind you i'm not like an expert on this stuff but my general understanding is uh let's say that the fund was up massively um last year and so the fund goes from 100 to a thousand and that's like your nav at the end at the end of the year this year you're down 50 so you're back to 500.

um and so and so that you have to go back to a thousand in order to charge kerry now it brings us to the question how do funds make money two ways one management fee which is typically the order of two percent based on aum or capital commitments um and the second is where the real opportunity is is on performance meaning 20 typically on on any performance any gain above your capital contribution um and so as an investor you saw your statement last year and said oh wow my account say that you're just one investor my account was worth a thousand at the end of the year now it's worth 500.

the watermark is if the fund is manager is able to go back to a thousand you would have said oh wow they just made a 500 profit this year let me take 20 of that so 100 but the reality is you you actually don't get any carry because you just again the high water mark is that just as the name implies is the thousand so it moves up as as you kind of mark your book mark to market or whatever um then you need to go back to a thousand and anything above that is where you actually start making money so what is that actually that is difficult for a lot of funds right in a very volatile asset class like crypto because

you know there are two three years as we have been where you know you just kind of you know it was a great time to be an investor in technology generally but now um a lot of funds not just incredible like chase coleman for instance like tiger is down 50 on the year melvin capital which was caught on the other wrong side of of of the meme stock trade had to close shop actually because he said look when you're down that much like what is the probability i think as a fund manager you say okay it's going to take a lot to go back up to that high water mark like i need to make a 3x and then to then potentially start making money

now there's two ways to kind of mitigate this uh problem one is you raise more capital at the bottom so right now you say god this is a generational buying opportunity let me excuse me let me go try to raise a bunch of funds and on the funds that you raised today you are actually earning carry on on because you know they start they reach they start at a much lower bar right but the problem is who's going to give you the money in this environment it's probably really hard as a lot of people are kind of licking their wounds and not willing to allocate until kind of things settle down um but you know um that's not to say money's still looking to be allocated like you have you know funds like blackstone and oaktree that raised some pretty interesting funds lately

traditional markets uh in crypto not so much i think i think the fundraising environment's kind of weak although i haven't looked at the numbers but i would probably gather that there's not a lot of money looking to allocate to the asset class for now um so yeah hopefully that was a 101 but you let me know if there's any things that's helpful let me almost repeat it back to you to make sure i fully understand it so basically the high water mark is the highest value that a fund has ever reached uh let's say i'm a hedge fund manager i make two and twenty right i'm getting two percent of the of the value in the fund uh the 20 is the performance fee right i can't charge my 20 performance fee until the fund reaches the prior peak so

this almost gives the incentive for funds to close when we're in a market like this because let's use some numbers if a fund was 200 million dollars and now it's 50 million dollars after the crash the fund needs to return 300 before the gps can collect any profits right however if they just close the fund restart with the 50 million and then profit 30 million dollars they made that same that same return so uh because the it's a reputation game right it is a repetition yeah of course so but the other incentive that can be out of whack is the level of taking that that is there once you understand that you need to really blow it out of the

water to then make some carry right because when you say wow i need to make a greater than two three four x in order to see some performance fee then it is what probably happened three hours is my understanding is you do these revenge trades where you take way more risk than perhaps your framework wants you to and and that's where things can really go that's where it gets really ugly yeah yeah and so really ugly so that's something to i mean it's just inherent in in a lot of uh in a lot of hedge funds yeah on paper yeah i think i think it's all about the reputation risk because on paper it makes more sense for a manager to close

the fund liquidate all the assets then raise another fund purchase the same assets at a bargain price in a few weeks or months time and actually profit from the revival the crypto market technically on paper if you put put it on an excel it makes sense you lose your reputation though and that's probably why folks don't end up doing this i think um the it's really also important i think it was mark usco sent this to mike or they talked about it on their podcast on the margin but there's a stock loss recovery formula that people don't often understand so if you lose 10 if you're down 10 you need the asset to go up 11 to make your money back so right basically equal basically the same if you're down 20

you need to recover 25 so again similar numbers if you go down 50 you need something to rise 100 to break even the numbers get really drastic as you fall down to where we're at in this bear market if you're down 70 you need something to go up 233 right so it's not equal it's not like goes down 70 comes up 70 if you're down 90 you need something to go up 900 percent and if you use it's not a linear relationship it's not linear right if you bought looks token at the top and you're down like 98 uh you have to i think the percentage rise is like nine thousand nine hundred percent uh that you need to

come back exponential relationship yeah so i think the formula is like like let's say you're down eighty eighty percent it's like 80 divided by 1 minus 80 over 100 i think is the formula so um it's like percentage loss divided by 1 minus the percentage loss over 100. uh basically if you're down 70 80 90 it is going to be a long time before you make money as a fund manager so now of course um a lot of funds struggle with this in in 20 in the last cycle um and and some of them close shop others didn't and were able to over time raise money and weather the storm and it made a made a decent like an

outstanding return you know crypto markets have always surprised me um you know anytime i think i understand them to some degree i i'm proven wrong um and so do you believe i think if you're a manager today in that seat which is really tough i think you're kind of left wondering are we going to continue to see these really outsized returns and great years that make up for this um and and or are we going to become more and more institutionalized and more competitive as more funds enter the space as we saw last cycle um and just the ability to make outsize returns over time should should compress right like in the early days of private equity like the the the early funds like

kkr and and a few others like really made a killing like the first buyouts but then over time you know these returns get compressed right the asset class becomes more competitive now i think crypto still has many many many years to run just by virtue of its listen to trillion dollar asset class but still you know i think you're left wondering what is going to be really the return potential at scale and size for a lot of these funds in the next cycle yeah yeah we'll keep an eye on it um yeah i want to get into maker actually because there are two votes that are pretty interesting and i think there's one vote that ends in about 20 minutes from now so i'll pull that up as i'm talking about it um governance shows its true colors during a bear right and i think actually um you

you know we talked about this what governance well played sir no plan so uh last week we talked very briefly about solen spun up an emergency dow to appropriate money from a whale who was at the risk of being liquidated uh then i think they canceled the decision uh bancor suddenly removed permanent loss protection from existing lps who wanted to withdraw uh cosmos is in this intense discussion to approve like i think it's a minuscule amount it's like 500k to invest in applications for liquid staking um uh maker has two interesting votes going on right now one is this highly contentious vote that is framed as vcs versus the community where the vcs want to implement a new core unit that would function as a board of directors type

structure that the quote-unquote broader community argued was centralizing and against maker's ethos um maker for those who don't know have these uh core units which are basically like selected groups that are given a budget to oversee what some aspect of the protocol and core units help prevent this like chaotic micro governance that efficiency to the process that it's actually gone quite well from my understanding um they're i think 60 of the vote voted against the proposal 40 voted in favor of the proposal um i haven't dug into it too much but that's one interesting proposal that i'm looking at as it just like it brings the dow almost more back to the structure of what a publicly traded company looks like um the next vote is

oh let me pull this up because i think the vote is happening in real time let's see uh maker is voting to invest 500 million into different investment strategies to help them get through the bear market um let me pull this up uh they are allocating to short term short us short treasuries 80 allocation and investment grade corporate bonds 20 so they're putting 400 million oh the vote's gonna pass all right 56 percent all right this vote i think is gonna pass so maker will put 5 out of 500 million they'll put 400 million into u.s short-term treasuries 100 million into investment-grade corporate bonds uh it's pretty interesting um yeah it's curious like how they are

actually going to invest that capital like which entity yeah i mean structurally i actually love this this is in order to open an account as a as a dow like you need a i mean you need to like have a registered company and i think they had dissolved the maker foundation at some point so yeah i'm curious like how they are going to execute this proposal well we have um we have some folks from maker coming on the podcast i think next week or the week after so that'll be really interesting time to talk to them about it i love this i think this helps them compete with uh usdc um in the next bull market because you're becoming this like fiat collateralized stablecoin which is um

they're already holding a ton of usdc anyways um and honestly with yields higher than zero now it makes sense to hold t-bills directly and get them yield rather than only hold usdc but we're also where treasuries are yielding more than defy rates exactly yeah i would suspect a lot of credits it's interesting that it passed i would suspect like a lot of you know i still remember in the early days of maker um there was like a very fierce this debate around onboarding other types of collateral that are more centralized than pure east and of course when usdc during march of 2020 during the covete crash where it was it was a very precarious situation

of the network and we you know the the community voted to add usdc as collateral uh it was it was very contentious i think a lot of people like felt that that was a detraction from the original vision of maker which is truly kind of decentralized money um and and censorship resistant and now of course it's uh this is just moving the other direction so um yeah i think it just goes to show like i think the people that are voting and have a lot of mkr are institutional players that are perhaps more practical and not as i guess idealistic as as some folks are in crypto um which would want to probably go back to the original version of maker which is purely like single collateral dye by eth

um this is so i love that i love looking at the votes in real time like you can see gauntlet abstained from the vote they have three percent voting power pen blockchain group which is students and blockchain uh colombia colombia both have one percent each flip side crypto has nine percent of the vote um this is i i just love monet supply has point three percent he voted just to do short-term treasuries love looking at this stuff it's really interesting so yeah um yeah cool what else i feel like we have more to talk about santi oh you know i'm you had some tweets i want to ask you about um in terms of what will be the next catalyst for crypto um

let me pull up your tweet you said what will be the next bull market catalyst in crypto 2008-2012 non-sovereign store value aka bitcoin 2014 to 2017 digitally native global capital formation icos and eth 2019 to 2021 decentralized programmable transfers of value define nfts 2023 to 2025 killer integrated apps fun games what's the update on the like a like why tweet this what is the thought behind it i know you love games but like why do you really do like is that how strong is this conviction and be like how do you play that when it's like all right invest in fun games you know yeah i was thinking and a few folks have asked me like what

is going to trigger the next cycle i think very much so there were singular points um that kind of detonated a cycle like uh like started a bull market like it was defy like compound probably quarterly mining ignited this whole interest in decentralized finance and then nfts after that now of course it's it's unfair statement because there's a lot that goes under the hood during a bear market during periods that are quieter in a nod bull market that that facilitate and are kind of prerequisites i think substrates in order to catalyze a bull market you know what i mean and so like nfts existed for like crypto kitties i think were marked the top last cycle because it just for

like it just showed like how unequipped these networks were to handle any degree of activity when we went back to a drawing board and you know i think the killer use case was first killer use case of ethereum was d5 and so looking back this last cycle i think was pretty interesting because d5 was was i think interesting although not a lot of users but nonetheless like i think still the core premise of d5 is very much there and will work and i think has sparked the interest of traditional financial institutions and it's not going to go away even if you strip away all the ponzonomics that aside there's some really exciting stuff in d5 and we shouldn't lose sight of that but that's not going to get us

to the next that's not going to get the next 100 million users excited which i think is what you need to shoot for in the next cycle and so i think it's a combination like nfts i think was like towards the end of this cycle i think that obviously prices are down volume is down uh but i don't think the interest of a lot of brands and and folks like shopify and all this stuff goes away um so nfts i think we're just scratching the surface of what is possible and so if you combine that with games is what probably detonates the next cycle um i don't know i i this is why i'm excited about games because again i think i hope and i think that the next cycle is where we get

reasonable degree of mainstream adoption and i think that's going to come from a game yeah probably most likely it's definitely not going to be coming directly from a d5 protocol like no probably not yeah there might be high value transfers with d5 but you know i i i struggled to see a bull market the start of a bull market being marked by dfi i think it comes from a really fun game i mean i think the start of the bull market won't actually have anything to do with anything inside of crypto it'll be just i mean like when the fed decides to like you know back off a bit and like go back to risk on i mean you basic like the fed the here's the narrative of the fed until november until the 2022 elections is fighting inflation right once uh

unfortunate like i think the dems will get absolutely smoked in november so the dems will most likely lose the house and the senate which creates this kind of like lame duck two-year period for the biden administration nothing gets passed it's all political energy gets focused on the narratives that play well with voters in 2024 american voters care about one thing their money what do the dems do they have the one tool of pumping money into the markets they juice the markets uh to try to win votes the easiest way to accomplish that goal is to print money uh and even though it hurts inflation in the long term and while we just saw we're seeing inflation play out i think uh politicians are short-minded and end up focusing on the 2024 elections and uh the narrative of the fed switches from fighting inflation to pumping money back

into the markets and i think that sparks uh basically just like back to a risk on market where folks are investing in tech stocks and folks are investing in crypto and uh money usually drives the narratives instead of the other way around yeah that's perhaps like a more cynical view of crypto and which which by the way like uh i have been thinking about like this as you know no but it's everything it's not just crypto no yeah i mean in many ways like it's like what's the narrative around even like big tech stocks right now it's like oh they didn't work like that i'm like come on guys yeah no of course i do think that uh we should probably take the next this time to focus on on understanding really and doing some introspection and saying what is it that we're working towards

and what is the ultimate goal as a builder as a founder as a participant in this community and i think in many ways bear markets are quieter times to do some reflecting not necessarily beat yourself up too much for what has happened but certainly learn and i think there is a lot certain deficits that we need to patch right in in these systems scalability probably top of mind privacy better onboarding solutions more transparency more accountability more self-policing um better you know security however that you wanted to find that whether it's better auditing systems or you know simulations uh to to prevent users from being easily phished and keem

you know i mean like there's a lot that needs to you know we need to work on and candidly i don't look at that and i'm like if you're listening to this and you're saying god that sounds so difficult to overcome i'm like honestly i mean that is the opportunity and that was what inspired this tweet is like there is i think a lot of stuff that needs to be built look at look at it this way if you're running a steel mill there's not a lot in the industry other than maybe making scraping a little like margin out there and being like right on some stuff but there's not a lot of innovation needs to happen i think this is just the excitement in this industry it's so so early and you know increasingly prices also reflect that even more um but there is a lot of stuff

that needs to be built um and and so uh that is the opportunity that is i guess it goes to the meme of the best companies christix and had a great tweet about this is the best companies typically tend to be built during times like this and and so uh you know the i'm not demoralized in any way i think i'm gonna be as you know i'm active in in trying to find those people that are looking to come into the space and and build this stuff which is exciting it's hard smart people want to work on difficult problems yeah it is hard i mean look zooming out using bitcoin as a proxy for the industry it's grown at an 11-year rate of two and a half times a year right we're in a short-term bear market here and anyone who's owned bitcoin over for a three-year period has made money

throughout history right and the internet itself is 50 years 50 years old right we have decades more to go for this to work i think um i told folk i told you i was going to talk about d5 i think um i'm just st i think it is so impressive what dfi has been able to do in the last few months when all hell is breaking loose in crypto i know yields are really low but yields were artificially pumped high defy is working so well right now the smart contracts are executing um i think now is the time to rediscover the uh i think was arthur hayes who said this like the merits of category defining d5 projects and dapps that have been dumped indiscriminately alongside this as he put it not my words copy pasta trash right there exists a

universe of projects that are like category leaders that will allow us to build an entirely new decentralized financial system they're down like 80 to 95 from their late 2021 all-time highs uh they have actual users that spend real capital to access the services um and they are the first projects that have defined how like key dfi services should be offered and i don't know i just i'm really excited about some of these like old school blue chip d5 projects right now i um i totally agree with you there is this is i mean the way i think the name of the game and is surviving uh and having the possibility to to be in a position of strength uh no matter what kind of

market conditions we're in and uh i think there's a lot of things to be excited about i think there will be a lot of cleanup that needs to happen in the space we're going to have some good episodes coming up that talk about a lot of the things that that need to happen you know on the regulatory side making sure that regulators understand the distinction between d5 non-d5 you know celsius is different than maker um much different than yavin compound and i think we've done a lot of progress over the last couple years and i think there's a really good adage in crypto that says i think we should measure our we should we should measure the progress of this industry at the bottom of the progressive kind of bottoms of of the of the suction cycles right uh and i think we if we look back uh

have we bought them not sure but we've made some really tangible progress in the last three years four years yeah and and more importantly we've ignited and sparked interest in crypto from people that had no business no interest in crypto particularly nfts um and games and and so anyways we should continue to not ramble we should continue to be always very skeptical i think people are now increasingly increasingly skeptical maybe like it's a difference between being skeptical and cynical i think we should always be very skeptical but cynicism kind of doesn't kind of is being a cynic to me is just someone like that's on the sidelines it's like your

economics professor right he teaches you about risk but the guy has never invested or him or she's never invested in the stock market has never been two seconds away from being liquidated and you know like this problem that i had in school is like how the hell am i supposed to learn from someone that doesn't have practical experience and so the nice thing about crypto is yeah sometimes you learn uh through experience and by fire or or or you know learning from others and so i think that's a the beauty of this space is i think the rate of innovation is much faster in open source systems everything is kind of out there and so we learn from these mistakes cycles probably are compressed and you know um that's i think the the exciting part here is and i hope is that this is true and tell me if you disagree

is the rate of innovation is much faster in open source systems and so maybe the rate of adoption won't be and i think that may have been one of the errors that that i constantly challenge my own assumption is you may be building stuff but that doesn't necessarily mean that the adoption is going to be faster than historically like a lot of these technology technological revolutions like the internet really in earnest took like 20 years to reach you know pretty decent adoption crypto's only 10 years in does this mean that it's gonna take 20 years or is it or is it around the corner you know probably probably it's gonna take you know 15 20 years right um but there's going to be rapid chaotic innovation and and some of that uh is certainly

being felt right now those are some big numbers santi 10 20 years let's talk about the next couple weeks we have some really good episodes coming out there are a lot of new listeners are we had uh this is not the most record uh it was a record week last week record month for the podcast and uh the biggest down the biggest most downloaded episodes we've ever had so a lot of new folks if you aren't subscribed subscribe to the show here are the upcoming episodes we have sunny from osmosis and derek from reverie coming out on monday talking about osmosis uh suit and cosmo super interesting episode with eric peters coming up after that with yon the founder of step in matthew ball for those who are into the metaverse uh matthew ball is probably the smartest person on the metaverse out there we've

got eric voorhees we've got bill barhat we've got dan matasheshki from cms we've got the head of trading at one of the largest market makers in crypto we've got sam from maker and monet supply coming on insane episodes hit the subscribe toss us a like son do you want to throw out a book book recommendation so speaking of yeah this is pretty awesome i picked it up it's the world for sale and it talks about the evolution of the commodity um trading business and um and yeah it's pretty like oil aluminum um gold a lot of these and so it's pretty interesting um book i'm halfway through it and so far it hasn't disappointed so again the world for sale pretty awesome right by who

um javier blass and jack farsi i have a wreck for you it is a non-financial book here's my here's by the way none of this financial advice this is financial advice go spend 15 bucks on the overstory it is a not finance book it is uh it's actually like kind of um it just it's this guy explores our name our in our relationship with trees which sounds so freaking boring i know but it makes you zoom out and it's a bunch of short stories and in each short story there's like trees are embedded into each short story and it just i don't know it makes you zoom out and think about like our process our perception of time and why we're so bad at acting on climate change and the meaning of hope and things like that these are decentralized networks they

are they are by the way what is what is your favorite tree what is your favorite tree i have two i don't have a favorite tree what's your favorite are you talking about you just shield a book about trees and you don't even have a favorite tree no that's a red one it's the redwood i grew up outside san francisco so i there you go i would go hiking with my mom through the road because by the way these are like century old trees right super they're super slender not less sequoias and they are in one of the more like majestic places like near the coastline oh yeah western houses it's insane hundreds of years old yeah yeah what's your favorite redwoods and bonsai trees oh bonsai yeah bonsai do you have a bonfire uh not here not here where in the meadow another house

[Laughter] yeah i actually have a bunch of monza like bonsai nfts this is one of the earlier mints and i've like aped in because i like bonsai but i i love it bonsai bonsai trees go back thousands of years yeah honestly like speaking of travel which you can travel more now but the airlines suck now these days i think they're probably 1600 layoffs this week it's crazy for people i mean don't even get me started i miss permission this because of travel i dread traveling now because every person that i talk to now has had a negative experience at airports with airlines or luggage getting lost all this stuff so flight delay is getting cancelled nonetheless if you ever get the chance

uh and i went to defcon the last defcon was in osaka japan is a magical place like these gardens meditation gardens are unreal like just out of this world and the vegetation in japan is like incredible and if you don't want to go to japan just watch like the last samurai or whatever and just observe the gardens and the vegetation because i think it's so peaceful i love it zen gardens zen gardens anyways hope everyone's zen out there and uh you know not getting liquidated and go for a walk enjoy the fourth uh and uh you know keep your head up be well sir thank you thanks everyone for listening see you next time