Will the Fed Cut Rates in 2024? | Roundup

Transcript

it's worth highlighting that um so rates rates during the 2017 2018 cut I think we at like three at their Peak and then the uh the repo Market debacle kind of forced them to Pivot and cut um and then before that I mean I guess like in the early 2000s rates were like close to where we are today but like probably 100 basis points lower um but this is the it like maybe retrospectively this is the largest rate cutting cycle that we will ever live through is my view hey everyone this episode is brought to you by namada the shielded asset Hub rewarding you to protect the multi-chain so not only can you protect your own data across any asset and any chain but

you also get shielding rewards for strengthening data privacy protections for everyone so you can check them out at n.net and follow the domain net launch stick around you're going to be hearing all about them later in the program all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back to another episode of B curve here you got Michael's one and two Vance and

apparently a man with a chainsaw and Vance driveway how you guys doing I was a week good weed has been interesting I've been reduced to hiding in my theater room my theater room for my man building the sauna Jesus Christ I'm actually in uh I'm not too far away from you right now Vince I'm in Montana visiting my parents actually so I'm in their place out here yeah it's good I see why so many people move out here it's just very like the Mountain West just very relaxing very nice what part of what part of mantana Montana Boseman Bosman they got they actually have a place they bought a place a little while ago in Big Sky and they've

been renting in Boseman but they just finally found the real estate out here is nuts goes up like 40% a year and so and it's one of those things where you put in a bid and it's like that day gets 25% over asking price so it's just y pretty tough yeah so it's cool out here GM to you GM fellas GM we should um I guess we should get into it this week with some of the uh I mean it's been a little while since uh we were a macro pod so maybe we can give a quick update because we had some we had some data come in this week we had an fomc um and I think there was there was a little bit of drisking in crypto going into the fomc because uh folks were nervous about people are getting nervous

about inflation again um but we had a slightly softer than expected uh CPI print um and also PPI came in this morning morning actually it's showing flat not even disinflation just flat out uh um deflation in the economy so there was actually a shrinking uh from month over month at negative .2% so I think basically people are uh there's eyes on growth um and people are starting to wonder if there's a growth scare um there was a lot of in the fomc in particular uh people were curious to see what the Dot Plot was going to show and the market was pricing in two cuts pre uh fomc and the Dot Plot showed just one which people didn't like um there's also something kind of interesting

around the neutral rate so the neutral rate is this like hypothetical measurement of where the FED thinks neutral policy is it doesn't really exist rstar baby rstar it's uh kind of made up but they they moved their their rating of rstars 2.6% they moved it up to 2.8% so this just implies actually that the FED thinks that they're in uh slightly less restrictive territory and that's important because if the FED thinks that we're in restrictive territory then that gives them some breathing room to make cuts um so it was a little bit of a mix week the the the other element just to to tap in uh the other element with rstar moving

up is that the expectation was that we would get and this is where you know forecasting with DOT plots isn't perfect it's directional not precise but the expectation was for us to be able to get from five 525 55 down to the rstar rate of 26 it would require something like nine cuts and and so the expectation was well they're not just going to be able to do nine cuts right off the bat and they're not going to be able to cut 100 B you know it's going to be 25 basis point chunks along the way and now they're kind of a shifting the goal post B pushing back the first cut uh and it's it's that's what kind of gave people a hawkish tone from the conversation yesterday uh the the other element that

was really interesting I think and this is the first question during during The Question section um was a change of pce expectations from being uh I think it went from um 2.6 to two or 2.6 to 2.7 or 2.7 to 2.8 expectations of we pce core pce will be by the end of the year which basically means that their expectations of their forecast are higher than where core pce is on an annualized basis today uh uh and so the the question was do you expect pce core pce to go up in the next couple of months or next couple of printouts um he didn't have a great answer to that I thought it was more

just like yeah these are forecasts we'll see kind of where things net out and you know there's the bass effect and it's just kind of like waxing poetic as he stick handles through the questions um and um the other thought the other point that I thought was super interesting you know we got the the CPI print uh 8:30 a.m. eastern yesterday fomc meeting uh and and the press conference wasn't until 2 p.m so the there the expectation was oh well there's time you know what maybe maybe this is the fully updated version and he he got the question and his answer was most Governors don't change their mind when we see new data come in during a meeting which suggests

two things number one this was probably mostly what people were thinking about prior to that low CPI reading yesterday but two there probably are some Governors that changed their minds and changed their dots um based off of the data I I wonder if they would change it further based off of PPI today but I I think a couple of things to kind of take and and you know sum up what happened over the last 24 hours of data number one it seems like you know inflation is cooling um faster than than people necessarily realized um it was interesting to see all of the higher for longer inflation pundits coming out yesterday basically talking about how this was an aberration the data is inaccurate there's no way that all the

forecast could be off this much and number two it seems like we're not getting Great Cuts uh pre-election you know if there's going to be one cut which is now where the the Dot Plot suggests it's probably going to happen in December um you know there's no reason why they would do it you know within a month or two of an election cycle um and then not continue rate Cuts you know for the rest of the year so one cut going forward fewer Cuts get to get back down to rstar and inflation maybe a canary in the coal mine for something broader from a lack of growth perspective yeah there was the one of the other interesting things that this

is data that we got last week but there was H we had a jbless or jobs report and unemployment the same day and those are two different there's a household survey and then there's this uh these this data which gets calculated by the Bureau of Labor Statistics and they rely on something called the birth death ratio so it was it was interesting because there was a it was a hot jobs report there was 272,000 jobs created off of 190,000 worth of expect expectations it's worth remembering that that that typically tends to get revised back down like they I think they summed up all of 2023 and they looked and it's like 780,000 jobs that they said got created were wiped out um and then at the same time the unemployment survey uh showed us increasing unemployment from 3.9 to

4% um and there's a couple of different reasons why this could be uh people are people are I mean not to get into politics here but there is a there like we've added like immigration has been going pretty crazy recently and um that's like a big part of the discrepancy there because the households that get pulled you know don't tend to um you know it doesn't take into a crow immigration as much so I think so that's another thing that Central Bankers look at us unemployment as well sorry sorry Rance so if you look at the unemployment report and the jobs report so there was zero new jobs created in the last month but they have this thing called the birth death model which is so they say how many jobs are created how many people were fired and then they have this birth death model which is they

look at the amount of businesses that were started or were uh you know declared bankruptcy and shuttered and they kind of guess at okay well how many jobs with those creations of job of of new companies start and so the entire jobs report was you know that the 270,000 that were created it was just that birth death so it's like there were zero jobs that were really created but their guess is that 270,000 were actually started and then you dig deeper into it and there's been basically no jobs created in the past year for native born Americans but there's been a ton created for foreign born Americans and I think if you like basically put all these data pieces together you can kind of tell

that we're already in a recession the unemployment rate for people that you know probably are in the middle class or even White Collar jobs is probably going up quite significantly and I've honestly stopped paying attention to the CPI reports and fomc like I watched a little bit of it yesterday but like the people who say the next move is a hike I think have actually lost their minds and if you're in recession or if you're in inflation fud you need to Pivot to recession fun fud like it feels like this recession has already happened we may already be on our way out of it but because the data lags you know the reporting like it feels like we're going to get like a very recessionary data package over the next three or four months so I would

probably take I mean look we were supposed to have seven rate cuts at the beginning of this year that's what was priced in it's like almost hard to believe that that people were thinking that and now it's one and so I think maybe the least reliable indicator of how many rate cuts are going to happen is the Fed itself I would probably take I would either say there's going to be zero Cuts or there's going to be like five cuts and I would probably say that I I'd be on the like the there's going to be a ton of cuts by the end of the year just because I think the data is going to deteriorate and his whole thing yesterday the part I watch at least was we're going to be super data dependent you know we're not going to rush to do things we're not going to you know

proactively do things but if the data turns and employment's at 4% unemployment's at 4% right now that's kind of the start of the level of like things are getting concerning so that's my take at least I mean we we can't have five cuts because I don't even think there's five meetings left or there's five or whatever you know they do like a 50 basis point cut at one meeting and count that as two or whatever but like I think if the data really turns these people are going to get pretty nervous and start cutting people people focus a lot on the inflation the the CPI and PPI and or it's pce that the FED really cares about but unemployment is remember they got a dual mandate date there's price stability and unemployment and people criticized the the FED for basically

keeping their foot on the gas with QE for much longer than they should have but what they were looking at back then was the labor market uh and so they look at this really closely the other thing is there were this was last week as well but the ECB so the European Central Bank and the Bank of Canada both cut and the ECB Bank Canada first off Canada baby hold it down hold it down down but the ECB one was funny because at the same time they cut they also raised their inflation expectations which was a pretty interesting data point to look at um well they just don't have as much immigration as the US does I'm GNA yeah here I'll show you guys this chart um again I don't want to make this people

get very political over this issue but this this was a this was a chart that went live in the financial times SE which was pretty interesting I mean interesting yeah so yeah that's I mean so so just to describe what this is uh this is the total number of people in the United States who are native born versus foreign born MH and I can't exactly so you got January 15th January uh 20 and then I guess the end would be like January 24 maybe something like that basically in the last last year or two it looks

like basically since January 21 it looks like it's the the foreign born has just been on a straight line up uh but in the last year it looks like the native born has been actually declining a lot from so yeah a couple million yeah and basically you know we don't need to get too too deep into this but yeah I mean that's I think that's you know I've uh I think that's kind of the the difference here um and also there's there's a lot of we could go deep into like where jobs are being created are they full-time or part-time it's not full-time jobs it's part-time jobs and so yeah there's this funny

discrepancy in between what the official statistics say and how people generally feel when you pull them like there was a great there was a poll that I think came out in the guardian it's like 50% of people in the US believe they're in a recession you something like 50% of people believe that the S&P is down on the year I there's just such a huge discrep no no no the craziest one was unemployment is at a 50-year high yeah that's nuts because even though I grievance that might be more accurate that like that might be a more accurate perception that like I feel like most people just don't know about the stock market but like if if you surveyed people and you're like how the econ how's the economy going I feel like people are you know mixed bag at best it just like the the people who are saying

that this is the strongest economy we've ever had like I feel like that's almost borderline like gaslighting and you know like people really hate like when you're like hey the economy is doing great are you doing great people like no like what what are you talking about I feel like that is one of the core problems with the Democratic messaging right now like I feel like if they just capitulated and they were like the economy is and we're the only people who can fix it it'd just do a lot better than saying the economy is so great don't you know that yeah but we're t- minus three and a half months from elections there's no Chang there's no changing tone at this point we've crossed the Rubicon that's my other favorite thing people have been like oh

the election's like seven months away oh the election's six months away oh the election's only four it's like the election is like very soon and early voting starts in September so we we'll see who wins but it's just not looking good for the for the Dems at the moment my my favorite was the letter that uh Elizabeth Warren and and some other person sent to the F that's a that's a base letter Jerome pal you need to drop rates are the also also be a political you're not a political institution hey everyone this episode is brought to you by namada the shielded asset Hub protecting the future of the multi chain the m is a chain that's near and dear to my heart because in previous seasons of B curve we've talked about

how the Cardinal original sin of most blockchains is not thinking about privacy from the beginning but also because if we want to onboard a whole bunch of applications it doesn't work in a default transparency setting so NADA not only brings about a better future that we all want but is going to help on board a ton of new applications so Nana introduces a novel shielding reward system the way that it works is if you hold your assets in the shielded set you help strengthen nada's data protection guarantees and collect nonrewards in return NADA will initially support IBC and ethereum based assets but eventually the idea is for this to expand into a comprehensive hub for all assets really really excited about what the folks over at NADA are doing I highly recommend that you go and check them out at n.net

you can follow their mainnet launch which is soon TM very exciting tell them that I sent you click the link bottom of the show notes it's worth highlighting that um so rates rates during the 2017 2018 cut I think we're at like three at their Peak and then the uh the repo Market debacle kind of forced them to Pivot and cut um and then before that I mean I guess like in the early 2000s rates were like close to where we are today but like probably 100 basis points lower um but this is the it like maybe retrospectively this is the largest rate cutting cycle that we will ever live through is my view like it it depends on where you think it's going like if rstar is I mean

so that that's kind of the point of what the rstar is they raise their expectations of where they think rates will end up terminally you know the terminal value where will ASM toote towards and now that's 2.8% that's still 325 of of rate Cuts Like that's a that's more than 2017 that's more than covid um like the the price of money is going to go down which yeah that that still means like if if it's at 2 27 28 I mean that still means that a 30-year mortgage is going to be in the fours fives yeah I mean mortgages are what seven or 8% today that's like unfathomable for most people dude I was

talking to my parents about this and it's funny like their perspective was because they just bought they just bought a place and I was asking them about their mortgage and they meant when they bought their first house their the mortgage that they had was 12 and a half percent and they were ecstatic about that they thought that was extremely low when they got their first mortgage which is that's some perspective for you that's uh that's that's the other rate cutting cycle that's happened in the past 100 years that's like maybe remotely comparable is you had that big inflationary episode in the 70s and then they cut rates and you you you look at what the assets that did best in the 70s were it was gold it was real estate and then like stocks weren't kind of as much

of a thing back then but you had the the nifty50 which then sarily got you know executed over time but I don't know this is kind of what you play for as someone who invests in assets for living like it's not about where rates end up in my mind it's about the rate of change and people's expectations of where they might end up especially at the start of the rate cutting cycle because like you know that if Trump gets elected like people are going to be like we're taking rates back to the zero bound and I'm sure they'll come up with some like exp poost facto rstar rationalization of why that's appropriate but I think Trump's tone and even if Biden wins too they're they're both going to have some big economic rescue

package is my sense like you had you know uh the American Recovery Act with Obama you had the Trump jobs uh act you had the inflation reduction act for Biden you had like literally like you're just going to keep spending and then probably with Trump you get the lower taxes as well so it's going to be just a very stimulative environment um but that's kind of what you want yeah there was also it's funny to go back in time and read there was a this is where the magazine cover indicator uh there there were a couple articles back in like the 80s when the when interest rates were above 18% they used to call Bond certificates of confiscation because basically all the trends that we've benefited from in the

last 40 Years of like rates going down for them it was the opposite it was like rates are only going to continue to go up and if you bought bonds when rates were at 10% you're like oh this is great but then you know interest rates went up another eight and a half percent and you just kept losing money on your bonds and so people called it certificates of confiscation because it was like you're B basically catching the falling knife on bonds and then they just turned around for the last 40 years and they've just gone All in One Direction uh you could have bought in in the 80 in the early 80s you could have bought a 30-year bond that was paying out 15% a year for 30 years that's nuts yeah I think a lot of people made a lot of money doing that and that's why the

Boomers just love Bots well and then on the flip side like one of our good friends actually one of the guys that introduced me and Vance originally um bought a house uh in the middle I think it was 21 maybe 2020 uh he his interest rate is 205 yeah cooked the man cooked cooked dude um look I mean it's a good setup I think is the the long and short of it rates are no longer going up dude I was thinking about this last remember when they were just bricking us with like 75 basis point hikes like four times in a row and you just show up to watch the

CPI and fomc meetings and it would just be visceral pain and Jerome did not give a about like you know like there was one meeting where he was like we're gonna collapse the stock market so that that was the Jackson hall meeting in August I so I guess I guess that you know that could that so Jackson Hole meeting is usually when you know it's like all the central Bankers of the world get together and you know talk about whatever they talk about and uh it's usually like the turning point if there's going to be one in the year I could see that one being the Turning Point not this year not this year like I'll take the other side of that it's too close to an election and and historically every four years okay I mean the expectation is

that if they're going to do one cut it'll be in the December meeting we're not going to touch any everything's basically flat until the election happens we shall see there's actually a chart where someone compiled the data of do rate hikes do do does the FED make changes to monetary policy uh in the months preceding an election you can actually go back and see and there's this kind of thing where they try to stay out of it and be apolitical but in the majority of months leading up to elections they actually do make they do either hike or cut or whatever um but but but all of those are due to reasons that you know you absolutely had to like for instance in 2020 you had to because we were entering into a pandemic like yeah I I I think a lot of it is you know

exogenous effects um and yeah we'll see but I think I don't I think what we're probably going to see is we're going to see cooling inflation inflation expectations will continue to drop uh you'll start to see leading it like the PPI uh it was PPI today or PMI anyways what whatever was today is usually um an early indication because it's an in it it's an input into how you get to goods and services that factor into pce and and CPI and so we're starting to see a lot of the positive stuff that you would expect from an inflation coming down perspective um and and I think you're going to see you know the the the data massaging of all of the different uh

jobs reports and unemployment reports like that's going to get extra massaged in the months leading up to the election uh and and of course it'll get revised but it'll get revised after November but I I think you're not going to see any of the really scary stuff unless something truly breaks I think you're going to see the economy kind of limp along from a data perspective over the next couple of months and there won't be a catalyst there won't be a reason or an exogenous reason for for major change you guys want to talk a little bit about um the there was I thought there was a really interesting story this week that got some attention but not quite as much as I thought it deserved which was the salana foundation UND delegating to a couple of validators that were sandwiching users so the uh

the context here is that the salana foundation so salana in general is a delegated proof of stake chain as opposed to ethereum being proof of stake and so in any sort of proof of stake system what you're trying to avoid is massive centralization of stake like you don't want one single operator entity running like 10 20 30% of stake because then they can actually censor transactions and so in ethereum the way that that works is that you actually have staking pool uh staking pool operators like Lio um some people think that that's a vector of centralization in the network but also Lio essentially gets to create criteria to make sure that different operators like stake is uh decentralized across different operators in different geographies out

of different data centers Etc so actually I've always kind of looked at Lio as like a forcing function for decentralization otherwise like in a lot of delegated proof of stake chains the validator set tends to be super topheavy so salana is delegated which is what you see in a lot of Cosmos chains in salana it's delegated proof of stake and this is just me guessing but I think a while ago the salana foundation re realized that they didn't want a super topheavy um validator set and so they have this delegation program where obviously the foundation has a bunch of stake and so they delegate that out to validators on the network and also to be fair a criticism of Sal is that it's much harder for your average like solo Staker to be profitable based on how voting

transactions work on salana so this week they the salon Foundation undelegated to a couple of validators that were in their Network that were sandwiching users and you know we've talked about this before jto ended their mempool solution because they were concerned about the sandwiching that was going on and so there was some push back to the salana foundation which is like hey um first of all no one's no one's anti no one's Pro sandwiching here but the fact that you can even influence this uh right like stake based on uh some sort of philosophy is is not great right um and then on the other side you had people like tole and mert coming out and saying like are you guys Pro sandwiching like of course we should be um you know of course we should not be supporting

this I'm Pro sandwiches so uh the last thing I'll say as well and some of the scale for how the the foundation delegation program actually works is that um they the what they do is they match up to 200k so of what other people delegate to you already and then once you get over a million delegated to you they withdraw so it's it's not like they're just because I saw some takes out there that was like Salon Foundation is King King being a Kingpin for their validator set that's not what H that's what's happening they're supporting smaller ones and then they kind of uh withdraw once you get big enough but what do you guys think about this direction and the emergence of alignment on uh me alignment on the Sal chain like what

chain near you the alignment debate alignment no only eth has to deal with these things guess what no these problems are all blockchains I mean the thing that helps salana is like if you roll back the clock to the things that were um controversial at the eth foundation it was like what are we going to do with staking what are we going to do with Mev and the distribution of stake and like the decentralization of the network meant that when users were getting the sandwiched out of them it like there was no cordination mechanism to stop it but there was Flash Bots to basically like give these people weapons to increasingly sandwich folks on eel1 but with jto because it's so integrated

because it's all those things and because they're so aligned with the Sala Foundation like you know they can kind of get with each other and just be like look like we gotta we got to turn off the sandwiching we got to turn off the me poool solution we got to you know UND delegate from certain validators but you know there's still probably going to be private order flow discussions between validators and people that are trying to sandwich users and this will be kind of a wack-a-mole solution uh but I do think like if you have goo continue to grow at stake which it is and today which I saw this stat today it's jto is generating as much fee revenue is salana itself um you're going to have the ability to you know probably shut sandwiching down to a certain extent um or at least figure out a model

that you can opt everyone into um but I do think it just highlights the power of jto frankly in in the Network's future especially with this at proof of stake um and stake weighted uh Paradigm it's uh it's it's very interesting I I think that I've all I've ethereum is just furthest along in a lot of these challenges that l1s are going to have to face D like always it's like it's like these people always are like not these people it's just like everyone shits on eth for the problems that they will encounter in the near future it only if they're successful enough only if they're successful enough right here's a uh here's a CH difference

that I see in the salana emerging salana alignment versus eth alignment what got prioritized in me I'd be curious to get your guys take on this I do think that the first class citizens that eth tends to prioritize is solo stakers um and that's like a really sacred decision of keeping hardware and bandwidth requirement that's why a bunch of the early propositions of like like solutions to Mev like Mev boost you know when users were getting sandwich they didn't admitt the structure didn't exist back then but they redirected those profits to stakers and they were like all right at least this isn't just going to arbitrageurs like this is mostly going to proposers um salana is their Northstar it seems like is users um and and I think what if I was putting on my

uh Steelman for eth there was a long debate about this in the blockworks slack this week but uh the Steelman for eth is that you'd say by protecting solo stakers you are protecting users because the long-term value proposition of the network is censorship resistance solo stakers are how we get censorship resistance and so in the short you know by not prioritizing the solo stakers you're being shortterm kind of shortsighted I would say but it it seems like that's a Divergence in between like the approaches from salana and ethereum that I see in Mev what do you guys think about that yes no again it's like Mev is going to happen yeah um so I get wanting to turn it off in the near

term but over the long term you're going to have to compete with people figuring out alternative M Pools people doing private order flow like it doesn't really feel possible to say no Mev I just don't think that's possible definitely not and and also like you know if you if you read Kyle sani's uh tweets like he's acknowledged that Mev is the main form of fee value acrel for a blockchain so there's a little bit of like you know uh we like you know this is really important we should have it but also like we have to ban it like there's a little inconsistency there which is totally fine like I think you you figure these things out over time by changing your position and turning the dial each way but over the long long term it does feel like solo stakers um are and should be

the first class citizens of the network because really the thing that matters is the use of the asset as money I've I've uh we've talked about this Kyle's been on BCR episodes and Empire episodes as well talked about this and I go back and because I used to also I used to also think exactly the same thing I was like me is how these networks are going to monetize it's you know instead of charging an upfront fee for compute resources or something like a gas fee or something like that you should just there's going to be a bunch of value that gets extracted on the back end through Mev and that should just be how these networks and applications monetize the challenge to that is that the incentives on that kind of suck because it's it's almost like you know what it's like is uh there's some there

are some businesses where the way that they generate revenue is kind of misaligned to the users of the product like insurance is a good example of this where the easiest way to juice your bottom line and insurance is to just pay out less like it's such a misalignment in incentives between the users of the product and uh how to generate profits and that's kind of what Mev is too it's well what one way of thinking about it really really simplistically is like are you generating direct revenue or are you generating indirect revenue and direct revenue is uh what we've seen so far is only users paying for cost so it would be the equivalent of every single time on a social media app like Twitter you want

to send a post you have to send a little bit of money just to pay for the AWS bill for the tweet that you then go and send out and obviously that's not the case uh but that that's kind of the equivalent of what we've seen so far within blockchains what what Mev really is is the Robin Hood example which is every single time you want to trade we're going to send that flow to Citadel and like they're going to make you know fractions of a penny off of it but if they do it with enough volume it built a business for them and for Robin Hood in the process it's value attractive but like do you really care the other equivalent would be you know if you're using a social media app and it's not uh it's it's not something that you actually pay for like Twitter but it's

something that you're using for free then indirect Revenue would be advertising for social media and and so like there are direct revenue and indirect Revenue use cases that we can point to web to but the one major difference is that there are very very few social applications where direct Revenue actually is something that's scalable when you're charging the end user and one of the unlocks that I think we will ultimately have within blockchains and and all of these things I think are actually like everybody's right it just depends on the application one one of the major unlocks that I think will happen is when we hit a point for the first time where you can scale and blockchain cost where the revenue

the direct revenue is actually paid for by the application producer itself and what I mean by this is you bring down the cost per transactions to be so high and you have fee uh payment basically uh uh I can't remember what the term is but uh pay masters and and you have pay masters who who pay the fees on behalf of the users that's going to be the unlock I think where you start to see kind of the tide shift back towards fee Revenue being something that's just as viable because it's so cheap it you know it's one 1,000th of a penny for every transaction that you want to put on if you have 10 million you know active users at the same time it's costing you a 100 bucks a thousand bucks a day but you're making more money than that in

your application itself and so of course you're going to pay the AWS Bills or the E ethereum bills on behalf of your users because you don't want to have to force people who don't have money in the wallet per se to to actually pay those fees so I I think of it as being Spectrum we just haven't really like unlocked the low cost yet where pay Master indirect indirect payment of direct revenue is still is a viable option yet but I think that that's coming I mean we're going to see blockchains get 10x cheaper every single year for the next three years yeah and at some point we'll hit that that inflection point I I've got a question for you guys on the so one of the differences between the way that Robin Hood and Citadel Securities is monetizing user flow is

that there are strict well understood regulations about not uh front running and things like that and it I think this is changing pretty rapidly in real time but those you just don't have those same kind of assurances when you're transacting in crypto you're probably a lot of the big entities like aren't doing stuff like that but there aren't really any rules around there and like we talked about this uh I still love that analogy evance of object permanence like people doing illegal and then not getting caught in the first day and thinking that they got away with it they're I would be curious to see and I think especially with the eth ETF the SEC and different regulatory bodies are going to start digging into the MV supply chain like they probably already have uh clearly there's a pretty

sophisticated understanding of it already and sometimes when we think about building these these blockchain systems we do it almost not assuming any body of law or jurisdiction and we try to make it all cryptographically sound and all that stuff like not needing laws to enforce it but we also also do live in a society that has laws like the the existing laws of the Us and other big regulatory jurisdictions are going to have an impact on these systems like even if you can do something technically in the code it can still be an illegal thing and so I just don't think people have talked enough about the intersection of just existing laws and regulations around this stuff in me I mean does it does it feel right to have Citadel buy the order flow and have that

be something that subsidizes zero Commission on like it's kind of Fringe In My how are they making their money you know like free how but this is this is my point it's like okay if you're not paying for the product you are the product right and and so I I think you know we haven't gotten to the point of Regulation we haven't got to the point of rules uh you know Citadel at some point I'm sure had some really expensive lvus Define that they could buy the order flow and have that be illegal like payment for order flow is is completely legal there's no question about that it just does it does it feel right and so I I I think the indirect stuff is going to be a little bit more kind of Fringe nefarious until there's Clarity

and and you kind of have to trust and like yeah they're not front running hopefully wait are they the pay the payment for order flow stuff I've noticed this thing that Finance so Finance is complicated and sometimes or ordinary people will get a hold of something like payment for orderflow and say this doesn't feel right you're front running us and finance people say no no no technically we're not front running you and they'll be like you dumb civilian you just don't understand but they are front running you just in a more complicated way so technically they're right you know yeah they're they're not directly front running you but you're getting screwed somehow you just you just don't really understand it so but also like you know you want to buy a coin that's your prerogative and I would rather have your ability to buy a

coin be unencumbered than enforce some rule where we have to Route order flow through a market maker that can turn off at some point and you know like this is the this is the whole GameStop thing where they turned off the the buy button they did that's so up I would much rather be front run or have slippage than than have some sort of no you know liveness uh situation and that that's kind of gets back to like why the decentralization actually matters you need to preserve the ability to have that versus like if you're dictating who can sandwich and who can you know do this this that and the other thing like sure you might align yourself shortterm but long term you're building something that looks a

lot like the existing Financial system I think one of the challenges that l1s have is that they don't have a stick like governments have what governments are trying to be governments often step in into places where there's no like the free market is incapable of solving some things like mortgages are a good example of an area that the the buyers and sellers don't necessarily line up but the government says like it's a it's a good for people to be able to own homes and like they came in and they basically back stopped the entire mortgage market and there are other areas like this right where like this is why we have like an FDA and stuff like this I know there are probably some anarchists listening to this saying the government shouldn't be involved in any of that like no I think there are some

areas where government has to be involved and they the the way the government effectively uh mediates these sort of neutral Solutions is with like fines and jail time and stuff and one of these things that is just jail you're going to block minutes but that's the tough thing I have so much uh empathy for the ethereum foundation which everyone just casts as being this like shadowy Illuminati in charge of the chain it's like they're just trying to do a lot of stuff that the free market doesn't solve like they're funding client teams like they're trying to they're trying to Sol like you know push me in a good direction I but it's tough if you don't

have any stick all they've got is Carrot I just got the funniest mental image of you know when you lock out of your iPhone and it's like you're stuck and you can't get a password right and or password right and it's like goes two five 10 30 minutes an hour it's like the more times you do nefarious your account gets blocked yeah that would be funny the the thing though is like I I wonder I mean okay blockchains are are very in the world of like governments versus blockchains blockchains don't have to deal with like 99% of the that that governments do right and so you you do have the ability to have you know the simplistic homogeneity of situations be

something that doesn't necessarily require a stick I would say also I think there is you don't necessarily need to stick in this instance because I I think blockchains are self uh regulating at a rate that is so much faster than uh than governments um that you can have an up like okay so you know the ethereum foundation a steward of the ethereum community and ethereum protocol they can make changes and it's not going to happen in uh you know a week or a day or something like that but it'll happen it'll go into the next hard Fork which is maybe a year away and those are massive changes to to the ethereum protocol in the ethereum

ecosystem uh and so I think if you start to see something really bad happening it's self in you know in that respect which um you know it's not a stick per se but it is it is a a better car yeah and I think you're right that it's a good point that blockchains don't have to deal with the vast vast majority of the stuff that governments have to deal with like let's put FDA on Shain see how it works Let's uh let's talk about eth for a second this this tweet from sassel if you want to throw it up on the screen I mean I I think the basic description of this is this is a graph of the J curve working yeah I mean EIP 4844 obviously reduced fees for eth

and the aggregate you know deflationary status uh has faded a little bit since it's inclusion but um it feels like the main thing that's powering this I I mean main thing the market is kind of fading or nervous about is like is this eth L2 road map going to work and I think the eth L2 road map is like somewhat like the OG Cosmos vision of you have a feed generating L1 and then you scale you know the network effects around uh you know the base asset which is eth in this case uh to the l2s and then the l2s you know are them themselves generating fees you like Bas is an example of this and then they pass them back to the L1 once they net settle their transactions and this is working um and I think

you're going to see a lot more corporate l2s and this is kind of like the thing where it's like even if you made a blockchain fast and free you know would that be the optimal model and I think there is like this profit incentive that's missing for like you know could base build uh you know on salana and have the same sort of Revenue generate like no you can't have that so you kind of need to build towards this L2 road map and people have been fading this is probably not viable but this is the start of what I think is going to be the Resurgence of okay the L2 road map works and once people clue into that like I think this is like my my personal thinking on like how eth flips Bitcoin is that people start to realize this you

have a lot more corporate chains you have a lot more use of eth in these Bridges and eth is money and it's just good to see that this is this is trending up you know more more of the same I think in the future I have um so I I agree I think that I I basically think the tldrs that there's been a ton of eud recently and I think that'll all change once the ETF live and the price starts moving but I think that uh the the only thing that I find tricky about the current eth L2 road map is the amount of l2s that exist and the interop in between those and I would be an advocate of one the EF prioritizing something something around INR like this is I think one of those

things where the AF or ethereum is gonna have to have a more opinionated uh interpretation of what interrup should look like on these chains and I kind of think that the approach that eth has gone down is like the free market of competing of different so like I think the most viable future for the eth L2 scaling road map is like maybe three or four Frameworks like optimism arbitrum whatever and they're just interoperable with one another with some sort of enshrined bridge or something like that it feels like we're going to do the competition thing on the bridging and and uh like there's like you know ccip there's socket there's across there's other message passes message passes messaging and like you saw a italic

tweet he's like you know today's fud or tomorrow or yesterday's fud is today's solved problem like he is uh feels like very clued in to the Twitter discussion which is good and I mean maybe once we study what is exactly in the next hard Fork um I've just seen that there's a ton of stuff in it that will directly impact uiux and this is kind of what eth does they just ship and they're not oftentimes the first mover on a lot of stuff like proof of stake originally was Cosmos um you know but they kind of they they perfect it um and so looking forward to seeing more of that it's the it's the Apple approach to Innovation this is what literally what I was just thinking it's like we're going to wait for all the tech to play out and

then we're going to build a product with it looks like they're running that Playbook back on I don't know if you saw that there was there was the Apple intelligence which is their integration with chat gbt I think it's pretty smart I I don't think they could come out so Apple not to uh you know go to I I think we're good on eth like that was the main thing I want to talk about last thing last thing on eth is uh there there was a tweet I saw this morning uh where Ganser made comments that the s1's should go live sometime this summer oh yeah I saw that yep so would that mean it starts trading this summer yes got it awesome we love it that's goingon to line up pretty interestingly around the election potentially the beginning of rate Cuts or the market starting to

price rate Cuts in e ETF that could be pretty nice pretty nice nice it's going to be a busy end of summer and fall yeah I mean may maybe Gensler is just you know he's timing it for that when everybody comes back late August early sept and it's it's on that those are always the most heady times of every year it feels like it like starts in September August and kind of like October and like takes a little breather and then it like accelerates through November and December so hopefully it'll be a good Christmas this year presents for all the nice little boys and girls well on the theme of the election there was so Trump was tweeting out in truth

social this week yeah which was talk about this this is pretty wild man I gotta I mean he keeps doing these things which are yeah there it would be extremely bullish if a lot of these promises ended up getting followed through on but you know this is the this is the exact quote from the Tweet vote for Trump Bitcoin mining may be our last line of defense against the cbdc Biden's hatred of Bitcoin only helps China Russia and the radical communist left we all want the remaining Bitcoin to be made in the USA it will help us be energy dominant I mean I love what he radical left it's like so funny yeah and I mean this is just pretty wild that a US Presidential I mean ex-president but also you know the

GOP candidate is saying this kind of stuff I mean this is just such a radical departure from what we've had B basically the entirety of Bitcoins and crypto's existence dude we used to get bowled up over Enterprise ethereum Alliance announcement because Nissan Nissan joining blockchain and Transportation Alliance baby oh yeah we're g we're gonna tag the out of these strawberries and ship them somewhere and we'll have perfect TR on where they go because it's on chain right no I mean like I I just I think that the market is not pricing in how how bullish the set for crypto is like the guy who's probably going to be the next president is tweeting out we need to keep all the Bitcoins in the country

what are we what what are we talking about like what like it's yeah I mean one thing I was talking about with Michael is so the S&P is at you know record highs crypto is like just below its all-time high how do you think about that how do you think about the majors versus the alts in crypto itself and I think you know each cycle you need the stock market to run super hard for things to get so expensive that people look at crypto and they're like hm there's some Bargains there you know you need you need to have stuff going on in crypto you need to have that belief but like feels like we're building to get there and so like I think once the S&P hits like 55 6,000 like it's going to be crypto's time and then because

natives own less and less of the majors each cycle which makes sense like they sell them to trafi they sell them to you know new people like the wealth effects you need in crypto to generate a real alt season like you need the majors to run just like the the S&P needs to run before crypto gets attention you need the majors to run before the alts get attention and so I just it just feels like we're basically replaying um the prior cycle when cycl just like get aggregate higher price levels it's you know it's a good setup so here's a TW I saw this from CIA over at Alliance but that tweet the tweet that he said it's idle thought Trump getting eled is probably bullish for alss relative to BTC reasoning Trump has an act for unleashing animal spirits

and risk markets BTC is basically the only crypto asset that unaffected by current regulatory oppressive regime and you know to your point Vance I think that every time the rationale is different every single time it's there's a different thing that's driving it and why it's never going to happen again but this I think the headline story of this cycle so far is exactly like the last Cycles there's just different rationale and all that stuff like it's just playing out extremely similarly the last time the other angle I put on this is um and I'm not sure exactly how I I think it's actually not the presidential race itself but more what's going to happen in the Senate um but there's probably a lot more bullish perspective if you see

the Senate flip to the Republicans just based off of you know some of the things that we're hearing about conversations around fit 21 and that there actually are constructive conversations going on in the background you know in fit21 you bipartisan support in the house would provide uh a framework for how basically like all you know long taale assets entrepreneurship in the web 3 space can happen in the United States broadly it's it's a it's a seminal piece of legislation and it it still needs work for sure but it it's definitely getting directionally where we want it to go the likelihood of that passing in in a very constructive manner goes way up if you see a Republican

Senate I agree with you yeah it's you know it's tough to Pro like politics are just not my I'm no good at predicting this stuff but yeah it just does seem like people are you know to maybe to end with where we started I think there is a people are really unhappy with the incumbents and there's this effect of who you're going to believe me or your line eyes you know where we're just getting told that everything is great and uh I think people just can their lived experien is not matching up with what they're being told and you know whenever that happened and also historically inflationary regimes are horrible for incumbents like inflation just turns over incumbent parties like nothing else like people hate it it sucks so yeah I mean if you're sitting at home and you're wondering what data

to look at you should just go on Real Clear Politics and and look at this stuff um and one is the like a few general rules of thumb generally you need Biden to be up two to three points in the popular vote to win the battle grounds and you know he's down in the popular vote right now you should look at the Battleground States specifically Pennsylvania Michigan and Wisconsin and then the last thing is looking at approval ratings there's no president that's ever been reelected with an approval rating below 39% Biden's at 37 38 depending on which which site you use so you know it's not uh it's not you know one-sided in the bag to any extent there's a lot of things that can change but usually what you see is that the

things that solidify June in terms of polling and approval rating are are pretty concrete throughout the rest of the the cycle so so here's a question we're exactly two weeks out today's June 13th we're two weeks out from the first presidential debate poly Market has the odds of Biden dropping at at 25% way too high what are your takes way too I don't there's no way he drops out at this point I don't think that just wouldn't be enough time to you who are you going to put in there I guess you could put in Gavin Newsome I'm beish on Gavin I mean the ray is close enough where you know if he Biden does well in the debates things could shift like he's not getting blown out by like 20 points in these Battleground States I I just

think the likelihood of him dropping out is very very low I mean he's getting he's getting blown out 20 points in who's going to be president on poly Market he is but I'm not sure he's following those odds the poly Market betters you know I wouldn't I wouldn't call them like political Geniuses so like you probably have some overestimation there um but you know like there was a funny 538 model that got put out uh this week which reminded me of that David Beckham Victoria Beckham meme he's like I grew up middle class and he's like just be honest like you know what what car did you drive to school and she's like it was a Bentley and and so like 538 put out this

model of uh you know they have like fundamental waiting the economy the employment rate the and then they have like the the polls and you know they they put up publish this model this week there's like there's a 53 out of 100 chance uh that that Biden wins Which is far lower than the economist which is which has Biden at you know 33% chance um and then they did this podcast where this guy was like okay well like you know say say you took the fundamentals out of the model which I I don't think fundamentals have any business in a like political polling model he's like well like we can't really take them out blah he's like okay just like pretend you took them out and ran it what would it be he's just like it'd be 80% Trump like come

on so yeah that's ridiculous you know I think even the pros are pretty bearish on Biden's odds at the moment even the ones that are like very very liberal which is like a a pretty incredible tell yeah um well fellas I know we got to wind down a little early this week I do want to one thing that I'm looking forward to maybe just give a little plug uh it seems like we might now be doing a live panel live belel panel at I was going to say let's do it yeah as streams by the way huh say again we should do some of these as streams we should you know remember in the beginning we had this this vision of like a Friday afternoon like with beers

type type of thing I've noticed some of our analysts going in that direction that would be fun like the ZX research I got a I got a a long mage being like it needs to be more casual and the next uh and the next thing I saw in zerox research it was like we're doing like beers and like beers and something like they're live streaming on uh it's like that sounds really fun actually so maybe we could do that with bell curve but you know what else you know what else was fun at Das shout out to everyone that came to our Meetup at Das but great we gotta connect with the bell curve Nation um so we'll set something up for I was going to say we're definitely doing that in Salt Lake um yeah Kam October but the the live on stage pod definitely going

to happen in October live on stage pod it's going to be blast hell yeah um all right everyone so hopefully we'll see you all out there and uh yeah guys another fun one we'll see you boys next week later later hey everyone hope you all enjoyed today's episode wanted to give a final shout out to namada again a team that is near and dear to my heart they are building the shielded asset Hub which is protecting the future multichain talked a little bit about how that works in the mid roll but for now what I would highly recommend that you do is go check them out they're in their mainnet launch phase you can follow along with everything at n.net you can start rewarding Yourself by shielding your actions and strengthening data privacy for all across the multichain so thanks again toada for all the great

work you're doing